2001
================================================================================

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

                                   ----------

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2001

                                       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 April 30, 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 Loss..........................................2
      Consolidated Statements of Cash Flows....................................3
      Notes to Consolidated Financial Statements...............................4
      Lien on Company Stock....................................................8
      Dispute Between Principal Shareholders...................................8
   ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
   AND RESULTS OF OPERATIONS...................................................9
      Overview................................................................10
      Results of Operations...................................................11
      Three months ended September 30, 2001 compared with the three
      months ended September 30, 2000.........................................11
      Nine months ended September 30, 2001 compared with the nine
      months ended September 30, 2000.........................................13
      Liquidity and Capital Resources.........................................15
      Cash Flows..............................................................15
      Recent Financial Accounting Standards Board Statements..................16
      Special Note Regarding Forward-Looking Statements.......................17
   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..............................................19
   ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................19
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................19
   ITEM 5. OTHER INFORMATION..................................................19
      Dispute Between Principal Shareholders..................................19
   ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................20
   SIGNATURES.................................................................27


                                       ii
<PAGE>

                      CELL TECH INTERNATIONAL INCORPORATED
                                AND SUBSIDIARIES

                         Part I - Financial Information

Item 1. Financial Statements

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                    (Unaudited)
                                                                   September 30,    December 31,
                                                                        2001            2000
                                                                   -------------    ------------
<S>                                                                 <C>             <C>
Assets

Current assets
   Receivables                                                      $   427,721     $   535,145
   Current portion of inventories                                     2,000,000       2,500,000
   Prepaid expenses                                                     691,968         845,855
                                                                    -----------     -----------
Total current assets                                                  3,119,689       3,881,000
                                                                    -----------     -----------
Property and equipment, net of accumulated depreciation              11,865,784      13,560,986
Long-term inventories, net of current portion                         7,742,039       8,675,999
Other assets                                                            970,375       1,131,661
                                                                    -----------     -----------
Total assets                                                        $23,697,887     $27,249,646
                                                                    ===========     ===========

Liabilities and Shareholders' Equity

Current liabilities
   Bank overdraft                                                   $   762,124     $ 1,310,551
   Accounts payable                                                   3,213,418       2,897,684
   Commissions payable                                                1,641,904       1,869,135
   Sales taxes payable                                                  119,696         112,988
   Accrued payroll and related liabilities                              287,345         255,132
   Other accrued expenses                                               693,424       1,173,321
   Current portion of long-term debt                                  2,102,303       2,862,683
   Related party payable                                              1,071,756         741,470
                                                                    -----------     -----------
Total current liabilities                                             9,891,970      10,972,964
                                                                    -----------     -----------

Long-term liabilities
   Long-term debt, net of current portion                               261,660         261,660
                                                                    -----------     -----------
Total liabilities                                                    10,153,630      11,234,624
                                                                    -----------     -----------

Commitments and contingencies

Shareholders' equity
   Series A convertible preferred stock - no par value;
     4,175,000 shares authorized; none issued and outstanding
     in 2001 and 2000                                                        --              --
   Series B convertible preferred stock - no par value; 800,000
     shares authorized; none issued and outstanding in 2001 and
     2000                                                                    --              --
   Undesignated preferred stock - no par value; 1,825,000
     shares authorized; none issued and outstanding in 2001 and
     2000                                                                    --              --
   Common stock - $.01 par value; in 2001 and 2000,
     50,000,000 shares authorized, 10,640,895 shares issued and
     outstanding                                                        106,409         106,409
   Additional paid-in capital                                         2,299,696       2,299,696
   Retained earnings                                                 11,138,152      13,608,917
                                                                    -----------     -----------
Total shareholders' equity                                           13,544,257      16,015,022
                                                                    -----------     -----------
Total liabilities and shareholders' equity                          $23,697,887     $27,249,646
                                                                    ===========     ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       1
<PAGE>

                      CELL TECH INTERNATIONAL INCORPORATED
                                AND SUBSIDIARIES

                         Consolidated Statements of Loss

<TABLE>
<CAPTION>
                                                                (Unaudited)
                                       For the Nine Months Ended           For the Three Months Ended
                                             September 30,                        September 30,
                                     ------------------------------      ------------------------------
                                         2001              2000              2001              2000
                                     ------------      ------------      ------------      ------------
<S>                                  <C>               <C>               <C>               <C>
Revenue                              $ 22,944,017      $ 30,272,766      $  7,278,704      $  9,166,080

Cost of sales                           7,344,044         8,529,783         2,319,094         2,647,546
                                     ------------      ------------      ------------      ------------

Gross profit                           15,599,973        21,742,983         4,959,610         6,518,534

Commissions                            11,123,075        13,814,288         3,441,033         4,138,539
                                     ------------      ------------      ------------      ------------

Selling profit                          4,476,898         7,928,695         1,518,577         2,379,995

Shipping and handling expenses          1,364,043         1,639,765           420,233           491,902

Selling expenses                        3,087,538         4,000,338           991,955         1,264,964

Research and development                  153,290           403,153            45,225           139,044

General and administrative              1,952,151         3,491,085           498,857           970,625
                                     ------------      ------------      ------------      ------------

Operating loss                         (2,080,124)       (1,605,646)         (437,693)         (486,540)

Other income                              372,578           438,788           175,580            73,630

Interest expense                         (513,220)         (578,653)         (161,795)         (217,002)
                                     ------------      ------------      ------------      ------------

Net loss                             $ (2,220,766)     $ (1,745,511)     $   (423,908)     $   (629,912)
                                     ============      ============      ============      ============

Basic and diluted loss per share     $      (0.20)     $      (0.16)     $      (0.03)     $      (0.06)
                                     ============      ============      ============      ============

