DURA PRODUCTS INTERNATIONAL INC, 20-F, 1999-09-29

DURA PRODUCTS INTERNATIONAL INC
20-F, 1999-09-29
MILLWOOD, VENEER, PLYWOOD, & STRUCTURAL WOOD MEMBERS

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FORM 20-F REGISTRATION OF SECURITIES OF FOREIGN PRIVATE
ISSUERS PURSUANT TO SECTION 12(B) OR (G) AND ANNUAL AND
TRANSITION REPORTS PURSUANT TO SECTION 13 AND 15(D)

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

FORM 20-F

(Mark one)

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------

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

For the transition period from ____________________ to _________________________
Commission file number ________________________________________________________

DURA PRODUCTS INTERNATIONAL INC.
- - ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

DURA PRODUCTS INTERNATIONAL INC.
- - ------------------------------------------------------------------------------
(Translation of Registrant's name into English)

Ontario, Canada
- - ------------------------------------------------------------------------------
(Jurisdiction of incorporation or organization)

60 Carrier Drive, Etobicoke, Ontario, Canada, M9W 5R1
- - ------------------------------------------------------------------------------
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Common Shares
--------------
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

Not applicable
--------------
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report. 23,616,599

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 [ ]

Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17 [ X ] Item 18 [ ]

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS) Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes [ ] No [ ]
<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
Part I
Item 1. Description of Business .................................................... 2
Item 2. Description of Property .................................................... 7
Item 3. Legal Proceedings .......................................................... 7
Item 4. Control of Registrant ...................................................... 9
Item 5. Nature of Trading Market ................................................... 10
Item 6. Exchange Controls and Other Limitations Affecting Securities Holders ....... 11
Item 7. Taxation ................................................................... 12
Item 8. Selected Financial Data .................................................... 13
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations .............................................................. 14
Item 10. Directors and Officers of Registrant ....................................... 21
Item 11. Compensation of Directors and Officers ..................................... 22
Item 12. Options to Purchase Securities from Registrant or Subsidiaries ............. 23
Item 13. Interest of Management in Certain Transactions ............................. 26

Part II
Item 14. Description of Securities to be Registered ................................. 27

Part III
Item 15. Defaults Upon Senior Securities ............................................ 27
Item 16. Changes in Securities and Changes in Security for Registered Securities..... 28

Part IV
Item 17. Financial Statements ....................................................... 28
Item 18. Financial Statements ....................................................... 28
Item 19. Financial Statements and Exhibits .......................................... 28
Signatures ................................................................. 29
</TABLE>
<PAGE>
CURRENCY TRANSLATION

The Company publishes its financial statements in Canadian dollars. Unless
otherwise specified, all references to "Cdn dollars", "dollars", "$", or Cdn $"
are to Canadian dollars and references to "US$" are to United States dollars. As
of March 31, 1999, the US dollar equivalent for Canadian dollars as based on
the Noon Buying Rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York was US
$1.4195 per Cdn$1.00. No representation is made that the Canadian dollar or US$
amounts shown in this registration statement could have been or could be
converted into US$, as the case may be, at any particular rate or at all.

Fluctuations in the exchange rate between the Canadian dollar and the U.S.
dollar may affect the Company's earnings, the book value of its assets and
shareholders' equity as expressed in Canadian dollars and U.S. dollars.

The following table sets forth, for each period indicated, the high and low
exchange rates for one Canadian dollar expressed in United States dollars, based
on the inverse of the noon buying rate in New York City for cable transfers in
foreign currencies, the average of such exchange rates on the last Saturday of
each month during such period, and the exchange rate at the end of such period,
as certified for custom purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"):

<TABLE>
<CAPTION>
- ------------------------ -------------------- --------------------- --------------------- --------------------
Average High Low Period end
- ------------------------ -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Y/E Dec 31/93 0.7729 0.8046 0.7439 0.7544
- ------------------------ -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/94 0.7300 0.7632 0.7103 0.7128
- ------------------------ -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/95 0.7305 0.7527 0.7023 0.7323
- ------------------------ -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/96 0.7332 0.7513 0.7235 0.7301
- ------------------------ -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/97 0.7220 0.6945 0.7487 0.6999
- ------------------------ -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/98 0.6728 0.7124 0.6311 0.6511
- ------------------------ -------------------- --------------------- --------------------- --------------------
</TABLE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.

1
<PAGE>
PART I

ITEM 1. DESCRIPTION OF BUSINESS.

General

Dura Products International Inc. ("DPI" or the "Company") is a public company,
with 23,616,599 issued and outstanding common shares, as of December 31, 1998,
trading over-the-counter on the Canadian Dealing Network under the symbol "DURP"
and "DRPDF" on the NASDAQ Bulletin Board. DPI was incorporated on August 19,
1983 under the laws of the Province of Ontario, Canada as Transway Exploration
Inc. On July 7, 1993 the name was changed to Transway Capital Inc. and on
February 6, 1997 the Company changed its name to Dura Products International
Inc. DPI has two wholly-owned subsidiaries, Dura Skid Inc. and Duraskid and
Products, Inc. Dura Skid Inc. ("Duraskid") was incorporated on July 13, 1995
under the laws of the Province of Ontario, Canada as CanTech Investments Inc. On
January 15, 1996 the name was changed to CanTech Composites Inc. ("CanTech"),
the date on which the Company concluded its acquisition of CanTech for $400,000.
The purchase price was settled by the issuance of 1,000,000 common shares of the
Company and the issuance of warrants exercisable for 500,000 common shares at
$0.40 per share (See "Business Overview" and "Outlook" below and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"). On
February 7, 1997, Cantech changed its name to Dura Skid Inc. On September 19,
1997 the Company incorporated in Delaware a wholly-owned subsidiary, Duraskid
and Products, Inc. Duraskid and Products, Inc. owns 51% of Duraskid (New
England) L.L.C. which was formed September 23, 1997. DPI is currently engaged in
the manufacture of a composite material which is further manufactured into
pallets.

From August 31, 1983 to December 31, 1995, the Company was involved in the
natural resource and investment industries. In 1983 the Company purchased 22
unpatented mining claims in the Klotz Lake area, Thunder Bay Mining Division,
Ontario, Canada. The Company purchased the claims for $62,332 and from 1983 to
1993 incurred $136,633 of exploration expenditures. In 1993 the claims were
allowed to lapse as no economically recoverable ore reserves were found. In
March 1994, DPI acquired 100% of the outstanding shares of 155433
Canada Ltd. ("155433"). 155433 owned a mining property in south Lorraine
Township, Timiskaming Mining Division Ontario, Canada. The Company spent
$512,416 on the acquisition of the mining claims and on exploration expenditures
from March 1994 to the end of 1995. In December 1995, 155433 wrote down the
carrying value of the Lorraine property to $1.00, as it did not intend to pursue
development of the property. In September 1996, DPI sold its entire
interest in 155433 for nominal consideration. Beginning in 1987, the Company
began to invest in marketable securities. These investments were generally in
junior mining companies and did not result in control or significant influence
of these companies. From 1987 to 1995, the Company invested approximately $1.5
million in marketable securities. All investments were disposed of by the end of
1995 and generally the disposition resulted in a loss. Of the net-capital loss
carry forward of approximately $2 million, as noted in the consolidated
financial statements, $1.5 million resulted from these investing activities. The
Company believes that there are no contingent liabilities as a result of the
disposition of these assets. During the prior one year period there have been no
changes in management or control of the Company.

In the discussion that follows, DPI or the Company refers to the operations of
Dura Products International Inc. and its subsidiaries, Dura Skid Inc. and
Duraskid and Products, Inc. as well as Duraskid (New England) L.L.C. Duraskid
refers to the operations of Dura Skid Inc. The operations of Duraskid (New
England) L.L.C. were terminated on March 31, 1999. The assets, liabilities and
operating results of Duraskid (New England) L.L.C. have been consolidated in the
financial statements as of December 31, 1998. The Company expects to dispose of
its ownership interest in Duraskid (New England) L.L.C. in 1999.

2
<PAGE>
DURA PRODUCTS INTERNATIONAL INC.

DPI has developed a proprietary process that produces a composite material made
from a combination of post industrial cellulose fibre and post consumer
plastics. The use of fibre gives the composite material its strength and the use
of high-density plastic provides durability to the material. The development of
the composite material focused on the suitability of recycled plastics, use of
different cellulose fibres, use of different bonding agents, morphology of
mixing and extrusion, and enhancing stiffness and toughness of the materials.
The result is a material whose mechanical properties are comparable to that of
hardwood.

The manufacturing process of the composite material is as follows: post-consumer
plastics are received into the plant, either flaked or baled. If baled, the
plastic is then ground into a flake. The fibre material is similar to a flour
mixture. The plastics and fibre are then fed into a weighting machine. This
machine automatically weighs the amount of plastics and fibre according to a
specified formula for feeding into a high intensity mixer. The compound is then
dumped onto a conveyor for cooling and grinding into a uniform size. The
material is then ready to be extruded into a product. At this point the compound
material is subjected to quality control procedures.

Currently the Company relies upon trade secrets to protect its proprietary
technology. However, the Company has initiated procedures for patenting the
process.

The Company intends to develop, manufacture, and sell a number of commercially
viable products incorporating its proprietary composite material based on
"green" design principles. Currently, management has specifically targeted the
pallet market for the first commercial introduction of its technology. The
pallet the Company has designed and developed is the Duraskid(R). Duraskid has
been trademarked in Canada and the United States.

The Company believes that its proprietary composite material may also be used
to make door frames, window frames, and sofit and facia for housing as well as
construction forms, baseboards, house siding, and house framing.

During 1998 and 1997, the Company focused its efforts primarily on research and
development and spent approximately $2,950,499 and $1,240,000, respectively,
pursuing these efforts. The Company intends to continue to develop additional
products and devote significant resources to its research and development
efforts.

3
<PAGE>
DPI's primary functions are the development of corporate strategy, research and
development of new products, ongoing process and product improvement, securing
investment capital and partner development. Each new product or product group
will be organized into a separate subsidiary with its own management. This
will enable management to focus on its distribution channel and customer base.

DURASKID

The Product

Duraskid pallets are manufactured in the following manner. The composite
material is loaded into the extruder hopper that allows the material to be drawn
into the extruder barrel as the extruder screw turns. At the end of the barrel,
the extrusion profile die shapes the molten compound into the specific profile
shape, then cools it down and delivers it into a cooling water tank. The
extruded profile emerges from the water tank as a solid and strong profile,
which is then automatically cut to length by a traveling cut-off saw. The
Company's extrusion system is a state-of-the-art system with fully computerized
control and monitoring systems. Processing temperature, pressure, speed, and
load, are all automatically controlled and monitored with automatic shutdown if
preset safety thresholds are exceeded.

Manufactured profiles are subjected to strict quality control procedures.
Rejected profiles are reground and reprocessed. The stringer profiles are then
"notched" providing for four-way access. The top board, stringer, and bottom
board profiles are then loaded into an assembly jig, which automatically drills
all the screw holes and semi-automatically tightens the screws. The assembled
pallets are then sandblasted to rough up the surfaces, a bar code is then laser
etched onto the pallet, and finally the completed pallet is shipped to the
customer.

The Benefits

The Duraskid pallet is manufactured to engineered designs and material
specifications. It is heat tested at 45(degree)C (113(degree)F) and cold tested
at -25(degree)C (-13(degree)F). The standard 48"x40" Duraskid pallet has a
static load of 12,000 lbs., dynamic load of 5,000 lbs., and a rackable load of
3,000+ lbs. The following table reflects the Company's comparison of the
Duraskid pallet to wood and plastic pallets.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Duraskid Wood Plastic
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost per use Lowest High Lower
- --------------------------------------------------------------------------------------------------------------
Dimensional stability High Limited High
- --------------------------------------------------------------------------------------------------------------
Durability High Limited High
- --------------------------------------------------------------------------------------------------------------
Strength High High Low
- --------------------------------------------------------------------------------------------------------------
Rackable High High None
- --------------------------------------------------------------------------------------------------------------
Disposal DPI buys Customer pays Customer pays
- --------------------------------------------------------------------------------------------------------------
</TABLE>

4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Water absorption None High None
- --------------------------------------------------------------------------------------------------------------
Contamination None High None
- --------------------------------------------------------------------------------------------------------------
Recyclability Total Low Low
- --------------------------------------------------------------------------------------------------------------
Safety (nails/splinters) High Low High
- --------------------------------------------------------------------------------------------------------------
Repair required Low High Unavailable
- --------------------------------------------------------------------------------------------------------------
Customization High High None
- --------------------------------------------------------------------------------------------------------------
</TABLE>

The Marketing Strategy

During 1997, DPI began building market awareness of the Duraskid pallet through
a beta test program established with a number of potential customers. In
conjunction with this, the Company started building its sales and customer
service department. The marketing of the Duraskid pallet is currently focused on
creating brand name awareness. Sales of the Duraskid pallet are generated by the
Company's own sales force and through a network of independent sales agents. A
national and regional marketing program is being implemented in North America.

