<PAGE>

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

                          -----------------------------
                                   FORM 10-KSB
                          -----------------------------
(MARK ONE)

( X )    ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

                        COMMISSION FILE NUMBER 001-15071

                             POWERSOURCE CORPORATION
                (Name of registrant as specified in its charter)

         NEVADA                                          61-1180504
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

8033 SUNSET BLVD., SUITE #863
LOS ANGELES, CA                                         90046
(Address of principal executive office)              (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (213) 383-4443

      SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE EXCHANGE ACT:

                                      NONE

      SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE EXCHANGE ACT:

                                 TITLE OF CLASS

                          COMMON STOCK, $.001 PAR VALUE
                         PREFERRED STOCK, $100 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or of such shorter period as 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)

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not 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)

The registrant's revenues for the year ended December 31, 2001 were $2,419,589.

The aggregate market value of the voting and non-voting common equity (the only
such common equity being Common Stock, $.001 par value) held by non-affiliates
of the registrant (computed by reference to the closing sale price of the Common
Stock on December 31, 2001 is $409,000.

The number of shares outstanding of the registrant's Common Stock, $.001 par
value (being the only class of common stock) on December 31, 2001 is 6,817,008.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.



<PAGE>

                             POWERSOURCE CORPORATION
                      INDEX TO ANNUAL REPORT ON FORM 10-KSB

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                              ITEMS IN FORM 10-KSB

                                                                            PAGE
                                                                            ----
PART I.

Item 1.     Description of Business.........................................  3

Item 2.     Description of Property.........................................  6

Item 3.     Legal Proceedings...............................................  6

Item 4.     Submission of Matters to a Vote of Security Holders.............  6

PART II.

Item 5.     Market for Common Equity and Related Stockholder Matters........  6

Item 6.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations.......................................  7

Item 7.     Consolidated Financial Statements...............................  9

Item 8.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure........................................ 20

PART III.

Item 9.     Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act............... 20

Item 10.    Executive Compensation.......................................... 22

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

Item 12.    Certain Relationships and Related Transactions.................. 24

Item 13.    Exhibits and Reports on Form 8-K................................ 24

Signatures.................................................................. 25

                                       2


<PAGE>

================================================================================
                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 Statements in this filing which are not
historical facts may be considered "forward-looking statements" within the
meaning of Section 21E of the Securities Act of 1934, as amended, including
projected sales based on orders, estimated cost savings and savings that may be
generated from restructuring. The words "believe", "expect", "anticipate",
"estimate", and similar expressions identify forward-looking statements. Any
forward-looking statement involves risk and uncertainties that could cause
actual events or results to differ, perhaps materially, from the events
described in the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise. The risks associated
with the Company's forward-looking statements include, but are not limited to,
risks associated with the Company's history of losses and uncertain
profitability, reliance on a large customer, risks associated with competition,
general economic conditions, reliance on key management and production people,
future capital needs, dilution, effects of outstanding notes and convertible
debentures, limited public market, low stock price, and lack of liquidity.

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

                                     PART I.

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

PowerSource Corporation (the "Company" or "PowerSource") is a Nevada corporation
formed in 1990 under the name American Gas Corporation. In 1992, Kensington
International Holding Corporation ("Kensington"), a fully reporting Company,
acquired American Gas Corporation. Subsequently in May 1998, American Gas
Corporation reorganized and changed its name to PowerSource Corporation. From
its inception until February 1998, the Company operated as an energy provider in
the Midwest. In 1998, the Company relocated to California to take advantage of
California Assembly Bill 1890 that permits California residents and businesses
to choose their utility suppliers. The Bill opened the market through
deregulation.

PowerSource is a registered electric service provider (registration # 1237) with
the California Public Utilities Commission ("CPUC"). The Company has also
satisfied the necessary criteria to be a Registered Renewable Provider
(registration #CEC-91237). As a result, the Company is eligible to receive
funding from the Renewable Technology Program. On July 13, 1998, the Federal
Energy Regulatory Commission licensed the Company as a Wholesale Electric Power
& Energy Transactions Marketer/Public Utility Company (docket #ER98-3052-000),
which automatically became effective on August 14, 1998. When filing documents
with the Federal Energy Regulatory Commission, the Company requested a waiver of
various Commission regulations. In particular, the Company requested that the
Commission grant blanket approval under 18 CFR Part 34 of all future issuances
of securities by the Company. On July 10, 1998, pursuant to delegated authority,
the Director, Division of Applications, Office of Electric Power Regulation,
granted the Company's request for blanket approval of issuances of securities
effective August 10, 1998.

Power marketers whose rates are registered with the Commission are considered to
be "Public Utilities" under the Federal Power Act. As such, the Company, at all
times, must fully comply with a number of regulations governing all Public
Utilities.

In January 2001, the state of California passed an emergency piece of
legislation referred to as ABx1. This legislation included a provision that
allowed the CPUC to suspend direct access at its option. On September 20, 2001,
the CPUC did indeed suspend the right for any new customer to choose direct
access. This action prevented the Company from acquiring new customers. In
addition, the CPUC may rule adversely on the customers the Company has
temporarily returned to the service of the host utilities. An adverse ruling of
this type would prevent these customers from either being returned to the
services of the Company or being sold and assigned to another company.

                                       3


<PAGE>

PRINCIPAL PRODUCTS AND SERVICES

PowerSource had two primary products: PowerGreen 100 (a 100% renewable energy
service) and PowerGreen 25 (a low-priced product for commercial customers).
PowerGreen 100 was the primary product and maintained a higher gross margin.

The other product, PowerGreen 25, was to be offered selectively to major
organizations. This product was used for publicity reasons and to maintain a
low-cost option that was expected to produce greater profit margins in the
future. (Beyond the year 2003) No sales of the PowerGreen 25 product were
attempted.

PowerSource's former wholly-owned subsidiary, GreenView Energy, Inc. (GreenView)
is a Delaware Corporation, formed on November 2, 2000 to expand PowerSource's
positioning in the energy market place. GreenView focuses on energy efficiency
products for industrial, commercial and governmental applications. GreenView
completed considerable marketing activities in 2001, signed up a number of
distributors across the U.S., but did not receive revenue for the sale of its
product during this fiscal year. Effective February 25, 2002 Powersource
transferred it's interest in GreenView, as well as selected assets, to Mark
Haggerty in full satisfaction of it's liability totaling $261,000.

CURRENT ACTIVITIES AND MATERIAL EVENTS

A major decision was handed down from the CPUC on September 20, 2001. This
decision was to suspend the right of customers to choose electric service
providers other than their host utility. This suspension of direct access
prohibits the Company from signing new customers for the services offered by
PowerSource. This ruling adversely impacts the entire industry and the
suspension will likely be in effect for at least the next ten years in
California.

The Company has taken the following steps to mitigate the impact of this change
in the Electric Service Provider business in California. First, the Company is
seeking avenues to diversify its business activities outside of the Electric
Service Provider business in related areas such as energy efficiency, power
procurement, and power development. Second, the Company is attempting to sell
its existing customer base, which was temporarily returned to the service of
their host utility during 2nd quarter 2001, with other firms that are better
positioned to outlast the suspension period. Third, the Company is reviewing its
legal options for possible indemnification of shareholders for the problems
brought to this industry by a group of out-of-state power marketers that
illegally used their market power to set prices above those allowed by the
Federal Energy Regulatory Commission.

 We believe that the cash flow from operations and cash from refunds will be
sufficient to meet our working capital and capital expenditure requirements and
provide us with adequate liquidity to meet our anticipated operating needs for
at least the next 12 months. Although operating activities are expected to
provide cash, to the extent the Company grows significantly in the future, the
Company's operating activities may use cash and consequently, this growth may
require the Company to obtain additional sources of financing. There can be no
assurance that any necessary additional financing will be available to the
Company on commercially reasonable terms, if at all.

