<PAGE>

                                   UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549

                                    FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

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

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

For the transition period from            to
                               ---------     ---------------------------
Commission File Number:              33-85864-LA
------------------------------------------------------------------------
                              CLS FINANCIAL SERVICES, INC.
------------------------------------------------------------------------




              (Exact name of registrant as specified in its charter)
 WASHINGTON                                                 91-1478196
------------------------------------------------------------------------




(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
 4720 200th St SW, Suite 200, Lynnwood, WA 98036
------------------------------------------------------------------------------
(Address of principal executive offices)          (Zip Code)
         (425) 744-0386
------------------------------------------------------------------------------
               (Registrant's telephone number, including area code)
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for a
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.    \X\ Yes
\ \ No

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

State the issuer's revenue for its most recent fiscal year.........$2,267,649

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
<PAGE>
of a specified date within the past 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act.) n/a

Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.

   (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE YEARS)

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. \ \ Yes \ \ No

                 (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

                      Class               Outstanding on December 31, 2001
                ------------------        --------------------------------
                Common, Class One                   500
                Common, Class Two                 1,000

                   DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I or Part II, etc.)
into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1993 ("Securities
Act").  The list documents should be clearly described for identification
purposes (e.g., annual report to security holders for fiscal year ended
December 24, 1990). n/a

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























<PAGE>
                     CLS FINANCIAL SERVICES, INC.
       ANNUAL REPORT OF FORM 10-KSB FOR THE FISCAL YEAR ENDED
                        DECEMBER 31, 2001

                        TABLE OF CONTENTS
                                                                    PAGE

PART I
     Item 1:    Description of Business                               4

     Item 2:    Description of Property                               5

     Item 3:    Legal Proceedings                                     5

     Item 4:    Submission of Matters to Security Holders             6

PART II
     Item 5:   Market for Common Equity & Related Stockholders        6
               Matters

     Item 6:   Management Discussion & Analysis                       6

     Item 7:   Financial Statements                                   9

     Item 8:   Changes in & Disagreements with Accountants on        21
               Accounting & Financial Disclosure

PART III
     Item 9:  Directors & Executive Officers                        21

     Item 10:  Executive Compensation                                22

     Item 11:  Security Ownership of Certain Beneficial Owners and   22
               Management

     Item 12:  Certain Relationships and Related Transactions        23

     Item 13:  Exhibits and Reports on 8-K                           24





















<PAGE>
                              PART I

ITEM 1    DESCRIPTION OF BUSINESS

Business Development and Description

CLS Financial Services, Inc., is a Washington State Corporation (referred to
as the "company") incorporated in March of 1990.  The company's primary
business is to engage in the brokerage of loans and the purchase and sale of
real estate contracts, mortgages, and deeds of trust ("loans"). The company
has continued its registration with the State of Washington to sell in whole
or in part loans pursuant to its Mortgage Broker Dealer license.

The company originates loans by lending money directly to the borrower.  These
loans may be held in the company's inventory or resold to investors with all
servicing rights and servicing fees retained by the company.  The company also
acts as a broker retained by the borrower to find a suitable lender.  The
initial sale of debenture investments, principal reductions and the reselling
of loans to investors provided the source of funds needed to invest in new
loans receivable.

The company has originated loans as set forth below:

<TABLE>
<CAPTION>
YEAR TOTAL LOAN ORIGINATIONS  LOANS BROKERED & SOLD    COMPANY LOAN PORTFOLIO
<S>    <C>                     <C>                       <C>
1996    $20,962,033.00          $17,969,295.00            $2,992,738.00
1997    $15,253,345.00          $12,766,411.00            $2,486,934.00
1998    $31,718,132.00          $27,965,691.00            $3,752,441.00
1999    $29,511,957.00          $27,590,809.00            $1,921,148.00
2000    $28,577,253.00          $26,974,343.00            $1,602,910.00
2001    $44,394,488.00          $43,510,832.00            $  883,656.00
</TABLE>

The company has generated revenue as set forth below:

<TABLE>
<CAPTION>
                  1999               2000                2001
<S>               <C>                <C>                 <C>
GROSS REVENUE     $1,757,334.00      $2,035,395.00       $2,267,649.00
OPERATING EXPENSE $1,248,714.00      $1,406,679.00       $1,506,147.00
SALARY EXPENSE      $491,922.00        $560,978.00         $724,286.00
NET INCOME/(Loss)    $16,698.00         $67,738.00          $37,216.00
</TABLE>

Security

As of December 31, 2001 and December 31, 2000, 53% and 54%, respectively, of
the loans in the portfolio were secured by first liens on real property.
Management expects this trend to continue. Loans originated by CLS and
retained as inventory decreased in 2001 due to fewer loans of this type being
funded by CLS and the high demand for these loans by investors.  CLS expects
to fund more of these loans in 2002, but also expects investor demand to
remain high.  See Note 3, Notes to Financial Statements.



<PAGE>
Borrowers and Competition

The company is a full service mortgage company.  The company advertises in the
local media, accepts referrals and employs loan officers.  The company brokers
Class A and B loans to established lenders.  Some of the primary competitors
are Beneficial Financial Services and Quality Mortgage.  The company also
services more difficult to place Class C loans. The company's investment
criteria for Class C loans places emphasis on the value of the collateral and
to a lesser extent the borrower's credit worthiness. The company underwrites
these loans conservatively, with an average loan to appraised value of 65% or
loan to tax assessed value of 50%.  The company used the proceeds of the
debenture securities offering to originate Class C loans.  The market for
Class C loans is competitive with lenders such as Lornty Investors, and
Pacific Coast as direct competitors.  The company believes it will remain
competitive based upon its history and the economic and real estate market
growth in the Snohomish, King and Pierce County areas.