The Company has targeted the warehousing and manufacturing industries where the
benefits of the Duraskid pallet are readily apparent.

The Company has implemented strict quality control guidelines to ensure each
Duraskid pallet will meet the customers' needs. In addition, the Company plans
to institute a customer satisfaction program.

The Industry

The pallet industry is considered part of the overall transportation packaging
industry and is critical to global commerce. The Company views this industry as
fragmented, substantially free from government regulation and with no one
company dominating the market. Considered a "staple" industry, pallets are an
integral part of industrial production. Nearly every item manufactured or
processed is shipped and/or stored on pallets. According to the National Wood
Pallet and Container Association, in North America the annual demand for pallets
is estimated at approximately US$7 billion in the United States and US$700
million in Canada. Currently, over 90% of the pallet market uses wood pallets.

The Company believes that the fragmentation of the industry, together with
widespread dissatisfaction regarding performance, quality and handling
difficulties associated with wood pallets has become increasingly frustrating to
pallet users. Customers are recognizing the significant benefits of returnable
packaging and are demanding an integrated system approach to meet their needs.

Manufacturing and Distribution

Duraskid's only operating facility is located in Etobicoke, Ontario, Canada.
This facility consists of 14 operating lines of equipment and based on the
Company's capacity projections is capable of producing approximately 600,000
Duraskid pallets per year.

5
<PAGE>

Each operating line of equipment consists of a material feeding system,
state-of-the-art extrusion machine, profile die, water-cooling table, and
traveling cut-off saw.

As of December 31, 1998, the Company had 42 full-time employees, 30 of whom were
in manufacturing, five in research and development, three in sales and
marketing, and four in finance and administration. It is expected that by the
end of the fourth quarter of 1999 there will be approximately 60 full-time
employees, of whom 45 will be in manufacturing, five in research and
development, four in sales and marketing, and six in finance and administration.

Duraskid plans to establish a network of manufacturing and distribution
facilities throughout North America over the next three years. After this has
been implemented, it is the Company's intent to then expand the program to
Europe and Southeast Asia.

ENVIRONMENTAL CONSIDERATIONS

Corporate responsibility for the environment exists throughout the product life
cycle. DPI is committed to the goal of being an eco-efficient manufacturer of
products that incorporate the principles of "green" design, satisfying customer
requirements at competitive prices and creating substantial shareholder value.

In 1990 more than 40% of all hardwood was used in the manufacture of wood
pallets. This equates to an average of six pallets made per tree. In 1995 it was
estimated that 223 million pallets went into landfills in the US, in excess of
six million tons of wood. It is expected that by the year 2000 government
legislation will ban the disposal of wooden pallets in landfill sites. Many
countries have already imposed strict regulations regarding the shipping of
product on wooden pallets.

In order to prevent pollution, eco-efficient manufacturing requires efficient
use of materials, substitution of recycled materials for virgin materials
whenever possible, and minimal production of waste through internal reuse. The
Company's production processes are designed to meet these requirements. For
example, in the Company's manufacturing process, cooling water is continuously
recycled and particulate generated by cutting and notching is returned to feed
stock.

"Green" design principles require that the Company's products be reusable,
repairable and recyclable. The fundamental building block that supports all of
our product development efforts is our proprietary composite technology.
Ninety-eight percent of the Company's composite material is made from recycled
materials, post industrial cellulose fibre and post consumer plastics.
Additionally, at the end of a Duraskid pallet's useful life, the Company will
offer a customer credit towards the purchase of a new Duraskid pallet. The old
Duraskid pallet will be ground up and made into a new Duraskid.

6
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

The Company's corporate offices and only manufacturing facility is located at 60
Carrier Drive, Etobicoke, Ontario, Canada M9W 5R1, a 65,000 square foot
facility. Approximately 5,000 square feet is being used for executive and
administrative offices and the balance for manufacturing. The facility is leased
for a five-year term expiring in October 2000 and the Company has the option to
renew for an additional five year period. The Company also has an option to
acquire the property for approximately $2.1 million.

Subsequent to December 31, 1997, Duraskid (New England), L.L.C. entered into a
lease agreement to lease a 135,000 square foot manufacturing facility located in
Andover, Massachusetts. The lease is for a six-year term, with one six-year
renewal option. DPI has guaranteed unconditionally the full performance of
Duraskid (New England), L.L.C. under the lease. Commercial operations were not
achieved in 1998 as a result of cost overruns and the inability to secure
adequate financing to complete the acquisition and commissioning of production
equipment. Operations were terminated in March, 1999. (See Item 3 - "Legal
Proceedings")

ITEM 3. LEGAL PROCEEDINGS

Legal Proceedings

From time to time the Company encounters lawsuits arising from business
activities, which are discussed below.

1) During 1996, the Company acquired through its acquisition of Dura Skid a
licensing agreement with SRP Industries Ltd. ("SRP") the right to utilize
certain SRP technologies. The licensing agreement required the payment of
certain minimum royalties and potential additional royalties based upon future
sales. During early 1997, the Company determined that SRP's technology was not
commercially viable as it relates to the production process used by the Company,
requiring the Company to develop and commercialize its own technology at
significant cost and time to the Company. In addition, SRP was unable to provide
any of the required technical support services under the terms of the agreement
and management thereby concluded that SRP was in breach of this agreement.
Accordingly, the Company filed a claim against SRP in April 1997 to seek damages
of approximately $5.0 million and to terminate the agreement. In October 1997,
SRP filed a counterclaim against the Company for $10 million, claiming that the
Company inappropriately terminated the agreement, enriched itself with SRP's
technology with no compensation to SRP, and induced key employees of SRP to
accept employment with the Company. No action occurred during 1998 or subsequent
to year end on this claim or counterclaim.

2) In November 1996, the Company entered into a consulting contract with Coby
Capital Corporation ("Coby") to provide assistance in raising investment capital
and related services for a period of up to two years. The Company terminated the
agreement for non-performance on the part of Coby. However, Coby has filed an
action claiming payment of retainer fees, out-of-pocket expenses, placement
fees, and stock options. The total amount of the claim is approximately
US$720,000. During 1998, the action was moved from the State of New York to the
State of Connecticut. No further action occurred during 1998 or subsequent to
year end.
7
<PAGE>

3) In July 1998, a former consultant to the Company filed a statement of claim
against the Company. The claim was also filed against a Director and a former
Director of the Company. The consultant is claiming the Company owes
approximately $29,000 for services and expenses. The consultant claims that he
was a party to the transaction to acquire the technology license agreement,
which formed part of the Dura Skid purchase in 1996. As a party to the
transaction, the consultant is claiming that the Director agreed to assign
200,000 common shares and 100,000 common share purchase warrants of the Company
owned by the director, plus 100,000 stock options were to have been granted to
him. The consultant is claiming these shares, warrants, and options have a value
of approximately $1.9 million.

4) In September 1998, a former shareholder of the Company filed a statement of
claim against the Company. The claim was also filed against a Director of the
Company and a third party. The former shareholder is claiming that as part of
the transaction between him and a Director of the Company and the third party,
whereby the former shareholder privately sold his shareholding, the Company
agreed to transfer its ownership in 15 mining claims to him. The Company wrote
off its investment in the 15 mining claims as at December 31, 1995 and in 1996
sold the subsidiary that held the mining claims for $2.00 to a director. The
director has no intent in pursuing the commercializing of these mining claims
and has agreed to pay to the Company any profits arizing from the resale of
these mining claims.

5) An action has been launched against the Company by a former employee,
claiming wrongful dismissal, unpaid wages, vacation pay, and expenses totaling
approximately $180,000. The former employee also claims that the Company is in
possession of certain intellectual property which is the property of the former
employee. The Company has accrued an amount which is not material to the
consolidated financial position of the Company for unpaid wages and expenses.
The Company is of the opinion that the remainder of the claim is without merit.

6) Subsequent to the year end the landlord for 44 Lowell Junction Rd., the
building that housed the Andover joint venture, filed a ststement of claim
against the Company as guarantor of the Andover lease. The landlord is claiming
damages of US$1.4 million for unpaid and future rents and leasehold
improvements. The Company acknowledges its abligation as guarantor and is
currently in discussions with the landlord to settle the issue.

In all cases management is of the opinion that it has acted appropriately and
that the claims are without merit and will vigorously defend the claims. The
final outcome of these matters is uncertain and the potential effect, whether
material or not, on the Company's consolidated financial position is not
reasonably determinable at this time and, accordingly, no provision has been
recorded in the accounts as at December 31, 1998. However, a negative outcome in
any of these cases could have a material adverse effect on the operations of the
Company.

In addition to the lawsuits described above, the Company is currently defending
statements of claim from a number of creditors totaling approximately $1.4
million, which are currently reflected as liabilities in the consolidated
balance sheet. The Company will vigorously defend these actions but if the
creditors were to be successful in obtaining a judgment against the Company, it
would have a material adverse effect on the Company's ability to continue as a
going concern.
8
<PAGE>

ITEM 4. CONTROL OF REGISTRANT

(a) Direct or Indirect Control by Another

To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by a single person, a group of persons or by
another corporation or by any foreign government.

(b) Ownership of Voting Securities

As of December 31, 1998, 23,616,599 common shares of the Company were issued and
outstanding. At such date, the persons or groups known to the Company to own
more than 10% of the Company's issued and outstanding shares and the number of
common shares owned by officers and directors of the Registrant as a group are
as follows:

<TABLE>
<CAPTION>
- ----------------------------- -------------------------- -------------------------- --------------------------
Identity of Person or
Title of Class Group Amount owned Percent of Class
- ----------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
- ----------------------------- -------------------------- -------------------------- --------------------------
Common shares Officers and directors
as a group 530,389 (1) 2.2% (2)
- ----------------------------- -------------------------- -------------------------- --------------------------

- ----------------------------- -------------------------- -------------------------- --------------------------
</TABLE>

(1) Shares owned by officers and directors include currently exercisable
options to purchase up to 365,000 shares of Common Stock held by
directors and officers of the Company. Options to purchase up to 164,965
shares are exercisable at $0.70 per share until June 2001, options to
purchase up to 168,440 shares are exercisable at $1.10 per share until
January 2002 and options to purchase up to 31,595 shares are exercisable
at $2.00 per share until July 2002.

(2) The percentage of class is calculated based on a total number of shares
of 23,981,599 which includes the 23,616,599 common shares issued and
outstanding as of December 31, 1997 and the 365,000 currently exercisable
options held by the directors and officers of the Company.

(3) Change of Control Arrangements

There are no arrangements known to the Company, the operation of which
may, at a date subsequent to the date of this Registration Statement,
result in a change in control of the Company.

9
<PAGE>
ITEM 5. NATURE OF TRADING MARKET

The common shares of the Company are quoted on the Canadian Dealing Network Inc.
under the symbol "DURP", CUSIP number 265904102 and on the NASDAQ Bulletin Board
under the symbol "DRPDF". The Company has no other class of securities which are
publicly traded.

As of March 31, 1999, approximately 48.4% of the issued and outstanding common
shares were held in the United States by approximately 36 record holders.

The U.S. Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. The Company's
securities are covered by the penny stock rules, which impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by the rule, the broker-dealers
must make a special suitability determination for the purchase and receive the
purchaser's written agreement of the transaction prior to the sale.
Consequently, the rule may affect the ability of purchasers to sell their shares
in the secondary market.

The trading history of the Company's Common Stock on the Canadian Dealing
Network, Inc. is as follows:

-------------------- -------------------- --------------------
Quarter ended High sales prices Low sales prices
-------------------- -------------------- --------------------
03/31/96 $0.75 $0.35
-------------------- -------------------- --------------------
06/30/96 $1.19 $0.50
-------------------- -------------------- --------------------
09/30/96 $1.10 $0.65
-------------------- -------------------- --------------------
12/31/96 $1.10 $0.75
-------------------- -------------------- --------------------
03/31/97 $4.40 $0.75
-------------------- -------------------- --------------------
06/30/97 $2.45 $1.75
-------------------- -------------------- --------------------
09/30/97 $3.15 $1.80
-------------------- -------------------- --------------------
12/31/97 $4.20 $2.25
-------------------- -------------------- --------------------
03/31/98 $5.50 $3.50
-------------------- -------------------- --------------------
06/30/98 $5.50 $3.25
-------------------- -------------------- --------------------
09/30/98 $3.45 $2.10
-------------------- -------------------- --------------------
12/31/98 $2.95 $1.40
-------------------- -------------------- --------------------
03/31/99 $1.50 $0.43
-------------------- -------------------- --------------------
06/30/99 $0.63 $0.30
-------------------- -------------------- --------------------

10
<PAGE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

(a) Governmental Laws or Decrees

There is no law, governmental decree or regulation in Canada that restricts the
export or import of capital, including foreign exchange controls, or that
affects the remittance of dividends, interest or other payments to non-resident
holders of common shares, other than withholding tax requirements and potential
capital gains on the disposition of the common shares under certain
circumstances. (See "Item 7. Taxation").

