MICROBEST INC, 10SB12G, 1999-11-16

MICROBEST INC
10SB12G, 1999-11-16

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

FORM 10 - SB

GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS

Under Section 12(b) or (g) of the Securities Exchange Act of 1934

MICROBEST, INC.
(Name of Small Business Issuer in its charter)

MINNESOTA 41-1864003
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

751 Park of Commerce Drive, Suite # 122
Boca Raton, FL 33487-3623
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (561) 995-9770

Securities to be registered pursuant to Section 12 (b) of the Act

NONE

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

COMMON STOCK
(Title of class)
<PAGE>
MICROBEST, INC.

FORM 10 - SB

TABLE OF CONTENTS

PART I

ITEM 1. DESCRIPTION OF BUSINESS........................................ 3

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...... 7

ITEM 3. DESCRIPTION OF PROPERTY........................................ 9

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................... 10

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS........................................................ 11

ITEM 6. EXECUTIVE COMPENSATION......................................... 12

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 12

ITEM 8. DESCRIPTION OF SECURITIES...................................... 13

PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS......................... 14

ITEM 2. LEGAL PROCEEDINGS.............................................. 14

ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.................. 14

ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES........................ 14

ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 16

PART F/S
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEARS ENDED
DECEMBER 31 1998 AND 1997 AND INDEPENDENT AUDITORS' REPORT............... F-1

UNAUDITED FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998............................ F-14

PART III
ITEM 1. INDEX TO EXHIBITS............................................. 18
ITEM 2. DESCRIPTION OF EXHIBITS....................................... 18

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ITEM 1. DESCRIPTION OF BUSINESS.

MISSION STATEMENT
Microbest seeks to become the leader in developing cleaning products through
applied biotechnology that are effective, environmentally responsible and
user-safe.

Microbest's successful application of fundamental biological processes, such as
the natural decomposition of organic wastes by harmless bacteria found in our
soil systems, has led to the development of its highly effective BioCleansing
Systems(R).

Through this breakthrough in applied biotechnology, cleaning more effectively,
responsibly and safely than ever before is now a reality. This technology, while
providing benefits management believes have never before been achieved, is
clearly the solution to the cleaning and disposal of waste grease/oil and
organic materials throughout the waste water stream, from the source on floors
and industrial surfaces to the improvement of processing efficiencies at waste
water treatment facilities.

CONCEPT
Microbest makes and markets its innovative, biologically based cleaning
products, named BioCleansing(R) Systems, for the $5 billion domestic commercial,
industrial and institutional cleaning products industry. The growing awareness
of environmental pressures, manifested by tightening government restrictions and
regulations such as the recent Presidential Executive Order 13101 mandating the
use of "environmentally preferable" products by all sectors of the government,
has added additional focus on the features and benefits of Microbest's
innovative products.

Initial development focused on grease trap remediation in restaurants. It was
quickly found that the desired biological process resulting in the reduction of
collected fats and greases by the digestive action of selected bacterial
cultures was hampered by the daily usage and disposal of the restaurant's
caustic floor and hard surface cleaning products. The benefit of creating
alternative cleaning products that would support the biological process, not
hinder it, drove further development. The revolutionary Microbest BioCleansing
Systems(R) emerged as powerful, high performance, cost effective,
environmentally-safe cleaning systems that outperform traditional floor and hard
surface cleaners in foodservice, industrial, institutional, and commercial
applications.

Microbest BioCleansing Systems(R) feature all the elements that are popular
among users of industrial cleaners and include features such as pre-portioned
packaging, high-tech dispensing of bulk concentrate and advanced
biodegradability. In addition, the products are designed to be more responsible
and safer for the marketplace, targeting current users of industrial grade
cleaners who are concerned about the environment and risk management issues
relating to employee slip-fall accidents as well as those looking for powerful,
cost effective, efficient means of waste grease/oil removal and odor abatement.

BACKGROUND
Michael J. Troup, the inventor/innovator responsible for the BioCleansing
System(R), introduced the proprietary products in 1993 after initial research,
development, and evaluation. Although early testing focused on grease trap
remediation, successive development resulted in the expansion of the Microbest
product line, customer base, and market. The business goals evolved

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to focus on creating more effective and more responsible alternative cleaning
products for floors and hard surfaces, which additionally support the biological
process of remediation, producing substantial reductions in waste volumes.

The business was started as Microbest Products, Inc. a Florida corporation that
was incorporated on January 1, 1993, and subsequently merged into Microbest,
Inc., a Minnesota corporation on April 17, 1997. Microbest, Inc. had been
incorporated on December 3, 1996, as Emerald Shade, Inc. Microbest's common
stock commenced public trading in May 1997 and was approved for trading on the
OTC/BB in April 1998.

The trademark registration of the Microbest name and logo design was approved in
1994 (Registration # 1,862,215). Registration of "BioCleansing Systems(R)" was
approved in 1997.

The Company is highly dependent upon the efforts and abilities of Mr. Troup, its
Chief Executive Officer and Chairman. As founder of the Company, he continues to
be the person most responsible for the development of the Microbest product line
and market focus.

Mr. Troup holds both a B.S. in Psychology, with minors in chemistry and biology,
and an M.A. in Educational Psychology from the University of Toledo. He spent 5
years as an educator, 4 years as a corporate technical sales executive and 19
years as an entrepreneur in the areas of commercial real estate brokerage,
development, construction and building products sales. The experiences he
developed from these fields as a trainer, team manager and product developer are
invaluable components in the success of Microbest to date.

The Company anticipates that it will continue to be dependent on Mr. Troup and
that the loss of his services would have a material adverse effect on the
Company. The Company currently maintains a key man life insurance policy on the
life of Mr. Troup in the amount of $1 million, at a cost of approximately $2,345
per annum.

PRODUCTS
In the opinion of management Microbest's proprietary BioCleansing Systems(R)
provide the most effective and cost-saving approach to floor and hard surface
cleaning that exists in the present market. By comparison, traditional cleaners
are obsolete. This unique system provides biological alternatives to traditional
harsh and ineffective chemicals while protecting the user's employees,
clientele, physical assets and our environment. This revolutionary technology
produces powerful, top-quality cleaning products that are environmentally safe
yet deliver a wide range of fully guaranteed benefits beyond cleaning itself,
including substantial reduction in slip-fall occurrences and the elimination of
odors.

The primary products in the Microbest BioCleansing Systems(R) are:

Quarry Tile FloorWash BioDeodorizer
Factory FloorWash Surface & Glass Cleaner
Restroom FloorWash Grease Trap Treatments
MultiPurpose Degreaser Septic Tank Treatments
Municipal Waste Water Treatments

All products are manufactured for Microbest by third parties under protective
agreements according to Microbest's proprietary specifications and in compliance
with government regulations and guidelines. Biological components are produced
in ISO 9000 facilities with strict adherence to prevailing USDA Laboratory
Guidelines. In addition to conventional bulk

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packaging for dilution and dispensing systems, the Microbest product line
utilizes new, convenient, pre-portioned pouch packaging designed for easy use,
enhanced control and less packaging materials. Pouches are also an effective
sampling vehicle.

MARKET
The current industrial and institutional cleaning market is fractionated,
comprised of multiple suppliers, various channels of distribution, and a wide
range of end-users. Microbest is focused on the spectrum of foodservice and
industrial opportunities where cleanliness and risk management are critical and
waste grease and oil residue is a problem.

The majority of cleaning product companies try to compete on price or service,
rather than focusing on quality. Microbest's products demonstrate so well on the
first use that the remarkable quality and effectiveness are immediately evident.
In addition to cleaning, continued tightening of government restrictions and
regulations regarding waste disposal provides for new sub-markets within the
cleaning industry, creating what is virtually an untapped opportunity for
effective and economical biological cleaning alternatives that reduce waste
volumes.

With pricing integral to driving the business, the pricing strategy is to
deliver to the marketplace not only the substantial benefits of the BioCleansing
Systems(R) but also aggressive, competitive pricing. Cost-effective
manufacturing and low company overhead support this pricing strategy as volumes
increase. As current sales continue to expand to match anticipated volumes on
which initial pricing strategies were based, the Company is moving successfully
toward achieving its projected cost effectiveness. Pricing itself is further
enhanced by the range of additional benefits delivered by the BioCleansing
Systems(R), such as reduction in slip-fall accidents, elimination of tile and
grout erosion, and elimination of odors.

Marketplace experience shows that once the product is used, loyalty and
repurchase are reinforced through the recognition of obtaining high quality at a
competitive price together with significant labor reduction and savings achieved
in the other areas identified above.

MARKETING AND SALES
The Company is focused on aggressive sales expansion through direct sales to
regional chains, national accounts and government agencies. Sales through
distributors are supported by corporate sales staff together with national
coverage provided by over 40 manufacturer's reps.

The innovative Microbest "Distributor Pull-Through Program" approaches
distributor sales growth by "pulling" products through distribution with faxing,
sampling and phone sales to obtain initial orders direct by Microbest staff to
the distributors' customers on behalf of the distributor. The "Pull-Through
Program" has led to record third quarter 1999 sales in excess of 48% ahead of
the same period in 1998 and an increase in year-to-date sales of 27% over 1998.

Expansion of the existing MICROBEST.NET web site, when completed in the fourth
quarter of 1999, will enable interactive distributor support and training as
well as e-commerce for on-line purchasing.

With over 100 stocking distributors in place, national presence is supported by
conventional wholesaler systems in foodservice, janitorial/sanitation,
paper/chemical, and industrial markets.

End-users consist of major national chain and franchisee restaurant groups,
regional restaurant chains, independent restaurants, hotels, school systems,
universities, US Military, health care

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facilities, salons, contract cleaning companies, machine shops, industrial
facilities and municipal wastewater treatment systems.

Encouraged by the success of its initial market penetration in the food service
industry, the Company is marketing to industrial factories where hydrocarbon oil
and grease are a problem, auto repair and maintenance facilities, including auto
dealers, USDA food processing facilities, and the pet industry.

