U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]      ANNUAL  REPORT UNDER  SECTION 13 or 15(d) OF THE SECURTIES AND EXCHANGE
         ACT OF 1934.

         For the fiscal year ended December 31, 2001
                                   -----------------

[ ]      TRANSITION  REPORT  UNDER  SECTION  13 or 15(d) OF THE  SECURITIES  AND
         EXCHANGE ACT OF 1934.

         For the transition period from                     to
                                       -------------------  --------------------

                               Commission File No.

                             National Sorbents, Inc.


        Nevada                                                 31-1291923

 National Sorbents, Inc.
10139 Commerce Park Drive
 Cincinnati, Ohio  45246


                    Issuer's telephone number (513) 860-4144
                                              --------------

Securities registered under Section 12(b) of the Exchange Act:

   Title of each class                 Name of each exchange on which registered

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.001 per share
                     ---------------------------------------
                                (Title of Class)

Check whether 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 [ ] No [X]

Check  if  disclosure  of  delinquent  filers  in  response  to Item  405 of the
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 revenue for its most recent fiscal year. $2,285,050

Aggregate market value of voting stock held by  non-affiliates  of registrant as
of December 31: $131,315


Shares of Common Stock outstanding as of December 31: 13,131,472

                       DOCUMENTS INCORPORATED BY REFERENCE


Transitional Small Business Disclosure Format (check one): Yes[ ] No  [X]

<PAGE>

                                     10-KSB

                                TABLE OF CONTENTS
                                -----------------

                                     PART I

Item 1.  Description of Business

Item 2.  Description of Property

Item 3.  Legal Proceedings

Item 4.  Submission of Matters to a Vote of Security Holders

                                    PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Item 6.  Management Discussion and Analysis or Plan of Operation

Item 7.  Financial Statements

Item 8.  Changes In and Disagreements with Accountants or Accounting and
         Financial Disclosure

                                   PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) Of the Exchange Act

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationships and Related Transactions

Item 13. Exhibits and reports on Form 8-K



                                       2
<PAGE>

This  Annual  Report  on  Form  10-KSB   contains   statements  that  constitute
forward-looking  statements.  These  statements  appear in a number of places in
this Form 10-KSB and include statements regarding the intent,  belief or current
expectations of National Sorbents, Inc. together with its subsidiaries (referred
in this report as "we", "us" and "our") with respect to (i) our financing plans,
(ii) trends  affecting our financial  condition or results of operations,  (iii)
the  impact  of  competition,  and (iv) the  expansion  of  certain  operations.
Investors  are  cautioned  that  any  such  forward-looking  statements  are not
guarantees of future performance and involve risks and  uncertainties,  and that
the actual  results  may  differ  materially  from those in the  forward-looking
statements as a result of various  factors.  The  information  contained in this
Form  10-KSB,  including,   without  limitation,  the  information  under  "Risk
Factors,"  "Management's  Discussion  and  Analysis or Plan of  Operations"  and
"Description  of  Business"  identifies  important  factors  that could cause or
contribute to such differences.  See "Description of Business--Risk Factors--All
forward-looking statements should be read with caution."

                                     PART I

Item 1. Description of Business
-------------------------------

National  Sorbents,  Inc.,  ("NSI") is engaged in the  business  of  developing,
manufacturing  and marketing  sorbent  products  ("sorbents")  to industrial and
governmental entities.  Additionally, NSI has provided waste disposal management
services  to  clients  (primarily  one  major  customer  in  the  Midwest)  on a
contractual  basis. The relationship  with this major customer ceased during the
2000 fiscal year.

Sorbents  are  employed  in control,  containment,  and clean up of a variety of
liquids  including  oil,  chemical,  acid,  caustic,  and water  based  liquids.
Sorbents  may be  comprised  of  either  natural,  manufactured  materials  or a
combination of both. The development of products  consisting of a combination of
materials allows the industry to offer products suited for specific  application
to the type of spill.  NSI concentrates on developing  sorbents,  which maximize
the amounts of liquids contained, controlled and cleaned up from any spill.

NSI markets its sorbents under the trademarked name "MAXX(R)".  The sorbents are
categorized into three main product lines:

         MAXX(R)  ULTRA a  general  purpose  absorbent  engineered  for  maximum
absorption  of  coolants,  solvents,  water,  oil and  other  liquids  with  the
exception of aggressive acids and caustics.

         MAXX(R) SELECT is a specific purpose  absorbent  engineered for maximum
absorption of oil and petrochemicals while repelling water.

         MAXX(R) RESCUE is a universal absorbent which will absorb virtually any
liquid including strong acids and caustics. The ability of the product to absorb
any type of liquid makes it  especially  useful in  controlling  and  containing
spills of an unknown origin.

Recent Developments

Industry Overview

Sorbent  materials  are used in  increasing  amounts  for both  large  and small
situations,  from hazardous waste control/cleanup  through industrial,  medical,
and mortuary  applications.  There is  continuing  growth in the concern for the
impact of released chemicals,  oils, hazardous  materials,  infectious and other
toxic  substances  on  both  people  and  the  environment.  Federal  and  local
regulations  regarding  the  control/cleanup  of spills as well as the  ultimate
disposal of sorbent  materials used in the process are becoming more restrictive
and specific.  Generators are legally liable for the proper  handling,  control,
and disposal of these materials.  This constant increase in laws and enforcement
mandates that  companies be well informed of the  regulations  and the potential
results/effects of any violation.

All private  and  governmental  functions  are being  mandated  to pursue  waste
minimization, resource recovery, and controlled disposition of materials used in
the process.  Proper  sorbent  material  selection  and usage  provides fast and
efficient control and cleanup of any incidence, provides personnel protection to
those  involved in the process,  as well as protection to the safety  personnel,
such as fire and other emergency personnel, involved in the process.

Environmental  concerns are the source of additional  regulation  and control of
materials used by industry and governments.


                                       3
<PAGE>

The industry is comprised of a range of companies from  wholesaler/distributors,
through   manufacturers/distributors,   to  direct   manufacturers   of  sorbent
materials.  The relative  size of  companies  in the industry  ranges from small
distributors through multi-national producers.

The product which may be classified as sorbents  range from the basics,  such as
clay,  sawdust,  rags, etc. through the application  specific man-made materials
developed to maximize the amount of waste/spill controlled.

Competition

There are a large number of  companies  classifying  themselves  as providers of
sorbent,  but the major  companies in the  industry  are less than  twenty,  and
include such companies as 3M, Ergon, SPC, SpillTech, New Pig Corp., and NSI.

The  determinants  of  success  in the  market  are the  combination  of product
knowledge,  application,  quality,  response  and  support  at  the  time  of an
occurrence.  NSI is acknowledged  as an industry leader in these  categories and
maintains its commitment to support the needs of its customers.

Intellectual Property

Sorbents are  produced  from  natural  materials  as well as generic  formulated
materials.  The generic composition of the material precludes the acquisition of
patents on the product.  NSI does pursue design  patents both  domestically  and
internationally  for  products,  which it has  developed  and which offer unique
features to the user of the product.  Presently,  we have a patent  pending on a
filter pouch.  NSI owns various  trademarks on product lines,  which it has been
awarded over time.

NSI has registered  the trademark  MAXX(R) as the unique  identification  of the
differentiation  between its products and that of  competitors.  NSI  vigorously
protects this trademark.