Weighted average number of
   common shares outstanding
   used to calculate basic and
   diluted loss per share              10,640,895        10,640,895        10,640,895        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>
                                                                    (Unaudited)
                                                             For the Nine Months Ended
                                                                   September 30,
                                                           ----------------------------
                                                               2001             2000
                                                           -----------      -----------
<S>                                                        <C>              <C>
Cash flows from operating activities
   Net loss                                                $(2,220,766)     $(1,745,511)
   Adjustments to reconcile net loss to cash
    provided by (used for) operating activities:
     Depreciation and amortization                           2,058,012        1,769,714
     (Gain) Loss on sale of fixed assets                       (15,175)          83,518
     Impairment of fixed assets and intangibles
     Warrants issued for services
     Changes in assets and liabilities:
       Receivables                                             107,425         (290,094)
       Inventories                                           1,433,960        2,019,102
       Prepaid expenses                                        153,887           64,957
       Other assets                                             (3,714)          52,631
       Accounts payable                                         65,732         (213,889)
       Commissions payable                                    (227,231)      (2,481,324)
       Sales tax payable                                         6,708          (64,107)
       Accrued payroll and payroll related liabilities          32,213           15,445
       Other accrued expenses                                 (229,897)         420,071
                                                           -----------      -----------

Net cash provided by (used for) operating activities         1,161,154         (369,487)
                                                           -----------      -----------

Cash flows from investing activities
   Purchase of property and equipment                         (229,633)         (53,461)
   Proceeds from sale of equipment                              47,000            4,074
                                                           -----------      -----------

Net cash used for investing activities                        (182,633)         (49,387)
                                                           -----------      -----------

Cash flows from financing activities
   Bank overdraft                                             (548,427)         744,777
   Payments on long-term debt                                 (760,380)        (329,379)
   Net proceeds from related party debt                        330,286            3,476
                                                           -----------      -----------

Net cash provided by (used for) financing activities          (978,521)         418,874
                                                           -----------      -----------

Net change 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                                              $   479,879      $   575,177
                                                           ===========      ===========
</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 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.

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, 2000.

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. 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' ability to continue as a going concern.

Basis of Consolidation

The accompanying consolidated financial statements of the Company include the
accounts of the Holding Company 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>

Revenue Recognition

The Company recognizes revenue when the risk of loss for the product sold passes
to the customer and any reserve for estimated returns can be quantified, which
is generally when goods are shipped. In December 1999, the SEC staff released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB No. 101). SAB No. 101 provides interpretive guidance on the recognition,
presentation and disclosure of revenue in the financial statements. SAB No. 101
must be applied to the financial statements no later than the quarter ending
September 30, 2000. The adoption of SAB No. 101 in 2000 did not have a material
affect on the Company's financial results.

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 three months ended September
30, 2001 and 2000 were $467,387 and $591,202, respectively and for the six
months ended September 30, 2001 and 2000 were $943,811 and $1,147,863,
respectively.

NOTE 2 -- TRANSACTIONS IN SHAREHOLDERS' EQUITY

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 commitments 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,
1,343,455 shares and 1,343,455 warrants are due to Kazi as of September 30,
2001. The accrued liability related to the issuance of these shares and warrants
of $304,084, 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 2001 through September 30, 2001, was
$54,084.

Also, if within one year after October 19, 1999, the Company sells its common
stock at a price less than $1.425 per share in an event other than in a
registered underwriting, the Company shall immediately issue to Kazi such
additional shares of common stock and warrants so that Kazi maintains his
percentage shareholdings as if he had purchased shares of common stock at the
reduced purchase price. The Company did not sell any common stock during the one
year period ended October 19, 2000 or for the year ended December 31, 2000.


                                       5
<PAGE>

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.

NOTE 3 -- EARNINGS PER SHARE COMPUTATION

The computations of the weighted-average common shares used in the computation
of basic and diluted net loss per share is based on 10,640,895 and 10,640,895
shares for the three months ended September 30, 2001 and 2000, respectively. The
computations of the weighted-average common shares used in the computation of
basic and diluted net loss per share is based on and 10,640,895 and 10,640,895
shares for the nine months ended September 30, 2001 and 2000, 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 convertible preferred stock and common stock
purchase warrants

NOTE 4 -- RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142).

SFAS 141 requires the use of the purchase method of accounting and prohibits the
use of the pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS 141 applies to all business combinations initiated
after June 30, 2001 and for purchase business combinations completed on or after
July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company
reclassify the carrying amounts of intangible assets and goodwill based on the
criteria in SFAS 141. The adoption of SFAS 141 is not expected to have a
material impact on the consolidated financial statements.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to reassess the useful lives
of other intangible assets within the first interim quarter after adoption of
SFAS 142. The implementation of SFAS 142 is not expected to have a material
effect on the consolidated financial statements.


                                       6
<PAGE>

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.

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is
effective for fiscal years beginning after December 15, 2001. 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. While the Company is currently evaluating the impact the adoption of
SFAS No. 144 will have on its financial position and results of operations, it
does not expect such impact to be material.

NOTE 5 - CONTINGENCIES

Litigation

The Company is involved in various 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.

In 1996, the Company entered into a five-year contract with Oregon Freeze Dry,
Inc., 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. Subsequent to
December 31, 2000, 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 December 31, 2001) to the vendor, $1 million of which will be paid in cash
and $656,000 will be paid in the form of a promissory note payable to the vendor
with interest at 10.5% per annum. As of December 31, 2001, the Company has not
signed the processing and settlement agreements. The agreements are expected to
be executed upon the Company's receipt of financing. Subsequent to December 31,
2001, the parties have reached an interim arrangement whereby the


                                       7
<PAGE>

Company will pay $0.15 per pound processed by the vendor until a formal
agreement is finalized.

