2002
================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                   FORM 10-Q/A

                                   (Mark One)

|X|    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2002

                                       OR

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

        For the transition period from ____________ to _________________

                           Commission File No. 0-21015

                      CELL TECH INTERNATIONAL INCORPORATED
             (Exact Name of Registrant as Specified in its Charter)

           Delaware                                           22-3345046
(State or other Jurisdiction of                            (I.R.S. Employer
Incorporation or Organization)                            Identification No.)

          565 Century Court
        KLAMATH FALLS, OREGON                                    97601
(Address of Principal Executive Offices)                       (Zip Code)

       Registrant's Telephone Number, including Area Code: (541) 882-5406

     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 (or for such shorter period that
       the registrant was required to file such reports), and (2) has been
    subject to such filing requirements for the past 90 days. Yes |X| No |_|.

  As of August 15, 2002, the number of shares outstanding of the registrant's
     sole class of common stock, par value $0.01 per share was 10,640,895.
<PAGE>

                                TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION ............................................    1

   ITEM 1. FINANCIAL STATEMENTS ...........................................    1
      CONSOLIDATED BALANCE SHEETS .........................................    1
      CONSOLIDATED STATEMENTS OF INCOME (LOSS) ............................    2
      CONSOLIDATED STATEMENTS OF CASH FLOWS ...............................    3
      Notes to Consolidated Financial Statements ..........................    4
      Overview ............................................................   10
      Results of Operations ...............................................   11
      Three months ended June 30, 2002 compared with the three
      months ended June 30, 2001 ..........................................   11
      Six months ended June 30, 2002 compared with the six months
      ended June 30, 2001 .................................................   13
      Liquidity and Capital Resources .....................................   14
      Cash Flows ..........................................................   15
      Recent Accounting Pronouncements ....................................   15
      Special Note Regarding Forward-Looking Statements ...................   16
   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .....   17

PART II - OTHER INFORMATION ...............................................   18

   ITEM 1. LEGAL PROCEEDINGS ..............................................   18
   ITEM 2. CHANGES IN SECURITIES ..........................................   18
   ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................   18
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............   18
   ITEM 5. OTHER INFORMATION ..............................................   18
   ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...............................   18
   SIGNATURES .............................................................   19


                                       ii
<PAGE>

                      CELL TECH INTERNATIONAL INCORPORATED
                                AND SUBSIDIARIES

                         Part I - Financial Information

Item 1. Financial Statements
--------------------------------------------------------------------------------
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            June 30,      December 31,
                                                                              2002            2001
                                                                           -----------    -----------
Assets                                                                     (Unaudited)
<S>                                                                        <C>             <C>
Current assets
   Receivables                                                             $   276,506     $   327,083
   Inventories, current portion                                              2,000,000       2,000,000
   Prepaid expenses                                                            258,959         460,860
                                                                           -----------     -----------
Total current assets                                                         2,535,465       2,787,943
                                                                           -----------     -----------
Long-term inventories, net of current portion                                6,673,623       7,304,778
Property and equipment, net of accumulated depreciation                      7,078,221       7,318,683
Property and equipment held for sale, net                                    2,256,893       2,271,305
Other assets                                                                   320,565         292,092
                                                                           -----------     -----------
Total assets                                                               $18,864,767     $19,974,801
                                                                           ===========     ===========

Liabilities and Shareholders' Equity

Current liabilities
   Bank overdraft                                                          $   195,732     $   763,105
   Accounts payable                                                          2,159,956       2,527,078
   Commissions payable                                                       1,125,809       1,219,136
   Sales taxes payable                                                          69,774          82,343
   Accrued payroll and related liabilities                                     238,544         252,944
   Other accrued expenses                                                    1,235,998       1,133,438
   Current portion of long-term debt                                         2,015,675       2,160,986
   Related party payable                                                       912,046       1,086,099
                                                                           -----------     -----------
Total liabilities                                                            7,953,534       9,225,129
                                                                           -----------     -----------

Commitments and contingencies

Shareholders' equity
   Series A convertible preferred stock - no par value; 4,175,000
     shares authorized; none issued and outstanding in 2002 and 2001                --              --
   Series B convertible preferred stock - no par value; 800,000 shares
     authorized; none issued and outstanding in 2002 and 2001                       --              --
   Undesignated preferred stock - no par value; 1,825,000 shares
     authorized; none issued and outstanding in 2002 and 2001                       --              --
   Common stock - $.01 par value; in 2002 and 2001, 50,000,000
     shares authorized, 10,640,895 and 10,640,895 shares issued and
     outstanding                                                               106,409         106,409
   Additional paid-in capital                                                2,299,696       2,299,696
   Retained earnings                                                         8,505,127       8,343,567
                                                                           -----------     -----------
Total shareholders' equity                                                  10,911,233      10,749,672
                                                                           -----------     -----------
Total liabilities and shareholders' equity                                 $18,864,767     $19,974,801
                                                                           ===========     ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       1
<PAGE>

                      CELL TECH INTERNATIONAL INCORPORATED
                                AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)

<TABLE>
<CAPTION>
                                          For the Six Months Ended          For the Three Months Ended
                                                  June 30,                           June 30,
                                           2002              2001              2002              2001
                                       ============      ============      ============      ============
                                       (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)
<S>                                    <C>               <C>               <C>               <C>
Revenue                                $ 13,860,819      $ 15,665,312      $  6,755,115      $  7,603,248

Cost of sales                             3,876,212         5,024,949         1,910,217         2,446,618
                                       ------------      ------------      ------------      ------------

Gross profit                              9,984,607        10,640,363         4,844,898         5,156,630

Commissions                               6,507,336         7,682,042         3,116,524         3,728,253
                                       ------------      ------------      ------------      ------------

Gross profit after commissions            3,477,271         2,958,321         1,728,374         1,428,377

Selling expenses                          1,814,415         2,095,583           926,723           968,813

General and administrative                  602,884         1,453,293           347,834           651,615

Shipping and handling expenses              833,552           943,811           404,686           476,423

