UNITED STATES
                   SECURITIES AND EXCHANGE COMMISSION
                         Washington, DC  20549
                                                                Amended


                              FORM 10-KSB

Annual Report Under Section 13 or 15 (d) of the Securities Exchange Act of
                                  1934


              For the fiscal year ended December 31, 2000

                   Commission file number: 33-3362-D

                         KLEENAIR SYSTEMS, INC
             (Name of small business issuer in its charter)


     State of Nevada                                           87-0431043
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification #)


   828 Production Place, Newport Beach, CA                      92663
  (Address of principal executive offices)                  (Zip code)

              Issuer's telephone number:   (949) 574-1600


Securities registered under Section 12 (g) of the Exchange Act:
Common stock, no par value


The issuer  (1) has filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.    [X]


State issuer's revenues for its most recent fiscal year:     $0.


The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 30, 2001, was $4,609,550 based on the closing stock
price on that date. The number of shares outstanding of the registrant's
common stock on March 30, 2001, was 12,579,082 shares.



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ITEM 1.   DESCRIPTION OF BUSINESS

    The Company was incorporated under the laws of the State of Nevada on
February 4, 1986, under the name of Covington Capital Corporation. In 1986,
the Company filed an S-18 and registered certain stock.  From 1989 through
1993, the Company underwent a series of name changes in order to explore
various business opportunities. However, none of the business opportunities
was successfully completed.

    In April, 1995, under the name Investment and Consulting International,
Inc., the Company acquired a patent for a proprietary device designed to
neutralize nitrogen oxide automobile emissions from a separate Company which
was then known as KleenAir Systems, Inc. Simultaneously with the acquisition
of the patent, the Company acquired the right to use the corporate name
"KleenAir Systems, Inc.," and changed to its current name.

    Since acquiring the patent in 1995, the Company has been a developmental
stage Company and has worked towards the completion of the development and
testing of the NOxMaster(TM) technology. The Company has not been involved
in any bankruptcy, receivership or similar proceeding.

    In May 1997, the Company effected a one (1) for fifteen (15) reverse
split of its common outstanding shares leaving the par value at $.001 per
share. The number of issued and outstanding shares was reduced to 362,157
while its authorized shares remained unchanged at 50,000,000. The Series 1
Preferred Shares were similarly effected by the same 1 for 15 reverse split
and were reduced to 500,000 shares. Subsequent to December 31, 1999 the last
of  the outstanding preferred shares have been converted into common shares
at a ratio of 1 common share for each share of Series 1 Preferred.  In
February 2000, the Board of Directors approved a 2 for 1 stock split effective
March 20, 2000.

    The NOxMaster(TM) is an electro-mechanical device which substantially
reduces the oxides of nitrogen (NOx) from the exhaust gases of cars and
trucks (mobile sources) fueled by either gasoline, diesel or natural gas.

    The purpose of the NOxMaster(TM) is to reduce the NOx to a level
substantially lower than the minimum requirements of even the most
restrictive state - California. The NOxMaster(TM) is a one-of-a-kind device,
that can effectively accomplish this task and consists of: 1) an ammonia
injector located on the engine exhaust system upstream of the catalytic
converter: 2) a tank of minimally pressurized ammonia with solenoid operated
valves: 3) tubing, wiring and an electronic controller which senses engine
parameters. The ammonia injection is programmed to occur only when the
engine is operating at a specific load and performance conditions.

    A timing pulse from the engine is used to determine certain parameters
indicating NOx production and to trigger a solenoid causing the injection of
gaseous ammonia into the exhaust system upstream of the catalytic converter.
The chemical reaction that occurs causes the NOx to be reduced to harmless
constituents primarily at the initial mixing and secondarily at the
catalytic converter. The ammonia injection is programmed to occur only when
the engine is operating at specific load and performance conditions.

    In addition to cost effectively reducing the NOx from the exhaust, the
NOxMaster(TM) has the potential of aiding the enhancement of engine
performance. Controlled reduction of NOx could allow for the re-tuning of

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the engine for increased efficiency which will increase fuel mileage while
continuing to maintain the government set NOx standard.

    The Company has complemented its NOxMaster(TM) Ammonia Injection System
with a NOxMaster(TM) Diesel Catalytic Converter for the purpose of applying
its NOx reduction technology to diesel-fueled engines as well as reducing
CO, hydrocarbons and particulates emitted by such engines. It has done so
through the development of specially formulated ceramic wash-coats that
allow for ammonia in the atmosphere and which provides a significant
particulate reduction for the retrofit market. It is planning the
acquisition of plasma technology capable of much greater reductions of
particulates, particularly ultra-fine particulates the health hazards of
which are getting increasing attention by the EPA. Such an integrated
ammonia NOx reduction system and plasma particulate reduction system will be
suited to both the OEM and retrofit markets.

    During the course of the year 2000 the Company engaged in a number of
test programs on its NOxMaster(TM) Ammonia Injection System with a
NOxMaster(TM) Diesel Catalytic Converter. Of particular interest were
excellent results obtained on a heavy duty diesel engine from China
demonstrating the ability to reduce NOx, CO, HC and particulate emissions
on that engine to meet the Euro 3 standards. It is hoped that this
successful demonstration will lead to future orders from China.

    The Company received a grant from the UK Energy Savings Trust to test
its system as a retrofit for London taxicabs. Such tests commenced in
England at the Millbrook Proving Grounds in November 2000 and are planned
to continue through the second quarter of 2001. If that demonstration
proves successful, then the Company will apply for a further grant from
the Energy Savings Trust to equip multiple in- service taxicabs for
on-road and in-use demonstration of the system, particularly with regard
to safety issues concerning the on-board use of ammonia as a reductant.
There are approximately 40,000 such taxicabs in service and that
represents the potential market opportunity should the system be endorsed
as the preferred retrofit product. The same system can then be adapted as
a retrofit and OEM product for the general diesel-powered passenger
automotive market, which represents approximately 30% of the registered
and new vehicle market in Europe.

    Subsequent to year end, the Company has applied to the California
Energy Commission for a substantial funding grant to demonstrate its
product on a Cummins 5.9 liter diesel engine under the Carl Moyer Program.
The Company has also signed a Letter of Intent covering exclusive
distribution arrangements for its products in Northern and Central
California with Cummins West, Inc.

    In November, 2000, the Company applied for US, China and PCT patent
coverage on a new emission control device, its Sonic Flow Carburetor(TM),
designed to improve operating performance and reduce emissions on small
gasoline engines such as motorcycles, snowmobiles, lawnmowers and small
standby power generators. Subsequent to yearend a License Agreement was
entered into with Extengine Transport Systems, Inc for China, India and
California.

    In order to conserve operating capital, the Company has one paid full-
time Employee and 4 paid part-time employees. It has retained the services
of its management, officers and certain consultants through the issuance of

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restricted Section 144 common stock. This includes the services of
investment banking and financial consultants Centex Securities, Inc. who
have provided advice with regard to the Company's investor relations and
business plan development.

    Five employment and consulting contracts with 30 months remaining and
valued at over $1,000,000 were voluntarily terminated by the parties
concerned, with no future recourse or liability for the Company, in June of
1996, including the employment contracts of Mr. Lionel Simons, President and
Mr. Lester Berriman, Chairman. Mr. Simons and Mr. Berriman agreed to
continue managing and directing the Company without cash compensation until
such time as adequate operating capital had been secured for the Company.
Mr. Peter Cahill resigned from the Board at this time and Mr. William H.
Ward, Jr. was appointed along with Mr. Simons and Mr. Berriman.

    In December 1996, the Company, having no resources available for the
international commercial exploitation of its technology rights, and having
no business plan for such exploitation of rights outside of the U.S., agreed
to license to an officer of the Company, the European rights to the
technology for application to gasoline engines and for world-wide rights for
diesel engines. The Agreement called for the Company to receive a 7% royalty
plus 30% of a Company to be established in the UK and to be called NOxMaster
Ltd., which Company was formed subsequent in 1997.  During 1998, the U.S.
exploitation rights for that portion of the technology relating to diesel
engines was transferred back to the Company in exchange for restricted
shares.

    As yet the Company has not begun distribution of its products and does
not expect to begin doing so until some time in latter part of 2001.

    Management believes that the NOxMaster(TM) system is unique, well
protected by patents, and that it will prove to be effective and marketable
after completion of testing. Competition is anticipated from so-called urea
systems that are more complex and significantly more costly but whose end
result is the creation of ammonia and a chemical reaction with NOx in the
exhaust system. Such systems are not currently available and are expected to
emerge at around the same time as the Company's system.