In May 1999, John Adams filed an action in the Circuit Court of Klamath County
alleging, among other things that, we breached our Distributor agreement by
refusing to reinstate him as a Distributor and that we made certain health
claims, and he is seeking an unspecified amount of monetary damages. On June 22,
2001, we received a written settlement offer from his legal counsel stating that
Mr. Adams is willing to settle the case by dropping all health related claims
and a payment of $5,000 for his damages and $7,000 for his legal fees and costs.
We have declined his offer. On December 27, 2001, the parties agreed to a
Stipulated Judgment for Dismissal and the Court dismissed the case.

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 our advertising is untrue or misleading, that our business
practices are unlawful and fraudulent and unfair and that our website contains
misleading information about our products and the benefits that a consumer may
derive from their use. The plaintiff is seeking injunctive relief, corrective
advertising, and restitution to California consumers who purchased our products.
The matter is presently in the discovery phase and no trial date has been
scheduled. We do not believe that the plaintiff's complaint is meritorious and
we believe that we will prevail in this matter.

Lien on Company Stock

The Company stock owned by Daryl J. Kollman and Marta C. Kollman, is the subject
of a tax lien filed by the Internal Revenue Service for income taxes due from
them arising from taxable income attributed from the Company. 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

      Daryl and Marta Kollman, shareholders who together own approximately 82%
of our outstanding shares of common stock, have filed divorce proceedings. Daryl
Kollman and Marta Kollman jointly, 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. The disposition of these properties pursuant to the divorce could have an
adverse or disruptive effect on our operations, if the party who receives a
particular property elects to significantly increase rents or terminate any such
lease arrangement at the end of the then current lease term. In addition,
compliance with discovery requests may also have a disruptive effect on our
business and operations, and it may be necessary for our Chief Executive
Officer, Marta Kollman, to spend a portion of her time devoted to handling
matters related to the divorce. Moreover, Daryl Kollman is no longer actively
involved in management and has been unwilling to execute personal guarantees on
our behalf, as he has done in the past. On May 14, 2001, Marta Kollman
petitioned the Circuit Court for the State of Oregon with a motion seeking,
among other court orders, to enjoin Daryl Kollman from interfering with any
future loan applications of Marta Kollman or us and a self executing judgment
provision whereby the court would sign a loan


                                       8
<PAGE>

application on behalf of Daryl Kollman. The court subsequently held that Daryl
Kollman is to cease and desist from any such endeavors of interfering with our
loan applications during the pendency of the dissolution proceedings and is
prohibited from writing letters or communicating orally with any lending
institutions unless requested to do so by the institution. The court also held
that Daryl Kollman, if presented with loan documents to sign and if he objects
to those documents in form or content, he must first raise it with the court.

      On January 29, 2002, the Court issued its written Order after the matter
was heard before the court at trial on December 10, 11, and 12, 2001. The Court
ruled that Marta Kollman and Daryl Kollman were each entitled to an equal
division of their respective stock ownership in our Company, thus resulting in
no change in our current ownership. The Court also ruled Daryl Kollman and Marta
Kollman's joint ownership in certain real property assets leased by us from them
will be divided equally in each property and that they must sell the properties
and improvements to pay the indebtedness to the Internal Revenue Service. Any
remaining proceeds after the payment of Federal and State taxes applicable to
the sale will be shared equally.

      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.

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 nine months ended
September 30, 2001 compared


                                       9
<PAGE>

to the same period in 2000. 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 51,360
active Distributors as of September 30, 2001 compared to approximately 60,214
active Distributors as of September 30, 2000. We define an active Distributor as
having purchased products in the last six months.

      Our loss per share was $0.20 for the nine months ended September 30, 2001
compared to $0.16 per share in 2000. The net loss for the nine months ended
September 30, 2001 totaling $2.2 million primarily related to the decrease in
net sales directly attributed to the 15% decrease in our active Distributor
base. The net loss for the nine months ended September 30, 2000 totaling $1.7
million primarily related to the decrease in net sales.


                                       10
<PAGE>

Results of Operations

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

<TABLE>
<CAPTION>
                                    -----------------------------------------------------------------
                                    Nine Months ended September 30,  Three Months ended September 30,
                                         2001             2000             2001             2000
                                       ------           ------           ------           ------
<S>                                     <C>              <C>              <C>              <C>
Revenue                                 100.0%           100.0%           100.0%           100.0%

Cost of sales                            32.0             28.2             31.9             28.9
                                       ------           ------           ------           ------

Gross profit                             68.0             71.8             68.1             71.1

Commissions                              48.5             45.6             47.3             45.2
                                       ------           ------           ------           ------

Selling profit                           19.5             26.2             20.9             26.0

Shipping and handling expenses            5.9              5.4              5.8              5.4

Selling expenses                         13.5             13.2             13.6             13.8

Research and development                  0.7              1.3              0.6              1.5

General and administrative                8.5             11.5              6.9             10.6
                                       ------           ------           ------           ------

Operating loss                           (9.1)            (5.3)            (6.0)            (5.3)

Other expense                             1.6              1.4              2.4              0.8

Interest expense                          2.2              1.9              2.2              2.4
                                       ------           ------           ------           ------

Net loss before taxes                    (9.7)            (5.8)            (5.8)            (6.9)

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

Net loss                                 (9.7)            (5.8)            (5.8)            (6.9)
                                       ======           ======           ======           ======
</TABLE>

Three months ended September 30, 2001 compared with the three months ended
September 30, 2000

      Net sales for the three months ended September 30, 2001 were $7.2 million,
a decrease of $2.0 million or 21% from net sales of $9.2 million for the three
months ended September 30, 2000. The decrease in sales is directly related to a
15% decrease in orders for the same period. Average order size decreased to $115
from $123 over the same period. The average number of distributors for the three
months ended September 30, 2001 decreased to an average of 51,964, which was 15%
lower than the average of 61,187 distributors for the three months ended
September 30, 2000. 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 decreased to 68% from 71% of net
sales between the three months ended September 30, 2001 and 2000,


                                       11
<PAGE>

respectively. The decrease in the gross profit margin is due to the fixed cost
component of cost of goods sold being spread over a decreased revenue base.

