FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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


                For the quarterly period ended September 30, 2001

                          Commission File No. 000-25989


                            VARNER TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)


             Nevada                                         98-0186841
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                       Identification Number)


           1819 Clarkson Road, Suite 204, Chesterfield, Missouri 63017
               (Address of principal executive offices) (Zip Code)


                                 (636) 530-4532
              (Registrant's telephone number, including area code)


     Registrant  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 and
has been subject to such filing requirements for the past 90 days.


                      APPLICABLE ONLY TO CORPORATE ISSUERS:


     COMMON  STOCK,  $.001 par value,  80,970,025  outstanding  shares,  CLASS A
PREFERRED  STOCK,  $.001 par  value,  9,747,755  outstanding  shares and CLASS B
PREFERRED  STOCK,  $.001 par value, no outstanding  shares,  as of September 30,
2001.


                                       1
<PAGE>


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

     The  following  consolidated  financial  statements of the  Registrant  are
attached to this Form 10-QSB:

     1.   Interim Balance Sheet as of September 30, 2001 and Balance Sheet as of
          December 31, 2000.

     2.   Interim  Statements of Operations for the three and nine month periods
          ending September 30, 2001, and September 30, 2000.

     3.   Interim  Statements  of Cash Flows for the nine month  periods  ending
          September 30, 2001 and September 30, 2000.

     The Financial  Statements reflect all adjustments which are, in the opinion
of management,  necessary to present a fair statement of results for the periods
presented.

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operation

General

     On  November  22,  1999,  Varner  Technologies,   Inc.  (Varner)  purchased
approximately  90% of the common  stock of the  Registrant,  Peppermill  Capital
Corporation. On August 21, 2001, Peppermill stockholders' approved the merger of
the two companies.  The merger was treated as a  recapitalization  of Peppermill
and the Registrant's name was changed to Varner Technologies, Inc. The financial
statements  presented  in this  Form  10-QSB  and  Management's  Discussion  and
Analysis of  Financial  Condition  and Results of Operation  included  herein is
based on Varner and Peppermill's combined operations for the periods presented.

Results of Operations

     Net Sales.  For the fiscal quarter ended September 30, 2001, net sales were
$179,000, compared to net sales of $658,000 for the three months ended September
30,  2000, a decrease of 73%. Net sales for the first nine months of fiscal 2001
decreased  56% to  $853,000,  compared to net sales of  $1,943,000  for the nine
months ended September 30, 2000. This decrease was primarily due to (i) problems
with  telecommunication  suppliers  for service to Vietnam  which  severely hurt
prepaid long distance  revenues,  (ii) problems with a prepaid cellular provider
which effected sales of prepaid cellular phones and air-time, (iii) compensation
plan changes to commissions which caused a reduction in agents and (iv) national
economic uncertainty heightened by the events of September 11 which dramatically
affected sales.

     Cost of Sales. Cost of sales is composed mainly of the cost associated with
the  purchase  of  internet  access,  purchases  of long  distance  minutes  and
purchases of training videos and material.  The percentages and amounts detailed
below  result from  changing  economies  of scale,  changes in  internet  access
providers,   more   effective   utilization   of  the  points  of  presence  and
restructuring of the prepaid telecommunications pricing and purchasing.

     For the fiscal quarter ended September 30, 2001, cost of sales were $28,000
due to the settlement of approximately  $80,000 of disputed invoices  previously
charged to cost of


                                       2
<PAGE>


sales.  For the fiscal quarter ended September 30, 2000 cost of sales was 53% of
net  sales.  Cost of sales was 55% of net sales  for the  first  nine  months of
fiscal 2001, compared to 59% for the nine month period ended September 30, 2000.

     Commissions.  Commissions paid to independent  representatives were $39,000
for the fiscal  quarter ended  September  30, 2001,  and $412,000 for the fiscal
quarter ended September 30, 2000.  Commissions were $419,000 for the nine months
ended  September  30, 2001 as compared to  $1,145,000  for the nine months ended
September 30, 2000.  These expenses are directly  related to sales revenues.  As
stated  previously,  the Company  recently  reduced the  percentage  commissions
payable to independent representatives.