(b) Limitation on Voting Rights

There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Company on the right of a non-resident to hold or
vote common shares of the Company, other than as provided in the Investment
Canada Act (Canada) (the "Investment Act"). The following discussion summarizes
the principal features of the Investment Act for a non-resident who proposes to
acquire common shares of the Company. It is general only, it is not a substitute
for independent advice from an investor's own advisor, and it does not
anticipate statutory or regulatory amendments. To the Company's knowledge, no
amendments are pending or contemplated at this time.

The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture that is not a "Canadian" as defined in the Investment Act (a
"non-Canadian"), unless after review the minister responsible for the Investment
Act (the "Minister") is satisfied that the investment is likely to be of net
benefit to Canada.

An investment in common shares of a company by a non-Canadian other than an
"American" (as that term is defined in the Investment Act and used in this
discussion) when a company was not controlled by an American, would be
reviewable under the Investment Act if it was an investment to acquire control
of a company and the value of the assets of a company was $5,000,000 or more, or
if an order for review was made by the federal cabinet on the grounds that the
investment related to Canada's cultural heritage or national identity.

An investment in common shares of a company by an American, or by a non-Canadian
when a company is controlled by an American, would be reviewable under the
Investment Act if it were an investment to acquire control of a company and the
value of the assets of a company was not less than a specified amount which for
1994 is $150,000,000, and for subsequent years is $153,000,000 in terms of
"constant 1992 dollars". A non-Canadian would acquire control of a company for
the purposes of the Investment Act if he acquired a majority of the common
shares of that company. The acquisition of less than a majority but one third or
more of the common shares of a company would be presumed to be an acquisition of
control of that company unless it could be established that, on the acquisition,
a company was not controlled in fact by the acquiror through the ownership of
common shares.

Certain transactions relating to common shares of a company would be exempt from
the Investment Act, including:

(a) acquisition of common shares of a company by a person in the ordinary
course of that person's business as a trader or dealer in securities,

(b) acquisition of control of a company in connection with the realization of
security granted for a loan or other financial assistance and not for a
purpose related to the provisions of the Investment Act, and

(c) acquisition of control of a company by reason of an amalgamation, merger,
consolidation or corporate reorganization following the ultimate direct or
indirect control in fact of a company.

11
<PAGE>

ITEM 7. TAXATION

The following is a summary of certain material Canadian federal income tax
provisions applicable to United States corporations, citizens and resident alien
individuals purchasing, holding and disposing of common shares. The discussion
is only a general summary and does not purport to deal with all aspects of
Canadian federal taxation that may be relevant to shareholders, including those
subject to special treatment under the income tax laws. Shareholders are advised
to consult their own tax advisors regarding the Canadian federal income tax
consequences of holding and disposing of the Company's common shares, as well as
any consequences arising under U.S. federal, state or local tax laws of other
jurisdictions outside the United States. The summary is based on the assumption
that, for Canadian tax purposes, the purchasers or shareholders (i) deal at
arm's length with the Company, (ii) are not residents of Canada, (iii) hold the
common shares as capital property, and (iv) do not use or hold common shares in,
or in the course of, carrying on business in Canada (a "Non-Resident Holder").

This summary is not exhaustive of all possible income tax considerations and
shareholders and prospective purchasers of the Company's shares of Common Stock
are advised to consult with their own tax advisors with respect to their
particular circumstances.

Dividends paid to U.S. residents by the Company on the common shares generally
will be subject to Canadian non-resident withholding taxes. For this purpose,
dividends will include amounts paid by the Company in excess of the paid-up
capital of the common shares on a redemption or a purchase for cancellation of
such shares by the Company (other than purchases on the open market). For U.S.
corporations owning at least 10% of the voting stock of the Company, the
dividends paid by the Company are subject to a withholding tax of 5% under the
Canada-U.S. Income Tax Convention (1980), as amended by Protocol signed on March
17, 1995 (the "Treaty"). For all other U.S. shareholders, the Treaty reduces the
withholding tax rate from 25% to 15% of the gross dividend. Other applicable tax
treaties may reduce the Canadian tax rate for other Non-Resident Holders. Any
amounts paid for Canadian withholding taxes may be taken as a credit against
U.S. taxes.

A Non-Resident Holder will generally not be subject to tax in Canada on capital
gains realized from disposition of common shares, unless such shares are
"taxable Canadian property" within the meaning of the Income Tax Act (Canada).
Generally, the common shares would not be taxable Canadian property unless the
Non-Resident Holder, together with related parties, at any time during the five
years prior to the disposition of the common shares owned not less than 25% of
the issued shares of any class of the capital stock of the Company. Under the
Treaty, a resident of the United States will not be subject to tax under the
Income Tax Act (Canada) in respect of gains realized on the sale of common
shares which constitute "taxable Canadian property", provided that the value of
the common shares at the time of disposition is not derived principally from
real property located in Canada.

12
<PAGE>

ITEM 8. SELECTED FINANCIAL DATA

The selected financial data set forth in the following table is expressed in
Canadian dollars. For a history of the exchange rates for Canadian dollars in
terms of U.S. Dollars see Item 1, "Description of Business", above. The
financial information set forth in the following table includes the accounts of
the Company and subsidiaries on a consolidated basis. This financial information
was prepared in accordance with accounting principles generally accepted in
Canada, the application of which conforms in all material respects for the
periods presented with accounting principles generally accepted in the United
States, except to the extent noted in Note 10 to the Consolidated Financial
Statements appearing elsewhere in this Registration Statement. The selected
financial data should be read in conjunction with and is qualified by such
Consolidated Financial Statements and the Notes thereto.

<TABLE>
<CAPTION>
- ----------------- ------------ ------------ ------------ ------------ ------------
Year ended Year ended Year ended Year ended Year ended
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
1998 1997 1996 (1) 1995 1994
------------ ------------ ------------ ------------ ------------
$ $ $ $ $
- - - - -
- ----------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue 311,527 60,362 Nil Nil Nil
- ----------------- ------------ ------------ ------------ ------------ ------------
Net (loss)/income (8,673,172) (2,995,559) (1,314,126) (615,315) (813,610)
Net (loss)/income
per share (0.38) (0.17) (0.14) (0.11) (0.14)
- ----------------- ------------ ------------ ------------ ------------ ------------
Total assets 13,909,417 9,553,852 1,877,391 31,496 611,123
- ----------------- ------------ ------------ ------------ ------------ ------------
Capital stock 17,006,171 14,247,987 4,901,150 2,372,154 2,372,154
- ----------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
(1) Effective January 15, 1996, the Company purchased Dura Skid Inc. and changed
its business focus. Reference should be made to Item 1. Description of
Business and to Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

13
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.

GENERAL
The following discussion and analysis of the financial condition of the Company
and the results of its operations for the years ended December 31, 1998 and 1997
should be read in conjunction with the Company's consolidated financial
statements. These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. For an explanation of the
differences between Canadian and US GAAP, reference should be made to note 10 of
the consolidated financial statements. The financial statements are prepared in
Canadian dollars.

DPI is engaged in the research and development of a proprietary composite
material using recycled plastics and cellulose, and the development of
commercially viable products made from the composite material. To date, DPI has
invested all of its financial and human resources in the research and
development of the composite material. The Company intends to develop,
manufacture, and sell a number of commercially viable products incorporating its
proprietary composite material. Currently, management has specifically targeted
the pallet market for the first commercial introduction of its technology. The
pallet designed and developed by the Company has been trademarked in Canada and
the United States as the "Duraskid".

In early 1998, management of the Company determined that the assembly process as
it existed at that time for pallets was not viable, from a labour cost and
capacity perspective and determined that a more automated process was required.
The Company entered into a contract with an engineering firm to design and build
the required automated assembly equipment. Delivery of the equipment was
scheduled for the end of August but was delayed until the end of October.
Installation and testing of the equipment, by the manufacturer, took place over
the balance of 1998 and over the first five months of 1999.

The capacity to assemble pallets throughout 1998 was severely limited due to the
time delays in ordering and delivering the new assembly equipment. This meant
that the ability to sell pallets was severely limited, as the Company was not
able to commit to large orders and reasonable delivery times. As a result, the
Company's overall liquidity was adversely impacted.

During 1998 significant process changes were implemented regarding the extrusion
process. These changes altered the technology purchased through the acquisition
of Dura Skid so significantly that the value of that technology was
questionable. Accordingly, the value ascribed to the technology was written off.
The Company also undertook a review of its capital assets to determine if any
surplus and/or obsolete equipment existed. As a result, a write-down of
$1,654,957 was taken for both the technology and capital assets.

14
<PAGE>
In late 1997, the Company entered into a joint venture agreement to manufacture
and distribute Duraskid pallets in New England and upper New York state.
Duraskid (New England) L.L.C. was formed, of which the Company owned 51%. During
1998, the Company invested approximately $580,000 and the 49% partners invested
approximately $2 million, consisting of equity of $551,000, subordinated
debenture of $1,150,000, and advances of $318,000. An operating lease was
entered into for a 135,000 square foot facility located in Andover,
Massachusetts. This lease was for a six-year term with an option to renew for a
further six years. In addition, equipment for 15 extrusion lines was ordered,
along with related support equipment. During the course of 1998, Duraskid (New
England) L.L.C. experienced cost overruns, process changes, delays in delivery
of equipment, and the inability to complete borrowing arrangements. Borrowing
arrangements for approximately US$2.6 million was secured for the extrusion
machines. However, additional planned financing of US$2.0 million was not
completed. Note 1 to the consolidated financial statements presents a condensed
balance sheet of Duraskid (New England) L.L.C. As a result of these issues and
the Company's lack of adequate financial resources, the Company and its minority
interest partners decided subsequent to year end to abandon the Andover
facility. Subsequently, certain creditors of Duraskid (New England) L.L.C. have
re-possessed certain capital assets with a carrying value of approximately $5.4
million.

The capacity constraints at the Toronto facility and the problems related to the
Andover facility adversely impacted sales, earnings and cash flow that, in turn
reduced working capital and overall liquidity. The Company incurred a
consolidated loss of approximately $8.7 million, $0.38 loss per share in 1998
and had a working capital deficit of approximately $10.9 million at December 31,
1998. The loss of the Company's Canadian geographic segment (Note 10) was
approximately $7.4 million. The Company was in breach of its liquidity and
leverage ratios and minimum revenues relating to equipment financing, which have
continued subsequent to year end. Therefore, the total owing under capital
leases has been classified as current on the consolidated balance sheet. The
impact of this was to increase the working capital deficiency by approximately
$4.2 million.

In addition to the lawsuits discussed (See Item 3 - "Legal Proceedings") in more
detail below under Risks and Uncertainties, the Company is currently defending
statements of claims from a number of creditors totaling approximately $1.4
million, which are currently reflected as liabilities in the consolidated
balance sheet.

The Company's ability to operate as a going concern is dependent upon obtaining
additional capital, the continued financial support of its creditors, the
achievement of profitable operations, and the satisfactory resolution of
litigation matters. The outcome of these matters cannot be predicted at this
time. The consolidated financial statements do not give effect to any
adjustments which would be necessary should the Company be unable to continue as
a going concern and, therefore, be required to realize its assets and discharge
its liabilities in other than the normal course of business and at amounts
different from those reflected in reflected in the accompanying consolidated
financial statements.

15
<PAGE>
1998 OPERATING RESULTS

The Company continued to have limited revenues in 1998 of approximately $312,000
versus $61,000 for 1997. As mentioned above, sales were adversely impacted by
delays in equipment deliveries and commissioning and process changes.

Because of the ongoing production problems, the Company was unable to achieve
planned commercial production. The operations were still essentially research
and development for 1998 and, accordingly, all costs related to production have
been classified as research and development, which are expensed as incurred.
These costs amounts to approximately $3.0 million, consisting of salaries and
wages, raw materials, rent, utilities, repairs and maintenance. These costs
increased 138% over 1997, reflecting increased activity in the effort to achieve
commercial production levels, both on a capacity level and a cost basis.