Recent restructuring in the USDA and the elimination of its "product
authorization program" opens the food processing market to the BioCleansing
Systems(R). Second generation product development will see movement into such
areas as waste water treatment products, residential septic tank treatments,
gray water treatment for ships, boats and motor homes, diesel boat bilge
treatment and odor control and cleaning products for the veterinarian market.

COMPETITION
The Company competes with large and small companies engaged in the development,
marketing and sales of cleaning products. Many of these competitors have
significant financial, research and development, marketing and sales resources.
The Company is not aware of any competitor that markets biologically-based
cleaning products similar to the Company's products.

The Company believes that its ability to compete effectively with these
competitors will depend on (1) the talents and abilities of Mr. Troup and his
management team, (2) its ability to develop and maintain strategic relationships
within the industries that will have a strong demand for its unique
biologically-based cleaning products, and (3) its ability to establish strong
consumer preference for the use of the Company's cleaning products.

REGULATION
The Company knows of no current or pending forms of regulation, legislation or
laws intended to prohibit or limit the application of its technology, products
or any of the components inherent in its formulations.

The Microbest BioCleansing Systems(R) bring users of the Systems into compliance
with hazardous materials regulations and environmental laws.

PATENT/PROPRIETARY PRODUCT PROTECTION
The Company's existing proprietary product line is not protected under U.S. or
foreign patents. The Company relies on proprietary trade secrets and
confidentiality agreements to protect the formulae of its products. This
strategy was embraced to eliminate formulation disclosure under patent
application and the potential expense of patent defense in the courts. While
"reverse engineering" is a possibility, after six years the Company's products
have not been duplicated. Several formidable competitors seek to have the
Microbest product line available to them on a licensed or private label basis.

The Company believes that its existing products do not infringe upon the
intellectual property rights of any other person or entity.

SOURCE, MANUFACTURE AND AVAILABILITY OF COMPANY'S PRODUCTS The Company
out-sources the majority of its manufacturing and fulfillment services. This
strategy has been very successful to date in providing flexibility to service
markets from a variety of locations while eliminating the capital expenditures
and fixed overhead required in maintaining additional Company operated
locations.

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EMPLOYEES
As of November 5, 1999, the company employed 12 full time employees and 2 part
time employees. The Company believes it has satisfactory relations with its
employees.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following Management's Discussion and Analysis should be read in conjunction
with the financial statements and related notes thereto that appear elsewhere
herein.

BACKGROUND AND FINANCIAL HISTORY
Although Microbest has been in existence since 1993, the company has not yet
developed its operating plan to the place where it can sustain profitable
operations. Prior to a merger on April 17, 1997 (see note 1 to notes to
financial statements), the company was essentially involved in product
development and market testing. Starting in 1997 the company began concentrating
its marketing efforts in the food service industry, with a view to developing a
presence for its products in that market.

The Company has not been able to generate sufficient cash flow from operations
throughout its history to fund operations, including its marketing development
plans and the concentration of marketing efforts in the food service industry.
For the 33 month period through September 30, 1999, the company generated
$975,000 in net revenues. During this same period the company expended
$2,965,000 to cover operating expenses, salaries and wages, cost of materials
sold and capital expenditures. The Company raised $1,995,000 in investor capital
during this period to fund the shortfall in working capital. Of the total
raised, $1,645,000 was from the sale of the Company's common stock and $350,000
was in the form of advances from a related party (see note 11 to notes to
financial statements).

On October 21, 1999 the Company agreed to issue $350,000 of Promissory Notes to
settle the advances. Of this amount, $200,000 will bear interest at 8 3/4%,
mature in five years with an option (after 18 months) to convert into shares of
the Company's common stock at a 20% discount to the market. The balance of
$150,000 will bear interest at 12 3/4%, mature in one year and also receive
50,000 shares of common stock in settlement.

The business of developing, marketing and selling the Company's biological
cleaning products is capital intensive. The Company intends to continue its
selling and marketing efforts and will require additional capital in order to
continue operating at the current level, to expand its business, and to fund
production and development costs. Management of the Company believes it has
access to sufficient sources of working capital to fund continuing operations.
The Company is unable to assure that additional capital financing will be
available. Without such financing, the Company will not be able to continue at
its present operational level or fully implement its business strategy. In
September 1999 the Company negotiated for $500,000 of additional financing
through the private sale of restricted shares of its common stock. Management of
the company believes this financing will meet the working capital needs of the
Company through the balance of 1999. The Company will require additional
financing, not yet arranged, to fund operations into the new year.

As indicated above, the Company raised $1,645,000 of its invested funds through
the private sales of its common stock relying on exemptions from registration
under the Securities Act of 1933. To continue such sales of its common stock has
recently become more costly to the

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Company because of the recent decline in the market price of the Company's
common stock on the OTC/BB. The low bid price dropped from $.75 in the first
quarter of 1999 to $.187 in October 1999. If the Company is unable to raise
capital through the sale of its common stock or is unable to find alternative
sources of investor funds, the Company's ability to continue its present level
of operations will be in jeopardy.

The following table summarizes the Company's condensed financial position and
condensed operating results for the two year and nine month period through
September 30, 1999:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
----------------------------------------------------
(UNAUDITED)
YEAR ENDED DEC.31 9 MO. ENDED SEPT. 30
------------------------ ------------------------
1998 1997 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working Capital (Deficit) .......... $ (427) $ (122) $ (301) $ (93)
Total Assets ....................... $ 213 $ 60 $ 238 $ 248
Total Liabilities .................. $ 582 $ 169 $ 675 $ 360
Stockholders Equity (Deficit) ...... $ (368) $ (109) $ (457) $ (112)

STATEMENT OF OPERATIONS DATA
Net Sales .......................... $ 377 $ 190 $ 404 $ 297
Gross Profit (Loss) ................ $ 50 $ (10) $ 166 $ 85
Expenses ........................... $ 1,210 $ 441 $ 772 $ 725
Net Income (Loss) .................. $ (1,160) $ (451) $ (606) $ (640)
</TABLE>

FINANCIAL CONDITION

The Company's financial position deteriorated in 1998 as accounts payable and
short term financing increased at a greater rate than the growth in accounts
receivable and inventory. Accordingly, negative working capital increased to
$427,000 at the end of 1998 from $122,000 at the end of 1997. Total liabilities
at the end of 1998 include an increase, from a year earlier, of $238,000 in
short term financing and $160,000 in accounts payable and accrued expenses. At
the end of September 1999 negative working capital increased to $301,000
compared with $93,000 at the end of September 1998, reflecting the
aforementioned increases in notes and accounts payable.

The Company's accumulated deficit is directly attributable to the inability to
increase sales quickly enough to fund the marketing efforts that, in the opinion
of management, are necessary to realize the required level of revenues to attain
profitable operations. The financial shortfall of this strategy is that it
requires the continuous infusion of investor capital to keep the Company running
and creates an environment where ongoing commitments (including payroll and
operating expenses) are met on a month-to-month basis. The danger is that the
Company may run out of funds to continue sales and marketing efforts before it
can achieve a sustaining level of sales. The Company has no plans to further
increase the number of employees, or for significant capital expenditures, until
sufficient investor capital is raised or until revenues increase substantially.

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OPERATING RESULTS

In 1997 and 1998 the Company increased its operating expenses significantly to
support the marketing expansion plan initiated at the beginning of 1997. The
Company had only two full time employees at the beginning of the year, by the
end of the year there were four employees. This increased to six employees early
in 1998, to 10 by the end of that year and to 12 full time employees in
September 1999. The majority of this staff is involved with sales and marketing.

The Company moved into expanded office facilities early in 1998, thereby
increasing office occupancy expenses and related expenses of supporting the
expanded sales and marketing staff. Salaries and wages increased to $588,000 in
1998 from $167,000 in 1997. Office occupancy costs increased to $204,000 in 1998
from $52,000 in 1997. Marketing expenses increased to $75,000 in 1997 and to
$191,000 in 1998. Professional fees increased to $25,000 in 1997 and to $45,000
in 1998.

For the nine-month period ending September 30, 1999, as compared to the similar
1998 period, the Company's operating loss decreased by $9,000, which represents
a $80,000 improvement in gross profit offset by a $71,000 increase in operating
expenses.

PLAN OF OPERATION

The Company plans to continue its current strategy of developing a presence for
its products in the food service industry. Additionally, work needs to continue
on rounding out the product line and expanding penetration into other target
markets. This strategy will continue to require significant additional ongoing
investor financing. While management of the Company believes it will be able to
arrange the necessary financing to support its plan, if it is unable to, there
is substantial doubt that the Company will be able to continue its current
marketing efforts.

As described above, the Company's expenditures to date have greatly exceeded its
revenues even though those revenues have shown growth from year to year (sales
for the year 1999 will approximate $600,000 compared with $377,000 in 1998). The
company anticipates continued sales growth in the coming year and anticipates
that expenditures will continue at or near the current level. Based on this
scenario, it is anticipated that beginning in January 2000 the Company's need
for additional investor capital will begin to decrease each month as the
Company's plan develops.

"Y2K" ISSUE
Management of the Company believes it is in full compliance with the "Y2K"
issue. The Company operates an internal Local Area Network for all of its
computer operations and all the software and substantially all the hardware in
use will successfully pass through the new year without disruption. Based on
discussions with its major vendors, the Company believes there will be no
interruption from its vendors that will interfere with the Company's operations.
Management of the Company believes that the "Y2K" issue will not have a material
effect on the Company's business, results of operations or financial condition.

ITEM 3. DESCRIPTION OF PROPERTY.

All of the operations of the Company are conducted from premises leased from
unaffiliated landlords.

Pursuant to a lease agreement with Triad Properties, the company leases
approximately 3,000 square feet of usable space located at 751 Park of Commerce
Drive, Suite 122, Boca Raton,

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Florida as its principal executive offices, as well as marketing, administration
and product development facilities. The lease runs through March 2003, with
annual rental of approximately $26,000. This is a modern CBS and Steel, class B
building in a major Boca Raton office park, with 2500 square feet of office
space and a 500 square foot warehouse.

