As filed with the Securities and Exchange Commission on July 9, 2001


                                                 Registration No. 333-60908

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                       SECOND AMENDMENT TO FORM SB-2

                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

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

                       Airtech International Group, Inc.
             (Exact name of Registrant as specified in its charter)

         Wyoming                     3564                    98-0120805
     (State or other           (Primary Standard          (I.R.S. Employer
     jurisdiction of              Industrial           Identification Number)
    incorporation or          Classification Code
      organization)                 Number)

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

                      12561 Perimeter, Dallas, Texas 75228
                                 (972) 960-9400
   (Address and telephone number of Registrant's principal executive offices)

                                James R. Halter
                  Chief Financial Officer and General Counsel
                       Airtech International Group, Inc.
                                12561 Perimeter
                              Dallas, Texas 75228
                                 (972) 960-9400

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

                                   Copies to:
                            John G. Rebensdorf, Esq.
                           6116 N. Central Expressway
                                   Suite 1313
                              Dallas, Texas 75206
                                 (214) 696-9388
           (Name, address and telephone number of agent for service)

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

   Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement in light of
market conditions and other factors.

   If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

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                                          Proposed
                                          Maximum        Proposed
 Title of Each Class of                Offering Price    Maximum      Amount of
    Securities To Be     Amount To Be       Per         Aggregate    Registration
       Registered        Registered(2)      Unit      Offering Price    Fee(3)
---------------------------------------------------------------------------------
                                                         
Common Stock, $0.05 Par
 Value(1)...............  19,000,000       $0.175       $3,325,000       $831
---------------------------------------------------------------------------------

--------------------------------------------------------------------------------
(1) Includes shares of Common Stock which may be issued upon exercise of Common
    Stock Warrants and upon conversion of the Company's 12% Convertible
    Debentures or in payment of interest on the 12% Convertible Debentures by
    the Company. For purposes of estimating the number of shares of Common
    Stock to be included in this registration statement, the Company calculated
    200% of the number of shares of Common Stock issuable upon conversion of
    the 12% Convertible Debentures and upon exercise of the Common Stock
    Warrants.
(2) Also includes an indeterminate number of shares of Common Stock which may
    be issued with respect to such shares by way of a stock dividend, stock
    split, stock combination, recapitalization, merger, consolidation or
    otherwise in accordance with Rule 416.
(3) The registration fee has been calculated in accordance with Rule 457(c)
    under the Securities Act of 1933, as amended, based upon the average of the
    closing bid and asked prices for the Registrant's Common Stock as reported
    on the OTC Bulletin Board on May 7, 2001. The registration fee was
    previously paid.

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

   The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this prospectus is subject to completion or          +
+amendment. A registration statement relating to these securities has been     +
+filed with the Securities and Exchange Commission on Form SB-2. These         +
+securities may not be sold nor may an offer to buy be accepted prior to the   +
+time the registration statement becomes effective. This prospectus shall not  +
+constitute an offer to sell or the solicitation of an offer to buy nor shall  +
+there be any sale of these securities in any state in which such offer,       +
+solicitation or sale would be unlawful prior to registration or qualification +
+under the securities laws of any state.                                       +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                 SUBJECT TO COMPLETION, DATED JULY 9, 2001


                            19,000,000 COMMON SHARES

                       AIRTECH INTERNATIONAL GROUP, INC.

                                  -----------

  Our common shares are traded on the over-the-counter Electronic Bulletin
Board under the symbol "AIRG." The last reported sale price of our common
shares on the OTC Bulletin Board on June 15, 2001 was $0.14 per share. There is
no public market for our warrants and we do not intend to list our warrants on
any exchange.

  This prospectus relates to the sale from time to time by the selling
stockholders identified in the selling stockholder table appearing on page 14
of this prospectus of up to:


  . 1,200,000 shares of our common stock issuable upon exercise of the
    warrants;

  . 17,800,000 shares of our common stock issuable upon conversion of up to
    $1,000,000 in principal amount of our 12% Convertible Debentures Due 2003.

  We will receive no proceeds from the sale of our warrants or common stock by
the selling stockholders identified in this prospectus. We will, however,
receive proceeds from the sale of our common stock upon the exercise, if any,
of the warrants.

  You should read this prospectus and any supplement carefully before you
invest in Airtech. This prospectus may not be used to make sales of our common
stock or warrants unless accompanied by a prospectus supplement.

  Investing in our common stock involves risks. Risk factors begin on page 5.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

               The date of this Prospectus is July   , 2001.



   The following table of contents has been designed to help you find important
information contained in this prospectus.

                               TABLE OF CONTENTS



                                 Section                                   Page
                                 -------                                   ----
                                                                        
Prospectus Summary........................................................   3
Risk Factors..............................................................   5
Description of Securities Purchase Agreement..............................  10
Plan of Distribution......................................................  13
Use of Proceeds...........................................................  13
Information on Selling Stockholders.......................................  14
The Company...............................................................  15
Company Properties........................................................  29
Litigation................................................................  29
Management's Discussion and Analysis......................................  30
Directors, Executive Officers, Promoters and Control Persons..............  35
Executive Compensation....................................................  36
Summary Compensation Table................................................  36
Security Ownership of Certain Beneficial Owners and Management............  39
Certain Relationships and Related Transactions............................  40
Market for Registrant's Common Equity and Related Stockholder Matters.....  41
Description of Securities.................................................  41
Legal Matters.............................................................  45
Experts...................................................................  45
Where To Find Additional Information......................................  45
Index to Combined Financial Information................................... F-1


                                       2


                               PROSPECTUS SUMMARY

   This prospectus summary highlights selected information from this prospectus
and does not contain all of the information that may be important to you. For a
more complete description of this offering, you should read this entire
prospectus as well as the additional documents we refer to under the heading
"Where To Find Additional Information."

                                  Our Company

   Our principal business is the development, manufacturing, distribution and
sale of air purification products for commercial and individual use. We
currently manufacture and distribute a product line of purification units for
commercial applications such as hotels, restaurants, bars, offices, print shops
and casinos and residential purification units for individual use. We also
manufacture and distribute a purification unit for use in automobiles, trucks
and public transportation vehicles.

                            Our Products and Market

   Our air purification products and technology can be applied to various
commercial, residential, and medical markets. We market our air purification
products through direct sales efforts from our principal offices, a
distribution network with heating, ventilation and air conditioning companies
and various industry distributors. We also market our products through our
existing franchisees. We have also licensed the distribution rights to use our
name and technology in the countries of Taiwan, the Philippines, Turkey,
Canada, Spain ,the Peoples Republic of China and countries in Central and South
America. Our strategy is to identify national and international market niches
which we believe are in need of air purification solutions and to exploit those
markets through franchising, direct sales, licensing and strategic alliances
with manufacturing representatives. The market for our products has grown based
upon the increased public awareness of indoor air contamination. The
Environmental Protection Agency has identified indoor air pollution as one of
the five most urgent environmental crises in the United States. Air
contamination includes bacteria, pollen, dust mites, smoke, plant and mold
spores, dust, solvents, glues, formaldehyde, carbon monoxide and dioxide and
various viruses.

                        Summary Financial and Other Data

   We are providing the following summary financial information to aid you in
your analysis of the financial aspects of an investment in us. The table
includes summary historical financial data for Airtech for the years ended May
31, 1999 and 2000 and the nine months ended February 28, 2001 and pro forma
accounting treatment reflecting the issuance of our 12% Debentures for the nine
months ended February 28, 2001. We believe that this presentation is
informative to you.




                         Year Ended   Year Ended                        Nine Months
                           May 31,      May 31,    Nine Months Ended     Pro Forma
                            1999         2000      February 28, 2001 February 28, 2001
                         -----------  -----------  ----------------- -----------------
                                                         
Assets.................. $ 2,849,781  $ 5,563,729     $ 5,138,818       $ 6,138,818
Total Stockholder's
 Equity (Deficit)....... $   366,612  $   373,894     $  (335,827)      $   517,473
Retained Deficit........ $ 5,841,873  $ 8,283,467     $ 9,986,716       $ 9,986,716
Revenues................ $ 1,030,469  $ 1,627,476     $ 1,437,617       $ 1,437,617
Net Loss................ $(4,311,459) $(2,441,594)    $(1,703,249)      $(1,849,949)
Loss Per Share.......... $     (0.41) $     (0.14)    $     (0.07)      $     (0.07)



                                       3



                       Our Securities Purchase Agreement

   On March 29, 2001, we entered into a securities purchase agreement with an
investment group to raise up to $1,000,000 through the sale to the investors of
our 12% convertible debentures with attached warrants to purchase up to 600,000
shares of our common stock. Upon execution of the securities purchase
agreement, the investors purchased $800,000 in principal amount of our 12%
debentures with attached warrants to purchase 500,000 shares of our common
stock. The purchase price paid by the investors for the 12% debentures and
attached warrants was $800,000. Under the terms of the securities purchase
agreement, the investors are obligated to purchase the remaining $200,000 in
principal amount of our 12% debentures with attached warrants to purchase
100,000 shares of our common stock on the date the registration statement
relating to the common stock offered by this prospectus is declared effective
by the SEC. This prospectus relates to the resale of our common stock by the
selling stockholders identified in this prospectus either in the open market or
pursuant to negotiated transactions.

                                       4


                                  RISK FACTORS

Because we have a limited history of operations we may not be able to
successfully implement our business plan.

   We have only six years of operational history in our industry. Accordingly,
our operations are subject to the risks inherent in the establishment of a new
business enterprise, including access to capital, acceptance of our products in
the market and limited revenue from operations. We cannot assure you that our
intended activities or plan of operation will be successful or result in
revenue or profit to us.

We have a history of losses and expect future losses.

   We have incurred operating losses for our fiscal years ended May 31, 1999
and 2000 and the nine months ended February 28, 2001, and expect to sustain
additional operating losses in the future. Our operating losses are
attributable to the developing nature of our business and have resulted
primarily from:

  . significant costs associated with the development of our products

  . marketing and distribution of our products

  . interest charges and expenses related to our current and previous debt
    and equity financings

  . minimal sales history of our recently developed products

If the proceeds from our recent debt offerings combined with our projected
product sales are not sufficient to sustain our current business operations,
our future profitability could be harmed substantially.

   We have expended substantial capital in the development of our business and
the development, marketing and distribution of our products. A substantial
portion of these expenditures was made to improve the efficiency of our
existing products and to develop new products. We cannot assure you that our
recent expenditures will generate future revenues. Although we do not have a
large capital expenditure program planned for fiscal year 2002, we will
continue to incur expenditures in connection with our business operations,
including the manufacturing, marketing and distribution of our existing
products. Although we believe that our projected sales combined with the net
proceeds from our recent debt offerings are sufficient to sustain our current
business operations, we may require additional financing in the future. We
cannot assure you that any required additional financing will be available to
us or that any additional financing will not materially dilute the ownership of
our stockholders. Our inability to secure any necessary funds to sustain our
current business operations could severely limit our ability to manufacture,
market and distribute our products and our future profitability.

Our 12% debentures contain an imbedded beneficial conversion feature.
Conversion of a material amount of our 12% debentures could materially affect a
stockholder's investment in Airtech.

   As of April 30, 2001, $800,000 in principal amount of 12% debentures were
issued and outstanding. The 12% debentures are convertible into a number of
shares of common stock determined by dividing the principal amount converted by
the conversion price in effect. If converted on April 30, 2001, the 12%
debentures would have converted into approximately 9,411,764 shares of our
common stock. This number of shares, however, could be significantly greater in
the event of a decrease in the trading price of our common stock. Purchasers of
our common stock could therefore experience substantial dilution of their
investment upon conversion of the 12% debentures. The 12% debentures are not
registered and may be sold only if registered under the Securities Act or sold
under an applicable exemption from registration. The shares of common stock
into which the 12% debentures may be converted are being registered pursuant to
the registration statement relating to this prospectus.

   As of April 30, 2001, warrants to purchase 500,000 shares of common stock
issued to the purchasers of the 12% debentures were outstanding. The warrants
are exercisable over the next ten years at a price equal to

                                       5


the lesser of $0.25 per share or a variable exercise price based upon the
trading price of our common stock at the time of exercise. The exercise price
of the warrants may be adjusted from time to time under certain antidilution
provisions. The shares of common stock issuable upon exercise of the warrants
are being registered pursuant to the registration statement relating to this
prospectus.

   Our 12% debentures are convertible by the debenture holders into shares of
our common stock at any time at a conversion price equal to 50% of the market
value of our common stock. Conversion of a material amount of our 12%
debentures could significantly dilute the value of a stockholder's investment
in Airtech.

   Set forth in the table below is the potential dilution to the stockholders
and ownership interest of the holders of our 12% debentures which would occur
upon conversion of $1,000,000 in principal amount of our 12% debentures. The
calculations in the table are based upon the 30,991,578 shares of our common
stock which are currently outstanding at 50% of the current market price of
$0.176 per share. The market price is based upon the ten day weighted average
of the price of our common stock as quoted on the OTC Bulletin Board for the
period from June 7, 2001 through June 17, 2001.




                                           Conversion  Conversion  Conversion
                               Conversion    at 25%      at 50%      at 75%
                               at Current    Below       Below       Below
                                 Market      Market      Market      Market
                                 Price       Price       Price       Price
                               ----------  ----------  ----------  ----------
                                                       
   Conversion Price...........     $0.088      $0.066      $0.044      $0.022
   Shares Issued on
    Conversion................ 11,363,636  15,151,515  22,727,272  45,454,545
   Percentage of Outstanding
    Common Stock..............       26.8%       32.8%       42.3%       59.5%



   Also, in the absence of a proportionate increase in our earnings and book
value, an increase in the aggregate number of our outstanding shares of common
stock caused by a conversion of the 12% debentures or exercise of the warrants
would dilute the earnings per share and book value of all of our outstanding
shares of common stock. If these factors were reflected in the trading price of
our common stock, the potential realizable value of a stockholder's investment
in Airtech could also be adversely affected.

   As of April 30, 2001, we have reserved 5,800,00 shares of our common stock
for issuance upon exercise of our outstanding warrants and options other than
those issued in connection with the 12% debentures. We have reserved an
additional 16,800,000 shares of common stock for issuance upon conversion of
the 12% debentures and exercise of the attached warrants. As of April 30, 2001,
the holders of our 6% debentures also have the right to convert the 6%
debentures with attached warrants into approximately 13,800,000 shares of
common stock.

A default by us under our 12% debentures would enable the holders of our 12%
debentures to take control of substantially all of our assets.

   Our 12% debentures are secured by a security agreement under which we
pledged substantially all of our assets, including our goods, fixtures,
equipment, inventory, contract rights and receivables. A default by us under
the 12% debentures would enable the holders to take control of substantially
all of our assets. The holders of our 12% debentures have no operating
experience in the industry which could force us to substantially curtail or
cease our operations. See "Events of Default" on page 12 of this prospectus for
a detailed description of events of default under our 12% debentures.


Increased competition from our competitors could prevent us from penetrating
new markets.

   Our business is becoming increasingly competitive. Competition has increased
with society's growing awareness of air quality problems and the related demand
for air purification products. We believe competition will continue to increase
with the identification of new markets, such as:

  . the food and beverage industry where smoking problems among smoking and
    non-smoking customers exist or local ordinances impose smoking
    restrictions

                                       6


  . the growth of cigar bars

  . the creation of smoking lounges in airports, office buildings, medical
    buildings and other public buildings

  . other smoking and non-smoking environmental demands

  . air contamination within hospitals and other medical facilities

  . air contamination within office buildings and other public buildings and
    facilities

  . air contamination within vehicle air conditioning systems

  . air contamination within homes

   As competition increases, we will compete with numerous companies in our
market which have greater financial and technical resources than those
available to us. Our inferior competitive position could have a material
adverse affect on our ability to penetrate a new market and ultimately our
profitability.

Increased technological developments in air purification products could render
our products obsolete.

   Our air purification products could be rendered noncompetitive or obsolete
by future technological developments in our industry. We expect these
technological developments to significantly increase competition in our
industry. Many of the companies with which we compete and expect to compete
have greater capital resources and more significant research and development
staffs and marketing and distribution programs and facilities. Our ability to
compete effectively may be adversely affected by the ability of these
competitors to devote greater resources to technological developments and the
sale and marketing of their products than us. Also, one or more of our
competitors may succeed or may have already succeeded in developing
technologies and products of which we are unaware and which may be more
effective than the air purification products we are currently developing or
marketing.

We may not receive approval codes for reimbursement of the cost of our Medicare
Series 950 Unit which could significantly affect our future results of
operations and profitability.

   In October 1999, we applied to the Medicare Administration and, in February
2001, to the Health Care Financing Administration, for reimbursement code
numbers for our Medicare Series 950 air purification unit. We cannot assure you
that either of these applications will be approved by the appropriate agency
which could significantly affect our future sales of the Medicare Series 950
and thus our operations and profitability.

   Receipt of a reimbursement code number from the Medicare Administration
would provide us with access to the large Medicare market. The reimbursement
number would allow Medicare recipients to receive reimbursement for the cost of
our Medicare Series 950. Issuance of the Medicare reimbursement number is
within the sole discretion of the Medicare Administration and we cannot predict
if, or when, we will receive Medicare approval.

   Our application to the Health Care Financing Administration requests the
issuance to us of a health care product code system number. This code number is
commonly referred to in the medical insurance industry as an HCPCS Code.
Although not as large a market as the Medicare market, the HCPCS Code would
enable us to market our Medicare Series 950 directly to the private medical
insurance industry. If a private insurance carrier accepts our Medicare Series
950 with the HCPCS Code, patients who purchase a Medicare Series 950 would be
entitled to receive insurance reimbursement for the cost of the Medicare Series
950. If we receive a Medicare reimbursement code, we would automatically
receive an HCPCS Code. If we obtain an HCPCS Code, however, we would not
automatically receive a Medicare reimbursement code. We expect the Health Care
Financing Administration to make a decision on our application on or before
December 31, 2001.

                                       7


   Approval of our Medicare Series 950 by either the Medicare Adminstration or
the Health Care Financing Administration could significantly increase our
profitability. We have not yet received approval of either of our applications
and we cannot assure you that either application will be approved by the
appropriate agency. If we do not receive Medicare approval or an HCPCS Code, we
will continue to market our Medicare Series 950 through direct sales efforts
and our existing distribution channels. To stimulate these sales efforts, we
entered into an agreement with Southern Therapy, Inc. in April 2000 to market
our Medicare Series 950 to home and durable medical equipment providers. We
cannot assure you that our current marketing efforts will achieve the same
sales results as we could achieve through Medicare approval or an HCPCS Code
which could adversely affect our business and results of operations.

Our stock is traded on the OTC Bulletin Board and the tradability in our stock
may be limited under the penny stock regulations.

   Our common stock is traded on the OTC Bulletin Board under the symbol
"AIRG". The OTC Bulletin Board is not a recognized national securities
exchange. If the trading price of our common stock is less than $5.00 per
share, trading in our common stock would also be subject to the requirements of
Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers who
recommend low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements. The
broker/dealer must make an individualized written suitability determination for
the purchaser and receive the purchaser's written consent prior to the
transaction.

   SEC regulations also require additional disclosure in connection with any
trades involving a "penny stock", including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and our associated risks. Such requirements may severely limit the liquidity of
our common stock in the secondary market because few brokers or dealers are
likely to undertake such compliance activities. Generally, the term "penny
stock" refers to a stock with a market price of less than $5.00 per share which
is not traded on a national securities exchange or quoted on NASDAQ. An active
trading market in our common stock may never develop because of these
restrictions.

There is a limited public market for our common stock and warrants and any
future trading price of our common stock may decline, making it difficult for
you to sell your stock.

   Currently, there are a limited number of market makers for our common stock
and there can be no assurance that a market for our shares will continue with
any consistency. An illiquid market for our common stock may result in price
volatility and poor execution of buy and sell orders for our investors. There
is no public market for our warrants and we cannot assure you that one will
develop. We do not intend to list our warrants on any exchange.

We depend on our key personnel for our future success including our founder, C
J Comu.

   Our future success depends to a significant extent upon the continued
employment of our founder C J Comu. Competition for qualified personnel is
intense in our industry, and we cannot assure you that we will be successful in
attracting and retaining qualified, top-level personnel. The limited
availability of qualified individuals could become an issue of increasing
concern in the future. We do not maintain insurance on the lives of any of our
officers or key employees. Our future success largely depends on the ability of
our qualified personnel to manage and conduct our operations and implement our
business plan. The loss of services of our founders or other key officers and
directors could adversely affect our prospects for success.

We recently suspended our franchise program and instituted a new program to
market our residential products through distributors which may adversely affect
our future sales.

   We recently suspended our franchise program to market and sell our
residential air purification products utilizing a retail store outlet concept.
Since February 2000, we have sold 8 residential retail franchises of which 5
continue to operate. We suspended our retail franchise program to analyze
whether the retail sale of our

                                       8


residential units is cost effective when compared to other direct sale
distribution channels. We are currently marketing our residential products
through direct sales from our corporate offices, manufacturing representatives
and national distributors. We are also marketing our Medicare Series 950 to
home and durable medical equipment providers through our agreement with
Southern Therapy. We cannot assure you that these marketing efforts will be
successful or that it will be economically feasible to reinstate our retail
franchise program in the future. Either of these events could negatively impact
our future residential product sales and thus our profitability.

We discontinued offering franchises to sell our commercial products and
instituted a new program to sell these products through distributors which may
adversely affect our future sales.

   As of May 31, 2000, we had 18 franchisees who market our commercial
products. During fiscal year 2000, we elected to discontinue offering
additional commercial franchises. We elected to discontinue our commercial
franchise program to enable us to pursue marketing our commercial products
through manufacturing representatives and direct sales efforts from our
corporate offices. In February 2001, we entered into an agreement with W&B
Service Company for the exclusive national distribution of our commercial and
automobile purification products. We cannot assure you that this new marketing
approach for our commercial products will be successful. If unsuccessful, we
may not be able to increase sales from our commercial products which could
materially affect our future profitability.

We have not paid any dividends in the past and do not anticipate paying
dividends in the future.

   We anticipate using the proceeds received from our recent debt and equity
sales and any future earnings to promote and increase our business and for
other working capital uses. We have not paid or declared any dividends in the
past. Based upon our present financial status and our contemplated financial
requirements, we do not anticipate paying any dividends upon the shares offered
by this Prospectus for the foreseeable future. While we may declare dividends
at some time in the future, we cannot assure you of the timing of future
dividends, if any.

                           FORWARD LOOKING STATEMENTS

   The statements we make in this prospectus that are not historical fact are
"forward-looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995. The words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "believes," "estimates,"
"projects" or similar expressions are intended to identify these forward-
looking statements. These statements are subject to risks and uncertainties
beyond our reasonable control that could cause our actual business and results
of operations to differ materially from those reflected in our forward-looking
statements. The safe harbor provisions provided in the Securities Litigation
Reform Act do not apply to forward-looking statements we make in this
prospectus.

   Forward-looking statements are not guarantees of future performance. Our
forward-looking statements are based on trends which we anticipate in our
industry and our good faith estimate of the effect on these trends of such
factors as industry capacity, product demand and product pricing. In addition,
our forward-looking statements are subject to our ability to reverse the
current negative trend in our financial results.

   The inclusion of projections and other forward-looking statements should not
be regarded as a representation by us or any other person that we will realize
our projections or that any of our forward-looking statements contained in this
prospectus will prove to be accurate. We will not update any forward-looking
statements other than as required by law.

                                       9


                  DESCRIPTION OF SECURITIES PURCHASE AGREEMENT

Our Agreement

   On March 29, 2001, we entered into a securities purchase agreement with AJW
Partners, LLC and New Milennium Partners II, LLC to raise up to $1,000,000
through the sale to these investors of our 12% Convertible Debentures Due 2003
with attached warrants to purchase up to 600,000 shares of our common stock.
Upon execution of the securities purchase agreement, the investors purchased
$800,000 in principal amount of 12% debentures with attached warrants to
purchase 500,000 shares of our common stock. The purchase price paid by the
investors for our 12% debentures and attached warrants was $800,000 which
represents the total amount we have received under the purchase agreement
through April 30, 2001. Under the terms of our purchase agreement, the
investors are obligated to purchase the remaining $200,000 in principal amount
of our 12% debentures with attached warrants to purchase 100,000 shares of
common stock for a purchase price of $200,000. The investors are obligated to
purchase the additional 12% debentures on the date the registration statement
relating to the common stock offered by this prospectus is declared effective
by the SEC. If the registration statement is not declared effective, the
investors have no obligation to purchase the additional 12% debentures or the
attached warrants.

Description of 12% Debentures

   Our 12% debentures have a maturity date of March 30, 2003 at which time the
principal amount and all accrued interest on the 12% debentures is due and
payable. Interest payments on the 12% debentures are due and payable quarterly
commencing June 1, 2001 or at the option of the debenture holder upon
conversion of the 12% debentures into shares of our common stock. If the
debenture holder elects, we will pay any accrued interest on conversion by
issuing shares of our common stock to the debenture holder at a price equal to
the conversion price of our common stock as described below. The 12% debentures
are secured by a security agreement under which we pledged substantially all of
our assets, including our goods, fixtures, equipment, inventory, contract
rights, and receivables.

   The 12% debentures are convertible at any time at the option of the holder
into shares of our common stock, provided at no time may a holder of our 12%
debentures and its affiliates own more than 4.9% of our outstanding common
stock without giving us 30 days prior written notice of the debenture holder's
intent to waive the 4.9% ownership limitation. See "Limitation on Stock
Ownership of Debenture Holder" on page 11 of this prospectus. The conversion
price of our common stock used in calculating the number of shares issuable
upon conversion, or in payment of interest on the 12% debentures, is the lesser
of

  .  50% of the average of the lowest three trading prices of our common
     stock for the twenty trading days ending one trading day prior to the
     date we receive a conversion notice from a debenture holder; and

  .  a fixed conversion price of $0.25.

   Also, under the terms of the 12% debentures, if we at any time

  .  distribute any shares of our common stock in a consolidation, exchange
     of shares, recapitalization or reorganization, the 12% debenture holders
     are entitled to participate in the distribution as if the debenture
     holders had converted the 12% debentures;

  .  distribute any of our assets to our stockholders as a dividend, stock
     repurchase, return of capital, or otherwise, the 12% debenture holders
     are entitled to participate in the distribution as if the debenture
     holder had converted the 12% debentures; or

  .  issue or sell any shares of our common stock for no consideration or at
     a price less than $0.25 per share, then the fixed conversion price of
     $0.25 described above shall be reduced to the price per share we receive
     on the issuance or sale.

