<PAGE> 1
                    SECURITIES AND EXCHANGE COMMISSION
                           Washington D.C.  20549

                                 FORM 10-QSB


[X]     Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934

     For the Quarter Ended:    March 31, 2001

[ ]     Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934

        For the Transition Period from _____________ to ____________

                    Commission File Number   0-29838
                                             -------

                        INDUSTRIAL ECOSYSTEMS, INC.
               ----------------------------------------------
               (Name of Small Business Issuer in its charter)

         Utah                                             94-3200034
-------------------------------                    --------------------------
(State or other jurisdiction of                    (I.R.S. Employer I.D. No.)
 incorporation or organization)

               2040 West Broadway, Bloomfield, New Mexico  87413
              -----------------------------------------------------
              (Address of principal executive offices and Zip Code)

                              505-632-1786
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


     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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

(1)  Yes X    No     (2)  Yes X    No
        ---     ---          ---     ---

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

Common Stock, Par Value $0.001                         73,208,947
--------------------------------                ----------------------------
       Title of Class                           Number of Shares Outstanding
                                                as of May 16, 2001

<PAGE>
<PAGE> 2
                        PART I FINANCIAL INFORMATION

                        ITEM 1.  FINANCIAL STATEMENTS

                         INDUSTRIAL ECOSYSTEMS, INC.
                             FINANCIAL STATEMENTS
                                 (UNAUDITED)


     The accompanying financial statements have been prepared by the
Company, without audit, in accordance with the instructions to Form 10-QSB
pursuant to the rules and regulations of the Securities and Exchange
Commission and, therefore may not include all information and footnotes
necessary for a complete presentation of the financial position, results of
operations, cash flows, and stockholders' equity in conformity with generally
accepted accounting principles.  In the opinion of management, all adjustments
(which include only normal recurring accruals) necessary to present fairly the
financial position and results of operations for the periods presented have
been made.  These financial statements should be read in conjunction with the
accompanying notes, and with the historical financial information of the
Company.


<PAGE>
<PAGE> 3

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets


ASSETS

                                        March 31,          December 31,
                                          2001                2000
                                      ------------          ------------
                                      (Unaudited)
CURRENT ASSETS
  Cash and cash equivalents (Note 1) $       5,682         $      42,964
  Restricted cash (Note 1)                  41,661                41,661
  Accounts receivable, net (Note 1)        215,537                51,040
  Prepaid expenses                             491                 4,928
                                      ------------          ------------
    Total Current Assets                   263,371               140,593
                                      ------------          ------------
PROPERTY AND EQUIPMENT (Net)
 (Notes 1 and 2)                           867,770               910,844
                                      ------------          ------------
    TOTAL ASSETS                     $   1,131,141         $   1,051,437
                                      ============          ============



The accompany notes are an integral part of these consolidated financial
statements.

<PAGE>
<PAGE> 4

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                        March 31,          December 31,
                                          2001                2000
                                      ------------          ------------
                                      (Unaudited)
CURRENT LIABILITIES
  Accounts payable                   $      95,949         $      94,821
  Accrued expenses (Note 3)                330,832               322,231
  Notes payable, related party
  (Note 5)                                 155,000               105,000
  Notes payable, current portion
  (Note 4)                                  57,371                67,735
                                      ------------          ------------
    Total Current Liabilities              639,152               589,787
                                      ------------          ------------
LONG-TERM DEBT
  Notes payable (Note 4)                    83,323                83,323
                                      ------------          ------------
    Total Long-Term Debt                    83,323                83,323
                                      ------------          ------------
    Total Liabilities                      722,475               673,110
                                      ------------          ------------

COMMITMENTS AND CONTINGENCIES
 (Note 7)                                  577,436               577,436
                                      ------------          ------------

STOCKHOLDERS' EQUITY (DEFICIT)
  Common stock; 100,000,000 shares
   authorized of $0.001 par value,
   73,208,947 shares issued and
   outstanding                              73,209                73,209
  Additional paid-in capital            23,757,090            23,757,090
  Other comprehensive income                 7,470                 6,493
  Accumulated deficit                  (24,006,539)          (24,035,901)
                                      ------------          ------------
    Total Stockholders' Equity
    (Deficit)                             (168,770)             (199,109)
                                      ------------          ------------

    TOTAL LIABILITIES AND
    STOCKHOLDERS' EQUITY (DEFICIT)   $   1,131,141         $   1,051,437
                                      ============          ============



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

<PAGE>
<PAGE> 5

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

                                            For the Three Months Ended
                                                     March 31,
                                              2001               2000
                                          ------------      ------------
REVENUES                                 $     304,548     $     127,968
                                          ------------      ------------
EXPENSES
  Direct costs                                 148,524           105,967
  General and administrative                    65,505           241,720
  Depreciation and amortization                 43,074            12,768
                                          ------------      ------------
    Total Expenses                             257,103           360,455
                                          ------------      ------------
    Income (Loss) from Operations               47,445          (232,487)
                                          ------------      ------------
OTHER INCOME (EXPENSE)
  Other income                                    -                8,267
  Interest expense                             (18,083)          (14,122)
                                          ------------      ------------
    Total Other Income (Expense)               (18,083)           (5,855)
                                          ------------      ------------
NET INCOME (LOSS)                               29,362          (238,342)
                                          ------------      ------------
OTHER COMPREHENSIVE INCOME (LOSS)
  Gain (loss) on foreign currency
   adjustments                                     977            (9,262)
                                          ------------      ------------
NET COMPREHENSIVE INCOME (LOSS)          $      30,339     $    (247,604)
                                          ============      ============
BASIC EARNINGS (LOSS) PER SHARE          $        0.00     $       (0.01)
                                          ============      ============
WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING                               73,208,947        42,163,422
                                          ============      ============



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

<PAGE>
<PAGE> 6

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>


                                                                    Additional       Other
                                             Common Stock            Paid-In      Comprehensive    Accumulated
                                         Shares        Amount        Capital         Income          Deficit
                                       ----------     --------     ------------     --------     -------------
<S>                                 <C>            <C>          <C>              <C>          <C>
Balance, December 31, 1998             33,018,931    $  33,019    $  20,589,741    $  38,419    $  (21,993,889)

Common stock issued for cash
 at $0.10 per share                     2,500,000        2,500          247,500         -                 -

Common stock issued for cash
 at $0.0675 per share                   4,500,000        4,500          299,250         -                 -