The company also leases approximately 2,400 square of usable space under a
short-term rental agreement with Henry Colombi, at 4301 Oak Circle Drive, Boca
Raton, Florida. This facility is used as a temporary warehouse and distribution
facility at a monthly rental of $1,696. This is a CBS and steel warehouse, with
500 square feet of office space in a strategically located industrial section of
Boca Raton, convenient to transportation.

The company considers its current leased facilities adequate for its operations.
In the event either of these leases was terminated or not renewed, management
believes adequate alternative space is available under comparable terms and
conditions.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth as of September 30, 1999 the beneficial ownership
of the Company's 14, 238,909 outstanding shares of common stock and 40,040
outstanding shares of preferred stock by any persons who own of record or are
known to own, beneficially, more than 5% of the Company's common or preferred
stock and each director and executive officer of the Company and all directors
and officers as a group.

NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- --------------- --------------------------- -------------------- --------
Common Stock Michael J. Troup 1,896,638(1) 13.3%
Preferred Stock Michael J. Troup 36,200 90.4%
1117 Island Dr.
Delray Beach, FL 33483

Common Stock Matthew J. Bruderman 1,275,000(2) 8.9%
1 World Trade Center
Suite 1153
New York, NY 10048

Common Stock Carter Reames 155,000 1.1%
6440 Tanacrest Ct. N. W.
Atlanta, GA 30328

Common Stock William J.Breslin 127,500(3) .9%
1764 N. W. 88 Way
Coral Springs, FL 33071

Common Stock All officers and directors 3,454,138 24.2%
Preferred Stock as a group (4) 36,200 90.4%

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All of the above are directors of the company. Mr. Troup is the Chairman of
the Board and the C.E.O. of the company. Mr. Breslin is secretary, treasurer
and the C.F.O. of the Company.

1. Includes 1,492,628 shares issued to the Michael J. Troup Trust, 20,000
shares issued to Lindsey Troup and 19,000 shares issued to Peter Troup
with respect to which Mr. Troup claims beneficial ownership. Lindsey and
Peter Troup are Mr. Troup's children.
2. Mr. Bruderman and the firm he controls, M J Bruderman & Company, Inc.,
have an agreement with the company to provide financial consulting
services to the company. Includes 275,000 shares issued to M. J. Bruderman
& Co. Inc., with respect to which Mr. Bruderman claims beneficial
ownership.
3. Includes 5,000 shares issued to Heather A. Breslin and 5,000 shares issued
to Holly A. Breslin with respect to which Mr. Breslin claims beneficial
ownership. Heather and Holly Breslin are Mr. Breslin's daughters.

ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.

The directors and executive officers of the company are:

NAME AGE POSITION
- ---- --- --------
Michael J. Troup 53 Chairman of the Board and
Chief Executive Officer
William J. Breslin 62 Director and secretary, treasurer and
Chief Financial Officer

Matthew J. Bruderman 28 Director

Carter Reames 65 Director

MICHAEL TROUP, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER provided the
concept, initial investment capital and entrepreneurial drive necessary to bring
the Microbest proprietary products to market. The holder of an undergraduate
degree in Psychology, with minors in chemistry and biology, and an M.A. in
Educational Psychology from The University of Toledo, Mr. Troup brings to the
management team more than 25 years of experience in manufacturing, marketing and
concept development. Mr. Troup has been employed full time by the Company since
January 1993 as its C.E.O.

WILLIAM J. BRESLIN, DIRECTOR AND CHIEF FINANCIAL OFFICER brings over 35 years of
diversified financial experience to Microbest. Mr. Breslin began his career with
Price Waterhouse where he developed specialities in corporate finance, business
development, and acquisitions and mergers. He spent 15 years in corporate
financial management as a senior financial executive with such companies as
Hartz Mountain Corporation, The Washington Post Corporation and The Zondervan
Publishing Company. For the last 10 years Mr. Breslin has been an independent
consultant to emerging growth companies in his areas of specialty. Mr. Breslin
is a Certified Public Accountant in the states of New York and Florida. He holds
an undergraduate degree from Iona University with a major in accounting. Mr.
Breslin joined the company as CFO on January 1, 1999 and became a Director on
April 8, 1999.

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MATTHEW J. BRUDERMAN, DIRECTOR is President and CEO of M. J. Bruderman &
Company, Inc., an international money management firm based in New York. Mr.
Bruderman, who represents the third generation of Bruderman family presence
on Wall Street, brings to Microbest his experience in financing developing
companies, and his relationships in the investment banking community. Mr
Bruderman has been in his present position for the past five years. Mr.
Bruderman became a director of the Company on June 22, 1998.

CARTER REAMES, DIRECTOR Chief Executive Officer of Reames Realty Advisors, a
firm based in Atlanta and specializing in commercial real estate advisory
services and acquisitions. Prior to his real estate investment activities, Mr.
Reames held technical and management positions in the chemical manufacturing
industry, and brings an array of engineering and entrepreneurial talents to the
Microbest Board. Mr. Reames became a director of the company on October 8,1998.

ITEM 6. EXECUTIVE COMPENSATION.

The following table sets forth the total compensation paid to the Company's
chief executive officer for the last three completed fiscal years. No other
executive officer of the Company received compensation of $100,000 or more in
any year the Company has been in existence.

ANNUAL COMPENSATION OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ---------------------------- ---- -------- ----- ------------
Michael J. Troup, C.E.O 1998 $105,000 None $10,000(1)
1997 $70,000 None None
1996 $60,000 None None

Patrick Cioffi, President(2) 1998 $87,950 None $15,985

William J. Breslin(3) 1998 None None $16,500

- --------------------
1. Includes $6,500 in lease payments on a vehicle the Company provides to
Mr. Troup and $3,500 in health club dues the Company pays for his
benefit.
2. Mr. Cioffi joined the Company as its president on November 3, 1997 and
served in that capacity until December 8, 1998 when he was terminated for
cause. As a result of his dismissal the agreement between the Company and
Mr.Cioffi was deemed void and the stock compensation arrangement with him
was cancelled. Mr. Cioffi has filed an action against the Company,
claiming damages. The company has initiated a counterclaim against Mr.
Cioffi for breach of contract.
3 Mr. Breslin joined the company as its CFO on January 1, 1999 at an annual
salary of $78,000. Prior to that he worked as an independent consultant to
the company performing the services of the CFO on a part-time basis.

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On June 12, 1998, the Company entered into a two year agreement with Matthew J.
Bruderman, a member of the Company's Board of Directors and beneficial owner of
8.6% of the Company's common stock. Mr. Bruderman owns and operates M. J.
Bruderman & Company, Inc., an SEC registered investment advisory firm (the
"Firm"). Under the terms of the agreement, the Firm is to provide financial
consulting services to the company, including but not limited to, assisting in

12
<PAGE>
the raising of investment capital for the Company. As compensation for such
services, the Company issued 1,275,000 shares of its common stock to the Firm.

ITEM 8. DESCRIPTION OF SECURITIES.

Common Stock

The Company is authorized to issue 100,000,000 shares of common stock, $.001par
value. As of September 30, 1999 there were 14,238,909 shares issued and
outstanding, all of which are validly issued, fully paid and nonassessable. The
Company has not declared nor paid any dividends since its inception, and it is
not likely that any dividends will be declared at any time in the near future.
Any dividends will be subject to the discretion of the company's Board of
Directors, and will depend upon, among other things, the operating and financial
condition of the company, its capital requirements and general business
conditions.

All common shares have one vote per share on all matters to be voted upon by the
shareholders. Cumulative voting in the election of directors is not allowed and
a quorum for shareholder meetings result when a majority of issued and
outstanding shares are present in person or by proxy.

The Company previously issued 300,000 shares of its common stock in settlement
of a dispute. Through April 2000, the company has the option to repurchase the
shares at a price of $2.25, if the Company has not so acted by that date then
the creditor for a ten day period has the right to "put" the shares to the
Company at a price of $1.50 per share.

On March 25, 1999, the Company's Board of Directors approved a qualified
incentive stock option plan and reserved 1,000,0000 shares of common stock for
options to be granted under the plan. As of November 5, 1999 no options have
been granted under the plan.

Preferred Stock

The Company is authorized to issue 50,000,000 shares of preferred stock, $.01
par value. As of September 30, 1999 there were 40,040 preferred shares issued
and outstanding. The preferred stock is convertible into common stock at a ratio
of 10 common shares for each preferred share, at a conversion price of $.10 per
share. The conversion period expires April 17, 2002. Prior to conversion, each
preferred share has 10 votes. The preferred stock is not registered with the
Securities and Exchange Commission.

Promissory Notes

On October 21, 1999, the Company issued $200,000 of Convertible Promissory
Notes. The notes bear interest at 8 3/4% and mature in five years. After 18
months and until maturity, the outstanding balance of principal and interest
shall be convertible, at the option of the holder, into shares of the Company's
common stock at a conversion price 20% below the average closing bid prices of
the common stock for the prior 90 days.

Also on October 21, 1999, the Company issued a $150,000 promissory note, due in
one year with interest at 12 3/4%. The holder of the note will also receive
50,000 shares of the Company's common stock.

13
<PAGE>
PART 11

ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

The Company has not paid any dividends on shares of its common or preferred
stock since inception and the Board of Directors of the Company does not
anticipate declaring or paying any dividends on the common or preferred stock in
the foreseeable future. The Company currently intends to utilize any positive
cash flow it may achieve for the development of its business and ongoing working
capital needs.

The Company's common stock has been trading on the NASD OTC Bulletin Board since
March 2, 1998, using the symbol MBST. The following table sets forth the range
of high and low bid quotations for the periods indicated as reported by National
Quotation Bureau, Inc. Such quotations reflect prices between dealers, without
retail mark-up, markdown or commission and may not represent actual
transactions.

