================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                   FORM 10-QSB

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

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

                For the quarterly period ended December 31, 2001


                                    000-28745
                              (Commission File No.)

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

                         NATIONAL SCIENTIFIC CORPORATION
                 (Name of Small Business Issuer in its Charter)

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

                TEXAS                                       86-0837077
     (State or Other Jurisdiction of                     (I.R.S. Employer
     Incorporation or Organization)                     Identification No.)


       14455 N. HAYDEN, SUITE 202
             SCOTTSDALE, AZ                                    85260
(Address of Principal Executive Offices)                     (Zip Code)


                                 (480) 948-8324
                 (Issuers Telephone Number, Including Area Code)

Check  whether the issuer (1) 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 [ ]

There were  49,108,595  shares of Common Stock,  par value $.01 per share,  were
outstanding at February 13, 2002.

 Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]

================================================================================

<PAGE>

                         NATIONAL SCIENTIFIC CORPORATION

                                   FORM 10-QSB

                                      INDEX
<TABLE>
<CAPTION>
                                                                                                  PAGE

<S>      <C>                                                                                      <C>
Part I - Financial Information

Item 1 - Financial Statements (unaudited).........................................................  3

         Balance Sheet - December 31, 2001 and September 30, 2001.................................  3

         Statements of Operations - Three Months ended December 31, 2001, 2000
              and Cumulative from October 1, 1997 (Inception) through December 31, 2001...........  4

         Statements of Cash Flows - Three Months ended December 31, 2001, 2000
              and Cumulative from October 1, 1997 (Inception) through December 31, 2001...........  5

         Statement of Changes in Shareholders' Equity (Deficit) - Three Months Ended
              December 31, 2001...................................................................  7

         Notes to Financial Statements............................................................  8

Item 2 - Management's Discussion and Analysis of Financial or Plan of Operation................... 12

Part II - Other Information

         Item 1 - Legal Proceedings............................................................... 14

         Item 2 - Changes in Securities and Use of Proceeds....................................... 14

         Item 3 - Defaults upon Senior Securities................................................. 15

         Item 5 - Other Information............................................................... 15

         Item 6 - Exhibits and reports on Form 8-K................................................ 15

Signatures........................................................................................ 16
</TABLE>



                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

                         NATIONAL SCIENTIFIC CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                        UNAUDITED CONDENSED BALANCE SHEET
                    DECEMBER 31, 2001 AND SEPTEMBER 30, 2001

<TABLE>
<CAPTION>
                                  ASSETS                               DECEMBER 31,   SEPTEMBER 30,
                                                                           2001           2001
                                                                       ------------   -------------
<S>                                                                    <C>            <C>
Current assets:
     Cash and cash equivalents                                         $      8,411   $     604,761
     Inventory                                                               20,000          20,000
     Loan to officer                                                        100,000         100,000
     Other assets                                                            17,681          21,358
                                                                       ----------------------------
        Total current assets                                                146,092         746,119

Property and equipment, net                                                 127,934         135,836
Deferred offering costs                                                          --         193,015
                                                                       ----------------------------
                                                                       $    274,026   $   1,074,970
                                                                       ============================

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Accounts payable and accrued expenses                             $    334,449   $     326,367
     Line of credit                                                              --         430,000
                                                                       ----------------------------
        Total current liabilities                                           334,449         756,367
                                                                       ----------------------------

Shareholders' equity (deficit):
     Common stock, par value $.01;  120,000,000 shares authorized,
        48,328,067 and 47,367,498 shares issued and outstanding
        at December 31, 2001 and September 30, 2001, respectively.          483,281         473,675
     Additional paid-in-capital                                          17,998,291      17,966,208
     Common stock warrants and options exercisable                          923,964         800,567
     Accumulated deficit                                                (19,465,959)    (18,921,847)
                                                                       ----------------------------
                                                                            (60,423)        318,603
                                                                       ----------------------------

                                                                       $    274,026   $   1,074,970
                                                                       ============================
</TABLE>