General and administrative expenses amounted to approximately $3.6 million for
1998, an increase of 175% over 1997. Included in this amount is approximately
$1.8 million related to the Andover facility. These expenses consist of salaries
and wages, legal, accounting, consultants' fees, and general office expenses.

Amortization of capital assets was approximately $684,000 versus $185,000 in
1997. This is a result of a full year of amortization of production equipment in
1998.

Interest expense amounted to approximately $214,000 versus $43,000 in 1997. This
is mainly comprised of interest on capital lease financing and increased over
1997 due to the increased levels of borrowings.

Write-down of assets amounted to approximately $1.7 million, consisting of
capital asset write-downs of $1,023,000 and write-off of technology of $630,000.

Sales and marketing expenses amounted to approximately $379,000 versus $262,000
in 1997. The increase of 45% was a result of increase sales efforts in 1998 to
introduce the Duraskid pallet into the marketplace, branding and the attendance
at trade shows.

Loss for the year was approximately $8.7 million, or $0.38 per share. The
increase in the loss per share amount was partly reduced by the increase in the
weighted average number of common shares outstanding during the year from
approximately 18 million in 1997 to 23 million in 1998.

1997 OPERATING RESULTS

The Company had limited revenues of approximately $61,000. Sales were limited
due to the completion of design changes to the board profiles, process
improvements and equipping the Toronto facility to handle planned production
capacity.

All costs related to research and development were expensed as incurred. These
costs amounted to approximately $1.2 million, consisting of salaries and wages,
raw materials, rent, utilities, repairs and maintenance. These costs increased
85% over 1996, reflecting increased activity in the effort to complete work on
the composite material and the development and testing of the Duraskid pallet.

General and administrative expenses amounted to approximately $1.3 million for
1997. Such expenses consisted of salaries and wages, legal, accounting, and
consultants' fees, rent, utilities, business and property taxes, and general
office expenses. These costs increased significantly over 1996, reflecting
increased activity in anticipation of the commercialization of the Duraskid
pallet.

16
<PAGE>
Sales and marketing expenses of approximately $262,000 consisted of salaries and
wages, and advertising and promotion. There were no direct sales and marketing
expenses in 1996 as the Company was solely focused on completing its research
and development of the composite material.

Net loss for 1997 was approximately $3.0 million, or $0.17 per share. The
increase in the loss per share was partly reduced by the increase in the
weighted average number of common shares outstanding during the year from
approximately 9.6 million if 1996 to approximately 18.0 million in 1997.

CAPITAL INVESTMENTS

The Company invested approximately $1 million in capital assets at its Toronto
facility in 1998. This brings the Company's total capital investment in the
Toronto facility to approximately $7.3 million, of which approximately $520,000
was written-off in 1998. Approximately $8.0 million was invested in the Andover
facility, of which approximately $500,000 was written-off in 1998. Of the $7.9
million, approximately $3.7 million was financed by capital lease. As at
December 31, 1998, and subsequent to year end, Duraskid (New England) L.L.C. was
in arrears in its monthly payments and was in breach of its financial covenants.
Subsequent to year end, the lender exercised its rights under these events of
default and repossessed the equipment. Dura Products International Inc. and the
minority interest partner have provided a guarantee for the capital lease.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash used by operating activities was approximately $4.7 million
versus approximately $3.1 million in 1997. This increase is a result of the
negative impacts of limited operations in 1998. Offsetting this was the
collection of accounts receivable and the significant increase in accounts
payable and accrued liabilities.

Cash used in investing activities was approximately $2.6 million versus
approximately $3.8 million in 1997, mainly related to the acquisition of capital
assets. A total of approximately $9.0 million was invested in capital assets.
However, approximately $6.4 million was considered to be non-cash as it was
funded by capital lease or acquired but not yet paid for.

The Company's net cash provided by financing activities for 1998 was
approximately $5.3 million and consisted of approximately $2.8 million from the
issuance of approximately 1.7 million common shares, $722,000 in short-term
loans, and $2.0 million capital and debt contributions from the minority
interest partners.

As at December 31, 1998, the Company had cash on hand of $90,987 and a working
capital deficiency of approximately $10.9 million. At year end, the Company had
outstanding approximately 1.6 million common share purchase warrants, which
expired, unexercised, on March 23, 1999.

RISKS AND UNCERTAINTIES

A) GENERAL

The profitability of Dura Products is subject to a number of risk factors
including: successful commencement of commercial operations; market acceptance
of the Company's products; competition; effectively meeting the challenges set
out below in the Outlook section, the ability to raise additional capital; the
ability to attract additional key individuals; and continued improvement upon
and protection of the Company's intellectual property.

17
<PAGE>
At the Company's last annual general meeting, the shareholders elected five
individuals to serve as Directors of the Company. Since that time three
Directors have resigned. The remaining Directors determined that the vacancies
would not be filled until the 1998 annual meeting is held. Since year-end
several members of management have resigned, including the President of Dura
Skid Inc. and the Chief Financial Officer of the Company. The position of
President of Dura Skid Inc. has been eliminated and the Company is in the
process of hiring a new Chief Financial Officer. In addition, the Company is
seeking an individual with extensive manufacturing experience to join the senior
management group.

B) LEGAL MATTERS

From time to time the Company encounters lawsuits arising from business
activities, which are discussed below.

18
<PAGE>
4) In September 1998, a former shareholder of the Company filed a statement of
claim against the Company. The claim was also filed against a Director of the
Company and a third party. The former shareholder is claiming that as part of
the transaction between him and a Director of the Company and the third party,
whereby the former shareholder privately sold his shareholding, the Company
agreed to transfer its ownership in 15 mining claims to him. The Company wrote
off its investment in the 15 mining claims as at December 31, 1995 and in 1996
sold the subsidiary that held the mining claims for $2.00 to a director. The
director has no intent in pursuing the commercialization of these mining claims
and has agreed to pay to the Company any profits arising from the ultimate
disposal of these mining claims.

C) YEAR 2000

Certain computer programs and microprocessors use two digits rather than four to
define the applicable year. Any computer programs that have date-sensitive
software and microprocessors may recognize a date using "00" as the year 1900
rather than 2000. While not as potentially damaging as in other industries (such
as the high technology and financial services industries), this phenomenon could
cause a disruption of the Company's operations, including, among other things, a
temporary inability to utilize manufacturing equipment, send invoices, or engage
in similar normal business activities. Management believes the Company is
substantially year 2000 compliant with respect to its manufacturing operations
including related process control equipment and its selling, general and
administration operations. It is Company policy that prior to purchasing any new
equipment or software that the specifications include year 2000 compliance.
However, there can be no guarantee that the systems of other companies on which
the Company's systems will rely, will be converted on a timely basis, or that a
failure to convert by another company, or a conversion that is incompatible with
the Company's systems, would not have a material impact on the Company. Based on
its current assessment, management believes that year 2000 compliance will not
have a material adverse impact on the future operations of the Company.

19
<PAGE>
OUTLOOK

The difficulties experienced in 1998 continued into 1999 and have significantly
strained working capital resources. The challenges for 1999 include the
following:

- - Raise a minimum of $2 million to restore balance sheet liquidity;

- - Successfully introduce new decking and fencing products;

- - Build on the previous Duraskid sales and marketing efforts;

- - Eliminate production bottlenecks such as assembly, compounding and surface
treatment to increase production throughput and achieve profitability;

- - Restructure the balance sheet and eliminate the financial impact of the
closure of the Andover facility;

- - Hire an individual from a well qualified manufacturing operation; and

- - Strengthen the Board of Directors with individuals that have substantial
experience related to the activities of the Company.

The Company is actively seeking additional equity capital in order to strengthen
working capital, reduce liabilities and purchase additional production
equipment.

1999 will be a year of retrenchment. Management is focused on resolving the
issues identified above, however, the failure to resolve these issues will cause
the Company to fail and the Company to be liquidated.

The Company and the creditors of Duraskid (New England) LLC are in the process
of liquidating the assets of the Andover facility. If successful, the assets and
liabilities of the Company will be substantially reduced. The Company is
contingently liable for guarantees of the real estate lease for the Andover
facility and the capital lease for the extrusion equipment at the Andover
facility. The ultimate settlement of these liabilities and the resulting
liabilities for the Company are not yet known. These liabilities could have a
significant adverse impact on the ability of the Company to operate as a going
concern. Dura Products International Inc. has accrued its best estimate of its
exposure relating to Andover.

The Company faces many challenges to its survival, however, management of the
Company is guardedly optimistic that these challenges will be successfully
overcome.

20
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
- --------------------------- --------------------------- --------------------------------------
Name Position Term
- --------------------------- --------------------------- --------------------------------------
<S> <C> <C>
Michael P. Zuk Director, President and CEO Director since September 1998 and
President and CEO since September 1998
- --------------------------- --------------------------- --------------------------------------
John Winter Director, VP Manufacturing Director since May 1996 and VP
Manufacturing since December 1995
- --------------------------- --------------------------- --------------------------------------
</TABLE>

All directors hold office until the next annual meeting of the shareholders of
the Company and until their successors have been elected and qualified. Officers
of the Company serve at the discretion of the Board of Directors.

There are no arrangements or understandings between any of the directors or
officers of the Company and any other person pursuant to which they were
selected as a director or officer of the Company. There are no family
arrangements between any director or officer of the Company and any other
director or officer of the Company.

21
<PAGE>

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS

Compensation Summary

The table below sets forth information concerning the compensation of the
Company's chief executive officer and for all officers as a group for the
Company's financial years ended December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
- -------------- ----------------------------------------------------- -----------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- -------------- ----------------------------------------------------- -----------------------------------------------------
Name and Year Salary ($) Bonus ($) Other Awards Awards Payouts All other
principal annual securities restricted LTIP (2) compensation
position compensation under Shares or Payouts ($)
($) option/ restricted ($)
SARs (1) share
granted (#) units ($)
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Keith 1998 186,865 Nil Nil Nil/Nil Nil Nil Nil
Carrigan 1997 168,160 Nil Nil 200,000/Nil Nil Nil Nil
President 1996(3) 112,000 Nil Nil 200,000/Nil Nil Nil Nil
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Michael P. Zuk 1998 40,000(4) Nil Nil Nil/Nil Nil Nil Nil
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Officers 1998 326,865 Nil Nil Nil/Nil Nil Nil Nil
as a group 1997 381,910 Nil Nil 550,000/Nil Nil Nil Nil
1996 239,500 Nil Nil 575,000/Nil Nil Nil Nil
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>

(1) Stock appreciation rights
(2) Long term incentive plans
(3) Mr. Carrigan was succeeded as President of the Company by Mr. Zuk on
August 31, 1998
(4) Mr. Zuk recieved no compensation in 1998 as President of the Company.

For each of the financial years ended December 31, 1998, 1997, and 1996, there
were no standard arrangements by which directors of the Company were compensated
for their services to the Company as directors. Directors participate in the
Company's stock option plan.

22
<PAGE>

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

(a) Stock Option Plan

On April 17, 1996, the board of directors of the Company approved the
establishment of a stock option plan (the "1996 Plan") relating to the common
shares ("Common Shares") of the Company. Disinterested shareholders of the
Company passed a resolution approving the establishment of the 1996 Plan on May
30, 1996. Eligibility for participation in the 1996 Plan is restricted to
directors, officers, employees and consultants of the Company and its affiliates
and other designated persons and their personal holding companies and registered
retirement savings plan ("RRSP's"). The number of Common Shares subject to
options granted under the 1996 Plan (and under all other management options and
employee stock purchase plans) is limited, in the aggregate, to 5,000,000. The
maximum number of Common Shares which may be reserved for issuance to any one
person, including insiders of the Company under the 1996 Plan, is not limited
except to the extent that at no time may such number exceed 5% of the number of
issued and outstanding Common Shares. The exercise price of any option granted
under the 1996 Plan may not be less than the fair market value (e.g., the
prevailing market price) of the Common Shares at the time the option is granted.
Options issued under the 1996 Plan may be exercised during a period determined
by the board of directors which cannot exceed five years and are subject to
earlier termination upon the termination of the optionee's employment, upon the
optionee ceasing to be a director and/or officer of the Company or any
subsidiary, or upon the retirement, permanent disability or death of an
optionee. The options issued under the 1996 Plan are non-transferable. The
Company does not provide any financial assistance to participants under the 1996
Plan to facilitate the purchase of Common Shares.