Common stock issued in
 conversion of Class A - special
 shares of subsidiary (Note 8)            222,752          223             (223)        -                 -

Currency translation adjustment              -           -                 -         (11,659)             -

Net loss for the year ended
 December 31, 1999                           -           -                 -            -             (814,598)
                                       ----------     --------     ------------     --------     -------------
Balance, December 31, 1999             40,241,683       40,242       21,136,268       26,760       (22,808,487)

Common stock and warrants
 issued for cash at $0.0675
 per share                              2,400,000        2,400          159,600         -                 -

Common stock and warrants
 issued for cash at $0.10
 per share                              1,800,000        1,800          178,200         -                 -

Common stock issued through
 exercise of options at $0.22
 per share                                484,000          484          105,996         -                 -

Common stock and warrants
 issued for cash at $0.10
 per share                                900,000          900           89,100         -                 -

Common stock issued through
 exercise of options at $0.16
 per share                                 75,000           75           11,925         -                 -

Common stock issued in lieu of
 debt and acquisition of remaining
 50% of ROP North America, Inc.
 (Note 6)                              18,699,930       18,700        1,664,294         -                 -

Common stock issued for cash
 at $0.05 per share                     2,000,000        2,000           98,000         -                 -
                                       ----------     --------     ------------     --------     -------------
Balance Forward                        66,600,613    $  66,601    $  23,443,383    $  26,760    $  (22,808,487)
                                       ----------     --------     ------------     --------     -------------
</TABLE>


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

<PAGE>
<PAGE> 7

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity (Deficit) (Continued)

<TABLE>
<CAPTION>


                                                                    Additional       Other
                                             Common Stock            Paid-In      Comprehensive    Accumulated
                                         Shares        Amount        Capital         Income          Deficit
                                       ----------     --------     ------------     --------     -------------
<S>                                 <C>            <C>          <C>              <C>          <C>
Balance Forward                        66,600,613    $  66,601    $  23,443,383    $  26,760    $  (22,808,487)

Common stock issued for
 cash at $0.03 per share                3,333,334        3,333           96,667         -                 -

Common stock and warrants
 issued for cash at $0.04
 per share                              1,875,000        1,875           73,125         -                 -

Common stock issued through
 exercise of options at $0.055
 per share                                200,000          200           10,800         -                 -

Common stock issued through
 exercise of options at $0.05
 per share                              1,200,000        1,200           58,800         -                 -

Additional goodwill through
 granting of options                         -            -              26,215         -                 -

Additional expense recorded through
 granting of options/warrants                -            -              48,100         -                 -

Currency translation adjustment              -            -                -         (20,267)             -

Net loss for the year ended
 December 31, 2000                           -            -                -            -           (1,227,414)
                                       ----------     --------     ------------     --------     -------------
Balance, December 31, 2000             73,208,947       73,209       23,757,090         6,493      (24,035,901)

Currency translation adjustment
 (unaudited)                                 -            -                -              977             -

Net income for the three months
 ended March 31, 2001 (unaudited)            -            -                -             -              29,362
                                       ----------     --------     ------------     --------     -------------
Balance, March 31, 2001
 (unaudited)                           73,208,947    $  73,209    $  23,757,090    $   7,470    $  (24,006,539)
                                       ==========     ========     ============     ========     =============

</TABLE>


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


<PAGE>
<PAGE> 8

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)

                                                    For the Three Months Ended
                                                              March 31,
                                                          2001         2000
                                                        --------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)                                     $ 29,362   $ (238,342)
 Adjustments to reconcile net income (loss) to net cash
  used by operating activities:
   Depreciation and amortization                          43,074       12,768
 Changes in assets and liabilities:
  (Increase) decrease in accounts receivable            (164,497)     (67,534)
  (Increase) decrease in deposits and prepaid expenses     4,437      (35,000)
  (Increase) decrease in restricted cash                    -             306
   Increase (decrease) in accounts payable                 1,128       (1,497)
   Increase (decrease) in accrued expenses                 9,578        1,548
   Increase (decrease) in investor deposits                 -          15,000
                                                        --------    ---------
      Net Cash (Used) by Operating Activities            (76,918)    (312,751)
                                                        --------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES                        -            -
                                                        --------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
 Principal payments on notes payable                     (10,364)     (24,674)
 Cash received from notes payable - related               50,000         -
 Issuance of common stock for cash                          -         520,480
                                                        --------    ---------
      Net Cash Provided by Financing Activities           39,636      495,806
                                                        --------    ---------
NET INCREASE (DECREASE) IN CASH                          (37,282)     183,055
                                                        --------    ---------
CASH AT BEGINNING OF PERIOD                               42,964       44,277
                                                        --------    ---------
CASH AT END OF PERIOD                                  $   5,682   $  227,332
                                                        ========    =========

SUPPLEMENTAL CASH FLOW INFORMATION

CASH PAID FOR:
  Interest                                             $   6,833   $   14,122
  Income taxes                                         $    -      $     -



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

<PAGE>
<PAGE> 9

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000

NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  a.  Organization

  The consolidated financial statements presented are those of Industrial
Ecosystems, Inc.(IEI) and its wholly-owned subsidiaries, Environmental
Protection Company (EPC), I.E.I. Canada, Inc. (IEI Canada), 1297833 Ontario,
Ltd. (Ontario), 1303873 Ontario, Ltd. (1303873) and ROP North America, Inc.
(ROP).  Collectively, they are referred to herein as the "Company". IEI was
incorporated in January, 1994 through the acquisition of Agri World
Development Corp., a dormant public company.  Agri World Development Corp.
later changed its name to Industrial Ecosystems, Inc.  IEI is principally a
holding company but pays operating expenses for the bioremediation business.

  In March 1994, IEI acquired 100% of EPC in exchange for 7,017,300 shares of
its outstanding common stock.  At the time of this acquisition, IEI was
essentially inactive.  Also, the exchange of IEI's common stock for the common
stock of EPC resulted in the former stockholders of EPC obtaining control of
IEI.  Accordingly, EPC became the continuing entity for accounting purposes,
and the transaction was accounted for as a recapitalization of EPC with no
adjustment to the basis of EPC's assets acquired or liabilities assumed.  For
legal purposes, IEI was the surviving entity.  EPC is in the bioremediation
business and operates principally in New Mexico.

