SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

                     For the fiscal year ended July 31, 2000

                                       OR

                        Commission file number 000-28499

                         JAGGED EDGE MOUNTAIN GEAR, INC.
                     --------------------------------------
            (Exact name of registrant as specified in its charter)

            COLORADO                                   84-144-8778
            --------                                   -----------
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                   Identification Number)

52 Pilot Knob Lane, Telluride, Colorado                   81435
---------------------------------------                   -----
(Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (970) 728-0175

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.001 PER SHARE

  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 [X ] No [ ]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

<PAGE>

      The issuer's revenues for its most recent fiscal year were $2,762,400

  As of November 29, 2000, the aggregate market value of the registrant's voting
stock held by  non-affiliates  computed by  reference  to the price at which the
stock  was  sold,  or the  average  bid  and  asked  prices  of such  stock  was
approximately $3,348,400.

  As of November 29, 2000, the number of shares of the registrant's Common Stock
outstanding was 16,710,283.

<PAGE>



                                    PART I

Item 1.  Business.

                                    GENERAL

This  Annual  Report on Form 10-KSB  contains  forward-looking  statements  that
involve risks and  uncertainties.  The statements  contained herein that are not
purely historical are  forward-looking  statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, including without
limitation statements regarding the Company's expectations,  beliefs, intentions
or strategies  regarding the future. All forward-looking  statements included in
this  document or  incorporated  by  reference  herein are based on  information
available  to the  Company  on the  date  hereof,  and the  Company  assumes  no
obligation  to  update  any such  forward-looking  statements.  Actual  results,
events,  or performance  could differ materially from those anticipated in these
forward-looking  statements as a result of a variety of factors, including those
set forth in "Factors  that may Affect the  Company's  Business,"  and elsewhere
herein.

Jagged Edge Mountain Gear,  Inc., a Colorado  corporation,  (NASDAQ OTC Bulletin
Board (OTCBB) - JEMG) was originally formed as a Utah LLC and was converted to a
Colorado  Corporation on July 27, 1997.  Jagged Edge Mountain Gear, Inc. ("JEMG"
or the "Company"),  designs,  produces and distributes technically sophisticated
outdoor clothing and accessories,  using  high-performance  fabrics, for outdoor
sports activities under the name Jagged Edge Mountain Gear. The Company owns and
operates  three  retail  stores  under the name Jagged  Edge  Mountain  Gear,  a
wholesale  division,  a retail catalog mail-order division and a retail Internet
site.  The retail  stores are all  located in  Colorado  ski resort  towns.  The
catalog and  Internet  site cover a national  market.  Wholesale  sales are both
domestic and international.

During the fiscal year ended July 31, 2000,  the Company was not involved in any
bankruptcy, receivership or similar proceeding nor did it engage in any material
reclassification,  or  consolidation.  During that  period,  the Company did not
dispose of any material  amounts of its assets other than in the ordinary course
of its business.

As a result of significant losses from operations and working capital shortages,
Jagged Edge Mountain Gear, Inc.'s independent  accountants have included a going
concern  qualification in their audit opinion. See "Management's  Discussion and
Analysis" for the Company's discussion of its financial condition and results of
operations.

The  Company's  primary  means of  distribution  of its products  are:
        o       Retail, through it's own stores.
        o       Wholesale, through its wholesale division, supplying retail  and
                wholesale accounts in both the US and overseas, primarily Japan.
        o       Catalog mail-order sales.
        o       E-commerce, through the Company's own website and through affil-
                iations with major web portals.

<PAGE>


The  Company   introduces  a  line  consisting  of  new  and  revised   products
approximately every six months.  Each season,  there are at least 60 products in
the line.  The lines are shown and offered at  national  trade shows and through
independent sales representatives.

The  Company  believes  that  Jagged  Edge  Mountain  Gear is one of the world's
premier  brands  of   high-performance   outdoor  apparel,   offering  technical
superiority in fabrics,  materials and  construction  coupled with a price point
below that of its' competition.