    In order to sell the Company's products in California an Executive Order
is required from the State of California. The Company needs to demonstrate
that its products do not increase the level of exhaust emissions.

    While the Company anticipates applying for and receiving an Executive
Order, failure to do so would have a significant impact on its business in
the State of California.

    During 1999 development expenses were $82,170 and during 2000 they were
$128,964.

    The Company has one full time employee and 4 part-time employees.

    The Company does not intend to deliver an annual report to security
holders. The public may read and copy any materials filed with the SEC such
as this 10-KSB and 10-QSB reports.  The Company is an electronic filer under
the SEC's EDGAR filing program.  The SEC maintains an Internet site at
www.sec.gov that contains such reports and other information filed
electronically which is available to all security holders.

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ITEM 2.   DESCRIPTION OF PROPERTY

    In order to conserve operating capital, the President, Lionel Simons,
has allowed the use of his home as the corporate headquarters until such
time as additional funding and activity require the use of additional space.
During 1999, the Company moved into R & D facilities at 828 Production
Place, Newport Beach, CA 92663, occupying approximately 2,000 sq. ft. The
Company also acquired appropriate computers and test equipment to advance
its development and testing activity and acquired a diesel vehicle for
testing its products. In addition, the Company continues to use the CARB
approved testing facilities of California Environmental Engineering of Santa
Ana, CA for state testing requirements.

    The Company does not engage in mining operations, oil and gas producing
activities or real estate activities.


ITEM 3.   LEGAL PROCEEDINGS.

     The Company is not currently involved in any litigation.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     There were no submissions to a vote of security holders during 2000.


                                PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information:  The principal trading market for the common equity
securities of the Company is the National Association of Securities Dealers
OTC Bulletin Board quotation system. The following are the highs and lows
for each quarter for fiscal year ended December 31, 1998 and 1999
respectively. These quotations reflect inter-dealer prices, without retail
mark-up, mark- down or commissions, and may not represent actual
transactions.

                                 High            Low
                      1999
           1st Quarter          $0.3125         $0.125
           2nd Quarter           0.5625          0.125
           3rd Quarter           1.125           0.3075
           4th Quarter           1.03125         0.4844

                      2000
           1st Quarter         $12.00           $1.50
           2nd Quarter           7.75            1.1875
           3rd Quarter           2.1875          0.875
           4th Quarter           0.9375          0.125

Shareholders:   At December 31, 2000 there were 447 shareholders of record
with an additional 67 shareholders registered with firms reporting to the
Depository Trust Company.

Dividends:  No dividends have been paid in the last two fiscal years.

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ITEM 6.    MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION.

     In addition to the original US Patent  # 5,224,346 acquired in April of
1995, US Patent # 5,609,026 "Engine NOx Reduction" was issued in 1997 after
successfully overturning a challenge in Patent Court. International patent
rights have been granted for these patents and have been issued for Europe
(patent # 0 638 139 covering Germany, France and the UK) and international
coverage extends to certain Asian countries and Canada as well as Brazil and
certain other countries. On November 30th, 1999 the Company was issued a
third patent on "Ammonia Injection in NOx Control", US Patent # 5,992,141.
This patent deals with the NOxMaster(TM) ammonia injection control system
and chemical reaction enhancement techniques to ensure optimum effectiveness
of the system to achieve maximum NOx reduction. In the opinion of
management, this patent significantly strengthens the position of the
Company in the exploitation of its technology and increases the value of its
future commercial exploitation and licensing potential. Management believes
that its patent coverage in all the major automobile and truck producing
countries provides it with the patent protection necessary to successfully
exploit the technology world-wide. No value has been capitalized on the
books for the second and third patents.

    The first product, the NOxMaster(TM) device is currently in the final
stages of refinement. Nitrogen Oxides (NOx) are the most difficult auto
exhaust pollutants to control. They are not fuel based but are produced by
the oxidation of nitrogen in the combustion air and their formation requires
high temperature (2500 degrees F and above). The higher the temperature, the
more NOx is produced. Thus NOx is produced in proportion to engine power
output and efficiency. Meeting even the current minimum standards requires
sacrifice of performance and economy.

    The NOxMaster(TM) utilizes both the non-catalytic reaction that occurs
at high temperature, and the catalytic reaction at lower temperature. Tests
have confirmed this approach. Further test data has shown the desired
reaction does occur in the presence of excess air (oxygen) and might even be
enhanced by the oxygen. Thus the NOxMaster(TM) device gives the manufacturer
a method of control, which is essentially independent of engine operating
parameters and provides new options for economy and performance.

    As of this filing, the NOxMaster(TM) Diesel Catalytic Converter is
undergoing road trials and is expected to be available for production and
delivery during the third quarter of the year 2001 to potential overseas
customers with whom distribution negotiations are underway. This product can
also be distributed in states other than California where an Executive Order
is required before distribution can commence.

    The Company is planning a Beta Test and Evaluation program with major
fleet operators in Southern California who are required to submit pollution
control plans to the Southern California Air Quality Management District
(SCQMD). The testing laboratory of California Environmental Engineering
(CEE) in Santa Ana, California has been certified by the California Air
Resources Board (CARB) and is the Company's laboratory of choice for the
continued testing of the product. CEE is used extensively by CARB for its
own testing programs.

    The Company anticipates securing an Executive Order (EO) by the end of
the 3rd Quarter of the year 2001 from the California Air Resources Board
(CARB). The EO states that the product does not increase NOx emissions and

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will allow the Company to sell the product(s) in the state of California.
Once the production prototype is finalized the Company will request formal
testing by the CARB to validate the finding of CEE and thereby certifying
that the device does in fact reduce NOx in significant amounts to qualify
for emission credits.

    Emission Credits.   The emphasis will be on NOx reduction products,
which are not required by law or regulation, thereby satisfying the mobile
source emission reduction criteria for "emission credits". The Guidelines
for the Generation and Use of Mobile Source Emission Reduction Credits,
published by the California Environmental Protection Agency, Air Resources
Boards and Mobile Source Emission Reduction Credits were approved by the
ARB on February 19, 1993.

    The document states that NOx is the only pollutant considered in the
guidelines as a reasonable candidate for credit generation. These emission
credits are currently traded on a commodity-like exchange and are valued in
the range over $20,000 per ton. The Company believes the value of these
emission credits will be a very substantial tool in the marketing of the
NOxMaster(TM) products to fleet vehicle owners, especially the diesel
transportation industry.

    Once production and sales begin, the Company anticipates employing
initially 15 to 20 employees, primarily in management, technical and
administrative capacities. The Company is actively seeking sources of
funding for its operating capital requirements both to complete its test
and evaluation programs and to support initial sales and production.

    On December 29th, 1999 the Company signed a Letter of Intent with
Extengine Transport Systems, LLC regarding the awarding of licenses for
commercial exploitation of the Company's technology in China, India,
California and the US Urban and School Bus markets. This was subsequently
followed by completion of Licensing Agreements, the exclusive terms of
which, if fulfilled, would represent significant income to the Company over
the succeeding 10 years. As part of the Agreement, Extengine Transport
Systems LLC has invested funds in the Company to cover the costs of Research
and Development to fulfill contracts requiring the demonstration of NOx
reduction capability with regard to a number of engines supplied by major
Chinese automotive companies. In addition, Extengine and the Company have
jointly applied to the California Energy Commission for funding under the
Carl Moyer Heavy-Duty NOx Reduction Advanced Technology Development Program.
The subject for this funding was the proposed integrated NOxMaster/ AEA
Electrocat System. Discussions have also been held with the Metropolitan
Transportation Authority of Los Angeles with regard to the testing of the
Company's products on its buses as part of the Extengine drive to exploit
the Company's technologies in the Urban Bus market.

    Engine and vehicle testing equipment has been purchased and installed
at the Company's new R & D facilities in Newport Beach, CA. Highly
qualified full-time and part-time employees and consultants were hired at
the beginning of the 2nd Quarter of 2000.

    As seen in the accompanying financial statements and the notes thereto,
the SEC has commented on an error they perceive in the application of an
accounting rule applied to the original recording of the value of patents
on the Company's books in 1995. They have requested that our financial
statements be restated to remove the valuation of $3,500,000 as an

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intangible asset. We have complied with this request.  This change is
being made to correct a five year old accounting error only and does not
result from any alleged wrongful conduct on the part of the Company. The
Company believes that this technicality results in a balance sheet that
does not represent in any way the true value of the Company's intangible
assets and the SEC has agreed that this may well be true.