Subsequent Event

CLS expects to be merged with a newly formed limited liability company, CLS
Financial Services, LLC ("the LLC") sometime in 2002.  The LLC will be the
surviving company.  CLS will be liquidated.  The debenture holders of CLS will
be offered the opportunity to convert their debentures into equity in the
LLC.  At least 80% of the debenture holders must agree to the conversion from
debt to equity for it to be effective for any debenture holders.  It is
anticipated that at least 80% of the debenture holders will vote in favor of
the conversion.

A limited partnership in which CLS is a partner, called PSIG One LP, will also
be merged with the LLC. The limited partners of PSIG One LP will be offered
the opportunity to become owners in the LLC.  It is anticipated that a
majority of the limited partners will vote in favor of becoming owners.

ITEM 2    DESCRIPTION OF PROPERTY

The company's principal investment objective is to acquire a portfolio of real
estate collateralized loans at 2-4% over the cost of capital.  In order to do
so the company must acquire loans in which the borrowers are considered a
higher risk than Class A borrowers with higher credit ratings. These loans
are
secured by real estate located in the Western Washington area.  The majority
of the loans are in the $80,000-$150,000 range bearing interest between 12% to
18%. Types of real property securing loans (including related party loans) as
of December 31, 2001 are set forth below:

SINGLE FAMILY RESIDENCES      $  578,704.00
MULTI-FAMILY RESIDENCES       $  575,639.00
RAW LAND                      $3,287,861.00
OTHER                            $15,802.00
TOTAL LOAN RECEIVABLE         $4,458,006.00

ITEM 3    LEGAL PROCEEDINGS

As of December 31, 2001, the company was not involved in any lawsuits with
the
investors.  The company has entered the execution phase of the restructuring
plan. There still remains a risk that some of the debenture holders who have
not yet signed the agreement regarding the restructuring plan may initiate
legal proceedings.  At present the company is current in its obligations to
all of its investors regarding the restructuring plans.  It has been clear to
the majority of the investors that it is in their best interest to work with
<PAGE>
management through this restructuring process.  In the event the company is
unable to reorganize with the investors consent, CLS may be forced to
liquidate or file under Chapter 11 of the Bankruptcy code.  In that case, the
investors of debentures will most likely lose a substantial portion of their
principal, since the value of CLS is represented in the market equity in real
property, namely the market value of the property sold at a price in excess
of
book value.

On October 16, 2001, Mr. Melvin L. Johnson, Jr., without authority wrongfully
removed the computer he used in his office from the company offices. On
October 17, 2001, the President, Mr. Gerald C. Vanhook suspended Mr. Johnson
for improper conduct toward employees, for completing a false financial
statement that was to be sent to a bank in conjunction with an operating line
of credit, for failing to file or provide the company with his 2000 tax
return, for breaching his duty of loyalty to the company, for improperly and
without authority wrongfully rolling over an investor's funds and other
allegations that require investigation.  On October 18, 2001, Mr. Johnson
attempted to enter the company property for the purposes of removing his
records and was stopped by security and finally ordered off the premises by
the Lynnwood police.  On October 19, 2001, the Board of Directors ratified the
suspension at a Board Meeting and further suspended Mr. Johnson without pay
for the duration of the investigation.  The company is in the process of
submitting the U4 to the Securities Division of the Department of Financial
Institutions for the State of Washington.  Subsequently, Mr. Johnson initiated
a lawsuit against the Company, its affiliate companies, Mr. Vanhook, other
officers, an independent director and counsel in King County Cause Number
01-2-31145-OSEA with a trial date of March 31, 2003.  The Company forwarded a
copy of the complaint to the Securities Division for the State of Washington.
Subsequent to the filing to the complaint, Mr. Johnson attempted to redirect
tenant rent payments to his own account and did further attempt to redirect
closing proceeds on an affiliate company to his own account. Further legal and
disciplinary action will be taken against Mr. Johnson to protect the
investors.

Item 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                             PART II

ITEM 5     MARKET FOR COMMON EQUITY & RELATED MATTERS

Market Information

There is no public market for the company's investment debentures, nor is one
likely to develop.  The investment debentures are not expected to be listed on
any formal exchange.

ITEM 6    MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION &
RESULTS  OF OPERATION

Statement of Forward-Looking Information

This discussion and analysis should be read together with our financial
statements and related notes appearing in Item 7, below.  This report contains
both objective historical information and subjective "forward-looking
statements" that are subject to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, and bear certain risks and
uncertainties that could cause actual results to differ materially from those
<PAGE>
projected.  Generally, forward-looking statements are prefaced by the words:
"believe", "expect", "intend", "anticipate", and similar expressions; but
their absence does not mean that a statement is not forward-looking.  Numerous
factors both within and outside our control could affect our actual results,
including, but not limited to the factors set forth in the "Legal Proceedings"
and "Uncertainties" contained in Form 10-KSB for the year ended December 31,
2001.  These risk factors, among others, could cause results to differ
materially from those presently anticipated by us.  Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as of the date of this report.  We undertake no obligation to publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect events or circumstances after the date of this report or to
reflect the occurrence of anticipated events.