INDUSTRY

The restructuring of the electric utility industry in California allowed
electric service providers like PowerSource to provide its customers with power
derived only from resources that are less harmful to the environment and
renewable in nature. The use of these resources helps clean up California's air,
reduces greenhouse emissions and supports in-state energy industries. The
California Energy Commission selects the specific resources that complied with
these environmental standards. This agency determined that the following
resources should be included in the renewable category: biomass, digester gas,
geothermal, small hydro, landfill gas, municipal solid waste, photovoltaic,
solar thermal, waste tire, and wind. By purchasing from this group of energy
resources, PowerSource was able to participate, along with 14 other companies,
in a $75 million plus pool set aside for discounts to customers using green
energy.

In January 2001, the state of California passed an emergency piece of
legislation referred to as ABx1. This legislation included a provision that
allowed the CPUC to suspend direct access at its option. On September 20, 2001,
the CPUC did indeed suspend the right for any new customer to choose direct
access. This action prevented the Company from acquiring new customers. In
addition, the CPUC may rule adversely on the customers the Company has
temporarily returned to the service of the host utilities. An adverse ruling of
this type would prevent these customers from either being returned to the
services of the Company or being sold and assigned to another company.

                                       4


<PAGE>

PROTECTED TERRITORIES - DISTRICTS

The Company completed four limited liability partnerships (the "Partnerships")
during 1999 and 2000 for specific geographic territories throughout the State of
California ("Districts"). Pursuant to these marketing agreements, the
Partnerships agreed to make payments to the Company in consideration for the
exclusive right to sell the Company's power in certain geographic territories or
Districts. The four marketing agreements are Premier Energy Group LLP, Paramount
Energy Group LLP, Pinnacle Energy Group LLP, and Paragon Energy Group LLP.
Independent sales agents perform the sales of all Districts. These sales acted
on an independent contractor basis for the Company and none of the sales agents
were partners, joint venture partners, employees, or franchisers of the Company.

The Company is now actively converting these partnership holders into holders of
preferred stock in the Company. The four partnerships that have been completed
to date have all voted on this conversion process and the majority of district
holders have agreed to make this change in ownership. All partnership holders
have been contacted individually and the conversion documents are being
processed as they are received.

PRINCIPAL SUPPLIERS

The Company's principal suppliers were the entire spectrum of generators that
sold their power into the power markets in California. The Company purchased the
non-scheduled power referred to as "inadvertent power" that was priced at hourly
market-clearing prices. The Company subsequently purchased, on an annual basis,
the green power that effectively displaced this system power. This displacement
process was accomplished through an active market in California for "green
tickets" from renewable providers that effectively replaces system power with
green power on a one-for-one basis.

DEPENDENCE ON ONE OR A FEW CUSTOMERS

The Company did not depend on one or a few customers. The Company's products and
services required a large customer base. The largest uncertainty with respect to
customers was the blanket determinations made by the CPUC. Large blocks of
customers may be subject to regulatory decrees from this agency that could
significantly impact the business interests of the Company.

PATENTS, TRADEMARKS AND LICENSES

On July 13, 1998, the Federal Energy Regulatory Commission licensed the Company
as a Wholesale Electric Power & Energy Transaction Marketer/Public Utility
Company (docket # ER98-3052-000), which automatically became effective on August
14, 1998. When filling documents with Federal Energy Regulatory Commission, the
Company requested a waiver of various Commission regulations. In particular, the
Company requested that the Commission grant blanket approval under 18 CFR Part
34 of all future issuances of securities by the Company. On July 10, 1998, the
Office of Electric Power Regulation granted the Company's request for blanket
approval of issuances of securities effective August 10, 1998. On December 19,
1997 PowerSource was licensed as an Energy Service Provider (license #1237). The
Company has also met the necessary criteria to be a Registered Renewable
Provider and received its registration from the California Energy Commission on
March 23, 1998 (license # CEC-91237). On December 17, 1998, the California
Energy Commission approved PowerSource as a renewable provider for the product
named "PowerGreen 100" (license # CEC-91237-B). On January 4, 1999, the
California Energy Commission approved PowerSource as a renewable provider for
the product named "PowerGreen 25" (license # CEC-91237-A). PowerSource has not
applied for any patents and does not intend to do so in the foreseeable future.

TRADEMARK APPLICATION STATUS

A service mark application filed with the United States Department of Commerce,
Patent and Trademark Office on August 2, 1998 was declined on August 24, 1999
due to prior existence of similar names in unrelated industries. The Company has
not been issued any registered trademarks for its "PowerSource" trade name.

                                       5


<PAGE>

GOVERNMENT REGULATIONS

As a licensed purchaser and reseller of energy, the Company was subject to
extensive government regulation from federal and state government agencies. The
CPUC regulates utilities and other purchasers and sellers of power at the state
level. At the federal level, the Federal Energy Regulatory Commission ("FERC")
regulates the purchase and sale of energy and power. The Company had received
licenses from the CPUC and FERC. However, many of the regulations that
customarily apply to traditional Public Utilities had been waived or relaxed for
power marketers. As a result, rates were determined by supply and demand.

The Company was also subject to extensive federal, state, and local Government
regulation applicable to businesses in general. The trend in governmental
regulations on the electric utility industry had moved toward increased levels
of competition up until the problems began in California starting in the summer
of 2000 and lasting through June 2001. The high prices that prevailed during
this period caused California and possibly other states to rethink some of the
basis market mechanisms designed to promote competition in electricity.

COMPLIANCE WITH ENVIRONMENTAL LAWS

The Company was a marketer of electric power and does not assume any of the
responsibilities associated with environmental compliance laws or regulations.

EMPLOYEES

PowerSource currently has one full time employee. In addition, the Company
retains, on an as needed basis, various expert consultants and specialized
professional support in the areas of legal, financial, and computer operations.

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

Our principal executive offices occupied approximately 2,100 square feet of
space in Los Angeles, California under a lease that expired on January 1, 2002.
We vacated the space on February 15, 2002, and are currently evaluating our
future space requirements.

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

There is no current litigation pending as of May 20, 2002.

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

No matter was submitted during the fourth quarter of 2001 to a vote of our
security holders. On January 18, 2002 there was a special meeting of
shareholders to approve the conversion of limited partnership interests in
marketing territories to Series B Preferred Stock.

PART II

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

A)  MARKET INFORMATION

Our Common Stock is traded Over The Counter Bulletin Board under the symbol
"PSRE." The following table sets forth, for the periods indicated, the range of
high and low sales prices for our common stock on the Over The Counter Bulletin
Board. Trading commenced on June 17, 1999.

                                       6


<PAGE>

Price Range of Common Stock
---------------------------
                                       High           Low
                                       ----           ----
         1999
                 First Quarter         N/A             N/A
                 Second Quarter        5.38           5.38
                 Third Quarter         5.38           4.50
                 Fourth Quarter        5.38            .51
         2000
                 First Quarter         3.00            .25
                 Second Quarter        1.20            .13
                 Third Quarter          .45            .16
                 Fourth Quarter         .70            .14

         2001    First Quarter          .55            .22
                 Second Quarter         .51            .16
                 Third Quarter          .30            .07
                 Fourth Quarter         .28            .06

On May 20, 2002, the last sale price of our common stock reported on the Over
The Counter Bulletin Board was $.14 per share.

The Company's transfer agent is:
              Manhattan Transfer
              58 Dorchester Rd.
              Lake Ronkonkoma, NY 11779
              631-585-7341

B)  SECURITY HOLDERS

As of December 31, 2001, there were approximately 300 holders of record of our
common stock.