  Effective June 30, 1994, IEI, through its wholly-owned subsidiary, IEI
Canada, Inc. (a Canadian Corporation) acquired 100% of I.T.E. Ecosystems,
Inc., Amlin Grain Roasting, Inc. and a minority interest in N-Viro Systems
Canada, Inc.  The operations of I.T.E. Ecosystems, Inc. and Amlin Grain
Roasting, Inc. were discontinued during 1994.  In September 1994, IEI
incorporated three wholly-owned subsidiaries called RFP Management &
Development Corp., ROP Management & Development Corp. and IEI Canada, Inc.  In
December of 1996, IEI incorporated a separate wholly-owned subsidiary called
ROP Liquid Feed Corp.  In March 1998, IEI created an entity (merger company)
for the purpose of merging IEI Canada, Inc., ROP Liquid Feed Corp., ROP
Management & Development Corp. and RFP Management & Development Corp. into
that entity.  At the same time, the merger company was merged into a new
entity named IEI Canada, Inc.  The assets and certain liabilities of all of
these companies were assumed by ROP North America, LLC, a joint venture
company formed in March, 1998 (see Note 6), and the companies operations were
discontinued.  The assets and liabilities were transferred to the joint
venture at the related companies' book value.

  During 1998, IEI Canada, Inc. incorporated two separate wholly-owned
subsidiaries called 1297833 Ontario, Ltd. and 1303873 Ontario, Ltd.  1297833
Ontario, Ltd. was organized to be in  the bioremediation business.  Neither
1297833 Ontario, Ltd. or 1303873 Ontario, Ltd. have had operations.



<PAGE>
<PAGE> 10

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

  a.  Organization (continued)

      On June 30, 2000, the Company acquired the remaining 50% interest in ROP
North America, Inc. through a series of transactions by issuing 18,699,930
shares of its outstanding common stock valued at $1,682,994.  This 50%
interest was recorded as a purchase on June 30, 2000 (see Note 6).  ROP North
America, Inc. is a 100% owned subsidiary at June 30, 2000.  Since the
transaction was accounted for as a purchase at June 30, 2000, the consolidated
balance sheets include the accounts of ROP North America, Inc.

  b.  Accounting Methods

  The Company's consolidated financial statements are prepared using the
accrual method of accounting.  The Company has elected a December 31, year
end.

  c.  Cash and Cash Equivalents

  Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.

  d.  Basic Earnings (Loss) Per Share

  The computations of basic earnings (loss) per share of common stock are
based on the weighted average number of common shares outstanding during the
period of the consolidated financial statements.  Common stock equivalents,
consisting of stock options, warrants and the IEI Canada Inc. class A-special
shares, have not been included in the calculation as their effect is
antidilutive for the periods presented.

                                                 For the Three Months Ended
                                                          March 31,
                                                    2001             2000
                                                (Unaudited)      (Unaudited)
                                                 ----------      -----------
  Numerator - income (loss)                     $    29,362     $   (238,342)

  Denominator - weighted average number of
    shares outstanding                           73,208,947       42,163,422
                                                 ----------      -----------
  Income (loss) per share                       $      0.00     $      (0.01)
                                                 ==========      ===========





<PAGE>
<PAGE> 11

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

  e.  Change in Accounting Principle

  The Company has adopted the provisions of FASB Statement No. 138 "Accounting
for Certain Derivative Instruments and Hedging Activities, (an amendment of
FASB Statement No. 133.)" Because the Company had adopted the provisions of
FASB Statement No. 133, prior to June 15, 2000, this statement is effective
for all fiscal quarters beginning after June 15, 2000.  The adoption of this
principle had no material effect on the Company's financial statements.

  The Company has adopted the provisions of FASB Statement No. 140 "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (a replacement of FASB Statement No. 125.)"  This statement
provides accounting and reporting standard for transfers and servicing of
financial assets and extinguishments of liabilities.  Those standards are
based on consistent application of a financial-components approach that
focuses on control.  Under that approach, the transfer of financial assets,
the Company recognized the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished.  This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
This statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001.  This
statement is effective for recognition and reclassification of collateral and
for disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000.  The adoption of this principle
had no material effect on the Company's financial statements.

  The Company has adopted the provisions of FIN 44 "Accounting for Certain
Transactions Involving Stock Compensation (an interpretation of APB Opinion
No. 25.)"  This interpretation is effective July 1, 2000.  FIN 44 clarifies
the application of Opinion No. 25 for only certain issues.  It does not
address any issues related to the application of the fair value method in
Statement No. 123.  Among other issues, FIN 44 clarifies the definition of
employee for purposes of applying Opinion 25, the criteria for determining
whether a plan qualifies as a noncompensatory plan, the accounting consequence
of various modifications to the terms of a previously fixed stock option or
award, and accounting for an exchange of stock compensation awards in a
business combination.  The adoption of this principle had no material effect
on the Company's financial statements.


<PAGE>
<PAGE> 12

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

  f.  Property and Equipment

  Property and equipment is recorded at cost.  Major additions and improvement
are capitalized.  The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as gain or
loss on sale of equipment.  Depreciation is computed using the straight-line
method over the estimated useful life of the assets as follows:

    Description               Estimated Useful Life
    -----------------------   ---------------------
    Furniture and fixtures         3 to 7 years
    Machinery and equipment        5 to 7 years
    Computers                      5 years
    Vehicles                       5 years
    Leasehold improvements        15 years
    Buildings                     15 years

  g.  Restricted Cash

  The Company holds a certificate of deposit with a Canadian bank in the
amount of $41,661 as of March 31, 2001 and December 31, 2000, which is being
used as security and collateral on a demand note with the same bank.  The cash
cannot be withdrawn from the CD until after the demand note is paid in full.

  h.  Accounts Receivable

  Accounts receivable are shown net of an allowance for doubtful accounts of
$9,363 as of March 31, 2001 and December 31, 2000.






<PAGE>
<PAGE> 13

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

  i.  Provision For Taxes

  At December 31, 2000, the Company had an accumulated deficit of $24,035,901
which includes net operating loss carryforwards that may be offset against
future taxable income through 2020.  No tax benefit has been reported in the
consolidated financial statements as the Company believes there is a 50% or
greater chance the net operating loss carryforwards will expire unused.
Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
  Due to the change in ownership provisions fo the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations.  Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.

  j.  Principles of Consolidation

  The consolidated financial statements include those of Industrial
Ecosystems, Inc. and its wholly-owned subsidiaries.

