<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   ----------

                                   FORM 10-KSB

/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

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

                                       OR

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

For the transition period from ______________ to ______________

                         Commission file number 0-26186

                           CHESHIRE DISTRIBUTORS, INC.
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

            Delaware                                    84-1209978
---------------------------------            ----------------------------------
(State or Other Jurisdiction of                      (I.R.S. Employer
 Incorporation or Organization)                     Identification No.)

152 West 57th St. - 4th Floor, New York, New York           10019
--------------------------------------------------         ---------------------
(Address of Principal Executive Offices)                   (Zip Code)

                                 (212) 541-5800
--------------------------------------------------------------------------------
                 Issuer's Telephone Number, Including Area Code)

         Securities Registered under Section 12(b) of the exchange Act:

                                                     Name of Each Exchange
           Title of Each Class                        on Which Registered
           -------------------                        -------------------
                   None
------------------------------------          ----------------------------------

------------------------------------          ----------------------------------

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

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

--------------------------------------------------------------------------------
                                (Title of Class)

<PAGE>

     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. Yes __ No X
                                                   ---

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

          The issuer's revenues for its most recent fiscal year. $-0-.

     As of December 31, 2001, Due to the limited market for the Company
securities, no estimate is being supplied herewith of the market value for such
securities.

     The number of shares outstanding of the registrant's Common Stock
outstanding as of December 31, 2001 was 34,800,374.

     Transitional Small Business Disclosure Format: Yes ______; No X
                                                                  ---

<PAGE>

                                     PART I
                                     ------

ITEM 1. DESCRIPTION OF BUSINESS

Overview
--------

          We were originally incorporated under the laws of the state of
Colorado under the name Tamaron Oil & Gas, Inc. ("Tamaron") in September 1992 to
be the successor to a corporation also named "Tamaron Oil & Gas, Inc.", which
was dissolved by the Colorado Secretary of State in 1990. In August 1995, we
changed our name from Tamaron to Pacific Development Corporation ("Pacific
Development"). Pursuant to an Agreement of Merger and Plan of Merger and
Reorganization dated March 10, 2000 by and among Pacific Development, and its
wholly owned subsidiary, Cheshire Holdings, Inc. ("Cheshire Holdings"), a
Delaware corporation, Holdings and Pacific Development were merged into a single
corporation existing under the laws of the State of Delaware, with Cheshire
Holdings being the surviving corporation. The merger took effect on March 24,
2000. Simultaneously with the merger, the name of the surviving corporation was
changed to our current name, Cheshire Distributors, Inc. On May 7, 2001, we
consummated various note modifications and release agreements with various
holders of convertible notes whereby the note holders agreed to the full
satisfaction and payment of the convertible notes in exchange for 24,566,384
shares of our common stock. This modification effectively gave control of our
company to the note holders.

Potential Business Combination
------------------------------

          We currently have no business activities. We will attempt to locate
and negotiate with a business entity for the merger of that target business into
us. In certain instances, a target business may wish to become a subsidiary of
ours or may wish to contribute assets to us rather than merge. No assurances can
be given that we will be successful in locating or negotiating with any target
business.

          We believe that there are perceived benefits to being a reporting
company with a class of publicly-traded securities, even though we have no
active business activities. These are commonly thought to include (1) the
ability to use registered securities to make acquisition of assets or
businesses; (2) increased visibility in the financial community; (3) the
facilitation of borrowing from financial institutions; (4) improved trading
efficiency; (5) shareholder liquidity; (6) greater ease in subsequently raising
capital; (7) compensation of key employees through options stock; (8) enhanced
corporate image; and (9) a presence in the United States capital market.

          A business entity, if any, which may be interested in a business
combination with us may include (1) a company for which a primary purpose of
becoming public is the use of its securities for the acquisition of assets or
businesses; (2) a company which is unable to find an underwriter of its
securities or is unable to find an underwriter of securities on terms acceptable
to it; (3) a company which wishes to become public with less dilution of its
common stock than would occur normally upon an underwriting; (4) a company which
believes that it will be able to obtain investment capital on more favorable
terms after it has become public; (5) a foreign company which may wish an
initial entry into the United States securities market; (6) a special situation
company, such as a company seeking a public market to satisfy redemption
requirements under a qualified Employee Stock Option Plan; or (7) a company
seeking one or more of the other perceived benefits of becoming a public
company.

          We will be actively engaged in seeking a qualified company as a
candidate for a business combination. We may then enter into a definitive
agreement with a wide variety of businesses without limitation as to their
industry or revenues. It is not possible at this time to predict with which
company, if any, we will enter into a definitive agreement or what will be the
industry, operating history, revenues, future prospects or other characteristics
of that company.

<PAGE>

          We may seek a business opportunity with entities which have recently
commenced operations, or which wish to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. We may
acquire assets and establish wholly-owned subsidiaries in various businesses or
acquire existing businesses as subsidiaries.

          In analyzing prospective business opportunities, management may
consider such matters as the available technical, financial and managerial
resources; working capital and other financial requirements; history of
operations, if any; prospects for the future; nature of present and expected
competition; the quality and experience of management services which may be
available and the depth of that management; the potential for further research,
development, or exploration; specific risk factors not now foreseeable but which
then may be anticipated to impact our proposed activities; the potential for
growth or expansion; the potential for profit; the perceived public recognition
or acceptance of products, services, or trades; name identification; and other
relevant factors.

          Following a business combination, we may benefit from the services of
others in regard to accounting, legal services, underwritings and corporate
public relations. If requested by a target business, management may recommend
one or more underwriters, financial advisors, accountants, public relations
firms or other consultants to provide such services.

          A potential target business may have an agreement with a consultant or
advisor providing that services of the consultant or advisor be continued after
any business combination. Additionally, a target business may be presented to us
only on the condition that the services of a consultant or advisor be continued
after a merger or acquisition. Such preexisting agreements of target businesses
for the continuation of the services of attorneys, accountants, advisors or
consultants could be a factor in the selection of a target business.

          In implementing a structure for a particular business acquisition, we
may become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. We may also acquire
stock or assets of an existing business. On the consummation of a transaction,
it is likely that our present management and stockholders will no longer be in
control of the company. In addition, it is likely that our officers and
directors will, as part of the terms of the acquisition transaction, resign and
be replaced by one or more new officers and directors.

          It is anticipated that any securities issued in any such
reorganization would be issued in reliance upon exemption from registration
under applicable federal and state securities laws. In some circumstances,
however, as a negotiated element of its transaction, we may agree to register
all or a part of such securities immediately after the transaction is
consummated or at specified times thereafter. If such registration occurs, of
which there can be no assurance, it will be undertaken by the surviving entity
after we have entered into an agreement for a business combination or has
consummated a business combination. The issuance of additional securities and
their potential sale into any trading market which may develop in our securities
may depress the market value of our securities in the future if such a market
develops, of which there is no assurance.

