content: U.S. SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 8-K
  
                                   CURRENT REPORT
  
  
                       Pursuant to Section 13 or 15(d) of the
                           Securities Exchange Act of 1934
  
  
                                    March 7, 2002
             ----------------------------------------------------------
                  Date of Report (date of earliest event reported)
  
  
                               MUSE TECHNOLOGIES, INC.
          ----------------------------------------------------------------
                Exact Name of Registrant as Specified in its Charter
  
  
  
  Delaware                       1-14559                    85-0437001
  ----------------------------   ------------------------   ----------------------
  (State or Other Jurisdiction   (Commission File Number)   (IRS Employer
  of Incorporation)                                         Identification Number)
  
  
                        300 Fifth Avenue, Waltham, MA. 02451
        --------------------------------------------------------------------
                       Address of Principal Executive Offices
  
                                   (781) 890-4300
            ------------------------------------------------------------
                 Registrant's Telephone Number, Including Area Code
  
  <PAGE>
  
  THIS   REPORT   ON   FORM   8-K    CONTAINS,    IN   ADDITION   TO    HISTORICAL
  INFORMATION,FORWARD-LOOKING   STATEMENTS   BY  MUSE   TECHNOLOGIES,   INC.  (THE
  "COMPANY") THAT MAY CONSTITUTE  FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
  THE  PRIVATE  SECURITIES  LITIGATION  REFORM  ACT OF 1995.  WORDS SUCH AS "MAY,"
  "SHOULD,"  "ANTICIPATE,"  "BELIEVE," "PLAN," "ESTIMATE,"  "EXPECT" AND "INTEND,"
  AND OTHER SUCH  SIMILAR  EXPRESSIONS  ARE  INTENDED TO IDENTIFY  FORWARD-LOOKING
  STATEMENTS.  THESE STATEMENTS ARE BASED ON MANAGEMENT'S CURRENT EXPECTATIONS AND
  ARE  SUBJECT TO A NUMBER OF  UNCERTAINTIES  AND RISKS THAT  COULD  CAUSE  ACTUAL
  RESULTS  TO  DIFFER  MATERIALLY  FROM  THOSE  DESCRIBED  IN THE  FORWARD-LOOKING
  STATEMENTS.  ALL FORWARD-LOOKING  STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED
  ON INFORMATION AVAILABLE TO THE COMPANY AS OF THE DATE OF THIS DOCUMENT, AND THE
  COMPANY  ASSUMES NO  OBLIGATION  TO UPDATE THESE  CAUTIONARY  STATEMENTS  OR ANY
  FORWARD-LOOKING STATEMENTS.
  
  ITEM 2.   ACQUISITION OR DISPOSITION OF ASSETS
  
       Muse Technologies, Inc. (the "Company") has received short-terms loans over
  time from  Richard A.  Gates  ("Gates"),  who is a  shareholder  of the  Company
  holding  3,000 shares of the  13,103,714  issued and  outstanding  shares of its
  common stock.  On January 30, 2002, the principal  balance  outstanding on loans
  from Gates was $590,000 plus accrued interest of $28,465.  The outstanding loans
  were evidenced by six  promissory  notes payable in ninety days with 9% interest
  (the "AVS Notes") made by Advanced Visual Systems,  Inc. ("AVS"),  then a wholly
  owned subsidiary of the Company, and secured by accounts receivable of AVS.
  
       On or about  January 30, 2002,  Gates  advised the Company of his intent to
  demand  payment in full of the  outstanding  principal  and  interest on the AVS
  Notes. AVS Notes in the principal amount of $360,000 had already matured and all
  of the AVS Notes would have  matured on or before  March 13,  2002.  Neither the
  parent  Company nor AVS in the opinion of either's  management had the liquidity
  to pay off the AVS Notes and continue  operations  over the next twelve  months.
  Intensive fund raising  efforts by the Company's  management  over the past year
  have been unsuccessful and no material future revenue is currently expected from
  the Company with the exception of revenue generated by AVS and for insignificant
  revenues related to the ongoing  licensing of MuSE software by a small number of
  customers. Therefore, an agreement was reached to convert the AVS Notes into AVS
  equity.
  