Plan of Operation & Liquidity

Principal payments and the reselling of loans to investors provided the
source
of funds to invest in loans receivable. Available liquidity will dictate the
volume of loan purchases that may be acquired by the company. Management has
established a policy of conservative collateral lending.  As a result,
defaulted loans generally create additional profit centers as the collateral
value has been sufficient to sustain the increased yield created by the
company servicing the debt on behalf of the borrower but retaining the
increased default rate when the borrower cures the loan.  The company manages
cash by reselling the loan to other investors in order to recapture original
debenture investments which will then in turn be used to fund other loans.

The company relies on its ability to resell loans receivable or real estate
in
sufficient amounts to generate funds needed to pay off maturing debentures
under the restructuring plan. The external sources of liquidity include a
line
of credit, sale of debentures, payoff on loans receivable, sales of loan
receivable, and sales of real estate.

Capital Resources

Interest received on loans funded and servicing fees provide the funds for
expenses and interest due to investors on debenture purchases.  Principal on
loans receivable due will provide the funds to repay the debentures payable.
The loans receivable are tied specifically to these debentures payable with
similar maturity over the next five year.  There are no other significant
commitments for capital expenditures as of December 31, 2001.

Results of Operations

In 2001, 2000, 1999, 1998, and 1997, the company originated 44.4, 28.6, 29.5,
31.7, 15.3, 20.9 million dollars in loans, respectively.  The company's
revenues from operations were 2.27, 2.0, 1.76, 2.2, 1.7, 1.7, million dollars
in 2001, 2000, 1999, 1998, 1997, respectively.  Expenses from operations
increased to $1,506,147 from $1,406,679 in 2001. The loan department was
expanded to take advantage of the low mortgage interest rates.  The marketing
department was expanded to take advantage of investors seeking alternatives to
the stock market.

Property Value Trends

There are no known or predicted property value downward trends.  Management
expects that property values will continue to increase in the Puget Sound
area.  Management bases this prediction on industry reports that value of
property in the western Washington area has increased in 2001 and shows no
<PAGE>
downward trends in the foreseeable future.

Obligations

In order to protect the debenture holders' principal, in early 1999 the
company reduced the interest rate by 50%, and the maturity was extended by
5 years. In the first quarter of 2000, the interest rates on the debenture
accounts were increased based on the financial success of the restructuring.
The company plans to increase the return in 2002 and beyond, provided there
is
sufficient income to pay for the increases.  The company's principle
performance objective is to meet all restructuring obligations and to provide
an annual increase in retained earnings.  As of year end 2001, the company has
done so.  The company receives interest payments from loans receivable
sufficient to pay debenture investor interest.  The company relies on its
ability to sell loans receivable to generate the necessary cash to pay
principal to the investor.

The company has developed a merger plan in which CLS Financial Services, Inc.
and PSIG One LP will be merged with a newly formed LLC, the CLS Financial
Services, LLC. The LLC will be the surviving company. The debenture holders
and the limited partners will be offered the opportunity to become Class Two
members of the LLC.

Return on Asset, Equity, and Equity to Assets Ratio

The following net returns were realized during the years ended December 31,
2001 and 2000.

<TABLE>
<CAPTION>
Year Ended December 31,                                 2001        2000
<S>                                                    <C>          <C>
Return on Assets (net income/avg total assets)           .31%         .63%
Return on Equity (net income/avg equity)                4.08%        7.87%
Equity to Assets (avg equity/avg total assets)          7.67%        8.03%
</TABLE>

Plan of Operation

The company is committed to offer real estate and loans receivable for sale to
investors for the foreseeable future.  Management expects loan growth to
exceed 2001 due to the current refinancing trend.  More effort has been
placed
on the loan department to obtain A & B type loans to sell to brokers which
will generate more income based on the volume alone.

The company's cash management goal is to invest all available funds through
loans receivable or real estate. There has been no shortage of investment
options that meet the company investment criteria.  The company expects to be
able to continue to acquire similar loans in the future.  Loan purchases will
be limited by available liquidity as previously discussed.

The company actively pursues delinquent accounts. As a result, non earning
receivables are minimal and generally fully collected within thirty to sixty
days.  Management's strategy and policy has been to underwrite loans
conservatively.  This strategy will continue with a loan to value ratio
average of 65%.  Every effort is made to assure profitability even in the
event of a foreclosure sale.


<PAGE>
The company forecasts a stable demand for its services in the foreseeable
future, evidenced by the daily loan inquiries, portfolio performance, external
predictions and subsequent loans funded.

Uncertainties

The restructuring plan has been accepted by the clear majority (88% as of
year
end 2000) of the debenture investors as set forth above.  However, there is
no
guarantee that the company will be able to reorganize if all of the investors
do not agree.  In the case a debenture holder, with investments in an amount
material in relation to the company's net worth, proceeds with litigation,
the
company will be forced to litigate to protect investors who agreed to the
restructuring.  In the alternative, and in a worst case scenario, the company
could be forced to liquidate or perhaps file for a formal reorganization
under
Chapter 11 of the Bankruptcy Code.  Management believes that after the
investors study the audited financial statements, the information contained
in
this 10KSB, reviews the real estate portfolio and loan portfolio and reviews
the industry predictions, that they will agree that it is in their collective
best interests to support the restructuring plan initiated by management.
The
savings of administration costs, court hearings, and compliance with the
Bankruptcy Code, rules and United States Trustee directives, will ultimately
inure to the investors, rather than counsel, accountants and the Trustee
office.