C)  DIVIDENDS PAID

No dividends were paid by the Company in 2001 and none are anticipated to be
paid in 2002.

Item 6.  MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS
-------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the
Company's financial statements, related notes, and other information included in
this annual report on Form 10-KSB.

RESULTS OF OPERATIONS
---------------------

For the year ended December 31, 2001, revenues totaled approximately $2.4
million. This compares to revenue of approximately $1.8 million for 2000.
Expenses (including cost of sales) totaled approximately $2.4 million for 2000
and $2.8 million for 2001. The revenue was primarily attributable to sales of
energy, with $420,000 coming from the sale of marketing territories in 2001 and
$210,000 in 2000. Selling expenses decreased from approximately $264,000 to
approximately $36,000. This was attributable to the Company being precluded from
future energy sales by legislation in the state of California. See Risk Factors
below for further information regarding status of electricity sales activities.

General and administrative expenses during 2000 were attributable to continuing
operations of the business while these expenses for 2001 reflected the temporary
return of customer to the bundled service of their host utility, and the
development of alternative revenue sources. The net loss in 2001 was
approximately $381,000 compared with a net loss in 2000 of approximately
$626,000.

                                       7


<PAGE>

Expenses in 2001 include the accrual of loss contingencies totaling $822,000,
relating to the conversion of territory sales to preferred stock of $630,000,
and the Company's plan to convert Notes Receivable from officers of $192,000 to
compensation in fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

The current cash balance of approximately $30,000 and payments from outside
entities that owe the Company refunds are anticipated to cover overhead expenses
and provide a sufficient level of working capital to allow our diversification
efforts to be successful. These refunds come from three sources. First,
overpayments from the California Independent System Operator ("ISO") that
previously overcharged all market participants are now being returned to the
proper entities, including our Company. The Automated Power Exchange will
receive these funds on behalf of PowerSource and has determined through their
accounting records that the amount owed to the Company is approximately $31,000.
These payments from the ISO were requested to be paid to recipients such as the
Company, prior to the end of 1st Quarter 2002, by the Federal Regulatory
Commission in their December 19, 2001 decision. Second, all three utilities in
the state under-calculated the value of its power due Electric Service Providers
such as our Company. These underpayments should be refunded within the next six
to nine months. Although, it is impossible to predict the exact amount, based on
our experience, we anticipate a refund between $100,000 and $200,000. Finally,
it is likely that the Federal Energy Regulatory Commission will confirm its
previous assessments that certain groups of power generators overcharged
sufficiently for electric power to require a refund to those entities that
purchased this power. Our Company would receive its proportionate share of any
refund of this type. Based upon information reported in the press, this amount
could approach $200,000 - $500,000. However, it should be noted that as this is
a highly political issue, one cannot place too much reliance on these figures.
The Company recognizes that there is uncertainty associated with both the timing
and the amounts associated with these payments. Therefore, they may not be
available to the Company when it needs these funds for either expansion or
operations.

INFLATION
---------

The rate of inflation does not have a material impact on the Company's results
of operations and is not expected to have much of an impact in the future.

RISK FACTORS
------------

California was one of the first states to deregulate the electric industry to
create competition in that industry. However, due to recent legislation, there
is no assurance that the Company will be able to once again develop a network of
electricity suppliers and purchasers.

There can be no assurance at this time that the Company will operate profitably
or that it will have adequate working capital to meet its obligations as they
become due.

Because of the Company's limited resources, it is unlikely that the Company will
conduct an exhaustive investigation and analysis of a power marketing
opportunity before the Company commits its capital or other resources.
Management decisions may be made without detailed feasibility studies,
independent analysis, and market surveys, which the Company would likely conduct
if the Company had sufficient resources. Management decisions will be
particularly dependent on information provided by the promoter, owner, sponsor
or others associated with a particular power marketing opportunity seeking the
Company's participation.

                                       8


<PAGE>

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------

                          Independent Auditors' Report

To the Board of Directors and Stockholders of
PowerSource Corporation
Los Angeles, California

We have audited the accompanying balance sheets of PowerSource Corporation as of
December 31, 2001 and 2000, and the related statements of operations, changes in
stockholders' 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 of America. 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 PowerSource Corporation 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 of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred a net loss of
$380,819 for the year ended December 31, 2001 and as of December 31, 2001 had a
working capital deficiency of $1,403,575 and the Company has effectively ceased
operations related to sales of electricity and related activities. As a result
of these and other factors, there is substantial doubt as to the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Management's plans with regard to these matters are discussed in note 2 to the
financial statements.

                                          PKF
                                          Certified Public Accountants
                                          A Professional Corporation

Los Angeles, California
May 15, 2001

                                       9


<PAGE>
<TABLE>

                                     POWERSOURCE CORPORATION

                                   CONSOLIDATED BALANCE SHEETS

<CAPTION>

                                              ASSETS
                                                                             December 31,
                                                                   -----------------------------
                                                                       2001             2000
                                                                   -------------   -------------
<S>                                                                <C>             <C>
Current assets
      Cash                                                         $     30,110    $    143,651
      Accounts receivable, net                                                -         348,028
      Prepaid expenses                                                      732          12,411
                                                                   -------------   -------------
                Total current assets                                     30,842         504,090
                                                                   -------------   -------------

Property and equipment, net                                             159,294          41,792
                                                                   -------------   -------------

Other assets
      Notes receivable - officers                                       192,000          30,000
      Investment in EHG technology, LLC                                   5,000          25,000
      Investment in oil and gas properties                               13,375          13,375
      Deposits                                                            4,682           1,774
                                                                   -------------   -------------
                Total other assets                                      215,057          70,149
                                                                   -------------   -------------

                Total assets                                       $    405,193    $    616,031
                                                                   =============   =============

                             LIABILITIES AND STOCKHOLDERS' (DEFICIT)

 Current liabilities
      Accounts payable and accrued expenses                        $    323,268    $    804,616
      Accrued wages                                                           -          97,453
      Income taxes payable                                                  800             800
      Interest payable                                                   59,528          24,411
      Notes payable, in default                                         210,000         210,000
      Current portion of notes payable - computer equipment              18,821          15,788
      Accrued loss contingencies                                        822,000               -
                                                                   -------------   -------------
                Total current liabilities                             1,434,417       1,153,068
                                                                   -------------   -------------

 Long-term liabilities
      Notes payable - computer equipment, net of current portion          3,471          22,292
      Senior notes payable                                               47,000               -
      Deferred revenue                                                  139,860         510,860
      Accrued wages, net of current portion                                   -         704,055
                                                                   -------------   -------------
                Total long-term liabilities                             190,331       1,237,207
                                                                   -------------   -------------

                Total liabilities                                     1,624,748       2,390,275
                                                                   -------------   -------------

Commitments and contingencies

Stockholders' (deficit)
      Common stock, par value $.001, 50,000,000 authorized,
       6,817,008 and 6,147,008 shares issued and outstanding              6,817           6,147
      Paid-in capital in excess of par value                          1,860,078         925,240
      Preferred stock, par value $100, 10,000,000 authorized,
       5,350 shares issued and outstanding                               13,375          13,375
      Accumulated deficit                                            (3,099,825)     (2,719,006)
                                                                   -------------   -------------
                Total stockholders' (deficit)                        (1,219,555)     (1,774,244)
                                                                   -------------   -------------

                Total liabilities and stockholders' (deficit)      $    405,193    $    616,031
                                                                   =============   =============

See notes to consolidated financial statements

</TABLE>

                                               10


<PAGE>
                             POWERSOURCE CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS

                                                      Years Ended December 31,
                                                    ---------------------------
                                                        2001           2000
                                                    ------------   ------------
Revenue
          Electricity sales                         $ 1,999,589    $ 1,597,689
          Cost of sales                                 814,618        946,089
                                                    ------------   ------------
                Gross margin on electricity sales     1,184,971        651,600