          With respect to any merger or acquisition negotiations with a target
business, management expects to focus on the percentage of the company which
target business stockholders would acquire in exchange for their shareholdings
in the target business. Depending upon, among other things, the target
business's assets and liabilities, our stockholders will in all likelihood hold
a substantially lesser percentage ownership interest following any merger or
acquisition. Any merger or acquisition we effect can be expected to have a
significant dilutive effect on the percentage of shares held by our stockholders
at such time.

          We cannot assure you that we will be able to enter into a business
combination, as to the terms of a business combination, or as to the nature of
the target business.

<PAGE>

          We anticipate that the selection of a business opportunity in which to
participate will be complex and without certainty of success. We believe (but
have not conducted any research to confirm) that there are numerous firms
seeking the perceived benefits of a publicly registered corporation. Such
perceived benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, increasing the opportunity
to use securities for acquisitions, and providing liquidity for stockholders and
other factors. Business opportunities may be available in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex.

ITEM 2. DESCRIPTION OF PROPERTY

          In February 2000, we entered into a five year lease for office
facilities located in Westport, Connecticut, which terminates on February 5,
2005. Although this lease has not been terminated, we are presently not making
any payments with respect to this lease. We do not presently own or lease any
other material property.

ITEM 3. LEGAL PROCEEDINGS

          We are not currently involved in any material litigation or legal
proceedings and are not aware of any potentially material litigation or
proceeding threatened against us.

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

          No matters were submitted to a vote of security holders during the
fiscal year covered by this Report.

<PAGE>

                                     PART II
                                     -------

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR SECURITIES

          Our shares of Common Stock currently trade on the Pink Sheets.
Historically, the high and low price quotations for our common stock, $.001 par
value per share, as reported to by the OTC Bulletin Board for 1999 and 2000 is
listed in the following chart. These quotations are between dealers, do not
include retail mark-ups, markdowns or other fees and commissions, and may not
represent actual transactions.

QUARTER ENDED   LOW     HIGH
-------------   ----   -------
2000

1st Quarter      N/A       N/A
2nd Quarter     7.00      4.00
3rd Quarter     1.50     4.125
4th Quarter      .75      2.00

2001

1st Quarter      .02   1.03125
2nd Quarter      .03       .03
3rd Quarter     .015       .02
4th Quarter     .001      .015

2002

1st Quarter     .001      .001

          At December 31, 2001, there were approximately 414 holders of record
of our Common Stock. We have not paid dividends on our shares of Common Stock
outstanding during the past two fiscal years. There are no restrictions that
limit the ability of the Company to pay dividends or are likely to do so in the
future.

RECENT SALE OF UNREGISTERED SECURITIES

          We did not have any sales of unregistered securities during 2001.

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The statements contained in this Report that are not historical are
forward-looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. Forward-
looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward-looking statements included in this Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward-looking statements. Additionally, the following discussion and analysis
should be read in conjunction with the Financial Statements and notes thereto
appearing elsewhere in this Report.

          Pacific Development was incorporated under the laws of the State of
Colorado on September 21, 1992, to be the successor to a corporation also named
"Tamaron Oil & Gas, Inc.," which was dissolved by the Colorado Secretary of
State in 1990. The predecessor corporation named "Tamaron Oil & Gas, Inc." was
organized under Colorado law on October 6, 1982. Tamaron's name was changed to
"Pacific Development Corporation" and the number of its authorized shares of
common stock, $0.001 par value per share, was increased from 20,000,000 to
100,000,000 shares on August 14, 1995.

          Effective March 24, 2000, Pacific and Cheshire Holdings were merged
into a single corporation existing under the laws of the state of Delaware, with
Cheshire Holdings being the surviving corporation. The name of the surviving
corporation was changed to Cheshire Distributors, Inc. Each share of Pacific's
issued and outstanding common stock was automatically converted into shares of
Cheshire Distributors, Inc.'s common stock. Pacific was formed for the purpose
of acquiring an operating business and at the time of the merger, had no
significant assets or liabilities. The transaction has been accounted for as a
reverse merger/recapitalization of Cheshire Distributors, Inc., which is the
acquirer of Pacific for accounting purposes.

          On April 7, 2000, the Company closed the first installment of
$1,000,000 of the purchase of the outstanding shares of common stock of Cardoso
Cigarette Depot (Pty) Ltd. ("Cardoso"), pursuant to the Stock Purchase Agreement
originally dated September 23, 1999, between the Company and Eduardo P.V.
Cardoso and Alberteina Cardoso ("Sellers") and Cardoso, as amended by the
Amended Stock Purchase Agreement dated April 7, 2000 (collectively, the
"Purchase Agreement"). All of the shares of the Sellers had been placed in
escrow, pending full payment for their shares in Cardoso. On February 8, 2001,
in consideration of mutual releases of both parties to the Cardoso Purchase
Agreement, the Company terminated the agreement to acquire Cardoso Cigarette
Depot (Pty) Ltd. The decision was based upon notification to the Company by its
lead lender of its decision to withdraw its financing proposal after reviewing
the financial results and operating losses of Cardoso for the third quarter. The
Company has been able to negotiate the return of $1,000,000 previously paid to
Mr. Cardoso as installment one of the Purchase Agreement. This amount has been
returned to the Company in February 2001.

          On June 5, 2000, we changed our fiscal year from December 31 to
February 28. The change was made to coincide with the fiscal year of Cardoso
Cigarette Depot (Pty.) Ltd. On July 9, 2001, we changed our fiscal year back to
December 31.

          We were originally incorporated on May 12, 1999. Since the transaction
has been treated for accounting purposes as a reverse merger, only the
historical operations of Cheshire Distributors, Inc. are presented.

          We were formed for the purpose of acquiring an operating business and
we are currently seeking to obtain capital in order to take advantage of
business opportunities which may have profit potential. Accordingly, the
Company's financial statements are presented as statements of a development
stage enterprise.

<PAGE>

          As of December 31, 2001 the Company was a development stage
enterprise, has incurred losses of approximately $4,424,000 since inception and
its current liabilities exceed its current assets by approximately $212,000.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. Continuation of the Company is dependent on its
exiting the development stage, achieving sufficiently profitable operations and
obtaining adequate financing.

          We have incurred substantial losses and has been funding our
operations through debt and equity financings. We will need to continue to fund
its operations in this manner until we achieves sufficiently profitable
operations. We plan to eliminate the going concern uncertainly by raising
additional funds through debt and/or equity financings. In addition, we have
negotiated several note modification and settlement agreements with various note
holders and creditors. The achievement and/or success of these planned measures,
however, cannot be determined at this time.