                               INDUSTRY OVERVIEW

Primarily  climbers,  skiers and serious outdoor enthusiasts have used technical
outdoors apparel and accessories  historically.  In recent years, these products
have become increasingly popular among a broader group of consumers. The Company
believes that this growth has been the result mainly of the following:
        o       An increase in  outdoor recreational  activities by  the general
                population.
        o       A shift in consumer  preferences leading to a growing demand for
                highly   functional  products   rather   than   fashion-oriented
                products.
        o       Growing acceptances of outdoor apparel as casual wear.
        o       An increase in  the technical sophistication of products in this
                field at an affordable price.

The trend towards more active outdoor  lifestyles is  demonstrated  by increased
participation in a variety of outdoor  activities such as snowboarding,  skiing,
rock  climbing,  camping,  hiking and  backpacking.  A 1997 survey by the Travel
Industry  Association of America  indicated that one-half of U.S. adults,  or 74
million people,  have taken an adventure  travel trip in the past five years. Of
these,  31  million  engaged  in "hard"  adventure  activities  like  whitewater
rafting,  scuba diving and mountain climbing. In addition,  even individuals who
do not  participate in outdoor  activities,  or require the  functionality  of a
high-performance  product have  increasingly  worn outdoor or rugged  apparel as
casual clothing.  Casual wear in general also has become  increasingly  popular,
particularly in the workplace.

The Company believes that consumers are  demonstrating an increasing  preference
for functional, performance-oriented products. Consumer purchase decisions often
are  driven  as much by a desire to create a  particular  perception  of them as
healthy and active as by an actual need for these  products.  An example of this
trend is the growing popularity of sport utility vehicles, which have become one
of the fastest growing segments of the automotive industry despite the fact that
less than 2% of owners of such  vehicles  never  venture  off paved  streets  or
utilize the 4-wheel drive.

                               COMPANY OVERVIEW

The Company is a designer, distributor and marketer of technically sophisticated
outdoor apparel and rugged  sportswear under the Jagged Edge Mountain Gear brand
name.  Jagged Edge Mountain  Gear,  Inc. is located in Telluride,  Colorado,  an
upscale ski resort mountain town. Over the past 10 years,  the Company has built
a strong and widely  recognized  reputation  for  high-quality,  innovative  and
technically  sophisticated  products,  which management believes has established

<PAGE>

Jagged Edge  Mountain  Gear as a respected  premier  specialty  brand of outdoor
apparel.

The Company offers a broad range of high-performance,  technically sophisticated
outdoor  apparel  and  accessories.  The  Company's  goal is to  offer  the most
technically  advanced  products in its field.  The Company  designs  many of its
products for extreme applications such as high altitude mountaineering, rock and
ice climbing, and back-country skiing. While management acknowledges that only a
small  fraction  of  consumers  who buy the  Company's  products  purchase  them
exclusively for participation in such activities, the ability of its products to
achieve high levels of  performance  under  extreme  conditions  reinforces  The
Jagged Edge Mountain Gear brand identity.

                                   PRODUCTS

The Company  designs,  manufactures,  and sells a broad range of outerwear under
the brand name Jagged Edge Mountain Gear. The Company's  products are often used
in severe weather and other extreme or adverse  conditions.  The Company product
lines include the flagship  Telluride Mountain series - considered by many to be
the finest  available,  a new Gold Hill series - more moderately priced skiwear,
yet still full featured,  and the Glacier,  North Wind, Jannu,  Escape, and Cold
Mountain  Windbloc  series.  Each series is designed and  developed for specific
weather  conditions  and end use, and is produced with a target  demographic  in
mind. The Company strives to offer products at moderate price-points that appeal
to a broad consumer base; are higher in quality than many  competitive  products
while  incorporating  materials and  technologies to create the most technically
advanced  designs.  Additionally,  through the  Company's  retail  locations the
Company  also sells  products  that  compliment  the Jagged Edge line  including
accessories,  rugged  footwear and other items.  As a result of the more than 10
years of  experience  gained as a  provider  of  outdoor  apparel,  the  Company
believes it has achieved and is recognized for the highest level of authenticity
in the outdoor apparel industry.