          Sales of marketing territory                  420,000        210,000
          Refunds of electricity costs                  108,309              -
                                                    ------------   ------------
                                                      1,713,280        861,600
                                                    ------------   ------------

Expenses
          Selling expenses                               35,734        263,862
          General and administrative expenses         1,179,290      1,192,755
                                                    ------------   ------------
               Total expenses                         1,215,024      1,456,617
                                                    ------------   ------------

Income (loss) from operations                           498,256       (595,017)
                                                    ------------   ------------

Other expense (income)
           Interest and other income                     (6,272)             -
           Interest expense                              40,665         31,008
           Loss on investment                            22,682              -
           Loss contingencies                           822,000              -
                                                    ------------   ------------
                Total other expense (income)            879,075         31,008
                                                    ------------   ------------

Net (loss)                                          $  (380,819)   $  (626,025)
                                                    ============   ============

Net loss per common share                           $     (0.06)   $     (0.10)
                                                    ============   ============

Weighted average
Shares outstanding                                    6,703,883      6,076,167
                                                    ============   ============

See notes to consolidated financial statements

                                       11


<PAGE>
<TABLE>

                                           POWERSOURCE CORPORATION

                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>

                                                                                    Years Ended December 31,
                                                                                     -----------------------
                                                                                        2001         2000
                                                                                     ----------   ----------
<S>                                                                                  <C>          <C>
Cash flows from operating activities
      Net (loss)                                                                     $(380,819)   $(626,025)
      Adjustment ot reconcile net loss to net cash provided
        (used) by oeprating activities
                Depreciation                                                            33,400       14,145
                Gain on sale of office equipment                                          (143)           -
                Unrealized loss on investment                                           20,000            -
                Common stock issued for services                                       134,000            -
                Loss contingencies                                                     822,000            -
                Changes in operating assets and liabilities
                          Accounts receivable                                          348,028     (330,683)
                          Prepaid expenses                                              11,679      (12,411)
                          Deposits                                                      (2,908)           -
                          Accounts payable and accrued expenses                       (481,348)     674,678
                          Accrued wages                                                      -         (625)
                          Interest payable                                              35,117       24,411
                          Deferred revenue                                            (371,000)     207,085
                                                                                     ----------   ----------
                                  Net cash provided (used) by operating activities     168,006      (49,425)
                                                                                     ----------   ----------

Cash flows from investing activities
      Investment                                                                             -      (25,000)
      Notes receivable - officers                                                     (162,000)     (30,000)
      Purchase of automobile, Stabilux, and office equipment                          (152,480)           -
      Proceeds from sale of office equipment                                             1,721            -
                                                                                     ----------   ----------
                                    Net cash used by investing activities             (312,759)     (55,000)
                                                                                     ----------   ----------

Cash flows from financing activities
      Repayments of long-term debt                                                     (15,788)     (16,838)
      Proceeds from Issuance of notes payable                                           47,000      210,000
      Common stock issued                                                                    -       53,506
                                                                                     ----------   ----------
                                   Net cash provided by financing activities            31,212      246,668
                                                                                     ----------   ----------

Net increase (decrease) in cash                                                       (113,541)     142,243

Cash - beginning of year                                                               143,651        1,408
                                                                                     ----------   ----------

Cash - end of year                                                                   $  30,110    $ 143,651
                                                                                     ==========   ==========
</TABLE>

See notes to consolidated financial statements

Supplemental disclosures of non-cash financing and investment activities:
-------------------------------------------------------------------------

During 2001 the Company recognized an unrealized loss on one of its investments
in the amount of $20,000.

During 2001 the Company issued common stock value at $134,000 for consulting
services.

During 2001 accrued wages of $801,508 were converted to stock options.

During 2000 shares valued at $107,700 were issued as settlement for certain debt
obligations and district conversions.

Interest paid during 2001 was $7,094 and interest paid during 2000 was $31,008.

                                       12


<PAGE>
<TABLE>

                                                    POWERSOURCE CORPORATION

                                  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                            Years ended December 31, 2001 and 2000
<CAPTION>

                                                            Common Stock          Paid-in Capital
                                         Preferred     ---------------------------   in Excess    Accumulated
                                           Stock          Shares         Amount       of Par        Deficit          Total
                                        ------------   ------------   ------------  ------------  ------------   ------------
<S>                                     <C>              <C>          <C>           <C>           <C>            <C>
Balance on 12/31/99                     $    13,375      5,661,069    $     5,661   $   764,520   $(2,092,981)   $(1,309,425)

Sales of Shares for Cash                          -        219,511            220        53,286             -         53,506

Debt and District Conversions                     -        266,428            266       107,434             -        107,700

Net Loss                                                                                             (626,025)      (626,025)
                                        ------------   ------------   ------------  ------------  ------------   ------------

Balance on 12/31/00                          13,375      6,147,008          6,147       925,240    (2,719,006)    (1,774,244)

Shares issued for consulting services       670,000            670        133,330                                    134,000

Accrued wages converted
   to stock options                               -              -              -       801,508             -        801,508

Net Loss                                          -              -              -             -      (380,819)      (380,819)
                                        ------------   ------------   ------------  ------------  ------------   ------------

Balance on 12/31/01                     $    13,375      6,817,008    $     6,817   $ 1,860,078   $(3,099,825)   $(1,219,555)
                                        ============   ============   ============  ============  ============   ============

</TABLE>

See notes to consolidated financial statements

                                                     13


<PAGE>

                             POWERSOURCE CORPORATION

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000

Note 1 - The Company
--------------------

Reporting entity
----------------

PowerSource Corporation (a Nevada Corporation) was originally formed in March of
1990. PowerSource Corporation was a registered electric service provider and
through the assistance of certain other companies, had procured permits to
provide electric service to residential, commercial and industrial customers
located in the state of California. GreenView Energy, Inc. was a wholly-owned
subsidiary formed by PowerSource on November 2, 2000. Through December 31, 2001,
GreenView Energy, Inc. had no sales activity.

Business
--------

PowerSource Corporation (the "Company" or "PowerSource") is a Nevada corporation
formed in 1990 under the name American Gas Corporation. In 1992, Kensington
International Holding Corporation ("Kensington"), a fully reporting Company,
acquired American Gas Corporation. Subsequently in May 1998, American Gas
Corporation reorganized and changed its name to PowerSource Corporation. From
its inception until February 1998, the Company operated as an energy provider in
the Midwest. In 1998, the Company relocated to California to take advantage of
California Assembly Bill 1890 that permits California residents and businesses
to choose their utility suppliers. The Bill opened the market through
deregulation.

PowerSource is a registered electric service provider (registration # 1237) with
the California Public Utilities Commission ("CPUC"). The Company has also
satisfied the necessary criteria to be a Registered Renewable Provider
(registration #CEC-91237). As a result, the Company is eligible to receive
funding from the Renewable Technology Program. On July 13, 1998, the Federal
Energy Regulatory Commission licensed the Company as a Wholesale Electric Power
& Energy Transactions Marketer/Public Utility Company (docket #ER98-3052-000),
which automatically became effective on August 14, 1998. When filing documents
with the Federal Energy Regulatory Commission, the Company requested a waiver of
various Commission regulations. In particular, the Company requested that the
Commission grant blanket approval under 18 CFR Part 34 of all future issuances
of securities by the Company. On July 10, 1998, pursuant to delegated authority,
the Director, Division of Applications, Office of Electric Power Regulation,
granted the Company's request for blanket approval of issuances of securities
effective August 10, 1998.

Power marketers whose rates are registered with the Commission are considered to
be "Public Utilities" under the Federal Power Act. As such, the Company, at all
times, must fully comply with a number of regulations governing all Public
Utilities.