   Our 12% debentures have an imbedded beneficial conversion feature which
enables the debenture holders to convert the 12% debentures at the lesser of a
50% discount to the market price of our common stock and $0.25 per share. As of
the date of sale of the 12% debentures, the imbedded discount atttributable to
the 12%

                                       10


debentures was $900,000. We have reflected this discount in our financial
statements by writing off $146,700 of the discount as of the date of sale of
the 12% debentures. We will amortize the remaining $753,300 of the discount
over the three year term of the 12% debentures. If a 12% debenture is converted
prior to the expiration of the three year term, we will write off to interest
expense any remaining discount attributable to the converted 12% debenture.

Description of Warrants

   The warrants purchased by the investors on March 29, 2001 entitle the
investors to purchase 500,000 shares of our common stock at an exercise price
equal to the lesser of

  .  90% of the average of the lowest three trading prices of our common
     stock for the twenty trading days ending one trading day prior to the
     date of exercise of the warrant; and

  .  $0.102 per share.

   The warrants expire on March 29, 2004. The warrants are subject to exercise
price adjustments upon the occurrence of certain events including stock
dividends, stock splits, mergers, reclassifications of stock or our
recapitalization. The exercise price of the warrants is also subject to
reduction if we issue any rights, options or warrants to purchase shares of our
common stock at a price less than the market price of our shares as quoted on
the OTC Bulletin Board. Also, if at any time, we declare a distribution or
dividend to the holders of our common stock in the form of cash, indebtedness,
warrants, rights or other securities, the holders of the warrants are entitled
to receive the distribution or dividend as if the holder had exercised the
warrant.

   The warrants attached to our 12% debentures have an imbedded beneficial
exercise feature which enables the warrant holders to exercise the warrants at
the lesser of a 10% discount to the market price of our common stock and $0.102
per share. As of the date of sale of the warrants, the imbedded discount
allocable to the warrants was $100,000. The discount was determined from the
Black-Scholes option pricing method. In our financial statements, we will
amortize and write-off to interest expense the $100,000 discount over the three
year term of the warrants. If a warrant is exercised prior to the expiration of
the three year term, we will write off to interest expense any remaining
discount attributable to the exercised warrant.

Our Covenants with the 12% Debenture Holders

   We may not, without the prior written consent of our 12% debenture holders,
do any of the following:

  .  pay, declare or set apart for payment any dividend or other distribution
     on shares of our capital stock other than shares issued in the form of a
     stock dividend;

  .  redeem, repurchase or otherwise acquire any shares of our capital stock
     or any warrants, rights or options to purchase or acquire our shares of
     capital stock;

  .  incur any indebtedness, except to trade creditors or financial
     institutions incurred in the ordinary course of our business or to pay
     the 12% debentures;

  .  sell, lease or otherwise dispose of any significant portion of our
     assets outside of the ordinary course of our business;

  .  lend money, give credit or make advances to any person or entity except
     in the ordinary course of our business;

  .  negotiate with any party to obtain additional equity financing that
     involves the issuance of our common stock or securities convertible into
     our common stock for a period of 180 days from the date the registration
     statement relating to the securities offered by this prospectus is
     declared effective by the SEC;

  .  conduct any equity financing during the period ending March 29, 2003
     without providing the 12% debenture holders with the opportunity to
     participate in the equity financing on the same terms and conditions
     offered to the potential investors.

                                       11


Limitation on Ownership of our Shares of Common Stock by a 12% Debenture Holder

   Our securities purchase agreement with the investors provides that at no
time may a 12% debenture holder, together with its affiliates, maintain
ownership of more than 4.9% of our outstanding common stock, unless the
debenture holder gives us at least 30 days prior notice of their intent to
waive the 4.9% ownership limitation.

Registration Rights Agreement with the Investors

   Simultaneously with the execution of the securities purchase agreement, we
entered into a registration rights agreement with the investors. The securities
offered by this prospectus are in compliance with our obligations under the
registration rights agreement. The holders of the 12% debentures and attached
warrants are also entitled under the registration rights agreement to certain
"piggy-back" registration rights if we file a registration statement relating
to the sale of securities for our own account. This means the holders of the
warrants and 12% debentures may participate and sell shares in our public
offering, except for shares registered by us for issuance under our employee
stock option plans or in a merger or exchange in which our shares are issued in
exchange for other securities.

   Under the registration rights agreement, if the registration statement
relating to the securities offered by this prospectus is not declared effective
by the SEC on or before July 13, 2001, we are obligated to pay a registration
default fee to the 12% debenture holders equal to $2,000 for each $100,000 in
principal amount of outstanding 12% debentures. We are obligated to pay the
default fee for each 30 day period, prorated for partial periods, that the
registration statement is not declared effective. The default fee is due on the
date the registration statement is declared effective and is payable in cash or
at the option of the 12% debenture holder in shares of our common stock.
Payments in shares of our common stock will be based upon the lowest three
trading prices of our common stock for the twenty trading days prior to the
payment date.

Consent and Standstill Agreement of 6% Debenture Holders

   Our 6% debenture holders consented to the sale of our 12% debentures. The 6%
debenture holders also agreed that neither they nor their affiliates would for
a period beginning March 29, 2001 and ending 8 months from the date the
registration statement relating to the securities offered by this prospectus is
declared effective by the SEC

  . offer to sell, contract to sell, pledge, grant any rights or otherwise
    dispose of any shares of our common stock held by the 6% debenture
    holders without the prior consent of the 12% debenture holders; or

  . engage in any hedging transactions which are designed or reasonably
    expected to lead to or result in a disposition of the shares of our
    common stock held by the 6% debenture holders.

   The 6% debenture holders may however

  . convert the 6% debentures into a maximum of 200,000 shares of our common
    stock per month on a non-cumulative basis; and

  . sell up to 100,000 shares per month of common stock converted after March
    29, 2001 or 200,000 shares if the selling price is at least $0.75 per
    share, with any unsold converted shares held in escrow by our legal
    counsel

Events of Default

   If we commit an event of default under our agreements with the 12% debenture
holders, the 12% debentures are immediately due and payable and we must pay to
the 12% debenture holders an amount equal to the greater of

  . 120% of the outstanding principal amount plus accrued interest on the 12%
    debentures;

  . or the value of the number of shares of our common stock into which the
    12% debentures are convertible based upon the trading price of our common
    stock on the day preceding the date of payment.

                                       12


   The 12% debenture holders would also have the right to exercise their rights
under the security agreement securing the 12% debentures which could lead to
control of substantially all of our assets.

   Events of default include:

  . our failure to pay timely any principal and interest due on the 12%
    debentures;

  . our failure or inability to issue shares of our common stock upon
    conversion of the 12% debentures or exercise of the attached warrants;

  . our breach of any of the material covenants, representations or
    warranties included in the 12% debentures or the related securities
    purchase agreement; or

  . we file bankruptcy or a receiver or trustee is appointed for a
    substantial part of our business or assets.

                              PLAN OF DISTRIBUTION

   The selling stockholders named in this prospectus or their pledgees, donees,
transferees or other successors-in-interest are free to offer and sell their
warrants and common stock at such times, in such manner and at such prices as
they may determine. The types of transactions in which the warrants or common
stock are sold may include transactions in the over-the-counter bulletin board
market (including block transactions), negotiated transactions, the settlement
of short sales of common stock, or a combination of these methods of sale. The
sales will be at market prices prevailing at the time of sale or at negotiated
prices. The transactions may or may not involve brokers or dealers. The selling
stockholders have advised us that they do not have any agreements,
understandings or arrangements with any underwriters or broker-dealers
regarding the sale of their securities.

   The selling stockholders may effect transactions by selling our warrants or
common stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals. Broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the selling stockholders.
Broker-dealers may also receive compensation from the purchasers of our
warrants or common stock for whom they act as agents or to whom they sell as
principal, or both. The compensation to a particular broker-dealer might be in
excess of customary commissions.

   The selling stockholders and any broker-dealer that acts in connection with
the sale of warrants or common stock may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act. Any commissions
received by broker-dealers and any profit on the resale of our warrants or
common stock sold by them while acting as a principal may be deemed to be
underwriting discounts or commissions. The selling stockholders may agree to
indemnify any agent or broker-dealer that participates in a transaction
involving sales of our warrants or common stock against certain liabilities.

   Because the selling stockholders may be deemed "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling stockholders will
be subject to prospectus delivery requirements. We have informed the selling
stockholders that the anti-manipulation rules of the SEC, including Regulation
M under the Exchange Act, may apply to sales by the selling stockholders in the
market and have provided the selling stockholders with a copy of these rules
and regulations.

                                USE OF PROCEEDS

   We are registering our warrants and shares of common stock offered by this
prospectus to satisfy our contractual obligation to the investors. We will not
receive any of the proceeds from the sale of our warrants or common stock by
the selling stockholders under this prospectus. We will, however, receive
proceeds from the issuance of our common stock upon the exercise, if any, of
our warrants.

   On March 29, 2001, the investors purchased $800,000 in principal amount of
our 12% debentures with attached warrants to purchase 500,000 shares of our
common stock. The purchase price for the 12% debentures

                                       13


and warrants was $800,000. We intend to use the proceeds received from the sale
of the 12% debentures as follows:


                                                                    
   Reduction of payables.............................................. $150,000
   Inventory purchases................................................  200,000
   Product testing....................................................  110,000
   Commissions and expenses on sale of 12% debentures.................   90,000
   General corporate purposes.........................................  250,000
                                                                       --------
     TOTAL............................................................ $800,000
                                                                       ========


   The investors are obligated to purchase an additional $200,000 in principal
amount of our 12% debentures on the date the registration statement relating to
the common stock offered by this prospectus is declared effective by the SEC.
We intend to use the proceeds from this additional sale of our 12% debentures
for general corporate purposes.

                      INFORMATION ON SELLING STOCKHOLDERS

   The following table includes certain information with respect to the selling
stockholders as of April 30, 2001. The selling stockholders are not an
affiliate of ours and have not had a material relationship with us or any of
our predecessors or affiliates during the past three years. The selling
stockholders are not registered broker-dealers or affiliates of any registered
broker-dealers. The information listed below was furnished to us by the
indicated selling stockholder. AJW Partners, LLC is a private investment fund
that is owned by its investors and managed by SMS Group, LLC. SMS Group, LLC,
of which Mr. Corey S. Ribotsky is the fund manager, will have voting and
investment control over the shares listed below owned by AJW Partners, LLC. New
Millennium Partners II, LLC is a private investment fund that is owned by its
investors and managed by First Street Manager II, LLC. First Street Manager II,
LLC, of which Mr. Glenn A. Arbeitman and Mr. Corey S. Ribotsky are the fund
managers, will have voting and investment control over the shares listed below
owned by New Millennium Partners II, LLC.



                                                                   Approximate
                                                    Maximum Number Percentage
                                                     of Shares of   of Common
                               Beneficial Ownership  Common Stock  Stock to be
                                of Common Stock as   Offered for   Owned After
             Name               of April 30, 2001        Sale       Offering
             ----              -------------------- -------------- -----------
                                                          
AJW Partners, LLC.............      6,377,647         12,350,000         0%
New Millennium Partners II,
 LLC..........................      3,714,118          6,650,000         0%


   The number of shares included in the above table represents an estimate of
the number of shares of common stock to be offered by the selling stockholders.
The actual number of shares of common stock offered by the selling stockholders
is indeterminate, is subject to adjustment and could be materially less or more
than the estimated number. The actual number of shares issuable upon conversion
of the 12% debentures and exercise of the related warrants is dependent on the
future market price of our common stock which we cannot predict. The actual
number of shares of common stock offered in this prospectus, and included in
the registration statement relating to this prospectus, includes an additional
number of shares of our common stock which may be issued or issuable upon
conversion of the 12% debentures and exercise of the related warrants because
of any stock split, stock dividend or similar transaction involving our common
stock, pursuant to Rule 416 of the Securities Act. Under the terms of the 12%
debentures, if the 12% debentures were converted on April 30, 2001, the
conversion price would have been $0.085. Under the terms of the warrants, if
the warrants were exercised on April 30, 2001, the exercise price would have
been $0.102 per share.

   Under the terms of the 12% debentures and the related warrants, the 12%
debentures are convertible and the warrants are exercisable by any holder only
to the extent that the number of shares of our common stock issuable on
conversion or exercise, together with the number of shares of our common stock
owned by the

                                       14


holder and its affiliates (but not including shares of common stock underlying
unconverted shares of 12% debentures or unexercised portions of the warrants)
would not exceed 4.9% of our shares of outstanding common stock as determined
in accordance with Section 13(d) of the Securities Exchange Act. Therefore, the
number of shares of our common stock included in the above table exceeds the
number of shares of common stock that a selling stockholder could own
beneficially at any given time through its ownership of the 12% debentures and
the warrants. For this reason, the beneficial ownership of our common stock by
a selling stockholder included in the above table is not determined in
accordance with Rule 13d-3 under the Securities Exchange Act.

                          AIRTECH INTERNATIONAL GROUP

Organization and Development

   Airtech International Group, Inc. was incorporated in the State of Wyoming
on August 8, 1991 under the name Interactive Technologies Corporation, Inc.
Until May, 1998, Interactive Technologies was principally engaged in developing
and producing interactive television and media programming for distribution
through cable, broadcast, direct satellite television and the Internet.
Interactive Technologies conducted this line of business through ownership of
proprietary software and a trademark known as Rebate TV. Rebate TV offered
network viewers rebates through an interactive program accessed by touch-tone
phones. In addition, Interactive Technologies owned licensed rights obtained
from the Federal Communications Commission to operate an interactive video and
data service system in the Melbourne-Titusville, Florida metropolitan area. A
second system owned by Interactive Technologies and located in the Charleston,
South Carolina metropolitan area was sold in 1997.

   On May 31, 1998, we acquired all of the outstanding shares of common stock
of Airtech International Corporation, a Texas corporation. Airtech Corporation
was founded in 1994 as a distributor of air purification products for
Honeywell/Envirocaire. In January of 1996, Airtech Corporation outgrew the
distributorship business and began manufacturing two of its own air
purification products. The total purchase price of $22,937,760.00 for the stock
acquisition was paid through the issuance of 10,500,000 shares of Interactive
Technologies' common stock, 11,858,016 shares of Interactive Technologies'
Series "A" Convertible Preferred Stock and $9,000,000.00 in principal amount of
Interactive Technologies' convertible debentures. The shares of common stock
and Series "A" preferred stock were each valued at $0.625 per share. We
accounted for the stock acquisition using the purchase method of accounting,
with Airtech Corporation deemed the purchaser for purposes of our consolidated
financial statements.

   On July 31, 1998, the 11,858,016 shares of Series "A" preferred stock and
the $9,000,000 of convertible debentures, including accrued interest, were
converted into 11,858,016 and 13,071,429 shares of our common stock. After
conversion, the total number of outstanding shares of our common stock was
approximately 50,000,000 shares. On October 5, 1998, our shareholders approved
a one for five reverse split of our common stock which reduced the number of
outstanding shares of our common stock to approximately 10,000,000 shares and
increased the par value of our common stock from $0.01 to $0.05 per share. The
reverse stock split was effective as of November 9, 1998.

   In February 1998, we discontinued the original line of business of
Interactive Technologies relating to interactive television and media
programming, including the Rebate TV product. The software, trademark and
license rights are the only assets of these discontinued lines of business.
These assets have no carrying value on our financial statements because the
products were discontinued prior to our acquisition of Airtech Corporation. We
discontinued these original lines of business to enable us to concentrate on
the development, manufacture, distribution and sale of the air purification
products offered by Airtech Corporation and its subsidiaries. We are currently
marketing the remaining assets for sale with no firm commitments or agreements
in place.

   Since the discontinuation of our original lines of business, we have been
engaged with our wholly-owned subsidiaries, Airtech Corporation, Airsopure,
Inc., and Airsopure International Group, Inc. in the development, marketing and
sale of air purification systems for commercial, residential and automobile
use. Airsopure was

                                       15


incorporated on March 5, 1997 in the State of Texas to implement and operate a
franchise program for the sale of commercial building air purification products
developed and manufactured by Airtech Corporation. Airsopure International was
incorporated on January 5, 2000 in the State of Nevada to implement and operate
a franchise program to facilitate the opening of consumer retail stores for the
sale of our residential air purification products.

   On November 30, 1995, we incorporated McCleskey Sales and Service, Inc. in
the State of Texas to integrate the distribution and sale of air purification
products by Airtech Corporation with the heating, ventilation and air
conditioning service business. Effective May 31, 1999, we discontinued the
operations of McCleskey Sales based upon the incompatibility of the heating and
air conditioning service business with Airtech Corporation's business of
manufacturing and distributing high quality air purification products. Our cash
expenses to discontinue the operations of McCleskey Sales were minimal.

   In January 1999, we formed Airsopure 999, L.P., a Texas limited partnership,
for the purpose of developing, marketing and distributing our Model S-999
automobile air purification system. Our wholly-owned subsidiary, Airsopure, is
the general partner of the limited partnership.

   In October 1999, we applied to the Medicare administration for a Medicare
reimbursement code number for our Medicare Series 950. The reimbursement code
number allows Medicare recipients to receive reimbursement for the cost of our
Medicare Series 950. Our Medicare application is pending. We have not yet
received approval for a specific reimbursement code number, although Medicare
has allowed us to invoice Medicare using a non-assigned code number. The non-
assigned code number does not guarantee Medicare reimbursement to Medicare
recipients.

   From February 2000 through June 2000, we opened four company owned retail
stores in Addison, Texas, Arlington, Texas, Jackson, Tennessee and Kansas City,
Missouri. During 2000, we sold the two stores located in Jackson, Tennessee and
Kansas City, Missouri to the managers of those stores. We also consolidated the
store located in Arlington, Texas with the store located in Addison, Texas. We
opened these retail stores to facilitate the sale of our home consumer line of
air purification products. We sold the store located in Addison, Texas in March
2001. As of April 30, 2001, we do not own any retail stores and do not intend
to open any company owned stores in fiscal year 2002.

   In February 2001, we applied to the Alpha Numeric Committee of the Health
Care Financing Administration for a health care product code system number. The
code number is commonly referred to in the medical insurance industry as an
HCPCS Code. The HCPCS Code would enable us to market our Medicare Series 950
directly to the private medical insurance industry. If a private insurance
carrier accepts our Medicare Series 950 with the HCPCS Code, patients who
purchase a Medicare Series 950 would be entitled to receive insurance
reimbursement for the cost of the Medicare Series 950. Our application is
pending and we have not received an HCPCS Code.

   On October 16, 1998, we changed our name from Interactive Technologies
Corporation, Inc. to Airtech International Group, Inc. Our address is 12561
Perimeter, Dallas, Texas 75228. Our telephone number is (972) 960-9400 and our
web site can be accessed at www.airtechgroup.com. The web site of Airsopure can
be accessed at www.airsopure.com.

Business

   We are engaged in the development, manufacturing, marketing and sale of
indoor air purification products for commercial and residential use. We also
manufacture and market an air purification system for use in automobiles. Our
strategy is to identify those markets which we believe are in need of solutions
to indoor air contamination problems. We propose to exploit these identified
markets through direct sales, franchising, licensing and strategic alliances
with manufacturing representatives.

                                       16


   Indoor air contamination exists in the form of particulates, gases or
viruses in the air we breathe, whether in an office building, retail or
commercial establishment or our homes. These air contaminants include bacteria,
pollen, dust mites, smoke, plant and mold spores, dust, solvents, glues,
formaldehyde, carbon monoxide, carbon dioxide, viruses, and diseases such as
tuberculosis, meningitis, and hepatitis. Indoor air contaminants also include
volatile organic compounds or "VOCs" which occur when airborne contaminants
combine and become unstable. Examples of these volatile compounds are benzene,
styrene, arsenic and polychlorinated biphenyls.

   For millions of people, exposure to indoor air contaminants means
experiencing headaches, watery eyes, dizziness, lethargy, digestive problems,
nausea, nose and throat irritation. Historically, the methods of addressing and
treating indoor air contamination were to open windows and doors to bring
"fresh air" into an area or to use air cleaners such as ozone generators or
electro-static air "cleaners" to attempt to purify the existing indoor air. We
believe that these methods do not effectively handle the air contamination
problems which exist today. Although considered effective at the time of
conception, we regard these cleaners as obsolete in the current air
purification marketplace.

   Our air purification products provide an inexpensive solution to air
contamination problems and concerns. Our products can be applied to various
commercial and residential uses and are ideally suited for a variety of users
that experience air contamination problems, including office buildings,
restaurants, bars, public buildings, nursing homes, hospitals, schools, dental
offices, waiting rooms, homes, airplanes, vehicles and residences. Our products
substantially remove or destroy microorganisms in the air, eliminate organic
odors and break down volatile compounds into harmless basic compounds.

Commercial Franchise Operations

   We operate a franchise program designed to leverage our expertise with the
energies and investment of a franchise network. We see this as a means of
supplementing our revenues for cash flow purposes from franchise fees, sales of
products to the market and royalty fees based upon the gross sales generated by
the franchisee. We currently have 18 franchisees who sell our commercial
products in various parts of the United States. These franchisees market and
sell our commercial building products through franchise agreements with
Airsopure, Inc., our wholly owned subsidiary. Each franchise agreement has an
initial term of five years and the franchisee may renew the franchise for
successive additional five year periods. Five of our current franchises expire
in fiscal year 2003 and thirteen in fiscal year 2004.

   During fiscal year 2000, we elected to discontinue offering our commercial
franchises through Airsopure and began marketing our commercial products
through direct sales efforts from our corporate office. We also implemented a
program to pursue the marketing of our commercial products through
manufacturing representatives. Based upon our estimate of approximately 260,000
manufacturing representatives nationwide, we believe this marketing approach
will provide us with broader exposure of our commercial products. We also
believe this broader exposure will increase the overall market of our
commercial products above the levels previously recognized through our
commercial franchise program.

Residential Franchise Operations

   We also operate a franchise program designed to market our residential air
purification units utilizing a retail store outlet concept. We operate this
franchise program through Airsopure International Group, Inc., our wholly owned
subsidiary. Airsopure International is qualified to offer our franchises in 38
states. The start-up costs for purchasing and establishing a retail store
franchise range from $90,000 to $100,000, which includes up to a $25,000
franchise fee to us. The remainder of the costs are estimates for the purchase
of inventory, furniture and fixtures and minimum required working capital.
Since February 2000, we have sold 8 residential retail franchises of which 5
are still operational.

   We recently suspended our franchise program to market and sell our
residential retail franchises. We suspended our retail franchise program to
analyze whether the retail sale of our residential units is cost effective when
compared to other direct sale distribution channels. We are currently marketing
our residential

                                       17


products through direct sales from our corporate offices, manufacturing
representatives, existing franchisees and national distributors. We are also
marketing our Medicare Series 950 to home and durable medical equipment
providers through our agreement with Southern Therapy.

Industry Overview

   The Environmental Protection Agency has identified indoor air pollution as
one of the five most urgent environmental concerns in the United States.
According to the EPA, poor air quality may affect one third to one half of the
commercial buildings in the United States. These affected commercial buildings
are referred to in the industry as "sick buildings" and represent a potentially
large market for our air purification systems. The term "sick building" can
also be applied to any commercial or private environment where airborne
contaminants pose a potential health hazard. The EPA asserts that the average
American spends roughly 90 percent of his or her time indoors (Consensus 1988;
EPA 1988) and can be breathing air more seriously polluted than outdoor air in
even the largest and most industrialized cities. Government statistics indicate
that 10 to 25 million people working in 800,000 to 1.2 million commercial
buildings have developed respiratory symptoms related to indoor air pollution.
These statistics translate to a loss in business productivity that we believe
could approach $60 billion a year. People in "vulnerable categories" are
particularly sensitive to indoor air quality and indoor air pollution. These
"vulnerable categories" include many older individuals, those individuals who
are susceptible to allergies, asthma and other respiratory ailments, and young
children. We estimate that more than 30 percent of the U.S. population falls
within these categories.

   The rising drug resistance within the U.S. population is also becoming a
major health issue. There are approximately 160 antibiotics available to fight
disease. Many of these antibiotics, however, are no longer effective on certain
virulent organisms, including tuberculosis and certain types of hospital-based
staphylococcus infections. Many viral and bacterial infections are airborne and
are primarily transmitted through the air. The first line of defense against
these diseases is prevention through improvement of indoor air quality.

   Health experts have expressed special concern about people with asthma.
These people have very sensitive airways that react to various irritants in the
air which make breathing difficult. The number of people diagnosed with asthma
has significantly increased in recent years. From 1970 to 2000, the number of
asthmatics in the United States has increased 59 percent representing
approximately 9.6 million people. We estimate that as of the year ended 2000,
there are approximately seventeen million asthmatics in the United States.
Asthmatics account for 500,000 hospitalizations and $6.2 billion in health care
costs annually. Asthma in children under 15 years of age has also increased 41
percent during the same period representing a total of 2.6 million children.
The number of deaths from asthma has increased 68 percent since 1979 (Source:
Asthma and Allergy Foundation of America).

   Bacteria, molds, pollen and viruses are types of biological contaminants.
These biological contaminants breed in stagnant water and accumulate in air
ducts, humidifiers, drain pans, and areas where water has condensed or
collected on ceiling tiles, carpeting or insulation. Insect, bird and dust mite
droppings can also be a source of biological contaminants. Physical symptoms
related to biological contamination include fatigue, cough, chest tightness,
fever, chills, head and muscle aches, and allergic responses such as mucous
membrane irritation and upper respiratory congestion.

   There is a growing awareness of the health hazards of airborne microbes,
also referred to as bioaerosols. Bioaerosols are extremely small living
organisms or fragments of organisms suspended in the air. Dust mites, molds,
fungi, spores, pollen, bacteria, viruses, amoebas, fragments of plant
materials, and human and pet dander are examples of bioaerosols. Bioaerosols
are capable of causing severe health problems. Some bioaerosols, such as
viruses and bacteria, cause infections, like a cold or pneumonia, and others
cause allergic reactions. An allergic reaction occurs when a substance provokes
formation of antibodies in a susceptible person. Bioaerosols may cause allergic
reactions on the skin or in the respiratory tract. Rashes, hay fever, asthma,
breathing difficulties, and runny noses are common allergic reactions.