Management  believes that its dedication to producing  high-quality,  innovative
and  technically   sophisticated   products  is  exemplified  by  its  marketing
statement,  "The Journey is the Destination." The Journey  represents the Daoist
philosophy  of  promoting  the  experience.  The  philosophy  is not focusing on
achieving a summit,  but promotes  everything that goes on in one's heart,  body
and  mind.  This  simple,  yet  profound  statement  is the  foundation  for the
Company's  corporate culture and  differentiates  Jagged Edge Mountain Gear from
any other company in the outdoor apparel industry.

Jagged Edge  Mountain  Gear  products are original  designs and carry a warranty
against  defects in  materials  and  workmanship.  To date  warranty  claims for
product defects have been immaterial,  but the Company cannot assure that future
claims will not  increase.  Further,  in the event that the Company  experiences
problems with product  quality or  reliability,  its reputation as a provider of
high-quality  products could suffer,  which could have a material adverse effect
on the Company's business.

<PAGE>

Outerwear:

The Company's  outerwear  products are organized into various product series and
categories,  as described above. The Company's  outerwear is designed to provide
protection from various  combinations  of cold, wet and windy  conditions and to
accommodate   the  range  of  motion  required  for  the  most  extreme  outdoor
activities.  In addition,  many of the Company's outerwear products are designed
to  adapt  to  varying  conditions  and  situations,  taking  into  account  the
unpredictability  of the  weather  and the fact  that  some  outdoor  activities
alternate between periods of extreme exertion and total rest, requiring a proper
balance between ventilation and insulation.  Each year, the Company enhances its
outerwear  lines by adding new products and design  innovations.  This year, for
example,  the Company  introduced  its Gold Hill series of  outerwear  garments.
Designed with skiing and  snowboarding  specifically in mind,  these jackets and
pants are superb for all types of harsh weather activity. The price point is set
in a range that  should  appeal to a broader  market  segment.  In the Fall 2000
Skiing Magazine equipment issue,  Jagged Edge Mountain Gear was described as the
provider of  garments,  which should be worn to "fit in" with the local ski town
populations.

Accessories:

  The Company offers various non-Jagged Edge accessories,  soft goods and rugged
footwear for sale through its retail store  locations.  Backpacks,  bags,  maps,
other brand name  clothing,  hats,  gloves/mittens,  goggles and  sunglasses are
items comprising this class of sales. These items are intended to complement the
Jagged Edge brand and translate into add-on sales in the retail locations.

                       RESEARCH, DESIGN AND DEVELOPMENT

The Company's lead designer,  along with other management and staff,  bring more
than 15  years  of  experience  individually,  of  mountaineering,  rock and ice
climbing,  trekking,  and skiing  trips.  Through  actual  use of the  Company's
products in extreme  conditions,  and building  product  based on "real use" for
superior  function,  the brand has achieved the highest level of authenticity in
the outdoor apparel industry.

The Company's  goal is to offer the most  technically  advanced  products in its
class and to establish standards for quality,  performance, and price in each of
the  Company's  product  categories.  The  Company  evaluates  consumer  trends,
monitoring the needs and desires of customers, and works internally and with its
suppliers to further develop products to enhance product designs.

The Company  regularly reviews its product lines and actively seeks input from a
variety of sources,  including  elite  athletes,  retailers,  magazine  reviews,
consumers and fabric suppliers.

                            MARKETING AND PROMOTION

The Company's goal is to increase brand  awareness by projecting a high quality,
technically  sophisticated  and  authentic  image that appeals to core users and
serious outdoor enthusiasts,  as well as to a broader segment of consumers.  The
Company conveys such an image by featuring climbers,  explorers and skiers using
the Company's products on high altitude expeditions and picturesque rock and ice

<PAGE>

climbs.  The Company's  marketing  materials  utilize  language and images that,
while directed to the extreme athlete, appeal to a broader segment of consumers.