    In 2000, one of the UK's pre-eminent valuation companies, Valuation
Consulting of London, who counts the governments of the UK, US, and Canada
among their clients, valued the Company at $165,388,014. This was based on
their independent review of the Company's currently issued patents, the
state of worldwide emission control legislation requiring NOx and
particulate reductions in vehicle and stationary engines, and the ensuing
market for patented technology that effectively addresses these issues. The
Company is well positioned to take advantage of this burgeoning market.  It
has unique patents covering ammonia injection that provide it with a
protected market opportunity in a technology that the Company believes will
be the most cost-effective combined NOx and particulate reduction system.

Disclosure Regarding Forward-Looking Statements:

Where this Form 10-QSB includes "forward-looking" statements within the
meaning of Section 27A and Section 21E of the Securities Act, the Company
desires to take advantage of the "safe harbor" provisions thereof.
Therefore, the Company is including this statement for the express purpose
of availing itself of the protections of such safe harbor provisions with
respect to all of such forward-looking statements. The forward-looking
statements in this Form 10-QSB reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ from those anticipated.  These risks include, but
are not limited to, economic conditions, changes in environmental
regulations, the market for venture capital, etc.  In this Form 10-QSB, the
words "anticipates," "believes, "expects," "intends," "future" and similar
expressions identify forward-looking statements. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect
events or circumstances that may arise after the date hereof. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by
this section.


ITEM 7.    FINANCIAL STATEMENTS

    See the Index to Financial Statements on page F-1 immediately
following the signature page of this Form 10-KSB


ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

         None






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                                  PART III

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
           COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      Name           Age      Position/Office        Term     Served Since
------------------   ---  ------------------------  -------   ------------
Lester Berriman      76   Director/ VP-Research     2 years    April 1995

Lionel Simons        66   Director/President/
                          Secretary/Treasurer       2 years     Dec. 1995

William H. Ward Jr   61   Director/Consultant       2 years     Nov. 1996

Lester Berriman, P.E., Chairman and VP-Research. A Professional Engineer
with a degree in Chemical Engineering,  Mr. Berriman leads the Company in
its research and development. Mr. Berriman served 20 years as manager of
Chemical and Mechanical Engineering for the Southern California laboratories
of the Stanford research Institute and 17 years with Dresser Corporate
Advanced technology which included 2 years as their Director of the Advanced
Technology Center. Mr. Berriman has 21 United States patents and over 80
foreign patents to his credit and is one of the co-developers of the
NOxMaster(TM) technology. Mr. Berriman is also very closely aligned with the
California Air Resources Board (CARB) and the South Coast Air Quality
Management District (AQMD).

Lionel Simons, President and Secretary. Mr. Simons attended the London
School of Economics where he earned his Bachelor of Science in Economics and
was awarded one of seven Leverhume Scholarships. He earned his Masters in
Business Administration, majoring in International Business and Marketing,
at the Columbia University Graduate School of Business. While Managing
Director of Denbyware Ltd. of England, a manufacturing Company with over
1,000 employees, he increased sales from $10 million to $25 million and took
the Company public via the London Stock Exchange. As President of Dunn
Systems, a medical imaging manufacturing Company with over 150 employees, he
increased OEM sales from $3 million to $15 million before merging with a
major NASDAQ Company. He spent 2 years with Thunder Engine Company,
developers of a 600 hp heavy duty multi-fuel light-weight aluminum engine,
and successfully concluded technology transfer agreements with companies in
China, Korea and Canada.

William H. Ward Jr., B.S. (Chemistry), Director/ Consultant. As an expert in
electronic control systems and instrumentation, Mr. Ward has contributed to
the controller technology for the NOxMaster(TM) for which a patent has been
applied. While his degree is in chemistry, contributing to his understanding
of the Company's underlying technology, most of his career has been spent in
electronic engineering and design. for example he established and managed
the electronics and instrumentation lab at UC Irvine School of Physical
Sciences. As Vice President for R & D and a founder of General Monitors,
Inc., he designed a successful line of combustible and toxic gas detectors.

The Company became the sole source for Mr. Ward's hydrogen detectors for the
NASA Apollo mission. Mr. Ward holds 8 patents for various types of sensor
and instrumentation devices.




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ITEM 10.    EXECUTIVE COMPENSATION

Mr. Berriman, Mr. Simons and Mr. Zabsky voluntarily terminated employment
and consulting contracts with the Company in mid-1996 and the Company, with
their consent, also terminated a stock option and compensation plan for
Directors. In 1999 and 2000, the Company awarded the following non-cash
stock compensation for services rendered:

      (a) SUMMARY COMPENSATION TABLE

                       Annual Compensation

   Names and                                    Other Annual    Market
Principle Position      Year   Salary   Bonus   Compensation    Value
---------------------   ----   ------   -----  --------------  --------
Lionel Simons           2000     -0-     -0-   100,000 shares  $ 17,000
President/Secretary     1999     -0-     -0-   340,000 shares    96,563
                        1998     -0-     -0-    50,000 shares    18,750

Lester Berriman         2000     -0-     -0-   100,000 shares  $ 17,000
Chairman/ VP-Research   1999     -0 -    -0-   340,000 shares    96,563
                        1998     -0 -    -0-    50,000 shares    18,750

William H. Ward Jr.     2000     -0-     -0-    50,000 shares  $  8,500 (1)
Director/Consultant     1999     -0-     -0-   400,000 shares   118,750 (1)
                        1998     -0-     -0-    10,000 shares     3,750 (1)

John Zabsky d.b.a.
  John Z Co.            2000     -0-     -0-    50,000 shares  $  8,500 (1)
Consultant              1999     -0-     -0-   340,000 shares    96,563 (1)
                        1998     -0-     -0-    50,000 shares    18,750 (1)

  (1) Compensation is provided to Mr. Ward and Mr. Zabsky as outside
      consultants.
  (2) All shares presented are common shares.  No preferred shares were held
      by members of Management.

      (b) OPTION/STOCK APPRECIATION RIGHTS

    No stock options were granted during 2000 or free standing SARs to
executive officers of the Company.

      (c) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR
          VALUE TABLE

    There was no exercise during 2000 of stock options and free standing
SARs by executive officers of the Company.

      (d) LONG TERM INCENTIVE PLAN ("LITP") AWARDS TABLE

    The Company did not make any long-term incentive plan awards to any
executive officer in 2000.

      (e) COMPENSATION OF DIRECTORS

    No Directors of the Company received cash compensation for their
services as Director during 2000.  See the table at (a) of this Item 10
regarding compensation through newly issued stock.

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      (f) EMPLOYMENT CONTRACTS

    The Company has no employment contracts.


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth a list of persons known to the Company
to be the beneficial owner of more than five percent of the Company's voting
stock.

                                           Amount of
Title of     Name and Address of           Beneficial       Percent
 Class        Beneficial Owner            Ownership(1)       of Class
--------   ----------------------         ------------      --------
Common     Pollution Control Inc.           4,993,877         39.7%
           328 Bay street
           Nassau, Bahamas

Common     Lionel Simons                    5,208,685 (2)(3)  41.4%
           President/Director
           36 Corniche Drive, Suite E
           Dana Point, CA 92629

Common     Lester Berriman                    667,048          5.3%
           18871 Portofino Drive
           Irvine, CA 92715

Common     Ecologic,LLC                     1,400,000         11.1%
           c/o Citadel Mgmt. Corp.
           1128 Mission St.
           South Pasadena, CA 91030

(1) All shares presented are common shares.  No preferred shares were held
    by members of Management at December 31, 2000.
(2) Lionel Simons maintains an indirect controlling beneficial interest in
    Pollution Control, Inc. through a family trust. See item 12.
(3) Total shares reported as held by Lionel Simons includes 20,000 shares
    held by Kimberly Simons who is his daughter, 9,800 shares held by
    Barbara J. Simons who is his wife, and the shares held by Pollution
    Control, Inc.
(4) All share amounts have been revised to reflect the 2 for 1 split
    authorized and effective March 20, 2000.












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    The following table sets forth a list of the beneficial ownership in the
Company by officers and directors.