                                       18


   Bioaerosols build up in closed indoor environments and are passed through an
entire building through central ventilation systems. The contamination of an
entire building through bioaerosols is commonly referred to as "sick building
syndrome." Bioaerosols are found in a variety of settings such as residences,
office buildings, medical and dental offices and hospitals, but cannot be seen
without a magnifying glass or microscope. Exposure to bioaerosols is much
higher in most enclosed locations where people congregate, such as schools,
theaters, airplanes, restaurants and shelters. Occurrences of sick building
syndrome have escalated largely because of the increased demand for reduced
operating costs in public buildings, particularly ventilation systems. The
demand for reduced operating costs created construction of "tight" buildings
which are dependent on mechanical air circulation systems rather than windows.
These air circulation systems recycle bioaerosols throughout the building
creating sick building syndrome.

   Research has made it evident that air contaminants found in heating,
ventilation and air-conditioning systems and airtight buildings are responsible
to a large degree for sick building syndrome. The heating and air conditioning
community and the American Society of Heating, Refrigeration and Air
Conditioning Engineers have suggested that the use of higher ventilation rates
utilizing fresh outside air would dilute air contaminants and alleviate the
sick building syndrome to a great extent. In response to this suggestion and in
an effort to improve air quality, building operators have increased ventilation
by bringing in more fresh outside air. This process has resulted in increased
building costs created by having to heat or cool and dehumidify the outside
air. The process is also somewhat ineffective to the extent that polluted
inside air is diluted with polluted outside air.

Products

   Our product line consists of the following:

     Series 12: Our Series 12 is designed to fit into a 2 x 4-foot space of a
  ceiling. This unit filters approximately 1200 cubic feet of air each minute
  removing particulates, gases and odors. Markets for this unit include the
  food and beverage industry, hospital and nursing homes, print shops, office
  buildings and other industries with problems involving cigarette or cigar
  smoke, odors and particulates. The retail price of our Series 12 is
  $2,475.00. For the 30 months ended February 28, 2001, we have sold 314 of
  these units to our franchisees and national accounts.

     Series 14: Our Series 14 is designed to mount against a wall at the
  joining point of the wall to the ceiling. The unit is approximately 36" x
  14" x 14". The unit filters approximately 400 cubic feet of air per minute.
  Markets for this unit include those users having problems with any
  particulate, gas or odor found in rooms under 400 square feet, such as
  hotel rooms, offices, classrooms, patient rooms and small shops. Multiple
  units can be installed to accommodate larger rooms. The retail price of our
  Series 14 is $1,090.00. For the 30 months ended February 28, 2001, we have
  sold 117 of these units to our franchisees and national accounts.

     Series 18: Our Series-18 is a commercial unit which can service up to
  five offices or rooms with inexpensive flex duct work. The unit is
  installed above the ceiling and is out of view. The unit requires no
  modifications to the existing heating and air conditioning system and
  operates in a very quiet fashion. The retail price of our Series 18 is
  $1,850.00. For the 30 months ended February 28, 2001, we have sold 50 of
  these units to our franchisees.

     Series 30: Our Series 30 is in the preliminary marketing stage. The
  Series 30 is a residential unit which is adaptable to existing duct work
  used in existing heating, air conditioning and ventilation systems. The
  retail price of our Series 30 is $970. For the two months ended February
  28, 2001, we have sold 50 of these units.

     Series 999: We developed our Series 999 as an automotive after market
  product for mounting in the trunk of new and used cars. The unit was
  designed to move 100 cubic feet of air per minute with complete air changes
  in an automobile every 20 seconds. The retail price of our Series 999 is
  $354. For the 30 months ended February 28, 2001, we have sold 600 of these
  units. These sales were primarily to

                                       19


  Airsopure 999, L.P. of which Airsopure, Inc., the Company's wholly owned
  subsidiary, is the general partner.

     Medicare Series 950: Our Medicare Series 950 is a free standing,
  portable unit. In October 1999, our Medicare Series 950 unit was submitted
  to Medicare for approval and issuance of a Medical reimbursement code
  number. The Medicare reimbursement code number would enable Medicare
  recipients to receive reimbursement for the cost of the Medicare Series 950
  unit. In February 2001, we also applied to the Health Care Financing
  Administration for an HCPCS Code. The HCPCS Code would allow us to market
  our Medicare Series 950 directly to private medical insurance carriers. We
  propose to offer our Medicare Series 950 to Medicare and private insurance
  recipients for a retail price of $795. As of February 28, 2001, we have not
  sold any of our Medicare Series 950 units to either the Medicare or private
  insurance markets.

     Consumer Series 950: Our Consumer Series 950 unit is similar to the
  Medicare Series 950 with alterations for a larger array of filtration for
  contaminants. The estimated retail price of the Consumer Series 950 is
  $950.00. As of February 28, 2001, we have sold 438 of these units.

     Down Draft Tables: Our down draft tables were designed for the nail
  manicure industry and first introduced in January 1996. The units have
  largely been discontinued with our remaining inventory of approximately 10
  units available for a retail price of $2,000.00. We discontinued our down
  draft table line based upon a decline in market demand which resulted in
  production and marketing expenses exceeding proposed sales.

     Replacement Filters: We manufacture our sorbent media filters by
  purchasing pre-filter material in bulk and cutting the material in our
  production facility to proper sizes to fit our units. Our hospital grade
  HEPA filters are out-sourced for production. The trisorbent filters are
  also outsourced for manufacture, but assembled at our production facility.
  The life of the filters required by our air purification units varies with
  the type of unit and the degree of contamination; however, we estimate that
  each unit sold will require an average of one to two complete filter
  changes per year. The filters required by our ceiling units have a retail
  price of $268 to $462 depending on uses. The automobile unit will require
  approximately $100 in replacement filters per year and the portable
  residential units approximately $150 per year.

Product Development and Redesign

   We do not anticipate any major expenditures during fiscal year 2001 to
develop or redesign our existing products or our products in the developmental
stage which will not be offset by estimated product sales. Instead, we intend
to focus our available capital resources on the marketing and distribution of
our current line of marketable air purification products. We will, however,
adapt or redesign our products to meet changing customer demands or to respond
to requests in the market for made-to-order products. Our decision to redesign
or develop a particular product will be based upon whether estimated sales to
respond to a particular product need will be sufficient to offset estimated
development or redesign costs.

   We anticipate redesign costs on our Series 14 units and possibly our other
units which utilize a hardened plastic case requiring injection molding. We
estimate the engineering and mold tooling costs for these units to be in the
range of $500,000. We will not commit to these costs unless our estimated sales
of these units are sufficient to offset the related development and design
costs.

   We also intend to evaluate the inclusion of photocatalytic oxidation
technology into both our existing and developmental products for the purpose of
increasing the air purification efficiency of these products. Photocatalytic
oxidation occurs when ultra violet light waves are passed through a titanium
screen creating a chemical reaction. The chemical reaction increases air
purification efficiency by eliminating volatile compounds within the unit.


                                       20


Operations

   We currently maintain a warehouse production facility of approximately
10,000 square feet in Dallas, Texas. In this facility, we are able to assemble
a combined total of approximately 1,000 of our Series S-12, S-14, and S-18
units. We believe our warehouse facility is adequate for our current and
estimated future production needs. The anticipated unit volume sales of the
Series 999 automobile unit, the Series 950 unit and the S-30 unit during fiscal
year 2001 caused management to select out-sourcing for production of these
units.

Competing Products and Technologies

   The current air filtration products and technologies available in the market
which compete with our products include the following:

  .  Activated carbon filters for use in heating, ventilation and air
     conditioning units

  .  High Efficiency Particulate Air ("HEPA") filters

  .  Ozone generators

  .  Anti-microbial chemically treated filters

  .  High energy UV light

  .  Ionizers

  .  Electrostatic precipitators

  .  Media filtration

  .  Photocatalytic oxidation technology

  .  Various combinations of the above

   These products and technologies are individually designed to provide various
levels of "air filtration" of air contaminants and not "air purification." We
believe a combination of several of these products and technologies must be
implemented to achieve effective "air purification". The individual air
purification ineffectiveness of these products is the result of the following
factors:

   Activated carbon filters absorb a number of volatile compounds and large
microorganisms such as dust mite droppings, which stick to dust particles in
the air, but do not remove other microorganisms from the air. The efficiency
rate declines over time as the carbon filters are clogged with pollutants. The
process alone is non-regenerating and the filters can be expensive to operate
due to increased power usage resulting from pressure drops. These pressure
drops occur when filters are clogged, thereby cutting the unit's capacity and
ability to deliver air to remote areas. We use activated carbon filters in our
products in combination with other air purification components.

   HEPA filter technology reportedly removes up to 99.7% of air borne particles
and is the dominant technology used in portable room air cleaners over the past
six years. HEPA filters, however, are expensive to use in large applications
such as multi-floor office buildings. HEPA filters are also ineffective in
removing extremely small organic compounds, microorganisms and some viruses.
HEPA filters are thick and produce pressure drops when installed within heating
and air conditioning systems. These pressure drops increase maintenance and
operating expenses. The increased expenses occur because the heating and air
conditioning system must work continuously to compensate for pressure drops. On
its own, HEPA technology does not have the ability to destroy bioaerosols or
trap and breakdown volatile compounds or odors. Our products use HEPA
filtration combined with other components of air purification.

   Ozone generation is a type of air cleaner that uses a high-voltage
electrical charge to change oxygen to ozone. A number of companies market ozone
generators as indoor air cleaners. These ozone-producing units

                                       21


break down volatile compounds because ozone is highly oxidizing. To achieve the
high efficiency required, a very high level of ozone has to be released into
the air. Ozone itself, however, is a respiratory irritant. OSHA has established
a limit of workplace ozone levels over an eight-hour day. The FDA has also set
a limit for ozone levels of electronic air cleaners. We do not employ ozone in
our products.

   Anti-microbial chemically treated filters can serve as a pre-filter to the
more effective and expensive HEPA filter, capturing the larger particles
flowing through the product and thereby prolonging the life of the HEPA filter,
which captures the very small particles. On its own, an anti-microbial pre-
filter can introduce additional contaminants into the air, such as volatile
compounds, toxins, endotoxins, and allergens, by degrading microbial organisms
trapped on the anti-microbial filter. We use these filters in our products in
combination with other air purification components.

   High energy UV light has proven to be effective in killing microbial life
but is ineffective in destroying volatile compounds. High energy UV light,
however, can pose a danger to humans similar to staring directly into sunlight.
We use a level of UV light in several of our products which is not harmful to
humans in combination with other air purification components.

   Air cleaners such as ionizers can be up to 90% efficient which means they
remove 90% of some types of pollutants. We are not aware of any medical
evidence which recommends the use of ionizers to improve air quality for people
suffering from asthma, allergies or upper respiratory problems. Most of these
air cleaners ionize the air and place electrical charges on particles but do
not have any charged collection plates. This means charged particles migrate
through the air and stick to the first surface they run into such as walls,
furniture or lung tissue. The charged particles remain on the surface until
dislodged to re-enter the air again. We do not use ionizers in our products.

   Electrostatic methods have no effect on the destruction of volatile
compounds nor are they effective on small bioaerosols that are not attached to
particulate matter. When electrostatic methods trap bioaerosols, either the
bacteria will grow on the collection plates or if the bacteria is incapable of
growing because of the rushing air past the surface, the bacteria will die,
decompose and change to an organic compound and reenter the air stream.
Electrostatic methods have no effect on reducing organic compounds or odors. We
do not use electrostatic methods of air cleaning.

   Charged media filters are made from an electric conducting material
stretched across a frame. Applying a high electric voltage to the material
creates an electrostatic field. However, these electrostatic fields are
generally not sufficiently strong to eliminate most particles, severely
reducing effectiveness. We do not use charged media filters in our products.

   Photocatalytic oxidation creates a reduction in most volatile compounds.
Photocatalytic oxidation occurs when ultra violet light waves are passed
through a titanium screen creating a chemical reaction. The chemical reaction
eliminates the volatile compounds collected in the air purification unit by
reducing them to harmless components or carbon dioxide and water. We use
photocatalytic oxidation in our products in combination with other air
purification components.

Competition

   Our business is becoming increasingly competitive. Competition has increased
with society's growing awareness of air quality problems and the related demand
for air purification technology. We compete in both the commercial and
residential markets for air filtration and purification products.

   The major competition for our products and markets is the domestic
commercial and residential heating, ventilation and air conditioning market.
This market is composed of a small number of large manufacturers. The two
market leaders are the Carrier division of United Technologies and Trane Corp.,
a unit of American

                                       22


Standard. Carrier and Trane compete in all segments of our industry including
commercial, residential, air conditioning, furnaces and heat pumps. Our other
competitors include the following companies:

   Fedders, Inc. (NASDAQ:FJC) is a holding company which manufactures and sells
a full line of room air conditioners and dehumidifiers, principally for use in
domestic residential markets.

   Trion Inc., a newly acquired subsidiary of Fedders, Inc., has air
purification operations which consist of two principal segments: engineered
products and consumer products. The engineered products group designs,
manufactures and sells commercial indoor air quality and dust collection
equipment. The consumer products division manufactures and markets appliance
air cleaners, including both table top and free standing console units.

   Environmental Elements designs equipment and supplies systems and services
to the air pollution industry through the design of large scale systems to
control gaseous emissions. In addition, Environmental Elements designs
electrostatic precipitators, fabric filters and scrubbing systems.

   Honeywell, Inc. (NYSE:HON) has both commercial and consumer divisions of air
filtration products with primary sales generated from the consumer division.

   CECO Environmental Corp. (NASDAQ:CECE) has been in the air quality
technologies and services business for over 30 years. CECO has expanded the
applications for its technology to include wastewater treatment. CECO, through
its four subsidiaries, provides a wide spectrum of air quality and wastewater
treatment products and services. These products and services include industrial
air filters, high performance filter fabrics, environmental maintenance,
monitoring and management services, waste water treatment and air quality
improvement systems. CECO is a full-service provider to the steel, aluminum,
automotive, aerospace, semiconductor, chemical and metalworking industries.

   United Air Specialists was established in 1966 to provide commercial and
industrial environmental air cleaning solutions worldwide through a diverse
product offering dust collection systems, industrial fluid coating systems and
industrial oil cleaning equipment. The United Air product line includes the
Smokeater, an electromatic precipitator cleaner. Designed to meet the needs of
each customer, United Air equipment is backed by strong performance guarantees,
technical support and years of experience.

   Competition in the commercial indoor air quality market is very specialized
with no one company offering a complete line of air filtration equipment.
Commercial companies tend to specialize in very distinct market segments. In
most major metropolitan areas of the United States, there are also various
small commercial air filtration suppliers. We believe none of these suppliers
has a product line competitive with our commercial units. In the residential
indoor air quality market, many suppliers and manufacturers have a variety of
air filtration products, generally in the lower retail price range of
approximately $250.

   We are currently unaware of any company which manufactures or distributes a
highly efficient or trunk-mounted air purification unit for the automobile
comparable to our Series 999. We anticipate, however, that our proposed
penetration of the automobile market will generate significant interest with
competition coming from established automobile manufacturers.

   We believe that the applications for our product lines will have broad
appeal, since the implementation costs of our products are small compared to
the cost benefits that typically accrue to the user. We also believe our
technological approach of combining several air purification components into a
single product is a superior method for removing and destroying pollutants in
an indoor air environment. Some of the advantages and benefits of our products
are as follows:

  . Biological air contaminants are substantially destroyed and or removed

                                       23


  . The process cleans and purifies the air through multiple air changes

  . The process is effective for microbes, endotoxins, toxins, allergens, and
    organic compounds

  . No toxic chemicals are employed

  . No ozone is generated or introduced into the air

  . The process works well at room temperature

  . The energy needs are low in stand alone systems outside of heating and
    air conditioning systems

  . Self-cleaning process does not reintroduce air contaminant residue into
    the air stream

  . After initial purchase, the products are very economical to operate,
    including the price of filter replacements

Markets

   Our market research has identified the following markets which may benefit
from our products:

  . Medical and specialty facilities such as hospitals, clinics, nursing
    homes, laboratories, day care centers, and emergency rooms. These
    facilities represent a large market for our products. Also, any facility
    where indoor air quality is critical to the safety and health of the
    patients/customers is a potential market.

  . The commercial heating, ventilation and air conditioning market
    consisting of office buildings and other public facilities.

  . The residential market consisting of homes with central heating,
    ventilation and air conditioning systems occupied by individuals with a
    need for better indoor air quality.

  . The industrial air quality market based upon increased local, state, and
    federal regulations which require cleaner indoor industrial air quality.

  . The transportation market consisting of automobiles, ambulances, buses,
    limousines, railroads, aircraft, and cruise ships which have a specific
    need for improved indoor air quality.

  . People who suffer from upper respiratory discomfort and allergic
    reactions due to poor indoor air quality at home, at work and in
    transportation vehicles.

  . People in vulnerable categories including older individuals in nursing
    homes and hospitals, individuals who are susceptible to allergies, asthma
    and other respiratory ailments, and young children.

   Our technology provides an inexpensive solution to many of the indoor air
quality problems which affect the daily lives of these individuals. Health
conscious consumers are also becoming more particular about the air quality in
their environments. We believe this trend will lead to an increase in demand
for better air purification systems. We also believe that our combined
technology approach will outrank the solutions provided by other air filtration
systems that use traditional single methods for indoor air filtration and
purification.

Business Plan and Marketing Strategy

   Traditionally, air purification systems are marketed and sold through a
single distribution channel comprised of heating and air conditioning
contractors or repairmen. Our strategy is to approach the market through
multiple distribution channels. We are not aware of any of our competitors who
utilize a multiple channel approach. We have targeted several distribution
channels for direct exposure of our products to educate consumers about the
costs and solutions for indoor air contamination. We believe that this multiple
channel

                                       24


approach combined with the quality of our products will separate us from our
competition. For example, we currently utilize the following distribution
channels:

     Franchises. We currently have 18 commercial franchisees who market and
  sell our commercial building air purification products in various parts of
  the United States. We also have 5 residential retail franchisees who market
  and sell our residential air purification products. We provide a five day
  Indoor Air Quality Certification program for all of our approved
  franchisees. Each of our franchisees has a protected territory. We also
  coordinate an advertising program with our franchisees to provide an
  unlimited number of leads and future potential accounts to serve. Our
  franchisees are not required to exclusively market our products and may
  combine our products with competing products.

     International Licenses. We have licensed the distribution rights to our
  name and technology in Turkey, Canada, Spain and Central and South America.
  Effective May 31, 2000, we entered into a development agreement with Aurora
  Products, Ltd. (Shanghai) for the distribution of our products in portions
  of Asia and the Pacific Rim through two subsidiaries of Aurora Products.
  Aurora Airsopure (China) markets our products in Hong Kong and the Peoples
  Republic of China. Aurora Airsopure (Asia) markets our products in Taiwan
  and the Phillippines. Aurora Airsopure (China) and Aurora Airsopure (Asia)
  each executed a $500,000 demand promissory note payable to us in exchange
  for the distribution rights. The notes bear interest at 10% per annum with
  all principal and interest due May 31, 2008. As of April 30, 2001, we have
  received initial cash payments under each of the notes of $40,200. Under
  the terms of the notes, the remaining principle balances are reduced based
  upon an allocation of 20% of purchase orders from us and 80% of gross sales
  by each distributor. As of April 30, 2001, we have allocated $18,000 in
  principle reduction to the Aurora Airsopure (Asia) note.

     Our existing international licenses are with one licensee for the entire
  country. We may in the future, however, divide a country into several
  licensed territories with multiple licensees. We intend to aggressively
  pursue additional international distribution relationships during fiscal
  year 2001. Our international licenses sell for a minimum of $100,000 per
  country or a formula derived from guaranteed projected sales based upon the
  population of the licensed territory or country.

     Manufacturer's Representatives. We estimate that there are approximately
  260,000 heating and air conditioning representatives in the United States.
  This unconsolidated group of professionals accounts for a significant
  amount of the current sales of air purification and cleaning units. We
  intend to make our products available to these representatives through
  direct marketing efforts from our principal offices. As of April 30, 2001,
  we have entered into agreements with 30 local manufacturing
  representatives. These agreements include distribution agreements with
  Trinity Resources, Inc. for the exclusive distribution of our products
  through AES of Oklahoma (Carrier Corporation) in the State of Oklahoma and
  W&B Service Company for the exclusive national distribution of our
  commercial and automobile products in the United States and Canada.

     Internet Sales. Internet usage has increased over the last several years
  and consumer purchasing is expected to continue to grow in accordance with
  this usage. Approximately 73% of website users search for information about
  products and services and 7.4 million users have made at least one purchase
  over the Internet. The demographics of website users also fit well with our
  products. Most website users are well educated and earn significantly more
  income than the national average. Our websites are www.airsopure.com or
  www.airtechgroup.com. Since June of 1999, the Airsopure website was
  accessed 104,994 times and the Airtech website 191,390 times. On these
  sites, visitors can educate themselves about our products, but cannot order
  our products on line.

     We intend to spend additional funds to redesign and enlarge our websites
  in an effort to direct more Internet traffic to our websites. Our proposed
  redesign will include "hyper link" access to our products and the ability
  to order online. Hyper link access will enable website users to use generic
  words such as "air quality" or "air purification" for immediate referral to
  our website. Our websites also provide quicker advertising response times,
  direct feedback from customers and instantaneous updating of

                                       25


  information. We believe the keys to successful marketing on the Internet
  will be exposure and association with other well-traveled websites,
  security, a clean design, ease of use and product testimonials.

     Direct Sales. We currently market our products through our corporate
  offices to national accounts such as company owned or franchised TGI
  Fridays, Bennigan's and Sullivans, and other local and regional accounts
  involved in the food and beverage industry. We market our products directly
  and do not have agreements with any of these accounts. We also intend to
  employ the direct sales approach to school systems and government
  facilities during fiscal year 2001.

     Retail Distribution. In February 2000, we opened our first company
  retail outlet in Addison, Texas to facilitate the retail sale of our home
  consumer products. Since February 2000, we also opened three additional
  retail outlets in Arlington, Texas, Jackson, Tennessee and Kansas City,
  Missouri. During August 2000, we sold the two stores located in Jackson,
  Tennessee and Kansas City, Missouri to the managers of those stores and
  consolidated the store located in Arlington, Texas with the Addison, Texas
  store.

     The purchase price for each of the Jackson and Kansas City stores was
  $15,000. The purchase price represents the purchase of existing inventory
  at the stores and the assumption by each purchaser of all lease and utility
  obligations. The purchase price is payable by each purchaser paying a
  premium for each unit of inventory purchased from us above the initial
  inventory. The inventory premium for the Jackson store is $100 per unit and
  the Kansas City store is $50 per unit. As of April 30, 2001, we have
  received $2,600 on the sale of the Jackson store and $2,500 on the Kansas
  City store.

     In March 2001, we sold the store located in Addison, Texas for a
  purchase price of $20,000. The purchase price was paid in $4,000 cash and
  the assumption by the purchaser of all lease and utility obligations.

     We are also actively pursuing the following additional distribution
channels for our products:

     Medicare and Durable Medical Equipment Distributors. Our research
  indicates that physicians regularly recommend the use of portable air
  filtration systems for patients suffering from chronic and acute episodes
  of illness related to allergies, asthma and general upper respiratory
  distress, many of whom are Medicare enrollees. These medical conditions are
  frequently elevated from a chronic status to acute episodes due to the
  inhaling by patients of various airborne contaminants. In the absence of a
  Medicare reimbursement code, Medicare patients are generally forced to
  incur the expense of such technology on a non-reimbursable basis.

     In October 1999, we applied for a Medicare reimbursement code number for
  our Medicare Series 950. We have not yet received approval for a specific
  reimbursement code number to date, although Medicare has allowed us to
  invoice Medicare using a non-assigned code number. The use of the non-
  assigned code number does not guarantee Medicare reimbursement to Medicare
  recipients. We intend to continue the pursuit of the pending Medicare
  application by collecting and submitting additional information required by
  Medicare. The date of a final decision on our Medicare application cannot
  be determined at this time. The submission of additional information will
  allow Medicare to take additional time to evaluate our application. We
  cannot predict if, or when, Medicare will approve the Medicare Series 950
  for direct cost reimbursement. We believe, however, that the time necessary
  to duplicate or invent the technology included in the Medicare Series 950,
  to create and test a prototype and to submit an application to Medicare
  gives us a competitive lead time advantage over our competitors in this
  market.

     The Medicare reimbursement code is awarded through a review process
  conducted under the direction of the Health Care Financing Administration
  and its agencies that include the Statistical Agency for Durable Medical
  Equipment Regional Council and the Durable Medical Equipment Regional
  Council. Once awarded a Medicare reimbursement code, Medicare patients
  suffering from respiratory problems are able to secure through a variety of
  durable medical equipment providers, medical technology prescribed by their
  attending physicians that will be paid for by Medicare or their insurance
  carrier of record. Our research also indicates that third party payors such
  as managed care and indemnity insurance plans will

                                       26


  more readily reimburse patients for our Medicare Series 950 after the
  product receives a Medicare code. We estimate that approximately 31 million
  Medicare enrollees suffer from some sort of upper-respiratory problem.
  Although the number of Medicare enrollees has not changed significantly in
  the past three years, we believe that the number of enrollees will increase
  significantly in the future with the aging of the "baby boomers." These
  individuals represent the end-user market for our Medicare Series 950. We
  have also developed the Consumer Series 950 unit which is similar to the
  Medicare Series 950 unit with alterations for a larger array of filtration
  for contaminants.

     In February 2001, we also applied to the Alpha Numeric Committee of the
  Health Care Financing Administration for a health care product code system
  number. The code number is commonly referred to in the medical insurance
  industry as an HCPCS Code. Although not as large a market as the Medicare
  market, the HCPCS Code would enable us to market our Medicare Series 950
  directly to the private medical insurance industry. If a private insurance
  carrier accepts our Medicare Series 950 with the HCPCS Code, patients who
  purchase a Medicare Series 950 would be entitled to receive insurance
  reimbursement for the cost of the Medicare Series 950.