History and Organization

Daniel B. and Leslie E. Jones formed NSI as a  proprietorship  in 1988.  NSI was
incorporated in the State of Ohio on January 18, 1990 and  reincorporated in the
State of Nevada on January  19,  2000.  NSI  shares are traded  under the symbol
"NSIE" on the Over the Counter/Bulletin Board market.

On January 19, 2000 NSI reorganized as a Nevada  corporation,  while maintaining
its  administrative,  sales and  manufacturing  facilities in Cincinnati,  Ohio.
Following  the  reorganization  NSI  acquired all of the  outstanding  shares of
Polyspherics  Corporation,  a Nevada Corporation,  with no assets,  liabilities,
revenues or  operations.  Subsequent  to the  completion of the  acquisition  of
Polyspherics,  NSI merged its wholly  owned  subsidiary  into  itself and is the
surviving entity for reporting purposes.

NSI has historically engaged in two segments of the environmental  industry, the
first being the sale of sorbent  materials to distributors  and end-users of the
product, and the second being the contract management of waste disposal services
for clients,  primarily  one large  Midwest  client.  Business  with this client
ceased during the current reporting period. The sale of sorbents represented 94%
and 59% of the total  revenues of NSI for the years ended  December 31, 2001 and
2000,  respectively.  Revenues from contract activities represented less than 6%
and 41% of total revenues for NSI for the years ended December 31, 2001 and 2000
respectively,  with a  single  waste  management  customer  representing  98% of
revenues from contract  activities for the year ended  December 31, 2000.  There
were no 2001 revenues associated with this customer.

Potential Expansion of Business

NSI has followed the corporate philosophy of identifying areas and/or industries
where the control of various materials and liquids is a critical concern.

One of the most recent  industries  identified  in this  process is the mortuary
industry.  After several  years of  development  and testing,  during the fourth
quarter of 1999 NSI  introduced  a line of products  developed  specifically  to
provide  maximum  control of body  fluids and  process  fluids  used  during the
preparation  for interment or cremation of human corpses.  The mortuary  product
line  represented  approximately  4% of total  sorbent sales for the year ending
December  31,  2001 and less  than 1% for the year  ending  December  31,  2000.

                                       4
<PAGE>

Employees

At December 31, 2001, NSI employed twenty-six (26) individuals. The distribution
of employees by function is as follows:

         Production                      18
         Sales and marketing              5
         Administration                   3

No employees of NSI are covered by a collective  bargaining  agreement.  NSI has
employment  contracts  with Daniel B. and Leslie E. Jones,  which  automatically
renew on an annual  basis.  No other  employees  are  covered  by an  employment
contract.

Risk Factors

All forward-looking  statements should be read with caution.  Statements in this
Annual  Report on Form 10-KSB  under the  captions  "Description  of  Business,"
"Management's  Discussion and Analysis or Plan of Operations,"  and elsewhere in
this  Form  10-KSB,  as well as  statements  made in  press  releases  and  oral
statements that may be made by us or by officers,  directors or employees acting
on  our  behalf,  that  are  not  statements  of  historical  fact,   constitute
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks,  uncertainties  and other factors,  including  those described in
this Form 10-KSB under the caption "Risk  Factors,"  that could cause our actual
results  to be  materially  different  from the  historical  results or from any
future  results  expressed  or implied by such  forward-looking  statements.  In
addition to statements which explicitly  describe such risks and  uncertainties,
readers  are  urged  to  consider  statements  labeled  with  terms  "believes,"
"expects,"   "plans,"   "anticipates,"   or   "intends,"  to  be  uncertain  and
forward-looking.  All cautionary  statements  made in this Form 10-KSB should be
read as being applicable to all related forward-looking statements wherever they
appear.  Investors  should  consider the following risk factors as well as risks
described elsewhere in this Form 10-KSB.

NSI has  experienced  losses.  During its history NSI has experienced net losses
from its operations.  NSI had a net loss of $660,134 for the year ended December
31, 2001,  as compared  with a net loss of $632,003 for the year ended  December
31,  2000.  The results  for the year ended  December  31,  2001 were  adversely
affected by the substantial  shortfall in Environment  sales due to an explosion
and subsequent  shutdown,  during 2000, at the plant of the major  environmental
services customer.  Factors affecting results in 2001 included inefficiencies in
the  manufacturing  process and price  increases from major suppliers which were
unable to be passed through  sorbent  customers.  NSI cannot assure that it will
operate profitably in the near future, if at all.

NSI has a negative net worth. At December 31, 2001, NSI has a negative net worth
of $1,806,375.  NSI cannot assure you that we will be able to operate profitably
in the future, if at all.

NSI may  continue  to need  financing  or  additional  equity to meet our future
capital requirements.  At December 31, 2001 current liabilities exceeded current
assets by $1,348,296 and total liabilities  exceeded total assets by $1,806,375.
NSI continues to explore  additional sources for financing to meet the financial
need of the company.  NSI is in the final stages of  determining  the amount and
form of the needed additional financing.  Negotiations are underway to determine
the terms of additional debt financing.  The outcome of those discussions is not
assured, however.

Existing  shareholders  are able to exercise  control.  Officers  and  directors
beneficially own approximately  32.4% of the outstanding  shares of common stock
and Leslie E. Jones,  Executive  Vice-President,  owns approximately  32.2%. The
Articles of Incorporation do not provide for cumulative voting rights.

Loss of key employee could  jeopardize NSI. Daniel B. Jones',  the co-founder of
NSI with his wife Leslie E. Jones,  and  currently  President of NSI,  continued
contributions are critical to the success and future performance of the company.
Mr. Jones is recognized as a true leader of the commercial sorbent industry,  as
well as an industry  leader in knowledge of proper  procedures to be employed in
the  control,  containment  and clean-up of material  spills.  Loss of Mr. Jones
leadership in these areas could be  devastating  to the continued  operations of
NSI. NSI maintains key-man term life insurance  totaling  $1,000,000 on the life
of Mr. Jones.

Intense  competition  could affect market share.  NSI manufactures and sells its
sorbent products in a highly  competitive market comprised of numerous companies
of varying financial strength.  This variety at times causes pricing pressure on
sorbent materials.  Additionally, the variety of types of products and variation
in effectiveness of the product create multiple levels of competition.

                                       5
<PAGE>

NSI cannot  predict or assure the potential  investor of its ability to grow its
market  share  or in fact to  maintain  current  share  levels  in  light of the
diversity of the competitive forces affecting the sorbent market.

No dividends are  anticipated.  NSI has never declared or paid any cash or other
dividends  on its  common  stock.  At present  we do not  anticipate  paying any
dividends  on the common  stock and intend to devote any earnings to the further
development  and growth of our business.  Investors who  anticipate the need for
immediate income from their investment should refrain from purchasing our common
stock.

Common  stock may lack  liquidity.  To date  shares of common  stock of NSI have
traded on the NASDAQ Over the  Counter/Bulletin  Board market. We cannot however
assure a  shareholder  that  there is or will be a ready  market  to buy or sell
shares when desired.

Future sales of common stock by existing shareholders could adversely affect the
price of our stock.

Officers and directors of the NSI control 25.3% of the outstanding shares of the
company. Action by either of these groups to divest of their holdings could have
a negative effect on the price and capability to divest of individual holdings.