                                           Amount of
Title of     Name and Address of           Beneficial       Percent
 Class        Beneficial Owner            Ownership(1)       of Class
--------   ----------------------         ------------      --------
Common     Lionel Simons                    5,208,685 (2)(3)  41.4%
           President/Director
           36 Corniche Drive, Suite E
           Dana Point, CA 92629

Common     Lester Berriman                    667,048          5.3%
           18871 Portofino Drive
           Irvine, CA 92715

Common     William H. Ward, Jr.               490,000          3.9%
           273 Hanover Drive
           Costa Mesa, CA 92626

Common     All officers and directors
           as a group:                      6,365,733 (4)     50.6%

(1) All shares presented are common shares.  No preferred shares were held
    by members of Management at December 31, 2000.
(2) Lionel Simons maintains an indirect controlling beneficial interest in
    Pollution Control, Inc. through a family trust. See item 12.
(3) Total shares reported as held by Lionel Simons includes 20,000 shares
    held by Kimberly Simons who is his daughter, 9,800 shares held by
    Barbara J. Simons who is his wife, and 4,993,877 shares held by
    Pollution Control, Inc.
(4) Due to the controlling interest in Pollution Control, Inc. held by
    Lionel Simons, shares held by Pollution Control have been attributed
    to him for purposes of this total.


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Lionel Simons, President of KleenAir Systems, Inc. is also President of, and
a beneficial owner of Pollution Control Inc. through family trusts. Mr.
Simons has a Power of Attorney from Pollution Control, which permits him to
vote on its behalf.

See also the discussion of related party transactions presented at Note
10 to the financial statements.


ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following documents are filed as a part of this report or are
incorporated by reference.

  Financial Statements - The following information has been included in
  response to Item 8.




                                     11

<PAGE>
<PAGE>

                                                                   Page
                                                                   ----
       - Report of Independent Certified Public Accountants         F-2
       - Consolidated Balance Sheets                                F-3
       - Consolidated Statements of Operations                      F-4
       - Consolidated Statements of Shareholders' Equity            F-5
       - Consolidated Statements of Cash Flows                      F-6
       - Notes to Consolidated Financial Statements                 F-8

  Exhibits - The following Exhibits are furnished as a part of this
             report:

      Exhibit No.                Description
      -----------   -----------------------------------------
        23.1      * Consent of Robert Early & Company, P.C.

                  - -------------
                  * Filed herewith.

(b)  Reports on Form 8-K

        None


                                  SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                        KLEENAIR SYSTEMS, INC.

Date:  August 24, 2001                      /s/ LIONEL SIMONS
                                        By: Lionel Simons., President,
                                        Secretary, Principal Accounting
                                        Officer, & Principal Financial
                                        Officer

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated:

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

   /s/ LIONEL SIMONS                     Director         August 24, 2001
  Lionel Simons


   /s/ LESTER BERRIMAN                   Director         August 24, 2001
  Lester Berriman


   /s/ WILLIAM H.  WARD, Jr.             Director         August 24, 2001
  William H. Ward, Jr.


                                     12

<PAGE>
<PAGE>
                        KLEENAIR SYSTEMS, INC.
                    (A Development Stage Company)







                    INDEX TO FINANCIAL STATEMENTS


                                                                    Page
                                                                    ----
Report of Independent Certified Public Accountants  .  .  .  .  .    F-2

Balance Sheets as of December 31, 2000 and 1999  .  .  .  .  .  .    F-3

Statements of Operations for the fiscal years ended
    December 31, 2000 and 1999 .  .  .  .  .  .  .  .  .  .  .  .    F-4

Statement of Stockholders' Equity for the fiscal years ended
    December 31, 2000 and 1999 .  .  .  .  .  .  .  .  .  .  .  .    F-5

Statements of Cash Flows for the fiscal years ended
    December 31, 2000 and 1999 .  .  .  .  .  .  .  .  .  .  .  .    F-7

Notes to Financial Statements  .  .  .  .  .  .  .  .  .  .  .  .    F-8













                                    F-1

<PAGE>
<PAGE>
          REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
KleenAir Systems, Inc.
Dana Point, California


We have audited the accompanying balance sheets of KleenAir Systems, Inc.
(a development stage Company) as of December 31, 2000 and 1999, and the
related statements of operations, stockholders' equity and cash flows for
the years then ended.   We have also audited the cumulative statements of
operations, stockholders' equity, and cash flows for the period from
January 1, 1995 through December 31, 2000.  These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of KleenAir Systems, Inc. at
December 31, 2000 and 1999, and the results of its operations and its cash
flows for the years and cumulative period  then ended in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 2 to the
financial statements, the Company is in the development stage and has no
operating revenues.  This situation raises substantial doubt as to the
Company's ability to continue as a going concern.  Management's plans in
regard to this situation are also described in Note 2.  The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.



/s/ ROBERT EARLY & COMPANY
Robert Early & Company, P.C.
Abilene, Texas

April 2, 2001, except for the matter discussed at Note 3 which is as of
               August 15, 2001.





                                    F-2

<PAGE>
<PAGE>
                           KLEENAIR SYSTEMS, INC.
                       (A Development Stage Company)
                               BALANCE SHEETS
                      As of December 31, 2000 and 1999



                                ASSETS

                                                       2000            1999
                                                    ----------      ----------
CURRENT ASSETS:
    Cash                                            $   24,365      $   25,980
    Accounts receivable from related party              55,693              -
    Prepaid expenses                                   198,925             800
                                                    ----------      ----------
        Total Current Assets                           278,983          26,780

PROPERTY AND EQUIPMENT (net)                            60,482          14,815

OTHER ASSETS:
    Patent license                                     130,049         118,958
                                                    ----------      ----------
    TOTAL ASSETS                                    $  469,514      $  160,553
                                                    ==========      ==========


                 LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
    Accounts payable ($67,453 and $52,805
      due to related parties, respectively)         $  119,151      $   71,796
    Advances from directors                             40,000          25,000
                                                    ----------      ----------
        Total Current Liabilities                      159,151          96,796
                                                    ----------      ----------

STOCKHOLDERS' EQUITY:
    Preferred stock, series A, $.001 par
    value (10,000,000 shares authorized,
    none and 163,332 outstanding,
    respectively)                                           -              163
    Common stock, $.001 par value (50,000,000
      shares authorized, 12,579,082 and
      9,357,480 outstanding, respectively)              12,579           9,357
    Additional paid-in capital                       3,375,835       2,415,276
    Deficit accumulated during the
    development stage                               (3,078,051)     (2,361,039)
                                                    ----------      ----------
        Total Stockholder's Equity                     310,363          63,757
                                                    ----------      ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY          $  469,514      $  160,553
                                                    ==========      ==========




The accompanying notes are an integral part of these financial statements.
                                    F-3

<PAGE>
<PAGE>
                           KLEENAIR SYSTEMS, INC.
                       (A Development Stage Company)
                          STATEMENTS OF OPERATIONS
                 For Years Ended December 31, 2000 and 1999

                                                                   Cumulative
                                                                  During Devel-
                                             2000        1999      opment Stage
                                          ---------   ----------   -----------
PRODUCT DEVELOPMENT COSTS               $   128,964   $   82,170   $   462,794

OPERATING EXPENSES:
  Personnel costs and director fees          51,000      335,649       522,274
  Consultants                               388,245      298,992     1,278,360
  Professional fees                          48,576       67,527       200,953
  Office expenses                             3,010        1,347        23,714
  Depreciation                               10,510        2,346        13,001
  Advertising and promotion                  17,318        1,581       152,347
  Loss on cancellation of licensing
    agreements                                   -            -         19,860
  Rent                                       27,500        5,000        32,500
  Other expenses                             44,318        8,110        75,368
  Unknown - prior to current ownership           -            -        151,518
                                          ---------   ----------   -----------
      Total operating expenses              590,477      720,552     2,469,895
                                          ---------   ----------   -----------
LOSS FROM OPERATIONS                       (719,441)    (802,722)   (2,932,689)

OTHER INCOME AND (EXPENSES):
  Interest income                             2,429           -          2,429
  Amortization of discount on receivables        -            -         20,259
                                          ---------   ----------   -----------
Loss Before Extraordinary Item             (717,012)    (802,722)   (2,910,001)
Extraordinary Item:
  Costs of terminated acquisition                -            -       (168,050)
                                          ---------   ----------   -----------
Net Loss                                  $(717,012)  $ (802,722)  $(3,078,051)
                                          =========   ==========   ===========
Earnings per Share:
Basic:
Loss Per Share Before Extraordinary
   Item                                   $   (0.07)  $    (0.11)  $     (0.75)
Loss Per Share From Extraordinary Item           -            -          (0.04)
                                          ---------   ----------   -----------
Net Loss Per Share                        $   (0.07)  $    (0.11)  $     (0.79)
                                          =========   ==========   ===========
Weighted Average Shares Outstanding
  Basic                                  11,008,972    7,557,444     3,881,954
                                         ==========   ==========   ===========




The accompanying notes are an integral part of these financial statements.
                                    F-4