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


                                       3
<PAGE>

                         NATIONAL SCIENTIFIC CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                  UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
               FOR THE QUARTERS ENDED DECEMBER 31, 2001, 2000 AND
      FOR THE PERIOD FROM OCTOBER 1, 1997 (INCEPTION OF DEVELOPMENT STAGE)
                            THROUGH DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                       QUARTER              QUARTER          CUMULATIVE
                                                        ENDED                ENDED           DEVELOPMENT
                                                  DECEMBER 31, 2001    DECEMBER 31, 2000        STAGE
                                                  -----------------    -----------------    -------------
<S>                                               <C>                  <C>                  <C>
Revenues                                            $          --         $         --      $     882,715
Cost of sale                                                   --                   --            869,750
                                                    -----------------------------------------------------
Gross profit                                                   --                   --             12,965

Costs and expenses
     Consulting fees, related party                            --              422,008          8,158,323
     Salary and benefits                                  166,162              203,231          1,280,645
     Research and development                              74,536              186,435          3,548,822
     Stock compensation                                   165,897            5,093,160          2,494,765
     Other                                                197,383              234,609          1,788,191
                                                    -----------------------------------------------------
                                                          603,978            6,139,443         17,270,746
                                                    -----------------------------------------------------

Net loss from operations                                 (603,978)          (6,139,443)       (17,257,781)
                                                    -----------------------------------------------------

Other income (expense)
     Interest and other income                             60,507               42,744            238,895
     Interest expense                                        (641)                  --            (23,838)
     Loss on disposal of assets                                --                   --            (28,555)
                                                    -----------------------------------------------------
                                                           59,866               42,744            186,502

Net loss before income tax benefit                       (544,112)          (6,096,699)       (17,071,279)

Provision for income taxes (benefit)                           --                   --                 --
                                                    -----------------------------------------------------

Net loss                                            $    (544,112)        $ (6,096,699)     $ (17,071,279)
                                                    =====================================================

Net loss per common share, basic and diluted        $       (0.01)        $      (0.13)
                                                    ==================================
</TABLE>


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


                                       4
<PAGE>

                         NATIONAL SCIENTIFIC CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                  UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
             FOR THE QUARTERS ENDED DECEMBER 31, 2001 AND 2000, AND
      FOR THE PERIOD FROM OCTOBER 1, 1997 (INCEPTION OF DEVELOPMENT STAGE)
                            THROUGH DECEMBER 31, 2001


<TABLE>
<CAPTION>
                                                          QUARTER              QUARTER          CUMULATIVE
                                                           ENDED                ENDED           DEVELOPMENT
                                                     DECEMBER 31, 2001    DECEMBER 31, 2000        STAGE
                                                     -----------------    -----------------    -------------
<S>                                                  <C>                  <C>                  <C>
Cash flows from operating activities:
  Net loss                                             $    (544,112)       $  (6,096,699)     $ (17,071,279)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
    Depreciation                                               7,902                1,746             37,326
    Loss on disposal of assets                                    --                   --             28,555
    Stock and options issued for services                     47,097            2,124,180         10,984,006
    Warrants issued below market                             118,800                   --            118,800
    Deferred stock compensation                                   --            3,062,500                 --
    Decrease (increase) in inventory                              --                   --            (20,000)
    Decrease (increase) in receivables                            --                   --            130,000
    Decrease (increase) in other assets                        3,677               40,337             (7,110)
    Increase (decrease) in accounts payable and                8,082              (14,234)           311,869
      accrued expenses
    Increase (decrease) in accrued interest                       --                   --                 --
                                                       -----------------------------------------------------
      Net cash used in operating activities                 (358,554)            (882,170)        (5,487,833)
                                                       -----------------------------------------------------
Cash flows from investing activities:
  Repayment of loans                                              --                   --            200,000
  Acquisition of property and equipment                           --              (41,593)          (153,692)
  Proceeds from the sale of furniture and equipment               --                   --              4,660
  Loans issued                                                    --                   --           (400,000)
                                                       -----------------------------------------------------
      Net cash used in investing activities                       --              (41,593)          (349,032)
                                                       -----------------------------------------------------
Cash flows from financing activities:
  Draws on the line of credit                               (430,000)                  --                 --
  Proceeds from equity line of credit, net of                (23,761)                  --            (23,761)
    transaction costs
  Repayment of notes payable                                      --                   --           (110,000)
  Loan to officer                                                 --                   --            (10,000)
  Deferred offering costs                                    193,015                   --                 --
  Proceeds from the exercise or options                       22,950                   --             22,950
  Repayment of capital lease obligations                          --                   --             (1,819)
  Proceeds from the issuance of common stock                      --            1,291,730            482,500
  Proceeds from the issuance of preferred stock                   --                   --          5,481,788
                                                       -----------------------------------------------------
     Net cash provided by (used in)
        financing activities                                (237,796)           1,291,730          5,841,658
                                                       -----------------------------------------------------