Item 2. Description of Property.
--------------------------------

NSI's  manufacturing  and office  facilities  are located at 10139 Commerce Park
Drive,  Cincinnati,  Ohio.  The facility is  comprised  of a 40,000  square foot
office/production  facility  situated on five acres of land. The site is located
in an industrial park with multiple  direct  accesses to the interstate  highway
system.

As of December 31, 2000 a  twenty-five  year mortgage note financed the property
with an outstanding  balance of $607,799.  The property is pledged as collateral
to secure the mortgage note. The note provided for adjustable  monthly  payments
and carried an interest rate of 9.875%, which was adjustable annually at July 1.
The rate  adjustment  is  subject to a 2.0%  annual  increase  limitation  and a
maximum annual rate of 14.50%.

During the 2001, the property was sold, under a sale-leaseback transaction, at a
gain of approximately $600,000. The net proceeds of the transaction were used to
provide  working  capital.  This gain is being  deferred  and  amortized  over a
ten-year period.

NSI believes the facility is of  sufficient  size to handle all  production  and
administrative functions necessary to meet its current and anticipated operating
activities,  as well as adequately providing for potential expansion required by
future growth of operations.


Item 3. Legal Proceedings.
-------------------------

NSI is involved in various  legal  actions  arising out of its normal  course of
business.  The  officers  and  directors  of NSI do not believe  that an adverse
decision on any of these  actions,  whether  considered  individually  or in the
aggregate,  will have a material  adverse affect on the company or its financial
position.

Item 4. Submission of matters to a Vote of Security Holders
-----------------------------------------------------------

There were no matters submitted to a vote of stockholders during the fiscal year
ended December 31, 2001.




                                       6
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.
-----------------------------------------------------------------

Price range of Common Stock

The common stock of NSI has been traded on the NASDAQ OTC  Bulletin  Board under
the symbol  "NSIE." Our common stock was deleted from the OTC Bulletin  Board on
May 24, 2001  because we did not meet the  listings  conditions.  The  following
table sets forth,  for the fiscal  periods  indicated,  the high and low selling
prices of a share of common stock as reported by the OTC Bulletin Board for each
calendar  quarter for the two prior years.  Such quotations  reflect actual sale
transaction prices rather than inter-dealer prices.

         Quarter ended                  Low                         High
         -------------                  ---                         ----

         Dec. 31, 2001                 0.0100                      0.0350
         Sep. 30, 2001                 0.1250                      0.1500
         Jun. 30, 2001                 0.1500                      0.0100
         Mar. 31, 2001                 0.2250                      0.4250
         Dec. 31, 2000                 0.1875                      0.7500
         Sep. 30, 2000                 0.3750                      1.0313
         Jun. 30, 2000                 0.5100                      1.3750
         Mar. 31, 2000                 1.0625                      2.0000
         Dec. 31, 1999                 0.4375                      2.0000

         Prior quarters traded under "NSES"

         *Prices  listed above after March 31, 2001 are not OTC  Bulletin  Board
         prices,  as our stock was deleted from the OTC Bulletin Board system on
         May, 24, 2001.

As of December 31, 2001, the closing bid price per share of common stock was
$0.0100. There are approximately 4,000 holders of record of the common stock.

Recent Sales Of Unregistered Securities

In January 2001,  the Company  issued  238,000  shares of common stock to Steven
Bakst in lieu of $37,726  interest  payment due on a promissory note. The common
stock was issued  pursuant to Section  4(2) of the  Securities  Act of 1933,  as
amended.

Item 6. Management's Discussion and Analysis or Plan of Operations.
-------------------------------------------------------------------

All statements contained herein that are not historical facts, including but not
limited to, statements regarding our current business strategy and our plans for
future development and operations,  are based upon current  expectations.  These
statements  are  forward-looking  in  nature  and  involve a number of risks and
uncertainties.  Generally,  the  words  "anticipates,"  believes,"  "estimates,"
"expects" and similar  expressions  as they relate to NSI and its management are
intended  to  identify  forward-looking  statements.  Actual  results may differ
materially.  Among  the  factors  that  could  cause  actual  results  to differ
materially are those set forth under the caption  "Description of  Business-Risk
Factors."  We wish to caution  readers not to place  undue  reliance on any such
forward-looking statements, which statements speak only as of the date made.

Since its inception in 1988, NSI has been active in the production, distribution
and selling of sorbent materials used in the control, containment and removal of
material spills of both hazardous and non-hazardous  materials.  NSI has evolved
from being  primarily a  distributor  of such  products  to being a  significant
converter of sorbent materials from a raw product to a usable product.

NSI's  operating  history  exceeds  ten  years,  but  the  risks,  expenses  and
difficulties   inherent  to  and  encountered  by  start-up  companies  must  be
considered when evaluating NSI's prospects.

Due to the volatility of variable raw material costs,  operating expenses of NSI
cannot be estimated  with a reasonable  measure of accuracy.  Management  of the
company can control fixed costs  associated with the business.  Several factors,
including  marketing of NSI products and services,  the types of products  sold,
competitive pressures,  distribution costs and order size, affect both the level
and timing of operating expenses.

Since its inception NSI has incurred costs  associated with  developing  product
identity,   name   recognition,   testing  and  verifying  product  quality  and
appropriate  use,  developing  products for acceptance by new markets,  costs of
product  introduction  including  advertising  and market  research.  Management
foresees such variable cost volatility  continuing in the future as NSI develops
a complete line of products necessary to be a leader of the sorbent industry.

                                       7
<PAGE>

To  date  NSI has  financed  its  net  expenditures  through  a  combination  of
borrowings and the sale of common stock of the company.  Since its incorporation
in 1990 through December 31, 2001 NSI has issued 13,131,472 shares of its common
stock for a net cash consideration $ 5,547,499.

Results of operations

Year ended December 31, 2001 compared to year ended December 31, 2000

Revenue
-------

Net revenue decreased $1,327,232,  or 37%, to $2,285,050 from $3,612,282 for the
years ended December 31, 2001 and 2000 respectively.  Revenues from the sales of
sorbent materials  increased  $37,895,  or 2%, to $2,013,965 from $1,976,070 for
the respective  years.  Revenue from sales of Environmental  services  decreased
$1,369,127,  or 92%, year over year due to a catastrophic  event,  during fiscal
year  2000,  at the  plant of the  principal  customer  of these  services.  The
mortuary  sorbent  product line sales  increased  81% over December 31, 2000, to
approximately $94,000.

Cost of sales and revenues
--------------------------

Cost of sorbents sold increased $35,188 over 2000.  Environmental services costs
of goods  decreased  $1,065,250,  in line  with the  decrease  in sales  volume.
Overall,  cost of goods sold  decreased by  $1,027,109,  or 35%. This change was
primarily the result of the decreased Environmental services sales activity.

Gross profit
------------

Gross profit  declined by $300,123,  or 47%, to $334,070  from  $634,193 for the
years ended  December 31, 2001 and 2000,  respectively.  The changes in revenues
and costs discussed in the preceding paragraphs contributed to this decline. The
decline in profits was also the result of the decision to pursue  sales  through
different channels that resulted in decreased margins,  but with the expectation
of higher volumes.

Operating costs and expenses
----------------------------

Operating expenses decreased  $405,372,  or 29%, to $983,762 from $1,389,134 for
the years ended December 31, 2001 and 2000, respectively. This decrease resulted
primarily from  decreased  expenditures  for  administrative  salaries,  outside
services and marketing expenses.