As of December 31, 1998, the following options were outstanding:

Number of options Expiry date Purchase price
----------------- ----------- --------------
164,965 June 27, 2001 $0.70
168,440 January 27, 2002 $1.10
535,000 July 9, 2002 $2.00
100,000 October 27, 2003 $2.55
75,000 September 1, 2002 $2.80
30,000 January 26, 2003 $3.75

As of December 31, 1998, directors and officers as a group held options to
purchase up to 365,000 common shares of the Company.

(b) Shareholder Rights Plan

On April 23, 1997, the board of directors of the Company (the "Board") adopted
the Dura Products International Inc. shareholder rights plan (the "Rights
Plan"). The Rights Plan, which was subsequently approved by the shareholders of
the Company, is effective as of April 23, 1997, and will expire on December 31,
2002.

The objectives of the Rights Plan are to ensure, to the extent possible, that
all shareholders of the Company are treated equally and fairly in connection
with any take-over bid for the Company. Take-over bids may not always result in
shareholders receiving equal or fair treatment or full value for their
investment. In addition, current Canadian securities legislation only requires a
take-over bid to remain open for 21 days. The Board believes that this period

23
<PAGE>
may be insufficient for the Board to evaluate a bid, pursue alternatives which
could maximize the shareholder value, and make informed recommendations to the
shareholders.

The Rights Plan discourages discriminatory or unfair take-over bids for the
Company and gives the Board time, if appropriate, to pursue alternatives to
maximize shareholder value in the event of unsolicited take-over bid for the
Company. The Rights Plan will encourage a potential offeror to proceed by way of
a permitted bid or to approach the Board with a view to negotiation, by creating
the potential for substantial dilution of any offeror's position. The permitted
bid provisions of the Rights Plan are designed to ensure that, in any take-over
bid, all shareholders are treated equally, receive the maximum value for their
investment and are given adequate time to properly assess the take-over bid on a
fully informed basis. However, it should be noted that the terms of The Rights
Plan could deter potential acquisitions of the Company in circumstances where
such bids would result in premiums for shareholders.

Pursuant to the Rights Plan, one Right has been issued by the Company pursuant
to the Rights Agreement in respect of each Common Share outstanding at the Close
of Business on April 23, 1997 (the "Record Time"). One Right will also be issued
for each additional Common Share issued after the Record Time and prior to the
earlier of the Separation Time (as defined below), the expiry date of the Rights
Plan or the day on which the right to exercise Rights expires.

The Separation Time is defined in the Rights Agreement as the Close of Business
on the 10th day (or such earlier or later day as may be determined by the Board)
after the earlier of: public disclosure that a person has become an Acquiring
Person (defined in the Rights Agreement as a person who has acquired, other than
pursuant to an exemption available under the Rights Plan or a permitted bid,
beneficial ownership of 10% percent or more of the Voting Shares of the
Company); and the date of the commencement of, or first public announcement of
an intention to commence, a take-over bid (other than a permitted bid) to
acquire beneficial ownership of 20% percent or more of the Common Shares.

Each Right will entitle the registered holder to purchase from the Company one
Common Share at a price per share equal to 50% of the then fair market value,
subject to certain anti-dilution adjustments. The Rights, however, will not be
exercisable until the Separation Time.

Until the Separation Time, the Rights will trade together with the Common
Shares, will be represented by the Common Share certificates and will not be
exercisable. After the Separation Time, the Rights will become exercisable, will
be evidenced by Rights certificates and will be transferable separately from the
Common Shares.

If an offeror successfully completes a permitted bid, the Board shall be deemed
to have elected to redeem the Rights at $0.001 per Right, appropriately adjusted
for anti-dilution, and no further Rights will be issued.

A permitted bid, even if not approved by the Board, may be taken directly to the
shareholders of the Company. Shareholder approval at a special meeting will not
be required for a permitted bid. Instead, shareholders of the Company will
initially have 60 days to deposit their shares. If more than 50 percent of the
outstanding Common Shares (other than Common Shares beneficially owned by the
offeror on the date of the take-over bid) have been deposited and not withdrawn
by the end of such 60-day period, the bid must be extended for a further period
of 10 days to allow initially disapproving shareholders to deposit their shares
if they so choose.

If a potential offeror does not wish to make a permitted bid, it can negotiate
with, and obtain the prior approval of, the Board to make a take-over bid on
terms which the Board considers fair to all shareholders. In such circumstances,

24
<PAGE>
the Board may waive the application of the Rights Plan to that particular
transaction or redeem the Rights, thereby allowing such bid to proceed without
dilution to the offeror.

Under the Rights Agreement, the implementation of the Rights Plan is triggered,
subject to the Board's discretion, upon the occurrence of any transaction or
event in which any person becomes an Acquiring Person. Except as set out below,
from and after the Close of Business on the 10th day following such an event:
(a) any Rights beneficially owned by the acquiring person and affiliate,
associates and transferees of the acquiring person will become void; and (b)
each Right (other than Rights which are void) will entitle the holder thereof to
purchase Common Shares at 50% of the then fair market value. Therefore, an event
triggering the implementation of the Rights Plan, if not approved by the Board,
will result in significant dilution to an Acquiring Person. The Board, at its
option and at any time prior to the occurrence of such an event, may elect to
redeem all of the outstanding Rights at a redemption price of $0.001 per Right,
appropriately adjusted for anti-dilution as set out in the Rights Agreement.

The Company may, from time to time, amend, vary or delete any of the provisions
of the Rights Agreement to, among other things: (i) make any changes which the
Board, acting in good faith, deems necessary or desirable, (ii) cure any
ambiguity or correct any inconsistency; or (iii) increase or decrease the
exercise price of the Rights. Such amendments will not require the approval of
the holders of Rights or Common Shares. The Company may, from time to time, with
the approval of a majority of the holders of Rights, amend, vary or delete any
of the provisions of the Rights Agreement (whether or not such change shall
materially adversely affect the interests of the holders of the Rights).

25
<PAGE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

(a) Material Transactions

During the year, a former Director advanced $100,000, bearing interest at 10%
per annum, to the Company for working capital purposes. Also during the year,
another Director advanced $585,034, non-interest bearing, for working capital
purposes. Total funds advanced during the year and owing at December 31, 1998
were $685,034. Subsequent to year end, the loan for $585,034 was converted to
common shares by way of private placement. The Company's minority interest
partner advanced $125,364 to Dura Products International Inc. during the year
for working capital purposes. At December 31, 1998, $36,497 remained
outstanding.

(b) Indebtedness of Directors and Officers

No director or officer of the Company, at any time during the fiscal year ended
December 31, 1997 was indebted to the Company. No director or officer of the
Company, at any time during the fiscal year ended December 31, 1996 was indebted
to the Company.

Key Employee Agreements

On May 1, 1995 the Company entered into an employment agreement with Keith
Carrigan. Mr. Carrigan holds the offices of Director, President and Chief
Executive Officer and his minimum annual compensation is $120,000. The contract
is ongoing unless otherwise terminated pursuant to the terms thereunder. Mr.
Carrigan is eligible to participate in all stock option plans, bonus plans and
other fringe benefit plans of the Company. Mr. Carrigan resigned his position on
August 31, 1998.

On January 1, 1997 the Company entered into an employment agreement with Carl
McMurray. Mr. McMurray holds the offices of Vice President Finance and Chief
Financial Officer and Secretary to the Board. His annual compensation is
$102,000, effective 1998. The contract is ongoing unless otherwise terminated
pursuant to the terms thereunder. Mr. McMurray is eligible to participate in all
stock option plans, bonus plans and other fringe benefit plans of the Company.
Mr. McMurray resigned his position on May 15, 1999.

On August 7, 1996 the Company entered into a two year employment agreement with
Weining Song. Mr. Song holds the office of Vice President Engineering and his
annual compensation is $75,000. Mr. Song was granted options to acquire 150,000
common shares and is eligible to participate in all stock option plans, bonus
plans and other fringe benefit plans of the Company. Mr. Song resigned his
position on April 23, 1999.
26
<PAGE>
PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.

Not Applicable

PART III

ITEM 15. DEFAULTS UPON SENIOR SECURITIES

The Company purchased production equipment for its production facilities in
Toronto and Boston. The equipment was financed by equipment leases as follows:

1998 1997
---- ----
Toronto equipment obligation, bearing interest
at 11.4% per annum, monthly blended payments
of $31,984 due September 2002 $1,256,195 $1,482,447
Andover equipment obligation, bearing interest
at 9.26% per annum, monthly blended payments
of US$40,317, due July 2005 3,650,147 -
Miscellaneous office equipment obligations 11,506 21,016
----------- ----------
4,917,848 1,503,463
Less current portion (4,917,848) (236,347)
----------- ----------
$ - $1,267,116
----------- ----------

Pursuant to the original agreement for the Toronto equipment, the Company had
agreed to maintain $306,000 of cash collateral in an escrow account (referred to
as "Cash in escrow" on the consolidated balance sheets), pledging as collateral
certain production-related equipment for the facility, and the maintenance of
certain financial covenants. Effective December 31, 1998, the lender requested
the payment of the $306,000, of which $136,885 was applied to 1998 lease
payments in arrears and $169,115 will be applied to 1999 lease payments and is
included in prepaid expenses. The lease agreement contains covenants which
restrict the ability of Dura Skid to transfer any assets to its parent company,
Dura Products International Inc., without the approval of the lender. As at
December 31, 1998, the Company was not in compliance with the financial
covenants of this facility which continued subsequent to year end. As a result
the lender could elect to accelerate demand of this lease and, accordingly, the
total amount owing has been classified as current in the consolidated balance
sheets. As of June 11, 1999, the Company has not received notice from the lender
indicating its intention to exercise its rights under these events of default.

Pursuant to the agreement for the Andover equipment, the Duraskid (New England)
LLC pledged 15 extrusion machines located at the Andover facility as collateral.
As at December 31, 1998, Duraskid (New England) LLC was in arrears in its
monthly payments and was in breach of its financial covenants which has
continued subsequent to year end. As a result, the total amount owing has been
classified as current in the consolidated balance sheets. Subsequent to year
end, the lender exercised its right under these events of default and
repossessed the equipment.

As a result of the restrictive nature of these binding agreements, substantially
all of the net assets of the Company which are owned by the subsidiaries are,
therefore, restricted and are not available to the parent company, Dura Products
International Inc.
27
<PAGE>

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES

Not applicable.

PART IV

ITEM 17. FINANCIAL STATEMENTS.

Not applicable.

ITEM 18. FINANCIAL STATEMENTS.

The consolidated financial statements of the Company, the accompanying notes
thereto and the independent auditors' reports are included as part of this Form
20-F and immediately follow the signature page of this Form 20-F.

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

(A) FINANCIAL STATEMENTS

The following financial statements are filed herewith:

1. Consolidated Balance Sheets as of December 31, 1998 and December 31,
1997.
2. Consolidated Statements of Operations and Deficit for the years ended
December 31, 1998, 1997 and 1996.
3. Consolidated Statements of Changes in Financial Position for the years
ended December 31, 1998, 1997 and 1996.
4. Notes to Consolidated Financial Statements.

(B) FINANCIAL STATEMENT SCHEDULES

Schedule I -- Condensed Financial Information of the Registrant

The following exhibits are filed herewith:

11.0 Computation of Earnings Per Share
27.0 Financial Data Schedule

28
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized.

DURA PRODUCTS INTERNATIONAL INC. September 15, 1999
- --------------------------------------- ------------------------------
(Registrant) (Date)

/s/ Michael P. Zuk /s/ John Winter
- --------------------------------------- ------------------------------
(Signature) (Signature)

President and Chief Executive Officer,
Director Vice President, Director
- --------------------------------------- ------------------------------

29
<PAGE>
AUDITORS' REPORT

TO THE SHAREHOLDERS OF DURA PRODUCTS INTERNATIONAL INC.:

We have audited the consolidated balance sheets of Dura Products International
Inc. as at December 31, 1998 and 1997 and the consolidated statements of
operations and deficit and cash flows for each of the years in the two-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its operations and changes in its cash flows for
each of the years in the two-year period ended December 31, 1998 in accordance
with accounting principles generally accepted in Canada.

As discussed in Note 9 to the consolidated financial statements, the Company
retroactively adopted in 1998 the new recommendations of The Canadian Institute
of Chartered Accountants relating to statement of cash flow disclosures.

The consolidated financial statements for the year ended December 31, 1996 were
audited by other auditors who expressed an opinion without reservation on those
consolidated financial statements in their report dated February 21, 1997.

Toronto, Canada, (signed) Ernst & Young LLP
June 11, 1999. Chartered Accountants

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCES

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements. The above opinion is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.