       On February 20, 2002, the board of directors of AVS accepted a subscription
  agreement from VizCor, LLC, an Arizona limited liability company wholly owned by
  Gates,  for 200 shares of AVS common  stock (the  "Shares")  in exchange  for $1
  million.  The ownership of 200 Shares results in a 66.7%  ownership  interest in
  AVS common stock. As a result of this  transaction,  the interest of the Company
  in AVS has been diluted from 100% to 33.3%. This transaction  provides necessary
  liquidity to AVS that management believes will permit AVS to continue operations
  and enhances  the value of the interest in AVS held by the Company,  even though
  the Company now only holds a minority interest.
  
       The $1  million  consideration  consists  of the  conversion  of all of the
  $590,000  principal  on the AVS Notes and of $10,000  accrued  interest  thereon
  together with a $400,000 promissory note (the "VizCor" Note). The VizCor Note is
  payable in four equal annual installments plus 4.65% interest.
  
       The  transaction   includes  two  conditional   redemption   options,   one
  exercisable by AVS and the other  exercisable by VizCor,  LLC. AVS has the right
  to redeem all of the Shares in the event that any person or entity  obtains  the
  legal right to revoke, suspend,  cancel, terminate or modify the issuance of the
  Shares or to obtain  damages  from AVS or any of its agents and  representatives
  for the  issuance  of the  Shares.  The option  must be  exercised  on or before
  February 20, 2003.  The redemption  consideration  shall be $1 million and shall
  consist of the cancellation of all the then outstanding principal balance of the
  VizCor Note, together with cancellation of the accrued interest thereon,  return
  of the AVS notes, and any additional  redemption  consideration  shall be in the
  form of a new promissory note payable with 4.65% interest in 90 days.
  
       VizCor,  LLC  has the  right  and  option  to  make  demand  on AVS for the
  redemption  of up to 160 Shares  for a  redemption  consideration  of $5,000 per
  Share in the event that (1) AVS revenues from  operations  and  securities-based
  funding  do not result in cash  receipts  to AVS in the year 2002 of at least $9
  million,  or (2) there are commercially  reasonable  grounds for insecurity that
  the accounts receivable of AVS may become subject to the claims of creditors,  a
  court or other  party.  The option must be exercised on or before March 31, 2003
  so long as AVS has timely  reported its receipts to VizCor,  LLC. The redemption
  consideration shall first consist of the cancellation of all or part of the then
  outstanding principal balance of the VizCor Note sufficient to redeem the number
  of Shares  called for  redemption,  together  with  cancellation  of the accrued
  interest thereon.
  
                                         2
  <PAGE>
  
  To the extent  that the  outstanding  principal  balance  of the VizCor  Note is
  insufficient  to redeem the number of Shares  called for  redemption,  AVS shall
  return  Gates  Notes  having a principal  amount  sufficient  for the  remaining
  redemption consideration.
  
       The security agreements supporting the AVS Notes shall remain in full force
  and effect and all underlying financing statements filed in connection with such
  security  agreements  shall  not be  terminated  until  the all the  conditional
  redemption options are no longer exercisable and then only if no option has been
  exercised.
  
  ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS
  
            (a)  Financial Statements:
                 None.
  
            (b)  Pro Forma Financial Information:
  
                 A balance  sheet as of  September  30,  2001,  and a statement of
                 operations for the period then ended are included  reflecting the
                 assets, liabilities,  revenue, income and expenses of the Company
                 with and, on a pro forma basis, without the inclusion of AVS as a
                 wholly owned  subsidiary  as if the Shares had been issued by AVS
                 as of September 30, 2001.  THESE  FINANCIAL  STATEMENTS HAVE BEEN
                 INTERNALLY  PREPARED BY THE  COMPANY  AND HAVE NOT BEEN  AUDITED,
                 REVIEWED OR COMPILED BY AN  INDEPENDENT  PUBLIC  ACCOUNTANT.  The
                 column for AVS does not reflect the AVS issuance of the Shares on
                 a pro forma basis. The issuance of the Shares by AVS results in a
                 $1 million increase in AVS  stockholders'  equity, a reduction of
                 $600,000  in AVS  liabilities  and an increase of $400,000 in AVS
                 assets (including $100,000 in now current assets).
  