In January 2001, the state of California passed an emergency piece of
legislation referred to as ABx1. This legislation included a provision that
allowed the CPUC to suspend direct access at its option. On September 20, 2001,
the CPUC did indeed suspend the right for any new customer to choose direct
access. This action prevented the Company from acquiring new customers. In
addition, the CPUC may rule adversely on the customers the Company has
temporarily returned to the service of the host utilities. An adverse ruling of
this type would prevent these customers from either being returned to the
services of the Company or being sold and assigned to another company.

PowerSource had two primary products: PowerGreen 100 (a 100% renewable energy
service) and PowerGreen 25 (a low-priced product for commercial customers).
PowerGreen 100 was the primary product and maintained a higher gross margin.

                                       14


<PAGE>

The other product, PowerGreen 25, was to be offered selectively to major
organizations. This product was used for publicity reasons and to maintain a
low-cost option that was expected to produce greater profit margins in the
future (Beyond the year 2003). No sales of the PowerGreen 25 product were
attempted.

Because of the Company's limited resources, it is unlikely that the Company will
conduct an exhaustive investigation and analysis of a power marketing
opportunity before the Company commits its capital or other resources.
Management decisions may be made without detailed feasibility studies,
independent analysis, and market surveys which the Company would likely conduct
if the Company had sufficient resources. Management decisions will be
particularly dependent on information provided by the promoter, owner, sponsor
or others associated with a particular power marketing opportunity seeking the
Company's participation.

The Company's business is speculative and dependent upon the acceptance of the
Company's products and the effectiveness of its marketing program. There can be
no assurance that the Company will be successful or that its business will earn
any revenues or profit.

The Company reflects deferred revenue from affiliated distributors from the sale
of geographic territories in California to independent affiliated and
unaffiliated marketing companies in consideration for a single one time payment.
The Company also expects to earn revenues by selling power to the distributors'
customers at a profit. The deferred revenue on the Company's financial
statements represent the one time initial payment of the distributors to the
Company. There is no assurance that the Company will earn significant revenues
or that investors will not lose their entire investment.

PowerSource's former wholly-owned subsidiary, GreenView Energy, Inc. (GreenView)
is a Delaware Corporation, formed on November 2, 2000 to expand PowerSource's
positioning in the energy market place. GreenView focuses on energy efficiency
products for industrial, commercial and governmental applications. GreenView
completed considerable marketing activities in 2001, signed up a number of
distributors across the U.S., but did not receive revenue for the sale of its
product during this fiscal year.

Effective February 25, 2002 Powersource transferred it's interest in Greenview,
as well as selected assets, to Mark Haggerty in full satisfaction of it's
liability totaling $261,000.

Note 2 - Basis of presentation and going concern
------------------------------------------------

The accompanying financial statements of the Company have been prepared on the
basis that it is a going concern, which contemplates the realization of assets
and satisfaction of liabilities, except as otherwise disclosed, in the normal
course of business. However, as a result of the Company's past losses from
operations and working capital deficiency to service its debt obligations, such
realization of assets and liquidation of liabilities is subject to significant
uncertainties. Further, the Company's ability to continue as a going concern is
dependent upon obtaining other sources of financing, achievement of profitable
operations and the ability to generate sufficient cash from operations. The
financial statements do not include any adjustment to reflect the possible
future effects on the recoverability and classification of assets or the amount
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.

The current cash balance of approximately $30,000 and payments from outside
entities that owe the Company refunds are anticipated to cover overhead expenses
and provide a sufficient level of working capital to allow our diversification
efforts to be successful. These refunds come from three sources. First,
overpayments from the California Independent System Operator ("ISO") that
previously overcharged all market participants are now being returned to the
proper entities, including the Company. The Automated Power Exchange will
receive these funds on behalf of the Company and has determined through their
accounting records that the amount owed to the Company is approximately $31,000.
These payments from the ISO were requested to be paid to recipients such as the
Company, prior to the end of 1st Quarter 2002, by the Federal Regulatory
Commission in their December 19, 2001 decision. Second, all three utilities in
the state under-calculated the value of its power due Electric Service Providers
including the Company. These underpayments should be refunded within the next
six to nine months. Although, it is impossible to predict the exact amount,
based on our experience, management anticipates a refund between $100,000 and
$200,000. Finally, it is likely that the Federal Energy Regulatory Commission
will confirm its previous assessments that certain groups of power generators
overcharged sufficiently for electric power to require a refund to those
entities that purchased this power. The Company would receive its proportionate
share of any refund of this type. Based upon information reported in the press,
this amount could approach $200,000 to $500,000. However, it should be noted
that as this is a highly political issue, one cannot place too much reliance on
these figures. Management recognizes that there is uncertainty associated with
both the timing and the amounts associated with these payments. Therefore, they
may not be available to the Company when it needs these funds for either
expansion or operations.

                                       15


<PAGE>

Note 3 - Summary of significant accounting policies
---------------------------------------------------

Cash flows
----------

For purposes of the statement of cash flows, the Company considers all cash
investments and related deposits purchased with a maturity of three months or
less to be cash equivalents.

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

Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and reported
revenues and expenses. Actual results could differ from those estimates.

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

Property and equipment are stated at cost. Depreciation is provided principally
on the straight-line method over the estimated useful lives of the assets
ranging from three to fifteen years.

Expenditures for maintenance and repairs are charged to operations as incurred,
while renewals and betterment are capitalized.

Investments
-----------

Investments are carried at their estimated fair values at the balance sheet
date.

Revenue recognition
-------------------

Revenue from sales of marketing territories is deferred until such time as the
specified purchase price is received and any options to exchange interests in
the related limited liability partnerships for equity interests in the Company
have expired or have been waived by the option holder. Revenue is also earned as
electric services are provided to customers.

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

The Company recognizes the tax effect of transactions in the year in which such
transactions enter into determination of net income regardless of when they are
reported for tax purposes. The Company has adopted Statement of Financial
Accounting Standards (SFAS) No. 109 (Accounting for Income Taxes) in computing
deferred income taxes. Deferred income taxes, when shown, result primarily from
different depreciation methods for book and tax purposes.

Earnings (loss) per share
-------------------------

Earnings (loss) per share is calculated using the weighted outstanding common
shares and equivalents during the period. Common share equivalents are not
included in the calculation for periods when loss from operations are incurred
as the effect would be antidilutive, see note 11.

Other comprehensive income
--------------------------

The Company has no material components of other comprehensive income (loss) and,
accordingly, net loss is equal to comprehensive loss for all periods presented.

                                       16


<PAGE>

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

The Company's cash, accounts receivable, notes receivable, accounts payable and
accrued expenses and notes payable represent financial instruments. The carrying
value of these financial instruments is a reasonable approximation of their fair
value.

Business segments
-----------------

During 2000 and 2001, the Company operated in one reportable segment: delivering
electricity services to residential and commercial customers in Southern
California.

Note 4 - Surety Bonds
---------------------

As the Company is precluded from selling energy in the state of California at
this time, there are currently no surety bonds in place.

Note 5 - Notes receivable
-------------------------

As of December 31, 2001, there were three notes receivable from officers
totaling $30,000 issued at interest rates of 5% each. Principal and interest are
due and payable, at maturity, in May 2003.

As of December 31, 2001, there were three notes receivable from officers
totaling $162,000 issued at interest rates of 4% each collateralized by stock
options. Principal and interest are due and payable, at maturity, in March 2004.

See Note 12 for discussion of subsequent events related to these notes
receivable.