Toronto, Canada, (signed) Ernst & Young LLP
June 11, 1999. Chartered Accountants

30
<PAGE>
DURA PRODUCTS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(see Note 1 - Basis of Presentation)

December 31,
ASSETS 1998 1997
Current assets
Cash and cash equivalents $ 90,987 $ 2,044,184
Accounts receivable 41,612 25,425
Other receivables (Note 2) 64,230 278,168
Prepaid expenses (Note 8) 191,931 17,284
Inventory (Note 3) 231,454 182,862
------------ ------------
Total current assets 620,214 2,547,923

Capital assets (Notes 4, 6 and 8) 13,289,203 6,001,572
Cash in escrow (Note 8) - 306,000
Technology and license (Notes 1 and 6) - 678,357
------------ ------------
Total assets $ 13,909,417 $ 9,533,852
------------ ------------
LIABILITIES
Current liabilities
Bank indebtedness (Note 8) $ 81,689 $ -
Accounts payable 1,464,544 590,130
Accrued liabilities (Note 13) 1,005,480 207,503
Accrual for capital asset purchases 2,636,533 -
Accrued salaries 364,754 -
Capital lease obligations (Note 8) 4,917,848 236,347
Short-term loans payable (Note 12) 721,531 -
Advances from minority interest (Note 13) 317,895 -
------------ ------------
Total current liabilities 11,510,274 1,033,980
------------ ------------

Capital lease obligations (Note 8) - 1,267,116
Subordinated debenture of minority
interest (Note 13) 1,149,975 -
Minority interest - 68,600
------------ ------------
Total liabilities 12,660,249 2,369,696
------------ ------------
Commitments and contingencies (Notes 1, 8 and 11)

SHAREHOLDERS' EQUITY

Common shares, no par value, unlimited authorized:
23,616,599 and 21,983,764 issued and outstanding
December 31, 1998 and 1997 (Note 5) 17,006,171 14,247,987
Deficit (15,757,003) (7,083,831)
------------ ------------
1,249,168 7,164,156
------------ ------------

Total liabilities and shareholders' equity $ 13,909,417 $ 9,533,852
------------ ------------

(see accompanying notes to consolidated financial statements)

On behalf of the Board: (signed) Michael Zuk (signed) John Winter
Director Director

31
<PAGE>
DURA PRODUCTS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(see Note 1 - Basis of Presentation)

For the Years Ended December 31,
1998 1997 1996

REVENUE $ 311,527 $ 60,362 $ -
------------ ------------ ------------
EXPENSES
General and administration 3,652,954 1,327,211 624,941
Research and development 2,950,499 1,239,576 668,996
Write-down of assets (Note 6) 1,654,957 - -
Amortization 684,321 184,709 11,166
Sales and marketing 379,003 261,792 -
Interest expense (Note 13) 214,215 42,633 9,023
------------ ------------ ------------
9,535,949 3,055,921 1,314,126
------------ ------------ ------------

Loss before minority interest (9,224,422) (2,995,559) (1,314,126)
------------ ------------ ------------

Minority interest 551,250 - -
------------ ------------ ------------

LOSS FOR THE YEAR (8,673,172) (2,995,559) (1,314,126)

Deficit, beginning of year (7,083,831) (4,088,272) (2,774,146)
------------ ------------ ------------

Deficit, end of year $(15,757,003) $ (7,083,831) $ (4,088,272)
------------ ------------ ------------

LOSS PER SHARE FOR THE YEAR $ (0.38) $ (0.17) $ (0.14)

Weighted average common
shares outstanding 22,952,233 17,979,443 9,564,501

(see accompanying notes to consolidated financial statements)

32
<PAGE>
DURA PRODUCTS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see Note 1 - Basis of Presentation)

For the Years Ended December 31,
1998 1997 1996
(restated - see Note 9)
CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES
Loss for the year $ (8,673,172) $ (2,995,559) $ (1,314,126)
Add (deduct) non-cash items:
Write-down of assets 1,654,957 - -
Amortization 684,321 184,709 11,166
Exchange adjustment and
other amounts 27,807 - -
Minority interest (551,250) - -
------------ ------------ ------------
(6,857,337) (2,810,850) (1,302,960)
Net change in non-cash working
capital items
Accounts and other receivables 206,700 (198,488) 8,123
Prepaid expenses (5,532) (17,284) -
Inventory (48,592) (182,862) -
Accounts payable and
accrued liabilities 2,037,145 74,297 592,119
------------ ------------ ------------
(4,667,616) (3,135,187) (702,718)
------------ ------------ ------------
INVESTING ACTIVITIES
Additions to capital assets (2,602,154) (3,524,858) (1,155,308)
Cash in escrow - (306,000) -
Technology and other
intangible assets - - (39,597)
Mining properties and investments - - 1
------------ ------------ ------------
(2,602,154) (3,830,858) (1,194,904)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 2,758,184 9,346,837 2,092,996
Short-term loans payable 721,531 (341,177) (187,009)
Bank indebtedness 81,689 - -
Capital lease payments (263,951) (7,623) -
Subordinated debenture of
minority interest shareholder
of subsidiary 1,149,975 - -
Capital contributions of
minority interest 551,250 - -
Advance from minority interest 317,895 - -
------------ ------------ ------------
5,316,573 8,998,037 1,905,987
------------ ------------ ------------
Net increase (decrease) in cash
during the year (1,953,197) 2,031,992 8,365
Cash and cash equivalents,
beginning of year 2,044,184 12,192 3,827
------------ ------------ ------------
Cash and cash equivalents,
end of year $ 90,987 $ 2,044,184 $ 12,192
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH
flow information
Cash paid for interest $ 161,725 $ 52,715 $ 19,202

(see accompanying notes to consolidated financial statements)
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

(a) BASIS OF PRESENTATION
These consolidated financial statements have been prepared in Canadian dollars
in accordance with accounting principles generally accepted in Canada (Note 1),
which conform, in all material respects, with accounting principles generally
accepted in the United States, except as disclosed in Note 15.

(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Dura Products
International Inc. (the "Company") and its significant subsidiaries, Dura Skid
Inc. ("Dura Skid") and Dura Skid (New England) LLC. All significant intercompany
accounts and transactions have been eliminated on consolidation.

(d) INVENTORY
Inventory of raw materials is valued at the lower of average cost and
replacement cost or net realizable value. Inventory of work in process and
finished goods is valued at the lower of standard cost which approximates cost
on a first-in, first-out basis, and net realizable value.

(e) CAPITAL ASSETS
Capital assets are recorded at cost, with amortization being provided on a
straight-line basis as follows:

Computer equipment and software 3 years
Furniture and fixtures 5 years
Leasehold improvements term of the lease plus one renewal period
Production equipment 10 years
Vehicles 5 years

Amortization in the year of purchase is calculated at one-half of the annual
rate.

(f) TECHNOLOGY AND OTHER INTANGIBLE ASSETS
Through its acquisition of Dura Skid in 1996, the Company acquired technology,
know-how and expertise related to composite materials, which are recorded at
cost. This asset is assessed for future recoverability on an annual basis by
estimating future net undiscounted cash flows. When the net carrying amount of
an intangible asset exceeds the estimated net recoverable amount, the asset is
written down with a charge against income (Note 6).

Amortization of technology and other intangible assets is recorded on a
straight-line basis over five years.

34
<PAGE>
(g) RESEARCH AND DEVELOPMENT COSTS
Research costs are expensed as incurred. Development costs are expensed in the
year incurred unless management believes that the development project meets the
generally accepted accounting principles for deferral and amortization. All
development costs to date have been expensed as incurred.

(h) INCOME TAXES
The liability method of tax allocation is used in accounting for income taxes.
Under this method, future tax assets and liabilities are based on differences
between the financial reporting and tax bases of assets and liabilities, and
measured using the substantively enacted tax rates and laws that will be in
effect when the differences are expected to reverse.

Investment tax credits relating to capital asset purchases and scientific
research and experimental development ("SRED") expenditures are accounted for as
a reduction of the cost of such assets and expenses, respectively, when the
Company has reasonable assurance as to realization. To date, no investment tax
credits have been recorded in the accounts of the Company.

(i) FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies, as well as the
accounts of Duraskid (New England) LLC, are translated as follows:

Monetary assets and liabilities at year-end exchange rates
Non-monetary assets, liabilities
and amortization at historic exchange rates
Revenue and expenses other
than amortization at average exchange rates for the year

Foreign exchange gains and losses on transactions during the year and on
year-end translation accounts are reflected in income.

(j) LOSS PER SHARE
The loss per share has been calculated using the weighted average number of
shares outstanding during the year.

(k) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents and are grouped with "Cash"
on the consolidated balance sheet. Cash that is being held in escrow has been
categorized as "Cash in escrow" on the consolidated balance sheet (Note 8).

35
<PAGE>
(l) LEASES
The Company leases certain of its assets. Assets rented under capital lease
arrangements, where substantially all of the benefits of ownership are
transferred to the Company, are accounted for as capital asset acquisitions and
are depreciated over their estimated useful lives, on a straight-line basis.
Obligations under the terms of capital leases are shown as liabilities of the
Company.

(m) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual amounts could differ from those estimates.

(n) FINANCIAL INSTRUMENTS
Due to the nature of the Company's current financial condition (Note 1), it is
not practicable to make a determination of fair values of the Company's
financial instruments.

(o) COMPARATIVE FIGURES
Certain prior years' comparative figures have been reclassified to conform to
the current year's presentation.

1. BASIS OF PRESENTATION AND GOING CONCERN

GENERAL
The consolidated financial statements of the Company have been prepared by
management in accordance with generally accepted accounting principles on a
going concern basis which contemplates the realization of assets and the
discharge of liabilities in the normal course of business for the foreseeable
future.

During 1998, the Company encountered significant operational issues in its
Toronto facility principally related to the automated assembly of pallets. In
addition, the Company's Andover, Massachusetts facility owned by Dura Skid (New
England) LLC experienced significant cost overruns and delayed startup and
similar operational issues as the Toronto facility. The capacity constraints at
the Toronto facility and the problems related to the Andover facility adversely
impacted sales, earnings and cash flow, which in turn reduced working capital
and overall liquidity. The Company has incurred significant consolidated losses
of $8,673,172, $2,995,559, and $1,314,126 for each of the years ended December
31, 1998, 1997, and 1996, respectively. The Company had a consolidated working
capital deficiency of $10,890,060 as at December 31, 1998. At December 31, 1998,
the Company was in breach of its liquidity and leverage ratios and minimum
revenues relating to loans provided for equipment, which have continued
subsequent to year end (Note 8).

36
<PAGE>
Since significant process changes were made to the extrusion process during
1998, the Company determined that the value ascribed to the Technology and
licence was questionable and should be written off. The Company also undertook a
review of its capital assets to identify any surplus and/or obsolete equipment.
As a result, a write-down of $1,654,957 was taken for both the technology and
capital assets (Note 6).

DURASKID (NEW ENGLAND) LLC
The operational issues have continued subsequent to year end in both the Toronto
and Andover facilities. As a result of these issues and the Company's lack of
adequate financial resources, the Company and its minority interest partners
decided subsequent to year end to abandon the Andover facility. Subsequently,
certain creditors of Duraskid (New England) LLC have re-possessed certain
capital assets with a carrying value of $5,391,490 (US$3,594,327).

A condensed balance sheet as at December 31, 1998, in Canadian dollars,
displaying the assets and liabilities of Duraskid (New England) LLC, all of
which are included in the consolidated balance sheet of the Company, is as
follows:

Current assets $ 61,966
Capital assets 7,449,729
-----------
Total assets $ 7,511,695
-----------

Capital lease obligations $ 3,650,147
Other current liabilities 3,106,543
Subordinated debenture to
minority interest 1,149,975
Advance from minority interest 317,895
-----------
Total liabilities $ 8,224,560
-----------
Loss recognized in excess of
the Company's investment $ 712,865
-----------

In addition, Dura Products International Inc. has provided a guarantee for the
equipment capital lease and the facilities operating lease (Note 8). The
minority interest partner has also provided a guarantee for the capital lease
and has provided a guarantee to Dura Products International Inc. for their 49%
share of the guarantee for the facilities operating lease.

Management has recorded in these consolidated financial statements management's
best estimate of the costs to Dura Products International Inc. of the decision
to abandon the facility in Andover, Massachusetts. However, such costs will be
dependent on the amounts creditors will recover through sale of capital assets,
sub-letting the operating facility, or recovery from the minority interest
partner. Accordingly, additional provisions, which may be material, could be
required in future periods.

37
<PAGE>
CREDITOR LAWSUITS
In addition to the lawsuits which are described in Note 11, the Company is
currently defending statements of claims from a number of creditors totaling
approximately $1,400,000 which are currently reflected as liabilities in the
consolidated balance sheet. The Company will vigorously defend these actions but
if the creditors were to be successful in obtaining a judgment against the
Company, it would have a material adverse effect on the Company's ability to
continue as a going concern.