  All material intercompany accounts and transactions have been eliminated.

  k.  Statement of Cash Flows

  The Company's foreign subsidiaries use the local currency as its functional
currency.  Accordingly, assets and liabilities are translated at year-end
exchange rates, and operating statement items are translated at average
exchange rates prevailing during the year.  The resultant cumulative
translation adjustments to the assets and liabilities are recorded as a
separate component of stockholders' equity.  Exchange rate adjustments
resulting from foreign currency transactions are included in the determination
of net income (loss).

  In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's foreign subsidiaries
are calculated based upon the local currencies.  As a result, amounts related
to assets and liabilities reported on the consolidated statements of cash
flows will not necessarily agree with changes in the corresponding balances on
the balance sheets.

  l.  Estimates

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

  m.  Advertising

  The Company follows the policy of charging the costs of advertising to
expense as incurred.

<PAGE>
<PAGE> 14

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

  n.  Revenue Recognition

  Revenue is recognized as billings are submitted to the customer for the
bioremediation process.  Billings are submitted once the jobs are
substantially completed.

  o.  Stock Options and Warrants

  The Company applies Accounting Principles Board ("APB") 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for all
stock option plans.  Under APB 25, compensation cost is recognized for stock
options and warrants granted to employees when the option/warrant price is
less than the market price of the underlying common stock on the date of
grant.

  FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), requires the Company to provide proforma information regarding net
income and net income per share as if compensation costs for the Company's
stock option plans and other stock awards had been determined in accordance
with the fair value based method prescribed in SFAS No. 123.  The Company
estimates the fair value of each stock award at the grant date by using the
Black-Scholes option pricing model using the following assumptions.  The U.S.
Treasury rate for the period equal to the expected life of the options was
used as the risk-free interest rate.  The expected life of the
options/warrants is one and seven years.  The volatility used was 1.416% based
upon the historical price per share of shares sold.  There are no expected
dividends.

  p.  Unaudited Financial Statements

  The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for a fair
presentation.  Such adjustments are of a normal recurring nature.

NOTE 2 -  PROPERTY AND EQUIPMENT

  Property and equipment consists of the following:
                                    March 31,          December 31,
                                      2001                 2000
                                    ---------          -----------
                                   (Unaudited)

  Furniture and fixtures           $   27,931         $     27,931
  Machinery and equipment           1,348,866            1,348,866
  Computers                            14,875               14,875
  Vehicles                             76,000               76,000
  Leasehold improvements              108,388              108,388
  Buildings                            48,720               48,720
  Land                                 31,561               31,561
                                    ---------          -----------
                                    1,656,341            1,656,341
    Accumulated depreciation         (788,571)            (745,497)
                                    ---------          -----------
    Net property and equipment     $  867,770         $    910,844
                                    =========          ===========

<PAGE>
<PAGE> 15

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000


NOTE 2 -  PROPERTY AND EQUIPMENT (Continued)

  Depreciation expense for the three months ended March 31, 2001 and 2000 was
$43,074 and $12,768, respectively.

NOTE 3 -  ACCRUED EXPENSES

  Accrued expenses as of March 31, 2001 and December 31, 2000 consist
primarily of accrued interest and unpaid payroll taxes, unemployment taxes,
sales taxes and gross receipts taxes due both the federal and state taxing
authorities.  The Company has been delinquent on filing these tax forms in the
past but was current in its filing during 2000 and 2001.  Reasonable interest
and penalties have also been accrued as of March 31, 2001 and December 31,
2000.

  The following summarizes accrued expenses as of March 31, 2001 and December
31, 2000:
                                                 March 31,       December 31,
                                                   2001             2000
                                                -----------     ------------
                                                (Unaudited)
    Accrued payroll taxes, penalties
     and interest                              $    213,775    $     211,650
    Accrued interest                                103,078           91,152
    Accrued wages                                      -              13,492
    Other                                            13,979            5,937
                                                -----------     ------------
    Total                                      $    330,832    $     322,231
                                                ===========     ============

NOTE 4 -  NOTES PAYABLE

  Notes payable consisted of the following:
                                                  March 31,     December 31,
                                                    2001            2000
                                                -----------     ------------
                                                (Unaudited)
SBA note payable to a bank, interest at
 prime +3% per annum, requires monthly
 payments of $1,860 plus interest, matures
 in December 2005, secured by machinery,
 equipment and certificate of deposit.         $     98,947    $     104,153

Note payable to a bank, interest at
 6.75% per annum, principal and interest
 due March 15, 2001, secured by a related party.     40,000           40,000

Note payable to a finance company, interest
 at 9.78% per annum, principal and interest
 of $1,762 due monthly, matures in April 2001,
 unsecured.                                           1,747            6,905
                                                -----------     ------------
  Total Notes Payable                               140,694          151,058

  Less: Current Portion                             (57,371)         (67,735)
                                                -----------     ------------
  Long-Term Notes Payable                      $     83,323    $      83,323
                                                ===========     ============

<PAGE>
<PAGE> 16

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000

NOTE 4 -  NOTES PAYABLE (Continued)

  The aggregate principal maturities of notes payable are as follows:

     Year Ended
    December 31,              Amount
    ------------             --------
       2001                 $  67,735
       2002                    20,830
       2003                    20,830
       2004                    20,830
       2005                    20,833
       2006 and thereafter       -
                            ---------
          Total            $  151,058
                            =========

NOTE 5 -  NOTES PAYABLE - RELATED PARTY

  During the year ended December 31, 1999, the Company obtained a line-of-
credit with a related party for up to $750,000 at 6% interest per annum.
Withdrawals from the line-of-credit were authorized by an independent credit
committee on a case-by-case basis.   On June 30, 2000, the Company acquired
the remaining interest in the joint venture and as part of the transaction,
6,235,402 shares were issued in lieu of the $750,000 (see Note 6).  During the
year ended December 31, 2000, the related party loaned the Company an
additional $105,000 under a line of credit note with interest accruing at
12.0%.  The amount is secured by a security agreement in certain fixed assets
of the Company.  The amount is payable on demand.

  In January and February 2001, the Company borrowed $50,000 from an affiliate
pursuant to unsecured promissory notes bearing interest at 15%, due within 30
days with an option to extend.