     Salaries and  Compensation.  Salaries and compensation  expense consists of
personnel,   consultants,  and  related  costs  associated  with  executive  and
administrative  functions.  Salaries  and  compensation  expense  for the fiscal
quarter ended  September  30, 2001  decreased  $114,000 to $245,000,  or 137% of
revenues,  from  $360,000,  or 55% of revenues,  during the fiscal quarter ended
September 30, 2000. Salaries and compensation  expense for the nine months ended
September 30, 2001 was $738,000 or 86% of sales,  compared to $797,000 or 41% of
sales for the nine months ended September 30, 2000. The decrease in salaries and
compensation  was  primarily  due to a reduction in the number of employees  and
consultants engaged by the Company during the quarter.

     Other  Operating  Expenses.  Other operating  expenses  consist of expenses
associated with support of the Company's internet and prepaid telecommunications
customers,  including  customer  service and  technical  support,  and marketing
expenses, including meetings and conferences. The Company also had costs related
to the purchase of Peppermill  common stock and costs of implementing the merger
with  Peppermill  including  professional  fees paid to accountants and lawyers.
Other  operating  expenses  in the third  fiscal  quarter of 2001  decreased  to
$211,000 or 118% of revenues,  from $372,000,  or 56% of revenues,  in the third
fiscal quarter of 2000. Other operating expenses decreased to $639,000 or 75% of
sales for the nine months  ended  September  30, 2001,  from  $753,000 or 39% of
sales for the nine months ended September 30, 2000.

     Other Income and Expense.  Other income and expense for the fiscal  quarter
ended  September 30, 2001 was  negligible  compared to an expense of $200,000 in
the fiscal  quarter  ended  September  30, 2000,  representing  the write-off of
previously capitalized expenses.

     Net Income or Loss.  For the fiscal  quarter ended  September 30 2001,  the
Company had a net loss of $361,000 as compared to a net loss of  $1,058,000  for
the three month  period  ended  September  30,  2000.  For the nine months ended
September  30,  2001,  net loss was  $1,448,000,  as  compared  to a net loss of
$2,183,000 for the nine month period ended  September 30, 2000. The reduction in
loss was due to a decrease in expenses, which offset reduced revenues.

Financial Condition

     Liquidity and Capital  Resources.  Cash flow used in operations  during the
nine months ended September 30, 2001 was $1,460,000, which generally represented
the net loss for the period.  During the nine month period ended  September  30,
2000, cash flows used in operations was $2,065,000 again primarily the result of
the net loss for the period.

     Investment  Activities.  During the nine months ended  September  30, 2001,
cash flow  used in  investing  activities  for the  purchase  of  equipment  was
$19,000.  In the nine month period ended September 30, 2000, $18,000 was used in
investing activities, primarily for the purchase of equipment.


                                       3
<PAGE>


     Financing  Activities.  For the nine months ended  September 30, 2001, cash
flow provided by financing activities was $1,462,000. The primary source of this
cash flow was the net proceeds from the sales of capital stock and advances from
related parties.  Cash flow provided by financing  activities for the nine month
period ending  September 30, 2000 was $2,355,000,  resulting  primarily from the
sale of capital stock.

     At September 30, 2001,  the Company had a cash balance of $0. The Company's
current cash management strategy includes  maintaining minimal cash balances and
utilizing  the  proceeds  from sales of  capital  stock and cash  advances  from
related  parties for  liquidity.  At December 31, 2000, the Company had cash and
cash  equivalents  of $17,000.  At September  30, 2001,  the Company had working
capital deficit of $1,497,000.

     Related  parties  of the  Company  have  advanced  the  Company  a total of
$521,000 during the first nine months of fiscal 2001. The Company  believes that
its current funds and  commitments  are adequate to fund its operations  through
the end of 2001. Additional financing will be required to fund operations.