CHANGES IN BOARD OF DIRECTORS AND MANAGEMENT
At the Company's last annual general meeting, the shareholders elected five
individuals to serve as Directors of the Company. Since that time, three
Directors have resigned. The remaining Directors determined that the vacancies
would not be filled until after the financial position of the Company has been
stabilized. Since year end, several members of management have resigned,
including the President of Dura Skid and the Chief Financial Officer of the
Company. The position of President of Dura Skid has been eliminated and the
Company is in the process of hiring a new Chief Financial Officer. In addition,
the Company is seeking an individual with extensive manufacturing experience to
join the senior management group.

FUTURE PLANS
Management of the Company is undertaking steps as part of a plan to restructure
its financial liabilities and improve operations with the goal of sustaining
Company operations for the next twelve months and beyond. These steps include:
(i) raising additional capital funds for working capital and obtaining necessary
capital assets to eliminate production bottlenecks, (ii) directing sales and
marketing efforts on specified target markets, (iii) implementing process
improvements, and (iv) controlling overhead and the elimination of unnecessary
expenses. There can be no assurance that the Company can achieve profitable
operations in the future.

CONCLUSION
The Company's ability to operate as a going concern is dependent upon obtaining
additional capital, the continued financial support of its creditors, the
achievement of profitable operations and the satisfactory resolution of the
matters described above. The outcome of these matters cannot be predicted at
this time.

These consolidated financial statements do not give effect to any adjustments
which would be necessary should the Company be unable to continue as a going
concern and, therefore, be required to realize its assets and discharge its
liabilities in other than the normal course of business and at amounts different
from those reflected in the accompanying consolidated financial statements.

38
<PAGE>
2. OTHER RECEIVABLES
Other receivables consist of:
1998 1997
----------- -----------
GST receivable $ 64,230 $ 209,568
Receivable from minority interest partners - 68,600
----------- -----------
$ 64,230 $ 278,168
----------- -----------

3. INVENTORY
Inventory consists of:
1998 1997
----------- -----------
Raw materials $ 92,632 $ 92,070
Finished goods and work in process 138,822 90,792
----------- -----------
$ 231,454 $ 182,862
----------- -----------

4. CAPITAL ASSETS
Capital assets consist of:
December 31, 1998 Accumulated Net
Cost Amortization Book Value
----------- ----------- -----------
Computer equipment and software $ 130,370 $ 73,518 $ 56,852
Furniture and fixtures 229,017 42,382 186,635
Leasehold improvements 816,873 76,601 740,272
Production equipment 3,702,545 449,033 3,253,512
Vehicles 15,614 1,561 14,053
Equipment under construction 564,730 - 564,730
Equipment not ready for use 3,211,024 - 3,211,024
Equipment under capital lease 1,777,745 189,595 1,588,150
Equipment under capital lease,
not ready for use 3,673,975 - 3,673,975
----------- ----------- -----------
$14,121,893 $ 832,690 $13,289,203
----------- ----------- -----------

December 31, 1997 Accumulated Net
Cost Amortization Book Value
----------- ----------- -----------
Computer equipment and software $ 112,580 $ 31,595 $ 80,985
Furniture and fixtures 59,823 13,696 46,127
Leasehold improvements 476,556 9,449 467,107
Production equipment 3,765,076 132,573 3,632,503
Equipment under capital lease 1,781,802 6,952 1,774,850
----------- ----------- -----------
$ 6,195,837 $ 194,265 $ 6,001,572
----------- ----------- -----------

Certain assets have been pledged as collateral (Note 8). Also, subsequent to
year end, certain assets of Duraskid (New England) LLC were repossessed by
creditors (Note 1).

39
<PAGE>

5. SHARE CAPITAL
Class A Special Shares; no par value, unlimited authorized
The Class A Special Shares are voting and may be issued in one or more series.
The Directors of the Company may establish, before an issue, the number of
shares to comprise each series and the designation, rights, privileges,
restrictions and conditions attached to each series, and without limiting the
generality of the foregoing, the rate or amount of dividends or the method of
calculating dividends, the dates of payment, the redemption, purchase and/or
conversion prices and terms and conditions of redemption and any sinking fund or
other provisions. As at December 31, 1998 and 1997, no Class A Special Shares
have been issued.

Class B Special Shares; no par value, unlimited authorized
The Class B Special Shares are designated as redeemable, voting,
non-participating shares. No dividends shall be declared, set aside or paid on
the Class B Special Shares. As at December 31, 1998 and 1997, no Class B Special
Shares have been issued.

Common Shares Issued
Shares Amount
---------- ------------
Balance, December 31, 1995 5,759,927 $ 2,372,154
Acquisition of Dura Skid Inc. 1,000,000 400,000
Exercise of stock options 1,725,992 892,996
Exercise of warrants 5,500,000 1,200,000
Severance payment 120,000 36,000
---------- ------------
Balance, December 31, 1996 14,105,919 4,901,150
Issued for cash 4,374,033 6,004,815
Exercise of stock options 1,121,200 1,405,390
Exercise of warrants 2,382,612 1,936,632
---------- ------------
Balance, December 31, 1997 21,983,764 14,247,987
Exercise of stock options 1,275,835 1,847,834
Exercise of warrants 357,000 910,350
---------- ------------
Balance, December 31, 1998 23,616,599 $ 17,006,171
---------- ------------

Stock options
The Company has issued stock options pursuant to the following plans:

(i) the 1996 stock option plan was limited to 1 million shares in the aggregate,
and restricted to Directors, officers, employees and consultants of the Company.
The exercise price of any options granted may not be less than the fair market
value at the time the option is granted. Vesting provisions are at the
discretion of the Board. The term of the options cannot exceed five years. All
options have been granted and exercised pursuant to this plan.

(ii) the 1996 replacement stock option plan was initially limited to 2.5 million
shares in the aggregate, and restricted to directors, officers, employees and
consultants of the Company and its subsidiaries and other designated persons as
designated from time to time by the Board. The exercise price of any options
granted may not be less than the fair market value at the time the option is
granted. Vesting provisions are at the discretion of the Board. The term of the
options cannot exceed five years. This plan was subsequently amended to increase
the limit of shares from 2.5 million to 7.0 million shares in the aggregate. As
at December 31, 1998, approximately 3.0 million options have not been granted.

<PAGE>

The following is a continuity of stock options outstanding:

Number
----------
Balance, December 31, 1995 575,992
Granted during 1996 2,300,000
Exercised during 1996 (1,725,992)
----------
Balance, December 31, 1996 1,150,000
Granted during 1997 2,364,500
Exercised during 1997 (1,121,200)
----------
Balance, December 31, 1997 2,393,300
Granted during 1998 148,440
Exercised during 1998 (1,275,835)
Expired during 1998 (192,500)
----------
Balance, December 31, 1998 at
Weighted average $1.82 1,073,405
----- ----------

Of the total options outstanding, 164,965 issued at $0.70 expire on June 27,
2001; 168,440 issued at $1.10 expire on January 27, 2002; 535,000 issued at
$2.00 expire on July 9, 2002; 75,000 issued at $2.80 expire on September 1,
2002; 100,000 issued at $2.55 expire on August 3, 2003; and 30,000 issued at
$3.75 expire on January 26, 2003. All options are currently exercisable.

Common share purchase warrants
The following is a continuity of warrants outstanding:

Number
----------
Balance, December 31, 1995 5,000,000
Issued during 1996 500,000
Exercised during 1996 (5,500,000)
----------
Balance, December 31, 1996 -
Issued during 1997 4,374,040
Exercised during 1997 (2,382,612)
----------
Balance, December 31, 1997 1,991,428
Issued during 1998 -
Exercised during 1998 (357,000)
----------
Balance, December 31, 1998 1,634,428
----------

The common share purchase warrants outstanding as at December 31, 1998 were not
exercised and expired on March 23, 1999.

6. WRITE-DOWN OF ASSETS

Write-down of assets consist of:
1998
----------
Technology and intangible assets $ 631,645
Capital assets 1,023,312
----------
$1,654,957
----------
41
<PAGE>
7. INCOME TAXES
The components of deferred income tax assets and liabilities are as follows:

1998 1997
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 2,965,188 $ 1,099,387
Net capital loss carryforwards 676,636 676,636
SRED expenditure pool carryforward 1,123,412 570,436
SRED ITC's recoverable 842,763 496,087
Amortization 696,111 68,042
----------- -----------
Total deferred assets 6,304,110 2,910,588
Less: valuation allowance (6,304,110) (2,910,588)
----------- -----------
Net deferred tax asset $ - $ -
----------- -----------

As at December 31, 1998, the Company has net loss carryforwards of approximately
$6,095,000 for income tax purposes that expire as follows:

1999 $ 35,000
2000 $ 31,000
2001 $ 112,000
2002 $ 94,000
2003 $ 907,000
2004 $ 1,883,000
2005 $ 3,033,000

In addition, as at December 31, 1998, the Company has net capital loss
carryforwards of approximately $1.5 million, which may be used to offset any
future capital gains, and SRED expenditure pool carryforwards, which may be used
to offset future income, of approximately $3.1 million that do not expire.
Duraskid (New England) LLC has net operating loss carryforwards of $1.5 million
which expire in 2008. The potential tax savings of these losses have not been
recognized in these consolidated financial statements.

8. LEASE OBLIGATIONS AND COMMITMENTS

a) Bank indebtedness

Bank indebtedness relates to Duraskid (New England) LLC and is a result of
cheques issued and outstanding at December 31, 1998. Duraskid (New England) LLC
does not have an overdraft facility. The bank indebtedness of Duraskid (New
England) LLC has not been guaranteed by Dura Products International Inc. or Dura
Skid Inc.

42
<PAGE>
b) Production equipment capital leases consist of:

1998 1997
----------- -----------
Toronto equipment obligation, bearing interest
at 11.4% per annum, monthly blended payments of
$31,984, due September 2002 $ 1,256,195 $ 1,482,447

Andover equipment obligation, bearing interest
at 9.26% per annum, monthly blended payments of
US$40,317, due July 2005 3,650,147 -

Miscellaneous office equipment obligations 11,506 21,016
----------- -----------
4,917,848 1,503,463
Less current portion (4,917,848) (236,347)
----------- -----------
$ - $ 1,267,116
----------- -----------

Pursuant to the original agreement for the Toronto equipment, the Company had
agreed to maintain $306,000 of cash collateral in an escrow account (referred to
as "Cash in escrow" on the consolidated balance sheets), pledging as collateral
certain production-related equipment for the facility, and the maintenance of
certain financial covenants. Effective December 31, 1998, the lender requested
the payment of the $306,000, of which $136,885 was applied to 1998 lease
payments in arrears and $169,115 will be applied to 1999 lease payments and is
included in prepaid expenses. The lease agreement contains covenants which
restrict the ability of Dura Skid to transfer any assets to its parent company,
Dura Products International Inc., without the approval of the lender. As at
December 31, 1998, the Company was not in compliance with the financial
covenants of this facility (Note 1) which continued subsequent to year end. As a
result the lender could elect to accelerate demand of this lease and,
accordingly, the total amount owing has been classified as current in the
consolidated balance sheets. As of June 11, 1999, the Company has not received
notice from the lender indicating its intention to exercise its rights under
these events of default.

43
<PAGE>
The future minimum scheduled annual lease payments for each of the next five
years and thereafter are as follows:

Miscellaneous Toronto Andover
equipment equipment equipment
--------- --------- ---------
1999 $ 10,275 $ 383,808 $ 725,950
2000 2,523 383,808 725,950
2001 - 383,808 725,950
2002 - 425,638 725,950
2003 - - 725,950
Thereafter - - 1,149,282
Less imputed interest (1,292) (320,867) (1,128,885)
--------- ---------- ----------
$ 11,506 $1,256,195 $3,650,147
--------- ---------- ----------
c) Premises leases

In addition, the Company leases its premises and some office equipment. The
lease for premises is an operating lease. The commitments disclosed do not
include renewal periods, which are at the option of the Company. The minimum
annual lease payments for the remaining terms of the leases are as follows:

Operating Toronto Operating Andover
----------------- -----------------
1999 $ 165,924 $ 1,046,497
2000 145,120 1,046,497
2001 - 1,046,497
2002 - 1,046,497
2003 - 1,046,497
2004 - 555,809
----------- -----------
$ 311,044 $ 5,788,294
----------- -----------

Operating lease expense, which is grouped with general and administration
expenses, for the years ended December 31, 1998, 1997, and 1996 was $637,140,
$94,188, and $82,140, respectively.