          Effective as of May 7, 2001, the Company consummated various note
modifications and release agreements ("Note Modifications") with the holders
("Convertible Noteholders") of outstanding convertible notes ("Convertible
Notes") of the Company. The Company had six Convertible Noteholders who held an
aggregate of $2,250,000 in principal plus $106,376 of accrued interest excluding
any penalty or default interest of the Company. Additionally, some of the
Convertible Noteholders had earlier received warrants to purchase common stock.
Pursuant to the Note Modifications, the Convertible Noteholders agreed to the
full satisfaction and payment of the Convertible Notes and cancellation of the
warrants by the Company issuing an aggregate of 24,566,384 shares of the
Company's common stock and delivering cash payments in the amount of $605,971 in
reduction of the outstanding amounts due under the Convertible Notes. The
Company also agreed to use its best efforts to negotiate with all other
noteholders of the Company and unsecured creditors for the satisfaction and
release of their claims against the Company. Additionally, as part of the Note
Modifications, the existing directors of the Company, Lev Greenberg, Lionel
Growan and Gilad Gat agreed to resign as directors and officers effective upon
completion of the Note Modifications and delivery of the Company's shares to the
respective Convertible Noteholders which occurred on May 7, 2001. Prior to such
resignations, however, they agreed to fill a vacancy on the Board of Directors
with the majority of Convertible Noteholders' nominee Mr. Abraham Grossman.
Further as a condition of the Note Modifications, the directors and officers
agreed to return to the Company for cancellation 9,104,981 shares of common
stock previously issued and owned by them.

          The implementation of the Note Modifications resulted in:

          1.   The Convertible Noteholders agreeing that $2,250,000 of the
               convertible debt was paid and satisfied in full, and the
               outstanding warrants were cancelled;

          2.   The Convertible Noteholders receiving 24,566,384 shares of
               "restricted securities" of the Company's common stock.

          3.   The registration of the directors and executive officers of the
               registrant.

          4.   The election of the nominee of the Convertible Noteholders Group,
               Mr. Abraham Grossman, as a director of the Company to fill a
               vacancy pm the Board, who after the resignations by the remaining
               directors became the sole director of the Company.

          5.   The Company's previous directors and officers, Lev Greenberg and
               Gilad Gat, Lional Growan and a consultant to the Company,
               returning an aggregate of approximately nine million shares of
               common stock to the Company for cancellation.

          6.   The Company negotiating with the holders of other outstanding
               notes of the Company in the aggregate amount of $240,000, who
               agreed to accept in full

<PAGE>

               satisfaction and cancellation of their notes $101,995 in cash and
               1,899,749 shares of restricted common stock of the Company.

          7.   The Company negotiating with 12 parties to whom the Company owed
               accounts payable in the aggregate amount of $556,430, who agreed
               to accept in full satisfaction and cancellation of their accounts
               receivable from the Company $140,166 in cash and 3,640,407 shares
               of restricted common stock of the Company.

     All of the shares of common stock issued in the transactions described
above were "restricted securities" issued pursuant to the exemption provided by
Section 4(2) of the Securities Act as a non-public offering.

ITEM 7. FINANCIAL STATEMENTS

          All financial information required by this Item is attached hereto
beginning on Page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

          On July 19, 2001, we filed a Form 8-K indicating a change in our
accountants.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

          The directors and executive officers of the Company are as follows:

NAME           AGE   POSITION
----           ---   --------

Abe Grossman    49   Chairman, Chief Executive Officer and Director

          Set forth below is a brief background of our executive officers and
directors, based on information supplied by them.

          ABE GROSSMAN. Abe Grossman has more than two decades of experience in
the health care and real estate industries as a developer and manager of various
skilled nursing facilities, as well as other commercial and residential
properties. Mr. Grossman also has served as an investment advisor and trustee of
a jointly operated union/management welfare and pension fund with holdings in
excess of $100 million.

          Directors serve until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers serve at the discretion of
the Board of Directors. Directors are reimbursed for travel expenses.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

          Based solely upon a review of Forms 3, 4 and 5, and amendments
thereto, furnished to us during fiscal year 2001, we are not aware of any
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock that, during fiscal year 2001, failed to file on a timely basis
reports required by Section 16(a) of the Securities Exchange Act of 1934.

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

          Our officers and directors have not been awarded, earned or paid any
compensation since May 2001.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The following table sets forth certain information regarding the
beneficial ownership of our common stock as of December 31, 2001 by

          o    each person who, to our knowledge, beneficially owns more than 5%
               of the our common stock;

          o    each of our directors; and

          o    all of our executive officers and directors as a group:

                                           NUMBER OF SHARES    APPROXIMATE
                                             BENEFICIALLY     PERCENTAGE OF
NAME*                                           OWNED         COMMON STOCK**
----                                       ----------------   --------------

Abe Grossman                                      0                 --
c/o Cheshire Distributors, Inc., 135
152 West 57th St. - 4th Floor, New
York, New York 10019

The Keshet Fund, L.P.                      5,633,452 shares       16.1%
152 West 57th St. - 4th Floor, New
York, New York 10019

Keshet, L.P.                               8,793,681 shares       25.2%
c/o Ragnall House, 18 Peel Road
Douglas, Isle of Man, 1M1

Nesher, Ltd.                               4,809,045 shares       13.8%
c/o Ragnall House, 18 Peel Road
Douglas, Isle of Man, 1M1

All Officers and Directors as a Group
(1 person)                                         0                --
----------

          The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the rules
and regulations promulgated under the Securities Exchange Act of 1934.
Beneficially owned securities may include securities owned by and for, among
others, the spouse and/or minor children of an individual and any other relative
who has the same home as such individual. Beneficially owned securities may also
include other securities as to which the individual has or shares voting or
investment power or which such person has the right to acquire within 60 days
pursuant to the

<PAGE>

conversion of convertible equity, exercise of options, or otherwise. Beneficial
ownership may be disclaimed as to certain of the securities.

          The foregoing table is based upon 34,800,374 shares of common stock
outstanding as of December 31, 2001, assuming no other changes in the beneficial
ownership of our securities.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          None.

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

(A)  REPORTS ON FORM 8-K

We did not file any reports on Form 8-K in the fourth quarter of fiscal year
2001.

(B)  EXHIBITS

          The following Exhibits are filed as part of this Report:

<TABLE>
<CAPTION>
Exhibit
Number             Description
-------            -----------