                                         3
  <PAGE>
  
                               MUSE TECHNOLOGIES, INC.
                          UNAUDITED PRO FORMA BALANCE SHEET
                              AS OF SEPTEMBER 30, 2001
                                     In (000's)
  
  <TABLE>
  <CAPTION>
                                                UNAUDITED                                 MUSE
                                              BALANCE SHEET     LESS     PRO FORMA      PRO FORMA
                                                9/30/2001        AVS    ADJUSTMENTS   BALANCE SHEET
                                              -----------------------------------------------------
                           ASSETS
                           ------
  CURRENT ASSETS:
  <S>                                                <C>         <C>                           <C>
        Cash and equivalents                         $251        $237                          $14
        Accounts receivable, net                    1,863       1,695                          168
        Notes receivable - related parties            183           0                          183
        Other current assets                          238         168                           70
                                              -----------------------------------------------------
        Total current assets                        2,535       2,100                          435
  
        PROPERTY AND EQUIPMENT-NET                    308          85                          223
  
        OTHER ASSETS
        Capitalized Development Costs-Net             428         428                            0
        Investment in AVS                               0           0          500             500
        Other Assets                                  142         106                           36
                                              -----------------------------------------------------
        Total assets                               $3,413      $2,719         $500          $1,194
                                              =====================================================
  
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
  
  CURRENT LIABILITIES:
  
        Accounts Payable                           $2,577      $1,302                       $1,275
        Accrued Liabilities                         2,528       1,772                          756
        Bank Note payable                             273           0                          273
        Capital lease - current portion                85          67                           18
        Deferred Revenue                              740         720                           20
                                              -----------------------------------------------------
        Total current liabilities                   6,203       3,861                        2,342
  
  LONG-TERM LIABILITIES:
        Capital lease - less current portion           31           0                           31
        Notes Payable                                 760         590                          170
        Convertible Note Payable                    3,000       1,908                        1,092
                                              -----------------------------------------------------
  
        Total Liabilities                           9,994       6,359                        3,635
  
  STOCKHOLDERS' EQUITY:
        Common stock                                  197           4                          193
        Additional paid-in capital                 26,011       4,629          500          21,882
        Treasury stock                               (777)          0                         (777)
        Cummulative translation adjustment            (68)        (68)                           0
        Accumulated deficit                       (31,944)     (8,205)                     (23,739)
                                              -----------------------------------------------------
                                                                      --
        Total stockholders' equity                 (6,581)     (3,640)         500          (2,441)
                                                                      --
                                              -----------------------------------------------------
                                                   $3,413      $2,719         $500          $1,194
                                              =====================================================
  </TABLE>
  
                                         4
  <PAGE>
  
                               Muse Technologies, Inc.
                     UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                    For the Nine Months ended September 30, 2001
                                     In (000's)
  
  <TABLE>
  <CAPTION>
                                                         UNAUDITED       LESS        RESTATED
                                                         9/30/2001        AVS          MUSE
                                                        --------------------------------------
  <S>                                                   <C>              <C>              <C>
  REVENUES                                              $    7,969       7,854            115
  
  EXPENSES:
           Cost of Revenues                                  1,049       1,049              0
           Selling, general and administrative               5,492       3,974          1,518
           Research and development                          2,076       1,643            433
           Bad Debt expense                                    752           0            752
           Amortization                                        593          95            498
           Depreciation                                        640         220            420
                                                        --------------------------------------
  
           Total operating expenses                         10,602       6,981          3,621
                                                        --------------------------------------
  
  NET OPERATING INCOME/(LOSS)                               (2,633)        873         (3,506)
                                                        --------------------------------------
  
  Other income (expense):
           Gain on Foreign Currency Transactions                45          45              0
           Gain on Investments                                 572           0            572
           Interest income                                       0           0              0
           Interest expense                                   (276)       (166)          (110)
           Other Expense                                       (49)        (14)           (35)
           Forgiveness of Debt                                 388           0            388
           Taxes                                               (14)        (14)             0
                                                        --------------------------------------
           Total other (expenses) income                       666        (149)           815
                                                        --------------------------------------
  
  NET INCOME/(LOSS) FROM CONTINUING OPERATIONS          $  ($1,967)       $724        ($2,691)
                                                        ======================================
  