9. NON-CASH TRANSACTIONS
Effective December 31, 1998, the Company adopted the new recommendations of The
Canadian Institute of Chartered Accountants with respect to Statement of Cash
Flow disclosures. This change has been adopted retroactively and has no impact
on the consolidated financial statements other than presentation. Under the new
recommendations, non-cash transactions are excluded from the consolidated
statements of cash flows.

In each of the years ended December 31, 1998, 1997, and 1996, several non-cash
transactions occurred, which are excluded from the consolidated statements of
cash flows.

44
<PAGE>
1998 transactions include:
(i) capital assets of $3,756,577 were acquired under capital lease.

(ii) utilization of cash in escrow funds for lease obligation payments,
including interest, and prepayment of lease obligations.

(iii) capital assets of $2,636,533 were acquired and not paid at year end.

1997 transactions include:
(i) capital assets of $1,511,086 were acquired under capital lease.

1996 transactions include:
(i) the acquisition of Dura Skid. The purchase price was settled with the
issuance of share capital.

(ii) share capital was issued for $36,000 as part of a severance payment.

10. SEGMENTED INFORMATION
The Company has one reportable segment, which includes the manufacture of
pallets from its proprietary composite material. Geographic segmented
information is as follows:
United
1998 Canada States Adjustments Total
- ---- ------ ------ ----------- -----
Revenue 311,527 - 311,527
Loss for the year 7,381,307 1,843,115 (551,250)(1) 8,673,172
Capital assets 5,839,474 7,449,729 13,289,203

(1) the adjustment represents minority interest.

There were no geographic segments for 1997 and 1996 as all operations were in
Canada.

11. CONTINGENCIES
In addition to the contingencies described in Note 1, the Company is actively
defending itself against the following items:

a) During 1996, the Company acquired through its acquisition of Dura Skid a
licensing agreement with SRP Industries Ltd. ("SRP") the right to utilize
certain SRP technologies. The licensing agreement required the payment of
certain minimum royalties and potential additional royalties based upon future
sales. During early 1997, the Company determined that SRP's technology was not
commercially viable as it relates to the production process used by the Company,
requiring the Company to develop and commercialize its own technology at
significant cost and time to the Company. In addition, SRP was unable to provide
any of the required technical support services under the terms of the agreement
and management thereby concluded that SRP was in breach of this agreement.
Accordingly, the Company filed a claim against SRP in April 1997 to seek damages
of approximately $5.0 million and to terminate the agreement. In October 1997,
SRP filed a counterclaim against the Company for $10 million, claiming that the
Company inappropriately terminated the agreement, enriched itself with SRP's
technology with no compensation to SRP, and induced key employees of SRP to
accept employment with the Company.

45
<PAGE>

Management of the Company is of the opinion that it has acted appropriately in
terminating this agreement, and that the counterclaim by SRP is without merit.
However, the final outcome of these matters is uncertain and the potential
effect, whether material or not, on the Company's consolidated financial
position is not reasonably determinable at this time. Accordingly, no provision
has been recorded in the accounts of the Company as at December 31, 1998. No
action occurred during 1998 or subsequent to year end on this claim or
counterclaim.

b) In November 1996, the Company entered into a consulting contract with Coby
Capital Corporation ("Coby") to provide assistance in raising investment capital
and related services for a period of up to two years. The Company terminated the
agreement for non-performance on the part of Coby. However, Coby has filed an
action claiming payment of retainer fees, out-of-pocket expenses, placement
fees, and stock options. The total amount of the claim is approximately
US$720,000. The Company is of the opinion that the claim is without merit. The
final outcome of this matter is uncertain and the potential effect, whether
material or not, on the Company's consolidated financial position is not
reasonably determinable at this time. Accordingly, no provision has been
recorded in the accounts of the Company as at December 31, 1998. During 1998,
the action was moved from the State of New York to the State of Connecticut. No
further action occurred during 1998 or subsequent to year end.

c) In July 1998, a former consultant to the Company filed a statement of claim
against the Company. The claim was also filed against a Director and a former
Director of the Company. The consultant is claiming the Company owes
approximately $29,000 for services and expenses. The consultant also claims that
he was a party to the transaction to acquire the technology license agreement,
which formed part of the Dura Skid purchase in 1996. As a party to the
transaction, the consultant is claiming that the Director agreed to assign
200,000 common shares and 100,000 common share purchase warrants of the Company
owned by the Director, plus 100,000 stock options were to have been granted to
him. The consultant is claiming these shares, warrants, and options have a value
of approximately $1.9 million. The Company is of the opinion that the claim is
without merit and will vigorously defend the claim. The final outcome of this
matter is uncertain and the potential effect, whether material or not, on the
Company's consolidated financial position is not reasonably determinable at this
time. Accordingly, no provision has been recorded in the accounts of the Company
as at December 31, 1998.

d) In September 1998, a former shareholder of the Company filed a statement of
claim against the Company. The claim was also filed against a Director of the
Company and a third party. The former shareholder is claiming that as part of
the transaction between him and a Director of the Company and the third party,
whereby the former shareholder privately sold his shareholding, the Company
agreed to transfer its ownership in 15 mining claims to him. The Company wrote
off its investment in the 15 mining claims as at December 31, 1995 and in 1996
sold the subsidiary that held the mining claims for $2.00. The final outcome of
this matter is uncertain but the Company believes that any effect would not be
material to the Company's consolidated financial position.

46
<PAGE>

Accordingly, no provision has been recorded in the accounts of the Company as at
December 31, 1998.

e) An action has been launched against the Company by a former employee,
claiming wrongful dismissal, unpaid wages, vacation pay, and expenses totaling
approximately $180,000. The former employee also claims that the Company is in
possession of certain intellectual property, which is the property of the former
employee. The Company has accrued an amount, which is not material to the
consolidated financial position of the Company for unpaid wages and expenses.
The Company is of the opinion that the remainder of the claim is without merit.
The final outcome of this matter is uncertain and the potential effect on the
Company's consolidated financial position is not reasonably determinable at this
time.

12. RELATED PARTY TRANSACTIONS
During the year, a Director advanced $100,000, bearing interest at 10% per
annum, to the Company for working capital purposes. Also during the year,
another Director advanced $585,034, non-interest bearing, for working capital
purposes. Total funds advanced during the year and owing at December 31, 1998
were $685,034. Subsequent to year end, the loan for $585,034 was converted to
common shares by way of private placement. The Company's minority interest
partner advanced $125,364 to Dura Products International Inc. during the year
for working capital purposes. At December 31, 1998, $36,497 remained
outstanding.

None of these loans have specified terms of repayment and, accordingly, are
classified as current liabilities.

13. FINANCING FROM MINORITY INTEREST PARTNER
Minority interest advances consist of:

(i) Subordinated debenture: Under the terms of the Duraskid (New England) LLC
agreement, the minority interest partner was required to provide subordinated
debenture debt to Duraskid (New England) LLC. The balance as at December 31,
1998 was $1,149,975 [1997 - nil], [U.S. $750,000, 1997 - nil] bears interest at
a rate of 9% per annum and is payable quarterly in arrears. Payments of
U.S.$25,000 are due quarterly, commencing December 1, 2000. Any unpaid balance
is due October 15, 2007. Neither Dura Products International Inc. nor Dura Skid
Inc. has guaranteed this debt. During the year, interest of $37,780 was accrued
and included in accrued liabilities.

(ii) Advances by the minority interest partner as at December 31, 1998 of
$317,895 [U.S. $207,368; 1997 - nil] are non-interest bearing.

47
<PAGE>

14. YEAR 2000 ISSUE
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information,
using year 2000 dates is processed. In addition, similar problems may arise in
some systems, which use certain dates in 1999 to represent something other than
a date. The effects of the year 2000 issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect the Company's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the year 2000 issue
affecting the Company, including those related to the efforts of customers,
suppliers, and other third parties, will be fully resolved.

15. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE
UNITED STATES
The Company's accounting principles do not differ materially from accounting
principles generally accepted in the United States ("US GAAP") except as
follows:

(a) Business acquisition

The acquisition of Dura Skid in January 1996 was settled by way of common shares
and share purchase warrants. Under US GAAP, the share purchase warrants must be
valued and included in the purchase price. The value ascribed to the warrants,
as determined under the Black-Scholes model, was $85,000, which would be added
to Technology and other intangible assets. For the year ended December 31, 1997,
$1,417 was amortized and for the year ended December 31, 1998 the remaining
balance of $83,583 was written off as the corresponding asset on the
consolidated balance sheet was written down (Note 6).

The impact of this is as follows:

Year ended December 31,
1998 1997 1996
---------- ----------- -----------
Loss as reported under Canadian GAAP $8,673,172 $ 2,995,559 $ 1,314,126
Additional amortization expense and
write-downs 83,583 1,417 -
---------- ----------- -----------
Loss and comprehensive income under US
GAAP $8,756,755 $ 2,996,976 $ 1,314,126
---------- ----------- -----------
Loss per share $ 0.38 $ 0.17 $ 0.14

(b) Stock options

The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") in accounting for its stock option plans. Under
APB 25 no compensation expense has been recognized. Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting and Disclosure of
Stock-Based Compensation, requires the fair value of options issued be measured
as compensation expense, has been issued. For a description of the option plans,
reference should be made to Note 5. The assumptions used in the Black-Scholes
model are as follows: the

48
<PAGE>
risk-free interest rate used was 4%; expected dividends was 0%; expected life of
1.3 years; and expected volatility ranged from 0.936 to 2.545. The
weighted-average grant date fair value of options granted during 1998 was $1.48,
1997 was $1.16; and 1996 was $0.27. The pro-forma impact of this is as follows:

Year ended December 31,
1998 1997 1996
---------- ----------- -----------
Pro-forma disclosures under FAS 123
Loss for the year $ 8,965,696 $ 5,744,741 $ 1,940,126
Loss per share $ 0.39 $ 0.32 $ 0.20

Under SAB 74, the Company is required to disclose certain information related to
new accounting standards which have not yet been adopted due to delayed
effective dates. Specifically, SFAS 133 "Accounting for Derivative Instruments
and Hedging Activities", is effective for fiscal periods beginning after June
15, 1999. The Company has not yet determined the impact, if any, of SFAS 133 on
its consolidated financial statements.

16. SUBSEQUENT EVENT
In March 1999 the Company completed a private placement for the sale of 2.5
million Units at $0.60 per Unit, which were issued in exchange for the
retirement of a short-term loan payable (Note 12) and the assumption of payables
relating to equipment purchases together totaling $1.5 million. Each Unit
consists of one common share and one common share purchase warrant to purchase
one common share at $1.00 per share, which expires in March 2000.

In addition, in March 1999 the Company granted approximately 2.0 million stock
options with exercise prices ranging from $0.50 to $0.75 per share to employees,
officers, directors, and consultants of the Company. In March and April 1999,
approximately 1.3 million options were exercised for cash proceeds of
approximately $350,000, which was utilized for working capital purposes. The
remainder of the options were exercised in exchange for the retirement of
payroll and consulting accruals of approximately $300,000.

49
<PAGE>
INDEX TO EXHIBITS

11.0 Computation of Earnings Per Share

27.0 Financial Data Schedule

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

EXHIBIT 11

Calculation of Earnings per Share
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Canadian GAAP
Net loss for the year $(8,673,172) $(2,995,559) $(1,314,126)
Weighted average number of common shares o/s for the
year 22,952,233 17,979,443 9,564,501
Loss per share is net loss divided by weighted
average # o/s $ (0.38) $ (0.17) $ (0.14)

US GAAP
Net loss for the year $(8,756,755) $(2,996,976) $(1,314,126)
Weighted average number of common shares o/s during
the year 22,952,233 17,979,443 9,564,501
Loss per share is net loss divided by weighted
average # o/s $ (0.38) $ (0.17) $ (0.14)
Pro-forma loss for the year $(8,965,696) $(5,745,103) $(1,940,126)
Pro-forma loss per share is pro-forma loss divided
by weighted average # o/s $ (0.39) $ (.032) $ (0.20)
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> CANADIAN

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> .6511
<CASH> 90,987
<SECURITIES> 0
<RECEIVABLES> 41,612
<ALLOWANCES> 0
<INVENTORY> 231,454
<CURRENT-ASSETS> 620,214
<PP&E> 13,289,203
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,909,417
<CURRENT-LIABILITIES> 11,510,274
<BONDS> 0
0
0
<COMMON> 17,006,171
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,909,417
<SALES> 311,527
<TOTAL-REVENUES> 311,527
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,535,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,673,172)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,673,172)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)

</TABLE>