NOTE 6 -  INVESTMENT IN JOINT VENTURE

  During March, 1998, IEI Canada, Inc., a wholly-owned subsidiary of IEI,
entered into a joint venture agreement with JFJ Ecosystems, Inc.(JFJ)  to form
ROP North America, LLC (the JV).  The JV created a wholly-owned subsidiary
called ROP North America, Inc. (an Ontario Corporation) which became the
operating entity.  As of December 31, 1999, IEI Canada, Inc. had a 50% equity
interest in the JV but did not have management control.  Therefore, at
December 31, 1999, the investment was being recorded under the equity method
of accounting.  The Company had the right to acquire the remaining 50%
interest in the JV on or prior to December 31, 2000 conditional on meeting
certain requirements established in the agreement between the Company and JFJ
Ecosystems, Inc.  On June 30, 2000, the Company signed an Agreement of Merger
to acquire the remaining 50% ownership of the JV.

  On June 30, 2000, the Company issued a total of 18,699,930 shares of its
outstanding common stock in lieu of debt and to acquire JFJ's 50% interest in
the joint venture through a series of transactions as follows:


<PAGE>
<PAGE> 17

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000

NOTE 6 -  INVESTMENT IN JOINT VENTURE (Continued)

  1.  10,392,337 shares issued to acquire JFJ's 50% membership interest in the
joint venture and the resulting wholly-owned subsidiary was merged into the
Company.

  2.  6,715,071 shares issued to JFJ in lieu of the outstanding line-of-credit
due of $750,000 plus interest, plus an additional $57,695 that was owed to JFJ
by the joint venture (see Note 5).

  3.  1,592,522 shares issued in lieu of debt owed by the joint venture to an
affiliate of the Company and a principal of JFJ of $191,550 in principal and
interest.

  4.  JFJ also received options to acquire and additional 2,261,334 shares of
the Company's common stock at an exercise price of $0.09 per share (see Note
9).  These options were valued at $26,215 resulting in additional goodwill
through the acquisition.

  As part of the transaction, ROP North America, LLC was dissolved leaving ROP
North America, Inc. as the surviving operating entity.  In addition, IEI
Canada, Inc. transferred its ownership interest in ROP North America, Inc. to
the parent company, IEI.  Therefore, at June 30, 2000, ROP North America, Inc.
became a wholly-owned subsidiary of IEI.

  As part of the transaction, goodwill of $93,025 was recorded which consisted
of the excess of the purchase price over the fair value of net tangible assets
of the purchased subsidiary.  For the year ended December 31, 2000, an
impairment loss on goodwill of $93,025 was recorded since the Company was
unable to determine the present value of the future cash flows of the
purchased subsidiary.

  ROP North America, Inc. was established to transform organic by-product from
commercial waste streams into livestock feed.  This process is accomplished in
part, through a liquid feed system.  ROP North America, Inc. also raises
approximately 15,000 hogs under contract.  In addition, the hog farm is a
beta-site for the liquid feed products.

NOTE 7 -  COMMITMENTS AND CONTINGENCIES

  The Company has reserved and recorded contingent liabilities to individuals
who claim they are still owed although the Company issued shares of common
stock in payment of the debts.  The Company has recorded contingent
liabilities at March 31, 2001 and December 31, 2000 of $577,436.  During the
year ended December 31, 1999, $350,957 of contingent liabilities were settled
through a full release by the respective creditors.   During the year ended
December 31, 2000, an additional $42,400 of contingent liabilities were
settled through a full release by the respective creditors. Corresponding
income from the debt forgiveness was recorded by the Company for the years
ended December 31, 2000 and 1999.  Additional contingent liabilities totaling
$37,500 were recorded during the year ended December 31, 2000.  It is
currently uncertain as to whether or not the remaining amounts will be paid in
the future and management of the Company intends on vigorously contesting any
claim that is made.  It is reasonably possible, however, that the Company will
have to pay the amounts and to be conservative, management has recorded these
debts as contingent liabilities.

<PAGE>
<PAGE> 18

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000

NOTE 7 -  COMMITMENTS AND CONTINGENCIES (Continued)

  The Company was involved in certain litigation during 1998 and 1999 with a
New Mexico limited liability company regarding an open account and a
distribution agreement.  A complaint against the Company was filed in July
1997.  The Company contended that they had never ordered the product delivered
and that the distribution agreement was breached.  On January 3, 2000, a
judgment was entered into ordering the Company to pay a total of $31,991 plus
attorney fees of approximately $12,000.  The Company has been making the
required payments pursuant to the judgment.  The remaining balance owed at
December 31, 2000 was $7,792 which is included in the Company's accounts
payable.  The amount was paid in full during the three months ended March 31,
2001.

  The Company is also involved in litigation with Middlemarch Farms, Ltd.
(Middlemarch), a Canadian company, whereby Middlemarch is claiming a security
interest in certain property transferred to the joint venture during March
1998.  Middlemarch is claiming that there is an outstanding balance due of
$230,300 plus interest.  The property subject to the security interest is
comprised of the assets and liabilities which were transferred to the joint
venture in March 1998.

  The Company claims that the amount has been paid but has recorded a
contingent liability for the claimed amount (included in contingent
liabilities of $577,436 at December 31, 2000).  If Middlemarch proceeds with
its claim, the Company may be involved in litigation with regard to the
circumstances surrounding the creation of the claimed interest and the payment
of the debt.  Management is currently working on settlement arrangements but
finalization awaits agreement of certain third parties.  Until that occurs,
the Company has included the full amount as a contingent liability at March
31, 2001 and  December 31, 2000.

  On March 17, 1999, the Company received a letter from Canadian counsel
threatening litigation on behalf of Diamond Measure, Inc., a Canadian
corporation with which the Company engaged in discussions about a possible
acquisition during 1994.  The Company claims that negotiations were never
consummated, and no contract was ever signed.  On August 6, 1999, the
Company's Canadian counsel was served with a statement of Claim filed in the
Superior Court of Justice in Windsor Ontario on August 4, 1999, by Diamond
Measure, Inc. and Ronald McGuire, against the Company.  The claim is for a
total of $1.5 million dollars Canadian for breach of contract and detrimental
reliance, $1 million to Diamond Measure, Inc., and $500,000 to Ronald McGuire.
The Company claims no agreement was ever reached and no written contract was
signed.  The Company believes that the action is without merit.

  On November 13, 2000, a complaint was filed against the Company alleging
breach of contract in connection with a 1994 merger agreement, asking damages
of $22,500 plus court costs, attorney's fees and interest.  The Company filed
answer on December 26, 2000 disputing the claim and requesting dismissal.  The
Company has recorded a contingent liability of $22,500 as of March 31, 2001
and December 31, 2000 in order to be conservative.  The outcome of the case is
currently unknown.