     We have identified a national distribution network composed of durable
  medical equipment distributors that have existing sales forces and
  marketing infrastructures. Association with these distributors creates an
  immediate distribution network for the Medicare and Consumer Series 950
  units. This distribution network would eliminate management challenges of
  creating and maintaining our own sales force or recreating the existing
  client bases of these distributors. The medical equipment distributors
  currently interact with physicians providing other medical devices such as
  walkers, wheelchairs, hospital beds and electronic monitoring devices. The
  Medicare and Consumer Series 950 units will be a new product for medical
  equipment distributors within an industry where the introduction of new
  products is not common. If we do not receive approval from Medicare of the
  Medicare Series 950, we intend to continue our efforts to market the
  Consumer Series 950 through direct sales to medical equipment distributors
  and by pursuing insurance carriers and health care providers outside of the
  Medicare system. To implement this marketing approach, we entered into an
  agreement with Southern Therapy, Inc. in April 2000 to market our Medicare
  Series 950 to home and durable medical equipment providers. We cannot
  predict or forecast the amount of any future sales which may be generated
  from the Medicare or Consumer Series 950.

     Automobiles and Public Transportation. Our research indicates that there
  exists an increasing problem with abundant air contamination in automobiles
  and public transportation vehicles across the United States. Our research
  also indicates that not only is automobile air contamination immense and
  growing, but also that no real technological solutions are being applied to
  remove the harmful and irritating smells, gases and micro-particles that
  can cause and exacerbate respiratory problems. We have concluded that
  solving these issues for the public could provide tremendous economic
  rewards and higher auto resale values to a wide variety of customers, such
  as car rental companies, automobile dealers and government vehicles. One of
  the foremost complaints in the car rental industry and the new and used car
  industry, are the odors associated either with new material odors or with
  fabrics and materials in the automobile cabin that have absorbed pollutants
  like cigarette smoke for prolonged periods of time. The first indication
  that a problem exists is the odor detectable when the air conditioning unit
  or the air circulation system is activated. It is important, however, to
  note that the bacteria might be present before the odor is detected. This
  condition is caused by buildup of mold and bacteria in the air
  conditioner's evaporator. These fungi and spores can trigger allergic
  reactions and upper respiratory problems for car passengers.

     Nearly 200 million vehicles are in use across the United States. Of
  these vehicles,

    . approximately 150 million are passenger vehicles,

    . approximately 2 million are owned by the major car rental companies,
      and

    . approximately 3 million vehicles are government owned and used.


                                       27


     Each year in the United States, approximately 12 million new vehicles
  are sold by automobile dealers. The majority of automobiles fall into the
  category of used or more than one year old. The average American spends
  many hours per day in his vehicle. This much exposure, when added to
  outside contaminants such as road pitch, microscopic tire dust, allergens
  and hazardous gases and odors, leaves many car drivers with recurring
  headaches, eye irritation, nausea and even central nervous system problems.
  There are approximately 24,000 franchised new car dealers in the United
  States.

     We believe that all of these vehicles represent potential installations
  for our Series S-999. We propose to initially penetrate this market through
  agreements with nationwide auto after-market companies. Our proposal is to
  wholesale our Series 999 automobile air purification unit for inclusion
  with other after-market packages offered in the auto after-market such as
  automobile customizing packages (custom pinstripping, gold ornamentation
  and custom wheel coverings), fabric sealants and window tints. We believe a
  very highly effective and affordable air purification device like our
  Series S-999 will be widely accepted in the automobile after-market. To
  implement our marketing strategy for the Series S-999, we are currently
  developing a marketing strategy with W&B Service Company, our North
  American distributor, to market the Series S-999 to auto after-market
  companies and the rental car, government vehicle, and automobile dealer
  markets.

Government Regulation

   We operate under the disclosure document guidelines set forth by the Federal
Trade Commission under an FTC Rule which became effective October 21, 1979.
Under this FTC Rule, we are required to comply with the FTC disclosure format
or issue a Uniform Franchise Offering Circular to all potential purchasers of a
franchise. The uniform circular format is a standard form disclosure document
which is accepted by the FTC and most states as an alternative to the FTC
disclosure format. Our current uniform circular is compliant in 37 states. In
addition to this format, fourteen states require additional information to be
contained within the uniform circular for sales of new franchises within their
states. We are approved in the State of California to offer our franchises, one
of the additional information states. Although we intend to seek approval of
our franchise in other additional information states in the future, we do not
have any pending applications. Any violations under the FTC Rule are considered
unfair or deceptive acts or practices within the meaning of Section 5 of the
Federal Trade Commission Act. In response to the FTC Rule requirements, we
formed wholly-owned subsidiaries, Airsopure, Inc., and Airsopure International
Group, Inc., and registered each entity as a franchisor. Each entity is in
compliance with the FTC Rules regarding its uniform circular.

Permits, Patents, Trademarks, Licenses and Copyrights

   We do not own any patents or copyrights for our products or promotional
materials. We do, however, have a registered trademark for the name "Airsopure"
and the related service mark "The Essence of Clean Air." In addition, we have
common law trademark protection for certain of our other trade names and
service marks. We also intend to pursue copyrights for certain of our
promotional and franchise training materials. While we believe our products are
currently a unique implementation of filter and air purification components in
the current market, our products are susceptible to duplication by utilizing
current technology and components. Therefore, we do not believe any of our
products are ultimately patentable and do not intend to apply for patent
protection.

Suppliers

   We purchase the supplies and materials used in our business from a number of
suppliers. As of February 28, 2001, our five principal suppliers who provide us
with materials used in our products were Revcor, Glasfloss, Tela Tool, Lesson
Motor and RSE, Inc. We purchase motors, fans, filters and plastic casings from
these suppliers. If we experience production difficulties from any of our
principal suppliers, alternative suppliers and vendors exist in the
marketplace. We may, however, experience production delays to enable an
alternative supplier sufficient time to produce supplies to our specifications.
We do not expect any delays to be material based upon our policy to maintain
inventory levels necessary to avoid production delays.


                                       28


Estimate of Research and Development Expenditures

   We incurred various research and development expenditures of approximately
$15,000 for the fiscal year ended May 31, 2000 and $283,000 for the nine months
ended February 28, 2001. These expenditures included salaries, materials,
finished units, travel and correspondence.

Employees

   As of April 30, 2001, we had 14 employees including one part-time employee.

Fiscal Year

   Our fiscal year is from June 1 to May 31 of each year.

                               COMPANY PROPERTIES

   We maintain our executive offices and a warehouse facility at 12561
Perimeter, Dallas, Texas. This facility has a total of approximately 10,400
square feet and a total rental cost for fiscal year 2000 of $89,250. We are
committed to our executive office and warehouse lease until August 15, 2001 and
are currently in negotiations to renew our existing lease. We consider our
facilities sufficient for our present and currently anticipated future
operations and believe that these properties are adequately covered by
insurance.

                                   LITIGATION

   In 1997, we were named as a defendant in a cause of action styled LLB
Realty, L.P.C. v. Interactive Technologies Corp., Cause No. MER-L-1535-97, in
the Superior Court of New Jersey, Mercer County. The complaint alleges damages
relating to a lease agreement entered into with the plaintiff's for office
facilities in New Jersey. We never occupied the space based upon the plaintiff
(lessor) failing to finish-out the space pursuant to our specifications. The
complaint alleges damages of approximately $250,000. The court ruled in favor
of the plaintiffs and set a hearing in June 2001 to determine damages. Although
we are currently in negotiations for a favorable settlement relating to the
complaint, the outcome of these negotiations is uncertain. We have established
a reserve in our consolidated financial statements in the amount of $200,000 in
anticipation of a settlement.

   On March 2, 2000, we were named as a defendant in a cause of action styled
H.A.A., Inc. v. Airtech International Group, Inc., Cause No. 00CV-1603 (KMW),
in the United States District Court for the Southern District of New York. The
plaintiff is seeking the specific performance of an alleged contract providing
for our sale to the plaintiff of 1,854,386 shares of our common stock for a
cash purchase price of $419,000. After the original filing, the plaintiffs
amended their original complaint to include alleged damages of approximately
$1,000,000, as an alternative remedy to specific performance. On July 6, 2001,
we entered into a settlement agreement with the plaintiffs. The terms and
conditions of the settlement are subject to a confidentiality agreement with
the plaintiffs. We do not believe, however, that the terms of the settlement
will have a material adverse affect on our financial condition or future
operations.


   We have been named as a defendant in a number of routine lawsuits arising in
the ordinary course of our business. In some of these cases a judgment was
rendered against us. We have answered these routine causes of action where
appropriate, negotiated settlements where appropriate and agreed to a payment
schedule with respect to others. We have fully reserved for these claims and
causes of action in our consolidated financial statements in the aggregate
amount of $45,000.

                                       29


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

Background and General

   In May 2000, we restated and refiled our financial statements for the year
ended May 31, 1999 and the comparative period ended May 31, 1998. The reason
for the restatement of our 1999 financial statements was to reflect the
acquisition by Interactive Technologies Corporation, Inc., our predecessor in
name, of all of the outstanding shares of common stock of Airtech International
Corporation as a reverse merger as described below.

   On May 31, 1998, Interactive Technologies acquired all of the outstanding
shares of common stock of Airtech Corporation for a purchase price of
$22,937,760. Our prior 1999 financial statements reflected the combination
between Interactive Technologies and Airtech Corporation as a merger using the
purchase method of accounting with Interactive Technologies as the acquiring
entity for legal and financial accounting and reporting purposes. This
treatment resulted in reflecting the combination of Interactive Technologies'
assets and the purchase of the goodwill and intellectual properties of Airtech
Corporation at the appraised fair market value.

   Our restated 1999 financial statements also reflected the merger between
Interactive Technologies and Airtech Corporation utilizing the purchase method
of accounting for Interactive's assets. Our 1999 restated financial statements,
however, reflected the combination and purchase method as a reverse merger with
Airtech Corporation as the acquiring entity for accounting and reporting
purposes and Interactive Technologies as the surviving entity for legal
purposes. As a result, Interactive Technologies effectively issued shares of
common stock for the outstanding shares of Airtech Corporation, with the
stockholders of Airtech Corporation ultimately acquiring control of Interactive
Technologies. For this reason, Airtech Corporation is considered the acquiring
entity for purposes of our 1999 restated financial statements.

   On March 29, 2001, we entered into a securities purchase agreement with an
investment group to raise up to $1,000,000 through the sale to the investors of
our 12% Convertible Debentures Due 2003 with attached warrants to purchase up
to 600,000 shares of our common stock. Upon execution of the securities
purchase agreement, the investors purchased $800,000 in principal amount of 12%
debentures with attached warrants to purchase 500,000 shares of our common
stock. The purchase price paid by the investors for our 12% debentures and
attached warrants was $800,000 which represents the total amount we have
received under the purchase agreement through April 30, 2001. Under the terms
of our purchase agreement, the investors are obligated to purchase the
remaining $200,000 in principal amount of our 12% debentures with attached
warrants to purchase 100,000 shares of common stock for a purchase price of
$200,000. The investors are obligated to purchase the additional 12% debentures
on the date the registration statement relating to the warrants and common
stock offered by this prospectus is declared effective by the SEC. If the
registration statement is not declared effective, the investors have no
obligation to purchase the additional 12% debentures or the attached warrants.

   The conversion price of the 12% debentures and the exercise price of the
attached warrants have a beneficial conversion and exercise feature enabling
the holder of the securities to convert the 12% debentures or exercise the
warrants at a discount to the market value of our common stock. For purposes of
our financial statements the aggregate discount is $1,000,000 which will be
written off to interest expense. An amount of $146,700 will be written off to
interest expense as of the date of issuance of the 12% debentures and attached
warrants. The remaining discount of $853,300 attributable to the 12% debentures
and attached warrants will allocated to interest expense on an amortized basis
over the three year term of the 12% debentures and warrants. If the 12%
debentures are converted or the warrants exercised prior to the end of the
three year term, any remaining discount attributable to the converted 12%
debenture or exercised warrant will be written off to interest expense on the
date of conversion or exercise.

   Our current distributorship contractual agreement with Southern Therapy Inc.
should result in additional sales to the medical market. In addition, our
application for approval HCPCS Code for Series S-950 is in process. The actual
granting of an HCPCS Code will not increase sales. We and our distributors,
however, will

                                       30


be in a better position to market the Series S-950 to the larger medical
insurance companies in the United States. The medical market, even without an
HCPCS Code, could result in substantial sales. Our agreement with Southern
Therapy calls for purchases of $1,000,000 in the first year and substantial
increases thereafter, however, Southern Therapy is under no obligation to
purchase that amount.

   We have also entered into a distributorship agreement with W & B Service,
Inc. to serve as the commercial distributor for our commercial products in the
United States and Canada. We cannot assure you that there will be additional
sales for these markets, however, our contract requires W & B Service to
purchase a minimum $4,000,000 of our products during the first year, with
increases in years two and three.

   We believe that our recently completed financing resources along with
increased sales of our products through industry distributors, increased
foreign sales through in country distributors and increasing market acceptance
of our new Model S-30 will enable us to aggressively pursue the indoor air
purification market with adequate funding.

   As the result of our distributorship agreements with Southern Therapy and W
& B Services, we have decreased as of April 1, 2001 our corporate overhead by
approximately $75,000 per month. This represents a 40% decrease in our overhead
expenses compared to August 2000. Our sales and marketing expenses will be
absorbed by these new distributors. The lower profit margins on the sales
through the distributors are expected to be mitigated by the increase in sales.

Results of Operations for Nine Months Ended February 28, 2001 Compared to the
Nine Months Ended February 29, 2000

 Revenues

   Our consolidated total revenues for the nine months ended February 28, 2001
increased 84% or $658,133 to total $1,437,607 as compared to $779,474 for the
nine months ended February 29, 2000. This increase is due to sales of our
products exceeding the prior period by $808,133. The increase in sales was
partially offset by a decrease of $150,000 in franchise fee revenues and other
income compared to the prior comparable nine-month period. We waived during the
period franchise fees for prospective franchisees that possess direct marketing
skills and indoor air quality experience. The waiver is in lieu of extensive
training and start-up time lags which may exceed the waived franchise fee. We
sold two new franchises for fees during the period as compared to one in the
prior comparable nine month period.

 Costs and Expenses

   Our total costs and expenses increased $575,195 or 24% to $2,965,742 for the
nine month period ended February 28, 2001 compared to $2,390,547 for the prior
comparable nine month period. Our costs and expenses are as follows:

   Costs of sales increased $265,108 to $780,235 for the nine months ended
February 28, 2001, compared to $515,127 for the nine months ended February 29,
2000. The increase for the nine months ended February 28, 2001 is due to the
product costs related to increased sales of $808,135 compared to the nine
months ended February 29, 2000. Costs of sales as a percentage of product sales
decreased from 85% for the nine months ended February 29, 2000 to 55% for the
nine months ended February 28, 2001. This decrease in percentage cost of sales
is due to a decrease of $122,000 resulting from the sale of higher margin
products, a $89,891 decrease due to a lower cost of component parts related to
unit redesign costs, and a $95,000 inventory and receivable write-off for the
nine months ended February 28, 2000 compared to zero for the current comparable
period.


   As the result of our operating four franchise retail stores during the nine
months ended February 28, 2001, the salaries and wages expense decreased
compared to the comparable nine months ended February 29, 2000 during which we
operated only one franchise store. The decrease was also related to our
officers electing to take shares of our common stock in lieu of wages during
the nine month period ended February 28, 2001. In

                                       31


addition, we allocated more salaries and wages to research and development as
discussed below. Salaries and wages decreased $114,239 or 13% to $787,490 for
the nine months ended February 28, 2001 compared to the nine months ended
February 29, 2000.

   Research and development costs increased 183% or $183,927 to $283,927 for
the nine months ended February 28, 2001 compared to the nine months ended
February 29, 2000. This increase was primarily due to increased development and
testing of our new in-line Model S-30 unit, testing our portable Series 950
Unit and upgrading our commercial S-12 unit.

   Other general and administrative expenses also decreased $5,529 or 1% to
$639,544 for the nine months ended February 28, 2001 compared to the nine
months ended February 29, 2000. This decrease is attributable to the added
overhead costs of our company franchise stores and offset by decreased general
corporate, legal and accounting expenses during the current period.

   Also, advertising and promotional expenses which includes design and
development of brochures increased 51% or $265,108 to $241,358 for the nine
months ended February 28, 2001 as compared to the nine months ended February
29, 2000. This increase is due to additional advertising for our franchise
consumer products and marketing expenses for our new Model S-30 unit and our
portable Series 950 unit.

   Depreciation and amortization expenses increased $105,767 to $233,188 for
the nine months ended February 28, 2001 compared to $127,421 for the nine
months ended February 29, 2000. This increase is due to the amortization of the
prepaid royalties during the period ended February 28, 2001 which was not
required during the period ended February 29, 2000.

Interest Expense

   Interest expense increased $133,652 to $175,114 for the nine months ended
February 28, 2001 as compared to $41,462 in interest expense for the nine
months ended February 29, 2000. This increase is due to the interest expense
relating to our 12% and 6% convertible debentures which were outstanding during
the nine-month period February 28, 2001 which were not outstanding during the
entire period ended February 29, 2000.

   In total, the net loss for the nine months ended February 28, 2001 of
$1,703,249, or $0.07 per share, is 3% greater than, or $0.01 per share less
than the $1,652,535, or $0.08 per share, net loss for the nine months ended
February 29, 2000.

   In the subsequent event footnote to our interim financial statements for the
nine months ended February 28, 2001, we reflect the pro forma effect of the
sale of our 12% debentures with attached warrants. In order to account for the
imbedded beneficial conversion feature of the 12% debentures and attached
warrants, interest expense will be increased $146,700 as of the date of
issuance of the 12% debentures. The remaining discount of $853,300 will be
written off to interest expense on an amortized basis over the three year term
of the 12% debentures and warrants. If the 12% debentures are converted or a
warrant exercised prior to the end of the three year term, any remaining
discount attributable to the converted 12% debenture or exercised warrant will
be written off on the date of conversion or exercise.

Liquidity and Capital Resources

   We experienced a liquidity shortfall during the final four months of our
fiscal year ended May 31, 2001. Purchases from our material vendors were
primarily on a cash basis during this period. The liquidity short fall was
covered by the sale of our 12% debentures in March 2001 and we will receive
additional liquidity upon the sale of an additional $200,000 in principal
amount of our 12% debentures. The additional sale of our 12% debentures will
take place within five business days after the registration statement relating
to the common stock offered by this prospectus is declared effective by the
SEC. The sale of the additional $200,000 in principal amount of our 12%
debentures will enable us to invest in the component parts of our products
which are necessary to achieve the product sales anticipated in our budget.

                                       32


   During the last calendar quarter of 2000 and the first quarter of 2001, we
were in discussion with several investment companies for additional capital.
These discussions included our request that the investment group which
purchased $2,500,000 of our 6% convertible debentures extend the funding date
to purchase an additional $2,500,000 in principal amount of 6% debentures under
a conditional warrant which expired on December 22, 2000. The investment group
did not agree to extend the funding date and the conditional warrant expired
under its terms on December 22, 2000.

   To replace the conditional warrant, we completed a $5,000,000 equity
agreement with a private investment company to purchase our 12% convertible
debentures. On March 29, 2001, the investment group purchased $800,000 in
principle amount of 12% debentures and agreed to purchase an additional
$200,000 upon SEC approval of the registration statement relating to the
securities offered by this prospectus. The remaining $4,000,000 will be
negotiated at a future time. We cannot assure that the SEC will approve the
registration statement or that the terms of the remaining $4,000,000 will be
acceptable to us or the investor.

   As of February 28, 2001 and prior to the recent sale of our 12% debentures,
we had total current assets of $2,640,749 less current liabilities of
$2,354,645 which resulted in net current assets of $286,104. This is a decrease
in current asset liquidity resulting from the use of the proceeds from the sale
of our 6% debentures during the nine month period. We have relied upon our
current assets, proceeds from debt financings and sales revenues as our primary
sources of capital. We expect to have sufficient funds necessary to finance the
manufacture, distribution and sale of our products including management and
advertising support for fiscal year 2002. As of June 30, 2001, we had total
current assets of $2,983,000 and total current liabilities of $1,814,000 which
results in net current assets of $1,168,000 as of that date. We expect that our
cash balance and income from operations are adequate to sustain our continued
operations during fiscal year 2002.


   We estimate our sales will be approximately $2,500,000 for fiscal year 2001
which is a decrease from our original forecast of $30,000,000. Our lower than
forecasted sales are the result of the following:

  .  We estimate our existing commercial product line sales to be $1,300,000
     as opposed to forecasted sales of $2,000,000. The lower sales are due to
     lower sales for our tobacco abatement products;

  .  We estimate our Model S-30 sales to be $150,000 as opposed to forecasted
     sales of $4,000,000. The lower sales are due to a delay in the
     introduction of the Model S-30;

  .  We estimate our sales to our residential franchisees to be $425,000 as
     opposed to forecasted sales of $6,000,000. The lower than forecasted
     sales are due to lower than expected sales of franchises to existing
     direct sale entrepreneurs. We have temporarily suspended our sale of
     residential franchises pending new market awareness and interest;

  .  We estimate our international sales to be $250,000 as opposed to
     forecasted sales of $2,000,000. The lower than forecasted sales are due
     to lower than forecasted sales through our Pacific Rim distributors;

  .  We will not consummate any mergers or acquisitions during fiscal year
     2001 because our low stock price made the cost prohibitive to us.
     Therefore we did not achieve our forecasted combined product sales of
     $6,000,000. We do not anticipate any mergers for fiscal year 2002. We
     have, however, entered into strategic alliances with various companies
     to market our products or to manufacture our products and component
     parts; and

  .  We did not receive Medicare approval for our Medicare Series 950.
     Therefore sales to the medical industry are estimated to be $500,000 as
     opposed to forecasted sales of $10,000,000. In February 2001, we applied
     to the Health Care Financing Administration for a health care product
     code system number. The code number is commonly referred to in the
     medical insurance industry as an qHCPCS Code. The HCPCS Code would
     enable us to market our Medicare Series 950 directly to the private
     medical insurance industry. If a private insurance carrier accepts our
     Medicare Series 950 with the HCPCS Code, patients who purchase a
     Medicare Series 950 would be entitled to receive insurance reimbursement
     for the cost of the Medicare Series 950 to the governmental, private and
     supplemental insurance and medical industries. We cannot assure that we
     will receive a HCPCS Code. We will continue to pursue Medicare approval
     of Medicare Series 950.


                                       33


   We expect sales of our products to increase in fiscal year 2001. For the
year 2000, our product sales were approximately $543,615 compared to sales of
our products for the year ended May 31, 1999 of $388,412. Our product sales for
the nine month period ended February 28, 2001 were $1,412,607. This trend
indicates the sales of our existing product line is increasing. Although we
believe our sales represent a positive trend, we cannot assure you that this
positive trend will continue. We have forecasted that fiscal year 2002 sales
will be $17,000,000. This estimate is based on the following:

  . Estimated sales of $4,000,000 from our existing commercial product line.
    We expect these sales due to the continued acceptance of our commercial
    products in office buildings and sales from our automobile units;

  . Estimated sales of $8,000,000 of our new in-line Model S-30. The Model S-
    30 is now in the full production and marketing stage;

  . Estimated product sales to our residential franchisees of $1,000,000;

  . Estimated international sales of $2,000,000, especially to our Pacific
    Rim distributors and our Central and South American distributors;

  . Estimated sales of our Medicare Series 950 of $2,000,000 pending approval
    of this unit by either Medicare or through the granting of an HCPCS Code.

   Our sales projections are based upon our good faith estimates of the
acceptance and marketability of our products and we cannot assure you that we
will achieve these results during fiscal year 2002.

   Due to our $18,500,000 of net operating loss carry forwards resulting from
our losses in prior years, we are not projecting any federal tax liability for
fiscal year 2001.

   If our current cash and revenues from franchise and product sales are
insufficient to fund our continued growth, we will rely on our external funding
sources to provide continued liquidity.

   During fiscal year 2001, we intend to focus on the production, marketing and
sale of our existing line of air purification products, our new in line Model
S-30 and increased promotion of our distributorship program. For this reason,
we do not project significant expenditures during fiscal year 2001 on our
products which are in the research and development stage. We believe our
existing product line is sufficient to sustain our future sales growth. If we
do not receive Medicare approval of, our an HCPCS Code for our Medicare 950, we
intend to actively pursue the marketing of this unit through private health
insurance companies and health care providers outside of the Medicare system.
If we are not successful in these marketing efforts, our failure to obtain
Medicare approval of, or an HCPCS Code for, our Medicare 950 could
significantly affect our future liquidity.

   We do not have a large capital expenditures program planned for fiscal year
2002. Therefore, we believe our projected increase in product sales combined
with funds generated from external financing sources will be sufficient to
offset any cash losses from operations. If our current and new product sales,
distributor/franchise sales, new areas of distribution sales and funds from our
external sources are insufficient to maintain operations, the resulting lack of
capital could force us to substantially curtail or cease our operations. Any
curtailment of operations would have a material adverse effect on our ability
to manufacture and distribute our products and our profitability.

                                       34


          DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Directors and Executive Officers

   The following table includes the names, ages and positions of our directors
and executive officers as of April 30, 2001. A summary of the background and
experience of each of these individuals immediately follows the table.

   Our directors are:



Name                             Age Position
----                             --- --------
                               
C J Comu........................  40 Chairman
James R. Halter.................  51 Director
Robert Galvan...................  53 Director

   Our executive officer and other officers are:


Name                             Age Position
----                             --- --------
                               
C J Comu........................  40 Chief Executive Officer
James R. Halter.................  51 Chief Financial Officer and General Counsel


   C J Comu. Mr. Comu has served as our CEO, chairman and a director since May
1998. Mr. Comu was a co-founder, CEO and chairman of Airtech International
Corporation, our wholly-owned subsidiary, since its formation in 1995. In
January 1994, Mr. Comu co-founded Transworld Leasing Corporation which provided
financing and marketing expertise to the medical, computer and corporate sector
prior to the formation of Airtech International Corporation.