Other income (expense)
----------------------

The net other income  (expense) is  ($10,442)  for the year ending  December 31,
2001,  composed  primarily of interest  (expense) of  ($46,781)  (($72,019)  for
December 31, 2000) and other income of $36,339 ($194,957 for December 31, 2000).

Taxes on income
---------------

The company has  accumulated  significant  loss  carry-forwards  for federal and
state income tax purposes.  Since the Company has not attained  profitability in
any of its years of operations,  any  recognizable tax benefit of current losses
has been offset by a valuation  reserve  reflecting the uncertainty of using the
carry-forward. The carry-forwards begin to expire in the year 2005.

Liquidity and Capital Resources

Cash was $12,317 and $12,716 at  December  31, 2001 and 2000  respectively.  Net
accounts  receivable  were  $226,230  and $296,674 at December 31, 2001 and 2000
respectively.

The net working  capital  deficit was  $1,348,296 and $1,460,542 at December 31,
2001 and 2000 respectively.

The  company  is  liable  for  several  notes   payable.   Total  notes  payable
indebtedness  amounted to $425,200  and  $925,463 at December 31, 2001 and 2000,
respectively.  In addition,  the company had a note outstanding to its president
for $490,067 and $415,067 at December 31, 2001 and 2000. The change for the year
was the result of normal amortization,  the infusion of capital by the president
of the Company and the retirement of the note payable  associated  with the sale
leaseback  transaction  on the building  which  occurred in 2001. The Company is
obligated  under two minimal  capital  leases,  totaling  $27,320  (current  and
non-current portions).

                                       8
<PAGE>

Cash  requirements  to fund  the  operations  and  growth  of the  company  have
historically  exceeded cash flow from operations.  Accordingly,  the company has
funded its cash  requirements  through a  combination  of debt and  equity.  The
company  foresees  the need to  continue  similar  funding  arrangements  in the
immediate future.

Item 7. Financial Statements.
-----------------------------

The  Financial  Statements  may be  found  beginning  on  page  F 1,  "Financial
Statements," following Part III of this Annual Report on Form 10-KSB.

Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
Financial Disclosure.
---------------------

Not applicable.













                                       9
<PAGE>

                                    PART III

Item 9. Directors,  Executive Officers, Promoters and Control Person; Compliance
--------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
---------------------------------------

Our directors and executive officers are as follows:

     Name                  Age               Position
     ----                  ---               --------

Daniel B. Jones             65     President, Treasurer, and Director

Leslie E, Jones             52     Exec. Vice President, Secretary, and Director

Dr. John P. Bryk            42     Director

Efthimios Mamaligas         41     Vice President Sales & Marketing


Committees

During  2001,  only  special  meetings  were held to approve  various  corporate
authority changes mandated by changes in management personnel.

No committees have been formed nor members appointed.


Biographies

Daniel B. Jones

Mr. Jones has been President,  Chief Executive Officer,  Treasurer, and a member
of the Board of  Directors  since the  incorporation  of the company in January,
1990.  From 1986 until  January,  1988,  he was the Vice  President  and General
Manager of  Environmental  Absorbent  Supply,  Inc., a sorbent  manufacturer and
distributor. From 1980 to 1988 he was General Manager of Cincinnati Fiber, Inc.,
a sorbent  manufacturer.  From 1965 to 1980,  he was President and a Director of
Premier  Industries,  Inc., a manufacturer  of component parts for the aircraft,
automobile and steel industries.  In his capacity of President of NSI, Mr. Jones
has  been  primarily  responsible  for the  development  of the  company  from a
distributor  of products,  to a processor  and  manufacturer  of its own product
line.  His  responsibilities  have included  sales,  marketing,  administration,
finance, product development, operations and contract management.

Leslie E. Jones

Ms.  Jones  has  been  the  Executive  Vice  President,  Secretary,  controlling
shareholder  and a member of the Board of Directors since the  incorporation  of
the company in January,  1990. From 1987 to 1988, she was an  Administrator  for
Hondrous Academy,  an adult education school.  From 1983 to 1988, she was a real
estate sales person for  Sibcy-Cline,Inc.,  a real estate  brokerage  firm. From
1978 to 1982, she was a sales person and buyer for Pogues  Department  Store, an
upscale retail  department store. In her capacity as Executive Vice President of
NSI,  Ms.  Jones  has  been  responsible  for  Human  Resources,  legal,  Public
Relations, and Product Promotion of the company.

Efthimios Mamaligas

Mr. Mamaligas has been a Vice President of the company since September, 1997. He
has been responsible for both the domestic and international Sales and Marketing
efforts of the company.  Prior to joining the company Mr. Mamaligas was a senior
manager with the Chiquita  division of United Brands Inc., as well as serving in
a similar capacity with Gibson Greeting Cards, Inc.

Mr. Mamaligas resigned from the Company in March 2002.

                                       10
<PAGE>
<TABLE>
<CAPTION>

Each Director  holds office until our annual meeting of  stockholders  and until
his successor is duly elected and  qualified.  Officers are elected by the Board
of Directors and hold office at the discretion of the Board of Directors. Daniel
B. and Leslie E. Jones are husband and wife. No other family relationships exist
between any of our directors and executive officers.

Section 16(a) Beneficial Ownership Reporting Compliance.

Section 16(a) of the Securities  Exchange Act of 1934, as amended (the "Exchange
Act"),   requires  our  directors  and  executive  officers,   and  persons  who
beneficially  own more than ten  percent  of a  registered  class of our  equity
securities,  to file  with the  Securities  and  Exchange  Commission  (the SEC)
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities.  Officers,  directors, and persons who beneficially
own more than ten percent of a registered  class of our equities are required by
the regulations of the Commission to furnish us with copies of all Section 16(a)
forms they file.

To our knowledge, based solely on review of the copies of such reports furnished
to the Company,  during the fiscal year ended  December  31,  2001,  all Section
16(a) filing  requirements  applicable to our officers,  directors,  and greater
than ten percent beneficial owners were complied with.


Item 10. Executive Compensation.
--------------------------------

Executive Compensation

The  following  table  sets  forth the annual  and  long-term  compensation  for
services in all  capacities  for the fiscal year ended December 31, 2001 paid to
Daniel B. Jones,  our President and a director,  Leslie E. Jones, our Exec. Vice
President  and a director.  No other  executive  officer  received  compensation
exceeding $100,000 during the fiscal year ended December 31, 2001.

                           SUMMARY COMPENSATION TABLE

   Name and                  Fiscal                                                       Long-Term Compensation
Principal Position           Year          Annual Compensation                                     Awards
                                        Salary         Bonus      Other annual   Restricted  Securities     Long-Term    All Other
                                                                  Compensation   Stock       Underlying     Incentive    Compensa-
                                                                   (1) and (2)   Award(s)     Options/     Plan Payouts   tion (3)
                                                                                                SARs
<S>                          <C>        <C>            <C>        <C>            <C>         <C>           <C>            <C>
Daniel B. Jones,             2001       $48,000         --             --          --            --            --           --
President and                2000       $48,000         --             --          --            --            --           --
Director

Leslie E. Jones,             2001       $48,000         --             --          --            --            --           --
Vice President and           2000       $48,000         --             --          --            --            --           --
Director
</TABLE>

                                  OPTIONS TABLE

                       Options Granted in Last Fiscal Year

No Stock  options were  granted in the fiscal years ended  December 31, 2000 and
1999.