  LOSS FROM DISCONTINUED OPERATIONS                         (1,597)          0         (1,597)
  
  LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS                 (958)          0           (958)
                                                        --------------------------------------
  
  NET LOSS FROM DISCONTINUED OPERATIONS                     (2,555)          0         (2,555)
                                                        --------------------------------------
  
  MINORITY INTEREST                                              0        (241)           241
                                                        --------------------------------------
  
  NETINCOME/( LOSS)                                     $   ($4,522)       $483        ($5,005)
                                                        ======================================
  
  NET LOSS PER COMMON SHARE-CONTINUING OPERATIONS            (0.15)       0.06          (0.21)
  
  NET LOSS PER COMMON SHARE-DISCONTINUED OPERATIONS          (0.19)       0.00          (0.19)
  
                                                        --------------------------------------
  NET LOSS PER SHARE-BASIC AND DILUTED                  $    (0.34)       0.06          (0.40)
                                                        ======================================
  
  WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING                                               13,104      13,104         13,104
                                                        ======================================
  </TABLE>
  
                                         5
  <PAGE>
  
            (c)  The  Company  is  preparing  pro forma data  reflecting  revenue,
                 income from continuing operations,  net income and net income per
                 share for the three months ending  December 31, 2000 and December
                 2001  that  includes  AVS  as an  investment  of the  Company  as
                 compared to a wholly owned  subsidiary of the Company.  This data
                 will be  completed  and  reported  by the  Company as soon as the
                 Company can do so with its present limited resources.
  
            (d)  Exhibits: None
  
  
                                     SIGNATURES
  
  
       Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
  Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
  undersigned hereunto duly authorized.
  
  
                                          MUSE TECHNOLOGIES, INC.
  
  
  Dated:   March 7, 2002                  By: /s/ Steve Sukman
                                              ----------------
                                              Steve Sukman
                                              Chief Executive Officer
  
  
                                         6
  <PAGE>
metadata_documents: [{"type": "8-K", "sequence": "1", "filename": "x8k-302.txt", "description": "MUSE TECHNOLOGIES, INC.", "secsgml_size_bytes": 18908}]
metadata_filer: {"company-data": {"conformed-name": "MUSE TECHNOLOGIES INC", "cik": "0001006368", "assigned-sic": "8060", "irs-number": "850437001", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-14559", "film-number": "02569204"}, "business-address": {"street1": "300 FIFTH AVE", "city": "WALTHAM", "state": "MA", "zip": "02451", "phone": "7818904300"}, "mail-address": {"street1": "300 FIFTH AVE", "city": "WALTHAM", "state": "MA", "zip": "02451"}}
text: U.S. SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 8-K
  
                                   CURRENT REPORT
  
                       Pursuant to Section 13 or 15(d) of the
                           Securities Exchange Act of 1934
  
                                    March 7, 2002
             ----------------------------------------------------------
                  Date of Report (date of earliest event reported)
  
                               MUSE TECHNOLOGIES, INC.
          ----------------------------------------------------------------
                Exact Name of Registrant as Specified in its Charter
  
  Delaware                       1-14559                    85-0437001
  ----------------------------   ------------------------   ----------------------
  (State or Other Jurisdiction   (Commission File Number)   (IRS Employer
  of Incorporation)                                         Identification Number)
  
                        300 Fifth Avenue, Waltham, MA. 02451
        --------------------------------------------------------------------
                       Address of Principal Executive Offices
  