<PAGE>
<PAGE>
<TABLE>
                           KLEENAIR SYSTEMS, INC.
                       (A Development Stage Company)
                     STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
                                                                                                           Accumulated
                                                                                  Additional  Unearned    Deficit During
                                     Preferred Stock         Common  Stock         Paid-In     Compen-    Development
                                      Shares    Amount      Shares     Amount      Capital     sation       Stage
                                    ---------  --------   ---------  ----------   ---------   ---------   ----------
<S>                                 <C>        <C>        <C>        <C>          <C>         <C>         <C>
BALANCES, 1/1/95                           -   $     -       74,132  $       74   $ 151,444   $      -    $ (151,518)

Stock issued for cash                      -         -       27,334          27      66,982          -            -
  For adjustment                           -         -          534           1          -           -            -
  For consulting services                  -         -       86,148          86     279,439          -            -
  For professional services                -         -        4,666           5      12,745          -            -
  For purchase of patent rights       933,334       934      60,000          60      13,905          -            -
  For directors' compensation              -         -        4,000           4      22,496          -            -
  For officers' compensation           33,334        33       9,334           9     194,958          -            -
Other contributed capital                  -         -           -           -        2,367          -            -
Options compensation                       -         -           -           -       70,313    (152,016)          -
Net loss                                   -         -           -           -           -           -      (329,289)
                                    ---------  --------   ---------  ----------   ---------   ---------   ----------
BALANCES, 12/31/95                    966,668       967     266,148         266     814,649    (152,016)    (480,807)

Stock issued for services              13,332        13      24,666          25     201,837     (78,750)          -
  For officers' compensation           33,332        33          -           -       15,592     (15,625)          -
  For aborted acquisition                  -         -       40,000          40     140,510          -            -
Exercise of options                        -         -       75,000          75     112,424          -            -
Conversion to common                 (318,666)     (319)    318,666         319          -           -            -
Net Loss                                   -         -           -           -           -      187,346     (716,511)
                                    ---------  --------   ---------  ----------   ---------   ---------   ----------
BALANCES, 12/31/96                    694,666       694     724,480         725   1,285,012     (59,045)  (1,197,318)

Stock issued for cash                      -         -      120,000         120      14,880          -            -
  For officers' compensation           33,334        33          -           -        3,842      (3,875)          -
Conversion to common                 (100,000)      100)    100,000         100          -           -            -
Net loss                                   -         -           -           -           -       37,979      (55,438)
                                    ---------  --------   ---------  ----------   ---------   ---------   ----------
BALANCES, 12/31/97                    628,000       627     944,480         945   1,303,734     (24,941)  (1,252,756)

(Continued on next page)

<FN>
The accompanying notes are an integral part of these financial statements.
                                     F-5
</FN>
</TABLE>

<PAGE>
<PAGE>
<TABLE>
                           KLEENAIR SYSTEMS, INC.
                       (A Development Stage Company)
                     STATEMENT OF STOCKHOLDERS' EQUITY
                                (Continued)
<CAPTION>
                                                                                                          Accumulated
                                                                                  Additional   Unearned   Deficit During
                                     Preferred Stock           Common Stock        Paid-In      Compen-   Development
                                      Shares    Amount      Shares     Amount      Capital      sation       Stage
                                    ---------  --------   ----------  ----------  ----------   ---------  -----------
<S>                                 <C>        <C>        <C>         <C>         <C>          <C>        <C>
Stock issued for cash                      -   $     -       800,000  $      800  $  199,200   $      -    $       -
  For services                             -         -     2,120,000       2,120      92,255          -            -
  To officers and directors                -         -       320,000         320      59,680
  For diesel license                       -         -     2,000,000       2,000      60,500          -            -
Conversion to common                 (403,334)     (403      403,334         403          -           -            -
Net loss                                   -         -            -           -           -       24,941     (305,561)
                                    ---------  --------   ----------  ----------  ----------   ---------  -----------

BALANCES, 12/31/98                    224,666       224    6,587,814       6,588   1,715,369          -    (1,558,317)

Stock issued for cash                      -         -       146,800         147      35,653          -            -
  For services                             -         -     1,103,334       1,103     247,179          -            -
  For equipment                            -         -        33,200          33       8,267          -            -
  To officers and directors                -         -     1,425,000       1,425     408,808          -            -
Conversion to common                  (61,334)      (61)      61,334          61          -           -            -
Net loss                                   -         -            -           -           -           -      (802,722)
                                    ---------  --------   ----------  ----------  ----------   ---------  -----------
BALANCES, 12/31/99                    163,332       163    9,357,482       9,357   2,415,276          -    (2,361,039)

Stock issued for cash                      -         -     1,414,000       1,414     357,336          -            -
  For services                             -         -     1,642,666       1,643     600,024          -            -
  As promotion                             -         -         1,600           2       3,199          -            -
Conversion to common                 (163,332)     (163)     163,334         163          -           -            -
Net loss                                   -         -            -           -           -           -      (717,012)
                                    ---------  --------   ----------  ----------  ----------   ---------  -----------
BALANCES, 12/31/00                         -   $     -    12,579,082  $   12,579  $3,375,835   $      -   $(3,078,051)
                                    =========  ========   ==========  ==========  ==========   =========  ===========

<FN>
The accompanying notes are an integral part of these financial statements.
                                     F-6
</FN>
</TABLE>

<PAGE>
<PAGE>
                           KLEENAIR SYSTEMS, INC.
                       (A Development Stage Company)
                          STATEMENTS OF CASH FLOWS
             Increases/(Decreases) in Cash and Cash Equivalents
                 For Years Ended December 31, 2000 and 1999

                                                                   Cumulative
                                                                 During Devel-
                                              2000       1999     opment Stage
                                           ---------   ---------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)                          $(717,012)  $(802,722)  $(3,078,051)
Adjustments to reconcile net (loss) to
  net cash provided by operations:
  Losses prior to current ownership               -           -        151,518
  Depreciation                                10,510       2,346        13,001
  Amortization of:
    Prepaid expenses                         178,125      90,000       430,345
    Deferred services                             -           -        250,267
  Stock issued for services                  248,617     658,515     1,340,082
  Stock issued for extraordinary loss             -           -        140,550
Accounts receivable                          (55,694)         -        (55,694)
Advances to consultants                           -           -         20,000
Prepaid expenses                             (20,000)       (800)     (200,800)
Trade accounts payable                        47,355      31,285       119,151
Advances from directors                       15,000      22,800        40,000
                                           ---------   ---------   -----------
NET CASH USED BY OPERATING ACTIVITIES       (293,099)      1,424      (829,631)
                                           ---------   ---------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Property and equipment                     (56,175)     (7,266)      (65,181)
  Patent licensing costs                     (11,091)     (4,421)      (52,649)
                                           ---------   ---------   -----------
NET CASH USED IN INVESTING ACTIVITIES        (67,266)    (11,687)     (117,830)
                                           ---------   ---------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuing stock                358,750      35,800       969,459
  Additional capital contributions                -           -          2,367
                                           ---------   ---------   -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES    358,750      35,800       971,826
                                           ---------   ---------   -----------
NET INCREASE/(DECREASE) IN CASH               (1,615)     25,537        24,365

CASH AT BEGINNING OF YEAR                     25,980         443            -
                                           ---------   ---------   -----------
CASH AT END OF YEAR                        $  24,365   $  25,980   $    24,365
                                           =========   =========   ===========
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
     Interest                              $      -    $      -  $          -
     Income taxes                                 -           -             -
Non-cash investing and financing transactions:
     Stock issued for:
       Compensation and directors' fees       51,000     410,233       648,108
       Services and prepaid services         553,867     248,582     1,164,649
       Equipment                                  -        8,300         8,300
       Patent licensing                           -           -         14,900
       Repurchase of U.S. diesel license          -           -         62,500
       Acquisition of National Diversified
        Telecom, Inc.                             -           -        140,550
       Sale of marketing licenses for
         notes receivable                         -           -      1,736,558

The accompanying notes are an integral part of these financial statements.
                                    F-7

<PAGE>
<PAGE>
                        KLEENAIR SYSTEMS, INC.
                    (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS
                      December 31, 2000 and 1999


DESCRIPTION OF BUSINESS

KleenAir Systems, Inc. (the Company) was originally incorporated in 1986
in Nevada as Covington Capital Corporation.  The Company has had various
names during its existence as various endeavors were attempted.  None of
these actually became fruitful.  The Company was most recently known as
Investment & Consulting International, Inc. until April 1995.  At that
time, the Company purchased a patent for a proprietary device shown to be
capable of neutralizing the environmental impact of nitrous oxide from
automobile exhaust emissions without significant modification to the
vehicle.  This device is known as the "NOXMASTER ".  Soon after the
acquisition of this patent and the right to use of the seller's name, the
Company changed to its current name.  With the patent acquisition in April
1995, the Company moved into the development stage and has since worked
toward the completion of tests, fine tuning, and clearance of California
Air Resources Board standards.