ITEM 7      FINANCIAL STATEMENTS

            Index to Financial Statements as of December 31, 2001

                                                                   Page
Independent Auditors Statement                                      9

Balance Sheets                                                      11

Statements of Operations and Retained Earnings (Deficit)            12

Statements of Cash Flows                                            13

Notes to Financial Statements                                    14-18





















<PAGE>

                                (LETTERHEAD)

                         INDEPENDENT AUDITORS' REPORT

To the Board of Directors
CLS Financial Services, Inc
Lynnwood, Washington


We have audited the accompanying balance sheets of CLS Financial Services,
Inc. as of December 31, 2001 and 2000, and the related statements of
operations and retained earnings (deficit), and cash flows for the years then
ended.  These  financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States and the standards applicable to financial audits
contained in the Government Auditing Standards, issued by the Comptroller
General of the United States. 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 CLS Financial Services, Inc.
as of December 31, 2001 and 2000, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.


/s/ Peterson Sullivan PLLC
Seattle, Washington
February 8, 2002




















<PAGE>
                         CLS FINANCIAL SERVICES, INC.
                                BALANCE SHEETS
                        December 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                     2001              2000
ASSETS                                             --------          --------
<S>                                             <C>               <C>
Cash                                            $   185,171       $
69,320
Cash - held in trust                                  9,642            13,087
Loans Receivable from related party               4,801,530
4,094,588   Loans Held for Resale
687,866           560,462
Loans Receivable                                    169,762
270,525
Receivables                                         177,909
281,442
Real estate held for sale                         6,638,482
5,373,331   Property and equipment, at cost,
less
  accumulated depreciation of $291,840
  in 2001 and $211,683 in 2000                      286,644
114,802
Other                                                21,262
44,668                                                    ----------
----------
     Total Assets                               $12,978,288       $10,822,225
                                                 ==========
==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses           $   134,217       $
129,796
Trust account payable                                 9,642            13,087
Loans payable                                    10,318,540
8,689,073
Notes payable                                       896,500           535,500
Warehouse line of credit                            687,866           560,462
                                                  ---------
---------
     Total Liabilities                           12,046,765
9,927,918

STOCKHOLDERS' EQUITY
Common stock, Class one, no par value               10,000             10,000
Common stock, Class Two, $1000 par value         1,000,000          1,000,000
Retained earnings (deficit)                        (78,477)
(115,693)
                                                 ---------
---------             Total Stockholders' Equity
931,523            894,307
                                                 ---------
---------
    Total Liabilities & Stockholders' Equity   $12,978,288
$10,822,225
                                                ==========
==========
</TABLE>
See Notes to Financial Statements











<PAGE>
                         CLS FINANCIAL SERVICES, INC.
            STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
                    Years Ended December 31, 2001 AND 2000
<TABLE>
<CAPTION>
                                                     2001           2000
REVENUES                                             ----           ----
<S>                                              <C>             <C>
Loan origination fees                            $  964,484      $  738,325
Interest on loans                                   822,209         897,167
Loan servicing and other fees                       145,948          85,287
Management fees                                     315,770         292,276
Other income                                         19,238          22,340
                                                  ---------       ---------
      Total Revenues                              2,267,649       2,035,395

EXPENSES
Wages and payroll taxes                             724,286         560,978
Commission and referrals                            536,540         464,402
Interest expense                                    570,499         555,447
Advertising                                          77,820          81,167
Rent                                                 46,724          50,873
Office and utilities                                193,526         124,683
Professional fees                                    68,918         108,116
Depreciation                                         12,120          21,991
                                                  ---------       ---------
     Total expenses                               2,230,433       1,967,657
                                                  ---------      ----------
     Net Income                                      37,216          67,738

RETAINED EARNINGS (deficit), beginning of year     (115,693)       (183,431)
                                                  ---------       ---------
RETAINED EARNINGS (deficit), end of year          $ (78,477)     $ (115,693)
                                                  =========       =========

</TABLE>
See Notes to Financial Statements






















<PAGE>

                          CLS FINANCIAL SERVICES, INC.
                            STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2001 AND 2000
<TABLE>
<CAPTION>
                                                      2001           2000
                                                    --------       --------
<S>                                               <S>           <S>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income                                        $   37,216     $   67,738
Adjustments to reconcile net income to net cash
  flows from operations
Depreciation                                          12,120         21,991
Proceeds from real estate held for sale                           1,399,450
Purchase of real estate held for sale             (1,265,151)      (638,614)
Change in other operating assets and liabilities
  Receivables, other than loans receivable           103,533        (58,394)
  Loans held for resale                             (127,404)      ( 53,177)
  Accounts payable and accrued expenses                4,421         27,701
  Net borrowings on warehouse line of credit         127,404         53,177
  Other                                               23,406          9,969
                                                   ---------      ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES          (1,084,455)       829,841