Research and development                     82,143           108,065            46,263            38,482
                                       ------------      ------------      ------------      ------------

Operating income (loss)                     144,277        (1,642,431)            2,867          (706,956)

Other income                                113,018           196,999            98,209           130,699

Interest expense                            (95,735)         (351,425)          (48,589)         (172,337)
                                       ------------      ------------      ------------      ------------

Net income (loss)                      $    161,560      $ (1,796,857)     $     52,487      $   (748,594)

Basic and diluted income (loss)
   per share                           $       0.01      $      (0.16)     $       0.01      $      (0.07)

Weighted average number of
   common shares outstanding
   used to calculate basic and
   diluted income (loss) per share       12,467,534        10,640,895        12,467,534        10,640,895
=========================================================================================================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       2
<PAGE>

                      CELL TECH INTERNATIONAL INCORPORATED
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                             For the Six Months Ended
                                                                     June 30,
                                                           ----------------------------
                                                               2002             2001
                                                           -----------      -----------
<S>                                                        <C>              <C>
Cash flows from operating activities
   Net income (loss)                                       $   161,560      $(1,796,857)
   Adjustments to reconcile net income (loss) to cash
     Provided by operating activities:
     Depreciation and amortization                             580,277        1,434,820
     Loss (gain) on sale of fixed assets                         3,381          (13,712)
     Changes in assets and liabilities:
       Receivables                                              50,577          181,280
       Inventories                                             631,155          871,491
       Prepaid expenses                                        201,901          184,701
       Other assets                                            (28,473)           9,476
       Accounts payable                                       (367,122)         564,374
       Commissions payable                                     (93,327)        (370,229)
       Sales tax payable                                       (12,569)         (20,371)
       Accrued payroll and payroll related liabilities         (14,400)         (41,173)
       Other accrued expenses                                  102,560          (99,881)
                                                           -----------      -----------
Net cash provided by operating activities                    1,215,520          903,919
                                                           -----------      -----------
Cash flows from investing activities
   Purchase of property and equipment                         (162,417)        (204,714)
   Proceeds from sale of equipment                                 700           45,000
   Additions to construction in progress                      (167,066)              --
                                                           -----------      -----------
Net cash used for investing activities                        (328,783)        (159,714)
                                                           -----------      -----------
Cash flows from financing activities
   Bank overdraft                                             (567,373)        (316,237)
   Payments on long-term debt                                 (145,311)        (685,038)
   Net proceeds from (repayment of) related party debt        (174,053)         257,070
                                                           -----------      -----------
Net cash used for financing activities                        (886,737)        (744,205)
                                                           -----------      -----------

Net increase (decrease) in cash and cash equivalents                --               --

Cash and cash equivalents, beginning of year                        --               --
                                                           -----------      -----------
Cash and cash equivalents, end of year                     $        --      $        --
                                                           ===========      ===========

Supplemental disclosure of cash flow information
   Cash paid during the year for:
     Interest                                              $    79,075      $   333,562
                                                           ===========      ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

                   Notes to Consolidated Financial Statements

NOTE 1 -- SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Business

      Cell Tech International Incorporated ("Cell Tech") and The New Algae
Company ("NAC"), collectively the "Company," are engaged in the production and
marketing of food supplement products made with blue-green algae harvested from
Klamath Lake, Oregon. The Company uses a multi-level distributor network
throughout the United States and Canada to distribute its products.

Presentation of Interim Information

      The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
Company's management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair statement of the Company's financial information
as of and for the periods presented. The consolidated results of operations of
any interim period are not necessarily indicative of the consolidated results of
operations to be expected for the fiscal year. For further information, refer to
the consolidated financial statements and accompanying footnotes included in the
Company's annual report on Form 10-K for the year ended December 31, 2001.

Going Concern

      The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As previously
reported, the Company has suffered recurring losses from operations and has
negative working capital. In addition, the Company is not in compliance with
certain restrictive covenants of its $15 million Line of Credit Agreement with a
financial institution. These factors raise substantial doubt about the Company's
ability to continue as a going concern.

Basis of Consolidation

      The accompanying consolidated financial statements of the Company include
the accounts of Cell Tech and its subsidiary NAC. Intercompany transactions and
balances have been eliminated on consolidation.

Use of Estimates

      The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ
materially from those estimates.


                                       4
<PAGE>

NOTE 1 -- SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition

      The Company recognizes revenue from the sale of its products upon
shipment. The Company estimates an allowance for sales returns based on
historical experience with product returns.

Sales Incentives

      In November 2001, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendor's Products," which addresses the accounting for
consideration given by a vendor to a customer or a reseller of the vendor's
products. In April 2001, the EITF reached a consensus on EITF Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products," which provides guidance on the income statement
classification of consideration from a vendor to a reseller in connection with
the reseller's purchase of the vendor's products or to promote sales of the
vendor's products. The Company pays commissions to its distributors as
compensation for sales and marketing activities as evidenced by downline growth
and sales volume and thus classifies these expenses as a cost and not a
reduction of revenue. There was no effect on the consolidated financial
position, results of operations or cash flows as a result of implementation of
this pronouncement.

Goodwill and Other Intangible Assets

      Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142).
Under SFAS 142, Goodwill and indefinite life intangible assets are no longer
amortized but will be reviewed annually, or more frequently if impairment
indicators arise, for impairment. Other intangible assets with finite lives,
consisting of trademarks with a carrying value of $57,302 at January 1, 2002,
will continue to be amortized over their estimated useful lives of 10 years. As
of the date of the adoption of the new accounting standards, there was no
remaining goodwill to be amortized.

Impairment or Disposal of Long-Lived Assets

      On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144, which addresses financial accounting and reporting for
the impairment of long-lived assets and for long-lived assets to be disposed of,
supercedes SFAS No. 121. The adoption of SFAS No. 144 did not have an effect on
the financial position or results of operations.