     Safe Harbor Provision of the Private Securities  Litigation Act of 1995 and
Forward  Looking  Statements.  The  Company  operates  in a dynamic  and rapidly
changing environment that involves numerous risks and uncertainties.  The market
for the Company's  products and services is generally  characterized  by intense
competition,  frequent new product  introductions and changes in customer tastes
which can render existing  products  unmarketable.  The statements  contained in
Item 2 (Management's  Discussion and Analysis of Financial Condition and Results
of Operation) that are not historical  facts may be  forward-looking  statements
(as such term is defined in the rules  promulgated  pursuant  to the  Securities
Exchange  Act of 1934) that are subject to a variety of risks and  uncertainties
more fully  described in the Company's  filings with the Securities and Exchange
Commission including,  without limitation,  those described under "Risk Factors"
in the Company's Form S-4 Registration  Statement (File No. 333-41026) effective
July 11, 2001.  The  forward-looking  statements are based on the beliefs of the
Company's management,  as well as assumptions made by, and information currently
available to the Company's management. Accordingly, these statements are subject
to significant  risks,  uncertainties  and  contingencies  which could cause the
Company's  actual  growth,  results,  performance  and  business  prospects  and
opportunities  in 2001 and beyond to differ  materially from those expressed in,
or implied by, any such  forward-looking  statements.  Wherever possible,  words
such as  "anticipate,"  "plan,"  "expect,"  "believe,"  "estimate,"  and similar
expressions have been used to identify these forward-looking statements, but are
not  the  exclusive  means  of  identifying   such   statements.   These  risks,
uncertainties and contingencies  include,  but are not limited to, the Company's
limited operating history on which expectations regarding its future performance
can be based,  competition  from other  companies  that have greater  financial,
technical  and  marketing  resources  and  distribution  capabilities  than  the
Company,  the availability of sufficient capital,  the maturation and success of
the Company's strategy to develop, market and sell its products,  risks inherent
in  conducting  international  business,  risks  associated  with changes in the
Company's product mix and pricing, the effectiveness of the Company's efforts to
control operating expenses,  general economic and business conditions  affecting
the Company and its customers in the United States and other  countries in which
the Company  sells and  anticipates  selling its  products  and services and the
Company's ability to (i) adjust to changes in technology,  customer preferences,
enhanced competition and new competitors; (ii) protect its intellectual property
rights from infringement or


                                       4
<PAGE>


misappropriation;  (iii)  maintain  or  enhance  its  relationships  with  other
businesses and vendors; and (iv) attract and retain key employees.  There can be
no assurance that the Company will be able to identify, develop, market, sell or
support new products  successfully,  that any such new products will gain market
acceptance,  or that the Company will be able to respond  effectively to changes
in customer  preferences.  There can be no  assurance  that the Company will not
encounter  technical or other  difficulties that could delay introduction of new
or updated  products in the future.  If the Company is unable to  introduce  new
products  and respond to industry  changes or customer  preferences  on a timely
basis, its business could be materially  adversely affected.  The Company is not
obligated to update or revise these  forward-looking  statements  to reflect new
events or circumstances.

Part II.  OTHER INFORMATION

Item 1.   Legal Proceedings

          Not applicable.

Item 2.   Changes in Securities

          Not applicable.

Item 3.   Defaults Upon Senior Securities

          Not applicable.

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

     On August 9, 2001, the Company  solicited the written consent of its Common
stockholders  with respect to the approval of (i) a merger  transaction  between
the Registrant and Varner  Technologies,  Inc., a Missouri  corporation,  (ii) a
corresponding name change of the Company to Varner Technologies,  Inc., (iii) an
amendment to the Company's  Articles of  Incorporation to increase the number of
authorized  shares of common  stock and to  authorize  two classes of  preferred
stock, and (iv) the adoption of the Company's 2001 Stock Option Plan.

     In  connection  with the  merger,  (i) each  holder  of one share of Voting
Common Stock or one share of Non-voting  Common Stock of Varner  received  three
shares  of the  Registrant's  Common  Stock,  (ii)  each  holder of one share of
Preferred  Stock of Varner  received five shares of a newly created class of the
Registrant's  Preferred  Stock,  and  (iii)  each  holder  of one  share  of the
Registrant's  Common Stock received a dividend of four additional  shares of the
Registrant's  Common Stock and (iv) the Company's  name changed from  Peppermill
Capital Corporation to Varner Technologies, Inc.

     In   connection   with  the   amendment  to  the   Company's   Articles  of
Incorporation,  (i) the number of  authorized  shares of $.001 par value  common
stock increased from 200,000,000 to 600,000,000, (ii) 10,000,000 shares of $.001
par value Series A Preferred Stock was authorized,  and (iii) 90,000,000  shares
of $.001 par value Series B Preferred Stock was authorized.