Director Compensation

No compensation was granted to directors for their  participation in meetings of
the Board of Directors during the fiscal years ended December 31, 2001 and 2000.

Option and Award Plan

At the present time and during the fiscal years ended December 31, 2001 and 2000
there was no stock option or stock award plan in place in the company.

401(k) Savings Plan

The Company has adopted a 401(k) savings plan whereby  participants can elect to
defer up to a specified maximum of their  compensation.  The plan presently does
not provide for any matching  contributions by the company. The Company pays all
administrative functions required by the operation of the plan.

                                       11
<PAGE>

Employment Agreements

Mr. Daniel B. Jones, President and Ms. Leslie E. Jones, Exec. Vice President are
employed in  accordance  with  employment  agreements  dated 1990 which  provide
automatic renewal each December 31 for a one year period.

Item 11. Security Ownership of Certain Beneficial Owners and Management.
------------------------------------------------------------------------

Principal Stockholders

The following  table sets forth  information  known to us, as of March 30, 2002,
regarding the beneficial  ownership of our voting  securities by (i) each person
who  is  known  by us to own of  record  or  beneficially  more  than  5% of the
outstanding  Common Stock,  (ii) each of our  directors and the Named  Executive
Officers,  as defined in Item 6, and (iii) all directors and executive  officers
as a group. Unless otherwise  indicated,  each of the stockholders listed in the
table  below has sole  voting  and  dispositive  power  with  respect  to shares
beneficially owned by such stockholder.

                                      Number of Shares
Name of Beneficial Owner (1)         Beneficially Owned     Percent of Class (2)
------------------------             ------------------     ----------------

Leslie E. Jones                          4,156,137                32.2 %

All directors and executive              4,172,803                32.4 %
Officers as a group (2 persons)

(1)      The  address  for Ms.  Jones  is c/o  National  Sorbents,  Inc.,  10139
         Commerce Park Drive, Cincinnati, Ohio 45246.
(2)      Shares of Common Stock are deemed outstanding for purposes of computing
         the  percentage of beneficial  ownership if such shares of Common Stock
         are exercisable or convertible  within 60 days of the date of this Form
         10-KSB.

Item 12. Certain Relationships and Related Transactions.
--------------------------------------------------------

A  single  customer,  who  generated  approximately  99%  of  the  revenue  from
environmental  services  in  2000,  and NSI are  party  to a  purchase  contract
covering the services to be provided by NSI. The contract  provides for periodic
review of the pricing schedules on specified waste streams, as well as providing
for pricing  updates on new waste streams  after  approval of the profile at the
final disposal facility.

This single customer had a catastrophic  explosion at its facility, in mid 2000,
which effectively  ceased any business done by the customer and any relationship
between NSI and the customer from that time forward.

The contract legally expired on December 31, 2001.

Item 13. Exhibits and Reports on Form 8-K.

Exhibit No.    Description
-----------    -----------



                                       12
<PAGE>

                                 SIGNATURE PAGE


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.

NATIONAL SORBENTS, INC.


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

\s\ Daniel B. Jones         President and Director              October 10, 2002
-------------------


In accordance  with the Exchange Act of 1934,  this report has been signed below
by the following  persons on behalf of the  registrant in the  capacities and on
the dates indicated.

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

\s\ Daniel B. Jones         President and Director              October 10, 2002
                            (Principal Executive Officer)

\s\ Leslie E. Jones         Exec. Vice President and Director   October 10, 2002


\s\ Dr. John Bryk           Director                            October 10, 2002









                                       13
<PAGE>









                             National Sorbents, Inc.

                              Financial Statements

                           December 31, 2001 and 2000

                                      With

                          Independent Auditors' Report




<PAGE>

                             National Sorbents, Inc.

                                Table Of Contents


                                                                            Page
                                                                            ----


Independent Auditors' Report                                                   1

Financial Statements:

   Balance Sheets                                                            2-3

   Statements of Operations                                                    4

   Statements of Cash Flows                                                    5

   Statements of Changes in Stockholders' Deficit                              6

   Notes to the Financial Statements                                        7-14



<PAGE>

                          Independent Auditors' Report
                          ----------------------------



To the Board of Directors
National Sorbents, Inc.:


We have audited the accompanying balance sheets of National Sorbents, Inc. as of
December  31, 2001 and 2000,  and the related  statements  of  operations,  cash
flows,  and changes in  stockholders'  deficit  for the years then ended.  These
financial  statements are the  responsibility of the company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audits in accordance  with U. S.  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 National  Sorbents,  Inc. at
December 31, 2001 and 2000 and the results of its  operations and its cash flows
for the years then ended in conformity with U. S. 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 3 to the
financial statements, the Company has incurred significant operating losses, and
has significant working capital and stockholders'  deficit.  These factors raise
substantial doubt about its ability to continue as a going concern. Management's
plans are also  described in the note.  The financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.




March  8, 2002
Cincinnati, Ohio


                                       1
<PAGE>

                             NATIONAL SORBENTS, INC.
                                 Balance Sheets
                           December 31, 2001 and 2000



                                     Assets
                                     ------

                                                          2001           2000
                                                       ----------     ----------

Current assets:
       Cash                                            $   12,317         12,716
       Trade receivables, net                             226,230        296,674
       Inventory:
           Raw materials                                  103,224        101,862
           Finished goods                                  42,084        108,037
                                                       ----------     ----------
                                                          145,308        209,899
                                                       ----------     ----------

       Prepaid expenses                                      --            1,460
       Employee advances                                   35,224         14,867
                                                       ----------     ----------
              Total current assets                        419,079        535,616
                                                       ----------     ----------


Property and equipment:
       Land and building                                     --          850,000
       Factory equipment                                  146,478        146,478
       Computers and office equipment                      92,669         73,940
       Furniture and improvements                          24,549         29,799
       Construction in process                             48,482         58,483
                                                       ----------     ----------
                                                          312,178      1,158,700
       Less accumulated depreciation                      220,018        275,321
                                                       ----------     ----------
              Net property and equipment                   92,160        883,379


Other assets                                               57,138          5,930
                                                       ----------     ----------

              Total assets                             $  568,377      1,424,925
                                                       ==========     ==========




See accompanying notes to financial statements.


                                       2
<PAGE>
<TABLE>
<CAPTION>

                      Liabilities and Stockholders' Deficit
                      -------------------------------------

                                                                      2001         2000
                                                                   ----------   ----------
<S>                                                                <C>           <C>

 Current liabilities:
        Trade payables                                             $  757,661    1,096,014
        Accrued expenses:
           Payroll taxes                                               33,743       53,076
           Interest                                                    14,829       38,805
           Other                                                       35,560       51,922
        Notes payable                                                 425,200      325,379
        Notes payable - stockholder                                   490,067      415,067
        Current portion of long-term debt and capital leases           10,315       15,895
                                                                   ----------   ----------
           Total current liabilities                                1,767,375    1,996,158
                                                                   ----------   ----------



 Deferred gain on building sale                                       590,372         --
 Mortgage payable, net of current portion                                --        600,084
 Capital lease, net of current portion                                 17,005       12,650
                                                                   ----------   ----------
        Total long-term liabilities                                   607,377      612,734
                                                                   ----------   ----------
           Total liabilities                                        2,374,752    2,608,892
                                                                   ----------   ----------