The Company  believes  that it has obtained a high level of brand  awareness and
loyalty  from the  extreme  users of its  products.  In order to  bolster  brand
loyalty and to further enhance its authentic  image,  the Company has in place a
national  print  advertising  campaign  specifically  targeting  the  skiing and
climbing audience. Print ads currently run in Skiing, Powder, Backcountry,  Rock
and Ice,  Climbing,  Couloir's,  and other sports oriented  publications,  which
target the  demographic  population  the Company  feels  purchase its  products.
Moreover, gear reviews have been recently written in Climbing Magazine, Outside,
Hooked On The  Outdoors,  Skiing,  Outdoor  Retailer  and other  magazines,  all
touting the excellence of the Jagged Edge garments.

The  company  founders,  Margaret  A.  Quenemoen  (President/CEO),  and Paula S.
Quenemoen (Executive Vice President),  identical twin sisters, are well known in
the industry. Quite frequently,  they are invited to discuss entrepreneurship or
other  topics  on  various  radio  talk  shows,  or to  participate  in  various
mountaineering  presentations  throughout the region. In the past the women have
also  been  featured  on  "Small  Business  2000"  a  1/2  hour  PBS  television
documentary,  and were the  primary  case study  described  in the  Nahavandi  &
Malekzadeh textbook  "Organizational  Behavior";  Prentice Hall, Copyright 1999.
This  textbook  also featured the Company in 45-minute  video  presentation,  an
accompaniment to the textbook.  The Company believes this participation enhances
the Jagged Edge Mountain Gear image and further identifies Company management as
users, testers, and designers of the Company's technical outerwear.

                            SALES AND DISTRIBUTION

The Company currently markets its products through four primary sales divisions,
and each sales division  contributes  differing gross profit  percentages to the
Company.  1) Jagged Edge owned and  operated  retail  stores,  2) The  Company's
wholesale  distribution  network  3) The  retail  catalog  division,  and 4) The
Company's internet web site and other sales affiliations.  Other revenue sources
are immaterial.

        o       Jagged Edge Retail Stores. Jagged Edge owned and operated retail
                store net sales were approximately $1,353,477 or 491%  of  total
                gross Company sales during FY2000.
        o       Wholesale   Distribution.  The  wholesale  distribution  network
                net sales were approximately $1,010,747 or 36% during FY2000.
                The wholesale division distributes product both domestically and
                internationally. Domestic and international  sales were  approx-
                imately $757,447 and $253,300 during FY2000.
        o       Retail Catalog Division.  The  retail catalog division net sales
                were approximately $321,771 or 11%  of total gross Company sales
                during FY2000.
        o       Internet and other sales  and revenue sources  accounted for the
                bulk of the Company's remaining sales,  approximately $53,055 or
                4% during FY2000.

<PAGE>

Company Operated Retail Stores

The Company's  three retail  stores are an important  component of its marketing
and product development  strategies and provide a targeted  environment in which
to merchandise and sell Jagged edge Mountain Gear product lines. Located in year
round ski resort  communities,  these  stores carry a broad range of Jagged Edge
Mountain Gear products and complementary  accessories from other  manufacturers.
The  Company  believes  that as a result of its  ability to  control  the visual
presentation  and product  assortment  in its retail  stores,  these stores help
build brand  awareness and  introduce  consumers to a broad range of Jagged Edge
Mountain  Gear  products.  These  stores also provide a means for the Company to
test the appeal of new products and merchandising techniques. By working closely
with store  personnel,  many of whom are outdoor  enthusiasts,  the Company also
obtains customer feedback that influences product design and development.

The  Company's  retail  stores are located in the  following  towns:  Telluride,
Colorado (Flagship store), Breckenridge,  Colorado, and Crested Butte, Colorado.
Although the Company  considers its retail  stores to be an important  aspect of
its brand name strategy,  the Company  currently has no plans to open additional
retail stores, although no assurances can be given.

Wholesale Sales

The  Company's  wholesale  customers  currently  consist,  primarily;  of  large
specialty  outdoor product retailers such as REI, or small  independently  owned
skiing or  mountaineering  specialty  shops.  The Company  sells its products to
approximately  100 wholesale  customers in the United  States,  representing  an
estimated 100 storefronts.  Internationally,  the Company sells to approximately
25  wholesale  distributors  and  brokers,  representing  an  unknown  amount of
storefronts.