NOTE 1:   SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

The Company's accounting and reporting policies conform with generally
accepted accounting principles.  Policies which materially affect the
determination of financial position, cash flows, and results of operations
are summarized as follows:

Development stage reporting -- Generally accepted accounting principles
call for certain presentations of cumulative financial statement informa-
tion from inception to the date of the financial statements.  Since the
Company restarted its operations (from a position of inactivity) in April
1995, these statements present information from the inception of its
development stage.

Patent License -- The Company purchased the rights to a patent and devel-
oped others as discussed at Note 6 below.  The cost of the patent and
licenses, along with legal costs incurred to register and protect them,
have been capitalized and will be amortized once the Company commences
sales of the product.  Amortization will be charged on a straight-line
basis over seven years.  No amortization expense related to these rights
has been charged to operations because development of the underlying
patented device has not been completed.  Amortization will begin when
sales of the device are initiated.

Property and Equipment -- Property and equipment are carried at depreci-
ated cost.  Expenditures for major renewals and betterments which extend
the useful lives are capitalized.  Expenditures for maintenance and
repairs are charged to expense as incurred.  The cost of property and
equipment is depreciated over the estimated useful lives of the related
asset.  Depreciation is computed on the straight-line method for financial
reporting purposes and on the applicable Modified Accelerated Cost Recov-
ery System method for income tax purposes.  In addition, tax depreciation


                                    F-8

<PAGE>
<PAGE>
includes the benefits of first year expensing under Internal Revenue Code
Section 179 whenever it is advantageous to the Company make this election.

Income Taxes -- The Company accounts for income taxes in accordance with
FASB Statement No. 109, "Accounting for Income Taxes."  Under FAS 109,
deferred income tax assets and liabilities are recorded for the income tax
effects of differences between the bases of assets and liabilities for
financial reporting purposes and their bases for income tax reporting.
The Company's differences arise principally from the use of accelerated
and modified accelerated cost recovery system for income tax purposes
versus straight line depreciation and from utilization of net operating
loss carry-forwards.

Deferred tax assets and liabilities are the amounts by which the Company's
future income taxes are expected to be impacted by these differences as
they reverse.  Deferred tax assets are expected to reduce future income
taxes.  Correspondingly, deferred tax liabilities are expected to increase
future income taxes.  Note 5 below discusses the amounts of deferred tax
benefits and deferred tax liabilities.  The Note also presents the impact
of significant differences between financial reporting income and taxable
income.

Earnings Per Share -- In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share," which requires the Company to present basic and
diluted earnings per share, instead of the primary and fully diluted
earning per share.  The computation of basic earning per share is based on
the weighted average number of common shares outstanding during the
periods presented.  The computation of diluted earnings per shares is
based on the weighted average number of outstanding common shares during
the year plus, when their effect is dilutive, additional issuable shares,
assuming the exercise of certain vested and non-vested stock options and
warrants and conversion rights, reduced by the number of shares which
could be purchased from any proceeds generated.

Cash Flows -- The Company considers cash to be its only cash equivalent
for purposes of presenting its Statements of Cash Flows.

Accounting Estimates -- The preparation of financial statements in confor-
mity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities, the 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.


NOTE 2:   GOING CONCERN

These financial statements have been prepared assuming that the Company
will continue as a going concern.  The Company has neither sufficient
operating revenues or disposable assets to fund completion of its develop-
ment program, current level of expenses, or initial production stages.  In
this situation, the Company is reliant solely upon its ability to raise
capital through sales of its stock, debt financing, or acquisition of
services through issuances of the Company's stock.  There is no assurance
that a market exists for the sale of the Company's stock or that lenders

                                    F-9

<PAGE>
<PAGE>
could be found to loan money to the Company.  Should financing not be
available, the Company would, in all likelihood, be forced to stop devel-
opment efforts and/or to shut down its activities completely.

Management has entered into certain agreements that are designed to
provide funding for the completion of testing and trials to obtain evi-
dence to support claims regarding the technology's capabilities and to
obtain Executive Orders from the State of California regarding their
approval of the technology as a emission control device.  As such, Manage-
ment anticipates that development activities being carried on by the
Company will be continued and that there should be no substantial diffi-
culties in obtaining sufficient financing to carry its project through to
completion and subsequent distribution.  The financial statements do not
include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amount of liabilities that might be
necessary should the Company be unable to continue in existence.


NOTE 3:   CORRECTION OF AN ACCOUNTING ERROR

Upon review of the Company's financial statements, the SEC has determined
that the Company recorded an incorrect value for its patent in 1995.  The
Company recorded the value of its patent at $3,500,000 based on offers to
purchase the patent made to the previous owners.  However, the SEC requires
a very conservative interpretation of the applicable accounting rules with
regard to the acquisition of intangible assets when the consideration given
is non marketable stock rather than cash.  In accordance with the required
correction, the patent's originally recorded value is being revised downward
from the estimated value of the patent to the par value of the stock issued,
i.e. $7,000.  The correction of the error has resulted in a corresponding
reduction of Additional Paid in Capital.


NOTE 4:   ACCOUNTS RECEIVABLE

During the last quarter of 2000, the Company incurred travel, engineering,
and other expenses in assisting NOxMaster, Ltd.  of England with the
testing of the products on London taxicabs.  NOxMaster was awarded a
portion of a U.K. government funded grant for this testing.  The receiv-
able reported in the financial statements is for the reimbursement by
NOxMaster to the Company for the expenses so incurred.


NOTE 5:   PREPAID EXPENSES

The Company has prepaid for services under four consulting agreements and
for laboratory testing of its products in California.  The five consulting
agreements were funded through the issuance of unrestricted stock valued
at $356,250.  These contracts were for services to be provided over a one
year period beginning in July 2000.  One-half of this cost has been
amortized during 2000 with the balance in prepaid expense.  Additionally,
as mentioned, the Company has paid $20,000 for approved testing work to be
done in California.  These tests were delayed and the funds were left on
deposit for the testing which has begun during March 2001.



                                    F-10

<PAGE>
<PAGE>
NOTE 6:   FEDERAL INCOME TAXES

Because of  timing, relative insignificance, and changes in control and
management, the Company believes that it cannot benefit from operating
losses prior to 1995 in calculating its income taxes.  Operating losses
reported for tax purposes vary from accumulated deficits in retained
earnings due to differences in tax treatment, deductibility, or timing of
various items.   The tax loss carry-forwards are as follows:

                                        Amount of Net
                Year of                Operating Loss
              Expiration                Carry Forward
              ----------               --------------
                 2010                    $  148,187
                 2011                       901,206
                 2012                        79,438
                 2018                       305,825
                 2019                       804,046
                 2020                       720,022
                                         ----------
                                         $2,958,724
                                         ==========

The Company has deferred tax assets (no liabilities) at December 31, 2000
and 1999.  These assets have arisen from the difference in the depreciation
deduction for book and tax purposes, from tax loss carry-forwards, and from
the difference between the tax and book bases for the patent acquisition.
These deferred tax assets total $1,528,314 and $1,284,530 at December 31,
2000 and 1999, respectively.  However, because management is unable to
determine at this point that it is more likely than not that the Company
will be able to utilize these deductions against future revenues, a
valuation allowance has been recorded to offset the assets.  There is no
current income tax benefit or expense to be reported for the periods ended
December 31, 2000 and 1999.  The following table sets forth the reconciling
items between income per books and taxable income.

                                             2000          1999
                                          ---------      ---------
    Book Income                           $(717,012)     $(802,722)
    Depreciation                             (3,010)        (1,324)
                                          ---------      ---------
    Taxable income                        $(720,022)     $(804,046)
                                          =========      =========

Deferred tax liabilities arise primarily from the use of accelerated methods
of depreciation of property and equipment for tax purposes and from a
difference in the tax and book bases for the patent acquisition.


NOTE 7:   PATENTS, LICENSE, RESEARCH AND DEVELOPMENT

During April 1995, the Company acquired a patent for a proprietary device
(the "NOXMASTER ") shown to reduce the pollutant content of automobile
emissions.  The cost of acquiring this patent has been capitalized and
included under the caption Patent license on the balance sheet.  Subse-
quent to the acquisition of this patent, the Company has continued to
refine the device and expand its applicability to a wider range of vehi-

                                    F-11

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<PAGE>

cles.  Also, the Company has been in the process of performing tests aimed
at obtaining minimum state approvals to be able to advertise and sell the
device initially as not causing an increase in pollution.  Subsequent
testing and completion of the specified procedures are expected to allow
the Company to obtain a ruling by the California Air Resource Board that
the device does not increase pollutants.  This ruling would greatly expand
the markets for the device.  The Company's rights to the patent are
subject to royalties totaling seven per cent of wholesale sales.  The
royalties do not require the Company to make minimum payments.