<PAGE>
<PAGE> 19

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000

NOTE 8 -  CLASS A-SPECIAL SHARES

  During 1997, the Company issued 2,163,917 shares of common stock in exchange
for the conversion of 2,163,917 shares of class A-special shares of IEI
Canada, Inc., a wholly-owned subsidiary of the Company (by virtue of voting
rights and common stock shares).  The class A-special shares were originally
issued in connection with a Global Share Purchase Agreement during 1994.  Each
of the original shareholders of the class A-special shares received a warrant
permitting the exchange of the shares for an equal number of shares of the
Company at any time until 2015.  A total of 4,000,000 class A-special shares
were originally issued.

  During the year ended December 31, 1999, the Company issued 222,752 shares
of its outstanding common stock to convert a total of 283,841 of the class A-
special shares.  At December 31, 2000, 40,549 class A-special shares remain
outstanding that are convertible at the holders option into 31,822 shares of
the Company's common stock.  These shares have been included in additional
paid-in capital of the Company until they are converted into IEI shares.

NOTE 9 -  STOCK OPTIONS

  A summary of the status of the Company's stock options as of December 31,
2000 and changes during the year ending December 31, 2000 are presented below:

                                               Weighted      Weighted
                                                Average       Average
                                               Exercise      Grant Date
                                    Options     Price        Fair Value
                                   ---------   --------      ----------
  Outstanding, December 31, 1999   5,822,667  $    0.24     $      0.00
    Granted                        3,661,334       0.07            0.01
    Expired/Canceled                (150,000)      0.11            0.00
    Exercised                     (1,959,000)      0.10            0.00
                                   ---------   --------      ----------
  Outstanding, December 31, 2000   7,375,001  $    0.20     $      0.00
                                   =========   ========      ==========
  Exercisable, December 31, 2000   7,375,001  $    0.20     $      0.00
                                   =========   ========      ==========

  There were no changes to the outstanding options during the three months
ended March 31, 2001.

  On July 23, 1997, the Board of Directors agreed to issue an option to
purchase 166,667 (post-split) shares of common stock at an exercise price of
$0.15 per share to an entity that provided a loan to the Company.  These
options expire on July 23, 2002.  At the time the options were granted, the
exercise price was equal to, or greater than, the prior 10-day average trading
price of the Company's shares.


<PAGE>
<PAGE> 20

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000


NOTE 9 -  STOCK OPTIONS (Continued)

  On March 13, 1998, the Board of Directors agreed to issue options to various
individuals who have provided and may continue to provide consulting and other
services to the Company.  Stock options for a total of 4,131,000 (post-split)
shares of common stock were granted at an exercise price of $0.225 per share.
At the time the options were granted, the exercise price was equal to, or
greater than, the prior 10-day average trading price of the Company's shares.
591,000 of these options will expire if not exercised by March 13, 2003.  The
remaining 3,540,000 options are "cashless" options and will expire if not
exercised by March 13, 2005.  During the year ended December 31, 2000, a total
of 484,000 of the options were exercised for $106,480.

  In May 1999, the Board of Directors of the Company agreed to issue 225,000
options, exercisable at $1.00 per share and expiring on May 31, 2003, to an
unaffiliated third party in settlement of an outstanding lease obligation for
one of its Canadian subsidiaries.  The exercise price for the options was
determined by negotiations between the parties.

  In April 1999, the Company issued 720,000 options exercisable at $0.16 per
share and expiring on April 30, 2004.  In June 1999, the Company issued an
additional 400,000 options exercisable at $0.20 per share and expiring on June
3, 2004.  In July 1999, the Company issued an additional 100,000 options
exercisable at $0.21 per share and expiring on July 28, 2004.  In December
1999, the Company issued an additional 80,000 options exercisable at $0.06 per
share and expiring on December 1, 2004.  The 720,000 options, the 400,000
options, the 100,000 options and the 80,000 options were issued pursuant to
the Company's 1999 Stock Option and Award Plan and the exercise price of the
respective options is equal to or greater than the prior 10-day average
trading price of the Company's shares.  During the year ended December 31,
2000, 75,000 of the options were exercised at $0.16 per share for $12,000.  In
August 2000, the Company granted 200,000 options to a consultant exercisable
at $0.055 per share until August 21, 2005.  These options were exercised
during 2000 for $11,000.  In October 2000, the Company granted 1,200,000
options exercisable at $0.05 per share until October 24, 2001.  These options
were exercised during 2000 for $60,000.

  On June 30, 2000, pursuant to the acquisition agreement with JFJ Ecosystems,
Inc., the Company issued 2,261,334 options to JFJ exercisable at $0.09 per
share and expiring on June 30, 2005 (see Note 6).  The exercise price of the
options is equal to or greater than the prior 10-day average trading price of
the Company's shares.

  Additional expense of $12,501 was recorded during the year ended December
31, 2000 pursuant to the Black-Scholes calculation pertaining to the fair
value of the options granted during the year.


<PAGE>
<PAGE> 21

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000

NOTE 10 -  STOCK WARRANTS

  A summary of the status of the Company's stock warrants as of December 31,
2000 and changes during the year ending December 31, 2000 are presented below:

                                               Weighted      Weighted
                                                Average       Average
                                               Exercise      Grant Date
                                   Warrants     Price        Fair Value
                                   ---------   --------      ----------
  Outstanding, December 31, 1999   4,500,000  $    0.13     $      0.00
    Granted                        9,675,000       0.39            0.00
    Expired/Canceled              (4,500,000)      0.13            0.00
    Exercised                           -           -               -
                                   ---------   --------      ----------
  Outstanding, December 31, 2000   9,675,000       0.39            0.00
    Expired/Canceled              (7,800,000)      0.31            0.00
                                   ---------   --------      ----------
  Outstanding, March 31, 2001      1,875,000  $   0.075     $      0.00
                                   =========   ========      ==========
  Exercisable, March 31, 2001      1,875,000  $   0.075     $      0.00
                                   =========   ========      ==========

  Pursuant to certain stock issuances for cash during the year ended December
31, 1999, the Company issued a total of 4,500,000 warrants to a related party
to purchase shares of common stock.  The warrants were exercisable in blocks
at prices ranging from $0.07 to $0.19 per share and expired on November 3,
2000.

  Pursuant to certain stock issuances for cash during the year ended December
31, 2000, the Company issued a total of 9,675,000 warrants to purchase shares
of common stock.  The warrants are exercisable in blocks at prices ranging
from $0.07 to $1.00 per share.