Independent  sales  representatives  sell the  Company's  products to  wholesale
customers  in  the  United  States.   Internationally,   Jagged  Edge  employees
facilitate the sales.  Sales  representatives  provide customer support,  review
each account on a periodic basis and assist the Company in forecasting levels of
product  needs.  In addition,  they conduct  in-store  clinics to educate  sales
personnel on the technical qualities and uses of the Company's products.

Independent sales  representatives  are paid on a commission basis.  Jagged Edge
employees are paid salary and typically perform multiple tasks for the Company.

The  Company  maintains  a small  service  department  to handle  the  repair or
replacement of defective or damaged merchandise.  Most of the Company's products
are covered by a lifetime warranty,  with the exception of those non-Jagged Edge
products sold through the Company's retail stores.

The Company's wholesale business in FY2000 constituted an increasing  percentage
of total  Company  sales as compared  to the  Company's  sales in  Company-owned
retail stores or catalog sales.  Wholesale business  contributes a smaller gross
profit percentage to the Company, therefore overall gross margins have declined,
and may  continue  to do so in the future,  depending  on the ratio of sales per
division.  In addition,  if sales returns are in excess of anticipated  amounts,
adverse effects on operations could occur.

<PAGE>

Retail Catalog Division

The Jagged Edge Mountain Gear retail  catalog  division is located in the Jagged
Edge  warehouse  facility in Telluride,  Colorado.  During the FY2000 season the
Company printed and mailed approximately  200,000 full color catalogs,  total of
both  winter  and  summer  catalog  versions.  The  mailings  were to a targeted
customer  demographic  provided by an  independent  agency that the Company felt
best represented it's customer base.

The winter catalog  experienced an approximate  2.0% return rate with an average
order of  $105.00.  The  summer  catalog  on the other  hand fell  short of this
success. The Company believes the reasons for summer catalogs shortfall in sales
are three fold:
        o       The public  recognizes Jagged Edge as  being primarily  a winter
                outerwear line.
        o       The unit price of each product offered in summer was substantial
                -ly  less than individual winter products.
        o       Purchasers  are more likely  to travel  outside shopping  in the
                warming spring season, rather than catalog shopping.

The Company does not have plans to repeat a large summer catalog but may instead
only send a small brochure to their preferred mailing list customers. During the
winter season, FY2001 the company is printing and mailing 475,000 catalogs.  The
company  expects an overall return rate near 2.0% and $120.00 per order average,
although no assurances can be given.

Third-party  carriers  ship  all of the  Company's  products.  Primary  carriers
include UPS, Federal Express, and US Postal service.

Fluctuations in Sales

Sales of the Company's  products  historically have fluctuated due to conditions
beyond the Company's  control,  such as seasonality,  climatic  conditions,  and
economic cycles.  Variables such as weather patterns,  poor or late ski seasons,
economic cycles,  and other  conditions that affect consumer  spending in resort
communities,  can have a significant  effect on Company revenues.  The Company's
results  of  operations  may also vary from  quarter  to quarter as a result of,
among other things,  the amount and timing of shipments to wholesale  customers,
product received from overseas suppliers,  and the timing of Company advertising
and marketing expenditures. In particular, since the Company sells its technical
mountain  gear to  skiers  in the  three  resort  towns in which it runs  retail
stores,  as well as through  other  retailers  located in winter  resorts,  each
year's  timing of, and amount of snowfall has a  significant  effect on customer
traffic and sales. On the positive side, sports  enthusiasts in other geographic
areas,  through  retails stores supplied by the wholesale  division,  and in the
summer sports months in Colorado, continue to purchase Jagged Edge Mountain Gear
year round.

Warranty

Jagged Edge  Mountain  Gear  products are warranted for defects in materials and
workmanship.  Defects are repaired by the Company at the Company's  cost, if the

<PAGE>

applicable  conditions to the warranty are satisfied.  The company  historically
has incurred  immaterial  warranty costs and recognizes  warranty expense at the
time of repair.