Note 6 - Property and equipment
-------------------------------

Property and equipment consist of the following:
                                                        December 31
                                                       --------------
                                                    2001             2000
                                                 ----------       ----------

          Furniture and fixtures                 $   5,822        $   1,906
          Office equipment                          75,440           71,323
          Computer                                   4,248               --
          Stabilux equipment                        41,118               --
          Automobiles                               97,360               --
                                                 ----------       ----------
                                                   223,988           73,229
          Less: Accumulated depreciation           (64,694)         (31,437)
                                                 ----------       ----------
                                                 $ 159,294        $  41,792
                                                 ==========       ==========

Note 7 - Investments
--------------------

Investments consists of an investment in oil and gas properties and an
investment in EHG Technology, LLC, a related party.

                                       17


<PAGE>

In February 1998, PowerSource Ltd. (a Nevada Corporation) entered into a plan of
reorganization with American Gas Corporation (a Nevada Corporation), then a
wholly-owned subsidiary of Kensington International Holding Corporation AKA The
Kensington Company, Inc. (a Minnesota Corporation and referred to hereinafter as
"Kensington"), a fully reporting public company. Kensington retained fifteen
(15%) percent (200,000 shares of the then issued common stock) and was granted
5,350 shares of American Gas Corporation's series A, $100 par value, preferred
stock. The series A preferred stock is convertible into common stock, in five
years, at $10 per share.

On May 12, 1998, American Gas Corporation's name was changed to PowerSource
Corporation and became the Company. The acquisition was accounted for under the
purchase method of accounting. As of the date of acquisition, the Company has
recorded an investment in oil and gas properties of $13,375 based upon the fair
value of the 5,350 preferred shares issued to Kensington.

Realization of the Company's investment in the oil and gas properties is
contingent upon the Company's investment of about $100,00. The Company has not
invested any funds and has not entered into any contract for the proposed
improvement.

During 2000, the company purchased 250,000 shares of Class A membership interest
in EHG Technology, LLC for $25,000. As of April 24, 2002, the Company had
returned its entire interest in EHG Technology, LLC, 250,000 shares, in exchange
for a payment of $5,000.

Note 8 - Notes payable and capital lease obligation
---------------------------------------------------

During 1999, notes payable consisted of an unsecured note payable to Senator
Associates, Ltd. with interest at 7% per annum. At December 31, 1999, the
principal balance and accrued interest outstanding was $65,700 and $10,000,
respectively. During the year ended December 31, 2000, the Company issued
221,428 shares of its common stock as settlement of the note payable and accrued
interest.

During 2000, the Company entered into a note payable agreement with EarthCo,
Inc. to borrow $210,000 with interest at 15%. The outstanding principal balance
and unpaid accrued interest was due in August 2000. The holder of the note may
elect to receive payment of all principal and interest due by converting the
note into 300,000 shares of the Company's common stock. As of December 31, 2001,
the Company has not repaid the note, and the note holder has not called for
repayment or elected to convert the note into shares of the Company's common
stock. At December 31, 2001, accrued interest totaled $55,911. In accordance
with the terms of the note agreement, the Company is in default. Accordingly,
the principal and accrued interest is reflected as current liabilities in the
accompanying balance sheet.

During 2001 and 2000, capital lease obligation consisted of a capital lease due
in 48 monthly installments of $1,774, including principal and interest, with
interest at 13.7%.

Future minimum lease payments at December 31, 2001 are as follows:

              Year                                  Amount
             ------                              ----------
              2002                                  21,289
              2003                                   3,548
                                                 ----------
              Total future minimum
                 lease payments                     24,837
              Less amount representing
                 interest                            2,545
                                                 ----------
              Present value of future
                 minimum lease payments          $  22,292

              Less: Current Portion                 18,821
                                                 ----------
              Long Term Portion                  $   3,471

                                       18


<PAGE>

During 2001 the Company issued 10% convertible notes payable in the amount of
$47,000. The notes are due two years after issuance, and are convertible at the
option of the payee, into shares of common stock at a conversion price equal to
seventy (70%) percent of the prevailing closing bid price per share at the time
of conversion (upon surrender of the Note), subject to a minimum conversion
price of $2.50 per common share and the maximum conversion price of $5.00 per
common share.

Note 9 - Commitments
--------------------

As the Company vacated its office space on February 15, 2002, the future minimum
lease payments as of December 31, 2001 totaled $2,348.

In the fiscal year ended December 31, 1998, as part of the reorganization plan
with American Gas Corporation (see note 7), the Company committed to pay a
minimum fee or dividend to Kensington in the amount of $3,000 a month. In
addition, the Company committed to pay the president of Kensington $3,000 a
month for consulting fees. As of December 31, 2001 and 2000, no payments have
been made and the expiration dates of the commitments to pay the monthly fees
have not been determined. The accrued liabilities are reflected in the current
liability portion of the accompanying consolidated balance sheets. This
liability was settled subsequent to year-end with future obligations cancelled
by transferring the company's interest in it's wholly-owned subsidiary,
Greenview Energy, as well as selected assets. The Company expects to realize a
gain in 2002 as a result of this settlement. See also Note12 for subsequent
event discussion.

Note 10 - Provision for income taxes
-------------------------------------

At December 31, 2001, the Company had net operating loss carryforwards for
Federal and state income tax purposes of approximately $3,000,000 and
$1,500,000, respectively, which expire through 2015 and 2005, respectively.

Under SFAS 109 "Accounting for Income Taxes", the Company utilizes the liability
method of accounting for income taxes. Accordingly, the Company has recorded a
deferred tax benefit of approximately $800,000. The Company recorded a valuation
account to fully offset the deferred tax benefit due to uncertainty of the
realization of this benefit.

Note 11 - Common stock options and warrants
-------------------------------------------

The Company has not adopted a stock option plan under which employees (including
officers), nonemployees directors, and independent consultants may be granted
options to purchase shares of the Company's common stock.

During 2000, the Company recorded $1,993,192 in compensation expense to four of
the Company's officers by issuing 2,546,828 shares of the Company's common
stock. On July 3, 2000, all of these shares were rescinded and the officers were
issued a total of 2,546,850 common stock options to be exercised at $.001 per
share and expire on July 3, 2010. The fair market value of the Company stock at
July 3, 2000 was deemed to be $.30 a share. As a consequence, the Company's
December 31, 2000 and 1999 financial statements includes $761,508 as wages
payable and salaries expense for the stock options issued the four officers on
July 3, 2000. During 2000, certain officers elected to waive their right to
exercise their options before January 2, 2002. Also during 2000, the Company
granted a total of 242,772 common stock options exercisable at $.001 per share
which expire in July 2010. As of December 31, 2001, no options were exercised or
cancelled.

Note 12 - Subsequent Events
---------------------------

Effective February 25, 2002 PowerSource transferred it's interest in Greenview,
as well as selected assets, to Mark Haggerty in full satisfaction of it's
liability totaling $261,000. (See also Note 9.)

On April 24, 2002, the Company agreed to sell its entire investment of 25,000
shares in EHG Technology LLC for $5,000 resulting in a loss of $20,000. (See
also Note 7.)

                                       19


<PAGE>

On April 8, 2002, the Company resolved to find a merger candidate. In the event
a merger is not completed by the end of the third quarter, the Company will
declare bonuses to officers in the amount totaling $192,000 which sum will then
be used to repay notes receivable from officers. As a result, a loss contingency
has been accrued for this amount, as it is probable that the notes will not be
repaid.

On January 18, 2002, the partners in all four district partnerships agreed to
convert their partnership interests into PowerSource Preferred Stock. As the
proceeds from the sale of the district partnerships were reported as revenue to
the Company, the conversion to Preferred Stock necessitates an accrual for loss
contingencies in the amount of $630,000 to offset the previously reported
income, as the territory rights reacquired by the Company are deemed to have no
value.