HIGH BID LOW BID
-------- -------
March 2, 1998 through March 31, 1998 none none
April 1, 1998 through June 30, 1998 $1.75 $1.125
July 1, 1998 through September 30, 1998 $1.375 $0.42
October 1, 1998 through December 31, 1998 $2.06 $0.58
January 1, 1999 through March 31, 1999 $1.50 $0.75
April 1, 1999 through June 30, 1999 $1.19 $0.625
July 1, 1999 through September 30, 1999 $0.875 $0.187

ITEM 2. LEGAL PROCEEDINGS

On December 8, 1998 the Company terminated for cause, the employment of its
former president. As a result of the dismissal and for the reasons behind it,
the agreement with the officer was deemed void and the officer's stock
compensation arrangement was cancelled. Counsel to the Company has advised
management that its actions are appropriate in the circumstances. The officer
has filed an arbitration action against the Company claiming damages. The
Company has initiated a counterclaim against the officer for breach of contract
and plans to vigorously and aggressively defend the claims against the Company
and to prosecute the officer for his improper and unlawful behavior.

ITEM 3. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS.

None

ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES

The following provides information concerning all sales of securities that the
Company sold within the past three years relying on exemptions from registration
under the Securities Act of 1933.

14
<PAGE>
On December 31, 1996 the Company issued 3,965,625 shares of common stock for
$10,000 cash without registration under the Securities Act of 1933 pursuant to
an exemption under Rule 504 of Regulation D.

On April 17, 1997 the Company issued 3,950,500 shares of common stock and 40,040
shares of preferred stock to the former shareholders of Microbest Products,
Inc., and others, in connection with the merger of that entity into the Company
(see notes to financial statements). These shares were issued in reliance upon
Section 4 (2) of the Securities Act of 1933.

From March 1, 1997 through December 31, 1997 the Company issued 526,000 shares
of common stock for cash of $301,381 without registration pursuant to an
exemption from registration under Rule 504. Includes 169,773 shares issued in
settlement of $92,709 advanced to the Company prior to 1997.

Between May 7, 1997 and October 10, 1997 the Company also issued 886,856 shares
of common stock for cash of $107,500 and services of $20,000 without
registration in reliance on Section 4 (2) of the Securities Act of 1933. The
Company has received subscription agreements from the purchasers of Section 4
(2) shares acknowledging they are sophisticated investors who have had access to
the Company's management and financial records.

From January 20, 1998 through December15, 1998 the Company issued 1,658,102
shares of common stock for cash of $782,150 without registration pursuant to an
exemption from registration under rule 504.

Between April 1, 1998 and December 14, 1998 the Company also issued 2,048,500
shares of common stock for cash of $93,000 and services of $50,000 without
registration in reliance upon section 4 (2) of the Securities Act of 1933, as
144 restricted shares.

From the period January 1, 1999 through September 30, 1999 the company issued
1,197,701 shares of common stock for cash of $537,084. Of the shares issued,
56,275 were issued pursuant to rule 504 and 1,141,426 were issued pursuant to
section 4(2).

The following is a tabular presentation of the sales of common shares listed
above:
TYPE OF CASH OR
DATES OF ISSUE EXEMPTION NUMBER OF SHARES SERVICES RECEIVED
- ----------------------- --------- ---------------- -----------------
December 31, 1996 504 3,971,250 $10,000
April 17, 1997 4 (2) 3,950,500 -
During 1997 504 877,856 $301,381
During 1997 4 (2) 535,000 $127,500
---------------- -----------------
Total through 1997 9,334,606 $438,881
During 1998 504 1,658,102 $782,650
During 1998 4 (2) 2,048,500 $143,000
---------------- -----------------
<PAGE>
TYPE OF CASH OR
DATES OF ISSUE EXEMPTION NUMBER OF SHARES SERVICES RECEIVED
- ----------------------- --------- ---------------- -----------------
Total through 1998 13,041,208 $1,364,531
---------------- -----------------
During 1999 504 56,275 $42,500
During 1999 4 (2) 1,141,426 $494,584
Total through 9/30/99 14,238,909 $1,901,61
---------------- -----------------

ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 607.0850 of the Florida Business Corporation Act provides that officers
and directors may be indemnified by the Company for any liability incurred by
them while acting within the scope of their duties as officers and directors of
the Company, except for acts of intentional misconduct or unlawfulness. The
Company's Bylaws provide that the Company shall indemnify all officers and
directors to the fullest extent provided by Florida law. The Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and is unenforceable.

The Company has not purchased a policy of errors or omissions liability
insurance to cover its indemnification obligations.

16
<PAGE>
PART F/S

THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED HEREIN:

AUDITED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS' REPORT

BALANCE SHEETS AS OF DECEMBER 31, 1998, 1997 AND 1996

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTES TO FINANCIAL STATEMENTS

UNAUDITED INTERIM FINANCIAL STATEMENTS

BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND 1998

STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

STATEMENTS OF CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

17
<PAGE>
PART III

ITEM 1. INDEX TO EXHIBITS

EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
Number 1 Plan of Merger

Number 2 Articles of Incorporation

Number 3 By - Laws

SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.

MICROBEST, INC.

BY /s/ Michael J. Troup
MICHAEL J. TROUP,
PRESIDENT AND CHIEF EXECUTIVE OFFICER

18
<PAGE>
MICROBEST, INC.

FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997

TABLE OF CONTENTS

PAGE
----
INDEPENDENT AUDITORS' REPORT F-2

FINANCIAL STATEMENTS

Balance Sheets F-3

Statements of Operations F-4

Statements of Changes in Stockholders' Deficit F-5

Statements of Cash Flows F-6

NOTES TO FINANCIAL STATEMENTS F7 through F13

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Microbest, Inc.

We have audited the accompanying balance sheets of Microbest, Inc. (the
"Company") as of December 31, 1998 and 1997, and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
years then ended. 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Microbest, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has a deficit in working capital and has suffered
cumulative losses from operations since inception. This raises substantial doubt
about the Company's ability to continue as a going concern. Management's plan in
regard to these matters is also described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

/s/ Ahearn, Jasco + Company, P.A.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants

Pompano Beach, Florida
May 12, 1999

F-2
<PAGE>
MICROBEST, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 56,554 $ 6,362
Accounts receivable, net of allowances of $8,540
in 1998 and $1,654 in 1997 ......................................... 41,681 17,522
Inventories, net .................................................... 42,457 23,200
----------- -----------

TOTAL CURRENT ASSETS .......................................... 140,692 47,084

PROPERTY AND EQUIPMENT, net ............................................ 67,594 8,087

OTHER ASSETS ........................................................... 4,875 4,875
----------- -----------

TOTAL ......................................................... $ 213,161 $ 60,046
=========== ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable and accrued expenses ............................... $ 265,799 $ 105,708
Current portion of capital lease obligation ......................... 1,981 --
Loan payable ........................................................ 100,000 63,609
Advances from a related entity ...................................... 200,000 --
----------- -----------

TOTAL CURRENT LIABILITIES ..................................... 567,780 169,317
----------- -----------

LONG-TERM PORTION - Capital lease obligation ........................... 13,884 --
----------- -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
Preferred stock, 50,000,000 shares authorized,
at stated value .................................................... 400 400
Common stock, 100,000,000 shares authorized,
at stated value .................................................... 13,041 9,335
Additional paid-in capital .......................................... 1,326,490 429,546
Deficit ............................................................. (1,708,434) (548,552)
----------- -----------

STOCKHOLDERS' DEFICIT, NET .................................... (368,503) (109,271)
----------- -----------

TOTAL ......................................................... $ 213,161 $ 60,046
=========== ===========
</TABLE>
See accompanying notes to financial statements.

F-3
<PAGE>
MICROBEST, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
SALES ........................................................................ $ 376,602 $ 190,636

COST OF SALES ................................................................ 327,087 200,803
------------ ------------
GROSS MARGIN (LOSS) ................................................. 49,515 (10,167)

ADMINISTRATIVE EXPENSES ...................................................... 1,190,644 435,486
------------ ------------
LOSS FROM OPERATIONS ................................................ (1,141,129) (445,653)

INTEREST EXPENSE ............................................................. 18,753 5,725
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES .............................. (1,159,882) (451,378)

PROVISION FOR INCOME TAXES ................................................... -- --
------------ ------------
NET LOSS ............................................................ $ (1,159,882) $ (451,378)
------------ ------------

LOSS PER COMMON SHARE:
Basic and diluted ......................................................... $ (0.100) $ (0.059)
Weighted average common shares outstanding ................................ 11,597,027 7,591,589
------------ ------------
</TABLE>
See accompanying notes to financial statements.

F-4
<PAGE>
MICROBEST, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK FUNDS
--------------------------- ----------------------------- ADDITIONAL ADVANCED FOR
STATED VALUE STATED VALUE PAID-IN SUBSEQUENTLY
# OF SHARES $.01 PER SHARE # OF SHARES $.001 PER SHARE CAPITAL ISSUED STOCK
----------- ------------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY (DEFICIT), ..... 40 $ 1 3,971,250 $ 3,971 $ 56,028 $ 92,709
December 31, 1996

Stock issued pursuant to a merger and
recapitalization (see Note 2) ...... 40,000 399 3,950,500 3,951 (4,350) --

Issuance of common stock for cash ... -- -- 1,012,856 1,013 358,268 (92,709)

Issuance of common stock for services -- -- 400,000 400 19,600 --

Net loss for the year ended
December 31, 1997 .................. -- -- -- -- -- --

STOCKHOLDERS' DEFICIT,
December 31, 1997 .................. 40,040 400 9,334,606 9,335 429,546 --

Issuance of common stock for cash ... -- -- 2,706,602 2,706 847,944 --

Issuance of common stock for services -- -- 1,000,000 1,000 49,000 --

Net loss for the year ended
December 31, 1998 .................. -- -- -- -- -- --

STOCKHOLDERS' DEFICIT,
December 31, 1998 .................. 40,040 $ 400 13,041,208 $ 13,041 $ 1,326,490 $ --
----------- ------------- ----------- --------------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS'
EQUITY
DEFICIT (DEFICIT), NET
----------- -------------
<S> <C> <C>
STOCKHOLDERS' EQUITY (DEFICIT), ..... $(97,174) $ 55,535
December 31, 1996

Stock issued pursuant to a merger and
recapitalization (see Note 2) ...... -- --

Issuance of common stock for cash ... -- 266,572

Issuance of common stock for services -- 20,000

Net loss for the year ended
December 31, 1997 .................. (451,378) (451,378)

STOCKHOLDERS' DEFICIT,
December 31, 1997 .................. (548,552) (109,271)

Issuance of common stock for cash ... -- 850,650

Issuance of common stock for services -- 50,000

Net loss for the year ended
December 31, 1998 .................. (1,159,882) (1,159,882)

STOCKHOLDERS' DEFICIT,
December 31, 1998 .................. $(1,708,434 $ (368,503)
----------- -------------
</TABLE>
See accompanying notes to financial statements.