                            INTERNATIONAL OPERATIONS

The Company's  business is subject to the risks generally  associated with doing
business abroad.  These risks include adverse  fluctuations in currency exchange
rates   (particularly   those  of  the  U.S.   dollar  against  certain  foreign
currencies),  changes in import  duties or quotas,  the  imposition  of taxes or
other charges on imports, the impact of foreign government regulation, political
unrest,  disruption or delays of shipment and changes in economic  conditions in
countries in which the Company's suppliers are located.


                          SOURCING AND MANUFACTURING

 Sources of Raw Materials

The Company has  well-established  relationships with several major suppliers of
materials in the marketplace.  Some of these suppliers are: Malden Mills (Fleece
and Technical Fabrics), Dyersburg Fabrics (Fleece),  Burlington Mills (Technical
Fabrics),  YKK (zippers)  and several  others to a lesser  degree.  To diversify
dependence  on one  of the  two  primary  fleece  suppliers,  orders  have  been
historically  divided  between  Dyersburg  and Malden  Mills.  Additionally,  by
creating  garments in unrelated fabric  technologies,  dependence on these major
suppliers reduces the Company's exposure and risk.

Orders for fabric, and to a lesser extent for completed garments,  are typically
placed 6-9 months  prior to the  beginning of each sales season and only limited
re-ordering for fabric is possible after orders are placed. This large lead-time
is typical for the industry and requires  accuracy in product sales  forecasting
and cash flow  management.  Since a sales  forecast  will never be 100% correct,
some  items  will be short and some  items  will be over at the end of the year.
Factors  that can  affect  sales are  international,  national,  state and local
economies,  weather conditions throughout the country, fashion trends, and other
uncontrollable  factors.  Because  of  anticipated  increases  in  sales,  these
described  factors,  and other conditions the Company production for this fiscal
year  increased,  resulting in inventory  levels to grow by 15% from $866,500 in
1999 to approximately $1,000,000 in FY2000.

The Company sources  production of its products from unaffiliated  manufacturers
primarily located in Hong Kong, China, Korea,  Indonesia,  India, Japan, and the
United  States.  The Company  believes that it has good  relationships  with its
suppliers and manufacturers and has the ability to secure the necessary capacity
to meet any foreseeable increase in demand for its products.

To ensure that products  manufactured  for the Company are  consistent  with its
quality  standards,  the  Company  manages  all key  aspects  of the  production
process, including establishing product specifications,  selecting the materials
to be used and the suppliers of such  materials,  and negotiating the prices for
such materials.

<PAGE>

The Company has no long-term  contracts with its manufacturing  sources,  and it
competes  with other  companies  for  production  facilities  and  import  quota
capacity.  None of the  manufacturers  used by the Company produce the Company's
products  exclusively.  The Company has  occasionally  received,  and may in the
future receive, shipments of products from manufacturers that fail to conform to
the Company's quality control standards. Any disruption in the Company's ability
to obtain  manufacturing  services  could have a material  adverse effect on the
Company's business.

The Company requires its independent manufacturers to operate in compliance with
applicable  laws and  regulations.  Although the  Company's  internal and vendor
operating  guidelines  promote  ethical  business  practices  and the  Company's
personnel  periodically  visit and monitor  the  operations  of its  independent
manufacturers,  the  Company  does not  control  these  vendors  or their  labor
practices.  The violation of labor or other laws by an independent  manufacturer
of the  Company,  or  the  divergence  of an  independent  manufacturer's  labor
practices from those generally  accepted as ethical in the United States,  could
result in adverse  publicity  for the Company and could have a material  adverse
effect on the Company.

The Company  imports a  significant  portion of its  merchandise  from  contract
manufacturers  located in the Far East,  including China. From time to time, the
U.S.  government has considered  imposing  punitive tariffs on apparel and other
exports from China.  The imposition of any such tariffs could disrupt the supply
of the Company's  products,  which could have a material  adverse  effect on the
Company's results of operations.