As a result of the matters discussed in the two preceding paragraphs, loss
contingencies in the amount of $822,000 have been accrued at December 31, 2001.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.
------------------------------------------------------------------------

None.

PART III.

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

     Our directors and executive officers are as follows:

     Name                      Age        Position
     --------                 -----       -----------
     Illya Bond                51         Chief Executive Officer and Director

     Roman Gordon              50         Chairman of the Board of Directors

     E. Douglas Mitchell       54         President and Director

     Mark Haggerty             51         Director

Illya Bond, age 51, has been the Chief Executive Officer, and a director of the
Company since its name change in May 1998. Mr. Bond has over 25 years experience
in the investment-banking industry. He has participated in the underwriting of
over $1 billion in real estate, alternative energy, and synfuel projects;
working through the nation's largest broker/dealer firms, including Merrill
Lynch and Dean Witter. Additionally, Mr. Bond assisted in the formation and
capitalization of several domestic banks, savings and loans, and insurance
companies, taking several of these firms public in the process, through initial
public offerings and mergers. Mr. Bond participated in the following energy
projects either as corporate developer, sponsor, or general partner: 7MW
Photovoltaic Solar Power Plant located in Carissa Plains, California; two of the
world's largest ethanol generating plants located in the States of Iowa
(5,000,000 gallons per month) and Nebraska (10,000,000 gallons per month); and
Offshore Insurance Company (domiciled in New Zealand) specializing in property
and casualty insurance risks. Mr. Bond received his Bachelors Degree from the
University of California, Los Angeles.

Roman Gordon, age 50, has been the Chairman of the Board of Directors of the
Company since its name change in May 1998. Mr. Gordon is also the President of
Advanced Legal Management, a principal stockholder in the Company. Mr. Gordon
has over 15 years combined experience in energy risk management and business
management. Mr. Gordon was the Vice-President of Operations for Express Oil
Company where he participated in oil market evaluation and environmental

                                       20


<PAGE>

compliance. Previously, Mr. Gordon was the Chief Executive Officer of BioSystem,
Inc. where he developed and implemented marketing plans and a comprehensive and
customized Ayurvedic health program for national and international markets. From
1992 until 1994, Mr. Gordon was an officer of America Pacific Insurance Company
where he was responsible for managing an advertising budget, building
relationships with surplus line brokers, product development, generation of
marketing plans, and growth initiatives. Mr. Gordon has experience in the fields
of planning, development, and operations of the bulk power systems, as well as
planning and analytical studies. He has performed many duties, including but not
limited to management, marketing, training, operations and administration. Mr.
Gordon received his bachelor degree in 1974 from Politechnical University in
Civil Engineering.

Mark Haggerty, age 51, has been a director of the Company since its name Change
in May 1998. Mr. Haggerty has been in the private practice of law since 1973 in
the areas of municipal bonds, utilities, securities, and business law. From 1973
through 1985, Mr. Haggerty was a vice president and director of a twelve-person
law firm. From 1987 through 1993, Mr. Haggerty owned his own firm consulting for
Johnson Controls, Bull HN, & Peoples Gas of Chicago on energy and co-generation
projects. The energy projects included electrical and gas energy savings
programs for customers such as the Chicago Housing Authority and Sara Lee foods.
In 1993, Mr. Haggerty became the President of the Kensington, a public energy
Company. Since 1995, Mr. Haggerty has been Chairman and Chief Executive Officer
of American Gas Corporation, a former subsidiary of Kensington. Mr. Haggerty
received his Juris Doctorate from the University of Minnesota Law School in 1973
and his Bachelors of Arts degree from the University of Minnesota in 1970. Mr.
Haggerty is licensed as an attorney and has Series 7 and 63 NASD securities
license.

E. Douglas Mitchell, age 54, has been the President of the Company since March
1999. He has over twenty years of experience working for electric utility
Providers such as Keystone Energy. His experience includes supervising a group
of professionals that purchased power supplies for San Diego Gas & Electric and
was also a Manager of New Business Development at Enova Energy. He has written
and presented several publications on energy and regulatory issues both
nationally and internationally. Mr. Mitchell, as a Manager of Regulatory Policy,
actively promoted the electric industry to electric utility regulators and
legislators in eight western states.

COMMITTEES OF THE BOARD OF DIRECTORS
------------------------------------

Executive Utility Committee

The Executive Utility Committee is comprised of high-level professionals
experienced in the power industry, computer industry, legal industry,
international business, and engineering, who will render advice to the Company
from time to time upon the request of the Company's Board of Directors.

         Illya Goldin              Technical Support Supervisor

         Ahmad Moradi              Computer Service Engineer

         Michael Y. Vaiman         Load Forecasting

Illya Goldin, heads the Company's technical support department. He has over 15
years of experience in the electrical industry and is a licensed electrical
contractor in the State of California. Mr. Goldin's responsibilities include the
evaluation and provision of metering technology, communication of real time
metering information, site diagnostics to identify and prevent service problems,
innovative cost-of-service analysis, and power quality monitoring.

Ahmad Moradi, received his Bachelors Degree at Florida Atlantic University (FAU)
in engineering and international business. In 1989, he received his Ph.D. in
Management Information Systems from LaSalla University in Louisiana. During the
past seven years, Dr. Moradi has been a director, officer, and consultant of a
several companies. Currently, Dr. Moradi is the President of G4, Inc., a
consulting firm, and a director of Dunhil-Medinet-Worldwide, Inc. and several
other public companies. He is also the owner and shareholder of several private
and public companies.

Michael Y. Vaiman, is the President and principal engineer of V&R Company, an
energy systems research Company. Dr. Vaiman has published more than 65 articles
devoted to issues of power system stability and control. He has also developed
several software applications. Dr. Vaiman received his Masters in Electrical
Engineering from Kaunas Polytechnic University in 1961, his Ph.D. in electrical
engineering from Moscow University of Transportation Engineering in 1969, and
his Doctor of Technical Sciences from St. Petersburg Polytechnic University in
1986.

                                       21


<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

The following officers, directors, or beneficial owners of more than 10% of the
Company's common stock failed to file on a timely basis reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year.

Roman Gordon, the Company's Chairman did not file Form 3 to report his initial
security holdings and has not filed Form 4 or Form 5 to report changes to such
holdings.

Illya Bond, the Company's CEO did not file Form 3 to report his initial security
holdings and has not filed Form 4 or Form 5 to report changes to such holdings.

E. Douglas Mitchell, the Company's President filed Form 3 to report his initial
security holdings along with Form 4 and Form 5 for 2000. He has not yet filed
Form 5 to report changes to such holdings for 2001.

Mark Haggerty, a Director of the Company filed Form 3 to report his initial
security holdings along with Form 4 and Form 5 for 2000. He has not yet filed
Form 5 to report changes to such holdings for 2001.

Advanced Legal Management, Inc., a beneficial owner of more than 10% of the
Company's common stock filed Form 3 to report his initial security holdings
along with Form 4 and Form 5 for 2000. He has not yet filed Form 5 to report
changes to such holdings for 2001.

Magnum Real Estate, Inc, a beneficial owner of more than 10% of the Company's
common stock filed Form 3 to report his initial security holdings along with
Form 4 and Form 5 for 2000. He has not yet filed Form 5 to report changes to
such holdings for 2001.

Kensington International Holding Corp., a beneficial owner of more than 10% of
the Company's common stock and 100% of the Company's preferred stock, filed Form
3 to report his initial security holdings along with Form 4 and Form 5 for 2000.
The company has not yet filed Form 5 to report changes to such holdings for
2001.