                                       5
<PAGE>


     In connection with the approval of the Registrant's 2001 Stock Option Plan,
a total of  10,000,000  shares of the  Company's  Common Stock were reserved for
issuance  to certain  key  employees  and  consultants  in  connection  with the
issuance of options under said Plan.

     On August 9, 2001, there were 11,239,700 shares of the Registrant's  Common
Stock issued and outstanding.  A total of 10,191,497 shares of Common Stock were
voted; of these 10,191,497 shares of Common Stock were voted in favor of (i) the
proposed  merger of the  Registrant  with Varner  Technologies,  Inc.,  (ii) the
change in the  Company's  name from  Peppermill  Capital  Corporation  to Varner
Technologies, Inc., (iii) the increase in the number of authorized shares of the
Company's Common Stock and the  authorization of two classes of Preferred Stock,
and (iv) the adoption of the  Company's  2001 Stock Option Plan.  No shares were
voted  against any of these  proposals,  and none of the shares of voted  Common
Stock were abstentions. Thus, of the 11,239,700 shares of capital stock eligible
to vote with respect to the foregoing  proposals,  a total of 10,191,497  shares
were voted,  and of these  shares,  all (or  approximately  90.67% of the shares
eligible to vote) voted in favor of each proposal.

     The  merger  transaction  became  effective  and all other  proposals  were
effectively approved at the close of business on August 22, 2001.

Item 5.   Other Information

          Not applicable

Item 6.   Exhibits and Reports on Form 8-K

     a)   Exhibits*

                                                  No.
                                                  ---
          Statement re: Computation of Per        11 (included in the Company's
          Shares Earnings                         financial statements)

     b)   The following reports on Form 8-K were filed by the Company during the
          Third Quarter of Fiscal 2001:

          (1)  On  September  4, 2001,  the Company  filed a Report on Form 8-K,
               reporting the merger of the Registrant with Varner  Technologies,
               Inc., a Missouri Corporation;

          (2)  On October  25,  2001,  the  Company  filed an  amendment  to its
               September 4, 2001 8-K,  amending said Report to include Financial
               Statements for Varner Technologies, Inc., a Missouri corporation.

          (3)  On November  14,  2001,  the  Company  filed a Report on Form 8-K
               reporting a change in its auditors from Kaufman  Rossin & Company
               to KPMG LLP.

*    Also  incorporated  by reference  to the Exhibits  filed as part of the S-4
     Registration  Statement of the  Registrant,  effective  July 11, 2001,  and
     subsequent periodic filings.


                                       6
<PAGE>


                                   SIGNATURES

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


Dated: November 19, 2001                VARNER TECHNOLOGIES, INC.


                                        By:  /s/  Clayton W. Varner
                                             ----------------------------------
                                             Clayton W. Varner, President


                                       7
<PAGE>


                            VARNER TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

              December 31, 2000 and September 30, 2001 (unaudited)


<TABLE>
<CAPTION>
                                                                                  December 31,     September 30,
                                                                                     2000              2001
                                                                                  -----------       -----------
<S>                                                                               <C>               <C>
                                     Assets
Current assets:
  Cash and cash equivalents                                                       $    16,783                --
  Accounts receivable                                                                  20,637             3,309
  Amounts due from related parties                                                     10,000                --
  Inventory                                                                            38,035            33,815
  Prepaid expenses and other assets                                                    25,558            58,933
                                                                                  -----------       -----------
      Total current assets                                                            111,013            96,057

Property and equipment, net                                                           141,988           111,953
                                                                                  -----------       -----------
      Total assets                                                                $   253,001           208,010
                                                                                  ===========       ===========

                 Liabilities and Stockholders' Equity (Deficit)

Current liabilities:
  Accounts payable                                                                $   902,193           847,277
  Accrued expenses                                                                     83,720            36,725
  Amounts due to related parties                                                       11,657           532,382
  Unearned revenue                                                                    162,484           205,158
  Current installments of capital lease obligations                                     5,700             3,940
                                                                                  -----------       -----------
      Total current liabilities                                                     1,165,754         1,625,482

Capital lease obligations, excluding current installments                               8,141             5,131