 Stockholders' deficit:
        Common stock; $0.001 par value, 50,000,000
           shares authorized, 13,131,472 and
           12,893,472 outstanding in 2001 and 2000, respectively       13,131       12,893
        Paid-in capital                                             5,534,368    5,496,880

        Accumulated deficit                                        (7,353,874)  (6,693,740)
                                                                   ----------   ----------
           Total stockholders' deficit                             (1,806,375)  (1,183,967)
                                                                   ----------   ----------

               Total liabilities and stockholders' deficit         $  568,377    1,424,925
                                                                   ==========   ==========
</TABLE>


                                       3
<PAGE>
<TABLE>
<CAPTION>

                             NATIONAL SORBENTS, INC.
                            Statements of Operations
                     Years Ended December 31, 2001 and 2000


                                                            2001            2000
                                                       ------------    ------------
<S>                                                    <C>                <C>

Revenues:
       Environmental                                   $    124,644       1,493,771
       Sorbents                                           2,013,965       1,976,070
       Freight revenues                                     161,954         152,371
       Sales returns and allowances                         (15,513)         (9,930)
                                                       ------------    ------------
           Net revenue                                    2,285,050       3,612,282
                                                       ------------    ------------
Cost of Sales:
       Environmental                                        117,473       1,182,723
       Sorbents                                           1,808,320       1,773,132
       Depreciation (Sorbents)                               25,187          22,234
                                                       ------------    ------------
                                                          1,950,980       2,978,089
                                                       ------------    ------------
           Gross Profit                                     334,070         634,193
                                                       ------------    ------------
Operating Costs and Expenses:
       Salaries, wages and taxes                            385,395         497,786
       Advertising and promotion                            212,994         408,948
       Commissions                                           28,421         106,554
       Professional fees                                    114,385         138,447
       Communications                                        26,648          24,499
       Insurance                                             35,307          32,974
       Other administration                                 180,612         179,926
                                                       ------------    ------------
                                                            983,762       1,389,134
                                                       ------------    ------------
           Loss from operations                            (649,692)       (754,941)

Interest expense                                            (46,781)        (72,019)
Other income                                                 36,339         194,957
                                                       ------------    ------------
           Loss before taxes                               (660,134)       (632,003)

Income tax provision                                           --              --
                                                       ------------    ------------
           Net loss                                    $   (660,134)       (632,003)
                                                       ============    ============

Net loss per common share:
       Net loss                                        $      (0.05)          (0.06)
                                                       ============    ============

Weighted average number of common shares outstanding     13,113,164      10,797,708
                                                       ============    ============
</TABLE>

See accompanying notes to financial statements.


                                       4
<PAGE>
<TABLE>
<CAPTION>

                             NATIONAL SORBENTS, INC.
                            Statements of Cash Flows
                     Years Ended December 31, 2001 and 2000


                                                             2001           2000
                                                         -----------    -----------
<S>                                                      <C>               <C>

Cash flows from operating activities:
      Net loss                                           $  (660,134)      (632,003)
      Adjustments to reconcile net loss to net
         cash used by operating activities:
          Depreciation                                        26,891         36,295
          Stock issued for services                             --           51,000
          Amortization of deferred gain on sale              (36,572)          --
          Changes in operating assets and liabilities:
             Decrease in accounts receivable                  70,444        115,977
             (Increase) decrease in inventory                 64,591         (4,828)
             Decrease  in prepaid expenses                     1,460         16,685
             (Increase) in employee advances                 (20,357)        (4,439)
             (Increase) in other assets                      (51,208)        (1,090)
             Increase (decrease) in trade payables          (338,353)        17,941
             (Decrease) in accrued expenses                  (21,945)       (11,194)
                                                         -----------    -----------
Net cash used by operating activities                       (965,183)      (415,656)
                                                         -----------    -----------

Cash flows from investing activities:
      Proceeds from sale of building                       1,400,000           --
      Purchase of equipment                                   (8,728)       (86,759)
                                                         -----------    -----------
Net cash used by investing activities                      1,391,272        (86,759)
                                                         -----------    -----------

Cash flows from financing activities:
      Proceeds from new loans                                570,000           --
      Proceeds from capital lease                             15,853         20,759
      Payments on notes payable                             (395,179)        (3,061)
      Payments on mortgage debt                             (607,799)        (6,355)
      Payments on capital lease                               (9,363)        (6,828)
      Proceeds from sale of common stock                        --          498,329
                                                         -----------    -----------
Net cash provided by financing activities                   (426,488)       502,844
                                                         -----------    -----------

      Net increase (decrease) in cash                           (399)           429

      Cash at beginning of year                               12,716         12,287
                                                         -----------    -----------

      Cash at end of year                                $    12,317         12,716
                                                         ===========    ===========

Schedule of noncash activities:
      Stock issued for accrued interest                  $    37,726           --
                                                         ===========    ===========
</TABLE>

See accompanying notes to financial statements.


                                       5
<PAGE>
<TABLE>
<CAPTION>

                             NATIONAL SORBENTS, INC.
                 Statements of Changes in Stockholders' Deficit
                     Years Ended December 31, 2001 and 2000



                                                   Common Stock                                                   Total
                                          ------------------------------       Paid-In        Accumulated     Stockholders'
                                              Shares           Amount          Capital          Deficit          Deficit
                                          -------------    -------------    -------------    -------------    -------------
<S>                                       <C>              <C>              <C>              <C>              <C>

Balance, December 31, 1999                    9,763,938    $       9,764        4,898,180       (6,061,737)      (1,153,793)

 Sales of common stock                        2,884,534            2,884          547,945             --            550,829

 Stock issued for services, net                 300,000              300           50,700             --             51,000

 Cancellation of stock for compensation         (55,000)             (55)         (27,445)            --            (27,500)

 Underwriting costs reversed                       --             27,500             --             27,500

 Net loss for year                                 --               --               --           (632,003)        (632,003)
                                          -------------    -------------    -------------    -------------    -------------

 Balance, December 31, 2000                  12,893,472           12,893        5,496,880       (6,693,740)      (1,183,967)

 Stock issued for interest                      238,000              238           37,488             --             37,726

 Net loss for year                                 --               --               --           (660,134)        (660,134)
                                          -------------    -------------    -------------    -------------    -------------

 Balance, December 31, 2001                  13,131,472    $      13,131        5,534,368       (7,353,874)      (1,806,375)
                                          =============    =============    =============    =============    =============
</TABLE>

See accompanying notes to financial statements.


                                       6
<PAGE>

                             National Sorbents, Inc.

                          Notes To Financial Statements


1.       Nature Of Operations:
         --------------------

         National Sorbents, Inc. (Company) was incorporated in 1990 in the State
         of Ohio where its  administrative,  sales and manufacturing  facilities
         are  located.  In January  2000,  the  Company  redomiciled  in Nevada,
         authorizing 25,000,000 additional common shares at $0.001 par value per
         share.  Immediately  following the incorporation in Nevada, the Company
         affected a  share-for-share  exchange with the shareholders of the Ohio
         Company and then merged the Ohio  Company into the Nevada  Company,  so
         the surviving  company is the Nevada Company.  Immediately  after,  the
         Company purchased Polyspherics, Inc. (Poly), a Nevada shell corporation
         with no assets, liabilities, revenues or operations. Poly was a company
         required to file annual and periodic  reports with the  Securities  and
         Exchange Commission by virtue of its having a 12-g registration on Form
         10-SB.  Subsequent to the  acquisition  of Poly, the Company merged the
         subsidiary  into  itself  and is the  surviving  entity  for  reporting
         purposes.