   James R. Halter. Mr. Halter has served as our chief financial officer and
general counsel since October, 1999 and a director since November 2000. Mr.
Halter earned a Masters in Business Administration from the State University of
New York at Buffalo in 1977, and a Juris Doctorate from Case Western Reserve
University in 1999. Mr. Halter has been a Certified Public Accountant since
1975. From January 1990 to October 1999, Mr. Halter owned his own tax and
business consulting practice. Concurrently, from September 1996 to January
1999, Mr. Halter attended and received his juris doctor degree from Case
Western Reserve University School of Law in Cleveland, Ohio.

   Robert Galvan. Mr. Galvan has served as a director since November 1999.
Since November 1999, Mr. Galvan has also served as the Associate Dean of the
University of North Texas Health Science College, Fort Worth, Texas. From
November 1998 to November 1999, Mr. Galvan served as the Director of Health for
the City of Fort Worth, Texas. Mr. Galvan also served as the Director of Health
and Community Development for the City of Plano, Texas from 1992 to October
1998.

   Our directors receive no cash compensation for their services as directors.
Our policy is to reimburse non-employee directors for expenses actually
incurred in connection with attending meetings of our board of directors.
Directors and executive officers are also eligible for stock and option grants
under our stock option plans as determined by our board of directors.

                                       35


                             EXECUTIVE COMPENSATION

   The following table sets forth the cash and other compensation we paid
during the last three fiscal years to our chief executive officer, president
and other individuals who served as executive officers and whose total
compensation was $100,000 or more.

                           SUMMARY COMPENSATION TABLE



                                                                    Long Term
                                      Annual Compensation      Compensation Awards
                                   -------------------------- ------------------------
                                                 Other Annual Restricted    Securities
Name and Principal        Fiscal                 Compensation   Stock       Underlying
Position                   Year    Salary  Bonus     (1)      Awards($)     Options(#)
------------------        ------   ------- ----- ------------ ----------    ----------
                                                          
C J Comu, CEO,
 Chairman...............   2000    $41,195  $ 0    $     0     $ 83,825(2)   250,000
                           1999          0    0     46,875      424,334(3)   150,000
                           1998(4)       0    0          0            0            0
John Potter, President..   2000     40,986    0          0       13,425(5)   250,000
                           1999          0    0     46,875      424,334(6)   150,000
                           1998(4)       0    0          0            0            0
Darrell R. Jolley, CFO..   1999          0    0     58,333       12,500(7)    45,000
Doug S. Keane, President
 of Airsopure, Inc......   2000     24,173    0          0      116,452(8)         0
                           1999          0    0     77,500       12,500(9)   100,000
                           1998          0    0     62,917            0            0
R. John Harris, COO.....   2000     27,917    0          0       21,875(10)        0
James R. Halter, CFO and
 General Counsel........   2000     18,227    0          0       46,527(11)        0

--------
 (1) See terms of employment agreement for Mr. Comu under the section titled
     "Employment Agreements."
 (2) Mr. Comu received 249,986 shares of restricted common stock as additional
     compensation. The fair market value of the shares was $83,825 in the
     aggregate on the five dates of grant. All of these shares were fully
     vested on the dates of grant and are not entitled to dividends. As of May
     31, 2000, Mr. Comu owned 1,368,864 shares of our restricted common stock
     with a market value of $1,753,789.
 (3) Mr. Comu received 791,667 shares of restricted common stock for deferred
     wages of $250,000 per year for the period from June 1, 1997 through
     December 31, 1998. The fair market value of the shares was $395,834 on the
     date of grant, January 31, 1999. He also received 150,000 shares of common
     stock as additional compensation. The fair market value of the shares was
     $28,500 on the date of grant, December 31, 1998. All of these shares were
     fully vested on the date of grant and are not entitled to dividends.
 (4) Disclosure is made of named executive officers of our subsidiary, Airtech
     International Corporation, for fiscal year 1998 for positions
     substantially similar to positions held in employment by us for fiscal
     years 1999 and 2000.
 (5) Mr. Potter received 250,464 shares of restricted common stock as
     additional compensation. The fair market value of the shares was $79,028
     in the aggregate on the five dates of grant. All of these shares were
     fully vested on the dates of grant and are not entitled to dividends. As
     of May 31, 2000, Mr. Potter owned 1,213,881 shares of our restricted
     common stock with a market value of $1,555,224. Effective November 22,
     2000, Mr. Potter resigned as a director and officer and currently serves
     as our independent consultant.
 (6) Mr. Potter received 791,667 shares of restricted common stock for deferred
     wages of $250,000 for the period from June 1, 1997 through December 31,
     1998. The fair market value of the shares was $395,834 on the date of
     grant, January 31, 1999. He also received 150,000 shares of common stock
     as additional compensation. The fair market value of the shares was
     $28,500 on the date of grant, December 31, 1998. All of these shares were
     fully vested on the date of grant and are not entitled to dividends.
     Effective November 22, 2000, Mr. Potter resigned as a director and officer
     and currently serves as an independent consultant.

                                       36


 (7) Mr. Jolley received 25,000 shares of common stock as additional
     compensation. The fair market value of the shares was $12,500 on the date
     of grant, June 16, 1999. Effective September 1999, Mr. Jolley was no
     longer employed by us.
 (8) Mr. Keane received 100,000 shares of restricted common stock as additional
     compensation. The fair market value of the shares was $75,000 on the date
     of grant, May 1, 2000. Mr. Keane also received 154,259 shares of
     restricted common stock as additional compensation. The fair market value
     of the shares was $41,452 in the aggregate on the five dates of grant.
 (9) Mr. Keane received 25,000 shares of common stock as additional
     compensation. The fair market value of the shares was $12,500 at the date
     of grant, June 16, 1999. Effective November 1999, Mr. Keane was no longer
     employed by us.
(10) Mr. Harris received 100,000 shares of restricted common stock as
     additional compensation. The fair market value of the shares was $21,875
     on the date of grant, December 15, 1999. All of these shares were fully
     vested on the date of grant and are not entitled to dividends. As of May
     31, 2000, Mr. Harris owned 100,000 shares of our restricted common stock
     with a fair market value of $128,120. Effective May 19, 2001, Mr. Harris
     resigned as a director and officer.
(11) Mr. Halter received 100,000 shares of restricted common stock as
     additional compensation. The fair market value of the shares was $23,440
     on the date of grant, December 8, 1999. Mr. Halter also received 35,183
     shares of restricted common stock as additional compensation. The fair
     market value of the shares was $23,087 on the date of grant, January 6,
     2000. All of the shares issued to Mr. Halter were fully vested and are not
     entitled to dividends. As of May 31, 2000, Mr. Halter owned 135,193 shares
     of our restricted common stock with a fair market value of $173,209.

                             OPTION GRANTS IN 2000

   The following table lists those persons in the previous table who were
granted options to purchase shares of our common stock during fiscal year 2000.



                                              % of Total Options/
                         Number of Securities  SAR's Granted to
                         Underlying Options/  Employees in Fiscal Exercise Price Marked Price on
Name                        SAR's Granted            Year           ($/Share)     Date of Grant   Expiration Date
----                     -------------------- ------------------- -------------- --------------- -----------------
                                                                                  
C J Comu................       250,000                 50%            $0.25           $0.44      December 17, 2004
John Potter.............       250,000                 50%            $0.25           $0.44      December 17, 2004


                          2000 YEAR-END OPTION VALUES

   Set forth in the following table is information, with respect to each named
executive officer, as to

  .  the number of shares acquired during fiscal year 2000 upon each exercise
     of options granted to each individual,

  .  the aggregate value realized upon each exercise which is the difference
     between the market value of the shares at exercise and their exercise
     price,

  .  the total number of unexercised options held on May 31, 2000, separately
     identified between those exercisable and those not exercisable and

  .  the aggregate value of in-the-money, unexercised options held on May 31,
     2000, separately identified between those exercisable and those not
     exercisable.



                                                      Number of
                                                Securities Underlying       Value of unexercised
                           Shares                Unexercised Options        In-the-Money Options
                         Acquired on  Value      at Fiscal Year-End          at Fiscal Year-End
Name                      Exercise   Received Exercisable/Unexercisable Exercisable/Unexercisable(1)
----                     ----------- -------- ------------------------- ----------------------------
                                                            
C J Comu................       0         0            400,000/0                 $374,980/$0
John Potter.............       0         0            400,000/0                 $374,980/$0

--------
(1) The value is calculated based on the aggregate amount of the excess of
    $1.2182 which is the closing sale price per share for the common stock on
    May 31, 2000 over the relevant exercise price(s).

                                       37


Employment Agreements

   We have a ten (10) year employment contract with C J Comu, our Chief
Executive Officer, for annual compensation of $250,000, terminating May 31,
2008. Under the terms of this contract and by agreements between our board of
directors and Mr. Comu, the contract is funded on a cash basis at such time as
we are in a financial position to pay the salary under the contract. Unpaid
compensation under the contract, dating from June 1, 1997 through December 31,
1998, was paid to Mr. Comu effective January 31, 1999 through the issuance to
Mr. Comu of 791,667 shares of our restricted common stock. Effective January
15, 1999, Mr. Comu began receiving cash compensation under the agreement at an
annual rate of $125,000 when cash was available. The remainder of the amounts
due Mr. Comu under the contract will be converted to our restricted common
stock during fiscal year 2001. Effective June 1, 1999, Mr. Comu further agreed
with our board of directors to reduce compensation to $125,000.

Company Stock Plans

   Employee Stock Plans. Our board of directors periodically establishes
employee stock grant plans under which unrestricted shares of our common stock
are issued and granted to certain employees, management and consultants for
performance rewards or services rendered. The terms and conditions of stock
grants under the stock plans are within the sole discretion of our board of
directors. We do not have formal written plans and all issuances of shares of
common stock under our stock plans are made pursuant to registration statements
on Form S-8 filed by us from time to time with the SEC.

   On June 9, 1998, we filed a Form S-8 registration statement registering
160,000 shares of our common stock. Through July 30, 1998, we issued 56,002
shares of common stock to consultants and 103,998 shares to employees. The
shares of common stock issued were accounted for as consulting services and
employee wages. As of March 23, 2000, all of the shares registered under the
Form S-8 registration statement were issued under our stock plans.

   On November 12, 1998, we filed a Form S-8 registration statement registering
800,000 shares of our common stock. Through July 30, 1999, we issued 261,009
shares of common stock to consultants and 538,991 shares to employees. The
shares of common stock issued were accounted for as consulting services and
employee wages. As of March 23, 2000, all of the shares registered under the
Form S-8 registration statement were issued under our stock plans.

   On July 30, 1999, we filed a Form S-8 registration statement registering
900,000 shares of our common stock, all of which were issued as of March 23,
2000 under our stock plans. The shares of common stock were accounted for as
consulting services and employee wages.

   On November 19, 2000, we filed a Form S-8 registration statement registering
900,000 shares of our common stock. As of April 30, 2001, all of the shares
registered under the Form S-8 registration statement were issued under our
stock plans.

   2000 Key Employee Option Plan. Effective May 31, 1999, our board of
directors adopted the Airtech International Group 2000 Key Employee Option Plan
in order to motivate our qualified employees to assist us in retaining
employees and to align the interest of key employees with those of our
shareholders. The 2000 option plan is authorized for key employees including
the chief executive officer, president, chief financial officer, vice president
franchising, vice president production, and vice president finance. The 2000
option plan provides for the grant of "incentive stock options" and "non-
qualified stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986. The approval authorized the issuance of

  .  a maximum of 1,000,000 shares of our common stock subject to the
     options,

  .  with a range of exercise prices from $0.25 to $2.50 per share,

  .  vesting over a two to three year period, and

  .  expiring ten (10) years from the date of grant.

                                       38


   Our board of directors expects to grant option agreements during fiscal year
2000 to the key employees specifying the respective number of options, vesting
periods, exercise prices and incentives, if any. On November 11, 1999, we filed
a Form S-8 registration statement for 900,000 shares of our common stock
issuable with respect to options granted under the 2000 option plan. As of
April 30, 2001, we have granted options to purchase all shares under the 2000
option plan.

Indemnification

   The Wyoming Business Corporation Act provides that we may indemnify our
directors, officers, employees and other agents, and persons who serve at our
request as directors, officers, employees or other agents of another
corporation. Subject to Wyoming law, our officers and directors are not
personally liable for monetary damages resulting from breaches of their
fiduciary duty unless:

  .  the officer or director has breached his fiduciary duty of loyalty to us
     or our shareholders;

  .  the breach or failure to perform constitutes an act or omission not in
     good faith or which involves intentional misconduct or a knowing
     violation of law; or

  .  for any transaction from which the director or officer derived an
     improper personal benefit.

   Our By-Laws also provide indemnification to our directors, officers,
employees and agents, including claims brought under state or Federal
Securities laws, to the full extent allowable under Wyoming law. We have also
entered into indemnification agreements with our directors and executive
officer providing, among other things, that we will provide defense cost
against any such claims, subject to reimbursement in certain events. Any
indemnification of our directors, officers or others pursuant to the foregoing
provisions for liabilities arising under the Securities Act are, in the opinion
of the SEC, against public policy as expressed in the Securities Act and are
unenforceable.

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The following table sets forth, as of May 31, 2001, certain information
concerning the beneficial ownership of each class of our voting stock held by:

  . each beneficial owner of 5% or more of our voting stock, based on reports
    filed with the SEC and certain other information;

  . each of our directors;

  . each of our executive officers; and

  . all executive officers and directors as a group.



                               Amount and Nature of
                                    Beneficial          Percent of Common Stock
   Name and Address(1)     Ownership of Common Stock(2)      Ownership(3)
   -------------------     ---------------------------- -----------------------
                                                  
C J Comu.................           2,543,864(4)                  7.06%
John Potter..............           2,190,630(5)                  6.14%
Robert Galvan............             350,000                        *
James R. Halter..........             961,475(6)                  2.79%
Officers and Directors as
 a Group (3 persons).....           3,855,339(7)                 10.32%

--------
*   Less than 1%
(1) The address of each director, officer and principal stockholder is c/o
    Airtech International Group, Inc., 12561 Perimeter, Dallas, TX 75228.
(2) Unless otherwise indicated, we believe that all persons named in the table
    have sole voting and investment power with respect to all shares of common
    stock beneficially owned by them. A person is deemed to be the beneficial
    owner of securities which may be acquired by such person within 60 days
    from the date on

                                       39


   which beneficial ownership is to be determined upon the exercise of options,
   warrants or convertible securities.
(3) Each beneficial owner's percentage ownership is determined by assuming that
    stock options and warrants that are held by that person (but not those held
    by any other person) and which are exercisable within 60 days from the date
    on which beneficial ownership is to be determined have been exercised.
(4) Represents 1,695,146 shares of common stock owned directly. Also represents
    150,000 shares owned pursuant to warrants to purchase shares of common
    stock at $0.50 per share, 250,000 shares owned pursuant to options to
    purchase shares of common stock at $0.25 per share, 250,000 shares owned
    pursuant to options to purchase shares of common stock at $0.15 per share,
    and 250,000 shares owned pursuant to options to purchase shares of common
    stock at $0.10 per share, all of which are exercisable within 60 days. Does
    not include 211,340 shares of common stock owned by Mr. Comu's relatives,
    Sevim Comu and Cem Comu, of which Mr. Comu disclaims beneficial ownership.
(5) Represents 1,540,630 shares of common stock owned directly. Also represents
    150,000 shares owned pursuant to warrants to purchase shares of common
    stock at $0.50 per share, 250,000 shares owned pursuant to options to
    purchase shares of common stock at $0.25 per share and 250,000 shares owned
    pursuant to options to purchase shares of common stock at $0.10 per share
    all of which are exercisable within 60 days.
(6) Represents 461,475 shares of common stock owned directly. Also represents
    250,000 shares owned pursuant to options to purchase shares of common stock
    at $0.10 per share, and 250,000 shares owned pursuant to options to
    purchase shares of common stock at $0.15 per share, all of which are
    exercisable within 60 days.
(7) See notes 4, 5 and 6.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   During fiscal 1999, our president advanced cash to us totaling $100,000. As
of May 31, 2000, we owed $210,338 to our chief executive officer and $216,488
to our former president, Mr. John Potter, on advances from each officer,
including accrued interest. We have agreed to repay these advances as cash is
available or by issuing our common stock. We have also agreed to pay interest
at 15% per annum on the outstanding balances. During fiscal year 2000, we paid
our chief executive officer and our former president $15,000 each representing
accrued interest on the notes.

   We believe that the terms of the above described transactions are fair and
similar to or better than the terms we could have obtained from arms length
negotiations with third parties.

                                       40


     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

   Our shares of common stock are traded in the "over-the-counter" or "Bulletin
Board" market under the symbol "AIRG." High and low sales prices for the
quarters of fiscal years 2001, 2000 and 1999 were:



                                                                     High   Low
                                                                     ----- -----
                                                                     
   Fiscal Year 2001
     4th Quarter.................................................... $0.27 $0.14
     3rd Quarter....................................................  0.53  0.17
     2nd Quarter....................................................  1.09  0.38
     1st Quarter....................................................  1.53  0.75
   Fiscal Year 2000
     4th Quarter.................................................... $2.59 $1.00
     3rd Quarter....................................................  3.53  0.60
     2nd Quarter....................................................  0.90  0.25
     1st Quarter....................................................  0.75 0.125
   Fiscal Year 1999
     4th Quarter.................................................... $0.56 $0.12
     3rd Quarter....................................................  1.03  0.14
     2nd Quarter....................................................  1.50  0.47
     1st Quarter....................................................  3.28  0.63


   The above market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

Number of Shareholders and Total Outstanding Shares

   As of April 16, 2001, there were approximately 4,127 holders of record of
our common stock and approximately 30,981,573 shares issued and outstanding.

Dividends

   We have paid no dividends on our shares of common stock and we have no
current intentions to pay dividends on our shares of common stock in the
future. Holders of our Series "M" Convertible Preferred Stock have a preferred
dividend right to receive quarterly dividend distributions equal to 3.96% of
the gross revenues generated from sales of our Series 950 unit until January 1,
2003. Except for required dividend payments on the Series "M" convertible
preferred stock, we intend to retain any future earnings for reinvestment in
our business. As of February 28, 2001, we have paid no dividends on the Series
"M" convertible preferred stock.

   Any future determination to pay cash dividends on our shares of common stock
will be at the discretion of our board of directors and will be dependent upon
our financial condition, results of operations, capital requirements and other
relevant factors.

                           DESCRIPTION OF SECURITIES

   We have summarized below the material provisions of our Articles of
Incorporation, Bylaws and other instruments defining the rights of our
securities holders. Our summary may not contain all of the information that is
important to you. See "Where To Find Additional Information" for information
about how to obtain a copy of the documents we refer to in this section.

Authorized Capital Stock

   Under our Articles of Incorporation, we are authorized to issue up to 120
million shares of stock consisting of the following:

  . 100 million shares of common stock

                                       41


  . 20 million shares of preferred stock

   At a special meeting of our stockholders held on May 18, 2001, our
stockholders approved an amendment to our Articles of Incorporation to increase
our number of authorized shares from 50,000,000 shares to 100,000,000 shares.

Common Stock

   Shares of our common stock are not redeemable, do not have any conversion
rights and are not subject to call. Holders of shares of our common stock have
no preemptive, redemption, conversion or other subscription rights and are
entitled to one vote per share on any matter submitted to a vote of our
shareholders. Cumulative voting is prohibited in the election of directors.
This means that the holders of a majority of the outstanding shares of common
stock, voting for the election of directors, can elect all of our directors. In
such event, the holders of the remaining shares will not be able to elect any
of our directors. The holders of shares of common stock are entitled to receive
dividends, if any, as and when declared from time to time by our board of
directors, out of legally available funds, but subject to the prior payment of
dividends to the holders of any outstanding shares of preferred stock. Subject
to the rights of the holders of preferred stock, if any, upon liquidation
dissolution or winding up of our affairs, the holders of shares of our common
stock will be entitled to participate equally and ratably, in proportion to the
number of shares held, in our net assets available for distribution to holders
of all shares of our common stock. The shares of our common stock currently
outstanding are validly issued, fully paid and nonassessable.

Preferred Stock

   Our Articles of Incorporation authorize our board of directors to issue up
to 20,000,000 shares of preferred stock, $0.01 par value per share. We may
issue the preferred stock in one or more classes or series. Each class or
series will have the voting rights, designations, preferences and relative
rights as fixed by resolution of our board of directors, without the consent of
our shareholders. Our preferred stock may rank senior to our common stock as to
dividend rights, liquidation preferences, or both. Our preferred stock may also
have extraordinary or limited voting rights.

Series "M" Convertible Preferred Stock and Attached Warrants

   We have 990,625 shares of Series "M" convertible preferred stock
outstanding. Holders of our Series "M" preferred have the right to convert
their shares into shares of our common stock on a one-for-one basis at any
time. The Series "M" preferred automatically converts to shares of our common
stock on December 31, 2002. The holders of Series "M" preferred are entitled to
receive quarterly dividend distributions equal to 3.96% of the gross revenues
generated from the sales of our Series 950 unit until January 1, 2003. The
dividends are paid on or before the sixtieth day of each calendar quarter based
upon the gross revenues from our Series 950 air purification units from the
previous quarter. The holders of Series "M" preferred were also issued related
warrants to purchase 993,750 shares of our Common Stock at an exercise price of
$2.00 per share. The warrants expired on May 31, 2000. As of January 1, 2000,
we terminated our offering of Series "M" preferred and do not intend to offer
any additional shares in the future. As of March 31, 2001, no dividends have
been paid to the holders of Series "M" preferred.

Airsopure 999 Limited Partnership Interests

   We have $75,000 of limited partnership interests outstanding in Airsopure
999, L.P. ("Airsopure LP"). Airsopure, Inc., our wholly-owned subsidiary
("Airsopure"), is the sole general partner of Airsopure LP. During the fourth
quarter of our fiscal year 2001, we exchanged 2,800,000 shares of our common
stock for $330,000 of limited partnership interests. Under the limited
partnership agreement, the limited partners are entitled to receive 1.62% of
the gross revenues generated from sales of our Model S-999 automobile air
purification system with the remaining gross revenues paid to Airsopure. The
limited partners are entitled to receive distributions until December 31, 2003,
at which time 100% of gross revenues are paid to Airsopure. In addition,
Airsopure has guaranteed the limited partners a 150% return on their investment
by December 31, 2003. The guarantee, if payable, may be in the form of shares
of our common stock.


                                       42


12% Convertible Debentures Due 2005 and Attached Warrants

   In January 2000, our board of directors authorized the issuance of up to
$5,000,000 of our 12% Convertible Debentures Due 2004 pursuant to a private
placement memorandum. Effective as of June 2000 , we terminated the offering of
these 12% debentures. At any time after one year from the date of issuance,
holders of our 12% debentures are entitled to convert our 12% debentures on a
dollar for dollar basis into shares of our Common Stock. Semi-annual interest
payments are due and payable on our 12% debentures commencing September 1,
2000. Each 12% debenture in the principal amount of $25,000 includes a warrant
to purchase shares of our common stock at an exercise price of $2.00 per share.
The warrants expire two years from the date of issuance.

   At our option, our 12% debentures may be converted on a dollar for dollar
basis or paid in cash at face value on the maturity date. Prior to maturity, we
may with the consent of the holder of our 12% debenture, redeem our 12%
debentures in cash at the following redemption prices together with accrued
interest to the date of redemption:



       If Redeemed on or after September 1
          of the following years:                          % of Principal Amount
       -----------------------------------                 ---------------------
                                                        
       2000...............................................          110%
       2001...............................................          108%
       2002...............................................          106%
       2003...............................................          104%
       2004...............................................          102%


   As of February 28, 2001, we had $300,000 in principal amount of our 12%
debentures outstanding.

6% Convertible Debentures Due 2002 and Attached Warrants

   On February 22, 2000, we sold $2,500,000 in principal amount of our 6%
Convertible Debentures Due 2002 to PK Investors LLC. Our 6% debentures have a
maturity date of February 22, 2002 at which time the principal amount and all
accrued interest is due and payable. No interest payments are due prior to
maturity of the 6% debentures. We may, at our option, pay the accrued interest
at maturity by issuing shares of our common stock to the debenture holder at a
price equal to the conversion price of our common stock as described below. Our
6% debentures are convertible at any time at the option of the holder into
shares of our common stock. As of April 30, 2001, we had $2,000,000 in
principal amount of 6% debentures issued and outstanding. The conversion price
of our common stock used in calculating the number of shares issuable upon
conversion, or in payment of interest, is the lesser of:

  . 110% of the average closing bid price of our common stock for the five
    trading days prior to the date of initial payment; and

  . the product obtained by multiplying 0.80 by the average of the three
    lowest closing bid prices of our common stock during the thirty trading
    days prior to the date we receive a conversion notice from a debenture
    holder.

   In the event we have a "change of control", the holders of the 6% debentures
may require us to redeem the 6% debentures at a redemption price equal to 125%
of the aggregate outstanding principal and accrued interest on the 6%
debentures. A "change of control" includes:

  . acquisition by an entity or group of more than 50% of our voting stock;

  . merger or consolidation;

  . a change in a majority of our existing board of directors; or

  . a sale of substantially all of our assets.


                                       43


   The holders of our 6% debentures also have attached warrants to purchase
250,000 shares of our common stock at an exercise price of $2.6124 per share.
The warrants expire on February 22, 2005. The warrants are subject to exercise
price adjustments upon the occurrence of certain events including stock
dividends, stock splits, mergers, reclassifications of stock or our
recapitalization. The exercise price of the warrants is also subject to
reduction if we issue any rights, options or warrants to purchase shares of our
common stock at a price less than the market price of our shares as quoted on
the OTC Bulletin Board. Also, if at any time, we declare a distribution or
dividend to the holders of our common stock in the form of cash, indebtedness,
warrants, rights or other securities, the holders of the warrants are entitled
to receive the distribution or dividend as if the holder had exercised the
warrant.

   Our 6% debenture holders consented to the sale of our 12% debentures. The 6%
debenture holders also agreed that neither they nor their affiliates would for
a period beginning March 29, 2001 and ending 8 months from the date the
registration statement relating to the securities offered by this prospectus is
declared effective by the SEC

  . offer to sell, contract to sell, pledge, grant any rights or otherwise
    dispose of any shares of our common stock held by the 6% debenture
    holders without the prior consent of the 12% debenture holders; or

  . engage in any hedging transactions which are designed or reasonably
    expected to lead to or result in a disposition of the shares of our
    common stock held by the 6% debenture holders.