Commitments and contingencies

Stockholders' equity (deficit):
  Preferred stock - Class A, $0.001 par value; 10,000,000 shares authorized;
    8,882,375 and 9,747,755 shares issued and outstanding
    at December 31, 2000 and September 30, respectively                                 8,882             9,748
  Preferred stock - Class B, $0.001 par value; 90,000,000 shares authorized;
    none issued and outstanding                                                            --                --
  Common stock - $0.001 par value; 600,000,000 shares authorized;
    79,530,025 and 80,970,025 shares issued and outstanding at
    December 31, 2000 and September 30, 2001, respectively                             79,530            80,970
  Additional paid-in capital                                                        7,667,986         8,611,832
  Retained deficit                                                                 (8,677,292)      (10,125,153)
                                                                                  -----------       -----------
      Total stockholders' equity (deficit)                                           (920,894)       (1,390,200)
                                                                                  -----------       -----------
      Total liabilities and stockholders' equity (deficit)                        $   253,001           208,010
                                                                                  ===========       ===========
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>


                            VARNER TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations

       Three and Nine Months ended September 30, 2000 and 2001 (unaudited)


<TABLE>
<CAPTION>
                                              Three months ended                   Nine months ended
                                                 September 30,                       September 30,
                                        ------------------------------       ------------------------------
                                            2000              2001               2000              2001
                                        ------------       -----------       ------------       -----------
<S>                                     <C>                    <C>           <C>                    <C>
Sales                                   $    657,757           179,342       $  1,942,683           853,413
Cost of sales                                346,437            27,697          1,149,296           466,931
                                        ------------       -----------       ------------       -----------
      Gross profit                           311,320           151,645            793,387           386,482
                                        ------------       -----------       ------------       -----------

Operating expenses:
  Commissions                                411,693            38,847          1,145,197           418,647
  Salaries and compensation                  359,797           245,411            797,386           738,186
  Depreciation and amortization               25,942            16,673             77,827            49,112
  Other operating expenses                   371,516           211,180            752,669           638,661
                                        ------------       -----------       ------------       -----------
      Total operating expenses             1,168,948           512,111          2,773,079         1,844,606
                                        ------------       -----------       ------------       -----------
      Loss from operations                  (857,628)         (360,466)        (1,979,692)       (1,458,124)
                                        ------------       -----------       ------------       -----------

Other income (expense):
  Interest income                                417               265              1,423            11,175
  Interest expense                            (1,067)             (368)            (4,862)             (912)
  Other                                     (199,499)               --           (199,499)               --
                                        ------------       -----------       ------------       -----------
      Total other income (expense)          (200,149)             (103)          (202,938)           10,263
                                        ------------       -----------       ------------       -----------
      Net loss                          $ (1,057,777)         (360,569)      $ (2,182,630)       (1,447,861)
                                        ============       ===========       ============       ===========

Basic and diluted loss per share        $      (0.02)            (0.00)      $      (0.03)            (0.02)
                                        ============       ===========       ============       ===========

Weighted-average common shares
  outstanding, basic and diluted          72,585,827        80,970,025         66,090,538        80,490,025
                                        ============       ===========       ============       ===========
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>


                            VARNER TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

      Consolidated Statements of Changes in Stockholders' Equity (Deficit)

                      Year ended December 31, 2000 and the
                Nine Months ended September 30, 2001 (unaudited)


<TABLE>
<CAPTION>
                               Preferred stock - Class A            Common stock
                               --------------------------    -------------------------   Additional
                                Number of                     Number of                   paid-in       Retained
                                 shares          Amount        shares        Amount       capital        deficit        Total
                               ----------    ------------    ----------   ------------   ----------    -----------    ----------
<S>                             <C>          <C>             <C>          <C>             <C>          <C>            <C>
Balance at December 31, 1999    3,355,000    $      3,355    61,913,983   $     61,914    4,848,001     (5,484,910)     (571,640)

Issuance of stock for
  services rendered                    --              --     4,594,542          4,595      193,532             --       198,127

Proceeds from sale of stock     5,527,375           5,527    13,021,500         13,022    2,626,452             --     2,645,001