In addition to its work toward certification in California, the products
are being tested in England for their application to pollution control on
diesel taxicabs which are in use there.  This testing is being carried on
by NOxMaster, Inc., an entity in which the Company owns a small equity
interest and has granted a marketing license while retaining a right to
royalties as discussed below.

Only the direct costs of acquisition of the license and costs of extending
or perfecting the patents are available for capitalization.  All payments
for the development and production thereof are charged to operations as
development costs when incurred and are included in results of operations.
Management has estimated that additional costs required to obtain execu-
tive orders and additional approvals should be in the $150,000 to $250,000
range.  Management has also estimated that the Company should be able to
obtain the executive orders during 2001, based on agreements in place to
provide funding.

During 2000 and 1999, the Company has obtained additional patents to
extend and protect its patent and has patented a device for emission
control on small engines.  Legal costs to file these patents have been
capitalized.

During 1996, the Company entered into an agreement to grant the Company's
president an exclusive license for the worldwide rights to manufacture,
market, distribute, sell, etc. the NOXMASTER 's application to diesel
engines.  In addition, the agreement granted the same rights for the
NOXMASTER 's application to gasoline engines in Europe, the former Soviet
Union, the Middle East, and Africa.  In exchange for this transfer, the
Company's president has established a publicly held entity, KleenAir
Systems (Europe), PLC (KSE), in the United Kingdom transferred this
license to it.  The Company has received a 30% ownership interest in KSE
and is to receive a royalty of 8% of its gross revenue.  During 1998, the
Company repurchased the rights to the U.S. market by issuing 1,000,000
shares of common stock to Pollution Control, Inc., an entity controlled by
the Company's president.  This action was taken based on the advice of
financial consultants to the Company.

The Company and KSE also entered into an license agreement with Extengine
Transport Systems, LLC (ETS) which is in the business of commercialization
of environmental technologies and products.  This license is for a ten-
year, non-exclusive worldwide manufacturing, marketing, and selling
license for NOXMASTER  devices.  The Company has also entered into an
exclusive ten-year California manufacturing, marketing rights, and distri-
bution rights for application of the NOXMASTER  to gasoline engines and a
ten-year, exclusive manufacturing, marketing, and distribution rights for
application of the NOXMASTER  devices in China and India and to school and
urban buses.  These licenses set out per unit prices and specify minimum

                                    F-12

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<PAGE>
annual units for each application once the Company has produced a commer-
cially viable device and demonstrates manufacturing capability.


NOTE 8:   PROPERTY AND EQUIPMENT

The following table presents costs of property and equipment at December
31, 2000 and 1999.

                                                  2000        1999
                                                --------   --------
   Office furniture and equipment               $  7,447   $  4,006
   Test vehicle                                    5,000      5,000
   Analysis equipment                             61,036      8,300
                                                --------   --------
   Totals                                         73,483     17,306

        Accumulated depreciation                 (13,001)    (2,491)
                                                --------   --------
   Net Property and Equipment                   $ 60,482   $ 14,815
                                                ========   ========

Depreciation expense totaled $10,510 and $2,346 for 2000 and 1999.  The
office furniture and equipment and the analysis equipment are being
depreciated on a straight-line basis over five years and the test auto is
being depreciated on a three-year straight-line basis.


NOTE 9:   COMPENSATORY STOCK BENEFIT PLANS AND VALUATION BASIS

During 1995, the Company adopted a Compensatory Stock Benefit Plan (the
1995 Plan) for the furtherance of the Company by allowing the Company the
option of compensating officers, directors, consultants, and certain other
service providers who render bona fide services to the Company through the
award of the Company's free trading common shares.  Under the Plan, 33,333
shares were approved by the Board of Directors.  Of the shares approved
for the Plan, 13,000 shares were issued, 4,667 were committed in agree-
ments with officers, and 2,667 were committed to a consultant during 1995.
During 1996, 9,667 shares were issued under this plan for directors' fees
and officer compensation. These shares have been issued primarily for
marketing and promotion services, directors' fees, and facilitation of the
purchase of the patent.

The 1995 Plan was terminated with the adoption of a "1996 Consultant and
Employee Stock Compensation Plan" (the 1996 Plan).  The 1996 Plan autho-
rized the issuance of up to 500,000 freely tradable shares.  These shares
were to be used to further the growth through compensation of officers,
directors, consultants, and other service providers.  The board was given
the authority to increase the number of shares as it deemed advisable and
to file any necessary registration statements required for such increases.
Under the 1996 Plan, the Company issued 5,333 during 1996, but did not
issue any shares under this plan in 1997 or 1998.  During 1999, the
Company issued 300,000 shares under this plan for consulting services.

As anticipated by these plans, the Company has acquired services with free
trading shares.  The Company has also issued restricted (Rule 144) stock
in exchange for services.  Transactions utilizing free trading stock have
been valued at the trading price for market shares on the date of the

                                    F-13

<PAGE>
<PAGE>
transaction.  Transactions utilizing restricted stock have been valued at
one-half of the trading price on the date of the transaction.

In July 2000, the Company filed an S-8 registration to register 1,200,000
shares for the compensation under five consulting agreements and reserved
750,000 shares for the future exercise of options under an Employee Stock
Option Plan, discussed below.  The shares for the consultants were issued
in July in order to obtain those services.  Subsequent to this filing, the
board has issued 550,000 of the shares reserved for the ESOP.  Directors/
officers and a key engineering consultant were issued 300,000 of these
shares for unpaid services and a consultant who had previously been issued
restricted shares for his services requested that he be allowed to exchange
those shares for S-8 shares and was allowed to do so under advice of legal
counsel.


NOTE 10:   EMPLOYEE STOCK OPTION PLAN

The Employee Stock Option Plan (ESOP) was established in July 2000 in
coincidence with the S-8 registration and is to provide incentives for the
attraction and retention of personnel.  Its terms call for an exercise
price of 100% of the closing price of the Company's stock on the date of
the grant of the options.  No such grants have been made under this plan
during 2000 and due to the board of directors' actions, only 200,000
shares are available for exercise of such options, should they be granted.


NOTE 11:   STOCKHOLDERS'S EQUITY

During 1986, the Company completed an initial offering of 10,000,000
shares of common stock with net proceeds (after commissions) of $110,233.
Between that time and December 31, 1993, it is apparent that there were
several stock transactions, reverse splits, and other actions.  However,
records regarding this period of time are not available.  Additionally, no
records are available which would allow an analysis of the retained
earnings balance prior to 1994.  Due to this lack of records, management
believes that losses indicated by the negative  retained earnings would
not yield tax benefits to current operations.  Inception-to-date informa-
tion required for development stage companies is also unavailable for this
period.

In March 1995, the Company's Board approved a measure (ratified at a
subsequent shareholders' meeting) whereby the Company's outstanding common
shares were reverse split on the basis of one new share for ten shares
held.  In May 1997, the Board approved another reverse split.  This time
the reverse split was on the basis of one new share for 15 shares held.
In the following discussion, the share amounts have been restated to
reflect the 1 for 15 reverse split.  In February 2000, the Board approved
a 2 for 1 split of shares effective March 20, 2000 in accordance with
current marketing and investment advice.  All share amounts in the finan-
cial statements as well as share amounts presented below have been pre-
sented as though all of these changes in stock had occurred prior to the
earliest presented information.

In April 1995, the Company issued 933,334 shares of convertible, non-
voting preferred stock and 60,000 common shares as consideration for the
patent and a facilitation fee to a consultant.  This transaction was
recorded at the par value of the stock issued, $7,400.

                                    F-14

<PAGE>
<PAGE>
During 1995, other consulting services not directly related to the patent
purchase were obtained through the issuance of 24,000 common shares valued
at total of $111,875.  Directors were issued a total of 4,000 shares
valued at $22,500.  This stock-based compensation, as well as the transac-
tions described below, has been valued as described in Note 8.  The
Company also issued 27,334 common shares pursuant to a Regulation S
offering.  Net proceeds to the Company after commissions were $66,804.  In
addition, $180,400 was received for 66,814 shares under the Regulation S
offering prior to  December 31, 1995, with the shares being issued during
1996.