      Selling profit represents gross profit less commission expense. Commission
expense for the three months ended September 30, 2001 and 2000 was $3.4 million
and $4.1 million, respectively, a decrease of $0.7 million, or 17%. 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 three months ended September 30, 2001, the
Company implemented a new commission structure in an attempt to attract and
retain Distributors. Commission expense as a percentage of sales was 47% and 45%
during the three months ended September 30, 2001 and 2000, respectively.

      Operating expenses include shipping and handling expenses, selling
expenses, research and development expenses and general and administrative
expenses. In total, operating expenses decreased $0.9 million or 32% to $2.0
million for the three months ended September 30, 2001 from $2.9 million for the
three months ended September 30, 2000. The components of operating expenses are
discussed below.

o     Shipping and handling expenses includes purchasing, receiving, and
      materials management. Shipping and handling expenses decreased $71,669 or
      15%, to $0.4 million in 2001 from $0.5 million in 2000. The decrease was
      due to a $28,177 decrease in freight expenses in 2001 due to the overall
      decrease in sales. Shipping and handling expenses as a percent of net
      sales increased to 6% for the three months ended September 30, 2001 from
      5% for the three months ended September 30, 2000.
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, or 22%,
      between 2001 and 2000 to $1.0 million from $1.3 million. This decrease was
      primarily due to a decrease in salaries and compensation, consulting
      expenses and utility costs. Selling expenses were 14% of sales for the
      three months ended September 30, 2001 and 14% of sales for the three
      months ended September 30, 2000.
o     Research and development expenses decreased 68% to $45,225 in 2001 from
      $139,044 in 2000, which constituted 0.6% and 1.5% of net sales,
      respectively.
o     General and administrative expenses decreased by $0.5 million or 50%
      between 2001 and 2000 to $0.5 million from $1.0 million. For the three
      months ended September 30, 2001, general and administrative expenses
      averaged 7% of sales while they were 11% of sales for the three months
      ended September 30, 2000. The decrease between 2001 and 2000 is
      attributable to a decrease in payroll and related costs, a decrease in
      legal and consulting fees incurred during 2001, and a decrease in costs
      associated with the consolidation of office space and leased facilities
      that occurred during 2000.

      Other income increased to approximately $175,000 for the three months
ended September 30, 2001 from approximately $73,000 for the three months ended
September 30, 2000 principally due to an increase in sundry income collected
from the sale of pallets and support


                                       12
<PAGE>

poles and storage fees received, offset by recording the fair value cost of
penalty shares and warrants to be issued to an investor in the amount of
$54,000.

      Interest expense decreased slightly to approximately $162,000 for the
three months ended September 30, 2001 from approximately $217,000 for the three
months ended September 30, 2000. This decrease was due to various fees paid to
the current lender, partially offset by a decrease in interest expense due to a
decrease in outstanding debt in 2001 versus 2000. Net interest expense
represented 2.2% and 2.4% of sales for each of the three months ended June 30,
2001 and 2000, respectively.

      Net loss decreased $206,004 or 32% to $423,908 for the three months ended
September 30, 2001 from $629,912 for the comparable period in 2000. As a
percentage of net sales, net loss decreased to 6% for the three months ended
September 30, 2001 from 7% for the comparable period in 2000. The dollar
decrease was due to a decrease in selling expenses and general and
administrative expenses as a percentage of sales offset by the increase in
commission expense as a percentage of sales.

Nine months ended September 30, 2001 compared with the nine months ended
September 30, 2000

      Net sales for the nine months ended September 30, 2001 were $22,944,017, a
decrease of 24% from net sales of $30,272,766 for the nine months ended
September 30, 2000. The decrease in sales is directly related to a 20% decrease
in orders for the same period. Average order size decreased to $116 from $123
over the same period. The average number of distributors for the nine months
ended September 30, 2001 decreased to an average of 53,940, which was 16% lower
than the average of 63,864 distributors for the nine months ended September 30,
2000. 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 decreased to 68% from 72% of net
sales between the nine months ended September 30, 2001 and 2000, respectively.
The decrease in the gross profit margin is due to the fixed cost component of
cost of goods sold being spread over a decreased revenue base.

      Selling profit represents gross profit less commission expense. Commission
expense for the nine months ended September 30, 2001 and 2000 was $3.4 million
and $4.1 million, respectively, a decrease of $0.7 million, or 17%. 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 nine months ended September 30, 2001, the
Company implemented a new commission structure in an attempt to attract and
retain Distributors. Commission expense as a


                                       13
<PAGE>

percentage of sales was 47% and 45% during the nine months ended September 30,
2001 and 2000, respectively.