F-5
<PAGE>
MICROBEST, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................ $(1,159,882) $ (451,378)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ..................................................................... 9,756 2,120
Common stock issued for services ................................................. 50,000 20,000
Interest accrued on loan payable ................................................. 36,391 --
Changes in certain assets and liabilities:
Accounts receivable ........................................................... (24,159) 132,699
Inventories ................................................................... (19,257) (8,000)
Accounts payable and accrued expenses ......................................... 160,091 53,148
Other ......................................................................... -- (4,875)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ......................................... (947,060) (256,286)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITY - Acquisition
of property and equipment ............................................................. (53,398) (4,475)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock sales ........................................................... 850,650 266,572
Advances from a related entity ...................................................... 200,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................................... 1,050,650 266,572
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ..................................... 50,192 5,811

CASH AND CASH EQUIVALENTS, Beginning of year ........................................... 6,362 551
----------- -----------
CASH AND CASH EQUIVALENTS, End of year ................................................. $ 56,554 $ 6,362
----------- -----------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash ............................................................... $ 700 $ --
----------- -----------
Income taxes paid in cash ........................................................... $ -- $ --
----------- -----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In December 1998, the Company entered into a capital lease obligation for $15,865 for telephone
equipment
</TABLE>
See accompanying notes to financial statements.

F-6
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF ENTITY AND BASIS OF PRESENTATION

Microbest, Inc. is the entity resulting from the April 17, 1997 merger
of an entity previously named Emerald-Shade, Inc. ("ESI") and Microbest
Products, Inc. ("MPI"). This merger is described further in Note 2. MPI
began operations in 1993. ESI was incorporated in Minnesota on December 3,
1996, but had no operations prior to the merger other than the issuance of
its common stock. Hereinafter, the post-merger entity will be referred to as
the "Company" and the pre-merger entities will be referred to as ESI and
MPI. The Company is engaged in making and marketing a biologically-based,
environmentally safe system of cleaning products for the industrial and
institutional cleaning products industry.
The Company's financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.
The Company incurred a net loss of $1,159,882 and $451,378 for the years
ended December 31, 1998 and 1997, respectively, and has an accumulated
deficit of $1,708,434 and a working capital deficit of $427,088 at December
31, 1998. Management recognizes that the Company must generate additional
resources to enable it to continue operations. Management is planning to
obtain additional capital through the sale of equity securities and has
hired an investment banker to assist in raising capital. The realization of
assets and satisfaction of liabilities in the normal course of business is
dependent upon the Company obtaining additional equity capital and
ultimately obtaining profitable operations. However, no assurances can be
given that the Company will be successful in these activities. Should any of
these events not occur, the accompanying consolidated financial statements
will be materially affected.

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

REVENUE RECOGNITION AND CREDIT RISKS
Revenue is recognized at the time the goods are shipped. Accounts
receivable are primarily with restaurants and food service companies located
nationwide. The Company sells its products to various customers spread over
a wide geographic area, therefore, the Company believes that it does not
have an abnormal concentration of credit risk within any one market or any
one geographic area.
For the year ended December 31, 1997, one customer accounted for 80%
of the Company's total sales. This customer was a distributor for the
Company's products, who resold the products to numerous secondary customers.
Beginning in 1998, the Company started selling its products directly to the
former distributor's customers. For 1998, no single customer accounted for
more than 10% of the Company's sales.

INVENTORIES
The Company's proprietary products are produced under contract by
independent third parties for resale and distribution by the Company.
Inventories, therefore, substantially consist of the proprietary products
and are recorded at the lower of cost (first-in, first-out method) or
market. Products purchased with the intent to use as samples or for
promotional purposes are expensed as acquired. Inventories are presented net
of allowances.

F-7
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

PROPERTY AND EQUIPMENT
Property and equipment is recorded at acquisition cost and depreciated
using the straight-line method over the estimated useful lives of the
assets. Useful lives range from five to seven years. Expenditures for
routine maintenance and repairs are charged to expense as incurred.

INCOME TAXES
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," which requires the recognition of deferred tax liabilities and
assets at currently enacted tax rates for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount that is more likely than not to be
realized.

NET LOSS PER COMMON SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share." SFAS 128
requires companies with complex capital structures or common stock
equivalents to present both basic and diluted earnings per share ("EPS") on
the face of the income statement. Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is calculated using
the "if converted" method for convertible securities and the treasury stock
method for options and warrants as previously prescribed by Accounting
Principles Board Opinion No. 15, "Earnings Per Share." The effect of common
shares issuable under the terms of the Company's preferred stock outstanding
are excluded from the calculation of diluted EPS since the effect is
antidilutive. The adoption of SFAS 128 did not have an impact on the
Company's reported results.

NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 and 131 are effective for fiscal years
beginning after December 15, 1997. Adoption of these standards in 1998 had
no material impact on the Company's results of operations. A statement of
comprehensive income is not presented since the Company had no items of
other comprehensive income.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments
purchased with an original maturity of three months or less. The Company
occasionally maintains cash balances in financial institutions in excess of
the federally insured limits.

FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, and accounts payable and accrued expenses
are reflected in the financial statements at cost, which approximates fair
value because of the short-term maturity of those instruments. The fair
value of the Company's loan payable, as disclosed in Note 6, cannot be
estimated as the debt is in dispute.

F-8
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------

NOTE 2 - MERGER OF ESI AND MPI

On April 17, 1997, a merger transaction was effected between ESI and
MPI and its shareholders. To complete the merger, ESI issued 3,950,000 new
shares of its common stock and 40,000 shares of preferred stock to the
shareholders of MPI in exchange for all of the outstanding stock (1,000
shares of common stock) of MPI. (These share amounts are after giving effect
to a November 1997 adjustment to the merger, which included a reverse
capital split of the preferred stock and a cancellation of common shares.)
As a result of this merger, the business of MPI will be conducted within the
legal entity ESI. Prior to the merger, ESI was a non-operating entity with
publicly traded common stock pursuant to a December 1996 Regulation D, Rule
504 offering. At the date of the merger, ESI had no significant assets or
liabilities.
Although ESI (renamed Microbest, Inc.) is the legal surviving
corporation, for accounting purposes, the merger is treated as a purchase
business acquisition of ESI by MPI (commonly called a reverse acquisition)
and a recapitalization of MPI. MPI is the acquirer for accounting purposes
because the former MPI stockholders received the larger portion of the
common stockholder interests and voting rights in the combined enterprise
when compared to the common stockholder interests and voting rights retained
by the former ESI stockholders. As a result of this accounting treatment,
the Company is recapitalized for accounting purposes to reflect the
authorized stock of the legal surviving entity.
Pro forma information has not been presented for this merger. Such
information would not be meaningful since ESI had no operations prior to the
merger.
The shares outstanding of MPI, as well as other share and per share
amounts, have been restated to December 31, 1996 to reflect the subsequent
recapitalization as if a stock split had occurred and to reflect the
November 1997 adjustment to the merger transaction.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 1998
and 1997:

1998 1997
-------- --------
Leasehold improvements ......................... $ 20,067 $ --
Office and computer equipment .................. 62,037 12,841
Less: Accumulated depreciation ................ (14,510) (4,754)
-------- --------

Property and equipment, .............. $ 67,594 $ 8,087
======== ========

Depreciation expense for the years ended December 31, 1998 and 1997
was $9,756 and $2,120, respectively.

NOTE 4 - CAPITAL LEASE OBLIGATION

In December 1998, a telephone system was acquired through a capital
lease transaction. The lease calls for payments of $350 for 60 months with
the first payment due in January 1999. Imputed interest over the life of the
lease is $5,158 for a total recorded obligation at December 31, 1998 of
$15,865.

F-9
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, 1998 and 1997
consist of the following:

1998 1997
-------- --------
Accounts payable ................................. $ 45,335 $ 64,379
Accrued liabilities:
Product liability ............................. 25,000 10,000
Payroll, vacation pay, and related ............ 90,961 10,000
Interest payable .............................. 29,503 11,450
Sales tax, legal, and other ................... 75,000 9,879
-------- --------

Total .................................. $265,799 $105,708
-------- --------

NOTE 6 - LOAN PAYABLE

At December 31, 1997, the Company had a loan payable for which it
recorded an amount due for principal of $63,609. The creditor, who is a
shareholder, made a formal demand for payment, however, the Company disputed
both the amount that was due and the terms of the loan. In 1998, based on
ongoing negotiations with the creditor, the Company increased the recorded
amount of principal due to $100,000 and adjusted accrued interest payable
accordingly (see Note 5). The matter was settled in 1999 for the payment of
$100,000 and an agreement that applies to 300,000 shares of the Company's
common stock held by the creditor, as follows: through February 2000, the
Company has the option to repurchase these shares at a price of $2.25; in
the event that the Company has not repurchased these shares from the
creditor by April 2000, then for a limited period of ten days, the creditor
has the right to force a sale to the Company of any or all of these shares
at a price of $1.50 per share.