Net increase (decrease) in cash and cash equivalents        (596,350)             367,967              4,793

Cash and cash equivalents, beginning of year                 604,761            2,584,900              3,618
                                                       -----------------------------------------------------

Cash and cash equivalents, end of the quarter          $       8,411        $   2,952,867      $       8,411
                                                       =====================================================
</TABLE>


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


                                       5
<PAGE>

                         NATIONAL SCIENTIFIC CORPORATION
                         (A DEVELOPMENTAL STAGE COMPANY)
                  UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
              FOR THE QUARTERS ENDED DECEMBER 31, 2001 AND 2000 AND
      FOR THE PERIOD FROM OCTOBER 1, 1997 (INCEPTION OF DEVELOPMENT STAGE)
                            THROUGH DECEMBER 31, 2001

SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
                                                       QUARTER              QUARTER          CUMULATIVE
                                                        ENDED                ENDED           DEVELOPMENT
                                                  DECEMBER 31, 2001    DECEMBER 31, 2000        STAGE
                                                  -----------------    -----------------    -------------
<S>                                               <C>                  <C>                  <C>
Cash paid during the period for interest          $              --    $              --    $      13,719
                                                  =======================================================

Cash paid during the period for income taxes      $              50    $              --    $         100
                                                  =======================================================
</TABLE>


SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES

During 1998, the Company sold  equipment for $4,660 in cash,  with the purchaser
assuming $9,252 in lease obligations.

During the fiscal year ended  September  30, 1999,  the Company  issued  451,440
shares of restricted  common stock to a Director in exchange for 320,000  shares
of common stock.

During the fiscal quarter ended December 31, 1999, the Company issued  1,128,600
shares of restricted  common stock to a Director's family member in exchange for
580,000 shares of common stock.



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


                                       6
<PAGE>

                         NATIONAL SCIENTIFIC CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
   UNAUDITED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                  FOR THE THREE MONTHS ENDED DECEMBER 31, 2001


<TABLE>
<CAPTION>
                                      COMMON STOCK             PREFERRED STOCK
                                 -----------------------   -----------------------    ADDITIONAL
                                  NUMBER OF                 NUMBER OF                  PAID-IN        ACCUMULATED
                                   SHARES       AMOUNT        SHARES      AMOUNT       CAPITAL          DEFICIT            TOTAL
                                 ----------   ----------   ----------   ----------   ------------    -------------     -------------
<S>                              <C>          <C>          <C>         <C>          <C>             <C>               <C>
Balance September 30, 2001       47,367,498   $  473,675           --   $       --   $ 18,766,775    $ (18,921,847)    $    318,603

Exercise of options                  85,000          850           --           --         22,100               --           22,950

Issuance of shares for              100,000        1,000           --           --         29,600               --           30,600
  services

Issuance of shares for the          775,569        7,756           --           --        (31,517)              --          (23,761)
   equity line of credit

Issuance of                              --           --           --           --         16,497               --           16,497
  non-qualified options

Warrants granted below                   --           --           --           --        118,800               --          118,800
  market value

Net loss                                 --           --           --           --             --         (544,112)        (544,112)
                                 ----------   ----------   ----------   ----------   ------------    -------------     -------------

Balance, December 31, 2001       48,328,067   $  483,281           --    $      --   $ 18,922,255    $ (19,465,959)    $    (60,423)
                                 ----------   ----------   ----------   ----------   ------------    -------------     -------------
</TABLE>





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


                                       7
<PAGE>

                         NATIONAL SCIENTIFIC CORPORATION

                          NOTES TO FINANCIAL STATEMENTS



1.   BASIS OF PRESENTATION

The accompanying financial statements have been prepared by the Company, without
audit,  and reflect  all  adjustments  that are,  in the opinion of  management,
necessary  for a fair  statement  of the results for the  interim  periods.  The
statements have been prepared in accordance with generally  accepted  accounting
principles  for  interim   financial   reporting  and  Securities  and  Exchange
Commission  regulations.  Certain information and footnote  disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  In the opinion of management, the financial statements reflect all
adjustments  (of a normal and  recurring  nature) that are  necessary for a fair
presentation of the financial position, results of operations and cash flows for
the  interim  periods.  The results of  operations  for the three  months  ended
December 31, 2001 are not  necessarily  indicative of the results to be expected
for the entire fiscal year.