<S>       <C>
  3.1     Articles of Incorporation  of Tamaron Oil & Gas,  Inc. filed October 6, 1982, incorporated by
          reference to Exhibit 2.1 on the Company' s Form 10-SB/A filed July 3, 1996.
  3.2     Articles of Amendment to the Articles Incorporation of Tamaron Oil & Gas, Inc. filed September 22,
          1983, incorporated by reference to Exhibit 2.2 on the Company's Form 10-SB/A filed July 3,
          1996.
  3.3     Articles of Amendment to the Articles Incorporation of Tamaron Oil & Gas, Inc. filed October 16,
          1985, incorporated by reference to Exhibit 2.3 on the Company' s Form 10-SB/A filed July 3,
          1996.
  3.4     Bylaws of Tamaron Oil & Gas, Inc, , incorporated by reference to Exhibit 2.4 on the Company's
          Form 10-SB/A filed July 3, 1996.
  3.5     Articles of Incorporation of Tamaron Oil & Gas, Inc., filed September 21, 1992, incorporated by
          reference to Exhibit 2.5 on the Company's Form 10-SB/A filed July 3, 1996.
  3.6     Articles of Amendment to the Articles of Incorporation of Tamaron Oil & Gas, Inc., filed April
          13, 1995, incorporated by reference to Exhibit 2.6 on the Company's Form 10-SB/A filed April 13, 1995.
  3.7     Bylaws of Tamaron Oil & Gas, Inc, , incorporated by reference to Exhibit 2.7 on the Company's
          Form 10-SB/A filed July 3, 1996.
  3.8     Articles of Amendment to the Articles of Incorporation of Tamaron Oil & Gas, Inc., filed August
          14, 1995, incorporated by reference to Exhibit 2.8 on the Company's Form 10-SB/A filed April
          13, 1995.
  10.1    Stock Purchase  Agreement, incorporated by reference to Exhibit 10.1 on the Company's Form 8-K
          filed November 4, 1999.
  10.2    Agreement and Plan of Merger, incorporated by reference to Exhibit 10.2 on the Company's Form 8-K
          filed February 18, 2000.
  10.3    Agreement of Merger and Plan of Merger and Reorganization, incorporated by reference to Exhibit 10.3 on
          Form 8-K filed March 23, 2000.
</TABLE>

<PAGE>

                                   SIGNATURES

          In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 2nd day of May, 2002.

                                               CHESHIRE DISTRIBUTORS, INC.


                                               /s/ Abe Grossman
                                               ---------------------------------
                                               Abe Grossman, Chairman and Chief
                                               Executive Officer

<PAGE>

REPORT OF INDEPENDENT AUDITORS

                     THE BOARD OF DIRECTORS AND STOCKHOLDERS

Cheshire Distributors, Inc.

We have audited the accompanying balance sheet of Cheshire Distributors, Inc. (a
development stage enterprise) as of December 31, 2001, and the related
statements of operations, changes in stockholders' deficit, and cash flows for
each of the two years in the period ended December 31, 2001, and for the period
May 12, 1999 (inception) to December 31, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cheshire Distributors, Inc. at
December 31, 2001, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2001, and for the period May
12, 1999 (inception) to December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations
and has a working capital deficiency and shareholders' deficit at December 31,
2001. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                                             WOLINETZ, LAFAZAN &
                                                                   COMPANY, P.C.

Rockville Centre, New York
March 11, 2002

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                                  BALANCE SHEET
                                  -------------
                                DECEMBER 31, 2001
                                -----------------

<TABLE>
                                     ASSETS
                                     ------
<S>                                                                  <C>
Current Assets:
  Cash and Cash Equivalents                                          $     1,140
                                                                     -----------
         Total Current Assets                                              1,140
Property and Equipment (Net of Accumulated Depreciation of $8,825)         6,074
                                                                     -----------
         Total Assets                                                $     7,214
                                                                     ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
                      -------------------------------------

Current Liabilities:
  Accounts Payable                                                   $    90,045
  Accrued Expenses                                                        67,506
  Notes Payable - Current Portion                                         55,154
                                                                     -----------
         Total Current Liabilities                                       212,705
                                                                     -----------
Commitments and Contingencies
Stockholders' Deficit:
  Common Stock, $0.001 Par Value; Authorized 100,000,000 Shares,
    Issued and Outstanding 34,800,374 Shares                              34,800
  Additional Paid-In Capital                                           4,184,000
  Deficit Accumulated in the Development Stage                        (4,424,291)
                                                                     -----------
         Total Stockholders' Deficit                                    (205,491)
                                                                     -----------
Total Liabilities and Stockholders' Deficit                          $     7,214
                                                                     ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                             STATEMENT OF OPERATIONS
                             -----------------------

<TABLE>
<CAPTION>
                                                    For the Year Ended
                                                 -----------------------    For the Period
                                                       December 31,          May 12, 1999
                                                 -----------------------    (Inception) to
                                                    2001        2000       December 31, 2001
                                                 ---------   -----------   -----------------
<S>                                              <C>         <C>              <C>
Revenues                                         $      --   $        --      $        --
Selling, General and Administrative Expenses       308,723     2,078,714        2,903,120
                                                 ---------   -----------      -----------
Loss From Operations                              (308,723)   (2,078,714)      (2,903,120)
                                                 ---------   -----------      -----------
Other Income (Expense):
  Interest Expense and Other Financing Charges     (70,020)     (530,530)        (949,930)
  Interest Income                                        4         3,153            3,653
  Amortization of Loan Fees                       (230,588)     (797,093)      (1,027,681)
  Extinguishment of Debt                            40,000       552,557          592,557
  Loss on Investment                                    --      (139,770)        (139,770)
                                                 ---------   -----------      -----------
         Total Other Income (Expense)             (260,604)     (911,683)      (1,521,171)
                                                 ---------   -----------      -----------
Net Loss                                         $(569,327)  $(2,990,397)     $(4,424,291)
                                                 =========   ===========      ===========
Net Loss Per Share, Basic and Diluted            $    (.02)  $      (.29)
                                                 =========   ===========
Weighted Average Number of Common Shares
  Outstanding:
    Basic and Diluted                             27,347,590    10,478,437
                                                 ===========   ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                  ---------------------------------------------
          FOR THE PERIOD MAY 12, 1999 (INCEPTION) TO DECEMBER 31, 2001
          ------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                  Deficit
                                                                                -----------
                                                                                Accumulated
                                                                                -----------
                                                                   Additional     in the
                                                                   ----------   -----------
                                                Common Stock        Paid-In     Development
                                           ---------------------   ----------   -----------
                                             Shares      Amount     Capital        Stage         Total
                                           ----------   --------   ----------   -----------   -----------
<S>                                        <C>          <C>        <C>          <C>           <C>
Balance, May 12, 1999                              --   $    --    $       --   $        --   $        --
Common Stock Issued Upon Incorporation      9,890,927     9,891        (8,893)           --           998
Sale of Common Stock and Warrants             109,073       109       349,891            --       350,000
Valuation of Non-Cash Conversion
  Feature of Warrants                              --        --       128,500            --       128,500
Net Loss for the Period                            --        --            --      (864,567)     (864,567)
                                           ----------   -------    ----------   -----------   -----------
Balance, December 31, 1999                 10,000,000    10,000       469,498      (864,567)     (385,069)
Pacific Development Corporation
  Common Shares - Recapitalization            137,283       137          (137)           --            --
Costs Associated with Reverse Merger/
  Recapitalization                                 --        --      (275,000)           --      (275,000)
Issuance of Common Stock to Consultant
  for Services Under S-8                      227,717       228        35,068            --        35,296
Retirement of Common Stock
  by Related Party                           (406,544)     (407)          407            --            --
Issuance of Common Stock to Related
  Party Upon Exercise of Stock Options        407,000       407         3,663            --         4,070
Issuance of Common Stock to Correct
  August 1999 Share Purchase Amount            65,594        66           (66)           --            --
Issuance of Common Stock for
  Conversion of Note Payable                   97,765        98       155,715            --       155,813
Issuance of Common Stock
  for Consulting Services                      20,000        20        18,780            --        18,800
Valuation of Non-Cash Conversion Feature
  of Warrants and Debt Instruments                 --        --       847,936            --       847,936
Contributed Capital Pursuant to Debt
  Modification with Related Party                  --        --        76,026            --        76,026
Issuance of Common Stock Upon
  Exercise of Stock Options                   500,000       500         4,500            --         5,000
Stock Based Compensation                           --        --       686,758            --       686,758
Net Loss                                           --        --            --    (2,990,397)   (2,990,397)
                                           ----------   -------    ----------   -----------   -----------
Balance, December 31, 2000                 11,048,815    11,049     2,023,148    (3,854,964)   (1,820,767)
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                  ---------------------------------------------
          FOR THE PERIOD MAY 12, 1999 (INCEPTION) TO DECEMBER 31, 2001
          ------------------------------------------------------------
                                   (Continued)