                                   (781) 890-4300
            ------------------------------------------------------------
                 Registrant's Telephone Number, Including Area Code
  THIS   REPORT   ON   FORM   8-K    CONTAINS,    IN   ADDITION   TO    HISTORICAL
  INFORMATION,FORWARD-LOOKING   STATEMENTS   BY  MUSE   TECHNOLOGIES,   INC.  (THE
  "COMPANY") THAT MAY CONSTITUTE  FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
  THE  PRIVATE  SECURITIES  LITIGATION  REFORM  ACT OF 1995.  WORDS SUCH AS "MAY,"
  "SHOULD,"  "ANTICIPATE,"  "BELIEVE," "PLAN," "ESTIMATE,"  "EXPECT" AND "INTEND,"
  AND OTHER SUCH  SIMILAR  EXPRESSIONS  ARE  INTENDED TO IDENTIFY  FORWARD-LOOKING
  STATEMENTS.  THESE STATEMENTS ARE BASED ON MANAGEMENT'S CURRENT EXPECTATIONS AND
  ARE  SUBJECT TO A NUMBER OF  UNCERTAINTIES  AND RISKS THAT  COULD  CAUSE  ACTUAL
  RESULTS  TO  DIFFER  MATERIALLY  FROM  THOSE  DESCRIBED  IN THE  FORWARD-LOOKING
  STATEMENTS.  ALL FORWARD-LOOKING  STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED
  ON INFORMATION AVAILABLE TO THE COMPANY AS OF THE DATE OF THIS DOCUMENT, AND THE
  COMPANY  ASSUMES NO  OBLIGATION  TO UPDATE THESE  CAUTIONARY  STATEMENTS  OR ANY
  FORWARD-LOOKING STATEMENTS.
  
  ITEM 2.   ACQUISITION OR DISPOSITION OF ASSETS
  
       Muse Technologies, Inc. (the "Company") has received short-terms loans over
  time from  Richard A.  Gates  ("Gates"),  who is a  shareholder  of the  Company
  holding  3,000 shares of the  13,103,714  issued and  outstanding  shares of its
  common stock.  On January 30, 2002, the principal  balance  outstanding on loans
  from Gates was $590,000 plus accrued interest of $28,465.  The outstanding loans
  were evidenced by six  promissory  notes payable in ninety days with 9% interest
  (the "AVS Notes") made by Advanced Visual Systems,  Inc. ("AVS"),  then a wholly
  owned subsidiary of the Company, and secured by accounts receivable of AVS.
  
       On or about  January 30, 2002,  Gates  advised the Company of his intent to
  demand  payment in full of the  outstanding  principal  and  interest on the AVS
  Notes. AVS Notes in the principal amount of $360,000 had already matured and all
  of the AVS Notes would have  matured on or before  March 13,  2002.  Neither the
  parent  Company nor AVS in the opinion of either's  management had the liquidity
  to pay off the AVS Notes and continue  operations  over the next twelve  months.
  Intensive fund raising  efforts by the Company's  management  over the past year
  have been unsuccessful and no material future revenue is currently expected from
  the Company with the exception of revenue generated by AVS and for insignificant
  revenues related to the ongoing  licensing of MuSE software by a small number of
  customers. Therefore, an agreement was reached to convert the AVS Notes into AVS
  equity.
  
       On February 20, 2002, the board of directors of AVS accepted a subscription
  agreement from VizCor, LLC, an Arizona limited liability company wholly owned by
  Gates,  for 200 shares of AVS common  stock (the  "Shares")  in exchange  for $1
  million.  The ownership of 200 Shares results in a 66.7%  ownership  interest in
  AVS common stock. As a result of this  transaction,  the interest of the Company
  in AVS has been diluted from 100% to 33.3%. This transaction  provides necessary
  liquidity to AVS that management believes will permit AVS to continue operations
  and enhances  the value of the interest in AVS held by the Company,  even though
  the Company now only holds a minority interest.
  
       The $1  million  consideration  consists  of the  conversion  of all of the
  $590,000  principal  on the AVS Notes and of $10,000  accrued  interest  thereon
  together with a $400,000 promissory note (the "VizCor" Note). The VizCor Note is
  payable in four equal annual installments plus 4.65% interest.
  
       The  transaction   includes  two  conditional   redemption   options,   one
  exercisable by AVS and the other  exercisable by VizCor,  LLC. AVS has the right
  to redeem all of the Shares in the event that any person or entity  obtains  the
  legal right to revoke, suspend,  cancel, terminate or modify the issuance of the
  Shares or to obtain  damages  from AVS or any of its agents and  representatives
  for the  issuance  of the  Shares.  The option  must be  exercised  on or before
  February 20, 2003.  The redemption  consideration  shall be $1 million and shall
  consist of the cancellation of all the then outstanding principal balance of the
  VizCor Note, together with cancellation of the accrued interest thereon,  return
  of the AVS notes, and any additional  redemption  consideration  shall be in the
  form of a new promissory note payable with 4.65% interest in 90 days.
  