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                  (205,951)       (57,955)
Change in related party loans                       (684,973)      (190,279)
Change in loans receivable                           100,763        409,661
                                                   ---------      ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES            (790,161)       161,427

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) on loans payable           1,629,467       (831,527)
Borrowings (repayments) on note payable              361,000       (163,857)

                                                  ----------      ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES           1,990,467       (995,384)
                                                  ----------      ---------

NET INCREASE (DECREASE) IN CASH                      115,851         (4,116)

CASH BALANCE - BEGINNING OF YEAR                      69,320         73,436
                                                  ----------      ---------

CASH BALANCE - END OF YEAR                       $   185,171     $   69,320
                                                  ==========      =========
Interest paid on a cash basis                    $   570,499     $  555,447
                                                  ==========      =========
Income taxes paid on a cash basis                $      -        $     -
                                                  ==========      =========
</TABLE>

 See Notes to Financial Statements





<PAGE>

                             CLS FINANCIAL SERVICES
                         NOTES TO FINANCIAL STATEMENTS
                               December 31, 2001

NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization

CLS FINANCIAL SERVICES, INC. ("CLS") earns fees from the origination of real
estate loans, commissions from the sale of real estate to home buyers, and
purchases and sells real estate contracts, mortgages and deeds of trust.  As
such, CLS is subject to regulations in the state of Washington with respect to
mortgage broker dealers.  CLS also buys and sells real estate.

CLS is related to a series of other companies that provide services to CLS
customers as follows:

Puget Sound Investment Group, Inc. ("PSIG"). PSIG owns and manages real
estate, and develops real estate for sale.  PSIG borrows funds in its own
name, acquires property in its own name and has, in the past, borrowed funds
from investors on loans that were brokered by CLS. PSIG has, in the past,
acquired title to properties through the foreclosure process on loans
originated by CLS.

PSIG also provides CLS marketing services related to certain parcels of CLS's
real estate.  As compensation for these services, CLS allows PSIG to retain
any gains or losses for the eventual sales of this real estate.  As a result
of this relationship, gains of $56,224 were transferred to PSIG in 2000.
These gains were based on sale of real estate with a cost of $1,343,226 and a
sales price of $1,399,450. Because this activity nets out to have no effect on
the statement of operations, it is not shown on that statement. There were no
such real estate sales in 2001.

CLS earned management fees from PSIG of $315,770 and $292,276 in 2001 and
2000, respectively,  for oversight of certain PSIG operations.  In addition,
CLS services some loans held by PSIG.

Puget Sound Real Estate Services Group, Inc. (PSRESG). PSRESG provides real
estate closing services for loans originated by CLS .  PSRESG charges CLS
customers directly for these services. PSRESG was closed December 31, 2000.

Puget Sound Construction of Washington, Inc. (PSCW).  PSCW provides
residential repair services to properties owned by PSIG and CLS.  PSCW
charges
CLS directly for these services. PSCW was closed in February 2001.

The Class One stockholders of CLS are the stockholders in the companies listed
above.

CLS and its affiliated companies allocate rent based on space used,
management
and labor costs based on time, telephone expenses based on number of
employees, computers and equipment based on usage and other overhead costs
based on reasonable estimates of use.

In addition, CLS is a shareholder in a company called RMX REIT, Inc. (RMX).
RMX holds notes receivable collateralized by real estate and invests in real
estate to operate and rent. CLS provides facilities and certain office
support


<PAGE>
                            CLS FINANCIAL SERVICES, INC
                           NOTES TO FINANCIAL STATEMENTS
                                 DECEMBER 31, 2001
NOTE 1 - (continued)

functions to RMX under a cost sharing allocation. In addition, CLS has paid
certain expenses for RMX including legal fees and accounting fees.  CLS does
not expect to be repaid for paying these fees. In 2001 and 2000, these fees
approximated $50,000 and $49,000, respectively.

Loan interest

Generally, interest on loans is recognized when earned using the interest
method.  Interest on loans is not recognized when loans become ninety days
delinquent.  Thereafter, no interest is taken into income unless received in
cash or until such time as the borrower demonstrates the ability to resume
payments.  Interest previously accrued but not collected is charged against
income at the time the loan becomes ninety days delinquent.

Sales of real estate

Real estate held for sale is stated at cost (specific identification), unless
the estimated future undiscounted cash proceeds expected to result from
disposition of the real estate portfolios are less than the carrying value in
which case a loss is recognized.  Sales of real estate generally are accounted
for under the full accrual method.  Under that method, a gain is not
recognized until collectibility of the sales price is reasonably assured and
the earnings process is virtually complete.  When a sale does not meet the
requirements for income recognition, gain is deferred until those requirements
are met.

Loan origination and servicing fees

Loan origination fees and direct loan origination costs are recognized when
the loans are sold by CLS.

Loan servicing fees are charged at a rate of $20 per month over the servicing
of the loan.  Loan servicing fees are paid by the borrower and are recognized
as revenue as the services are provided.

Allowance for Losses

Any allowances for losses on notes receivable will include amounts for
estimated probable losses on receivables determined in accordance with the
provisions of Statement of Financial Accounting Standards No. 114,
"Accounting
by Creditors for Impairment of a Loan", as amended.  Specific allowances will
be established for delinquent receivables, as necessary.  Additionally, CLS
will establish allowances, based on prior delinquency and loss
experience, for currently performing receivables and smaller delinquent
receivables.  Allowances for losses will be based on the net carrying values
of the receivables, including accrued interest.