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

                             Executive Compensation

         Name                    Position                              Salary
         -----------------------------------------------------------------------

         Illya Bond              Chief Executive Officer               $150,000

         E. Douglas Mitchell     President                             $105,000

         Roman Gordon            Chairman of the Board                 $150,000

Directors receive no cash compensation for their services to the Company as
directors, but are reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors, and may receive a cash fee for
attending meetings. The Company plans to establish a stock incentive program for
the directors, executive officers, employees and key consultants of the Company.
The Company anticipates that it will set aside approximately 30% of the issued
and outstanding Common Stock of the Company for the stock incentive program.

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

The following table sets forth the certain information as of December 31, 2001
with respect to the beneficial ownership of our common and preferred stock by
(1) each person known to us to own beneficially more than five percent (5%) of
the outstanding shares of our common stock, (2) each of our directors, (3) each
named officer, and (4) all our directors and executive officers as a group.

                                       22


<PAGE>
<TABLE>
<CAPTION>

                                                                         Amount and
                     Name of                                             Nature of
Title of Class       Beneficial Owner                                    Beneficial Owner        % of Class
--------------------------------------------------------------------------------------------------------------
<S>               <C>                                                      <C>                     <C>
Common Stock      German Teiltelbaum (2) ............................      1,161,452               17.0%

Common Stock      Advanced Legal Management Inc.(3) .................        862,001               12.6%

Common Stock      Magnum Real Estate, Inc.(4) .......................        767,001               11.2%

Common Stock      Blue Grass Management and Operating Co (5) ........        385,486                5.7%

Common Stock      Illya Bond (6) ....................................        649,472                9.5%

Common Stock      Roman Gordon (7) ..................................        666,902                9.8%

Common Stock      E. Douglas Mitchell (8) ...........................        581,026                8.5%

Common Stock      Mark Haggerty (1)(5) ..............................          1,312                  *

Common Stock      Kensington International Holding Corp (1)..........        262,326                3.8%
                                                                         ------------             -------

Common Stock      Directors and officers as a group .................      3,913,200               57.4%

Preferred Stock   Kensington International Holding Corp .............          5,350              100.0%
</TABLE>

* Less than 1%.

 (1) Mark Haggerty, 8325 Northwood Parkway, New Hope, Minneapolis, MN 55426, a
director of the Company, is the President of Kensington. The Company issued
150,000 Class A Warrants to Kensington to purchase 150,000 shares of the
Company's Common Stock for a purchase price of $.10 per share, exercisable at
any time until February 12, 2001. The warrants expired unexercised.

(2) German Teiltelbaum, 4139 Via Marina, #805, Marina Del Rey, CA 90292, is a
former director, Chief Financial Officer and Secretary of the Company. This
amount includes 649,450 shares which Mr. Teiltelbaum may purchase upon the
exercise of certain stock options.

(3) Roman Gordon, 3660 Wilshire Blvd, Suite 1104, Los Angeles, CA 90010, is
Chairman of the Board of the Company, and is the President of Advanced Legal
Management Company, Inc.

(4) Illya Bond, 3660 Wilshire Blvd, Suite 1104, Los Angeles, CA 90010, the Chief
Executive Officer and a director of the Company, is the President of Magnum Real
Estate, Inc.

(5) Mark Haggerty is President of Blue Grass Management and Operating Co. This
amount includes 242,772 shares which Mr. Haggerty may purchase upon the exercise
of certain stock options. He is also the president of Kensington International
Holding Company.

(6) Illya Bond is the Company's Chief Executive Officer. This amount consists of
options for 649,472 shares which Mr. Bond may purchase at his discretion after
July 3, 2001. As of December 31, 2001, no options were exercised.

(7) Roman Gordon is the Company's Chairman. This amount consists of options for
666,902 shares which Mr. Gordon may purchase at his discretion after July 3,
2001. As of December 31, 2001, no options were exercised.

(8) E. Douglas Mitchell is the Company's President. This amount consists of
options for 581,026 shares which Mr. Mitchell may purchase at his discretion
after July 3, 2001. As of December 31, 2001, no options were exercised.

SOLE INVESTOR POWER

As of the date of this filing, each of the Company's principal stockholders has
sole investment power and sole voting power.

                                       23


<PAGE>

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

Advanced Legal Management Company, Inc., a principal stockholder of PowerSource,
is a consulting and management services firm for small business clients.
Advanced Legal Management does not employ any attorneys or provide any legal
services for its clients. Advanced Legal Management is wholly-owned by Roman
Gordon.

Magnum Real Estate, Inc., a principal stockholder of PowerSource, is a real
estate consulting and management services firm. Magnum Real Estate, Inc. is
wholly-owned by Illya Bond.

During 2000, the Company had a note receivable from Roman Gordon, the Company's
Chairman, in the amount of $10,000. Additionally, 666,902 shares of common stock
held by Roman Gordon were converted to options to purchase 666,902 common stock
shares with an exercise price of $.001.

During 2000, the Company had a note receivable from Illya Bond, the Company's
Chief Executive Officer, in the amount of $10,000. Additionally, 649,472 shares
of common stock held by Illya Bond were converted to options to purchase 649,472
common stock shares with an exercise price of $.001.

During 2000, the Company had a note receivable from E. Douglas Mitchell, the
Company's President, in the amount of $10,000. Additionally, 581,026 shares of
common stock held by E. Douglas Mitchell were converted to options to purchase
581,026 common stock shares with an exercise price of $.001.

During 2000, 242,772 shares of common stock held by Blue Grass Management, a
beneficial owner of the Company, were converted to options to purchase 242,772
common stock shares with an exercise price of $.001.

During 2000, 649,450 shares of common stock held by German Teitelbaum, a
beneficial owner of the Company, were converted to options to purchase 649,450
common stock shares with an exercise price of $.001.

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

         (a)      The following documents are filed as part of this Annual
                  Report on Form 10-KSB:

(1) Financial Statements (included in Item 8):

                  -        Independent Auditors' Report

                  -        Consolidated Balance Sheets as of December 31, 2001
                           and 2000

                  -        Consolidated Statements of Operations for the years
                           ended December 31, 2001 and 2000

                  -        Consolidated Statements of Changes in Stockholders'
                           Deficit for the years ended December 31, 2001
                           and 2000

                  -        Consolidated Statements of Cash Flows for the years
                           ended December 31, 2001 and 2000

                  -        Notes to Consolidated Financial Statements

                                       24


<PAGE>

 (2) Exhibits

EXHIBIT
NUMBER                     DESCRIPTION
-------------              ---------------------

5.1                        Board of Directors Resolution (Kensington Asset
                           Purchase and Sale Agreement)

5.2                        Kensington Asset Purchase and Sale Agreement

5.3.1                      Officer Promissory Note for Illya Bond

5.3.2                      Officer Promissory Note for Roman Gordon

5.3.3                      Officer Promissory Note for E. Douglas Mitchell

5.4                        Board of Directors Resolution (Bondholder Conversion
                           to Common Stock)

5.5                        Bondholder Conversion to Common Stock (Conversion
                           Agreement)

5.6                        Oil & Gas Investment (Offer for Common Stock)

5.7                        Board of Directors Resolution (District Holder
                           Conversion to Preferred Stock)

5.8                        District Holder Conversion to Preferred Stock
                           (Conversion Agreement)

5.9                        District Holder Conversion to Preferred Stock
                           (Subscription Agreement)

5.10                       Board of Directors Resolution (Sale of Investment in
                           EHG)

5.11                       Board of Directors Resolution (Search for a Merger
                           Candidate)

 (b) Reports on Form 8-K

None

                                       25


<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.

PowerSource Corporation

By /S/
     --------------------------------------------

Pursuant to the Requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and the capacities and on the dates indicated.

/s/ Illya Bond                Chief Executive Officer             May 20, 2002
--------------------------
Illya Bond

/s/ E. Douglas Mitchell       President                           May 20, 2002
--------------------------
E. Douglas Mitchell

                                       26