       VizCor,  LLC  has the  right  and  option  to  make  demand  on AVS for the
  redemption  of up to 160 Shares  for a  redemption  consideration  of $5,000 per
  Share in the event that (1) AVS revenues from  operations  and  securities-based
  funding  do not result in cash  receipts  to AVS in the year 2002 of at least $9
  million,  or (2) there are commercially  reasonable  grounds for insecurity that
  the accounts receivable of AVS may become subject to the claims of creditors,  a
  court or other  party.  The option must be exercised on or before March 31, 2003
  so long as AVS has timely  reported its receipts to VizCor,  LLC. The redemption
  consideration shall first consist of the cancellation of all or part of the then
  outstanding principal balance of the VizCor Note sufficient to redeem the number
  of Shares  called for  redemption,  together  with  cancellation  of the accrued
  interest thereon.
  
                                         2
  To the extent  that the  outstanding  principal  balance  of the VizCor  Note is
  insufficient  to redeem the number of Shares  called for  redemption,  AVS shall
  return  Gates  Notes  having a principal  amount  sufficient  for the  remaining
  redemption consideration.
  
       The security agreements supporting the AVS Notes shall remain in full force
  and effect and all underlying financing statements filed in connection with such
  security  agreements  shall  not be  terminated  until  the all the  conditional
  redemption options are no longer exercisable and then only if no option has been
  exercised.
  
  ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS
  
            (a)  Financial Statements:
                 None.
  
            (b)  Pro Forma Financial Information:
  
                 A balance  sheet as of  September  30,  2001,  and a statement of
                 operations for the period then ended are included  reflecting the
                 assets, liabilities,  revenue, income and expenses of the Company
                 with and, on a pro forma basis, without the inclusion of AVS as a
                 wholly owned  subsidiary  as if the Shares had been issued by AVS
                 as of September 30, 2001.  THESE  FINANCIAL  STATEMENTS HAVE BEEN
                 INTERNALLY  PREPARED BY THE  COMPANY  AND HAVE NOT BEEN  AUDITED,
                 REVIEWED OR COMPILED BY AN  INDEPENDENT  PUBLIC  ACCOUNTANT.  The
                 column for AVS does not reflect the AVS issuance of the Shares on
                 a pro forma basis. The issuance of the Shares by AVS results in a
                 $1 million increase in AVS  stockholders'  equity, a reduction of
                 $600,000  in AVS  liabilities  and an increase of $400,000 in AVS
                 assets (including $100,000 in now current assets).
  
                                         3
  MUSE TECHNOLOGIES, INC.
                          UNAUDITED PRO FORMA BALANCE SHEET
                              AS OF SEPTEMBER 30, 2001
                                     In (000's)
  UNAUDITED                                 MUSE
                                              BALANCE SHEET     LESS     PRO FORMA      PRO FORMA
                                                9/30/2001        AVS    ADJUSTMENTS   BALANCE SHEET
                                              -----------------------------------------------------
                           ASSETS
                           ------
  CURRENT ASSETS:
  Cash and equivalents                         $251        $237                          $14
        Accounts receivable, net                    1,863       1,695                          168
        Notes receivable - related parties            183           0                          183
        Other current assets                          238         168                           70
                                              -----------------------------------------------------
        Total current assets                        2,535       2,100                          435
  
        PROPERTY AND EQUIPMENT-NET                    308          85                          223
  
        OTHER ASSETS
        Capitalized Development Costs-Net             428         428                            0
        Investment in AVS                               0           0          500             500
        Other Assets                                  142         106                           36
                                              -----------------------------------------------------
        Total assets                               $3,413      $2,719         $500          $1,194
                                              =====================================================
  
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
  
  CURRENT LIABILITIES:
  
        Accounts Payable                           $2,577      $1,302                       $1,275
        Accrued Liabilities                         2,528       1,772                          756
        Bank Note payable                             273           0                          273
        Capital lease - current portion                85          67                           18
        Deferred Revenue                              740         720                           20
                                              -----------------------------------------------------
        Total current liabilities                   6,203       3,861                        2,342
  