<TABLE>
<CAPTION>
                                                                                Deficit
                                                                              -----------
                                                                              Accumulated
                                                                              -----------
                                                                Additional      in the
                                                                ----------    ----------
                                            Common Stock          Paid-In     Development
                                       ---------------------    ----------    -----------
                                         Shares       Amount      Capital        Stage          Total
                                       ----------    -------    ----------    -----------    ----------
<S>                                    <C>           <C>        <C>           <C>            <C>
Issuance of Common Stock Upon
  Exercise of Stock Options               100,000        100           900             --         1,000

Issuance of Common Stock for
  Settlement of Notes Payable and
  Accrued Liabilities                  30,106,540     30,106     1,934,333             --     1,964,439

Issuance of Common Stock for
  Settlement of Accrued Liabilities     2,650,000      2,650        74,900             --        77,550

Treasury Stock Contributed by
  Stockholders, 9,104,981 Shares               --         --        (9,105)            --            --

                                               --         --         9,105             --            --

Retirement of Treasury Stock           (9,104,981)    (9,105)        9,105             --            --

Stock Based Compensation                       --         --       141,614             --       141,614

Net Loss                                       --         --            --       (569,327)     (569,327)
                                       ----------    -------    ----------    -----------    ----------

Balance, December 31, 2001             34,800,374    $34,800    $4,184,000    $(4,424,291)   $ (205,491)
                                       ==========    =======    ==========    ===========    ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                             STATEMENT OF CASH FLOWS
                             -----------------------

<TABLE>
<CAPTION>
                                                              For the Year Ended
                                                          -------------------------     For the Period
                                                                December 31,             May 12, 1999
                                                          -------------------------     (Inception) to
                                                              2001         2000        December 31, 2001
                                                          ----------    -----------    -----------------
<S>                                                       <C>           <C>               <C>
Operating Activities:
  Net Loss                                                $ (569,327)   $(2,990,397)      $(4,424,291)
                                                          ----------    -----------       -----------
  Adjustments to Reconcile Net Loss to Net Cash
    Used in Operating Activities:
      Depreciation and Amortization                          235,835        800,671         1,036,506
      Stock Issued for Services and Other                         --         54,096           182,596
      Stock Based Compensation                               141,614        686,758           828,372
      Extinguishment of Debt                                 (40,000)      (552,557)         (592,557)
  Changes in Operating Assets and Liabilities:
    (Increase) in Other Current Assets                         2,172         (2,172)               --
    (Increase) in Security Deposits                            7,077         (7,077)               --
    Increase in Accounts Payable and Accrued Expenses        (76,719)     1,057,894         1,026,900
                                                          ----------    -----------       -----------
         Total Adjustments                                  (269,979)     2,037,613         2,481,817
                                                          ----------    -----------       -----------
Net Cash (Used) in Operating Activities                     (299,348)      (952,784)       (1,942,474)
                                                          ----------    -----------       -----------

Investing Activities:
  Capital Expenditures                                            --        (14,899)          (14,899)
  Investment in Cardoso Cigarette Depot (Pty) Ltd.         1,000,000     (1,000,000)               --
                                                          ----------    -----------       -----------
Net Cash (Used) in Investing Activities                    1,000,000     (1,014,899)          (14,899)
                                                          ----------    -----------       -----------

Financing Activities:
  Proceeds of Notes Payable                                       --      2,265,703         2,765,703
  Repayment of Notes Payable                                (708,916)        (4,597)         (713,513)
  Deferred Loan Costs                                             --        (92,898)         (179,745)
  Proceeds from Sale of Common Stock                              --             --           350,998
  Proceeds from Exercise of Stock Options                      1,000          9,070            10,070
  Costs Associated with Reverse Merger/Recapitalization           --       (275,000)         (275,000)
                                                          ----------    -----------       -----------
Net Cash Provided by Financing Activities                   (707,916)     1,902,278         1,958,513
                                                          ----------    -----------       -----------

Net Increase (Decrease) in Cash and Cash Equivalents          (7,264)       (65,405)            1,140

Cash and Cash Equivalents - Beginning of Period                8,404         73,809                --
                                                          ----------    -----------       -----------
Cash and Cash Equivalents - End of Period                 $    1,140    $     8,404       $     1,140
                                                          ==========    ===========       ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                         -------------------------------
                             STATEMENT OF CASH FLOWS
                             ------------------------

<TABLE>
<CAPTION>
                                                               For the Year Ended
                                                             ---------------------    For the Period
                                                                  December 31,         May 12, 1999
                                                             ---------------------    (Inception)to
                                                                2001        2000     December 31, 2001
                                                             ----------   --------   -----------------
<S>                                                          <C>          <C>           <C>
Supplemental Disclosure of Cash Flow Information:
  Cash Paid for Interest                                     $       --   $ 19,759      $   19,759
                                                             ==========   ========      ==========

  Cash Paid for Income Taxes                                 $       --   $     --      $       --
                                                             ==========   ========      ==========

Supplemental Disclosure of Non-Cash Investing and
  Financing Activities:
    Issuance of 97,765 Shares of Common Stock for
      Conversion of Note Payable                             $       --   $155,813      $  155,813
                                                             ==========   ========      ==========

    Contributed Capital Pursuant to Debt Modification with
      Related Party                                          $       --   $ 76,026      $   76,026
                                                             ==========   ========      ==========

Issuance of 30,106,540 Shares of Common Stock
  for Settlement of Notes Payable and Accrued
  Liabilities                                                $1,964,439   $     --      $1,964,439
                                                             ==========   ========      ==========

Issuance of 650,000 Shares of Common Stock for
  Settlement of Accrued Liabilities                          $   17,550   $     --      $   17,550
                                                             ==========   ========      ==========

Issuance of 2,000,000 Shares of Common Stock for
  Settlement of Accrued Liabilities                          $   60,000   $     --      $   60,000
                                                             ==========   ========      ==========

Retirement of 9,104,981 Shares of Treasury Stock             $    9,105   $     --      $    9,105
                                                             ==========   ========      ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 1 -  Organization and Basis of Presentation
          --------------------------------------

     Pacific Development Corporation (a development stage enterprise) (formerly
Tamaron Oil & Gas, Inc.) ("Pacific") was incorporated under the laws of the
State of Colorado on September 21, 1992, to be the successor to a corporation
also named "Tamaron Oil & Gas, Inc.," which was dissolved by the Colorado
Secretary of State in 1990. The predecessor corporation named "Tamaron Oil &
Gas, Inc." ("Tamaron") was organized under Colorado law on October 6, 1982.
Tamaron's name was changed to "Pacific Development Corporation" and the number
of its authorized shares of common stock, $0.001 par value per share, was
increased from 20,000,000 to 100,000,000 shares on August 14, 1995.