   The 6% debenture holders may however

  . convert the 6% debentures into a maximum of 200,000 shares of our common
    stock per month on a non-cumulative basis; and

  . sell up to 100,000 shares per month of common stock converted after March
    29, 2001 or 200,000 shares if the selling price is at least $0.75 per
    share, with any unsold converted shares held in escrow by our legal
    counsel

12% Convertible Debentures Due 2003 and Attached Warrants

   On March 29, 2001, we sold $800,000 in principal amount of our 12%
Convertible Debentures Due 2003. Our 12% debentures have a maturity date of
March 30, 2003 at which time the principal amount and all accrued interest is
due and payable. Interest payments are due and payable quarterly commencing
June 1, 2001 or at the option of the debenture holder upon conversion of the
12% debentures into shares of our common stock. If the debenture holder elects,
we will pay any accrued interest on conversion by issuing shares of our common
stock to the debenture holder at a price equal to the conversion price of our
common stock as described below. The 12% debentures are secured by a security
agreement under which we pledged substantially all of our assets, including our
goods, fixtures, equipment, inventory, contract rights, and receivables. As of
April 30, 2001, we had $800,000 in principal amount of 12% debentures issued
and outstanding.

   The 12% debentures are convertible at any time at the option of the holder
into shares of our common stock. The conversion price of our common stock used
in calculating the number of shares issuable upon conversion, or in payment of
interest on the 12% debentures, is the lesser of

  . 50% of the average of the lowest three trading prices of our common stock
    for the twenty trading days ending one trading day prior to the date we
    receive a conversion notice from a debenture holder; and

  . a fixed conversion price of $0.25.

   Also, under the terms of the 12% debentures, if we at any time

  .  distribute any shares of our common stock in a consolidation, exchange
     of shares, recapitalization or reorganization, the 12% debenture holders
     are entitled to participate in the distribution as if the debenture
     holders had converted the 12% debentures;

                                       44


  .  distribute any of our assets to our stockholders as a dividend, stock
     repurchase, return of capital, or otherwise, the 12% debenture holders
     are entitled to participate in the distribution as if the debenture
     holder had converted the 12% debentures; or

  .  issue or sell any shares of our common stock for no consideration or at
     a price less than $0.25 per share, then the fixed conversion price of
     $0.25 described above shall be reduced to the price per share we receive
     on the issuance or sale.

   The holders of our 12% debentures also have attached warrants to purchase
500,000 shares of our common stock at an exercise price equal to the lesser of

  .  90% of the average of the lowest three trading prices of our common
     stock for the twenty trading days ending one trading day prior to the
     date of exercise of the warrant; and;

  .  $0.102 per share.

   The warrants expire on March 29, 2004. The warrants are subject to exercise
price adjustments upon the occurrence of certain events including stock
dividends, stock splits, mergers, reclassifications of stock or our
recapitalization. The exercise price of the warrants is also subject to
reduction if we issue any rights, options or warrants to purchase shares of our
common stock at a price less than the market price of our shares as quoted on
the OTC Bulletin Board. Also, if at any time, we declare a distribution or
dividend to the holders of our common stock in the form of cash, indebtedness,
warrants, rights or other securities, the holders of the warrants are entitled
to receive the distribution or dividend as if the holder had exercised the
warrant.

                                 LEGAL MATTERS

   The validity of the issuance of the warrants and common stock offered
pursuant to this prospectus is being passed upon for us by John G. Rebensdorf,
P.C.

                                    EXPERTS

   Our consolidated financial statements for the year ended May 31, 2000
included in this prospectus and in the registration statement were audited by
Turner, Stone & Company LLP, independent certified public accountants, as set
forth in their report appearing elsewhere in this prospectus and in the
registration statement. Our consolidated financial statements for the nine
months ended February 28, 2001 were also reviewed by Turner, Stone & Company as
set forth in their report appearing elsewhere in this prospectus and in the
registration statement. Our consolidated financial statements are included in
this prospectus in reliance upon such reports given upon the authority of
Turner, Stone & Company as experts in auditing and accounting.

                      WHERE TO FIND ADDITIONAL INFORMATION

   We have filed with the SEC a registration statement on Form SB-2 in
connection with the securities offered under this prospectus. As permitted by
SEC rules, this prospectus does not contain all of the information contained in
the registration statement or in the exhibits to the registration statement.
For further information you may read and copy documents at the public reference
room of the SEC at 450 5th Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC charges a fee for copies.
Copies of this material should also be available through the Internet at the
SEC EDGAR Archive, the address of which is http://www.sec.gov.

                                       45


                    INDEX TO COMBINED FINANCIAL INFORMATION

                       AIRTECH INTERNATIONAL GROUP, INC.



Item                                                                       Page
----                                                                       ----
                                                                        
Report of Independent Certified Public Accountants.......................   F-2
Consolidated Balance Sheets as of May 31, 2000 and 1999..................   F-3
Consolidated Statements of Operations for the Years Ended May 31, 2000
 and 1999................................................................   F-5
Consolidated Statements of Stockholders' Equity for the Years Ended May
 31, 2000 and 1999.......................................................   F-6
Consolidated Statements of Cash Flows for the Years Ended May 31, 2000
 and 1999................................................................   F-7
Notes to Financial Statements for May 31, 2000 and 1999..................   F-8
Report of Independent Certified Public Accountants.......................  F-18
Consolidated Balance Sheets as of February 28, 2001 and 2000.............  F-19
Consolidated Statements of Operations for the Nine Months Ended February
 28, 2001 and 2000.......................................................  F-21
Consolidated Statements of Operations for the Three Months Ended February
 28, 2001 and 2000.......................................................  F-22
Consolidated Statements of Cash Flows for the Nine Months Ended February
 28, 2001 and 2000.......................................................  F-23
Notes to Financial Statements for February 28, 2001 and 2000.............  F-24


                                      F-1


                          INDEPENDENT AUDITOR'S REPORT

The Board of Directors and Stockholders
Airtech International Group, Inc.
Dallas, Texas

   We have audited the accompanying consolidated balance sheets of Airtech
International Group, Inc. and subsidiaries as of May 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Airtech International Group, Inc. and subsidiaries as of May 31, 2000 and
1999, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.

                                          Turner, Stone & Company, LLP

Certified Public Accountants
Dallas, Texas
August 31, 2000

                                      F-2


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                             MAY 31, 2000 AND 1999



                                                             2000       1999
                                                          ---------- ----------
                                                               
                         ASSETS
Current Assets
  Cash................................................... $1,487,646 $   61,808
  Trade and licensing fees receivables, net of allowance
   for doubtful accounts of $20,000 and $0,
   respectively..........................................    269,971    173,951
  Notes receivable, current portion......................    437,250    143,750
  Inventory..............................................    538,952    242,665
  Prepaid expenses.......................................     38,212        --
                                                          ---------- ----------
    Total current assets.................................  2,772,031    622,174
Property and Equipment--net of accumulated depreciation
 of $166,589 and $119,634, respectively..................    156,288     89,569
Notes Receivable--net of current portion, net of
 allowance for doubtful accounts of $0 and $0,
 respectively............................................  1,175,000    431,250
Other Assets
  Goodwill, net of accumulated amortization of $35,810
   and $71,621, respectively.............................    107,432    143,243
  Intellectual properties, net of accumulated
   amortization of $146,800 and $38,060, respectively....    940,597  1,049,337
  Prepaid royalties and other assets, net of accumulated
   amortization of $104,167 and $0, respectively.........    412,381    514,208
                                                          ---------- ----------
    Total other assets...................................  1,460,410  1,706,788
                                                          ---------- ----------
                                                          $5,563,729 $2,849,781
                                                          ========== ==========



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

                                      F-3


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                             MAY 31, 2000 AND 1999



                                                         2000         1999
                                                      -----------  -----------
                                                             
        LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Accounts payable, trade............................ $   260,102  $   510,193
  Accrued payroll, other wages and related burden....     407,134      301,769
  Other accrued expenses.............................     415,076      372,534
  Advances payable to officers.......................     210,338      216,488
  Notes payable......................................     277,185      277,185
                                                      -----------  -----------
    Total current liabilities........................   1,569,835    1,678,169
Long-Term Liabilities
  Deferred revenue...................................     340,000      400,000
  Product marketing obligation.......................     430,000      405,000
  Convertible debentures.............................   2,850,000          --
                                                      -----------  -----------
    Total long-term liabilities......................   3,620,000      805,000
    Total liabilities................................   5,189,835    2,483,169
Commitments and Contingencies........................         --           --
Stockholders' equity
  Preferred stock--5,000,000 shares authorized, $.005
   par value
  Series A cumulative, convertible preferred, no
   shares issued and outstanding liquidation
   preference of $1 per share........................         --           --
  Series M cumulative, convertible preferred,
   1,143,750 and 1,143,750 shares issued and
   outstanding, respectively; liquidation preference
   of $1 per share, aggregating $    and $
   respectively......................................       1,144        1,144
  Common stock--$.05 par value, 50,000,000 shares
   authorized, 20,939,216 and 13,207,532 shares
   issued and outstanding, respectively..............   1,046,961      660,376
  Additional paid-in capital.........................   7,609,256    5,546,965
  Retained deficit...................................  (8,283,467)  (5,841,873)
                                                      -----------  -----------
    Total stockholders' equity.......................     373,894      366,612
                                                      -----------  -----------
                                                      $ 5,563,729  $ 2,849,781
                                                      ===========  ===========


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

                                      F-4


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                       YEARS ENDED MAY 31, 2000 AND 1999



                                                         2000         1999
                                                      -----------  -----------
                                                             
Revenues
  Product sales...................................... $   543,615  $   800,439
  Franchisee fees....................................   1,072,500      229,000
  Other revenues.....................................      11,361        1,030
                                                      -----------  -----------
    Total revenues...................................   1,627,476    1,030,469
Costs and Expenses
  Salaries, wages and other compensation.............     987,763    1,317,076
  Deferred officer wages.............................         --       791,667
  Cost of sales......................................     519,603      664,356
  Advertising........................................     107,216       42,082
  Depreciation.......................................      46,955       38,564
  Amortization.......................................     248,718       91,370
  Loss on impairment of goodwill.....................         --       582,750
  Other general & administrative expenses............   2,050,200    1,678,775
                                                      -----------  -----------
    Total costs and expenses.........................   3,960,455    5,206,640
                                                      -----------  -----------
Loss From Operations.................................  (2,332,979)  (4,176,171)
Interest expense.....................................    (108,615)    (135,288)
                                                      -----------  -----------
Loss Before Income Taxes.............................  (2,441,594)  (4,311,459)
Income tax benefit...................................         --           --
                                                      -----------  -----------
Net Loss............................................. $(2,441,594) $(4,311,459)
                                                      ===========  ===========
Loss Per Common Share--Basic......................... $     (0.14) $     (0.41)
                                                      ===========  ===========
Loss Per Common Share--Diluted....................... $     (0.14) $     (0.41)
                                                      ===========  ===========



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

                                      F-5


              AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                       YEARS ENDED MAY 31, 2000 AND 1999



                                                                      Pref.
                              Common Stock         Pref. Series M   Series A
                          ----------------------  ---------------- -----------  Paid-in    Retained
      Description           Shares        $        Shares     $    Shares  $    Capital    Earnings       Total
      -----------         ----------  ----------  --------- ------ ------ ---- ---------- -----------  -----------
                                                                            
BALANCE AT 5/31/98......  10,059,923  $  502,996  1,029,750 $1,030  --    $--  $4,049,736 $(1,530,414) $ 3,023,348
Issuance of Series M
preferred stock, net of
offering costs..........                            114,000    114                 98,890                   99,004
Cancel shares in July...    (680,000)    (34,000)       --     --   --     --      34,000         --           --
Issuance of common stock
according to S-8
registration............     670,025      33,500        --     --   --     --     361,427         --       394,927
Issuance of common stock
for cash................     828,000      41,400                                  234,600                  276,000
Issuance of common stock
on exercise of
warrants................      46,250       2,313                                   20,812                   23,125
Issuance of common stock
for deferred wages to
officers................   1,583,334      79,167                                  712,500                  791,667
Issuance of common stock
in May..................     700,000      35,000                                   35,000                   70,000
Net loss during the
year....................         --          --         --     --   --     --         --   (4,311,459)  (4,311,459)
                          ----------  ----------  --------- ------  ---   ---- ---------- -----------  -----------
BALANCE AT 5/31/99......  13,207,532     660,376  1,143,750  1,144    0      0  5,546,965  (5,841,873)     366,612
Issuance of common stock
for cash................   4,196,850     209,842                                  780,494                  990,336
Issuance of common stock
in exchange for
services................   1,796,879      89,843                                  526,563                  616,406
Issuance of common stock
on exercise of
warrants................     337,500      16,876                                   67,544                   84,420
Issuance of common stock
to vendors for payment
of trade payables.......   1,400,455      70,024                                  687,690                  757,714
Net loss during the
year....................                                                                   (2,441,594)  (2,441,594)
                          ----------  ----------  --------- ------  ---   ---- ---------- -----------  -----------
BALANCE AT 5/31/00......  20,939,216  $1,046,961  1,143,750 $1,144    0   $--  $7,609,256 $(8,283,467) $   373,894
                          ==========  ==========  ========= ======  ===   ==== ========== ===========  ===========


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

                                      F-6


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                       YEARS ENDED MAY 31, 2000 AND 1999



                                                         2000         1999
                                                      -----------  -----------
                                                             
Cash Flows from Operating Activities
 Net loss............................................ $(2,441,594) $(4,311,459)
 Adjustments to reconcile net income to cash
  Depreciation and amortization......................     295,673      129,934
  Impairment of goodwill.............................         --       582,750
  Net (gain) loss on disposition of assets...........         --       (51,672)
  Stock payments to employees and consultants........     616,406    1,129,593
  Allowances and write offs..........................      20,000      411,000
 Changes in operating assets and liabilities
  Accounts receivable................................    (116,020)     (21,814)
  Inventory..........................................    (296,287)      41,667
  Prepaid expenses and other assets..................     (40,552)      67,214
  Notes receivable...................................  (1,037,250)         --
  Accounts payable...................................     507,623      373,238
  Accrued expenses...................................     141,757      716,163
  Deferred revenue...................................     (60,000)         --
                                                      -----------  -----------
   Net cash used in operating activities.............  (2,410,244)    (933,386)
Cash Flows from Investing Activities
 Acquisition of property and equipment...............    (113,674)         --
 Disposals of fixed assets...........................         --        66,058
 Expenditures for other assets.......................         --       (89,837)
                                                      -----------  -----------
   Net cash used in investing activities.............    (113,674)     (23,779)
Cash Flows from Financing Activities
 Proceeds from issuance of preferred stock, net of
  offering costs.....................................         --        99,004
 Proceeds from issuance of common stock..............   1,074,756      369,125
 Reciepts from product marketing obligation..........      25,000      405,000
 Proceeds from convertible debentures................   2,850,000          --
                                                      -----------  -----------
   Net cash provided by financing activities.........   3,949,756      873,129
Increase (decrease) in cash..........................   1,425,838      (84,036)
Cash, beginning of period............................      61,808      145,844
                                                      -----------  -----------
Cash, end of period.................................. $ 1,487,646  $    61,808
                                                      ===========  ===========
Supplemental Cash Flows Disclosures
 Interest paid....................................... $    30,000  $     8,319
 Income taxes paid................................... $       --   $       --
 Non-cash investing and financing activities:
   Common stock issued in settlement of accounts
    payable.......................................... $   757,714  $       --
   Common stock issued in exchange for services...... $   616,406  $ 1,129,593


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

                                      F-7


              AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Organization and business

   Airtech International Group, Inc. (the Company), (formerly Interactive
Technologies Corporation, Inc.), was incorporated in the state of Wyoming on
August 8, 1991. The Company manufactures and sells a full line of air
purification products. The Company primarily markets, sells and distributes its
products through a network of franchisees.

   On May 31, 1998, the Company acquired all of the outstanding common stock
shares of Airtech International Corporation (AIC), which through its
subsidiaries manufacture and sell various air filtration and purification
products. The total purchase price of $22,937,760 was funded through the
issuance of 2,100,000 of its common stock shares valued at $.625 per share, the
issuance of 11,858,016 of its Series A convertible preferred stock shares
valued at $.625 per share (Note 2) and the issuance of $9,000,000 of
convertible debentures (Note 5). However, because these convertible securities
were converted into common stock within two months following the acquisition,
the Company effectively issued common stock for the outstanding common stock of
AIC and the stockholders of AIC obtained control of the combined company. As a
result, AIC became the acquirer for financial reporting purposes.

   Therefore, the transaction was accounted for using the purchase method of
accounting. Accordingly, the purchase price of the net assets acquired has been
allocated among the net assets based on their relative fair values with
$179,053 of the purchase price allocated to goodwill. The acquired goodwill is
being amortized using the straight-line method over 5 years.

   Results of operations of Interactive Technologies Corporation are included
in the accompanying consolidated statements of operations beginning June 1,
1998.

 Principles of consolidation

   The accompanying consolidated financial statements include the general
accounts of the Company and its subsidiaries, AIC, Airsopure, Inc., Airsopure
International Group, Inc. and McCleskey Sales and Service, Inc., each of which
have fiscal year ends of May 31. All material intercompany accounts, balances
and transactions have been eliminated in the consolidation.

 Impairment of long-lived assets

   The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This Statement establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used, and long-lived assets and
certain identifiable intangibles to be disposed of. The Company periodically
evaluates, using independent appraisals and projected undiscounted cash flows,
the carrying value of its long-lived assets and certain identifiable
intangibles to be held and used whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
addition, long-lived assets and identifiable intangibles to be disposed of are
reported at the lower of carrying value or fair value less cost to sell.

 Amortization

   Intellectual property is allocated to the Company's air filtration products
based on expected sales as a percent of total sales by product. The Company
records amortization using the straight-line method over

                                      F-8


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10 years beginning when the product is initially inventoried for sale. For the
years ended May 31, 2000 and 1999, amortization expense totaled $ 108,740 and $
38,060, respectively.

   Goodwill recorded in the acquisition of AIC, is being amortized using the
straight-line method over 5 years. For the years ended May 31, 2000 and 1999,
amortization expense totaled $35,811 and $35,810, respectively.

   Goodwill relating to the Company's purchase of its McClesky Sales and
Services subsidiary in 1995 was being amortized over 40 years. In May 1999,
this operating segment was discontinued (Note 10) and the remaining unamortized
carrying value was charged to expense.

   A prepaid royalty fee, paid pursuant to a December 1995 agreement and
related to the Company's portable medicare unit, is being amortized using the
straight-line method over 24 months beginning in January 2000. For the years
ended May 31, 2000 and 1999, amortization expense totaled $104,167 and $0,
respectively.

 Inventories

   Inventories are carried at the lower of cost or net realizable value
(market) and include component parts used in the assembly of the Company's line
of air purification units and filters and finished goods comprised of completed
products. The costs of inventories are based upon specific identification of
direct costs and allocable costs of direct labor, packaging and other indirect
costs.

   At May 31, 2000 and 1999, inventories consisted of the following:



                                                                 2000     1999
                                                               -------- --------
                                                                  
   Finished goods............................................. $356,916 $200,506
   Component parts............................................  182,036   42,159
                                                               -------- --------
                                                               $538,952 $242,665
                                                               ======== ========


 Property and equipment

   Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line and accelerated methods for financial and tax reporting purposes,
respectively, over estimated useful lives of five years.

 Intellectual properties

   Costs incurred by the Company in developing its products consisting
primarily of design, testing and completion of working prototypes, which are
not considered patentable, are capitalized and will be amortized over the
estimated useful life of the related patents once a unit has been placed in
production.

 Product marketing obligation

   Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 68, the
Company has recorded funds raised in an arrangement to develop, produce and
market its Model S-999 as a product marketing obligation (Note 7).

                                      F-9


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Revenue recognition

   Revenues from the Company's operations are recognized at the time products
are shipped or services are provided. Revenues from franchise sales are
recognized at the time all material services relating to the sale of a
franchise have been performed by the Company and, in some instances, when the
related notes receivable have been collected. Revenues based on the collection
of franchise notes receivable are deferred until the time of collection.

 Advertising

   Advertising dollars are invested in trade journals, trade shows, travel and
franchise networking. All amounts are expensed as incurred.

 Management 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.

 Cash flow

   For purposes of the statement of cash flows, cash includes demand deposits,
time deposits and short term cash equivalent investments with maturities of
less than three months. None of the Company's cash is restricted.

 Earnings per share

   Basic and diluted loss per share are based upon 17,368,684 and 10,583,635,
respectively, weighted average shares of common stock outstanding. No effect
has been given to the assumed conversion of convertible preferred stock and
convertible debentures and the assumed exercise of stock options and warrants
as the effect would be antidilutive.

 Stock split

   On October 5, 1998, the shareholders authorized a one for five reverse split
of the Company's common stock. The reverse split was made effective November 9,
1998. Shareholders equity has been restated to give retroactive recognition to
the stock split for all periods presented, such that all references in the
financial statements to number of shares, per share amounts, par values and
stock option data for common shares have been restated. The shareholders also
approved an increase in the Company's authorized common shares to 50,000,000.

2. PREFERRED STOCK

 Convertible preferred stock--Series A

   In connection with the Company's acquisition of AIC (Note 1), the Company
established this equity class and authorized 15,000,000 shares. The shares have
a par value of $1.00, do not pay dividends and are convertible at the Company's
option at any time within 24 months after issuance for one share of the
Company's common stock for each five shares of preferred stock.

                                      F-10


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Effective July 31, 1998, the Company's Board of Directors voted to convert
the Series A Preferred Stock to Common Stock on the basis of one share of
Preferred to one share of Common, as per the merger agreement. To effect the
conversion of 11,858,016 of Series A preferred, the Company issued 2,371,603
shares of common stock. As described in Note 1, relating to the reverse merger
accounting recognition, the conversion of the preferred stock shares has been
recorded in the accompanying consolidated financial statements as occurring on
May 31, 1998, the date of the AIC acquisition and, therefore, are not shown as
outstanding at May 31, 1998 in the accompanying consolidated statements of
stockholders' equity.

 Convertible preferred stock--Series M

   During the year ended May 31, 1998, the Company authorized 5,000,000 shares
and established this equity class to raise production funds for the Company's
Model S-950, Medicare air filtration unit. The Series M preferred shareholders
participate by receiving up to 20%, if totally subscribed, of the collected
gross proceeds from the Company's sales of its Model S-950 over a two year
period. Through May 31, 1999, 1,143,750 of these shares were issued for $1.00
cash, net of $203,379 of offering costs. The shares have a par value of $.001,
do not pay dividends and are convertible at the holder's option at any time
within 36 months after issuance for one share of the Company's common stock. In
addition, attached to each share is one warrant to purchase one share of common
stock at a price of $0.25 per share exercisable within two years after
issuance. As of May 31, 1999, the Company had not sold any S-950 units thus has
made no payments under the participation plan. As of May 31, 2000, the Company
had sold 78 of these units and owes $5,364 under the participation plan.

3. NOTES RECEIVABLE

   Notes receivable relate to AIC sales of geographic franchise licenses (Note
1), bear interest at 6% to 12%, are payable in terms ranging from 12 to 48
months and are secured by the area franchises. Credit is extended on evaluation
of the payee's financial condition and general credit information. Prior to May
31, 2000, the Company did not strictly enforce collection while it completed
development of its product line of air purification products.

   At May 31, 2000 and 1999, notes receivable are comprised of the following:



                                                             2000       1999
                                                          ----------  ---------
                                                                
   Domestic franchise licenses........................... $  157,250  $ 300,000
   International franchise licenses......................  1,455,000    275,000
                                                          ----------  ---------
                                                           1,612,250    575,000
   Less current portion..................................   (437,250)  (143,750)
                                                          ----------  ---------
                                                          $1,175,000  $ 431,250
                                                          ==========  =========


4. NOTES PAYABLE

   The Company's notes payable consist of loans from various corporations and
individuals provided for working capital purposes. The notes, which contain no
significant restrictions, bear interest at rates of 10.0% to 18.0%, are due
through May 1999 and are unsecured. At May 31, 2000 and 1999, all of these
notes, totaling $277,185, were in default.


                                      F-11


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. CONVERTIBLE DEBENTURES

 AIC acquisition debentures

   In connection with the Company's acquisition of AIC (Note 1), the Company
also issued $9,000,000 of convertible debentures secured by the AIC shares
acquired. The debentures bear interest at 10%, are payable annually on May 31
of each year, are due on May 31, 2000 and are convertible at the Company's
option at any time within the two years into shares of the Company's common
stock at a conversion price of $.70. As of July 31, 1998, the Company's Board
of Directors voted to convert the debentures and $150,000 of related accrued
interest into common stock. The Company issued 2,614,286 common shares on
conversion. As described in Note 1, relating to the reverse merger accounting
recognition, the conversion of the convertible debentures has been recorded in
the accompanying consolidated financial statements as occurring on May 31,
1998, the date of the AIC acquisition and, therefore, are not shown as
outstanding at May 31, 1998 but included in additional paid in capital in the
accompanying consolidated statements of stockholders' equity.

 Convertible debentures (12%)

   During the year ended May 31, 2000, the Company issued $350,000 of
convertible debentures maturing on September 1, 2004. Interest is payable at
12% semi-annually beginning September 1, 2000. The debentures are convertible
at the holder's option any time beginning one year after issuance at a
conversion price of $1.00 per share. The Company, with the consent of the
holder, may redeem the debentures at a price ranging from 110% of the principal
amount if redeemed prior to September 1, 2001 to 100% of the principal amount
at maturity of the principal amount of the debentures.

   The debentures include warrants to purchase 350,000 common stock shares at a
price of $2.00 per share. The warrants expire two years from the date of
issuance.

 Convertible debentures (6%)

   During the year ended May 31, 2000, the Company issued $2,500,000 of
convertible debentures maturing on February 22, 2002. Interest accrues at 6%
and is payable in full at maturity. The debentures are convertible at the
holder's option at any time at a conversion price equal to the lesser of (a)
110% of the average closing bid price of the Company's common stock for the
five trading days prior to the date of initial payment or (b) 80% of the
average of the three lowest closing bid prices of the Company's common stock
during the 30 trading days prior to the date a conversion notice is received
from a holder. In the event of a change in control of the Company, the holders'
can require redemption of the debentures at a price equal to 125% of the
aggregate outstanding principal and accrued interest.