  Additional expense of $35,599 was recorded during the year ended December
31, 2000 pursuant to the Black-Scholes calculation pertaining to the fair
value of the warrants granted during the year.

  During the three months ended March 31, 2001, 7,800,000 warrants exercisable
at prices ranging from $0.07 to $1.00 per share expired unexercised.


<PAGE>
<PAGE> 22

INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000

NOTE 11 -  GOING CONCERN

  The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business.  The Company has historically incurred significant
losses which have resulted in an accumulated deficit of $24,035,901 at
December 31, 2000, a working capital deficit and limited internal financial
resources.  These factors combined, raise substantial doubt about the
Company's ability to continue as a going concern.  The accompanying
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result from the outcome of this
uncertainty. The Company has began to effect measures to reduce cash outflows
and increase working capital through the issuance of additional shares of
common stock for cash, services and conversion of debt.  The Company has
implemented a cash flow plan and has developed an overall strategy and certain
financing options to meet its ongoing needs.  Management of the Company
believes that revenues will increase substantially during 2001 sufficient
enough to cover the costs.  It is the intent of management to rely upon
additional equity financing if required to sustain operations until revenues
are adequate to cover the costs.


<PAGE>
<PAGE> 23

          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-looking Statements
---------------------------------------------------------
This report may contain "forward-looking" statements.  Industrial Ecosystems,
Inc. ("IEI") is including this cautionary statement for the express purpose of
availing itself of the protections of the safe harbor provided by the Private
Securities Litigation Reform Act of 1995 with respect to all such forward-
looking statements.  Examples of forward-looking statements include, but are
not limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of IEI or its management or Board of
Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about IEI and its
business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.

Results of Operations
---------------------
General
-------
IEI's revenues are generated primarily by its business operations in the
United States through its wholly owned subsidiary Environmental Protection
Company ("EPC").  Since March, 1998, IEI has pursued the development of ROP
North America, LLC ("ROP"), which at March 31, 2001, was still in the
development stage.  IEI's results of operations include the costs of its
investment in ROP.

For the quarter ended March 31, 2001, the functional currency for IEI's
foreign subsidiaries has been determined to be the Canadian Dollar.  Any
applicable assets and liabilities have been translated at period end exchange
rates and operating statement items are translated at average exchange rates
prevailing during the period.  For the period ended March 31, 2001, IEI had a
gain of $977 as a result of foreign currency translation adjustment.

Quarter ended March 31, 2001 compared to March 31, 2000
-------------------------------------------------------
Total revenues for the quarter ended March 31, 2001 were $304,548 and direct
costs associated therewith were $148,524, or approximately 48.8% of revenue.
During the quarter ended March 31, 2000, total revenues were $127,968 and
direct costs associated therewith were $105,967 or approximately 82.8% of
revenues. The increase of $176,580 in revenues and decrease in direct costs as
a percent of revenues for the current period as compared to the prior period
can be attributed to additional remediation work from BP-Amoco and
management's successful efforts to control operating costs, a trend which
management hopes will continue during the balance of the fiscal year 2001.
However, there is no guarantee that IEI's revenues for the current quarter
will be sustained and IEI cannot predict what events or uncertainties may be
reasonably expected to have a material impact on the net sales revenues or
income from continuing operations.

Corporate Expense.  For the quarter ended March 31, 2001 total operating
expenses were $257,103, consisting of the direct costs listed above, general
and administrative expenses of $65,505 and depreciation and amortization
expenses of $43,074, resulting in income from operations of $47,445.

<PAGE>
<PAGE> 24

For the quarter ended March 31, 2000 total operating expenses were $254,488,
consisting of the direct costs listed above, general and administrative
expenses of $241,720 and depreciation and amortization expenses of $12,768,
resulting in a loss from operations of $232,487.  The operating expenses for
the quarter ended March 31, 2001 are substantially lower than IEI's operating
expenses incurred for the quarter ended March 31, 2000 due to management's
ongoing efforts to reduce expenses.  IEI anticipates that operating expenses
will remain at approximately the same level for the balance of its fiscal year
unless significant new contracts require additions to the workforce.

Interest Expense.  Interest expense for the quarter ended March 31, 2001 was
$18,083, compared to $14,122 for the same period in 2000, which is attributed
to notes payable and the line-of-credit obtained from a related party (See
Notes 4 and 5 to the Financial Statements).

Including the foreign currency adjustment of $977, IEI had net comprehensive
income of $30,339 for the quarter ended March 31, 2001 compared to a net
comprehensive loss of $247,604 for the quarter ended March 31, 2000. The basic
earnings per share was $0.00 compared to a $0.01 loss per share for the
quarter ended March 31, 2000.  IEI believes that the current quarter results
reflect the beginning of a turnaround in IEI's operations and hopes to
maintain and increase IEI's profitability through the balance of the fiscal
year.

Liquidity and Capital Resources
-------------------------------
Historically, the issuance of common stock has been utilized by IEI for
working capital, conversion of debt, payment of professional services, the
expansion capital required by ROP and for the continued development activities
of IEI.  However, during the current quarter, IEI did not need to issue any
additional stock to finance current operations, although it may need to do so
at some time during the balance of the fiscal year.

IEI had a working capital deficit of $375,781 with cash and cash equivalents
of $5,682, and restricted cash of $41,661 at March 31, 2001.  Cash used in
operations for the quarter ended March 31, 2001, was $76,918 and was derived
primarily from cash received from notes payable.  During the quarter ended
March 31, 2001, IEI used up a substantial portion of proceeds from the sale of
common stock and warrants and the exercise of outstanding options in the
period ended December 31, 2000.

IEI's accounts receivables increased $164,497 during the period, which
reflects the amount of work substantially completed.  IEI expects these
receivables to be timely paid. (See Note 1h and 1n to the Consolidated
Financial Statements).

Because IEI has an accumulated deficit of $24,035,901 at December 31, 2000,
has a working capital deficit and limited internal financial resources, the
report of IEI's auditor at December 31, 2000 contains a going concern
modification as to the ability of IEI to continue.  Beginning in late fiscal
year 1998 and throughout fiscal year 2000, IEI implemented measures to reduce
cash outflows and increase working capital thru the issuance of additional
shares of common stock for cash, services and conversion of debt.  IEI is
aware of its ongoing cash requirements and will continue to monitor its
general and administrative expenses until increased revenues justify increased
expenditures.  Additionally, IEI's management has developed an overall
strategy and certain financing options to meet its operating needs through
December 31, 2001.