         The Company engages in two segments of the environmental  industry, one
         dealing with  containment/cleanup  (sorbents)  and the other with waste
         disposal   (environmental   services).  As  discussed  later  in  these
         footnotes,  the environmental segment experienced a significant decline
         in revenue during 2001 and is not expected to recover. The breakdown of
         the segment information is shown elsewhere in these footnotes.

2.       Summary Of Significant Accounting Policies:
         ------------------------------------------

         Use of estimates
         ----------------

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

         Fair value of financial instruments
         -----------------------------------

         Substantially all of the Company's financial assets and liabilities are
         carried at fair value or contracted  amounts,  which  approximate  fair
         value.

         Net loss per common share
         -------------------------

         Net loss per common share has been computed by dividing the  respective
         numerator by the weighted  average number of common shares  outstanding
         during the periods.


                                       7
<PAGE>

         Trade receivables and revenue recognition
         -----------------------------------------

         The  Company,  in the  normal  course of  business,  extends  credit to
         customers on an  uncollateralized  basis.  Revenue is  recognized  upon
         shipment  of  product to  customers.  Management  periodically  reviews
         outstanding accounts receivable,  as well as the bad debt write offs in
         the  past,  to  establish  an  allowance   for  doubtful   account  for
         uncollectible amounts.

         Inventories
         -----------

         Inventories  are  stated  at the  lower  of  cost  or  market.  Cost is
         determined  using the  first-in-first-out  method (FIFO).  Shipping and
         handling costs are included in cost of sales.

         Property and equipment
         ----------------------

         Property and equipment are recorded at cost.  Depreciation  is provided
         principally on the straight-line method over the estimated useful lives
         of the assets.  Additions,  improvements,  and expenditures for repairs
         and maintenance  that are material in nature and  significantly  add to
         the productivity or extend the economic life of assets are capitalized.
         Any immaterial  amounts or amounts  incurred as recurring  expenditures
         for repairs are charged to expense.

         Income taxes
         ------------

         Income taxes are recorded in accordance  with SFAS No. 109,  Accounting
         for Income Taxes.  This statement  requires the recognition of deferred
         tax assets and  liabilities to reflect the future tax  consequences  of
         events that have been recognized in the Company's financial  statements
         or tax returns.  Measurement  of the deferred items is based on enacted
         tax laws. In the event the future  consequences of differences  between
         financial  reporting  basis and tax  basis of the  Company  assets  and
         liabilities  result in a deferred  tax asset,  SFAS No. 109 requires an
         evaluation  of the  probability  of being  able to  realize  the future
         benefits  indicated by such asset. A valuation  allowance  related to a
         deferred  tax asset is  recorded  when it is more  likely than not that
         some portion of the deferred tax asset will not be realized.

         Advertising costs
         -----------------

         The Company expenses  advertising costs as incurred.  Advertising costs
         totaled $21,949 in 2001 and $67,140 in 2000.

         Reclassifications
         -----------------

         Certain  reclassifications  have been made in the prior year financials
         to conform to the current year presentation.



                                       8
<PAGE>
<TABLE>
<CAPTION>

3.       Going Concern:
         -------------

         Through  December  31,  2001  the  Company  had  incurred   significant
         operating losses and has depended upon stock sales, stockholder/officer
         loans and loans  from  others to provide  the  liquidity  necessary  to
         maintain  ongoing  operations.  In 2001 the Company  continued to incur
         operating losses and showed a decrease in revenues from 2000 levels. As
         of  December  31, 2001 the  Company  had a working  capital  deficit of
         $1,348,296 and stockholders' deficit of $1,806,375. These factors raise
         substantial  doubt about the  Company's  ability to continue as a going
         concern.

         Management  is  exploring  various   alternative  sources  of  capital,
         including   refinancing  the  mortgage,   additional  equity  and  debt
         offerings  or some  combination  of equity  and  debt.  There can be no
         assurance  that the Company will achieve any level of financing or that
         the level achieved will be sufficient to maintain or grow the Company's
         operations.

4.       Trade Receivables:
         -----------------

         At December 31, 2001 and 2000, the allowance for doubtful  accounts was
         $34,124 and $36,145 respectively.

5.       Notes Payable:
         -------------

         Notes payable at December 31, 2001 and 2000 consists of the following:

                                                                 2001       2000
                                                               --------   --------
<S>                                                            <C>        <C>
         Term note, interest at 12%, dated June 26, 1998
         Lender received 50,000 shares of stock at inception
         and has option to purchase additional shares at 50%
         of market value. Renewable annually by consent of
         both parties                                          $ 60,000    125,000

         Promissory note dated May 16, 1995.  Interest
         at prime plus 1%                                          --          379

         Demand note to an individual, without interest         195,200    200,000

         Demand note, without interest                           60,000       --

         Bank term note, dated March 2001.  Interest at
         prime plus 1%.  Secured by business assets and
         shareholder residence.  Interest payable monthly,
         loan due March 2002                                    110,000       --
                                                               --------   --------


                  Total outstanding                            $425,200    325,379
                                                               ========   ========

</TABLE>


                                       9
<PAGE>

         During 2001 and 2000, the Company  recognized  total  interest  expense
         related  to  these  notes  in  the  amount  of  $21,144  and   $15,201,
         respectively.  Only $7,388 and $201,  respectively of this interest was
         paid in cash.

6.       Notes Payable - Stockholder:
         ---------------------------

         The  stockholder  loan is a demand loan without  interest.  The loan is
         from the president of the Company.

7.       Mortgage Note:
         -------------

         In 2000, the mortgage debt  outstanding is secured by land and building
         that houses the  operations.  The  interest on the note is variable and
         can  change by up to 2.0% per year  based on a defined  index.  For the
         period from 2000 to 2001 the rate varied  between 8.25% to 9.875%.  The
         maximum  rate on the loan is 14.5%.  The rate is subject to  adjustment
         each  year on July 1. For the  years  2001 and  2000 the  Company  paid
         interest of $19,976 and  $54,990  respectively.  This loan was paid off
         during 2001 as part of the sale-leaseback transaction discussed later.

8.       Capital Lease:
         -------------

         As of  December  31, 2001 the  Company is  obligated  under two capital
         leases. The first lease consists of phone equipment. This lease expires
         in  September  2005.  The second  lease  involves  computer  networking
         equipment.  This lease  expires in July 2003.  At December 31, 2000 the
         company was obligated  under a capital lease for phone  equipment  that
         expired in May 2001. The minimum annual  payments  required under these
         leases are as follows:

                                      2002                  $  15,064
                                      2003                     11,325
                                      2004                      6,089
                                      2005                      4,060
                                                            ---------

                 Total lease payments                          36,538
                 Amounts representing interest                  9,218
                                                            ---------

                 Present value of future minimum payments      27,320
                 Less: current portion                         10,315
                                                            ---------

                 Long-term portion                          $  17,005
                                                            =========




                                       10
<PAGE>

         The total of the assets under capitalized lease as of December 31, 2001
         and 2000 are as follows:

                                                  2001        2000
                                                --------    --------

               Computers and office equipment   $ 36,343      41,370
               Accumulated depreciation          (13,966)    (23,389)
                                                --------    --------

                        Total                   $ 22,377      17,981
                                                ========    ========

9.       Sale-Leaseback Transaction:
         --------------------------

         In June 2001, the Company entered into a sale-leaseback  transaction on
         its primary facilities.  The building and land was sold for $1,400,000.
         Simultaneously,  the Company  signed a 5 year  lease,  with a five year
         option,  for $16,900 per month. The gain from this transaction has been
         deferred and is being  recognized over a ten year period.  The lease is
         being  accounted for as an operating  lease,  therefore the  statements
         show no value for the land and  building,  nor any of the related lease
         payment obligations.