          Effective March 24, 2000, Pacific and Cheshire Holdings, Inc., a
Delaware corporation, were merged into a single corporation existing under the
laws of the state of Delaware, with Cheshire Holdings, Inc. being the surviving
corporation. The name of the surviving corporation was changed to Cheshire
Distributors, Inc. ("the Company"). Each share of Pacific's issued and
outstanding common stock was automatically converted into shares of Cheshire
Distributors, Inc.'s common stock. Pacific was formed for the purpose of
acquiring an operating business and at the time of the merger, had no
significant assets or liabilities. The transaction has been accounted for as a
reverse merger/recapitalization of Cheshire Distributors, Inc., which is the
acquirer of Pacific for accounting purposes.

          On June 5, 2000 the Company changed its fiscal year from December 31
to February 28. The change was made to coincide with the fiscal year of Cardoso
Cigarette Depot (Pty.) Ltd. (see Note 4). On July 9, 2001 the Company changed
its fiscal year back to December 31.

          Cheshire Distributors, Inc. was originally incorporated on May 12,
1999. Since the transaction has been treated for accounting purposes as a
reverse merger, only the historical operations of Cheshire Distributors, Inc.
are presented.

          The Company was formed for the purpose of acquiring an operating
business and is currently seeking to obtain capital in order to take advantage
of business opportunities which may have profit potential. Accordingly, the
Company's financial statements are presented as statements of a development
stage enterprise.

          The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As of December 31, 2001 the
Company was a development stage enterprise, has incurred losses of approximately
$4,424,000 since inception and its current liabilities exceed its current assets
by approximately $212,000. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. Continuation of the
Company is dependent on its exiting the development stage, achieving
sufficiently profitable operations and obtaining adequate financing. These
financial statements do not reflect any adjustments relating to the
recoverability and classification of assets carrying amounts and classification
of liabilities should the Company be unable to continue as a going concern.

          The Company has incurred substantial losses and has been funding its
operations through debt and equity financings. The Company will need to continue
to fund its operations in this manner until it achieves sufficiently profitable
operations. The Company plans to eliminate the going concern uncertainly by
raising additional funds through debt and/or equity financings. In addition, the
Company has negotiated several note modification and settlement agreements with
various note holders and creditors (see Note 7). The achievement and/or success
of these planned measures, however, cannot be determined at this time.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 2 -  Summary of significant Accounting Policies
          ------------------------------------------

          Cash and Cash Equivalents
          -------------------------

     The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.

          Use of Estimates
          ----------------

          The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
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 these estimates.

          Property and Equipment
          ----------------------

     Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which approximate 2 to 5 years.

          Deferred Loans Costs
          --------------------

          Costs associated with the Company's debt financing transactions have
been capitalized. Such costs are being amortized over the duration of the
related loans.

          Revenue Recognition
          -------------------

          The Company uses the accrual method of accounting.

          Income Taxes
          ------------

     The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax bases of the Company's assets and liabilities. An
allowance is recorded, based upon currently available information, when it is
more likely than not that any or all of the deferred tax assets will not be
realized. The provision for income taxes includes taxes currently payable, if
any, plus the net change during the year in deferred tax assets and liabilities
recorded by the Company.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 2 -  Summary of significant Accounting Policies (Continued)
          ------------------------------------------

          Stock-Based Compensation
          ------------------------

          The Company accounts for stock-based compensation to its employees
using the intrinsic value method, which requires the recognition of compensation
expense over the vesting period of the option when the exercise price of the
stock option granted is less that the fair value of the underlying common stock.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's common stock as of the date of
grant over the exercise price. Additionally, the Company provides pro forma
disclosure of net loss and loss per share as if the fair value method has been
applied in measuring compensation expense for stock options granted. Stock-based
compensation related to options granted to non-employees is recognized using the
fair value method.

          Loss Per Share
          --------------

          The computation of loss per share of common stock is computed by
dividing net loss for the period by the weighted average number of common shares
outstanding during that period.

          Because the Company is incurring losses, the effect of stock options
and warrants is antidilutive. Accordingly, the Company's presentation of diluted
earnings per share is the same as that of basic earnings per share.

          Fair Value of Financial Instruments
          -----------------------------------

          The carrying value of the Company's financial instruments, including
cash and cash equivalents, accounts payable, accrued expenses and notes payable
approximated fair value because of the short maturity of these instruments.

NOTE 3 -  Property and Equipment
          ----------------------

          Property and equipment is summarized as follows:

Furniture and Fixtures                    $ 3,233
Office Equipment                            4,514
Office Equipment Under Capital Leases       7,152
                                          -------
                                           14,899
Less:  Accumulated Depreciation             8,825
                                          -------
                                          $ 6,074
                                          =======

          Depreciation expense was $5,247 and $3,578 for the years ended
December 31, 2001 and 2000, respectively.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 4 -  Investment in Cardoso Cigarette Depot (Pty) Ltd.
          ------------------------------------------------

     On April 7, 2000, the Company closed the first installment of $1,000,000 of
the purchase of the outstanding shares of common stock of Cardoso Cigarette
Depot (Pty) Ltd. ("Cardoso"), pursuant to the Stock Purchase Agreement
originally dated September 23, 1999, between the Company and Eduardo P.V.
Cardoso and Alberteina Cardoso ("Sellers") and Cardoso, as amended by the
Amended Stock Purchase Agreement dated April 7, 2000 (collectively, the
"Purchase Agreement"). All of the shares of the Sellers had been placed in
escrow, pending full payment for their shares in Cardoso. Additionally, the
Sellers had given the Company their proxy to vote their shares at any general or
special meeting of the shareholders of Cardoso until October 7, 2000.