  LONG-TERM LIABILITIES:
        Capital lease - less current portion           31           0                           31
        Notes Payable                                 760         590                          170
        Convertible Note Payable                    3,000       1,908                        1,092
                                              -----------------------------------------------------
  
        Total Liabilities                           9,994       6,359                        3,635
  
  STOCKHOLDERS' EQUITY:
        Common stock                                  197           4                          193
        Additional paid-in capital                 26,011       4,629          500          21,882
        Treasury stock                               (777)          0                         (777)
        Cummulative translation adjustment            (68)        (68)                           0
        Accumulated deficit                       (31,944)     (8,205)                     (23,739)
                                              -----------------------------------------------------
                                                                      --
        Total stockholders' equity                 (6,581)     (3,640)         500          (2,441)
                                                                      --
                                              -----------------------------------------------------
                                                   $3,413      $2,719         $500          $1,194
                                              =====================================================
  4
  Muse Technologies, Inc.
                     UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                    For the Nine Months ended September 30, 2001
                                     In (000's)
  UNAUDITED       LESS        RESTATED
                                                         9/30/2001        AVS          MUSE
                                                        --------------------------------------
  REVENUES                                              $    7,969       7,854            115
  
  EXPENSES:
           Cost of Revenues                                  1,049       1,049              0
           Selling, general and administrative               5,492       3,974          1,518
           Research and development                          2,076       1,643            433
           Bad Debt expense                                    752           0            752
           Amortization                                        593          95            498
           Depreciation                                        640         220            420
                                                        --------------------------------------
  
           Total operating expenses                         10,602       6,981          3,621
                                                        --------------------------------------
  
  NET OPERATING INCOME/(LOSS)                               (2,633)        873         (3,506)
                                                        --------------------------------------
  
  Other income (expense):
           Gain on Foreign Currency Transactions                45          45              0
           Gain on Investments                                 572           0            572
           Interest income                                       0           0              0
           Interest expense                                   (276)       (166)          (110)
           Other Expense                                       (49)        (14)           (35)
           Forgiveness of Debt                                 388           0            388
           Taxes                                               (14)        (14)             0
                                                        --------------------------------------
           Total other (expenses) income                       666        (149)           815
                                                        --------------------------------------
  
  NET INCOME/(LOSS) FROM CONTINUING OPERATIONS          $  ($1,967)       $724        ($2,691)
                                                        ======================================
  
  LOSS FROM DISCONTINUED OPERATIONS                         (1,597)          0         (1,597)
  
  LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS                 (958)          0           (958)
                                                        --------------------------------------
  
  NET LOSS FROM DISCONTINUED OPERATIONS                     (2,555)          0         (2,555)
                                                        --------------------------------------
  
  MINORITY INTEREST                                              0        (241)           241
                                                        --------------------------------------
  
  NETINCOME/( LOSS)                                     $   ($4,522)       $483        ($5,005)
                                                        ======================================
  
  NET LOSS PER COMMON SHARE-CONTINUING OPERATIONS            (0.15)       0.06          (0.21)
  
  NET LOSS PER COMMON SHARE-DISCONTINUED OPERATIONS          (0.19)       0.00          (0.19)
  
                                                        --------------------------------------
  NET LOSS PER SHARE-BASIC AND DILUTED                  $    (0.34)       0.06          (0.40)
                                                        ======================================
  
  WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING                                               13,104      13,104         13,104
                                                        ======================================
  5
  (c)  The  Company  is  preparing  pro forma data  reflecting  revenue,
                 income from continuing operations,  net income and net income per
                 share for the three months ending  December 31, 2000 and December
                 2001  that  includes  AVS  as an  investment  of the  Company  as
                 compared to a wholly owned  subsidiary of the Company.  This data
                 will be  completed  and  reported  by the  Company as soon as the
                 Company can do so with its present limited resources.
  
            (d)  Exhibits: None
  
                                     SIGNATURES
  
       Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
  Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
  undersigned hereunto duly authorized.
  
                                          MUSE TECHNOLOGIES, INC.
  
  Dated:   March 7, 2002                  By: /s/ Steve Sukman
                                              ----------------
                                              Steve Sukman
                                              Chief Executive Officer
  
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