NOTE 7 - INCOME TAXES

A summary of the provision for income taxes for the years ended
December 31, 1998 and 1997 is as follows:

1998 1997
-------- --------
Currently payable ................................ $ -- $ --
Deferred tax benefit.............................. 373,820 157,983
Less: Valuation allowance ....................... (373,820) (157,983)
-------- --------

Provision for income taxes ............. $ -- $ --
======== ========

F-10
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------

NOTE 7 - INCOME TAXES (continued)

Net deferred tax assets at December 31, 1998 and 1997 are as
follows:

1998 1997
--------- ---------
Available net operating loss carryovers ........ $ 565,813 $ 191,993
Less: Valuation allowance ..................... (565,813) (191,993)
--------- ---------

Net deferred tax assets .............. $ -- $ --
========= =========

The Company has used a combined estimated federal and state tax rate
of approximately 33.5% for all deferred tax computations. A rate
reconciliation has not been provided since it is not meaningful in the
circumstances. There are no significant deferred tax liabilities.
The Company has recorded a valuation allowance in accordance with the
provisions of SFAS No. 109 to reflect the estimated amount of deferred tax
assets which may not be realized. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation
future taxable income during the periods in which temporary differences
and/or carryforward losses become deductible.
The Company has available tax net operating loss carryovers ("NOLs")
as of December 31, 1998 of approximately $1,581,000. The NOLs expire
beginning in 2008. Certain provisions of the tax law may limit the net
operating loss carryforwards available for use in any given year in the
event of a significant change in ownership interest. There have already been
significant changes in stock ownership; however, management believes that an
ownership change has not yet occurred which would cause the net operating
loss carryover to be limited.

NOTE 8 - STOCKHOLDERS' EQUITY

COMMON STOCK
The holders of the common stock are entitled to one vote per share and
have non-cumulative voting rights. The holders are also entitled to receive
dividends when, as, and if declared by the Board of Directors. Additionally,
the holders of the common stock do not have any preemptive right to
subscribe for, or purchase, any shares of any class of stock.

PREFERRED STOCK
The preferred stock, designated as Class A Preferred, is convertible
to common stock at a ratio of 10 shares of common for every share of
preferred stock. The conversion period expires five years from the date of
the preferred issuance, or April 2002. In November 1997, when a one for 50
reverse split of the stock was effected, the shareholders agreed to adjust
the conversion terms so the ratio for conversion remained at 10 shares of
common for each share of preferred.

NASD APPROVAL
In April 1997, the Company submitted an application to be listed on
the NASD OTC Bulletin Board under rule 15c2-11 of the Securities Exchange
Act of 1934. On March 2, 1998, the Company's shares were approved for public
trading under the symbol MBST.

F-11
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------

NOTE 9 - COMMITMENTS AND CONTINGENCIES

LEASES
The Company leases its office space under a lease expiring in March
2003, as well as certain other equipment. Future minimum lease payments
under these operating leases are approximately as follows:

Year Ending
DECEMBER 31,
- ------------
1999 $ 25,272
2000 26,088
2001 26,928
2002 24,476
2003 5,703
--------
$108,467
--------

During the year ended December 31, 1997, a shareholder was providing a
facility to the Company without charge. Total rental expense incurred during
1998 was $29,349.

LITIGATION
From time to time, the Company is exposed to claims and legal actions
in the normal course of business, some of which are initiated by the
Company. One of these matters relates to the dismissal for cause in December
1998 of a former officer of the Company. As a result of this dismissal, the
employment agreement with the officer was deemed void and the officer's
stock compensation arrangement was canceled. Counsel to the Company has
advised management that these actions are appropriate in the circumstances.
The former officer has filed an arbitration action against the Company,
claiming substantial damages. At December 31, 1998, management has recorded
reserves for legal fees to cover anticipated future expenses for this and
other matters and believes that this and any other such outstanding issues
will be resolved without significant additional liability to the Company.

NOTE 10 - NET LOSS PER COMMON SHARE

For the years ended December 31, 1998 and 1997, weighted average
common shares include only common shares outstanding. The inclusion of
common share equivalents would be anti-dilutive and, as such, they are not
included.
For 1997, the number of shares of MPI were restated to the beginning
of the year to reflect the number of shares received in the merger with ESI
as if a stock split had occurred. The subsequently canceled shares relating
to the merger were also restated to the beginning of the year.

F-12
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------

NOTE 10 - NET LOSS PER COMMON SHARE (continued)

A reconciliation of the number of common shares shown as outstanding
in the consolidated financial statements with the number of shares used in
the computation of weighted average common shares outstanding is shown
below:

1998 1997
---------- ---------
Common shares outstanding at December 31st 13,041,208 9,334,606
Effect of weighting ...................... (1,444,181) (1,743,017)
---------- ---------

Weighted average common shares . 11,597,027 7,591,589
========== =========

NOTE 11 - RELATED PARTY TRANSACTIONS

A financial services company, who is also a shareholder, received
commissions customary in the industry for helping the Company sell its
common stock. In addition, during 1996 and 1997, this entity loaned the
Company a total of $261,856 of operating funds. These funds were converted
into 261,856 shares of common stock in 1997. The funds advanced during 1996
are included in equity under the caption, "funds advanced for subsequently
issued stock."
On June 12, 1998, the Company entered into a two-year agreement with
Matthew J. Bruderman, who owns and operates an SEC registered investment
advisory firm (M.J. Bruderman & Company, the "firm"), to provide financial
consulting services, including but not limited to, the raising of investment
capital for the Company. As compensation for such services, the Company
issued 1,000,000 shares of its common stock to the firm. Concurrent with the
execution of the agreement, Mr. Bruderman and the firm have made a
commitment to assist the Company in raising working capital through June 11,
2000. At December 31, 1998, the firm has advanced the Company $200,000 of
funds on a non-interest bearing basis.

NOTE 12 - SUBSEQUENT EVENTS

STOCK OPTION PLAN
On March 25, 1999, the Board of Directors approved the creation of an
incentive stock option plan (the "plan"), a qualified plan in accordance
with the rules and regulations of the Internal Revenue Code, and reserved
1,000,000 shares of the Company's common stock for options to be granted
under the plan. To conform with the Internal Revenue Code, the plan must be
approved by a majority of the Company's stockholders within one year of its
effective date.

F-13
<PAGE>
MICROBEST, INC.

UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998

TABLE OF CONTENTS

PAGE
----
FINANCIAL STATEMENTS

Balance Sheets F-15

Statements of Operations F-16

Statements of Changes in Stockholders' Deficit F-17

Statements of Cash Flows F-18

NOTES TO FINANCIAL STATEMENTS F-19

F-14
<PAGE>
MICROBEST, INC.
BALANCE SHEETS (Unaudited)
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ....................................................... $ 13,999 $ 26,820
Accounts receivable, net of allowances of $11,540
in 1999 and $8,540 in 1998 ..................................................... 95,834 85,384
Inventories, net ................................................................ 52,391 94,480
----------- -----------
TOTAL CURRENT ASSETS ...................................................... 162,224 206,684

PROPERTY AND EQUIPMENT, net ........................................................ 69,719 36,172

OTHER ASSETS ....................................................................... 5,635 4,875
----------- -----------
TOTAL ..................................................................... $ 237,578 $ 247,731
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable and accrued expenses ........................................... $ 310,867 $ 236,503
Current portion of capital lease obligation ..................................... 1,981 --
Loan payable .................................................................... -- 63,609
Bridge loan ..................................................................... 150,000 --
----------- -----------
TOTAL CURRENT LIABILITIES ................................................. 462,848 300,112
----------- -----------
LONG-TERM PORTION - Capital lease obligation ....................................... 12,205 --
----------- -----------
ADVANCES FROM RELATED ENTITY ....................................................... 200,000 60,000
----------- -----------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
Preferred stock, 50,000,000 shares authorized,
at stated value ................................................................ 400 400
Common stock, 100,000,000 shares authorized,
at stated value ................................................................ 14,239 12,112
Additional paid-in capital ...................................................... 1,887,376 1,063,648
Deficit ......................................................................... (2,339,490) (1,188,541)
----------- -----------
STOCKHOLDERS' DEFICIT, NET ................................................ (437,475) (112,381)
----------- -----------
TOTAL ..................................................................... $ 237,578 $ 247,731
----------- -----------
</TABLE>
F-15
<PAGE>
MICROBEST, INC.
STATEMENTS OF OPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

1999 1998
------------ ------------
SALES .......................................... $ 403,943 $ 296,676

COST OF SALES .................................. 238,215 211,264
------------ ------------
GROSS MARGIN (LOSS) ................... 165,728 85,412

ADMINISTRATIVE EXPENSES ........................ 782,045 723,437
------------ ------------
LOSS FROM OPERATIONS .................. (616,317) (638,025)

INTEREST EXPENSE ............................... 14,739 1,964
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (631,056) (639,989)

PROVISION FOR INCOME TAXES ..................... -- --
------------ ------------
NET LOSS .............................. $ (631,056) $ (639,989)
============ ============

LOSS PER COMMON SHARE:
Basic and diluted ........................... $ (0.046) $ (0.060)
============ ============
Weighted average common shares outstanding .. 13,709,646 10,670,375
============ ============

F-16
<PAGE>
MICROBEST, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------------- ----------------------------- ADDITIONAL
STATED VALUE STATED VALUE PAID-IN
# OF SHARES $.01 PER SHARE # OF SHARES $.001 PER SHARE CAPITAL
----------- -------------- ----------- --------------- -----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' DEFICIT, January 1, 1999 .............. 40,040 $ 400 13,041,200 $ 13,041 $ 1,351,490

Issuance of common stock ............................ -- -- 1,197,701 1,198 535,886

Net loss for the nine months ended September 30, 1999 -- -- -- -- --

STOCKHOLDERS' DEFICIT, September 30, 1999 ........... 40,040 $ 400 14,238,901 $ 14,239 $ 1,887,376

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------

STOCKHOLDERS' DEFICIT, January 1, 1998 .............. 40,040 $ 400 9,334,606 $ 9,335 $ 429,546

Issuance of common stock ............................ -- -- 2,777,855 2,777 634,102

Net loss for the nine months ended September 30, 1998 -- -- -- -- --

STOCKHOLDERS' DEFICIT, September 30, 1998 ........... 40,040 $ 400 12,112,461 $ 12,112 $ 1,063,648
----------- -------------- ----------- --------------- -----------
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS'
DEFICIT DEFICIT, NET
----------- -------------

----------------------------
<S> <C> <C>
STOCKHOLDERS' DEFICIT, January 1, 1999 .............. $(1,708,434) $ (343,503)