          The Purchase Agreement provided that the total purchase price of
$10,000,000 was payable in cash in installments of $1,000,000 at closing (April
7, 2000), a second installment of $2,000,000 on or before the twenty-first day
after the closing (May 1, 2000) and a final installment of $7,000,000 on or
before the date which is six months after the closing date (October 7, 2000).
The $1,000,000 April 7th installment was paid with funds raised through the
issuance of additional debt securities. An amendment to the Purchase Agreement
in May 2000 provided for the entire balance of $9,000,000 to be paid on or
before October 7, 2000, and this date was subsequently extended to December 31,
2000.

          On February 8, 2001, in consideration of mutual releases of both
parties to the Cardoso Purchase Agreement, the Company terminated the agreement
to acquire Cardoso Cigarette Depot (Pty) Ltd. The decision was based upon
notification to the Company by its lead lender of its decision to withdraw its
financing proposal after reviewing the financial results and operating losses of
Cardoso for the third quarter. The Company has been able to negotiate the return
of $1,000,000 previously paid to Mr. Cardoso as installment one of the Purchase
Agreement. This amount has been returned to the Company in February 2001.

          Although the Company previously presented Cardoso as a consolidated
subsidiary in its May and August 2000 interim quarterly filings, the
accompanying financial statements present only the operations of Cheshire
Distributors, Inc.

NOTE 5 -  Notes Payable
          -------------

     Notes payable consist of the following:

 $50,000 face amount 20% unsecured promissory note payable
 October 9,2000. This note is in default and is carried as a
 current liability.                                             $50,000

 $18,121 of other notes, including capital leases of $9,500,
 payable over various terms, from one to three years.             5,154

            Total Notes Outstanding                              55,154

            Less Amounts Classified as Current                   55,154
                                                                -------
            Total Long Term Debt                                $    --
                                                                =======

          In addition to conversion privileges contained in certain other debt
instruments (see Note 7), the Company has granted the following outstanding
warrants to purchase common shares:

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 5 -  Notes Payable (Continued)
          -------------

          Three year warrant to purchase approximately 116,708 shares of the
Company's common stock for total proceeds of $500,000 if exercised by October 1,
2001, and for total proceeds of $600,000 if exercised between October 1, 2001
and October 1, 2002. These warrants were cancelled pursuant to a note
modification and release agreement (see Note 7).

          Two year warrant to purchase common shares at an amount equal to the
number of common shares into which the above $150,000 face amount note is
converted. Warrant exercise price will be equal to 75% of the fair market value
of the Company's common stock at the date of exercise. These warrants were
cancelled pursuant to a note modification and release agreement (see Note 10).

          For the years ended December 31, 2001 and 2000, the Company recorded
$187,021 and $660,915 in non-cash financing costs related to conversion
privileges and warrants contained in certain of the above outstanding debt and
option instruments, based on the approximate fair value of these conversion
privilege warrants and options.

NOTE 6 -  Accrued Expenses
          ----------------

          Accrued expenses consist of the following:

Accrued Expenses - Other                    $53,339
Accrued Interest                             14,167
                                            -------

                                            $67,506
                                            =======

NOTE 7 -  Stockholders' Deficit
          ---------------------

          Recapitalization
          ----------------

     Cheshire Distributors, Inc. was originally incorporated with an
authorization of 3,000 shares of common stock, par value $.01 per share. In
January 2000 Cheshire Distributors, Inc. effected a 4,957.858 for 1 forward
split and increased its common shares authorized to 100,000,000 shares, par
value $.001 per share. All share and per share data is retroactively restated to
reflect this recapitalization.

          Common Stock
          ------------

          Upon incorporation, Cheshire Distributors, Inc. issued 9,890,927
shares of common stock for $998.

          In August 1999 Cheshire Distributors, Inc. sold 174,667 shares of
common stock and 174,667 common stock purchase warrants, exerciseable at $4, $5
and $6 per share in the first, second, and third year after May 2000
respectively, for an aggregate of $350,000. A total of 109,073 shares were
issued in 1999 and in October 2000 a correction was made to adjust the amount
purchased by 65,594 shares.

          As of December 31, 1999, there were 137,283 shares of Pacific issued
and outstanding. Such shares were automatically converted into common stock of
the Company in connection with the March 2000 merger (see Note 1).

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 7 -  Stockholders' Deficit (Continued)
          ---------------------

          Common Stock (Continued)
          ------------

          In February 2000 Pacific issued 227,717 shares of common stock valued
at $35,296 to a consultant.

          In May 2000, a related party cancelled 406,544 shares of common stock
and on May 26, 2000 such related party was granted an incentive stock option to
purchase 407,000 shares of common stock at an exercise price of $.01 per share.
In connection with these transactions, the Company recognized a charge of $2,161
during the year ended December 31, 2000. The stock option was exercised
immediately.

          In October 2000, the Company issued 97,765 shares of common stock upon
conversion of a note payable in the amount of $155,813.

          In October 2000, the Company issued 20,000 shares of common stock
valued at $18,800 for services rendered.

          In November 2000, the Company granted an incentive stock option to
purchase 500,000 shares of common stock at an exercise price of $.01 per share.
In connection with this grant, the Company recognized a charge of $684,597
during the year ended December 31, 2000. The stock option was exercised
immediately.

          In January 2001, the Company granted a stock option to purchase
100,000 shares of common stock at an exercise price of $.01 per share. In
connection with this grant, the Company recognized a charge of $99,420 during
the year ended December 31, 2001. The stock option was exercised immediately.

          In January 2001, the Company issued a warrant to purchase common stock
at an exercise price of $.10 per share. The warrant expires January 20, 2005. In
connection with this grant, the Company recognized a charge of $42,194 during
the year ended December 31, 2001.

          During the year ended December 31, 2001 the Company issued 2,650,000
shares of common stock valued at $77,550 as settlement of accrued liabilities to
two creditors.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 7 -  Stockholders' Deficit (Continued)
          ---------------------

          Note Modification and Release Agreements and Settlements with Vendors
          ----------------------------------------------------------------------
and Other Creditors
-------------------

          Effective as of May 7, 2001, the Company consummated various note
modifications and release agreements ("Note Modifications") with the holders
("Convertible Noteholders") of outstanding convertible notes ("Convertible
Notes") of the Company. The Company had 6 Convertible Noteholders who held an
aggregate of $2,250,000 in principal plus $106,376 of accrued interest excluding
any penalty or default interest of the Company. Additionally, some of the
Convertible Noteholders had earlier received warrants to purchase common stock.
Pursuant to the Note Modifications, the Convertible Noteholders agreed to the
full satisfaction and payment of the Convertible Notes and cancellation of the
warrants by the Company issuing an aggregate of 24,566,384 shares of the
Company's common stock and delivering cash payments in the amount of $605,971 in
reduction of the outstanding amounts due under the Convertible Notes. The
Company also agreed to use its best efforts to negotiate with all other
noteholders of the Company and unsecured creditors for the satisfaction and
release of their claims against the Company. Additionally, as part of the Note
Modifications, the existing directors of the Company, Lev Greenberg, Lionel
Growan and Gilad Gat agreed to resign as directors and officers effective upon
completion of the Note Modifications and delivery of the Company's shares to the
respective Convertible Noteholders which occurred on May 7, 2001. Prior to such
resignations, however, they agreed to fill a vacancy on the Board of Directors
with the majority of Convertible Noteholders' nominee Mr. Abraham Grossman.
Further as a condition of the Note Modifications, the directors and officers
agreed to return to the Company for cancellation 9,104,981 shares of common
stock previously issued and owned by them.