Cash

For purposes of the statements of cash flow, CLS considers all highly
liquid investments with an original maturity of three months or less to be
cash. From time to time, CLS has cash balances in excess of federally insured
limits.

<PAGE>
                              CLS FINANCIAL SERVICES
                          NOTES TO FINANCIAL STATEMENTS
                                 DECEMBER 31, 2001
NOTE 1 - (continued)

Trust Accounts

CLS holds money in trust for real estate transactions in process.  The amount
held is shown as an asset and a liability on the balance sheets.

Depreciation

Property and equipment are depreciated using the straight line method over the
estimated useful lives of the assets.

Income Taxes

CLS accounts for income taxes under the asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
CLS financial statements or income tax returns.

At December 31, 2001, CLS has a deferred tax asset that primarily results
from
net operating loss carryforwards.  The net operating loss carryforwards amount
to $429,617 and expire in 2019 and 2021.  The asset resulting from these
carryforwards amounts to $131,383 and has been fully reserved.

Advertising

Advertising costs are expensed as incurred.

Use of estimates

The preparation of financial statements in conformity with accounting
principles general accepted in the United Sates requires management to make
estimates and assumptions that affect the reported amounts of certain assets
and liabilities and related disclosures.  Accordingly, the actual amounts
could differ from those estimates.

Contingencies

CLS is subject to legal actions and claims which have arisen in the ordinary
course of its business.  Management believes that such litigation and claims
are not presently material to the financial statements.

Note 2. Loans Receivable From Related Parties

CLS has loans receivable from related parties as follows:
<TABLE>
<CAPTION>
                                                         2001      2000
                                                  ----------- ----------
<S>                                               <C>         <C>
PSIG and affiliates                                 $4,203,255 $3,816,192
A limited partnership in which CLS is a partner        598,275    278,396
                                                   ----------- ----------
                                                    $4,801,530 $4,094,588
                                                   =========== ==========
</TABLE>
<PAGE>
                            CLS FINANCIAL SERVICES, INC
                           NOTES TO FINANCIAL STATEMENTS
                                 DECEMBER 31, 2001


Note 2 - (continued)

Of the total loan receivable from PSIG and affiliates, $4,056,278 is due on
demand and bears interest at 12%, at December 31, 2001.  Interest income
earned from PSIG was $729,229 in 2001 and $590,483 in 2000.  Interest
receivable from PSIG amounted to $124,342 and $187,992 at December 31, 2001
and 2000, respectively, and is included in loans receivable from PSIG.  At
December 31, 2001, this portion of the loan is secured by real property as
follows (amounts are as represented by PSIG):

<TABLE>
<S>                           <C>
Single Family Residential     $  438,175
Multi-Family Residential         357,239
Undeveloped Land               3,274,430
                             -----------
                              $4,069,844
                             ===========
</TABLE>

The remaining amount due from PSIG and affiliates ($146,877 at December 31,
2001) is due on demand, bears no interest, and is unsecured.  These amounts
are expected to be repaid in the near term.

Combined in the receivable from the limited partnership is a loan to the
limited partnership in the amount of $218,400 which is due on demand, bears
interest at 12%, and is secured by multi-family residential property, at
December 31, 2001.

Note 3. Loans Receivable

CLS's loans receivable are concentrated in the state of Washington and are
generally secured by real estate.  Types of real property securing loans
receivable at December 31, 2001 and 2000, are as follows:
<TABLE>
<CAPTION>
                                            2001      2000
                                         --------- ---------
<S>                                      <C>       <C>
Single Family Residential                 $140,529  $195,342
Undeveloped Land                            13,431    29,610
Other                                       15,802    45,573
                                         --------- ---------
                                          $169,762  $270,525
                                         ========= =========
</TABLE>








<PAGE>
                            CLS FINANCIAL SERVICES, INC
                           NOTES TO FINANCIAL STATEMENTS
                                 DECEMBER 31, 2001


Note 3 - (continued)

Security positions on loans receivable are as follows:
<TABLE>
<CAPTION>
                                            2001      2000
                                         --------- ---------
<S>                                      <C>       <C>
First Lien Position                       $ 90,769   145,369
Second Lien Position                        37,143    52,007
Third Lien Position                         31,850    31,850
Other                                       10,000    41,299
                                         --------- ---------
                                          $169,762  $270,525
                                         ========= =========
</TABLE>

Principal payments to be received for the years ending December 31 are as
follows:
<TABLE>
                      <S>            <C>
                      2002           $   84,091
                      2003               11,591
                      2004               61,473
                      2005                  275
                      2006                  275
                      Thereafter         12,057
                                    -----------
                                      $ 169,762
                                    ===========
</TABLE>
These loans have interest rates ranging from 10% to 14%

NOTE 4. Loans Payable

Loans payable include loans and debentures payable made up of amounts due to
investors with varying terms.  Interest rates vary from 5% to 14%.