Shipping and Handling Cost

      The Company adopted EITF 00-10, "Accounting for Shipping and Handling Fees
and Costs", since December 15, 2000. All shipping and handling costs for goods
shipped by the Company to customers are included in shipping and handling
expenses in the statements of income (loss). Shipping and handling costs of
goods shipped by the Company to customers for the six months ended June 30, 2002
and 2001 were $833,658 and $943,811, respectively.


                                       5
<PAGE>

NOTE 2 -- EARNINGS PER SHARE COMPUTATION

      The computations of the weighted-average common shares used in the
computation of basic and diluted net income (loss) per share is based on
12,467,534 and 10,640,895 shares for the three months ended June 30, 2002 and
2001, respectively. Potential dilutive securities were not included in the EPS
calculation since their effect would be antidilutive. Potential dilutive
securities consisted of outstanding stock options and common stock purchase
warrants.

NOTE 3 -- RECENT ACCOUnTING PRONOUNCEMENTS

      In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS No. 143"), "Accounting for Asset Retirement Obligations." SFAS
No. 143 establishes standards associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This statement is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company has not yet assessed the impact of this standard on its
financial statements, but does not expect the impact to be material.

      Statement of Financial Accounting Standards No. 145, "Rescission of SFAS
Statements No. 4, 44, and 64, Amendment of SFAS Statement No. 13, and Technical
Corrections" ("SFAS 145"), updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt." SFAS 145 amends SFAS No 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sales-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. The
provisions of SFAS 145 related to SFAS No. 4 and SFAS No. 13 are effective for
fiscal years beginning and transactions occurring after May 15, 2002,
respectively. It is anticipated that the financial impact of SFAS 145 will not
have a material effect on the Company.

      Statement of Financial Accounting Standards No. 146, Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS 146"), requires the Company to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS 146 replaces
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The provisions of SFAS
146 are to be applied prospectively to exit or disposal activities initiated
after December 31, 2002.

NOTE 4 -- CONTINGENCIES

Microcystis

      As a result of certain conditions, a toxic strain of algae called
Microcystis occasionally blooms in Klamath Lake and contaminates a portion of
the Company's harvest of blue-green algae. In 1994, the Company began to test
the algae harvested at its facility for possible contamination. The existence of
Microcystis has been regularly measured at various levels. In the absence of
established regulatory criteria for determining an acceptable level of
Microcystin (the actual toxin), the Company sponsored an assessment of risk and
set its own standards for determining whether a particular batch of algae is
acceptable for human consumption. Algae which does not meet the Company's
standards and cannot be used in alternative non-human consumable products is
isolated and not used in production.


                                       6
<PAGE>

NOTE 4 -- CONTINGENCIES (continued)

      On October 23, 1997, the Oregon Department of Agriculture issued an
Administrative Rule on the sale of blue-green algae, which stated that "the
agency has decided to adopt the 1 microgram per gram (1 ppm) level of
Microcystin in blue-green algae." This ruling may have an impact on the
Company's ability to process and distribute the raw algae harvested and finished
goods produced. Such ruling may also decrease the amount of salable inventory on
hand and may therefore have an adverse impact on the Company's ability to
realize the carrying value of its inventories. Management has recognized that an
impairment of its inventory may exist and therefore has recorded its best
estimate of the effect by establishing a reserve in the amount of $900,000 at
June 30, 2002 and December 31, 2001 for the possible effects of inventories
which may become unsaleable under this Rule. The Oregon Department of
Agriculture has raised no questions about the Company's products under this Rule
to date.

Litigation

      On March 27, 2002, the Nature Conservancy, a nonprofit corporation (the
"Plaintiff"), filed an action against us in the Circuit Court of the State of
Oregon, for the County of Klamath, alleging among other things, that our wholly
owned subsidiary The New Earth Company ("NEC") has failed to pay the annual
payment due on a non-interest bearing promissory note (the "Note") executed and
delivered to Plaintiff and that NEC's failure to make the payment constitutes a
default under certain provisions of the Note and a trust deed (the "Trust Deed")
to secure payment under the Note. The Plaintiff is seeking $375,000 in principal
due under the Note plus interest from the date of default in addition to certain
leasehold rights that the Trust Deed grants to it. The Plaintiff is also seeking
injunctive relief to recover rent payments from any sublessees. We have retained
legal counsel to represent us in this matter. The Company has previously
recorded the net present value of the Note, which has a balance of $313,790
included in current portion of long-term debt in the consolidated balance sheet
at June 30, 2002

      On January 28, 2002, the Company terminated its lease between NAC and
Klamath Cold Storage, Inc. ("KCS"), a corporation owned by two of its principal
shareholders, Daryl Kollman and Marta Carpenter (formerly Marta Kollman). On
February 19, 2002, Daryl Kollman filed two separate Notice of Claim of Lien upon
Chattels (the "Possessory Liens") against the Company and its wholly owned
subsidiary, NAC and/or NEC, in the County of Klamath, State of Oregon, claiming
a lien upon it and its wholly owned subsidiaries and alleging, among other
things, that the Company owes him and Marta Carpenter approximately $497,525 in
past due rent and that the Company owes KCS approximately $511,432 in past due
rent for its use of certain real property owned by him and Marta Carpenter, our
President and Chief Executive Officer, and KCS. Daryl Kollman asserts that the
Company is not entitled to remove any of its property from the premises and that
the properties will be subject to foreclosure proceedings. In June 2002, Daryl
Kollman filed a lawsuit in the Circuit Court for the State Oregon, County of
Klamath, to evict the Company from the facilities it occupies that are owned by
Daryl Kollman and Marta Carpenter and Klamath Cold Storage. Marta Carpenter is
seeking to stop the evictions and the Company is resisting Daryl Kollman's
attempt to evict it. The properties in question include the Company's facilities
for processing and storing its products. The Company believes it could not
easily obtain substitute facilities. If the Company is evicted from the
properties, it would have a material adverse impact on the Company's financial
condition and its ability to operate. The Company has retained legal counsel to
represent it in this matter.