Issuance of common stock ............................ -- 537,084

Net loss for the nine months ended September 30, 1999 (631,056) (631,056)

STOCKHOLDERS' DEFICIT, September 30, 1999 ........... $(2,339,490) $ (437,475)

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

STOCKHOLDERS' DEFICIT, January 1, 1998 .............. $ (548,552) $ (109,271)

Issuance of common stock ............................ -- 636,879

Net loss for the nine months ended September 30, 1998 (639,989) (639,989)

STOCKHOLDERS' DEFICIT, September 30, 1998 ........... $(1,188,541) $ (112,381)
----------- -------------
</TABLE>

F-17
<PAGE>
MICROBEST, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $(631,056) $(639,989)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................... 10,000 8,000
Common stock issued for services ............... -- --
Interest accrued on loan payable ............... -- --
Changes in certain assets and liabilities:
Accounts receivable ......................... (30,024) (67,862)
Inventories ................................. (9,934) (71,280)
Accounts payable and accrued expenses ....... 45,068 130,795
Other ....................................... (1,568) --
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES ....... (617,514) (640,336)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITY - Acquisition
of property and equipment ........................... (12,125) (36,085)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock sales ......................... 537,084 636,879
Loan repayment .................................... (100,000) --
Advances from a related entity .................... -- 60,000
Proceeds from bridge financing .................... 150,000 --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ... 587,084 696,879
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ....................... (42,555) 20,458

CASH AND CASH EQUIVALENTS, Beginning of year ......... 56,554 6,362
--------- ---------
CASH AND CASH EQUIVALENTS, End of year ............... $ 13,999 $ 26,820
========= =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash ............................. $ -- $ --
========= =========
Income taxes paid in cash ......................... $ -- $ --
========= =========

F-18
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------

The accompanying financial statements of Microbest, Inc. have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The financial statements as of and for the periods ended
September 30, 1999 and 1998 are unaudited. The results of operations for the
interim periods shown in this report are not necessarily indicative of the
results of operations to be expected for the fiscal year. These interim
financial statements should be read in conjunction with the annual financial
statements and footnotes for the year ended December 31, 1998 included in the
Company's Form 10-SB.

PROMISSORY NOTES

Also on October 21, 1999, the Company issued a $150,000 promissory note, due in
one year, with interest at 12 3/4%. The holder of the note will also receive
50,000 shares of the Company's common stock.

F-19

EXHIBIT 1

- --------------------------------------------------------------------------------
STATE OF MINNESOTA

SECRETARY OF STATE

Certificate of Merger

I, Joan Anderson Growe, Secretary of State of Minnesota, certify that;
the documents required to affectuate a merger between the entities listed below
and designating the surviving entity have been filed in this office on the date
noted on this certificate; and the qualification of any non-surviving entity to
do business in Minnesota is terminated on the effective date of this merger.

Merger Filed Pursuant to Minnesota Statutes, Chapter: 302A

State of Formation and Names of Merging Entries:

FL: MICROBEST PRODUCTS, INC.
MN: MICROBEST, INC.

State of Formation and Name of Surviving Entity:

MN: MICROBEST, INC.

Effective Date of Merger: April 17, 1997

Name of Surviving Entity Aftr Effective Date of Merger:

MICROBEST, INC.

This certificate has been issued on: April 17, 1997

[Certification Imprint]
/s/ JOAN ANDERSON GROWE
Secretary of State.
- --------------------------------------------------------------------------------
<PAGE>
PLAN OF MERGER

SECTION 1. CORPORATIONS PLANNING TO MERGE.

Microbest products, Inc. (Products), a Florida corporation shall be merged
with Microbest, Inc. (Micro), a Minnesota corporation. At the Effective Time the
corporate existence of Products shall cease. Micro shall be the surviving
corporation, and shall continue to be governed by the laws of the State of
Minnesota.

SECTION 2. TERMS AND CONDITIONS.

2.1 The merger shall be effective upon the issuance of a Certificate of
Merger by the Secretary of State of the State of Minnesota.

2.2 The Articles of incorporation shall be the Articles of incorporation
of Micro.

2.3 The By-Laws shall be the By-Laws of Micro.

2.4 The Directors and Officers shall be the Directors and Officers of
Micro.

SECTION 3. MANNER AND BASIS OF CONVERTING THE SHARES.

3.1 At the Effective Time, all of the shares of the common stock of
Products issued and outstanding immediately before the Effective Time shall be
retired.

3.2 Promptly after the Effective Time Micro shall cause to be mailed to
each person who was at the Effective Time a holder of record of shares of
Products common stock his pro rata share of 7,900,000 shares of common stock and
2,000,000 shares of preferred stock.

IN WITNESS WHEREOF, the parties have executed this Plan of Merger this 31
day of March, 1997.

Mircobest Products, Inc. Microbest Inc.

by /s/ Michael J. Troup by /s/ Brian Nelson
President President
<PAGE>
CERTIFICATE OF PRESIDENT

I, Michael J. Troup, the President of Microbest Products, Inc. do certify
that at a meeting of the shareholders, of Microbest Products, Inc. held on April
__, 1997, after notice of the Meeting of Shareholders as prescribed by the
statutes of the State of Florida, the majority of the shareholders of Microbest
Products, Inc. voted for the adoption of the Merger, the vote being the
affirmative vote required by the by-laws of the company and by the Minnesota
statutes.

Dated this 1 day of April, 1997.

/s/ MICHAEL J. TROUP
Michael J. Troup, President
<PAGE>
CERTIFICATE OF PRESIDENT

I, Brian Nelson, the President of Microbest, Inc. do certify
that at a meeting of the shareholders, of Microbest, Inc. held on April
15, 1997, after notice of the Meeting of Shareholders as prescribed by the
statutes of the State of Florida, the majority of the shareholders of Microbest
Products, Inc. voted for the adoption of the Merger, the vote being the
affirmative vote required by the by-laws of the company and by the Minnesota
statutes.

Dated this 16 day of April, 1997.

/s/ BRIAN NELSON
Brian Nelson, President

STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
APR 17, 1997

/s/ JOAN ANDERSON GROWE
Secretary of State

EXHIBIT 2

STATE OF MINNESOTA
SECRETARY OF STATE
ARTICLES OF INCORPORATION
BUSINESS AND NONPROFIT CORPORATIONS

PLEASE TYPE OF PRINT LEGIBLY IN BLACK INK.
Please read the directions on the reverse side before completing this form. All
information on this is public information.

TO EXPEDITE THE RETURN OF YOUR DOCUMENTS, PLEASE SUBMIT A STAMPED,
SELF-ADDRESSED ENVELOPE.

The undersigned incorporator(s) is an (are)individual(s) 18 years of age or
older and adopt the following articles of incorporation to form a (mark ONLY
one):

[X] FOR-PROFIT BUSINESS CORPORATION (Chapter 302A)
[ ] NONPROFIT CORPORATION (Chapter 317A)

ARTICLE 1 NAME

The name of the corporation is

UPDATE CONSULTANT, INC.
- --------------------------------------------------------------------------------
(Business Corporation institute must include a corporate assignation such as
Incorporated, Corporation, Company, Limited or an abbreviation of one of these
words.)

ARTICLE II REGISTERED OFFICE ADDRESS AND AGENT

The registered office address of the corporation is:

15187 Edge Water Circle, Prior Lake, MN, 55372
- --------------------------------------------------------------------------------
(A complete street address or rural route and rural route box number is
required the address cannot be P.O. Box) City State Zip

The registered agent at the above address is: Paul Holmquist
-----------------------------------
(Note: You are not required to have a registered agent.)

ARTICLE III SHARES

The corporation is authorized to issue a total of 1,000,000 shares. (If you are
a business corporation you must authorize at least one share. Nonprofit
corporations are not required to have shares.)

ARTICLE IV INCORPORATORS

I (we), the undersigned incorporator(s) certify that I am (we are) authorized to
execute these articles and that the information in these articles is true and
correct. I (We) also understand that if any of this information is intentionally
or knowingly misstated that criminal penalties will apply as if I had signed
these articles under oath. (Provide the name and address of each incorporator.
Each incorporator must sign below. List the incorporators on an additional
sheet if you have more than two incorporators.)

Paul Holmquist 15187 Edge Water Circle, Prior Lake, MN, 55372
- --------------------------------------------------------------------------------
Name Street City State Zip Signature

(for) /s/ PAUL B. HOLMQUIST
- --------------------------------------------------------------------------------
Name Street City State Zip Signature

List the Standard Industrial Classification Code (SIC) that most accurately
describes the nature of the business of this corporation. Select one of the
2-digit SIC Codes listed on the backside of this form. 89

Print name and phone number of person to be contacted if there is a question
about the truth of these articles.

STATE OF MINNESOTA Paul Holmquist FILED (612)-447-7677
DEPARTMENT OF STATE -----------------------------------
FILED Name Phone Number
DEC 3, 1996

/s/ JOAN ANDERSON GROWE
Secretary of State
<PAGE>
ARTICLES OF AMENDMENT
OF
UPDATE CONSULTANT, INC.

The undersigned corporation hereby adopt the following Articles of
Amendment, which replace and supersede prior Articles filed

ARTICLES OF INCORPORATION
OF
UPDATE CONSULTANT, INC.

The undersigned incorporator, being a natural person, 18 years of age or older,
in order to form a corporate entity under Minnesota Statutes, Chapter 302A,
hereby adopts the following Articles of Incorporation;

ARTICLE I

The name of the corporations Emerald - Shade, Inc.

ARTICLE II

The registered office of the corporation is located at The Executive
Center, 320 East Main Street, Anoka, Minnesota, 55303, and the registered agent
at that address is Carla Wirth.

ARTICLE III

The name and address of the incorporator is Brian Nelson, 24686 113th
Street, Zimmerman, Minnesota 55398.

ARTICLE IV

The corporation is authorized to issue an aggregate total of 150,000,000
shares.