Principal payments on loans and debentures payable for the years ending
December 31 are as follows:
<TABLE>
                  <S>                        <C>
                  2002                      $   724,283
                  2003                          327,437
                  2004                        3,304,095
                  2005                          908,060
                  2006                        2,177,049
                  Thereafter                  2,877,616
                                             ----------
                                            $10,318,540
                                             ==========
</TABLE>


<PAGE>
                            CLS FINANCIAL SERVICES, INC
                           NOTES TO FINANCIAL STATEMENTS
                                 DECEMBER 31, 2001

Note 4 - (continued)

As of December 31, 2001, CLS had $4,676,542 in unsecured debenture
certificates outstanding.  Debenture certificates plus accrued interest
totaled of $4,742,555 at December 31,2001.

Other loans payable consists of numerous small loans that are secured by real
estate.  Included in this balance is $144,084 and $128,295 due to family
members of a stockholder at December 31, 2001 and 2000, respectively, and
$591,502 at December 31, 2001, due to RMX.

NOTE 5. Notes Payable
<TABLE>
<CAPTION>
                                                       2001           2000
                                                     ---------     ---------
<S>                                                  <C>          <C>
Line of credit with an individual for a maximum
of $1,000,000 due December 31, 2002.  Interest at 12%
annually is to be paid monthly.  In addition, CLS
is to pay a loan service fee of $2,500 per month
when there are outstanding balances.  The line of
credit is secured by a blanket assignment of notes
and related deeds of trust as draws are made.
Some deeds of trust securing this line of credit
are owned by PSIG.                                     896,500    535,500
                                                      ========   ========
</TABLE>
CLS also has a line of credit with a bank for a maximum of $150,000 that it
shares with PSIG.  This line of credit is secured by personal guarantees of
the Class One CLS stockholders, and expires November 24, 2002.  PSIG has
drawn
$146,173 on the line and that amount is recorded on PSIG's books.

Note 6. Warehouse Line of Credit

CLS has a mortgage warehouse line of credit with a bank, which is subject to
renewal on August 31, 2002.  Advances are received, up to a maximum of
$2,000,000, based on a specified percentage of mortgage loans, which are
pledged as collateral.  The loans are then sold off the line to other service
companies. Interest is accrued at prime plus 2.5%, payable monthly.  The
agreement contains certain financial covenants, including maximum debt to
equity, which have not been met, but as explained in the subsequent paragraph,
the outstanding balances at December 31, 2001, have been repaid.

At December 31, 2001, CLS had four loans totaling $687,866 outstanding on the
line.  This amount is included in the balance sheets as an asset called Loans
Held for Resale and as a liability called Warehouse Line of Credit.  All four
loans were sold subsequent to December 31, 2001.  CLS is no longer liable for
these loans.

In the prior year, CLS had four loans totaling $560,462 outstanding on the
line which were sold subsequent to December 31, 2000.



<PAGE>
                            CLS FINANCIAL SERVICES, INC
                           NOTES TO FINANCIAL STATEMENTS
                                 DECEMBER 31, 2001


Note 7. Common Stock

Class One shares of common stock are voting shares.  Class Two shares are
nonvoting.  Class Two shares are to receive 80% of any dividends paid, and
have a dissolution preference over Class One to the extent of the Class Two
capital contributions.

At December 31, 2001, there were 500 Class One shares and 1,000 Class Two
shares issued and outstanding.  In 2001, CLS increased the number of
authorized Class One shares from 500 to 100,000.  Also in 2001, CLS increased
the authorized number of Class Two shares from 2,500 to 100,000.

Note 8.  Commitments

CLS leases office space under a non-cancelable operating lease.  Approximate
minimum lease payments under this lease for the years ending December 31 are
as follows:

<TABLE>
                             <S>             <C>
                             2002            $   79,000
                             2003                79,000
                             2004                79,000
                             2005                13,000
                                             ----------
                                             $  250,000
                                             ==========
</TABLE>

Rent expense under this lease was $46,724 in 2001 and $50,873 in 2000.  These
amounts are net of amounts allocated to affiliates.


Note 9. Subsequent Event

CLS expects to be merged with a newly formed limited liability company, CLS
Financial Services, LLC ("the LLC") sometime in 2002.  The LLC will be the
surviving company.  CLS will be liquidated.  The debenture holders of CLS will
be offered the opportunity to convert their debentures into equity in the
LLC.  At least 80% of the debenture holders must agree to the conversion from
debt to equity for it to be effective for any debenture holders.  It is
anticipated that at least 80% of the debenture holders will vote in favor of
the conversion.

A limited partnership in which CLS is a partner, called PSIG One LP, will also
be merged with the LLC. The limited partners of PSIG One LP will be offered
the opportunity to become owners in the LLC.  It is anticipated that a
majority of the limited partners will vote in favor of becoming owners.






<PAGE>

ITEM 8     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE
None

                             PART III

ITEM 10    DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.
The following are the officers of the company:
<TABLE>
<CAPTION>
       Name            Age      Title                  Address
<S>                  <C>      <C>                    <C>
Gerald C. Vanhook     53      President               Mill Creek, WA
Lorrie Vanhook        55      Secretary               Mill Creek, WA
Debbie Little         44      Vice President          Lynnwood, WA
Diane Blackburn       47      Treasurer               Snohomish, WA
</TABLE>

1) Gerald C. Vanhook, (Jerry, 53) is and has been the President of the company
since its inception in 1990.  Prior to that, he worked for CLS Mortgage, Inc.,
in Spokane from February 1984 until November 1989, in which he was responsible
for acquiring and selling similar securities.  He has been employed in several
management positions with Consumer Financial Companies, Mortgage Banks, and
Credit Unions since 1969.