      In October 2001, Teachers for Truth in Advertising filed an action in the
Superior Court for the County of Tulare, State of California, alleging among
other things, that the Company's advertising is untrue or misleading, that the
Company's business practices are unlawful and fraudulent and unfair and that the
website contains misleading information about the products and the benefits that
a consumer may


                                       7
<PAGE>

derive from their use. The plaintiff is seeking injunctive relief, corrective
advertising, and restitution to California consumers who purchased the products.
The parties have completed the discovery phase including depositions. The
plaintiff's motion for summary judgment was denied by the court. The matter is
scheduled to proceed to trial on September 30, 2002. The Company does not
believe that the plaintiff's complaint is meritorious and believes that the
matter will not have a material adverse effect on the Company's financial
condition or results of operations.

      In 1996, the Company entered into an agreement with one of its vendors to
deliver 600,000 wet pounds of algae per month for processing for a five-year
period. The minimum monthly volume level increased in September 1996 to
1,000,000 wet pounds of algae. On or about February 6, 1998, the vendor filed a
complaint against the Company. The complaint alleges that the Company wrongfully
terminated a contract requiring the Company to provide to the vendor not less
than a contractually agreed amount of raw product for processing every month, or
pay a penalty based on the shortfall until the contract was validly terminated.
In its amended complaint, the vendor is seeking $780,930 in damages as of
February 1998, plus additional damages that allegedly are continuing to accrue,
plus prejudgment interest and prevailing party attorney fees as provided by the
contract. The Company counter-claimed for breach of contract, alleging
liquidated damages due, overcharges, and failure to deliver product,
consequential damage for failure to utilize quality control methods required by
the contract, prejudgment interest and attorney fees. In the first quarter of
2002, a settlement agreement was negotiated in which the parties have agreed to
dismiss the lawsuit and counter-claim and to enter into a new agreement for the
processing of algae for a five-year period. The parties have also agreed that
the Company will pay $1,656,000 (included in accounts payable at June 30, 2002)
to the vendor; $1 million of which will be paid in cash and $656,000 will be in
the form of a promissory note payable to the vendor with interest at 10.5% per
annum. As of June 30, 2002, the Company has not signed the processing and
settlement agreements. The agreements are expected to be executed upon the
Company's receipt of financing. In the first quarter of 2002, the parties have
reached an interim arrangement whereby the Company will pay $0.15 per pound
processed by the vendor until a formal agreement is finalized.

Lien on Company Stock

      The Company stock owned by Daryl J. Kollman and Marta C. Carpenter, is the
subject of a tax lien filed by the Internal Revenue Service for income taxes due
from them.. The lien is subordinated in favor of the lender for the Receivable
Loans, Advances and Inventory Loans, Term Loans, and Equipment Acquisition
Loans.

Dispute Between Principal Shareholders

      In December 1999, Daryl Kollman and Marta Carpenter, shareholders who
together own approximately 82% of our outstanding shares of common stock, filed
divorce proceedings. Daryl Kollman and Marta Carpenter, and their affiliate
Klamath Cold Storage Co., are lessors of substantially all of our facilities,
including office space, processing and freezer storage space. Although one lease
is in effect until 2005, we lease the rest of these facilities on a
month-to-month or year-to-year basis.

      On January 29, 2002, the Court issued its written order after trial. The
Court ruled that Marta Carpenter and Daryl Kollman were each entitled to an
equal division of their respective stock ownership in our Company. The Court
also ruled Daryl Kollman and Marta Carpenter's joint ownership in certain real
property leased by us from them be divided equally in each property and that
they must sell the properties and improvements to pay the indebtedness to the
Internal Revenue Service. On May 20, 2002, a Judgment of Dissolution of Marriage
was entered in the Klamath County Circuit Court. The judgment did not change the
property ownership status between the parties.


                                       8
<PAGE>

NOTE 4 -- CONTINGENCIES (continued)

      The Company does not believe the Court Order issued on January 29, 2002,
will have a material impact on our business since we believe that we can
maintain our favorable leases in the event of the sale of the properties or
provide for an adequate transition to other properties for the orderly
continuation of our business.

      The Company is involved in various other legal matters arising in the
normal course of business. In the opinion of management, the Company's
liability, if any, arising from legal proceedings related to these matters is
not expected to have a material effect on the consolidated financial statements
of the Company.

Covenants Related to the Private Placement to Mr. Zubair Kazi

      In connection with the sale of 1,157,895 common shares to a private
investor in 1999, the Company made certain promises to the investor. In the
event that the consolidated shareholders' equity of the Company is less than
$20,000,000 at December 31, 1999 and the first reset date (see Annual Report on
Form 10K for the year ended December 31, 2000, incorporated herein by
reference), the Company shall immediately issue to Mr. Zubair Kazi ("Kazi")
additional common stock and warrants. The amount shall equal 1,157,895
multiplied by the percentage by which the shareholders' equity is less than
$20,000,000. The Company did not maintain a shareholders' equity of $20,000,000
at December 31, 1999 and as a result, 2,206,766 shares and 2,206,766 warrants
are due to Kazi as of June 30, 2002. The accrued liability related to the
issuance of these shares and warrants of $437,661, based on the fair value of
the securities, has been accounted for in the financial statements.
Additionally, the shares sold were to be registered within 120 days of the sale.
Additional penalties have accrued until such time that the shares are
registered. The additional expense in 2002, through June 30, 2002 was $112,422.

      The Company is obligated, upon the effective date of its next registration
statement (First reset date), to issue additional purchased securities in
accordance with certain reset rights. Since the Company has not yet filed its
first registration statement, the first reset date has not yet occurred.


                                       9
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

      From time to time, our representatives or we have made or may make
forward-looking statements, orally or in writing, including in this Report. Such
forward-looking statements may be included in, without limitation, press
releases, oral statements made with the approval of one of our authorized
executive officers and filings with the Securities and Exchange Commission. The
words or phrases "anticipates," "believes," "expects," "intends," "will
continue," "estimates," "plans," "projects," or similar expressions are intended
to identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.