ARTICLE V

In addition to the powers granted to the Board of Directors by Minnesota
Statutes, Chapter 302A, the Board of Directors of this corporation shall have
the power and authority to fix by resolution any designation, class, series,
voting power, preference, right, qualification, limitation, restrictions,
dividend, time and place of redemption, and conversion right with respect to any
stock of the corporation.
<PAGE>
ARTICLE VI

Any action required or permitted to be taken at any meeting of the Board
of Directors may be taken without a meeting by written action signed by a
majority of the Board of Directors then in office, except as to those matters
which require shareholder approval, in which case the written action shall be
signed by all members of the Board of Directors then in office.

ARTICLE VII

No holder of stock of this corporation shall be entitled to any
cummulative voting rights.

ARTICLE VIII

No holder of stock of this corporation shall have any preferential,
pre-emptive, or other rights of subscription to any shares of any class or
series of stock of this corporation allotted or sold or to be allotted or sold
and now or hereafter authorized, or to any obligations or securities convertible
into any class or series of stock of this corporation, nor any right of
subscription to any part thereof.

IN WITNESS WHEREOF, the Incorporator has executed these Articles of
Incorporation, this 31st day of December, 1996.

/s/ BRIAN NELSON
Brian Nelson

STATE OF MINNESOTA)
)ss.
COUNTY OF HENNEPIN)

Subscribed and sworn to before me
this 31 day of December, 1996.

/s/ Connie S. Krinken
Notary Public
<PAGE>
The amendment was adopted by the shareholders, on the 31st day of
December, 1996.

/s/ BRIAN NELSON
Brian Nelson

STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
JAN 06 1997
/s/ JOAN ANDERSON GROWE
Secretary of State
<PAGE>
- --------------------------------------------------------------------------------
STATE OF MINNESOTA
SECRETARY OF STATE

Certificate of Good Standing

I, Mary Kiffmeyer, Secretary of State of Minnesota, do certify that: the
corporation listed below is a corporation formed under the laws of Minnesota;
that the corporation was formed by the filing of Articles of Incorporation with
the Office of the Secretary of State on the date listed below; that the
corporation is governed by the chapter of Minnesota Statutes listed below; that
this corporation is authorized to do business as a corporation at the time this
certificate is issued; and that amendments to the articles of that corporation
were filed on the dates listed below.

Name: Microbest, Inc.

Date Formed: 12/03/1996

Chapter Governed By: 302A

Amendments Filed On:
12/03/1996-ORIG FILING-15187 Edge Water Circle
- -Prior Lake MN 55372
-NAME -UPDATE CONSULTANT, INC.

/s/ MARY KIFFMEYER
Secretary of State.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
EMERALD SHADE, INC.
320 EAST MAIN STREET
ANOKA, MN 55303

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

RESOLUTION

A meeting of the Boardmembers and Shareholders of EMERALD SHADE, INC. Was
held in Minneapolis, Minnesota on March 11, 1997 and unanimously adopted the
following resolutions:

BE IT RESOLVED:

NAME CHANGE

THAT the name of the company be changed from EMERALD SHADE, INC. to
MICROBEST, INC.

FORWARD STOCK SPLIT

THAT the common stock of the company be increased by the ratio of 2.25 to
1.

CANCELLATION OF RULE 144 RESTRICTED COMMON STOCK

THAT the Rule 144 restricted common stock issued as a part of the Rule 504
Unit offering be canceled.

CANCELLATION OF A AND B WARRANT

THAT the A and B warrants issued as a part of the Rule 504 unit offering
be canceled.

EMERALD SHADE, INC.

Per: /s/ BRIAN NELSON
Brian Nelson - CEO

Per: /s/ CONNIE CHIVIDSON
Connie Chividson, Secretary/Treasurer
<PAGE>
ARTICLES OF AMENDMENT

EMERALD-SHADE, INC.

The undersigned corporation hereby adopt the following Articles of
Amendment which replace the following Articles:

ARTICLE 1

The name of the corporation is Microbest, Inc.

IN WITNESS WHEREOF, this amendment to the Articles of Incorporation is
executed this _____ day of March, 1997.

/s/ BRIAN NELSON
Brian Nelson
STATE OF MINNESOTA)
)ss.
COUNTY OF HENNEPIN)

Subscribed and sworn to before me
this 17 day of March, 1997.

/s/ Nancy E. Newman
Notary Public - Minnesota My Comm. Expires Jan. 31, 2000

The amendment was adopted by the shareholders, on the 27th day of February
1997.

/s/ BRIAN NELSON
Brian Nelson

STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
MAR 12 1997
/s/ JOAN ANDERSON GROWE
Secretary of State

BY-LAWS EXHIBIT 3

Emerald - Shade, Inc.

ARTICLE I

MEETINGS OF SHAREHOLDERS

1.1 REGULAR MEETINGS. Regular meeting of shareholders may be called by the Chief
Executive Officer, the Secretary, the Board of Directors, or by shareholder
demanded in accordance with Minnesota Statutes Section 302A.431, subdivision
2. No meeting shall be designated a regular meeting unless specifically
described as such in the notice of meeting or unless all the shareholders
are present in person or by proxy, and none of them objects to this
designation.

1.2 SPECIAL MEETINGS. Special meetings of the shareholders may be called for any
purpose or purposes at any time by the Chief Executive Officer, Chief
Financial Officer, two or more directors, or by shareholder demand in
accordance with Minnesota Statutes Section 203A.433, subdivision 2.

1.3 TIME AND PLACE OF SHAREHOLDER MEETING. Except as otherwise provided by
statute, any meeting of shareholders shall be held on the date and at the
time and place fixed by the Chief Executive Officer or the Board of
Directors of the corporation.

1.4 NOTICE OF SHAREHOLDER MEETING. Except as otherwise provided by statute,
written notice of the date, time and place of any meeting of shareholders
shall be given to every holder of voting shares at such address as appears
on the stock book of the corporation at least five days prior to the meeting
if by mail, or two days prior to the meeting if by telex, telegram or in
person.

1.5 VOTING. Except where a greater percentage is required by statute, the
shareholders shall take action by the affirmative vote of the holders of a
majority of the votes of the shares present.
<PAGE>
ARTICLE II

DIRECTORS

2.1 NUMBER, TERM OF OFFICE. The number of directors of the corporation shall be
as determined from time to time by the shareholders. Directors need not be
shareholders. Each director shall hold office for an indefinite term, not to
exceed five years, that expires at the regular meeting of shareholders next
held after the director's election and until a successor is elected and has
qualified, or until the earlier death, resignation, removal or
disqualification of the director.

2.2 REMOVAL. The Board of Directors or the shareholders may remove any director
of the corporation at any time, for cause or without cause. New directors
may be elected at a meeting at which directors are removed.

2.3 BOARD MEETINGS, NOTICE. The Chief Executive Officer (if a director), the
Chairman of the Board of Directors (if one is elected) of Directors
comprising at least one third of the number of directors then in office may
call a Board meeting by giving five days notice if by mail, or two days
notice if by telephone, telex, telegram, or in person, to all directors of
the day or date and time of the meeting. Meetings of the Board of Directors
may be held at the day or date, time, and place, as shall be determine by
the Board. If the day or date, time, and place have been announced at a
previous meeting of the Board, or if a meeting schedule is adopted by the
Board, no notice is required. In absence of a designation by the Board of
Directors, Board meetings shall be held at the principal executive offices
of the corporation.

2.4 (A) ADVANCED WRITTEN CONSENT OR OPPOSITION. Any member of the Board or a
committee thereof, as the case may be, may give advance written consent or
opposition to a proposal to be acted on at a Board or committee meeting. If
a director or committee member is not present at the meeting, advance
written consent or opposition to a proposal does not constitute presence for
the purpose of determining whether a quorum exists, but such advance written
consent or opposition shall be a vote in favor of or against the proposal or
resolution acted upon at the meeting is substantially the same or has
substantially the same effect as the proposal or resolution to which the
member of the Board or committee has consented or objected.

(B) ACTION WITHOUT MEETING. Any action, other than an action requiring
shareholder approval, may be taken by written action signed by the number of
directors that would be required to take the same action at a meeting of the
Board at which all directors were present. An action requiring shareholder
approval required or permitted to be taken at a board meeting may be taken
by written action signed by all the directors. Any such written action is
effective when signed by the required number of directors, unless a
different effective time is provided in the written action. When written
action is taken by less than all directors, all directors shall be notified
immediately of its text and effective date. Failure to provide the notice
does not invalidate the written action. A director who does not sign or
consent to the written action has no liability for the action or actions
taken.

ARTICLE III

OFFICERS

1.1 ELECTION; TERM OF OFFICE; REMOVAL. The Board of Directors shall elect a
Chief Executive Officer and Chief Financial Officer, and may elect such
other officers as it may deem necessary for the operation and management of
the corporation, each of whom shall have the duties and responsibilities
incident to the offices which they hold or as determined by the Board.
Officers need not be directors or shareholders. Without limiting the
foregoing, the Board may elect a Chairman of the Board, President, on or
more Vice Presidents, a Treasurer, a Secretary and such assistant officers
as it may designate
<PAGE>
with titles to describe their duties, functions or special responsibilities.
Officers shall hold office at the will of the Board for an indefinite term
until their successors are elected and qualified. The Board may remove any
officer elected or appointed by the Board of Directors at any time with or
without cause.

ARTICLE IV

AMENDMENTS

4.1 Subject to the power of shareholders to adopt, amend, or repeal these Bylaws
as provided in Minnesota Statutes, Section 302A.181, Subdivision 3, any
Bylaw may be amended or repealed by the Board of Directors at any meeting,
provided that, after adoption of the initial Bylaws, the Board shall not
adopt, amend, or repeal a Bylaw fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling
vacancies in the Board, or fixing the number of directors of their
classifications, qualifications, or terms of office. The Board may not adopt
or amend a Bylaw to increase the number of directors.

ARTICLE V

INDEMNIFICATION

5.1 The corporation shall indemnify persons for such expenses and liabilities in
such manner, under such circumstances, and to the extent required by
Minnesota Statutes, Section 302A.521.

<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM MICROBEST INC. DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
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