These  financial  statements  should be read in  conjunction  with the financial
statements  and notes thereto  included in the  Company's  annual report on Form
10-KSB for the fiscal year ended September 30, 2001.


2.   ISSUANCE OF COMMON STOCK

During  the  three  months  ended   December  31,  2001,   the  Company   raised
approximately  $197,000 in  consideration  for the issuance of 775,569 shares of
common stock under its equity line of credit  established in October 2001. These
shares  were  issued at an  average  per share  price of $.25.  During the three
months ended December 31, 2001,  costs  associated with  establishing the equity
line of credit  of  approximately  $221,000  were  recorded  as a  reduction  to
Additional  Paid-In-Capital.  As a result,  the net effect of the activity under
the equity line of credit was a net decrease to equity of approximately $24,000.

Also during the three months ended  December 31, 2001,  100,000 shares of common
stock were issued for services at an average per share price of $.30. Further, a
total of 85,000 stock options were exercised at a per share price of $.27.

During the three months ended December 31, 2000, the Company received $1,291,730
from the exercise of outstanding  warrants to purchase an aggregate of 1,291,730
shares of restricted  common  stock.  During this period the Company also issued
120,000 shares of restricted  common stock valued at $210,420 to consultants and
principals as compensation for services. This restricted stock was valued at 90%
of the market price of the stock on the dates issued and earned.


                                       8
<PAGE>

3.   STOCK OPTIONS AND WARRANTS

The Company  from time to time issues  stock  options for the purchase of common
stock to directors,  officers,  employees and consultants. The Company adopted a
qualified stock option plan for its executives and employees in December 2000.

During  the  three  months   ended   December  31,  2001,  a  total  of  121,053
non-qualified  stock  options were granted to  consultants  under the 2000 Stock
Option Plan,  at an average  exercise  price of $.27 per share.  Also during the
same period, 85,000 stock options were exercised at $.27 per share.

On December 14, 2001,  the Company  granted  options to purchase an aggregate of
750,000  shares of common stock to the  Company's  then Chairman and CEO, Lou L.
Ross.  These options  consist of ten separate  75,000 share  tranches,  with per
share exercise prices ranging from $1 to $10. The individual tranches separately
vest when the previous five day average  market price exceeds even dollar levels
beginning with $1 per share through $10 per share.

The Company adopted APB Opinion 25 and related interpretations in accounting for
the plan.  Accordingly,  compensation expense is equal to the difference between
the exercise price of the options granted and the fair value of the common stock
at the date of grant.  Compensation  of  $165,897  has been  recognized  for the
fiscal quarter ended December 31, 2001.  Under the terms of the Company's  stock
options granted to certain directors,  officers,  employees and consultants, the
Board of Directors, at its sole discretion,  will determine when certain options
granted shall be fully vested and exercisable.  At December 31, 2001,  2,219,387
outstanding stock options were vested,  and fully  exercisable,  and 74,500 were
not vested.

In accordance  with APB Opinion 25, the fair value of option grants is estimated
on the date of grant using the Black-Scholes  option-pricing  model for proforma
footnote  purposes with the following  assumptions used for grants in all years;
dividend yield of 0%, risk-free interest rate of 5%, and expected option life of
10 years. Expected volatility was assumed to be 100% as of the date of issue.

                                               Number of       Weighted Average
                                                Shares          Exercise Price
                                             -----------------------------------

     Options Outstanding, September 30, 2001   1,534,501            $ 1.81
          Granted                                871,053            $ 4.77
          Forfeited                              (26,667)           $ 0.82
          Exercised                              (85,000)           $ 0.27
                                             -----------------------------------
     Options Outstanding, December 31, 2001    2,293,887            $ 3.00
                                             ===================================


Had the Company fully  adopted SFAS 123, the first quarter loss from  operations
would have been $(568,862) and basic loss per share would have been $(.01).  The
table above excludes  approximately 1.32 million outstanding warrants,  see Note
6.