      Our forward-looking statements are subject to certain risks, trends, and
uncertainties that could cause actual results to vary materially from
anticipated results, including, without limitation, market acceptance of our
marketing and merchandising concepts, changes in political and general market
conditions, demand for and market acceptance of new and existing products,
availability and development of new products, increased competition, our failure
to attain satisfactory outside financing and adverse weather conditions at Upper
Klamath Lake. These factors are discussed in further detail below. Should any
one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results may vary materially from
those discussed herein as expected, believed, estimated, intended or
anticipated. We undertake no obligation to revise or publicly release the
results of any revisions to these forward-looking statements.

      The following discussion is intended to assist in the understanding of our
financial position and our results of operations for the six months ended June
30, 2002 compared to the same period in 2001. The Consolidated Financial
Statements and related Notes should be referred to in conjunction with this
discussion. Unless stated otherwise, all financial information presented below,
throughout this report and in the Consolidated Financial Statements and related
Notes includes all of our subsidiaries on a consolidated basis.

Overview

      We develop and distribute products made with Aphanizomenon flos-aquae
(trade name Super Blue Green(R) Algae) ("SBGA") through a network of independent
distributors ("Distributors"). We currently offer twenty different products
intended to appeal to health-conscious consumers. Our products are divided into
five product lines including Daily Health Maintenance, Digestive Health,
Defensive Health, Powdered Drinks and Snacks, and Animal and Plant Food.

      We harvest SBGA and manufacture most of our products at our modern
production facilities in Klamath Falls, Oregon. We market our products through
independent Distributors located in all fifty states, the District of Columbia,
Guam, Puerto Rico, American Samoa, the Virgin Islands and Canada. We encourage
our Distributors to recruit interested people as new Distributors for our
products. These recruits are placed beneath the recruiting Distributor in the
"network" and are referred to as the distributor's "downline" or "organization."
Distributors earn commissions on sales by their organizations as well as retail
profits on the sales they generate directly. We assist Distributors in
establishing their own businesses and provide support programs such as audio and
videotapes for training, empowerment teams, seminars and an annual convention
called the August Celebration at our headquarters. We have approximately 43,393
active Distributors as of June 30, 2002 compared to approximately 54,528 active
Distributors as of June 30, 2001. We define an active Distributor as having
purchased products in the last six months.


                                       10
<PAGE>

      Our income per share was $0.01 for the six months ended June 30, 2002
compared to a loss of $0.16 per share in 2001. The net income for the six months
ended June 30, 2002 totaling $0.2 million is primarily attributable to a
decrease in costs, specifically due to our decision to no longer record
depreciation expense on the harvest site assets that have been identified as
being held for sale. The net loss for the six months ended June 30, 2001
totaling $1.8 million primarily related to the decrease in net sales.

Results of Operations

      The following table summarizes our operating results as a percentage of
net sales for each of the periods indicated.

<TABLE>
<CAPTION>
                                    ---------------------------------------------------------
                                    Six Months ended June 30,     Three Months ended June 30,
                                       2002           2001            2002           2001
                                      ======         ======          ======         ======
<S>                                    <C>            <C>             <C>            <C>
Revenue                                100.0%         100.0%          100.0%         100.0%

Cost of sales                           28.0           32.1            28.3           32.2
                                      ------         ------          ------         ------

Gross profit                            72.0           67.9            71.7           67.8

Commissions                             46.9           49.0            46.1           49.0
                                      ------         ------          ------         ------

Gross profit after commissions          25.1           18.9            25.6           18.8

Shipping and handling expenses           6.0            6.0             6.0            6.3

Selling expenses                        13.1           13.4            13.7           12.7

Research and development                 0.6            0.7             0.7            0.5

General and administrative               4.3            9.3             5.1            8.6
                                      ------         ------          ------         ------

Operating income (loss)                  1.0          (10.5)            0.0           (9.3)

Other income                             0.8            1.3             1.5            1.7

Interest expense                         0.7            2.2             0.7            2.3
                                      ------         ------          ------         ------

Net income (loss) before taxes           1.2          (11.5)            0.8           (9.8)

Income tax benefit                        --             --              --             --
                                      ------         ------          ------         ------

Net income (loss)                        1.2          (11.5)            0.8           (9.8)
                                      ======         ======          ======         ======
</TABLE>

Three months ended June 30, 2002 compared with the three months ended June 30,
2001

      Net sales for the three months ended June 30, 2002 were $6.8 million, a
decrease of $0.8 million or 11.2% from net sales of $7.6 million for the three
months ended June 30, 2001. The decrease in sales is directly related to a 14.1%
decrease in orders for the same period. Average order size increased to $119
from $115 over the same period. The average number of distributors for the three
months ended June 30, 2002 decreased to an average of 44,260, which was 19%
lower than the average of 54,718 distributors for the three months ended June
30, 2001. Sales of our food supplement products are made through a multi-level
marketing network of distributors, so sales are positively linked with the
number of distributors.

      Gross profit represents net sales less the cost of goods sold, which
includes the cost of harvesting blue-green algae from Klamath Lake, the cost of
other materials, direct labor expenses, an allocation of


                                       11
<PAGE>

overhead costs, amortization, and depreciation. Gross profit increased to 72%
from 68% of net sales between the three months ended June 30, 2002 and 2001,
respectively. The increase in the gross profit margin is mainly due to the
reduction in depreciation expenses associated with the write-down of certain
fixed assets.

      Gross profit after commissions represents gross profit less commission
expense. Commission expense for the three months ended June 30, 2002 and 2001
was $3.1 million and $3.7 million, respectively, a decrease of $0.6 million, or
16.4%. We are a multi-level marketing organization. Distributors make up our
sales force. Distributors buy algae products for their own consumption plus they
actively recruit other distributors into our network. Distributors are paid
commissions based upon their personal sales volumes and the sales of
distributors beneath them in their network. Commission expense as a percentage
of sales was 46% and 49% during the three months ended June 30, 2002 and 2001,
respectively, due to the implementation of a new commission structure in January
2001 and implementation of a revised commission structure during the three
months ended June 2002, in an attempt to attract and retain distributions. In
addition, the elimination of the grandfather clauses in the commission structure
began gradually in January 2001 and was completed by July 2001.