Net loss                               --              --            --             --           --     (3,192,382)   (3,192,382)
                               ----------    ------------    ----------   ------------   ----------    -----------    ----------
Balance at December 31, 2000    8,882,375    $      8,882    79,530,025   $     79,530    7,667,986     (8,677,292)     (920,894)
                               ==========    ============    ==========   ============   ==========    ===========    ==========

Exchange of preferred stock
  for common stock             (1,500,000)         (1,500)    1,440,000          1,440           60             --            --

Proceeds from sale of stock     2,365,380           2,365            --             --      943,787             --       946,152

Net loss                               --              --            --             --           --     (1,447,861)   (1,447,861)
                               ----------    ------------    ----------   ------------   ----------    -----------    ----------
                                9,747,755    $      9,748    80,970,025   $     80,970    8,611,832    (10,125,153)   (1,422,603)
                               ==========    ============    ==========   ============   ==========    ===========    ==========
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>


                            VARNER TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

            Nine Months ended September 30, 2000 and 2001 (unaudited)


<TABLE>
<CAPTION>
                                                                        Nine months ended
                                                                          September 30,
                                                                   --------------------------
                                                                       2000           2001
                                                                   -----------    -----------
<S>                                                                <C>             <C>
Cash flows from operating activities:
  Net loss                                                         $(2,182,630)    (1,447,861)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                     77,827         49,112
      Compensation expense for issuance of stock                        92,524             --
      Changes in operating assets and liabilities,
        exclusive of acquisition:
          Accounts receivable                                          (13,727)        27,328
          Inventory                                                     (8,221)         4,220
          Prepaid expenses                                             (13,437)       (33,375)
          Other assets                                                 110,515             --
          Accounts payable                                              86,880        (54,916)
          Accrued expenses                                             (81,377)       (46,994)
          Unearned revenue                                            (133,072)        42,674
                                                                   -----------    -----------
            Net cash used in operating activities                   (2,064,718)    (1,459,812)
                                                                   -----------    -----------

Cash flows from investing activities:
  Purchases of property and equipment                                  (18,266)       (19,078)
                                                                   -----------    -----------
            Net cash used in investing activities                      (18,266)       (19,078)
                                                                   -----------    -----------

Cash flows from financing activities:
  Advances from related parties                                         41,697        520,725
  Proceeds (payments) on borrowings from note payable                 (100,000)            --
  Proceeds from sale of stock                                        2,429,113        946,152
  Payments on capital lease obligations                                (15,890)        (4,770)
                                                                   -----------    -----------
            Net cash provided by financing activities                2,354,920      1,462,107
                                                                   -----------    -----------
            Net increase (decrease) in cash and cash equivalents       271,936        (16,783)

Cash and cash equivalents, beginning of year                           111,202         16,783
                                                                   -----------    -----------
Cash and cash equivalents, end of year                             $   383,138             --
                                                                   ===========    ===========
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>


                            VARNER TECHNOLOGIES, INC.

             Notes to Consolidated Financial Statements (unaudited)


(1)  Basis of Presentation

     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with accounting principles generally accepted in the
     United States of America for interim financial  information and, therefore,
     do not include  all  information  and  footnotes  necessary  for a complete
     presentation of financial position, results of operations and cash flows in
     conformity  with  accounting  principles  generally  accepted in the United
     States of America.

     In the opinion of management,  all adjustments  considered  necessary for a
     fair presentation of the results of operations and financial  position have
     been included and all such  adjustments are of a normal  recurring  nature.
     Operations  for the period  ended  September  30, 2001 are not  necessarily
     indicative of the results that can be expected for the year ended  December
     31, 2001.

     The  preparation  of financial  statements  in accordance  with  accounting
     principles  generally  accepted  in the United  States of America  requires
     management  to make  estimates  and  assumptions  that  affect the  amounts
     reported in the financial statements and accompanying notes. Actual results
     could differ from these estimates.

     The   financial   data  at  December  31,  2000  is  derived  from  audited
     consolidated  financial  statements and should be read in conjunction  with
     the audited consolidated financial statements and the notes thereto.

     On  November  22,  1999,  Varner  Technologies,   Inc.  (Varner)  purchased
     approximately  90%  of  the  common  stock  of  an  inactive   corporation,
     Peppermill Capital Corporation,  Inc. (Peppermill),  which is traded on the
     OTCBB and  reported to the  Securities  and Exchange  Commission  under the
     Securities Exchange Act of 1934.