                                       9
<PAGE>

4.   RELATED PARTY TRANSACTION

In April  2000,  the  Company  agreed  to loan Mr.  Ross  $200,000.  The loan is
evidenced by a 10% unsecured  promissory note with an original  maturity date of
December 1, 2000. In December,  2000, the Board  authorized the extension of the
loan to December 1, 2001.  As of September  30,  2001,  the Company had recorded
interest  income of  $20,000  and  accrued  interest  receivable  of  $29,275 in
connection  with the loan. In December  2001, the Board agreed to allow Mr. Ross
to repay the loan by  returning  250,000  shares  of  Company  common  stock and
assigning all of his rights to pursue  recovery from a $200,000  investment  Mr.
Ross made in a local manufacturer of firewall hardware.  The shares had a market
value of $100,000 at  September  30, 2001,  and were  returned to the Company in
January  2002. As a result,  compensation  expense of $129,275 has been recorded
for the fiscal  year ended  September  30, 2001 for the  difference  between the
note,  including  accrued  interest,  and the value of returned shares of common
stock at September 30, 2001.

5.   NET LOSS PER SHARE

Net loss per common share is based upon the weighted average shares outstanding.
Outstanding stock options and warrants are treated as common stock  equivalents,
but are  anti-dilutive,  for purposes of  computing  diluted net loss per common
share.  The  following  is a summary of the  computation  of net loss per common
share (amounts in thousands except shares and per share amounts):

                                                     Three months ended
                                                        December 31,
                                               ----------------------------
                                                   2001             2000
                                               ----------------------------
     Basic net income (loss) per
     common share:

     Net income (loss)                         $ (544,112)      $(6,096,699)
                                               ============================
     Weighted average common shares             47,722,135       47,618,884
                                               ============================
     Basic per share amount                    $     (0.01)     $     (0.13)
                                               ============================


6.   SUBSEQUENT EVENT

In late  December  2001,  the Board of  Directors  agreed to extend  the term of
outstanding  common  stock  warrants to purchase an  aggregate  of 1.32  million
shares from  December 31, 2001 to January 31, 2002,  and to reduce the per share
exercise price of those warrants from $1.50 to $0.12. An expense of $118,800 has
been  recognized  during the quarter ended December 31, 2001, as a result of the
new exercise  price being below the current  market price.  This expense  amount
takes into  account  all  outstanding  warrants  and their  potential  exercise.
Through January 31, 2002, the end of the exercise period, 770,500  warrants were


                                       10
<PAGE>

exercised and the Company  collected  $92,460 in exchange for the issuance of an
aggregate  of 770,500  common  shares.  As of  February 1, 2002,  the  remaining
2,859,500  warrants  expired and there are no  outstanding  warrants to purchase
common stock of the Company.

In January 2002, Mr. Lou L. Ross, Chief Executive  Officer  announced his intent
to resign  effective  February 1, 2002.  Following  such  resignation,  Mr. Ross
retained his position as Chairman of the Board.  Also,  as approved by the Board
of Directors in January 2002,  effective  February 1, 2002, Mr. Michael Grollman
became the Chief  Executive  Officer,  in  addition  to  retaining  his title as
President of the Company.



                                       11
<PAGE>


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

SAFE HARBOR STATEMENT

Statements  contained herein that are not historical fact may be forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended,  and Section 21E of the Securities Exchange Act of 1934, as amended. We
use words and phrases  such as "should  be," "will be,"  "believes,"  "expects,"
"anticipates,"  "plans,"  "intends,"  "may" and similar  expressions to identify
forward-looking  statements.  Forward-looking statements are made based upon our
belief as of the date  that such  statements  are  made.  These  forward-looking
statements  are based largely on our current  expectations  and are subject to a
number of risks and  uncertainties,  many of which are beyond our  control.  You
should not place undue reliance on these forward-looking statements, which apply
only  as of the  date  of  such  documents.  Our  actual  results  could  differ
materially from those anticipated in these  forward-looking  statements for many
reasons,  including the risks faced by us described  above and elsewhere in this
report.

THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 2000

For the past several years our business strategy has been to develop, patent and
license  technology.  While these  efforts have not yet  generated  any material
amount of revenue for our business,  we have been  successful in various aspects
of developing and obtaining patents for unique technology and, very recently, in
licensing our patented  resonator.  To  supplement  these  efforts,  we recently
determined  it would be in the best  interests of the Company to seek to acquire
proven  existing  technologies  from third parties.  Although we do not have any
agreements in place as of the date of this Form 10-QSB,  we expect that we would
either seek to acquire the individual  technology  through an asset  acquisition
transaction, enter into a joint venture relationship with the company owning the
technology,  or acquire the entire  company.  We believe that such a transaction
would be  consistent  with our mission  and,  if  successfully  consummated  and
integrated into our operations, will enhance shareholder value.

As of  December  31,  2001,  the  Company's  cash and cash  equivalents  totaled
approximately  $8,400 and total current assets were approximately  $146,000.  We
recently initiated product marketing efforts after several years of research and
development  and have not yet reached  break-even in terms of both cash flow and
profitability.  The Company has no long or short-term  debt, other than accounts
payable and accrued  liabilities  as of December 31,  2001.  We believe that our
cash position as of December 31, 2001,  combined with the available  draws under
our equity  line of credit and the  exercise of  warrants  to be  sufficient  to
continue  operations for the next twelve months.  Such future  requirements  are
based upon  management's  best estimates  based upon current  conditions and the
Company's most recent results of operations.

Operating expenses for the three months ended December 31, 2001 of approximately
$604,000 are down from the comparable period ended December 31, 2000, which were
approximately $6,139,000.  This decrease was primarily due to a charge to income
of  approximately  $3.4 million for the quarter ended  December 31, 2000 for the
issuance of stock options to the Company's then President, Dr. Hashemi.



                                       12
<PAGE>

Salary and benefits have  increased for the three months ended December 31, 2001
from the three months  ended  December 31, 2000 by  approximately  $4,000.  This
increase  is  attributable  to the fact that most of the  Company's  consultants
became employees effective November 1, 2000. For the three months ended December
31, 2000, approximately $422,000 was incurred as consulting fees, related party.
Consulting  fees paid to related parties for the three months ended December 31,
2001 were zero.

Research and development  costs have decreased from  approximately  $186,000 for
the three months ended December 31, 2000 to approximately  $75,000 for the three
months ended  December 31,  2001,  primarily  due to the closing of our San Jose
office and consolidation of operations into Scottsdale.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, our liquidity included cash and cash equivalents of $8,411
compared to $604,761 at September  30, 2001. We have an  accumulated  deficit of
$19.4  million  and  expect  operating  losses in the  foreseeable  future as we
continue  our  efforts to  commercially  exploit  our  portfolio  of patents and
develop commercial  products.  We expect to generate future revenues by entering
into strategic joint venture licensing relationships,  manufacturing agreements,
development  agreements and other  relationships with manufacturing firms and/or
entities that will  incorporate our  technologies  into their products.  We have
financed our operations  primarily through the sale of common stock and warrants
in the public and private market.

In October 2001, we entered into an equity line of credit agreement with a third
party investor. Under the equity line, we have the option, at our discretion, to
issue during a two-year term shares of our common stock to an investor at prices
that are  discounted  from the fair market  value on the date of  issuance.  Our
ability  to draw down  amounts  under  this line of credit  has been  materially
adversely  effected  by  downward  pressure  on our stock  price.  If this trend
continues, the proceeds from this equity line of credit may not be sufficient to
fund our ongoing operations.

We believe that our current cash position, including cash funds arising from the
exercise of outstanding  options,  the exercise of warrants in January 2002, and
the funds that can be drawn under the equity line of credit will provide us with
adequate  working  capital  through the end of fiscal 2002. In the event they do
not  provide us with  adequate  working  capital,  we may be required to further
curtail or reduce  our  development  activities,  and seek  alternative  funding
sources.

During the three months ended  December 31, 2000,  we received $1.3 million from
the exercise of outstanding  warrants to purchase an aggregate of 1.3 million of
shares of common stock.  These warrant were previously issued in connection with
our private offering in March 1998, at an exercise price of $1.00 per share. The
remaining unexercised warrants that were issued in connection with this offering
expired on December 31, 2000.