   The debentures include warrants to purchase 250,000 common stock shares at a
price of $2.61 per share. The warrants expire on February 22, 2005.

   Additionally, the holders of these debentures have an option to acquire an
additional $2,500,000 of debentures under the same terms, which include
additional warrants to purchase 250,000 common stock shares at a price of $2.61
per share. This option expires December 22, 2000.

6. LITIGATION

   The Company is defendant, and it has filed counter claims, in a lawsuit
filed by the lessor of office space facilities in New Jersey. The Company never
occupied the space due to the lessor's failures to finish out the space to the
Company's specifications. The lessor seeks to recover remaining lease payments
due under the

                                      F-12


              AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

lease of $606,913 and the Company seeks to recover damages under a capital
lease obligation for equipment located in the New Jersey facilities and
contractually precluded from being removed from the facilities. Although the
Company anticipates a favorable settlement of this lawsuit the outcome of it
is uncertain. As of May 31, 2000 and 1999, a reserve totaling $200,000 has
been established in anticipation of settling this obligation.

   The Company is also defendant in a lawsuit filed by a corporation claiming
damages of up to $1 million for breach of a stock purchase agreement, which
was never consummated. Management believes its defenses are strong and plans
on vigorously defending this lawsuit. Although the Company anticipates a
favorable settlement of this lawsuit the outcome of it is uncertain. The
Company has not accrued a loss for this contingency in the accompanying
consolidated financial statements.

7. COMMITMENTS AND CONTINGENCIES

 Operating leases

   The Company is currently obligated under noncancellable operating leases
for its Dallas office and warehouse facilities, which expire through December
2003. The leases also provide for payment of the Company's share of operating
costs and contain renewal options at prevailing market rates.

   Minimum future rental payments required under the above operating lease is
as follows.



   Year ending May 31,
   -------------------
                                                                     
   2001................................................................ $106,275
   2002................................................................   73,566
   2003................................................................   16,080
   2004................................................................    9,380
                                                                        --------
                                                                        $205,301
                                                                        ========


   During the years ended May 31, 2000 and 1999, rent expense totaled $102,660
and $80,670, respectively.

 Employment agreements

   The Company is currently obligated under employment agreements with its
Chief Executive Officer and its President for annual compensation of $250,000
apiece and discretionary bonuses to be determined by the Company's board of
directors. The agreements expire in May 2008. Compensation under such
agreements was deferred during the period from June 1, 1997 through December
31, 1998. At January 31, 1999, the Board of Directors authorized payment of
the deferred amount by issuing restricted common stock at $0.50 per share,
issuing a combined total of 1,583,334 shares. Starting in January 1999, these
two executives began receiving cash compensation at the rate of $125,000
apiece with the remainder of the contracted amounts being accrued in the
accompanying consolidated financial statements.

   During the year ended May 31, 1999, the Company received a claim from a
stockholder and former officer and director in the amount of $250,000 related
to past employment services. However, during the year ended May 31, 2000, this
claim was settled with the Company issuing 100,000 common stock shares to this
stockholder at a fair value of $42,579.

   The Company's current compensation benefits do not provide any other post-
retirement or post-employment benefits.

                                     F-13


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Airsopure 999 Limited Partnership

   In January 1999, the Company formed a limited partnership, Airsopure 999
Limited Partnership (LP), to fund production of the Company's new automobile,
trunk mounted air filtration unit, the Model S-999. Airsopure, Inc., a
subsidiary of the Company, became the general partner, and the limited
partnership was authorized to sell up to $5 million of partnership interests.
The limited partners are entitled up to a maximum of 20% of the gross sales
from the S-999 over a three year period. Additionally, the Company guaranteed
the limited partners a return of at most 150% of their investment at the end of
the three year term by authorizing conversion of their limited partnership
interests into shares of the Company's common stock. During the years ended May
31, 2000 and 1999, the LP raised $25,000 and $405,000, respectively, which
amount is recorded as product marketing obligation.

8. INCOME TAXES

   The Company used the accrual method of accounting for tax and financial
reporting purposes. At May 31, 2000 and 1999, the Company had net operating
loss carry forwards for financial and tax reporting purposes of approximately
$18,500,000 and $16,100,000, respectively. These carry forwards expire through
the year 2012, and are further subject to the provisions of Internal Revenue
Code Section 382.

   Pursuant to Statement of Financial Accounting Standards No. 109, the Company
has recognized a $5,510,440 deferred tax asset attributable to the net
operating loss carryover, which has been fully offset by a valuation allowances
in the same amount, as follows:



                                                             2000       1999
                                                          ---------- ----------
                                                               
   Beginning balance..................................... $4,680,290 $2,804,055
   Increase during period................................    830,150  1,876,235
                                                          ---------- ----------
   Ending balance........................................ $5,510,440 $4,680,290
                                                          ========== ==========


   A reconciliation of income tax expense at the statutory federal rate to
income tax expense at the Company's effective tax rate for the years ended May
31, 2000 and 1999 is as follows:



                                                        2000        1999
                                                      ---------  -----------
                                                           
   Tax (expense) benefit computed at statutory
    federal rate..................................... $ 830,150  $ 1,465,896
   NOL carryover.....................................  (830,150)  (1,465,896)
                                                      ---------  -----------
   Income tax benefit................................ $     --   $       --
                                                      =========  ===========


9. FINANCIAL INSTRUMENTS

   The Company's financial instruments, which potentially subject the Company
to credit risks and none of which are held for trading purposes, consist of its
cash, accounts and notes receivable, notes payable and convertible debentures.

 Cash

   The Company maintains its cash in bank deposit and other cash equivalent
investment accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts, and does not believe
it is subject to any credit risks involving its cash.


                                      F-14


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Accounts and notes receivable, trade

   The Company accounts and notes receivable (Note 3) are unsecured and
represent sales not collected at the end of the year. Management believes these
accounts and notes receivable are fairly stated at estimated net realizable
amounts.

 Notes payable and convertible debentures

   Management believes the carrying value of these notes (Note 4) and
convertible debentures (Note 5) represent the fair value of these financial
instruments because their terms are similar to those in the lending market for
comparable loans with comparable risks.

10. DISCONTINUED OPERATING SEGMENT

   In May 1999, the Company discontinued its McCleskey Sales and Services (MSS)
operations which were being conducted through its wholly owned subsidiary by
the same name. The net assets of this operating segment, consisting primarily
of unamortized goodwill relating to the Company's purchase of MSS in 1995 (Note
1), approximated $583,000 and was charged against continuing operations.

11. STOCK OPTIONS AND WARRANTS

   During the years ended May 31, 2000 and 1999, the Company issued various
stock options and warrants to employees and others and uses the intrinsic value
method of accounting for these stock options. Compensation cost for options
granted has not been recognized in the accompanying financial statements
because the amounts are not material. The options and warrants expire between
September 2000 and February 2003 and are exercisable at prices from $0.20 to
$10.00 per option or warrant. Exercise prices were set at or above the
underlying common stock's fair market value on the date of grant.

   The following is a schedule of the activity relating to the Company's stock
options and warrants. Other than the 432,850 and 205,900 warrant identified
below as granted during the year ended May 31, 2000 and 1999, respectively
(Note 4), all other amounts relate to stock options the Company has issued.



                                                  2000              1999
                                            ----------------- -----------------
                                                       Wgt.              Wgt.
                                                       Ave.              Ave.
                                             Shares  Exercise  Shares  Exercise
                                            (x1,000)  Price   (x1,000)  Price
                                            -------- -------- -------- --------
                                                           
   Options and warrants outstanding at
    beginning of year.....................   1,341    $2.06      480    $ 3.93
   Granted................................   1,698    $0.86      917    $ 0.61
   Exercised..............................    (437)   $0.85      (46)   $ 2.00
   Expired................................    (591)   $0.77      (10)   $10.00
                                             -----    -----    -----    ------
   Options and warrants outstanding at end
    of year...............................   2,011    $1.49    1,341    $ 2.06
                                             =====    =====    =====    ======
   Options and warrants exerciseable at
    end of year...........................   2,011    $1.49    1,101    $ 2.06
                                             =====    =====    =====    ======
   Weighted average fair value of options
    and warrants granted during the year..            $0.27             $ 0.60


                                      F-15


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes information about the Company's stock options
and warrants outstanding at May 31, 2000, all of which are exercisable.



     Range of           Number               Weighted Ave.
     Exercise         Outstanding              Remaining               Weighted Average
      Prices           (x1,000)             Contractual Life            Exercise Price
     --------         -----------           ----------------           ----------------
                                                              
    $.15--$.60           1098                  0.9 years                    $  .34
   $2.00--$2.61           660                  1.1 years                    $ 2.28
   $3.75--$5.00           240                  2.0 years                    $ 4.17
      $10.00               13                  1.0 years                    $10.00


   The following pro forma disclosures reflect the Company's net loss and net
loss per share amounts assuming the Company accounted for stock options granted
using the fair value method pursuant to Statement of Financial Accounting
Standards No. 123. The fair value of each option granted was estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5.6%; no expected dividends; expected
lives of 3 to 10 years; and expected volatility of 220.51%.



                                                       Year Ended   Year Ended
                                                         May 31,      May 31,
                                                          2000         1999
                                                       -----------  -----------
                                                              
   Net loss........................................... $(2,576,594) $(4,364,880)
   Net loss per share................................. $     (0.15) $     (0.41)


   During the years ended May 31, 2000 and 1999, the Company also issued
1,796,879 and 1,583,334 common stock shares, respectively, in exchange for
services. These services were recorded at their fair value of $616,406 and
$791,667, respectively, and were charged to expense. In addition, during the
year ended May 31, 2000, the Company issued 1,400,455 common stock shares to
vendors in payment of trade payables, which were recorded at their fair value
of $757,714.

12. RELATED PARTIES

   During the years ended May 31, 2000 and 1999, the Company's chief executive
officer and president made cash operating advances of $0 and $100,000 and
received repayments of $0 and $127,000, respectively. The advances are to be
repaid as cash is available or by the issuance of common stock. These advances
are unsecured but bear interest at 15% per annum. At May 31, 2000 and 1999,
advances payable to these officers totaled $210,338 and $216,488, respectively,
and included $51,338 and $57,488, respectively, of accrued interest. During the
year ended May 31, 2000, $30,000 of accrued interest was paid to the above
individuals.

13. LIQUIDITY ISSUES

   The continued operating losses by the Company and its subsidiaries raise
concern about the Company's ability to generate profits from its operations.
Management is currently negotiating several large contracts for its air
filtration products, which will increase the Company's cash flow and its
ability to generate profits. The Company has completed its air purification
product line and is expanding its franchise and distributorship network
throughout the nation and internationally. In addition, the Company is
continuing efforts to raise additional equity capital to provide liquidity
until cash can be generated by operations.

14. SEGMENT INFORMATION

   During the years ended May 31, 2000 and 1999, the Company conducted its
operations through two reportable operating segments, each of which was
conducted through separate subsidiaries. Those reportable operating segments
were its manufacture and sale of air purification products and franchises and
its commercial and residential heating and air conditioning services, which was
terminated in May 1999.

                                      F-16


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table reflects certain information about the Company's
reportable operating segments for the year ended May 31, 1999. For the year
ended May 31, 2000, the accompanying consolidated financial statements reflect
operating activities for its remaining reportable operating segment. There are
no inter-segment revenue or expense transactions.



                                              Air        HVAC
                                           Products    Services      Total
                                          -----------  ---------  -----------
                                                         
   Revenues.............................. $   618,442  $ 412,027  $ 1,030,469
   Net operating loss.................... $(4,153,265) $(158,194) $(4,311,459)
   Interest expense...................... $   126,969  $   8,319  $   135,288
   Depreciation and amortization......... $   107,637  $  22,297  $   129,934
   Consulting services, non cash......... $   309,854  $     --   $   309,854
   Expenditures for long-lived assets.... $       --   $     --   $       --
   Total long-lived assets, net of
    accumulated depreciation............. $    89,569  $     --   $    89,569


                                      F-17


                        INDEPENDENT ACCOUNTANT'S REPORT

Board of Directors and Stockholders
Airtech International Group, Inc. and subsidiaries
Dallas, Texas

   We have reviewed the accompanying consolidated balance sheet of Airtech
International Group, Inc. and subsidiaries as of February 28, 2001 and the
related statement of operations, stockholders' equity and cash flows for the
three months and nine months then ended. These consolidated financial
statements are the responsibility of the Company's management.

   We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statement taken
as a whole. Accordingly, we do not express such an opinion.

   Based on our review, we are not aware of any material modifications that
should be made to the accompanying February 28, 2001 consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.

                                          /s/ Turner, Stone & Company, LLP

Certified Public Accountants
Dallas, Texas
April 13, 2001

                                      F-18


               Airtech International Group, Inc. and Subsidiaries

                          Consolidated Balance Sheets

                           February 28, 2001 and 2000



                                                             2001       2000
                                                          ---------- ----------
                                                               
                         ASSETS
CURRENT ASSETS
  Cash................................................... $   53,368 $  559,385
  Marketable Securities..................................          0  2,000,000
  Trade accounts receivables, net of allowance for
   doubtful accounts of $60,000 and $20,000
   respectively..........................................    731,315    225,352
  Notes receivable, current portion......................    437,250     75,000
  Inventory, consisting of $1,027,750 of finished goods
   and $277,809 of component parts as of February 28,
   2001..................................................  1,305,559    317,665
  Prepaid expenses and other assets......................    113,257    204,524
                                                          ---------- ----------
    Total current assets.................................  2,640,749  3,381,926
                                                          ---------- ----------
PROPERTY AND EQUIPMENT--net of accumulated depreciation
 of $198,159 and $149,123 respectively...................    112,740    116,875
NOTES RECEIVABLE--net of current portion, net of
 allowance for Doubtful accounts of $0 and $0,
 respectively............................................  1,078,312    575,000
OTHER ASSETS
  Goodwill, net of $45,810 and $84,763 of accumulated
   amortization, respectively............................     92,432     94,291
  Intellectual properties, net of $167,300 and $58,060 of
   accumulated amortization, respectively................    919,597    968,112
  Other, Prepaid Royalties...............................    294,988    519,688
                                                          ---------- ----------
    Total other assets...................................  1,307,017  1,582,091
                                                          ---------- ----------
                                                          $5,138,818 $5,655,892
                                                          ========== ==========



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

                                      F-19


               Airtech International Group, Inc. and Subsidiaries

                          Consolidated Balance Sheets

                           February 28, 2001 and 2000



                                                         2001         2000
                                                      -----------  -----------
                                                             
        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Notes payable--current portion..................... $   277,185  $   277,185
  Accounts payable, trade............................     750,526      608,850
  Note payable--officers.............................     210,338      216,488
  Accrued payroll and payroll taxes..................     507,753      323,692
  Other accrued expenses.............................     608,843      417,511
                                                      -----------  -----------
    Total current liabilities........................   2,354,645    1,843,726
                                                      -----------  -----------
LONG-TERM LIABILITIES
  Deferred revenue...................................     340,000      400,000
  Product Marketing Obligation.......................     430,000      405,000
  Convertible Debentures.............................   2,350,000    2,800,000
                                                      -----------  -----------
    Total long-term liabilities......................   3,120,000    3,605,000
                                                      -----------  -----------
      Total liabilities..............................   5,474,645    5,448,726
COMMITMENTS AND CONTINGENCIES........................         --           --
STOCKHOLDERS' EQUITY
  Series M cumulative, convertible preferred, 990,625
   and 1,143,750 outstanding respectively;
   liquidation preference of $1.00 per share.........         991        1,143
  Common stock--$.05 par value, 50,000,000 shares
   authorized; 27,958,641 and 20,364,417 shares
   issued and outstanding, respectively..............   1,397,932    1,018,220
  Additional paid--in capital........................   8,251,966    6,682,210
                                                      -----------
  Retained deficit...................................  (9,986,716)  (7,494,407)
                                                      -----------  -----------
    Total stockholders' equity                           (335,827)     207,166
                                                      -----------  -----------
                                                      $ 5,138,818  $ 5,655,892
                                                      ===========  ===========



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

                                      F-20


               Airtech International Group, Inc. and Subsidiaries

                     Consolidated Statements of Operations

              For the Nine Months Ended February 28, 2001 and 2000



                                                         2001         2000
                                                      -----------  -----------
                                                             
REVENUES
  Product sales...................................... $ 1,412,607  $   604,474
  Franchisee fees and other revenues.................      25,000      175,000
                                                      -----------  -----------
    Total revenues...................................   1,437,607      779,474
                                                      -----------  -----------
COSTS AND EXPENSES
  Salaries and wages.................................     787,490      901,729
  Research and Development...........................     283,927      100,000
  Cost of sales......................................     780,235      515,127
  Advertising........................................     241,358      101,197
  Depreciation and amortization......................     233,188      127,421
  Other general & administrative expense.............     639,544      645,073
                                                      -----------  -----------
    Total costs and expenses.........................   2,965,742    2,390,547
                                                      -----------  -----------
LOSS FROM OPERATIONS.................................  (1,528,135)  (1,611,073)
Interest expense.....................................    (175,114)     (41,462)
                                                      -----------  -----------
NET LOSS BEFORE INCOME TAXES.........................  (1,703,249)  (1,652,535)
Income taxes.........................................         --           --
                                                      -----------  -----------
NET LOSS............................................. $(1,703,249) $(1,652,535)
                                                      ===========  ===========
LOSS PER COMMON SHARE--BASIC......................... $     (0.07) $     (0.08)
                                                      ===========  ===========
LOSS PER COMMON SHARE--DILUTED....................... $     (0.07) $     (0.08)
                                                      ===========  ===========




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

                                      F-21


               Airtech International Group, Inc. and Subsidiaries

                     Consolidated Statements of Operations

             For the Three Months Ended February 28, 2001 and 2000



                                                            2001       2000
                                                          ---------  ---------
                                                               
REVENUES
  Product sales.......................................... $ 418,034  $ 186,136
  Franchisee fees and other revenues.....................    15,000     60,000
                                                          ---------  ---------
    Total revenues.......................................   433,034    246,136
                                                          ---------  ---------
COSTS AND EXPENSES
  Salaries and wages.....................................   285,375    516,591
  Research and Development...............................    52,677     50,000
  Costs of sales.........................................   220,845     99,478
  Advertising............................................    55,963     51,002
  Depreciation and amortization..........................    72,716     54,665
  Other general and administrative expense...............   208,006    318,560
                                                          ---------  ---------
    Total costs and expenses.............................   895,582  1,090,296
                                                          ---------  ---------
LOSS FROM OPERATIONS.....................................  (462,548)  (844,160)
Interest expense.........................................  ( 52,404)    (4,185)
                                                          ---------  ---------
NET LOSS BEFORE INCOME TAXES.............................  (514,952)  (848,345)
Income taxes
NET LOSS................................................. $(514,952) $(848,345)
                                                          =========  =========
LOSS PER COMMON SHARE--BASIC............................. $   (0.02) $   (0.04)
                                                          =========  =========
LOSS PER COMMON SHARE--DILUTED........................... $   (0.02) $   (0.04)
                                                          =========  =========



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

                                      F-22


               Airtech International Group, Inc. and Subsidiaries

                     Consolidated Statements of Cash Flows

              For the Nine Months Ended February 28, 2001 and 2000



                                                          2001         2000
                                                       -----------  -----------
                                                              
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net Loss............................................. $(1,703,249) $(1,652,534)
 Adjustments to reconcile net income to cash
  Depreciation and amortization.......................     233,188      127,421
  Stock payments to employees and consultants.........         --       486,189
 Changes in operating assets and liabilities
  Accounts receivable.................................    (461,344)    ( 51,401)
  Inventory...........................................    (766,607)     (75,000)
  Accounts payable....................................     490,424       98,657
  Accrued expenses....................................     294,436       88,823
  Other Receivables...................................     (75,045)    (347,955)
                                                       -----------  -----------
   Net cash used in operating activities..............  (1,988,197)  (1,325,800)
CASH FLOWS FROM INVESTING ACTIVITIES
 Expenditures for other assets........................      60,085      (57,212)
 (Expenditure for) Redemption Marketable Securities...   1,000,000   (2,000,000)
 Repayment of Notes Payable...........................    (500,000)
                                                       -----------  -----------
   Net cash used in investing activities..............     560,685   (2,057,212)
CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from issuance of convertible debentures.....                2,800,000
 Proceeds from issuance of common stock...............     993,834    1,080,589
   Net cash provided by financing activities..........     993,834    3,880,589
                                                       -----------  -----------
INCREASE (DECREASE) IN CASH...........................  (1,434,278)     497,577
CASH, BEGINNING OF PERIOD.............................   1,487,646       61,808
                                                       -----------  -----------
CASH, END OF PERIOD................................... $    53,368  $   559,385
                                                       ===========  ===========



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

                                      F-23


               Airtech International Group, Inc. and Subsidiaries

                         Notes to Financial Statements

Summary of Significant Accounting Policies

 Organization

   Airtech International Group, Inc. (the Company), formerly Interactive
Technologies Corporation (ITC), was incorporated in the state of Wyoming on
August 8, 1991. As of May 31, 1998, in connection with the acquisition
discussed below, the Company manufactures and sells a full line of air
purification products.

   On May 31, 1998, the Company acquired all of the outstanding common stock
shares of Airtech International Corporation (AIC), which through its
subsidiaries, manufactures and sells various air filtration and purification
products. The total purchase price of $22,937,760 was funded through the
issuance of 10,500,000 shares of common stock valued at $.625 per share, the
issuance of 11,858,016 shares of Series A convertible preferred stock shares
valued at $.625 per share and the issuance of $ 9,000,000 of convertible
debentures.

   However, because these convertible securities were converted into common
stock within two months following acquisition, the shareholders of AIC obtained
control of the company. As a result, AIC became the acquiror for financial
reporting purposes.

   The transaction was accounted for using the purchase method of accounting
with AIC for accounting and reporting purposes the acquiror. Accordingly, the
purchase price of the net assets acquired has been allocated among the net
assets based on their relative fair value of zero.

 Principles of consolidation

   The accompanying consolidated financial statements include the general
accounts of the Company and its subsidiaries, AIC, Airsopure, Inc., Airsopure
International Group, Inc. and McCleskey Sales and Service, Inc. (dormant) each
of which has a fiscal year ended May 31, and AIC's investment in Airsopure
999LP, a Texas Limited partnership with a December 31 year end. All material
intercompany accounts and balances have been eliminated in the consolidation.
Turner, Stone & Company, the Company's independent accountants, has performed
limited reviews of the interim financial information included herein. Their
report on such reviews accompanies this filing.

 Amortization

   Intellectual property is allocated to the Company's air filtration products
based on expected sales as a percent of total sales by product. The Company
records amortization beginning when the product is initially inventoried for
sale. Amortization is recorded ratably over a ten-year term.

   Goodwill acquired and recorded in the financial acquisition of ITC, is being
amortized under the straight line method over 5 years.

   A prepaid royalty fee, paid pursuant to a December 1995 agreement and
related to the Company's portable medical unit, is being amortized using the
straight-line method over 24 months beginning January 2000.

 Inventories

   Inventories are carried at the lower of cost or net realizable value
(market) and include component parts used in the assembly of the Company's line
of air purification units, filters and finished goods comprised of completed
products. The costs of inventories are based upon specific identification of
direct costs and allocable costs of direct labor, packaging and other indirect
costs.


                                      F-24


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

 Property and equipment

   Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line and accelerated methods for financial and tax reporting purposes,
respectively, over estimated useful lives of five years.

 Product marketing obligation

   Property marketing obligations pursuant to Statement of Financial Accounting
Standards, "SFAS" No. 68, the Company has recorded funds raised in an
arrangement to develop, produce and market the Model S-999 as a product
marketing obligation.

 Revenue recognition

   Revenues from the Company's operations are recognized at the time products
are shipped or services are provided. Revenue from franchise sales are
recognized at the time all material services relating to the sale of a
franchise have been performed by the Company.

 Management 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.

 Cash flow

   For purposes of the statement of cash flows, cash includes demand deposits,
short term cash equivalent investments and time deposits with maturities of
less than three months. None of the Company's cash is restricted.

 Loss per share

   The basic and diluted loss per share are based upon 25,269,142 and
24,479,321 respectively, weighted average shares of common stock outstanding
over the three and nine month period ending February 28, 2001. No effect has
been given to the assumed conversion of convertible preferred stock,
convertible debentures, product market obligation guarantees and the assumed
exercise of stock options and warrants, as the effect would be antidilutive.

 Convertible debentures (6%)

   On February 22, 2000, the Company entered into a securities purchase
agreement with PK Investors LLC (PKI') to raise up to $5,000,000 through the
sale to PKI of up to $5,000,000 in principal amount of the Company's 6%
Convertible Debentures (Debentures') and Warrants to purchase up to 500,000
shares of the Company's Common Stock (Warrants'). Upon execution of the
securities purchase agreement, PKI purchased $2,500,000 in principal amount of
the Debentures and Warrants to purchase 250,000 shares of Common Stock for a
purchase price of $2,500,000. The Company was responsible and paid legal,
investment banker commissions, accounting and SEC filing fees totaling
$427,000. Under the terms of the securities purchase agreement, the Company
also issued to PKI a Conditional Warrant to purchase the remaining $2,500,000
in

                                      F-25


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

principal amount of Debentures and the remaining Warrants to purchase 250,000
shares of the Company's Common Stock. The Conditional Warrants expired on
December 22, 2000. The Debentures, Warrants, and Conditional Warrant were sold
and issued to PKI in a private transaction exempt from registration under
Section 4 (2) of the Securities Act of 1933.

 Convertible Debentures (12%)

   During the year ended May 31, 2000, the Company issued $350,000 of
convertible debentures maturing on September 1, 2004. Interest is payable at
12% semi-annually. Interest has been deferred until May 2001. The debentures
are convertible at the holder's option at any time beginning one year after
issuance at a conversion price of $1.00 per share. The debentures include
warrants to purchase 350,000 common shares at a price of $2.00 per share. The
warrants expire two years from the date of issuance.