     On August 21, 2001,  the Varner and Peppermill  stockholders'  approved the
     merger of the two companies.  The merger was treated as a  recapitalization
     of Peppermill. As a result of this transaction,  Varner common stockholders
     received  three shares of Peppermill  common stock for each share of Varner
     common stock held and Varner preferred stockholders received five shares of
     Peppermill  preferred stock for each share of Varner  preferred stock held.
     Additionally, 10,116,000 of Peppermill common stock held by Varner, related
     to the aforementioned  transaction which occurred on November 22, 1999, was
     cancelled  and the  remaining  Peppermill  common  stockholders  received a
     dividend  of four  shares of  Peppermill  common  stock  for each  share of
     Peppermill  common  stock held.  The merger  represents  a  combination  of
     entities  under  common  control and has been  accounted  for on an "as if"
     pooling-of-interests  basis with the  accompanying  consolidated  financial
     statements  restated  for  all  periods  presented.  As  a  result  of  the
     recapitalization,  the  accumulated  deficit of  Peppermill  of $44,531 was
     charged to additional paid-in capital.

     The name of Peppermill was changed to Varner  Technologies,  Inc. effective
     August 21, 2001 and the newly  merged  company has  authorized  600,000,000
     common  shares,  10,000,000  preferred  shares  -  Class  A and  90,000,000
     preferred shares - Class B.

<PAGE>


                            VARNER TECHNOLOGIES, INC.

             Notes to Consolidated Financial Statements (unaudited)


(2)  Cost of Sales

     During the three  months ended  September  30,  2001,  the Company  settled
     disputed invoices totaling  approximately  $80,000 that had been previously
     received from telecommunication  service providers and had been recorded to
     cost of sales and accrued  liabilities  during the year ended  December 31,
     2000. The Company recorded the  cancellation of these  previously  recorded
     liabilities as a decrease to cost of sales.

(3)  Loss Per Share

     A  reconciliation  of the number of shares used in the calculation of basis
     and  diluted  loss per share and the  calculated  amounts of loss per share
     follows:

<TABLE>
<CAPTION>
                                       Three months ended          Nine months ended
                                          September 30,               September 30,
                                    ------------------------    ------------------------
                                       2000          2001          2000          2001
                                    ----------    ----------    ----------    ----------
<S>                                 <C>           <C>           <C>           <C>
     Shares outstanding
       -beginning of period         67,053,311    80,970,025    61,913,983    79,530,025

     Weighted-average number
       of common shares issued       5,532,516            --     4,176,555       960,000
                                    ------------------------    ------------------------
     Weighted-average number
       of common shares
       outstanding - end
       of period                    72,585,827    80,970,025    66,090,538    80,490,025

     Dilutive shares                        --            --            --            --
                                    ------------------------    ------------------------
     Dilutive shares outstanding    72,585,827    80,970,025    66,090,538    80,490,025
                                    ========================    ========================

     Net loss (in thousands)        $   (1,058)         (361)   $   (2,183)       (1,448)
                                    ========================    ========================
     Basic and diluted earnings
       per share                    $    (0.02)        (0.00)   $    (0.03)        (0.02)
                                    ========================    ========================
</TABLE>

(4)  Preferred Stock Exchange

     During  the  three  months  ended  March  31,  2001,  various  shareholders
     exchanged  1,500,000  shares of preferred stock, at an exchange rate of .96
     per share, for 1,440,000 share of common stock.

(5)  2001 Stock Option Plan

     The Company  adopted the 2001 Stock  Option Plan (the Plan)  during  August
     2001.  Under the Plan  10,000,000  shares of Common  Stock are reserved for
     issuance to certain key  employees  and  consultants.  As of September  30,
     2001, no options have been issued under the Plan.

(6)  Going Concern Uncertainties

     The  accompanying  consolidated  financial  statements  have been  prepared
     assuming that the Company will continue as a going concern. The Company has
     suffered  recurring losses from operations and has a net capital deficiency
     that raise  substantial  doubt  about its  ability to  continue  as a going
     concern.   The  consolidated   financial   statements  do  no  include  any
     adjustments that might result from the outcome of this uncertainity.