      Operating expenses include shipping and handling expenses, selling
expenses, research and development expenses and general and administrative
expenses. In total, operating expenses decreased $3.0 million or 31% to $6.6
million for the nine months ended September 30, 2001 from $9.6 million for the
nine months ended September 30, 2000. The components of operating expenses are
discussed below.

o     Shipping and handling expenses includes purchasing, receiving, and
      materials management. Shipping and handling expenses decreased $0.2
      million or 17%, to $1.4 million in 2001 from $1.6 million in 2000. The
      decrease was due to a $163,079 decrease in freight expenses in 2001 due to
      the overall decrease in sales. Shipping and handling expenses as a percent
      of net sales increased to 6% for the nine months ended September 30, 2001
      from 5% for the nine months ended September 30, 2000.
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 $0.9 million or 22%
      between 2001 and 2000 to $3.1 million from $4.0 million. This decrease was
      primarily due to a decrease in salaries and compensation, a decrease in
      consulting expenses and a decrease in utility costs as a result of the
      cost-cutting initiative implemented by the Company. Selling expenses were
      14% of sales for the nine months ended September 30, 2001 and 13% of sales
      for the nine months ended September 30, 2000.
o     Research and development expenses decreased 62% to $153,290 in 2001 from
      $403,153 in 2000, which constituted 0.7% and 1.3% of net sales,
      respectively.
o     General and administrative expenses decreased by $1.5 million or 44%
      between 2001 and 2000 to $2.0 million from $3.5 million. For the nine
      months ended September 30, 2001, general and administrative expenses
      averaged 9% of sales while they were 12% of sales for the nine months
      ended September 30, 2000. The decrease between 2001 and 2000 is
      attributable to a decrease in payroll and related costs, a decrease in
      legal and consulting fees incurred during 2001, and a decrease in costs
      associated with the consolidation of office space and leased facilities
      that occurred in 2000.

      Other income decreased to $372,598 for the nine months ended September 30,
2001 from $438,788 for the nine months ended September 30, 2000 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 $117,000. Net interest expense decreased slightly to $513,220
for the nine months ended September 30, 2001 from $578,653 for the nine months
ended September 30, 2000. This decrease was due to a decrease in outstanding
debt in 2001 versus 2000.

      Net loss increased 27% to $2,220,766 for the nine months ended September
30, 2001 from $1,745,511 for the comparable period in 2000. As a percentage of
net sales, net loss increased to 10% for the nine months ended September 30,
2001 from 6% for the comparable period in 2000. The dollar increase was due to
net sales decreasing by 24%, offset by the curtailment of various operating
expenses.


                                       14
<PAGE>

Liquidity and Capital Resources

      Working capital deficit at September 30, 2001 amounted to $6,272,281, a
decrease of $819,863 from a working capital deficit of $7,091,964 as of December
31, 2000. At September 30, 2001, we had a bank overdraft of $762,124 versus a
bank overdraft of $1,310,551 as of December 31, 2000. As a result of the working
capital deficit of $7,341,964 at December 31, 2001 (the Company's fiscal year
end), the Company's independent certified public accountants have expressed
substantial doubt about the Company's ability to continue as a going concern.

      We believe that 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 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

   o  research and development efforts.

      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 nine months ended
September 30, 2001 amounted to $1,161,154 compared to cash flows used by
operations of $369,487 for the nine months ended September 30, 2000. The
increase in cash flows generated by operations is primarily due to changes in
current assets and liabilities.

      Cash flows used in investing activities for the nine months ended
September 30, 2001 was $182,633. This is down $133,246 from net cash used for
investing activities of $49,387 for the nine months ended September 30, 2000,
due to a decrease in equipment purchases during the nine months ended September
30, 2001.

      Net cash flows used for financing activities was $978,521 for the nine
months ended September 30, 2001 versus net cash provided by financing activities
of $418,874 for the nine months ended September 30, 2000. This change is
principally due to a $1,293,204 change in our


                                       15
<PAGE>

bank overdraft during 2001 versus 2000 and the net payments on long-term debt of
for the nine months ended September 30, 2001 versus the comparable period in
2000.

Recent Financial Accounting Standards Board Statements

      In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142).

      SFAS 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141. The adoption of SFAS 141
is not expected to have a material impact on the consolidated financial
statements.

      SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to reassess the useful lives
of other intangible assets within the first interim quarter after adoption of
SFAS 142. The implementation of SFAS 142 is not expected to have a material
effect on the consolidated financial statements.

      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.

      In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which is effective for fiscal years beginning after December 15, 2001.
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. While the Company is currently evaluating the impact
the adoption of SFAS No. 144 will have on its financial position and results of
operations, it does not expect such impact to be material.


                                       16
<PAGE>

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 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


                                       17
<PAGE>

      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 interest rates. Our
management believes that fluctuation in 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.

      The Kollmans 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 released upon the
Kollmans' payment of their federal income tax liabilities for various specified
years. The Kollmans will sell their shares as needed and allowed by federal and
state securities laws to make quarterly payments to the Internal Revenue
Service. The Kollmans retain all voting rights incident to their shares while
the shares are held in trust. The Internal Revenue Service may seize the
Kollmans' shares from the trust if the Kollmans 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 the Kollmans' tax
liabilities as allowed by applicable law.

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

      Other than as indicated below, there have been no material changes in, or
additions to, the legal proceedings previously reported in our Annual Report on
Form 10-K (File No. 0-21015) for year ended December 31, 2000 as filed with the
Commission on October 22, 2001.

      In 1996, we entered into a five-year contract with Oregon Freeze Dry,
Inc., one of our 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 us. The complaint alleges that we
wrongfully terminated a contract requiring us 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 there was a validly terminated
contract. 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. We 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. Subsequent to December 31, 2000, the
parties negotiated a settlement agreement 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 we
will pay $1,656,000 (included in accounts payable at December 31, 2001) to the
vendor, of which we will


                                       18
<PAGE>

pay $1 million in cash and $656,000 in the form of a promissory note payable to
the vendor with interest at 10.5% per annum. As of December 31, 2001, we have
not signed the processing and settlement agreements. The parties expect to
execute the agreements upon our receipt of financing. Subsequent to December 31,
2001, the parties have reached an interim arrangement whereby we will pay $0.15
per pound processed by the vendor until the parties finalize a formal agreement.