Warrants to acquire an aggregate of 1.5 million shares of common stock, expiring
on December 31, 2001,  were issued in conjunction  with our private  offering of
August 1, 1999,  at an  exercise  price of $1.50 per share.  Prior to the fiscal


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<PAGE>

quarter  ended  December 31, 2000,  120,000 of these  warrants  were  exercised,
yielding  $180,000 in cash for the Company.  In late December 2001, the Board of
Directors  determined it would be in the best interests of the Company to extend
the expiration  date of the warrants from December 31, 2001 to January 31, 2002,
and to decrease the exercise  price of these  warrants  from $1.50 to $0.12.  At
February 1, 2002, 770,500 warrants were exercised,  resulting in the issuance of
770,500 shares of common stock and the receipt of $92,460 in cash.

Cash used in operations  was  approximately  $358,000 for the three months ended
December  31, 2001  compared  with  approximately  $882,000 for the three months
ended  December  31,  2000.  The  decrease in cash used in  operations  resulted
significantly  from closing of the San Jose facility.  Additionally,  management
has sought to reduce cash uses wherever possible.


                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is involved in legal actions in the ordinary course of its business.
Although  the outcomes of any such legal  actions  cannot be  predicted,  in the
opinion of management,  there is no legal proceeding pending or asserted against
or  involving  the  Company  the  outcome  of which is likely to have a material
adverse  effect  upon the  financial  position or results of  operations  of the
Company.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

During the three months  ended  December 31,  2001,  100,000  restricted  common
shares were  issued for  consulting  services  at a total  value of $30,600.  In
addition,  85,000 common  shares were issued in connection  with the exercise of
options granted under the 2000 Stock Option Plan.  These options had an exercise
price of $0.27  per  share,  resulting  in  $22,950  of cash  proceeds  from the
exercise to the  Company.  Also  during the quarter  ended  December  31,  2001,
775,569 common shares were issued in connection  with the draws under the equity
line of credit. These draws yielded cash proceeds of $197,280.

In late  December  2001,  the  Board of  Directors  approved  an  extension  and
re-pricing  of  stock  options  that  were  to  expire  on  December  31,  2001.
Approximately 1.32 million options to purchase shares of common stock at a price
of $1.50 were re-priced to be  exercisable at $0.12 per share,  and the exercise
date was extended through January 31, 2002.  Because the re-priced warrants were
below  market  price,  an expense of  $118,800  has been  recognized  during the
quarter  ended  December  31,  2001,  which takes into  account all  outstanding
options and their potential  exercise.  Through January 31, 2002, the end of the
exercise  period,  770,500  warrants were  exercised  and the Company  collected
$92,460 in exchange for the issuance of common shares, restricted by Rule 144 of
the Securities  and Exchange  Commission.  As of February 1, 2002,  there are no
outstanding warrants to purchase common stock of the Company.

During the three months  ended  December  31,  2000,  approximately  1.3 million
warrants  were  exercised  at $1.00  each.  These  represent  a  portion  of the
9,650,000  warrants issued in conjunction with our Private Offering of March 15,
1998. The remaining and unexercised warrants issued during this Private Offering


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<PAGE>

expired on December 31, 2000.  The shares were sold in reliance on the exemption
provided by Sections 4 (2) and 4 (6) of the  Securities Act of 1933 and Rule 506
of Regulation D.

In addition, during the three months ended December 31, 2000, 100,000 restricted
shares of common stock were issued to the Chief Operating Officer, in accordance
with his  employment  agreement,  and 15,000 shares were granted to a consultant
for services rendered

On December 1, 2000, the Board of Directors instituted a Stock Option Plan (2000
Plan).  The Board is of the  opinion  that it is in the best  interest of NSC to
reserve not less than 7,000,000  Common Shares to provide adequate Common Shares
for the issuance to qualified  individuals under the 2000 Plan to encourage them
to remain in the service of NSC and to promote its business and growth strategy.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

        Not applicable.

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

        Not  applicable.

ITEM 5. OTHER INFORMATION.

        Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)     Exhibits.  None.

(b)     Reports on Form 8-K.

        No  reports  on  Form 8-K were filed  during  the fiscal  quarter  ended
        December 31, 2001.


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<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                    NATIONAL SCIENTIFIC CORPORATION



February 13, 2002                   /s/ MICHAEL A. GROLLMAN
                                    --------------------------------------------
                                    Michael A. Grollman
                                    President & Chief Executive Officer



                                    /s/ SAM H. CARR
                                    --------------------------------------------
                                    Sam H. Carr
                                    Chief Financial Officer




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