2) Lorrie Vanhook, (Lorrie, 55) is and has been the corporate Secretary and is
the Department Manager for loan processing.  She joined the company in July of
1990, and performed duties as a loan officer. She is the wife of Jerry
Vanhook.  She has been employed in a variety of positions with GTE over the
past 20 years.

3) Debbie Little, (Debbie, 44) is and has been employed as the Office Manager.
She joined the company in February of 1993.  She became Assistant Vice
President of Operations on October 1, 1996, she is now the Vice President of
Operations. She is not a stockholder.  She has been employed as a Field
Supervisor with ITT Financial Services.  She graduated from Willamette
University with a degree in Public Policy and Speech in 1980.

4) Diane Blackburn (Diane, 47) is and has been the Treasurer and is the
Controller and Accounting Manager. Ms. Blackburn is responsible for the
day-to-day operations of the accounting department, including financial
reporting, tax returns, investor reports, SEC filings and supervision of the
accounting staff of CLS Financial Services. She has over 15 years of
experience managing corporate business functions, which include positions that
range from Director of Operations to corporate Controller.  She holds a Master
of Accountancy degree from the University of Oklahoma, a B.S. in Accounting
degree from Kansas State University and has been a CPA in the State of
Washington since 1990.

Family Relationships

Mr. Gerald C. Vanhook, the President, is married to Lorrie Vanhook, the
Secretary.  They own 100% of the company's outstanding and issued stock in
Joint Tenancy with the Right of Survivorship.

Involvement in certain legal proceedings
See Item 3 and Item 7.

<PAGE>
ITEM 10   EXECUTIVE COMPENSATION

Summary Compensation Table

<TABLE>
<CAPTION>
      A           B               C                 D             E
Name & Position     Year           Salary           Bonus      Other Salary
<S>               <C>             <C>               <C>        <C>
Gerald Vanhook      1999          $ 85,402.00         0             0
President           2000            95,476.00         0             0
                    2001           137,787.00         0             0

Lorrie Vanhook      1999            52,152.00         0             0
Secretary           2000            52,152.00         0             0
                    2001            64,902.00         0             0

Debbie Little       1999            48,948.00         0             0
Vice President      2000            49,631.00         0             0
                    2001            59,116.00         0             0

Diane Blackburn     2000            34,294.82         0             0
Treasurer           2001            49,999.92         0             0
</TABLE>

The company pays its officers a salary based upon performance.  The company
pays for health insurance and reimburses officers for expenses incurred in the
normal course of business.

ITEM 11   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The company is a closely held corporation.  The company originates loans to
high risk borrowers and generally services these loans in its servicing
department.  The company is attempting to build a mid-level management team
capable of carrying on the business. The President and the Secretary of the
Company are married, namely Gerald C. Vanhook and Lorrie Vanhook, who own
100%.

ITEM 12     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Business Relationships

The role of Puget Sound Real Estate Services Group (referred to as "PSRESG")
was to close the Company loans and to service loans.  The amount of closing
fees paid to PSRESG in 2000 was 114,467.00 as compared to 1999 at 175,997.00.
PSRESG also collected the late fees associated with the loans, late fees
collected in 2000 were 13,956.00. PSRESG also handled miscellaneous
litigation, including collection litigation, for all companies as needed.

Management closed this operation in December, 2000.  CLS will continue to
service it's own loans, including collections.  Litigation services, when
needed, will be out-sourced.

The role of Puget Sound Investment Group (referred to as "PSIG") is varied.
PSIG purchases distressed properties or raw land generally for much less than
market value and repairs the property for resale or rent or builds new
structures.  In addition, PSIG had two wholly owned subsidiaries, PSRESG and
Puget Sound Construction, Inc.

<PAGE>
ITEM 13   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, & REPORTS ON 8-K

Exhibits

The following exhibits are filed as part of this report.  Exhibits previously
filed are incorporated by reference as noted.

Exhibit
Number            Exhibit                                              Page

2      Plan of acquisition, reorganization, arrangement, liquidation,
or
       succession*
3      Articles of incorporation, by-laws*
4      Instruments defining the rights of security holders,
including
       indentures*
9      Voting Trust agreement*
10     Material contracts*
11     Statement recomputation of per share earnings*
12     Statement recomputation of ratios*
13     Annual report to security holders, Form 10-Q or quarterly report
to
       security holders*
16     Letter change in certifying accountant*
18     Letter change in accounting principles*
21     Subsidiaries of the registrant*
22     Published report regarding matters submitted to vote of
security
       holders*
23     Counsel of experts and counsel*
24     Power of Attorney*
27     Financial Data Schedule                                            24
28     Information from reports furnished to state insurance
regulatory
       authorities*
99     Additional exhibits

* Items denoted by an asterisk have either been omitted or are not applicable.

Reports on Form 8-K
The company did not file any reports on Form 8-K in the year 2001.






















<PAGE>
                            SIGNATURES

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




/s/
_______________________________________                 ___________________
Gerald C. Vanhook, President                              Date



/s/
_______________________________________                 _____________________
Debbie Little, VP Of Operation                          Date



/s/
_______________________________________                 _____________________
Lorrie Vanhook, Secretary                               Date



/s/
_______________________________________                 _____________________
Diane Blackburn, Treasurer                              Date