      In May 1999, John Adams filed an action in the Circuit Court of Klamath
County alleging, among other things, we breached our Distributor agreement by
refusing to reinstate him as a Distributor and that we made certain health
claims, and he is seeking an unspecified amount of monetary damages. On June 22,
2001, we received a written settlement offer from his legal counsel stating that
Mr. Adams is willing to settle the case by dropping all health related claims
and a payment of $5,000 for his damages and $7,000 for his legal fees and costs.
We have declined his offer. On December 27, 2001, the parties agreed to a
Stipulated Judgment for Dismissal and the Court dismissed the case.

      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 our advertising is untrue or misleading, that our business
practices are unlawful and fraudulent and unfair and that our website contains
misleading information about our products and the benefits that a consumer may
derive from their use. The plaintiff is seeking injunctive relief, corrective
advertising, and restitution to California consumers who purchased our products.
The matter is presently in the discovery phase and no trial date has been
scheduled. We do not believe that the plaintiff's complaint is meritorious and
we believe that we will prevail in this matter.

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

Dispute Between Principal Shareholders

      Daryl and Marta Kollman, shareholders who together own approximately 82%
of our outstanding shares of common stock, have filed divorce proceedings. Daryl
Kollman and Marta Kollman jointly, 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


                                       19
<PAGE>

basis. The disposition of these properties pursuant to the divorce could have an
adverse or disruptive effect on our operations, if the party who receives a
particular property elects to significantly increase rents or terminate any such
lease arrangement at the end of the then current lease term. In addition,
compliance with discovery requests may also have a disruptive effect on our
business and operations, and it may be necessary for our Chief Executive
Officer, Marta Kollman, to spend a portion of her time devoted to handling
matters related to the divorce. Moreover, Daryl Kollman is no longer actively
involved in management and has been unwilling to execute personal guarantees on
our behalf, as he has done in the past. On May 14, 2001, Marta Kollman
petitioned the Circuit Court for the State of Oregon with a motion seeking,
among other court orders, to enjoin Daryl Kollman from interfering with any
future loan applications of Marta Kollman or us and a self executing judgment
provision whereby the court would sign a loan application on behalf of Daryl
Kollman. The court subsequently held that Daryl Kollman is to cease and desist
from any such endeavors of interfering with our loan applications during the
pendency of the dissolution proceedings and is prohibited from writing letters
or communicating orally with any lending institutions unless requested to do so
by the institution. The court also held that Daryl Kollman, if presented with
loan documents to sign and if he objects to those documents in form or content,
he must first raise it with the court.

      On January 29, 2002, the Court issued its written Order after the matter
was heard before the court at trial on December 10, 11, and 12, 2001. The Court
ruled that Marta Kollman and Daryl Kollman were each entitled to an equal
division of their respective stock ownership in our Company, thus resulting in
no change in our current ownership. The Court also ruled Daryl Kollman and Marta
Kollman's joint ownership in certain real property assets leased by us from them
will be divided equally in each property and that they must sell the properties
and improvements to pay the indebtedness to the Internal Revenue Service. Any
remaining proceeds after the payment of Federal and State taxes applicable to
the sale will be shared equally.

      We do 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.

Item 6. Exhibits and Reports on Form 8-K

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

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

(2)               Plan of Acquisition, Reorganization, Arrangement, Liquidation
                  or Succession

                        (2.1)       Agreement and Plan of Reorganization, dated
                                    July 16, 1999, among the Company, Daryl J.
                                    Kollman and Marta C. Kollman (filed as
                                    Exhibit 2.1 without schedules and


                                       20
<PAGE>

                                    exhibits to the Current Report on Form 8-K
                                    on August 2, 1999 and incorporated by
                                    reference)

(3)               Articles of Incorporation and Bylaws

                        (3.1)       Certificate of Incorporation, as amended
                                    (filed as Exhibit 3.1 to the Registration
                                    Statement for Small Business on Form SB-2 on
                                    June 21, 1996 and incorporated by reference)

                        (3.2)       Certificate of Amendment of Certificate of
                                    Incorporation (filed as Exhibit 3.1(a) to
                                    the Current Report on Form 8-K on November
                                    19, 1999 and incorporated by reference)

                        (3.3)       Certificate of Designations, Preferences and
                                    Rights of Series B Convertible Preferred
                                    Stock (filed as Exhibit 3.1 to the Current
                                    Report on Form 8-K on August 2, 1999 and
                                    incorporated by reference)

                        (3.4)       Amended and Restated Bylaws (filed as
                                    Exhibit 3.2 to the Registration Form for
                                    Small Business on Form SB-2 on June 21, 1996
                                    and incorporated by reference)

(4)               Instruments Defining the Rights of Security Holders

                        (4.1)       Loan and Security Agreement, dated June 21,
                                    1999, by and among The New Earth Company,
                                    The New Algae Company and Coast Business
                                    Credit (filed as Exhibit 4.1 to the Current
                                    Report on Form 8-K on November 19, 1999 and
                                    incorporated by reference)

                        (4.2)       Continuing Guaranty, dated August 6, 1999
                                    (filed as Exhibit 4.2 to the Current Report
                                    on Form 8-K on November 19, 1999 and
                                    incorporated by reference)

                        (4.3)       Form of Common Stock Certificate (filed as
                                    Exhibit 4.1 to the Amendment to Registration
                                    Statement for Small Business on Form SB-2/A
                                    on July 26, 1996 and incorporated by
                                    reference)

                        (4.4)       Form of Series A Preferred Stock Certificate
                                    (filed as Exhibit 4.2 to the Amendment to
                                    Registration Statement for Small Business on
                                    Form SB-2/A on July 26, 1996 and
                                    incorporated by reference)