         The lease contains a provision for the repurchase of the facilities for
         $1,600,000, which the company has negotiated to $1,550,000. The Company
         is  currently  negotiating  with a lender to  secure a loan that  would
         allow  repurchase.  This transaction is expected to close in the second
         quarter of 2002.

10.      Operating Leases:
         ----------------

         The Company  leases its main  facilities  and certain  warehouse  space
         under  agreements  that expire in 2006. The Company also leases certain
         vehicles under operating  leases that expire in 2002. Total expense for
         operating   leases  was   $152,310  and  $30,668  for  2001  and  2000,
         respectively.  The following  are the minimum  payments due under these
         leases:

                             2002             $   225,224
                             2003                 202,800
                             2004                 202,800
                             2005                 202,800
                             2006                  84,500
                                              -----------
                                              $   918,124
                                              ===========

11.      Stockholders' Deficit:
         ---------------------

         During  2000,  in  conjunction  with the  reorganization  into a Nevada
         corporation,  the  number  of  authorized  shares  was  increased  from
         25,000,000 to 50,000,000.



                                       11
<PAGE>

         In 2001, the company issued 238,000 shares of stock in lieu of interest
         on a note  payable.  The shares were valued at  approximately  $.16 per
         share.  A total of $37,726 of interest was satisfied  with the issuance
         of these  shares.  None of  these  shares  were  registered  under  the
         Securities Act of 1933 or any securities laws.

         In 2000 the Company  issued  3,184,534  shares of common stock.  One of
         these transactions involved the issuance of 2,764,534 shares and raised
         $498,329.  The second  transaction  involved  the  transfer  of $52,500
         previously  accounted  for as a note  payable  by  issuance  of 120,000
         shares.  Finally,  300,000  shares were issued in exchange for services
         rendered.  The issuance of the 300,000 shares was valued by the company
         at $.17 per share,  approximately  the value of shares  sold during the
         year. None of these shares were registered  under the Securities Act of
         1933,  as  amended,  or any  state  securities  laws.  Also in 2000 the
         Company  cancelled  55,000  shares of stock  that had  previously  been
         issued in connection with underwriting  services.  Because the services
         were never rendered,  the shares were cancelled.  This  transaction has
         been  reflected  as a reversal in the equity  section of the portion of
         the shares cancelled.

12.       Income Taxes:
          ------------

         The income tax  provision is net of the  deferred  taxes that have been
         recorded to account for differences between book and tax accounting. In
         2001, those differences related primarily to accounting for the gain on
         sale of the building. A valuation allowance has been recorded to offset
         100% of these assets. Future profitability and therefore realization of
         those  assets is not assured,  so the  valuation  allowances  have been
         recorded.

                                                         2001           2000
                                                     -----------    -----------

         Deferred tax assets (liabilities):
                  Net operating loss
                     carryforwards                   $ 2,125,000      2,125,000
                  Tax differences related
                     to sale-leaseback transaction       200,600           --
                                                     -----------    -----------
                           Total                       2,325,600      2,125,000

                  Valuation allowance                 (2,325,600)    (2,125,000)
                                                     -----------    -----------
                           Total                            --             --
                                                     ===========    ===========

         At  December  31,  2001,  the  Company  had  federal  and state tax net
         operating loss (NOL's) carry forwards of  approximately  $6,250,000 and
         $4,100,000, respectively. These NOL's expire in various amounts through
         the years 2005 to 2020.  No cash was paid for  income  taxes in 2001 or
         2000.





                                       12
<PAGE>

13.      401(K) Plan:
         -----------

         The Company  has a 401 (k) plan  (Plan)  covering  all  employees.  The
         Company made no  contributions to the Plan for the years 2001 and 2000.
         It however, pays all administrative fees relating to the Plan.

14.      Other Income:
         ------------

         Included  in other  income  for the year  ended  December  31,  2000 is
         approximately  $200,000 in income related to the environmental segment.
         More information was obtained during that year that allowed  management
         to better clarify  issues for which  liabilities  had  previously  been
         recorded and to determine that the recorded  liabilities were no longer
         necessary.

15.      Risks and Uncertainties:
         -----------------------

         The Company's future  operating  results may be affected by a number of
         factors.  The Company is dependent upon a number of major suppliers for
         sorbent raw  materials.  Although  some of the raw  materials  could be
         purchased  from other  sources if a critical  supplier had  operational
         problems or ceased making material available to the Company, operations
         could be adversely  affected.  In particular,  approximately 85% of the
         sorbent raw materials purchased are from two suppliers.

         The Company's  environmental  services are provided  principally to one
         customer who accounted for approximately  99% of environmental  revenue
         in 2000.  This customer  experienced a  catastrophic  event during 2000
         that  significantly  reduced the revenue from this segment.  Management
         does not expect this category to generate  significant revenues anytime
         in the foreseeable future.

16.      Commitments and Contingent Liabilities:
         --------------------------------------

         The  Company is subject to legal  proceedings  and claims that arise in
         the ordinary course of its business. In the opinion of management,  the
         amount of ultimate  liability  with  respect to these  actions will not
         materially affect the financial position of the Company.

17.      Business Segment Data:
         ---------------------

         The Company's two operating segments within the environmental  industry
         are  containment/cleanup  (sorbents) and waste disposal  (environmental
         services). These are the only two components of the Company about which
         separate  financial  information  is  available  and that is  evaluated
         regularly  by  the  chief  operating   decision  maker.  The  Company's
         operating decision maker is its president.

         During  2000  the  primary  customer  for the  company's  environmental
         services segment  experienced a catastrophic  event that  significantly
         reduced  operations.  During  2000 the  company  continued  to  provide
         services to the customer as a result of the cleanup work related to the
         event. However in 2001, revenue from that segment became negligible.


                                       13
<PAGE>


         Information  concerning  operations by business segment is presented in
         the following table:

                                           2001         2000
                                        ----------   ----------
                   Revenues:
                     Environmental      $  124,644    1,493,771
                     Sorbents            2,160,406    2,118,511
                                        ----------   ----------
                   Total Revenues        2,285,050    3,612,282

                   Gross Profits:
                     Environmental           7,171      311,048
                     Sorbents              326,899      323,145
                                        ----------   ----------
                   Total Gross Profit   $  334,070      634,193


         The  Company's   environmental   services  business  is  operated  with
         sub-contractors performing substantially all the required services. The
         Company performs billings,  collection and follow-up services. However,
         these services are not  substantial and the company does not report the
         cost of these  services on a stand  alone basis to the chief  operating
         decision maker.  Therefore,  the Company's gross profit is equal to its
         operating  profit,  and  represents  the  difference  between  what the
         Company bills for the services and what it pays the sub-contractors.

         The  Company's  assets,  excluding any amounts  receivable  and payable
         related to the waste disposal segment, are entirely associated with the
         Company's sorbents business.







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