 Convertible Preferred Stock

   During the year ended May 31, 1998, the Company, from the 5,000,000 shares,
authorized, issued 1,143,750 of convertible preferred stock for $1 per share.
The shares have a par value of $ .001, do not pay dividends, are convertible at
the holder's option for one share of the Company's common stock, and receive up
to 20%, if totally subscribed, of the gross proceeds from the Company's sales
of its portable individual air purifier for a two-year period. As of February
28, 2001 and 2000, there were 990,625 and 1,143,750 shares of preferred stock
outstanding, respectively.

Commitments and Contingencies

 Operating Leases

   The company is currently obligated under noncancellable operating leases for
its Dallas office and warehouse facilities, which expire in December 2001 and
January 2004, respectively.

   Minimum future rental payments required under the above operating lease is
as follows:



   Year ending May 31
   ------------------
                                                                     
   2001................................................................ $100,275
   2002................................................................   73,566
   2003................................................................   16,080
   2004................................................................    9,380
                                                                        --------
                                                                        $199,301
                                                                        ========


 Financial instruments

   The Company's financial instruments consist of its cash, marketable
securities accounts and notes receivable, and trade payables.

 Cash and Marketable Securities

   The Company maintains its cash in bank deposit and other accounts, which, at
times, may exceed federally insured limits. The Company invests excess cash not
required for operations in U.S. Treasury repurchase agreements in connection
with its cash management account with its primary bank. The Company has not
experienced any losses in such accounts, and does not believe it is subject to
any credit risks involving its cash.

                                      F-26


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


 Accounts and notes receivable, trade

   The Company accounts and notes receivables are unsecured and represent sales
not collected to date. Management believes these accounts and notes receivables
are fairly stated at estimated net realizable amounts.

 Stock options and warrants

   Through the quarter ended February 28, 2001 and 2000, the Company has issued
various stock options and warrants to employees and others and uses the
intrinsic value method of accounting for these stock options. Compensation cost
for options granted has not been recognized in the accompanying financial
statements because the amounts are not material and its exercise price exceeded
the common stock fair market value at the date of option. The options and
warrants expire between September 2000 and February 2006 and are exercisable at
prices from $0.10 to $10.00 per option or warrant. Exercise prices were set at
or above the underlying common stock's fair market value on the date of grant.

 Subsequent events

   On November 2, 2000, the Company and its subsidiary entered into a Stock
Purchase Agreement with Southern Therapy, Inc. and its principal shareholders
("STI") to purchase the majority of shares of STI. At this time the Parties
have agreed not to consummate this merger. Under the terms of the Stock
Purchase Agreement, the Company would swap stock for the purchase price. Due to
the decreasing market price of the underlying shares of Company Common Stock
since the Agreement was reached, the Company has decided that the cost of the
transaction has exceeded the number of shares of stock that prudently should be
issued based upon the stock price of the Company Common Stock.

   However, recognizing the strengths of STI, the Company has entered into a
Distribution Agreement with STI. STI will exclusively represent the Company in
marketing and selling the portable air-purification unit to the U.S. medical
industry.

 Subsequent Event--Sale of 12% Debentures

   The Company entered into a securities purchase agreement with an investment
group to raise $1,000,000 through the sale to the investors of our 12%
Convertible Debentures Due 2003 with attached warrants to purchase 500,000
shares of our common stock. The 12% debentures are convertible at the option of
the holder, provided at no time may a holder of our 12% debentures and its
affiliates own more than 4.9% of our outstanding common stock without giving us
61 days prior written notice of the debenture holders intent to waive the 4.9%
limitation. The conversion price is the lesser of; a fixed conversion price of
$0.25 and 50% of the average of the lowest three trading prices of our common
stock for the twenty trading days ending one trading day prior to the date we
receive a conversion notice.

   The Company has prepared a Pro-forma that incorporates the results of the
sale of $1,000,000 in convertible debentures. The pro-forma reflects $800,000
in cash from the sale of debentures and warrants and a receivable for the
$200,000, due within five business days after SEC declaration of this
Registration Statement effective.. The $1,000,000 is then allocated to the
warrants and debentures due to their imbedded beneficial conversion features.
The Company has allocated $100,000 in value to the warrants based on the Black-
Scholes option pricing model. This $100,000 allocation will be written to
interest expense ratably over the three year life of the warrants. If the
warrants are exercised prior to the termination date the remaining discount
will be adjusted at that time.

   In addition, in accordance with EITF Issue No. 98-5, the Company has
allocated, based on the intrinsic value of the imbedded beneficial conversion
feature a portion of the remaining $900,000 as a discount on the debentures.
The $900,000 discount will be amortized over the earliest conversion date of
the debentures. This

                                      F-27


               AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

earliest date is based upon the maximum allowed 4.9% ownership of the debenture
holders. The discount of $146,700 is charged to expense at the date of sale and
the remaining $753,300 will be written to interest expense ratably over the
three year life of the debenture. This discount will be adjusted based upon
early conversion where the debenture holders give 61 days notice they will own
more than 4.9% of the common stock, and actual conversions to date.

PRO FORMA RESULTS OF SALE OF CONVERTIBLE DEBENTURES, CONSOLIDATED BALANCE SHEET



                                                                  After Sale of
              Assets                February 28, 2001    Sale      Debentures
              ------                ----------------- ----------  -------------
                                                         
Total current assets...............    $ 2,640,749    $1,000,000   $ 3,640,749
Property Equipment.................        112,740                     112,740
Notes Receivable...................      1,078,312                   1,078,312
Other Assets.......................      1,307,017                   1,307,017
                                       -----------    ----------   -----------
  Total Assets.....................    $ 5,138,818    $1,000,000   $ 6,138,818
                                       ===========    ==========   ===========

   Liabilities and Stockholders'
               Equity
   -----------------------------
Current Liabilities................    $ 2,354,645                 $ 2,354,645
Long Term Liabilities..............    $ 3,120,000    $ (100,000)
                                                       1,000,000
                                                        (753,300)    3,266,700
Stockholders' Equity...............       (335,827)      100,000
                                                         900,000
                                                        (146,700)      517,473
                                       -----------    ----------   -----------
  Total Liabilities and
   Stockholders' Equity............    $ 5,138,818    $1,000,000   $ 6,138,818
                                       ===========    ==========   ===========

      Statement of Operations
      -----------------------
Total Revenues.....................    $ 1,437,607                 $ 1,437,607
Total Costs and expenses...........      2,965,742                   2,965,742
Interest Expense...................        175,114    $  146,700       321,814
                                       -----------    ----------   -----------
  Net loss.........................    $(1,703,249)   $  146,700   $(1,849,949)
                                       -----------    ----------   -----------
  Loss per share (diluted).........    $     (0.07)                $     (0.07)
                                       ===========                 ===========


                                      F-28


                       [OUTSIDE COVER PAGE OF PROSPECTUS]

   We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any of the sales made hereunder after the date of this prospectus shall create
an implication that the information contained herein or our affairs have not
changed since the date of this prospectus.


                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Officers and Directors

   The Wyoming Business Corporation Act provides that indemnification of
directors, officers, employees and other agents of a corporation, and persons
who serve at its request as directors, officers, employees or other agents of
another corporation may be provided by the Company. Subject to Wyoming law, our
officers and directors are not personally liable for personal damages resulting
from breaches of their fiduciary duty unless (i) the officer or director has
breached his fiduciary duty of loyalty to the Company or its stockholders, (ii)
the breach or failure to perform constitutes an act or omission not in good
faith or which involves intentional misconduct or a knowing violation of law;
or for any transaction from which the officer or director derived an improper
personal benefit. The Company's By-Laws provide indemnification to directors,
officers, employees and agents, including claims brought under state or Federal
Securities laws, to the full extent allowable under Wyoming law. The Company
also has entered into indemnification agreements with its directors and
executive officer providing, among other things, that the Company will provide
defense cost against any such claim, subject to reimbursement in certain
events.

Item 25. Other Expenses of Issuance and Distribution

   The estimated expenses in connection with the offering are as follows:


                                                                     
   Securities and Exchange Commission registration fee................. $   831
   Accounting fees and expenses........................................ $ 1,000
   Blue Sky fees and expenses.......................................... $ 2,500
   Legal fees and expenses............................................. $15,000
   Printing............................................................ $ 5,000
   Miscellaneous....................................................... $ 5,000
                                                                        -------
     Total............................................................. $29,331
                                                                        =======


Item 26. Recent Sales of Unregistered Securities



                                       Principal   Price
                                       Amount or    per       Nature of      Issued under
      Date               Title       Shares Issued Share     Transaction      Exemption
      ----               -----       ------------- -----     -----------     ------------
                                                             
May 31, 2000       Common Stock       $2,800,000   $0.175 Shares issued to  Section 4(2)
                                                          accredited        of the
                                                          investors in      Securities Act
                                                          conversion of
                                                          limited
                                                          partnership
                                                          interests in
                                                          Airsopure 999,
                                                          LP

March 30, 2001     12% Convertible    $  800,000      N/A Private           Section 4(2)
                   Debentures with                        Placement         of the
                   500,000 attached                                         Securities Act
                   Warrants

March 30, 2001     Common Stock          955,128    $0.19 Shares issued to  S-8
                                                          employees and     Registration
                                                          senior            Statement
                                                          management for
                                                          services
                                                          rendered

March 30, 2001     Common Stock          105,000    $0.23 Shares issued to  Section 4(2)
                                                          NIR Group, LLC    of the
                                                          for placement of  Securities Act
                                                          12% debentures

February 28, 2001  Common Stock          500,000    $0.18 Shares issued to  S-8
                                                          employees and     Registration
                                                          senior            Statement
                                                          management for
                                                          services
                                                          rendered



                                      II-1




                                             Principal    Price
                                             Amount or     per        Nature of      Issued under
         Date                  Title       Shares Issued  Share      Transaction      Exemption
         ----                  -----       -------------  -----      -----------     ------------
                                                                     
March 27, 2001           Common Stock          308,541      $0.24 Shares issued to  Section 4(2)
                                                                  an accredited     of the
                                                                  investor in       Securities Act
                                                                  conversion of
                                                                  limited
                                                                  partnership
                                                                  interests in
                                                                  Airsopure 999,
                                                                  LP

January 2001             Common Stock        2,800,000      $0.15 Shares issued to  Section 4(2)
                                                                  accredited        of the
                                                                  investors         Securities Act

January 8, 2001          Common Stock          200,000      $0.25 Shares issued to  Section 4(2)
                                                                  accredited        of the
                                                                  investor          Securities Act

June 30, 2000            Common Stock          400,000      $0.25 Shares issued in  Section 4(2)
                                                                  exchange of       of the
                                                                  warrants held by  Securities Act
                                                                  holders of
                                                                  Series M
                                                                  Preferred Stock

February 22, 2000        6% Convertible     $2,500,000        N/A Private           Section 4(2)
                         Debentures with                          Placement         of the
                         250,000 attached                                           Securities Act
                         Warrants

January 2000 thru March  12% Convertible    $  350,000        N/A Private           Section 4(2)
 2000                    Debentures                               Placement         of the
                                                                                    Securities Act

January 2000 thru        Common                200,000   $0.25 to Private           Section 4(2)
 February 2000                                              $0.75 Placement         of the
                                                                                    Securities Act

December 31, 1999        Common                300,000      $0.19 Shares issued to  S-8
                                                                  CEO and           Registration
                                                                  President for     Statement
                                                                  services
                                                                  rendered

August 31, 1999          Common                358,591   $0.34 to Shares issued to  S-8
                                                            $0.50 investment        Registration
                                                                  bankers,          Statement
                                                                  consultants,
                                                                  management, CEO
                                                                  and President
                                                                  for services
                                                                  rendered or to
                                                                  be rendered.

June 30, 1999            Common              1,200,000      $0.10 Shares issued to  Section 4(2)
                                                                  accredited        of the
                                                                  investors,        Securities Act
                                                                  including
                                                                  500,000 shares
                                                                  to CR Saulsbury,
                                                                  Sr. Warrants
                                                                  attached are
                                                                  exercisable at
                                                                  $0.20 and expire
                                                                  on May 31, 2000

May 31, 1999             Common                700,000      $0.10 Shares issued to  Section 4(2)
                                                                  accredited        of the
                                                                  investors,        Securities Act
                                                                  including
                                                                  500,000 shares
                                                                  to Peter Kertes.
                                                                  Warrants
                                                                  attached are
                                                                  exercisable at
                                                                  $0.20 and expire
                                                                  on May 31, 2000

February 28, 1999        Common              1,583,134      $0.50 Shares issued to  Section 4(2)
                                                                  CEO and           of the
                                                                  President in      Securities Act
                                                                  consideration of
                                                                  deferred wages
                                                                  from June 1,
                                                                  1997 through
                                                                  December 31,
                                                                  1998

December 31, 1998        Common                 46,250      $0.50 Warrants          Section 4(2)
                                                                  exercised by      of the
                                                                  holders of        Securities Act
                                                                  Series M
                                                                  Preferred Stock



                                      II-2




                                       Principal
                                       Amount or    Price per      Nature of      Issued under
      Date               Title       Shares Issued    Share       Transaction      Exemption
      ----               -----       -------------  ---------     -----------     ------------
                                                                  
November 30, 1998  Common                828,000         $0.33 Shares issued to  Section 4(2)
                                                               accredited        of the
                                                               investors         Securities Act
                                                               including C.R.
                                                               Saulsbury, Sr.

November 30, 1998  Common                224,000      $0.48 to Shares issued to  S-8
                                                         $0.69 investment        Registration
                                                               bankers and       Statement
                                                               consultants for
                                                               services
                                                               rendered

August 31, 1998    Common                146,025      $1.25 to Shares issued to  S-8
                                                         $1.56 consultants and   Registration
                                                               employees for     Statement
                                                               services
                                                               rendered

July 31, 1998      Common              2,614,286         $0.70 Conversion of     Section 4(2)
                                                               debentures        of the
                                                               issued in         Securities Act
                                                               conjunction with
                                                               the acquisition
                                                               of AIC

July 31, 1998      Common              2,371,603   One-for-one Conversion of     Section 4(2)
                                                               Series A          of the
                                                               preferred stock   Securities Act
                                                               issued in
                                                               conjunction with
                                                               the acquisition
                                                               of AIC

March 1998 thru    Series M            1,143,750         $1.14 Private           Section 4(2)
 September 1998    Preferred                                   Placement         of the
                                                                                 Securities Act


Item 27. Exhibits




 Exhibit
 Number                                 Document
 -------                                --------
      
  3.1    Restated Articles of Incorporation filed December 27, 1991 of the
         Company's predecessor in name, Interactive Technologies Corporation,
         Inc. (incorporated by reference to the Company's Registration
         Statement on Form SB-2 filed on May 8, 2000, Registration Statement
         No. 333-36554)

  3.2    Articles of Amendment dated filed May 14, 1997 of the Company's
         predecessor in name Interactive Technologies Corporation, Inc.
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

  3.3    Articles of Amendment of the Company filed October 16, 1998
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

  3.4    Bylaws of the Company's predecessor in name, Interactive Technologies
         Corporation, Inc. (incorporated by reference to the Company's Form 10
         filed on January 14, 1992)

  3.5    Articles of Amendment of the Company filed June 11, 2001 (filed
         herewith)

  4.1    Specimen Series "M" Preferred Stock Certificate (incorporated by
         reference to the Company's Registration Statement on Form SB-2 filed
         on May 8, 2000, Registration Statement No. 333-36554)

  4.2    Specimen Common Stock Certificate (incorporated by reference to the
         Company's Registration Statement on Form SB-2 filed on May 8, 2000,
         Registration Statement No. 333-36554)

  4.3    Form of Warrant to purchase shares of Common Stock granted to holders
         of Series "M" Convertible Preferred Stock (incorporated by reference
         to the Company's Registration Statement on Form SB-2 filed on May 8,
         2000, Registration Statement No. 333-36554)

  4.4    Form of 6% Convertible Debenture Due 2002 (incorporated by reference
         to the Company's Registration Statement on Form SB-2 filed on May 8,
         2000, Registration Statement No. 333-36554)

  4.5    Form of Warrant to purchase shares of Common Stock granted to holders
         of 6% Convertible Debentures Due 2002 (incorporated by reference to
         the Company's Registration Statement on Form SB-2 filed on May 8,
         2000, Registration Statement No. 333-36554)




                                      II-3





 Exhibit
 Number                                 Document
 -------                                --------
      
  4.6    Registration Rights Agreement dated February 22, 2000 by and between
         the Company and PK Investors LLC relating to the registration of the
         Common Stock and Warrants related to Exhibits 4.4 and 4.5
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

  4.7    Form of 12% Convertible Debenture Due 2005 (incorporated by reference
         to the Company's Form 10-KSB filed on September 7, 2000)

  4.8    Form of Warrant to purchase shares of Common Stock granted to holders
         of 12% Convertible Debentures Due 2005 (incorporated by reference to
         the Company's Form 10-KSB filed on September 7, 2000)

  4.9    Amendment to Securities Purchase Agreement and 12% Secured Convertible
         Debentures dated
         June 22, 2001 (filed herewith)

  5.1    Legal Opinion of John G. Rebensdorf, P.C. (filed herewith)

 10.1    Employment Agreement dated May 1, 1997 between the Company and C.J.
         Comu (incorporated by reference to the Company's Registration
         Statement on Form SB-2 filed on May 8, 2000, Registration Statement
         No. 333-36554)

 10.2    Form of Franchise Agreement relating to franchises offered by
         Airsopure International Group, Inc., a wholly-owned subsidiary of the
         Company (incorporated by reference to the Company's Registration
         Statement on Form SB-2 filed on May 8, 2000, Registration Statement
         No. 333-36554)

 10.3    Form of Development Agreement offered to franchisees by Airsopure
         International Group, Inc., a wholly-owned subsidiary of the Company
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

 10.4    Form of Offering Circular presented to franchisees by Airsopure
         International Group, Inc., a wholly-owned subsidiary of the Company
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

 10.5    Securities Purchase Agreement dated March 29, 2001 relating to the
         sale of 12% convertible debentures (previously filed)

 10.6    Security Agreement dated March 29, 2001 securing the 12% debentures
         (previously filed)

 10.7    Form of 12% Secured Convertible Debenture Due 2003 (previously filed)

 10.8    Form of Stock Purchase Warrant to purchase shares of Common Stock
         granted to holders of 12% Debentures Due 2003 (previously filed)

 10.9    Registration Rights Agreement dated March 29, 2001 relating to the
         registration of the Common Stock related to Exhibit 10.7 (previously
         filed)

 10.10   Lock-up Agreement dated March 30, 2001 between the Company and PKI
         Investors, LLC
         (previously filed)

 10.11   Distributor Agreement dated February 19, 2001 by and between the
         Company and W&B Service Company (previously filed)

 10.12   Distributor Agreement dated March 15, 2001 by and between the Company
         and Southern Therapy, Inc. (previously filed)

 21      Subsidiaries of the Registrant (previously filed)

 23.1    Consent of Turner, Stone & Company (filed herewith)

 23.2    Consent of John G. Rebensdorf, P.C. (included with Exhibit 5.1)

 24.1    Power of Attorney (included in Part II of the Registration Statement)



                                      II-4


Item 28. Undertakings

   The undersigned registrant hereby undertakes:

     1. To file, during any period in which offers or sales are being made of
  the securities registered hereby, a post-effective amendment to this
  registration statement (i) to include any prospectus required by Section
  10(a) (3) of the Securities Act of 1933; (ii) to reflect in the prospectus
  any facts or events which, individually or together, represent a
  fundamental change in the information in the registration statement.
  Notwithstanding the foregoing, any increase or decrease in volume of
  securities offered (if the total dollar value of securities offered would
  not exceed that which was registered) and any deviation from the low or
  high end of the estimated maximum offering range may be reflected in the
  form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
  the aggregate, the changes in volume and price represent no more than a 20
  percent change in the maximum aggregate offering price set forth in the
  "Calculation of Registration Fee" table in the effective Registration
  Statement; and (iii) to include any additional or changed material
  information on the plan of distribution.

     2. That, for the purpose of determining any liability under the
  Securities Act, treat each post-effective amendment as a new registration
  statement of the securities offered, and the offering of the securities at
  that time to be the initial bona fide offering.

     3. To file a post-effective amendment to remove from registration any of
  the securities that remain unsold at the end of the offering.

   Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

                                      II-5


                                   SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Dallas, State of Texas,
on the 9th day of July, 2001.


                                          Airtech International Group, Inc.,
                                          a Wyoming corporation (Registrant)

                                                       /s/ C J Comu
                                          By: _________________________________
                                                         C J Comu
                                                  Chief Executive Officer

                               POWER OF ATTORNEY

   Each person whose signature appears below hereby constitutes and appoints
C.J. Comu and James R. Halter, and each or either of them, his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement and any registration statement that is to be effective upon filing
pursuant to Rule 462 under the Securities Act of 1933, as amended, and to cause
the same to be filed with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
granting to said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
or desirable to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all acts and things that said attorneys-in-fact and agents, or
either of them, or their substitutes or substitute, may lawfully do or cause to
be done by virtue hereof.

   Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on the 9th day of July, 2001 by
the following persons in the capacities indicated.




              Signature                                     Title
              ---------                                     -----

                                            
            /s/  C J Comu                      Director and Chief Executive
______________________________________          Officer
               C J Comu

         /s/ James R. Halter                   Director, Chief Financial
______________________________________          Officer and General Counsel
           James R. Halter                      (Principal Financial and
                                                Accounting Officer)

          /s/ Robert Galvan                    Director
______________________________________
            Robert Galvan


                                      II-6


                                 EXHIBIT INDEX




 Exhibit
 Number                                 Document
 -------                                --------
      
  3.1    Restated Articles of Incorporation filed December 27, 1991 of the
         Company's predecessor in name, Interactive Technologies Corporation,
         Inc. (incorporated by reference to the Company's Registration
         Statement on Form SB-2 filed on May 8, 2000, Registration Statement
         No. 333-36554)

  3.2    Articles of Amendment dated filed May 14, 1997 of the Company's
         predecessor in name Interactive Technologies Corporation, Inc.
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

  3.3    Articles of Amendment of the Company filed October 16, 1998
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

  3.4    Bylaws of the Company's predecessor in name, Interactive Technologies
         Corporation, Inc. (incorporated by reference to the Company's Form 10
         filed on January 14, 1992)

  3.5    Articles of Amendment of the Company filed June 11, 2001 (filed
         herewith)

  4.1    Specimen Series "M" Preferred Stock Certificate (incorporated by
         reference to the Company's Registration Statement on Form SB-2 filed
         on May 8, 2000, Registration Statement No. 333-36554)

  4.2    Specimen Common Stock Certificate (incorporated by reference to the
         Company's Registration Statement on Form SB-2 filed on May 8, 2000,
         Registration Statement No. 333-36554)

  4.3    Form of Warrant to purchase shares of Common Stock granted to holders
         of Series "M" Convertible Preferred Stock (incorporated by reference
         to the Company's Registration Statement on Form SB-2 filed on May 8,
         2000, Registration Statement No. 333-36554)

  4.4    Form of 6% Convertible Debenture Due 2002 (incorporated by reference
         to the Company's Registration Statement on Form SB-2 filed on May 8,
         2000, Registration Statement No. 333-36554)

  4.5    Form of Warrant to purchase shares of Common Stock granted to holders
         of 6% Convertible Debentures Due 2002 (incorporated by reference to
         the Company's Registration Statement on Form SB-2 filed on May 8,
         2000, Registration Statement No. 333-36554)

  4.6    Registration Rights Agreement dated February 22, 2000 by and between
         the Company and PK Investors LLC relating to the registration of the
         Common Stock and Warrants related to Exhibits 4.4 and 4.5
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

  4.7    Form of 12% Convertible Debenture Due 2005 (incorporated by reference
         to the Company's Form 10-KSB filed on September 7, 2000).

  4.8    Form of Warrant to purchase shares of Common Stock granted to holders
         of 12% Convertible Debentures Due 2005 (incorporated by reference to
         the Company's Form 10-KSB filed on September 7, 2000).

  4.9    Amendment to Securities Purchase Agreement and 12% Secured Convertible
         Debentures dated June 22, 2001 (filed herewith)

  5.1    Legal Opinion of John G. Rebensdorf, P.C. (filed herewith)

 10.1    Employment Agreement dated May 1, 1997 between the Company and C.J.
         Comu (previously filed)

 10.2    Form of Franchise Agreement relating to franchises offered by
         Airsopure International Group, Inc., a wholly-owned subsidiary of the
         Company (incorporated by reference to the Company's Registration
         Statement on Form SB-2 filed on May 8, 2000, Registration Statement
         No. 333-36554)







 Exhibit
 Number                                 Document
 -------                                --------
      
 10.3    Form of Development Agreement offered to franchisees by Airsopure
         International Group, Inc., a wholly-owned subsidiary of the Company
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

 10.4    Form of Offering Circular presented to franchisees by Airsopure
         International Group, Inc., a wholly-owned subsidiary of the Company
         (incorporated by reference to the Company's Registration Statement on
         Form SB-2 filed on May 8, 2000, Registration Statement No. 333-36554)

 10.5    Securities Purchase Agreement dated March 29, 2001 relating to the
         sale of 12% convertible debentures (previously filed)

 10.6    Security Agreement dated March 29, 2001 securing the 12% debentures
         (previously filed)

 10.7    Form of 12% Secured Convertible Debenture Due 2003 (previously filed)

 10.8    Form of Stock Purchase Warrant to purchase shares of Common Stock
         granted to holders of 12% Debentures Due 2003 (previously filed)

 10.9    Registration Rights Agreement dated March 29, 2001 relating to the
         registration of the Common Stock related to Exhibit 10.7 (previously
         filed)

 10.10   Lock-up Agreement dated March 30, 2001 between the Company and PKI
         Investors, LLC (previously filed)

 10.11   Distributor Agreement dated February 19, 2001 by and between the
         Company and W&B Service Company (previously filed)

 10.12   Distributor Agreement dated March 15, 2001 by and between the Company
         and Southern Therapy, Inc. (previously filed)

 21      Subsidiaries of the Registrant (previously filed)

 23.1    Consent of Turner, Stone & Company (filed herewith)

 23.2    Consent of John G. Rebensdorf, P.C. (included with Exhibit 5.1)

 24.1    Power of Attorney (included in Part II of the Registration Statement)