          The implementation of the Note Modifications resulted in:

          1.   The Convertible Noteholders agreeing that $2,250,000 of the
               convertible debt was paid and satisfied in full, and the
               outstanding warrants were cancelled;

          2.   The Convertible Noteholders receiving 24,566,384 shares of
               "restricted securities" of the Company's common stock.

          3.   The registration of the directors and executive officers of the
               registrant.

          4.   The election of the nominee of the Convertible Noteholders Group,
               Mr. Abraham Grossman, as a director of the Company to fill a
               vacancy pm the Board, who after the resignations by the remaining
               directors became the sole director of the Company.

          5.   The Company's previous directors and officers, Lev Greenberg and
               Gilad Gat, Lional Growan and a consultant to the Company,
               returning an aggregate of approximately 9 million shares of
               common stock to the Company for cancellation.

          6.   The Company negotiating with the holders of other outstanding
               notes of the Company in the aggregate amount of $240,000, who
               agreed to accept in full satisfaction and cancellation of their
               notes $101,995 in cash and 1,899,749 shares of restricted common
               stock of the Company.

          7.   The Company negotiating with 12 parties to whom the Company owed
               accounts payable in the aggregate amount of $556,430, who agreed
               to accept in full satisfaction and cancellation of their accounts
               receivable from the Company $140,166 in cash and 3,640,407 shares
               of restricted common stock of the Company.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 7 -  Stockholders' Deficit (Continued)
          ---------------------

          2000 Omnibus Stock Incentive Plan
          ---------------------------------

     On May 3, 2000 the Company adopted its 2000 Omnibus Stock Incentive Plan
("the Plan").

          Under the Plan, the Board of Directors (or other committee appointed
in accordance with the terms of the Plan) (the "Committee") would be authorized
to make certain types of awards (collectively, "Incentive Awards"). Incentive
Awards can be of different types: incentive stock options, nonqualified stock
options, stock appreciation rights granted in tandem with options, stand-alone
stock appreciation rights, restricted stock awards, phantom stock awards or
bonuses payable in stock.

          The Plan authorizes an aggregate of 1,000,000 shares of the Company's
Common Stock that may be subject to Incentive Awards. This number is subject to
adjustment under certain circumstances described below. Shares delivered under
the Plan may be authorized and unissued shares, treasury shares or shares
acquired by the Company for purposes of the Plan. Generally, shares subject to
an Incentive Award will again become available for purposes of the Plan to the
extent that the Incentive Award terminates without the intended benefit having
been paid or distributed to the participant.

          The Company has issued various stock options. The Options granted had
full vesting immediately. A summary of the Company's stock options activity
under the Plan is as follows:

                                                    Options
                               ----------------------------------------------
                                            Price Range      Weighted Average
                                Shares       Per Share        Exercise Price
                               --------    --------------    ----------------

Balance-January 1, 2000              --    $           --         $  --
Granted                         907,000      1.375 - 4.75            .01
Exercised                      (907,000)    (1.375 - 4.75)         (.01)
                               --------    --------------         -----

Balance - December 31, 2000          --                --            --

Granted                         100,000               .01           .01
Exercised                      (100,000)             (.01)         (.01)
                               --------    --------------         -----
Balance - December 31, 2001          --    $           --         $  --
                               --------    ==============         =====

<PAGE>

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 7 -  Stockholders' Deficit (Continued)
          ---------------------

          2000 Omnibus Stock Incentive Plan (Continued)
          ---------------------------------

          The Company recognized approximately $142,000 and $687,000 stock-based
compensation expense during the years ended December 31, 2001 and 2000, relating
to options granted to consultants with exercise prices below the estimated fair
market value of the Company's common stock at the date of grant. The Company
applies APB Opinion No. 25 and related Interpretations in accounts for these
plans. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued by the FASB in 1995 and, if
fully adopted, changes the methods for recognition of cost on plans similar to
those of the Company. The Company has adopted the disclosure-only provision of
SFAS 123. Pro forma information regarding net income and earnings per share is
required by Statement 123, and would be determined as if the Company has
accounted for its employee stock options under the fair value method of that
Statement. No stock options were granted to employees and, accordingly, there is
no pro forma presentation. The fair value for the options granted to
non-employees was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rate of 5.5%; volatility factor of the expected market price of the
Company's common stock of 50%; and a weighted-average expected life of the
option, after the vesting period, of 10 years.

          The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

          Common Stock Purchase Warrants
          ------------------------------

          The following common stock purchase warrants are outstanding at
          December 31, 2000:

          174,667 warrants exercisable at $4, $5 and $6 per share in the first,
          second, and third year after May 2000 respectively.

          100,000 warrants exercisable at $.10 per share, expiring January 20,
          2005.

NOTE 8 -  Income Taxes
          ------------

          For income tax purposes, the Company has a net operating loss
carryforward ("NOL") at December 31, 2001 of approximately $3,405,000 expiring
in 2016 if not offset against future federal taxable income. There are certain
limitations as to the future annual use of the NOLs due to certain changes in
the Company's ownership.

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                           ---------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                DECEMBER 31, 2001
                                -----------------

NOTE 8 -  Income Taxes (Continued)
          ------------

          Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for each
period as a result of the following:

                                            Year Ended          Period Ended
                                         December 31, 2001   December 31, 2000
                                         -----------------   -----------------
 Computed "expected" tax benefit             $ 211,000            $ 857,000

 Decrease in  tax  benefit  resulting
   from net operating loss for which
   no benefit is currently available          (211,000)            (857,000)
                                             ---------            ---------
                                             $      --            $      --
                                             =========            =========

          The Company had deferred tax assets of approximately $1,362,000 at
December 31, 2001, resulting primarily from net operating loss carryforwards.
The deferred tax assets have been fully offset by a valuation allowance
resulting from the uncertainty surrounding their future realization. The
difference between the federal statutory rate of 34% and the Company's effective
tax rate of 0% is due to an increase in the valuation allowance.

NOTE 9 -  Commitments and Contingencies
          -----------------------------

          Lease Commitments
          ------------------

     In February 2000 the Company entered into a 5 year lease for office
facilities that terminates February 28, 2005. In addition to base rent, the
lease provides for payment of certain other occupancy costs. Approximate future
minimum payments under this lease are summarized as follows:

 Year Ending
December 31,
------------

   2002                 $85,000
   2003                 $85,000
   2004                 $85,000
   2005                 $14,000

     Rent expense under this lease was approximately $74,000 for the years ended
December 31, 2001 and 2000, respectively.

<PAGE>