                                       21
<PAGE>

                        (4.5)       Form of Warrant to Purchase Shares of Common
                                    Stock to be issued to Andromeda Enterprises,
                                    Inc. or its designees, Hateley & Hampton or
                                    its designees and Wharton Capital Partners,
                                    Ltd. (filed as Exhibit 4.1 to the Current
                                    Report on Form 8-K on August 2, 1999 and
                                    incorporated by reference)

                        (4.6)       Nonqualified Stock Option Agreement between
                                    the Company and Physicians World
                                    Communications Group (filed as Exhibit 4.9
                                    to the Quarterly Report on Form 10-Q for the
                                    quarterly period ended September 30, 1998
                                    and incorporated by reference)

                        (4.7)       Warrant to Purchase Shares of Common Stock
                                    issued to Scantek Medical, Inc. as of May
                                    15, 1998 (filed as Exhibit 4.7 to the
                                    Quarterly Report on Form 10-Q for the
                                    quarterly period ended September 30, 1998
                                    and incorporated by reference)

                        (4.8)       Warrant to Purchase Shares of Common Stock
                                    issued to Zigmed, Inc. as of May 15, 1998
                                    (filed as Exhibit 4.8 to the Quarterly
                                    Report on Form 10-Q for the quarterly period
                                    ended September 30, 1998 and incorporated by
                                    reference)

                        (4.9)       Representative's Warrant Agreement between
                                    the Company and Keane Securities Co.,
                                    including Form of Warrant Certificate (filed
                                    as Exhibit 4.3 to the Amendment to
                                    Registration Statement for Small Business on
                                    Form SB-2/A on July 26, 1996 and
                                    incorporated by reference)

                        (4.10)      Form of Warrant Certificate for March Bridge
                                    Warrants (filed as Exhibit 4.4 to the
                                    Registration Statement for Small Business on
                                    Form SB-2 on June 21, 1996 and incorporated
                                    by reference)

                        (4.11)      Nonqualified Stock Option Agreements with
                                    Certain Officers (Donald Brounstein, James
                                    Whidden, Whidden & Associates, Inc., Amy
                                    Lewis, and Everett Lautin) (filed as Exhibit
                                    4.5 to the Registration Statement for Small
                                    Business on Form SB-2 on June 21, 1996 and
                                    incorporated by reference)

                        (4.12)      Form of Private Warrants issued in
                                    connection with May Private Placement (filed
                                    as Exhibit 4.6 to the Registration Statement
                                    for Small Business on Form SB-2 on June 21,
                                    1996 and incorporated by reference)


                                       22
<PAGE>

(10)              Material Contracts

                        (10.1)      General Release, dated January 25, 2000
                                    between the Company and Donald Brounstein
                                    (filed as Exhibit 10.1 to the Annual Report
                                    on Form 10-K for the year ended December 31,
                                    2000 and incorporated by reference)

                        (10.2)      Settlement Agreement, dated May 15, 1998,
                                    between the Company and Scantek Medical,
                                    Inc. (filed as Exhibit 10.16 to the
                                    Quarterly Report on Form 10-Q for the
                                    quarterly period ended June 30, 1998 and
                                    incorporated by reference)

                        (10.3)      Settlement Agreement, dated May 15, 1998,
                                    between the Company and Zigmed, Inc. (filed
                                    as Exhibit 10.17 to the Quarterly Report on
                                    Form 10-Q for the quarterly period ended
                                    June 30, 1998 and incorporated by reference)

                        (10.4)      Employment Agreement between the Company and
                                    Dr. Chris J. M. Blaxland, dated as of
                                    September 1, 1998 (filed as Exhibit 10.18 to
                                    the Quarterly Report on Form 10-Q for the
                                    quarterly period ended September 30, 1998
                                    and incorporated by reference)

                        (10.5)      Employment Agreement between the Company and
                                    Donald Brounstein, dated January 1, 1996
                                    (filed as Exhibit 10.8 to the Registration
                                    Statement for Small Business on Form SB-2 on
                                    June 21, 1996 and incorporated by reference)

                        (10.6)      Employment Agreement between the Company and
                                    James J. Whidden (filed as Exhibit 10.9 to
                                    the Registration Statement for Small
                                    Business on Form SB-2 on June 21, 1996 and
                                    incorporated by reference)

                        (10.7)      Employment Agreement between the Company and
                                    Kenneth S. Hollander, dated June 3, 1996
                                    (filed as Exhibit 10.10 to the Registration
                                    Statement for Small Business on Form SB-2 on
                                    June 21, 1996 and incorporated by reference)

                        (10.8)      Consulting Agreement, dated March 1, 1996,
                                    between the Company and Don Anderson (filed
                                    as Exhibit 10.8 to the Annual Report on Form
                                    10-K for the year ended December 31, 2000
                                    and incorporated by reference)


                                       23
<PAGE>

                        (10.9)      Exclusive Supply and Distribution Agreement
                                    between the Company and Physician Sales &
                                    Services, Inc., as amended (filed as Exhibit
                                    10.1 to the Amendment to Registration
                                    Statement for Small Business on Form SB-2/A
                                    on July 26, 1996 and incorporated by
                                    reference)

                        (10.10)     License Agreement, dated October 20, 1995,
                                    between the Company and Scantek Medical,
                                    Inc., as amended (filed as Exhibit 10.2 to
                                    the Registration Statement for Small
                                    Business on Form SB-2 on June 21, 1996 and
                                    incorporated by reference)

                        (10.11)     Construction Contract between the Company
                                    and Zigmed, Inc. (filed as Exhibit 10.3 to
                                    the Registration Statement for Small
                                    Business on Form SB-2 on June 21, 1996 and
                                    incorporated by reference)