      Operating expenses include shipping and handling expenses, selling
expenses, research and development expenses and general and administrative
expenses. In total, operating expenses decreased $0.4 million or 19.2% to $1.7
million for the three months ended June 30, 2002 from $2.1 million for the three
months ended June 30, 2001. The components of operating expenses are discussed
below.

      o     Selling expenses includes order operator and distributor services
            expenses, marketing and promotion expenses, and the expenses of the
            Office of the President and CEO. Selling expenses decreased $42,090,
            or 4.3%, between 2002 and 2001 to $0.9 million from $1.0 million.
            This decrease was primarily due to a decrease in salaries and
            compensation, a decrease in consulting costs and a decrease in
            utility costs. Selling expenses were 13.7% of sales for the three
            months ended June 30, 2002 and 12.7% of sales for the three months
            ended June 30, 2001.

      o     General and administrative expenses decreased by $0.3 million
            between 2002 and 2001 to $0.3 million from $0.6 million. For the
            three months ended June 30, 2002, general and administrative
            expenses averaged 5.1% of sales while they were 8.6% of sales for
            the three months ended June 30, 2001. The decrease between 2002 and
            2001 is attributable to a decrease in payroll and related costs as a
            result of the cost-cutting initiative we undertook, a decrease in
            legal and consulting fees incurred during 2002, and a decrease in
            costs associated with the consolidation of office space and leased
            facilities that occurred during 2001.

      o     Shipping and handling expenses includes purchasing, receiving, and
            materials management. Shipping and handling expenses decreased
            $71,737 or 15.1%, to $0.4 million in 2002 from $0.5 million in 2001.
            The decrease was due to a decrease in freight expenses in 2002 due
            to the overall decrease in sales. Shipping and handling expenses as
            a percent of net sales decreased to 6.0% for the three months ended
            June 30, 2002 from 6.3% for the three months ended June 30, 2001 due
            to a slight reduction in related payroll expenses.

      o     Research and development expenses increased 20% to $46,263 in 2002
            from $38,482 in 2001, which constituted 0.7% and 0.5% of net sales,
            respectively.

      Other income decreased to $98,209 for the three months ended June 30, 2002
from $130,699 for the three months ended June 30, 2001 principally due to a
decrease in sundry income collected from Distributors offset by recording the
fair value cost of penalty shares and warrants to be issued to an investor in
the amount of $56,454. Net interest expense decreased to $48,589 for the three
months ended June 30, 2002 from approximately $172,000 for the three months
ended June 30, 2001. This decrease was due to various fees paid to the current
lender in 2001, offset by a decrease in interest expense due to a


                                       12
<PAGE>

decrease in outstanding debt in 2002 versus 2001. Net interest expense
represented 0.7% and 2.3% of sales for each of the three months ended June 30,
2002 and 2001, respectively.

      Net loss decreased $801,081 or 107% to a net income of $52,487 for the
three months ended June 30, 2002 from a net loss of $748,594 for the comparable
period in 2001. As a percentage of net sales, net income was 0.8% for the three
months ended June 30, 2002 compared to a net loss of 10% for the comparable
period in 2001. The dollar increase was due to a decrease in selling expenses
and general and administrative expenses as a percentage of sales offset and a
decrease in commission expense as a percentage of sales.

Six months ended June 30, 2002 compared with the six months ended June 30, 2001

      Net sales for the six months ended June 30, 2002 were $13,860,819, a
decrease of 11.5% from net sales of $15,665,312 for the six months ended June
30, 2001. The decrease in sales is directly related to a 13% decrease in orders
for the same period. Average order size increased to $119 from $116 over the
same period. The average number of distributors for the six months ended June
30, 2002 decreased to an average of 45,581, which was 17% lower than the average
of 54,928 distributors for the six months ended June 30, 2001. Sales of our food
supplement products are made through a multi-level marketing network of
distributors, so sales are positively linked with the number of distributors.

      Gross profit represents net sales less the cost of goods sold, which
includes the cost of harvesting blue-green algae from Klamath Lake, the cost of
other materials, direct labor expenses, an allocation of overhead costs,
amortization, and depreciation. Gross profit increased to 72% from 68% of net
sales between the six months ended June 30, 2002 and 2001, respectively. The
increase in the gross profit margin is mainly due to the reduction of
depreciation expenses associated with the write down of certain fixed assets.

      Gross profit after commissions represents gross profit less commission
expense. Commission expense for the six months ended June 30, 2002 and 2001 was
$6.5 million and $7.7 million, respectively, a decrease of $1.2 million, or
15.3%, respectively. We are a multi-level marketing organization. Distributors
make up our sales force. Distributors buy algae products for their own
consumption plus they actively recruit other distributors into our network.
Distributors are paid commissions based upon their personal sales volumes and
the sales of distributors beneath them in their network. During the six months
ended June 30, 2002, we implemented a new commission structure in an attempt to
attract and retain Distributors. Commission expense as a percentage of sales was
47% and 49% during the six months ended June 30, 2002 and 2001, respectively.