During 1996, the Company issued 24,666 common shares and 13,334 preferred
shares primarily to officers and directors pursuant to agreements and
directors' resolutions for services rendered.  These shares were valued at
$201,875.  Holders of options also exercised 75,000 options to acquire a
like number of common shares during March 1996 by trading amounts owed
them by the Company for the exercise price.  This action effectively
brought $112,500 to the Company through the reduction in payables.

At December 31, 1997, the Company had not issued 66,666, preferred shares
to its president in accordance with his employment contract.  These shares
were issued during 1998.  During December 1998, the Board approved the
issuance of 320,000 shares of stock to themselves and key consultants as
compensation for services rendered during 1998.  Both of these sets of
shares have been included as outstanding shares and the costs have been
recognized as expenses in the relevant periods.  The shares were issued
during 1999.

During 1998, preferred stockholders exchanged 403,330 shares for a like
number of common shares.  The Company issued 2,000,000 shares to a finan-
cial and public relations consultant for services; 2,000,000 and 800,000
shares to Pollution Control, Inc. for license and cash as discussed at
Note 13; and 100,000 shares to a development consultant.  A director was
issued 20,000 shares for his services.

During March 1999, the Company issued 600,000 shares under its S-8 plan
discussed at Note 8 for investment guidance.  These shares were valued at
$75,000.  Public relations/financial services were obtained during 1999
through the issuance of 508,334 shares valued at $175,079.  Analysis and
test equipment was acquired in exchange for 33,200 shares valued at
$8,300.  The Company also issued 146,800 shares for $35,800 cash and
exchanged 61,334 common shares for the retirement of a like number of
preferred shares.

During 2000, the Company issued 1,400,000 shares to Ecologic, LLC (an
affiliate of Extengine, Inc.) for $350,000 under an agreement to provide
funds for product testing.  The Company issued 300,000 shares valued at
$51,000 to officers and directors and key engineering consultant in lieu
of cash payments for their services to the Company.  Outside consulting
services were obtained in exchange for 1,344,266 shares valued at
$553,868.  (Note 8 regarding 1,200,000 of these shares.) The Company also
retired the last of its outstanding preferred shares through their conver-
sion to 163,334 common shares.  One of the issuance of shares for services
included warrants (discussed below).  The holders exercised  a 14,000 of
these warrants for proceeds of $8,750.


                                    F-15

<PAGE>
<PAGE>
As discussed in Note 12, the Company also issued both common and preferred
stock for consulting services and employment agreements.

The Company issued options to purchase common shares during 1996.  These
options arose from various transactions.  Among these were 210,000 options
granted as incentives for enhanced product development efforts.  Other
options were granted as incentives to sign service contracts.  All options
issued were to purchase one share for each option held.  There was no
market for these options.  During 1996, options were exercised to purchase
75,000 shares.  Options were reduced by the 1 for 15 reverse split autho-
rized by the board of directors.  No options were exercised during 1997 or
1998 and at December 31, 1998, all options had expired.

As mentioned above, during 2000, the Company issued warrants in conjunc-
tion with a stock issuance.  This consisted of 138,000 warrants to buy one
restricted share at $0.625 per warrant.  These warrants expire November
30, 2001.  Of these, 14,000 were exercised during 2000 and 124,000 remain
outstanding at December 31, 2000.  The Company also issued two warrants to
Ecologic.  The first warrant which expired January 31, 2001, was for the
purchase of 1,000,000 shares at $.25 per share.  Ecologic purchased
900,000 shares under this warrant during 2000, leaving a balance of
100,000 which were allowed to expire. The second warrant, which expires
January 31, 2001, is to purchase 1,000,000 shares at the greater of $1 or
one-half the average thirty-day bid price per share.


NOTE 12:   EARNINGS PER SHARE

Basic earnings per share has been calculated based on the weighted average
common shares outstanding.  All preferred shares outstanding (163,332 at
December 31, 1999) were eligible for conversion into common shares.
Diluted earnings per share have not been presented because the presenta-
tion would prove antidilutive.


NOTE 13:   DEFERRED CONSULTING FEES

At the end of 1995, the Company had committed to certain fixed payments
under consulting contracts for marketing, financial, and managerial
services.  Most of these contracts called for monthly payments with
portions being deferred for a period.  Certain obligations would survive
termination of the agreements.  Additionally, during 1995, the Company
entered into employment contracts with its Chief Executive Officer (CEO)
and Director of Engineering (DE) which called for fixed compensation,
stock, and stock options.  These contracts were for a three year term and
called for base annual compensation for the CEO and DE of $90,000 each in
addition to an initial grant of 5,334 and 4,000 free trading common
shares, respectively.  Each of these contracts also called for options to
purchase 40,000 shares of stock. The CEO also was granted rights to
100,000 shares of convertible preferred stock of which one-third vested
with the initiation of the agreement while the other two-thirds vest on
attaining the first and second anniversary of the agreement.  The cost
recognized under these agreements was amortized over the term of the
agreements.  The unamortized cost was included in stockholders' equity
under Unearned Compensation.


                                    F-16

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<PAGE>
Two of these consulting contracts called for additional stock commitments.
One received 13,334 shares of free-trading stock as a service incentive.
This was valued at $81,250 and is being amortized over the initial three
year term of the contract.  The other contract called for the issuance of
5,334 shares of free-trading common shares along with 13,334 shares of
convertible preferred shares.  These commitments to issue stock were
valued at a total of $78,750 and are being amortized over the three year
initial term of the contract.  Recognition of the future issuance of the
underlying stock was included in Deferred Compensation pending actual
issuance of the shares.

In June 1996, the retainer fee agreements discussed above, along with the
cash portions of the employment agreements, were terminated by mutual
agreement.  In addition, all deferred liabilities under these contracts in
excess of an amount equal to the exercise of certain stock options were
waived.


NOTE 14:   RELATED PARTY TRANSACTIONS

Most of the Company's consultants have historically also been stockholders
of the Company.  This includes engineering services, marketing and finan-
cial promotion, and management and stockholder services.  As mentioned
above, upon the purchase of the patent, the previous owners became pre-
ferred stockholders.  Individuals involved with the previous owner have
also continued many of the development and other services which they were
previously providing.

Although the Company has no official office, the official address of the
Company has been the same as that of its vice-president of engineering
until the last quarter of 1999.  Management believes that the value of the
use of this address is minimal and no expense has been recorded.  In the
last quarter of 1999, the Company began leasing office and laboratory
space from third parties.

See also the discussion of the granting of a license for Europe to the
Company's President at Note 6 and the discussion at Note 14 regarding the
aborted acquisition of National Diversified Telecom, Inc.

During 1998, the Company sold 800,000 shares of common stock to Pollution
Control, Inc.  for $200,000.  These funds were used to prepay financial
and public relations services.  The service provider also received
2,000,000 shares of restricted common stock which it assigned to Pollution
Control in exchange for an equity interest in that entity.  As discussed
at Note 6, the Company issued 2,000,000 shares of restricted common stock
to Pollution Control to repurchase the U.S. marketing rights for its
diesel product.  Pollution Control is controlled by the Company's Presi-
dent.  Pollution Control's voting rights are also held by the Company's
President.  These transactions effectively transfer control of the Company
to Pollution Control and the Company's President through his control of
that block of voting stock.

During July 1999, the Board approved the issuance of 420,000 shares of
restricted stock to themselves and an engineering consultant for loans
provided to the Company during  1999.  In October 1999, the Board approved
the issuance of 1,000,000 shares to themselves and the consultant in lieu
of cash compensation in recognition of services provided to the Company
during 1999.

                                    F-17

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<PAGE>

In December 2000, the Board approved the issuance of 300,000 free-trading
S-8 shares to themselves and an engineering consultant in lieu of cash
payment for services rendered to the Company during 2000.


NOTE 15:   EXTRAORDINARY LOSS ITEM

During February 1996, the Company entered into an agreement to acquire
100% of the stock of National Diversified Telecom, Inc. (NDT).  The
Company's president was also a significant owner of NDT.  The acquisition
required the issuance of 40,000 shares of the Company's restricted common
stock.  In addition, the Company advanced $15,000 to NDT for operations.
It was subsequently determined that the Company would not benefit from the
attributes of NDT which the Company had anticipated.  As a result of this
determination, the Company defaulted on its agreement to provide an
additional $5,000 to NDT and moved to "undo" the agreement.  In "undoing"
the agreement, the Company did not receive back the $15,000 or the stock.
The value of the shares, the $15,000, NDT audit fees paid by the Company
and certain other costs have been reported as an extraordinary item in the
Statement of Operations.












                                    F-18