                        (10.12)     Lease, dated June 11, 1996, between the
                                    Company and the Moen Organization, Inc.
                                    (filed as Exhibit 10.14 to the Registration
                                    Statement for Small Business on Form SB-2 on
                                    June 21, 1996 and incorporated by reference)

                        (10.13)     Lease Termination Agreement, dated February
                                    2, 1999, between the Company and the Moen
                                    Organization, Inc. (filed as Exhibit 10.13
                                    to the Annual Report on Form 10-K for the
                                    year ended December 31, 2000 and
                                    incorporated by reference)

                        (10.14)     Intentionally omitted

                        (10.15)     Commercial Lease Agreement, dated July 1,
                                    1995, between and among The New Earth
                                    Company, Daryl Kollman and Marta Kollman
                                    (filed as Exhibit 10.15 to the Annual Report
                                    on Form 10-K for the year ended December 31,
                                    2000 and incorporated by reference)

                        (10.16)     Commercial Lease Agreement, dated August 15,
                                    1995, between and among The New Algae
                                    Company, Daryl Kollman and Marta Kollman
                                    (filed as Exhibit 10.16 to the Annual Report
                                    on Form 10-K for the year ended December 31,
                                    2000 and incorporated by reference)

                        (10.17)     Ground Lease Agreement, dated December 9,
                                    1995, between and among The New Earth
                                    Company, Emil Nobel and Mary Ann Nobel
                                    (filed as Exhibit 10.17 to the Annual


                                       24
<PAGE>

                                    Report on Form 10-K for the year ended
                                    December 31, 2000 and incorporated by
                                    reference)

                        (10.18)     Commercial Lease Agreement, dated May 1,
                                    1996, between and among The New Algae
                                    Company, Daryl Kollman and Marta Kollman
                                    (filed as Exhibit 10.18 to the Annual Report
                                    on Form 10-K for the year ended December 31,
                                    2000 and incorporated by reference)

                        (10.19)     Commercial Lease Agreement, dated September
                                    1, 1996, between Klamath Cold Storage, Inc.
                                    and The New Earth Company, including
                                    Sublease between The New Earth Company and
                                    The New Algae Company (filed as Exhibit
                                    10.19 to the Annual Report on Form 10-K for
                                    the year ended December 31, 2000 and
                                    incorporated by reference)

                        (10.20)     Voting and Stockholders' Rights Agreement,
                                    dated May 15, 1996 (filed as Exhibit 10.4 to
                                    the Registration Statement for Small
                                    Business on Form SB-2 on June 21, 1996 and
                                    by this reference incorporated herein)

                        (10.21)     Agreement to Issue Warrants, dated March 19,
                                    1996, between the Company and Udi Toledano
                                    (filed as Exhibit 10.5 to the Registration
                                    Statement for Small Business on Form SB-2 on
                                    June 21, 1996 and by this reference
                                    incorporated herein)

                        (10.22)     Agreement to Issue Warrants, dated March 19,
                                    1996, between the Company and Herbert V.
                                    Turk (filed as Exhibit 10.6 to the
                                    Registration Statement for Small Business on
                                    Form SB-2 on June 21, 1996 and by this
                                    reference incorporated herein)

                        (10.23)     Non-Negotiable Warrant Certificate between
                                    the Company and Physician Sales & Service,
                                    Inc. (filed as Exhibit 10.7 to the
                                    Registration Statement for Small Business on
                                    Form SB-2 on June 21, 1996 and by this
                                    reference incorporated herein)

                        (10.24)     HumaScan, Inc. Non-Employee Director Stock
                                    Option Plan (filed as Exhibit 10.12 to the
                                    Registration Statement for Small Business on
                                    Form SB-2 on June 21, 1996 and by this
                                    reference incorporated herein)

                        (10.25)     Form of Indemnification Agreement between
                                    the Company and its Executive Officers and
                                    Directors (filed as Exhibit


                                       25
<PAGE>

                                    10.15 to the Annual Report for Small
                                    Business on Form 10KSB40 for the fiscal year
                                    ended December 31, 1997 and by this
                                    reference incorporated herein)

                        (10.26)     The Company's 2000 Stock Incentive Plan
                                    (filed as Exhibit 10.26 to the Annual Report
                                    on Form 10-K for the year ended December 31,
                                    2000 and incorporated by reference)

(16)              Letter from KPMG, dated November 2, 1999, agreeing with the
                  statements contained in the Company's Form 8-K, dated November
                  2, 1999 (filed as Exhibit 16 to the Current Report on Form 8-K
                  on November 22, 1999 and by this reference incorporated
                  herein)

(99)              Additional Exhibits

                        (99.1)      Internal Revenue Service Notice of
                                    Determination, dated July 18, 1999 (filed as
                                    Exhibit 99.2 to the Current Report on Form
                                    8-K on November 19, 1999 and by this
                                    reference incorporated herein)

                        (99.2)      Pledge and Escrow Agreement between and
                                    among Daryl Kollman and Marta Kollman, the
                                    Internal Revenue Service and West Coast
                                    Trust Co., Inc. (filed as Exhibit 99.3 to
                                    the Current Report on Form 8-K on November
                                    19, 1999 and by this reference incorporated
                                    herein)

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


                                       26
<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 May 23, 2002.

                      CELL TECH INTERNATIONAL INCORPORATED

         Signature                      Title                         Date
         ---------                      -----                         ----

                             President and Chief Executive         May 23, 2002
By: /s/ Marta C. Kollman        Officer and Director
    --------------------     (principal executive officer,
      Marta C. Kollman       principal financial officer and
                             principal accounting officer)


                                       27