      Operating expenses include shipping and handling expenses, selling
expenses, research and development expenses and general and administrative
expenses. In total, operating expenses decreased $1.3 million or 28% to $3.3
million for the six months ended June 30, 2002 from $4.6 million for the six
months ended June 30, 2001. The components of operating expenses are discussed
below.

      o     Selling expenses includes order operator and distributor services
            expenses, marketing and promotion expenses, and the expenses of the
            Office of the President and CEO. Selling expenses decreased $0.3
            million between 2002 and 2001 to $1.8 million from $2.1 million.
            This decrease was primarily due to a decrease in salaries and
            compensation. Selling expenses were 13.1% of sales for the six
            months ended June 30, 2002 and 13.4% of sales for the six months
            ended June 30, 2001.

      o     General and administrative expenses decreased by $0.9 million
            between 2002 and 2001 to $0.6 million from $1.5 million. For the six
            months ended June 30, 2002, general and administrative


                                       13
<PAGE>

            expenses averaged 4% of sales while they were 9.3% of sales for the
            six months ended June 30, 2001. The decrease between 2002 and 2001
            is attributable to the penalties paid in 2001 relating to the early
            repayment of the outstanding balance of the loan from the former
            owner of Cell Tech, a decrease in legal and consulting fees incurred
            during 2002, and a decrease in costs associated with the
            consolidation of office space and leased facilities that occurred in
            2001.

      o     Shipping and handling expenses includes purchasing, receiving, and
            materials management. Shipping and handling expenses decreased $0.1
            million or 11.7%, to $.8 million in 2002 from $0.9 million in 2001.
            The decrease was due to a decrease in freight expenses in 2002 due
            to the overall decrease in sales. Shipping and handling expenses as
            a percent of net sales was 6% for the six months ended June 30, 2002
            and June 30, 2001, respectively.

      o     Research and development expenses decreased 24% to $82,143 in 2002
            from $108,065 in 2001, which constituted 0.6% and 0.7% of net sales,
            respectively.

      Other income decreased to $0.1 million for the six months ended June 30,
2002 from $0.2 million for the six months ended June 30, 2001 principally due to
a decrease in sundry income collected from Distributors offset by recording the
fair value cost of penalty shares and warrants to be issued to an investor in
the amount of $112,422. Net interest expense decreased to $95,735 for the six
months ended June 30, 2002 from $351,425 for the six months ended June 30, 2001.
This decrease was due to a decrease in interest expense due to a decrease in
outstanding debt in 2002 versus 2001, and due to various fees paid to the lender
in 2001

      Net loss decreased 109% to net income of $161,560 for the six months ended
June 30, 2002 from a net loss of $1,796,857for the comparable period in 2001. As
a percentage of net sales, net income was 1.2% for the six months ended June 30,
2002 compared to a net loss of 11.5% for the comparable period in 2001. The
dollar increase was due to net sales decreasing by 11.5%, offset by the
curtailment of various operating expenses.

Liquidity and Capital Resources

      Working capital deficit at June 30, 2002 amounted to $5,418,069, a
decrease of $1,019,117 from a working capital deficit of $6,437,186 as of
December 31, 2001. At June 30, 2002, we had a bank overdraft of $195,732 versus
a bank overdraft of $763,105 as of December 31, 2001. In addition, we are not in
compliance with certain restrictive covenants of our $15 million Line of Credit
Agreement with a financial institution. As a result, at December 31, 2001 (our
fiscal year end), our independent certified public accountants have expressed
substantial doubt about our ability to continue as a going concern.

      We believe that our future cash flows from operations, our existing
capital resources, bank borrowings and suspension of dividend payments to
shareholders, should be adequate to fund our operations for at least the next
twelve months. We have no present commitments or agreements with respect to any
acquisitions or purchases of manufacturing facilities or new technologies. As a
result of a resolution of the Board of Directors and, as set forth in a recent
court order regarding the dispute between Marta Carpenter and Daryl Kollman, we
are no longer paying Daryl Kollman consulting fees in the aggregate amount of
$120,000 per year. Any future changes in our operations could consume available
capital resources faster than anticipated. Our capital requirements depend on
numerous factors, including:

      o     the introduction of new products;

      o     change in the number of Distributors and the retention of the
            current Distributor base; and


                                       14
<PAGE>

      o     research and development efforts.

      We have an ample supply of algae inventory for the use in capsules and
tablets (10.2 months are frozen and 4.4 months are freeze-dried powder) and for
use with vendor products (160 months are frozen and 78 months are freeze-dried
powder). Accordingly, we do not anticipate a shortage of supply. This
availability of inventory usage is based on our current consumption levels and
our experts have informed us that the nutritional quality of our algae does not
change significantly as a result of our harvesting and storage methods. As a
result of the large volume of inventory on hand, a portion of the inventory has
been classified as a long-term asset. If existing capital resources are
insufficient to meet our capital requirements, we would be required to raise
additional funds, which we cannot assure will be available on favorable terms,
if at all.

Cash Flows

      Net cash flows provided by operating activities for the six months ended
June 30, 2002 amounted to $1,215,520 compared to cash flows provided by
operations of $903,919 for the six months ended June 30, 2001. The increase in
cash flows generated by operations is primarily due to changes in current assets
and liabilities and the increase in net income.

      Cash flows used in investing activities for the six months ended June 30,
2002 was $328,783. This is an increase of $169,069 from net cash used for
investing activities of $159,714 for the six months ended June 30, 2001, due to
an increase in construction in progress during the six months ended June 30,
2002 that were related to the construction of the barges to be used for
harvesting purposes.

      Net cash flows used for financing activities was $886,737 for the six
months ended June 30, 2002 versus net cash used for financing activities of
$744,205 for the six months ended June 30, 2001. This change is principally due
to a decrease in our bank overdraft during 2002 versus 2001, the net payments on
long-term debt of $145,311 for the six months ended June 30, 2002, and an
increase in the repayment of related party borrowings.

Recent Accounting Pronouncements

Pronouncements Adopted

Sales Incentives

      In November 2001, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendor's Products," which addresses the accounting for
consideration given by a vendor to a customer or a reseller of the vendor's
products. In April 2001, the EITF reached a consensus on EITF Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products," which provides guidance on the income statement
classification of consideration from a vendor to a reseller in connection with
the reseller's purchase of the vendor's products or to promote sales of the
vendor's products. The Company pays commissions to its distributors as
compensation for sales and marketing activities as evidenced by downline growth
and sales volume and thus classifies these expenses as a cost and not a
reduction of revenue. There was no effect on the consolidated financial
position, results of operations or cash flows as a result of implementation of
this pronouncement.