<PAGE>
<PAGE> 25

Management intends to rely on additional equity financing if required to
sustain operations until revenues are adequate to cover costs, either through
the exercise of outstanding options and warrants, or the sale of additional
equity securities.  IEI's ability to raise additional equity financing could
be limited, to the extent applicable, to the available authorized but unissued
shares of common stock less those shares reserved for the exercise of
outstanding unexercised options and warrants.

IEI has signed agreements with a number of sales consultants who are actively
seeking opportunities to market IEI's products and services.  However, at
March 31, 2001, no firm commitments or contracts for remediation work had been
signed and management cannot predict how soon any agreements may be reached or
how soon revenues, if any, from prospective contracts will be generated.

At March 31, 2001, IEI has recorded $330,832 in accrued expenses consisting
primarily of accrued interest and unpaid payroll taxes, unemployment taxes,
sales taxes and gross receipts taxes due both the federal and state taxing
authorities, including reasonable interest and penalties for delinquent
filings.

IEI has received an informal response from the IRS offering two possible
settlement options.  The options are for IEI to pay a lump sum of $82,812
within approximately 30 days after receipt of the official settlement notice
letter, or to pay $104,781 over a 23 month period upon payment terms to be
determined.  IEI is waiting until receipt of the official notice to decide on
the best course of action.

IEI has reserved and recorded possible contingent liabilities to individuals
who claim they are still owed money by IEI although IEI has issued shares of
its common stock to such individuals as payment of such debts or because IEI
is uncertain as the whether the creditors are holding IEI responsible to
certain debts incurred by former officers and directors of IEI.  At March 31,
2001, IEI has recorded total contingent liabilities of $577,436.

Impact of Inflation
-------------------
IEI does not anticipate that inflation will have a material impact on its
current or proposed operations.

Seasonality
-----------
IEI's bioremediation business operations tend to have varying degrees of
seasonality.  A majority of IEI's bioremediation jobs are done on sites in and
around Farmington, New Mexico, during the warm weather months.  Since many of
the clean-up sites are located in rural areas and accessible only over dirt or
unimproved roads, IEI's ability to excavate and remove contaminated soil can
be restricted during inclement weather.  In addition, soil is difficult or
impracticable to dig and turn when the ground is frozen, the bioremediation
process requires above freezing temperatures to be effective.


<PAGE>
<PAGE> 26

                        PART II - OTHER INFORMATION

                        ITEM 1.  LEGAL PROCEEDINGS

IEI was involved in certain litigation during 1998 and 1999 with a New Mexico
limited liability company regarding an open account and a distribution
agreement.  A complaint against IEI was filed in July 1997.  IEI contended
that they had never ordered the product delivered and that the distribution
agreement was breached.  On January 3, 2000, a judgment was entered into
ordering IEI to pay a total of $31,991 plus attorney fees of approximately
$12,000.  IEI has been making the required payments pursuant to the judgment.
The remaining balance owed at December 31, 2000 was $7,792 which is included
in IEI's accounts payable.  The amount was paid in full during the period
ended March 31, 2001.

IEI is also involved in litigation with Middlemarch Farms, Ltd. (Middlemarch),
a Canadian company, whereby Middlemarch is claiming a security interest in
certain property transferred to the joint venture during March 1998.
Middlemarch is claiming that there is an outstanding balance due of $230,300
plus interest.  The property subject to the security interest is comprised of
the some of the assets and liabilities which were transferred to the joint
venture in March 1998.

IEI claims that the amount has been paid but has recorded a contingent
liability for the claimed amount (included in contingent liabilities of
$577,436 at December 31, 2000).  If Middlemarch proceeds with its claim, IEI
may be involved in litigation with regard to the circumstances surrounding the
creation of the claimed interest and the payment of the debt.  Management is
currently working on settlement arrangements but finalization awaits agreement
of certain third parties.  Until that occurs, IEI has included the full amount
as a contingent liability at December 31, 2000 and March 31, 2001.

On March 17, 1999, IEI received a letter from Canadian counsel threatening
litigation on behalf of Diamond Measure, Inc., a Canadian corporation with
which IEI engaged in discussions about a possible acquisition during 1994.
IEI claims that negotiations were never consummated, and no contract was ever
signed.  On August 6, 1999, IEI's Canadian counsel was served with a statement
of Claim filed in the Superior Court of Justice in Windsor Ontario on August
4, 1999, by Diamond Measure, Inc. and Ronald McGuire, against IEI.  The claim
is for a total of $1.5 million dollars Canadian for breach of contract and
detrimental reliance, $1 million to Diamond Measure, Inc., and $500,000 to
Ronald McGuire.  IEI claims no agreement was ever reached and no written
contract was signed.  IEI believes that the action is without merit.

On November 13, 2000, a complaint was filed against IEI by the Worthington
Company and Paul Parshall in the Franklin County Common Pleas Court in
Columbus, Ohio alleging breach of contract in connection with a 1994 merger
agreement, and asking damages of $22,500 plus court costs, attorney's fees and
interest.  Mr. Parshall is a former officer, director and promoter of IEI. IEI
filed answer on December 26, 2000 disputing the claim and requesting
dismissal.  On May 4, 2001, a Motion for Summary Judgment was filed by the
Worthington Company and Paul Parshall. IEI must respond to the Motion for
Summary Judgment by May 28, 2001. IEI has no basis for assessing the outcome
of the litigation at this time.

<PAGE>
<PAGE> 27

                      ITEM 2.  CHANGES IN SECURITIES

IEI filed an S-1 Registration Statement to register on behalf of certain
shareholders, including John P. Crowe (collectively, the "Selling
Shareholders") shares and shares issuable on the exercise of warrants sold to
such individuals during the period from November 1999 through June 2000.  The
Registration Statement was effective on September 18, 2000.  Certain shares
were sold by the Selling Shareholders while the Registration Statement was
effective, however none of the warrants issued were exercised within the
necessary period following the effective date, and IEI received no proceeds.
Accordingly, on March 26, 2001, IEI filed an amendment to the Registration
Statement deregistering the unsold shares and the shares issuable on exercise
of the warrants.


                 ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.

                       ITEM 5.  OTHER INFORMATION

     None.


                ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits.
        ---------

     None.

(b)     Reports on Form 8-K.
        --------------------

     None.

                                SIGNATURES

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

                                      INDUSTRIAL ECOSYSTEMS, INC.
                                      [Registrant]

Dated: May 18, 2001                    By/S/Tom Jarnagin, President and
                                       Director