                                       15
<PAGE>

Goodwill and Other Intangible Assets

      Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142). Under SFAS
142, Goodwill and indefinite life intangible assets are no longer amortized but
will be reviewed annually, or more frequently if impairment indicators arise,
for impairment. Other intangible assets with finite lives, consisting of
trademarks with a carrying value of $57,302 at January 1, 2002, will continue to
be amortized over their estimated useful lives of 10years.

Impairment or Disposal of Long-Lived Assets

      On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144, which addresses financial accounting and reporting for
the impairment of long-lived assets and for long-lived assets to be disposed of,
supercedes SFAS No. 121. The adoption of SFAS No. 144 did not have an effect on
the financial position or results of operations.

Pronouncements Not Yet Adopted

      In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS No. 143"), "Accounting for Asset Retirement Obligations." SFAS
No. 143 establishes standards associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This statement is
effective for financial statements issued for fiscal years beginning after June
15, 2002. We have not yet assessed the impact of this standard on our financial
statements, but do not expect the impact to be material.

      Statement of Financial Accounting Standards No. 145, "Rescission of SFAS
Statements No. 4, 44, and 64, Amendment of SFAS Statement No. 13, and Technical
Corrections" ("SFAS 145"), updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt." SFAS 145 amends SFAS No 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sales-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. The
provisions of SFAS 145 related to SFAS No. 4 and SFAS No. 13 are effective for
fiscal years beginning and transactions occurring after May 15, 2002,
respectively. It is anticipated that the financial impact of SFAS 145 will not
have a material effect on us.

      Statement of Financial Accounting Standards No. 146, Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS 146"), requires us to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. SFAS 146 replaces
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The provisions of SFAS
146 are to be applied prospectively to exit or disposal activities initiated
after December 31, 2002.

Special Note Regarding Forward-Looking Statements

      Some of our statements under "Legal Proceedings," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Quantitative
and Qualitative Disclosures about Market Risk," "Other Information," the Notes
to Consolidated Financial Statements and elsewhere in this report


                                       16
<PAGE>

constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements are subject to certain events, risks and uncertainties that may
be outside our control. Some of these forward-looking statements include
statements of:

      o     management's plans, objectives and budgets for its future operations
            and future economic performance;

      o     capital budget and future capital requirements;

      o     meeting future capital needs;

      o     realization of any deferred tax assets;

      o     the level of future expenditures;

      o     impact of foreign currency translations;

      o     impact of recent accounting pronouncements;

      o     the outcome of regulatory and litigation matters; and

      o     the assumptions described in this report underlying such
            forward-looking statements. Actual results and developments may
            materially differ from those expressed in or implied by such
            statements due to a number of factors, including:

      o     those described in the context of such forward-looking statements;

      o     future product development and manufacturing costs;

      o     changes in our incentive plans;

      o     timely development and acceptance of new products;

      o     the markets of our domestic and international operations;

      o     the impact of competitive products and pricing;

      o     the political, social and economic climate in which we conduct
            operations; and

      o     the risk factors described in other documents and reports filed with
            the Securities and Exchange Commission.

      In some cases, forward-looking statements are identified by terminology
such as "may," "will," "should," "could," "would," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "approximates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology.

      Although we believe that the expectations reflected in these
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor anyone
else assumes responsibility for the accuracy and completeness of such statements
and is under no duty to update any of the forward-looking statements after the
date of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      We have not entered into any transactions using derivative financial
instruments or derivative commodity instruments and believe that our exposure to
market risk associated with other financial instruments is not material.

      Our primary market risks include fluctuations in our variable interest
rates. Our management believes that fluctuation in variable interest rates in
the near term would not materially affect our consolidated operating results,
financial position or cash flows as we have limited risks related to interest
rate fluctuations.

      Daryl Kollman and Marta Carpenter have sole voting and investment power
with respect to their shares. The Internal Revenue Service has a security
interest in all of their shares pursuant to a Notice of Determination dated June
18, 1999, under the terms of which the shares are held in trust and will be


                                       17
<PAGE>

released upon the payment of their federal income tax liabilities for various
specified years. Daryl Kollman and Marta Carpenter will sell their shares as
needed and allowed by federal and state securities laws to make quarterly
payments to the Internal Revenue Service. They retain all voting rights incident
to their shares while the shares are held in trust. The Internal Revenue Service
may seize their shares from the trust if they fail to timely cure a default upon
their commitments to the Internal Revenue Service under the Notice of
Determination. The Internal Revenue Service would thereafter proceed to sell or
judicially foreclose some or all of the shares for payment of their tax
liabilities as allowed by applicable law.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

      See discussion under "Legal Proceedings" in our Annual Report on Form 10-K
(File No. 0-21015) for year ended December 31, 2001 as filed with the Commission
on May 23, 2002 and in Note 4 to the Financial Statements included in Item 1 of
Part I of this document.

Item 2. Changes in Securities

      None.

Item 3. Defaults Upon Senior Securities

      Not applicable.

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

      None.

Item 5. Other Information

      None.

Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits required by Item 601 of Regulation S-K

Exhibit Number             Description
--------------             -----------

(13)              Annual or Quarterly Report to Security Holders

                  (13.1)      Annual Report on Form 10-K for fiscal year ending
                              December 31, 2001

(99)              Additional Exhibits

                  (99.3)      Certification pursuant to 18 U.S.C Section 1350 as
                              adopted pursuant to Section 906 of the
                              Sarbanes-Oxley Act of 2002

      (b)   Current Reports on Form 8-K.        None.


                                       18
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Klamath
Falls, State of Oregon on August 20, 2002.

                      CELL TECH INTERNATIONAL INCORPORATED

<TABLE>
<CAPTION>
          Signature                              Title                               Date
          ---------                              -----                               ----
<S>                             <C>                                             <C>

By: /s/ Marta C. Carpenter       President and Chief Executive Officer          August 20, 2002
       -------------------                   and Director
        Marta C. Carpenter      (principal executive officer, principal
                                     financial officer and principal
                                           accounting officer)
</TABLE>


                                       19