                        MANAGEMENT INFORMATION SYSTEMS

During FY2000,  the Company did not experience any business  interruption due to
the Year 2000 Y2K issue. The Company's management is, however,  currently in the
process of implementing a new integrated  computer  information system. This new
system is 100% Y2K compliant and the Company believes successfully addresses any
potential,  or residual,  year 2000 issues.  The new system includes  integrated
modules for a full range of financial, distribution, merchandising, forecasting,
and retail POS systems. This implementation  includes data conversion,  software
modification,  interfaces,  setup,  and training.  The Company believes that the
expected  information  system  improvements made in 2000 and beyond,  along with
routine upgrades and other enhancements, should be sufficient to accommodate the
Company for the foreseeable future. During the remainder of 2000, and into 2001,
additional  functionality  will  be  introduced  and  final  major  enhancements
completed. There can be no assurance, however, that any system implementation or
system  upgrades will be completed in a timely manner,  will be adequate to meet
the needs of the Company, and will not strain the Company's financial resources.

                                  COMPETITION

The   Company's   industry  is  intensely   competitive,   with  several   other
manufacturers  of  technical  outdoor  clothing  competing  in the  national and
international marketplace.  Moreover, there are now other non-technical clothing
companies  entering the outerwear  market.  Jagged Edge Mountain  Gear's primary

<PAGE>

competitors include Patagonia, The North Face, Marmot, Mountain Hardware, Sierra
Designs and various  other  technical  outerwear  manufacturers.  The Company is
still a relatively  small player in the  industry,  but has already built strong
brand name recognition.  The Company is recognized as a highly creative producer
of innovative and functional  products.  Through  expected growth in revenues in
the Jagged Edge  Mountain Gear retail  stores,  wholesale  distribution,  direct
catalog,  and the web site,  Jagged  Edge  Mountain  Gear  expects  that it will
continue to expand its market share,  although  there can be no assurance  given
that this will happen.

The markets for the Company's products are highly competitive,  with competition
based  primarily  on price,  quality,  brand name  recognition  (marketing)  and
service. Although management believes that it does not compete directly with any
single  company with  respect to its entire range of products,  the Company does
have significant  competitors within each product category.  In addition, as the
Company  expands its  product  lines and offers  products at a broader  range of
price  points,  it will likely come into  competition  with  additional  outdoor
apparel and  equipment  companies.  While the Company  believes that it has been
able to compete  successfully  because of its brand image and  recognition,  the
broad range and quality of its  products,  and its  selective  distribution  and
customer service policies,  including the warranty its products carry, there can
be no assurance that the Company will be able to maintain or increase its market
share in the future.

Consumer  demand  for the  Company's  products  may be  adversely  affected,  if
consumer interest in outdoor activities does not grow or declines.  In addition,
competitors  may have more  resources  to advertise  and market their  products,
capturing  additional  market  share.  If  the  Company  is  unable  to  respond
successfully  to changes in consumer  preferences,  or if  consumer  preferences
shift toward competing  products or away from the Company's  product  categories
altogether,  the Company's  business  would be adversely  affected.  The Company
cannot  assure future  growth or consumer  demand for its products.  If consumer
interest in outdoor activities grows, more competitors, who are better financed,
may enter the market.

                           TRADEMARKS AND LICENSING

The Company  has one  trademark  registered  with the United  States  Patent and
Trademark  Office:  "Jagged Edge Mountain  Gear."  Royalties were paid to Renee'
Merlo for the use of the name  Jagged  Edge up until,  and  through  April 2000.
Royalties  amounted to $500 per quarter up to $2 million in sales and $1,000 per
quarter  above that level,  applying  strictly to sales of Jagged Edge  Mountain
Gear branded  merchandise.  In April 2000 a favorable agreement was reached with
Renee'  Merlo to purchase the  trademark  name,  "JAGGED  EDGE"  completely.  In
consideration  of a combination  of cash and stock,  with a fair market value of
$20,000, the Company purchased the trademark outright from Renee' Merlo.

Jagged Edge Mountain Gear  registered and owns the  "JAGGED  EDGE"  trademark in
Japan.

The  Company  owns the  domain  name for its web  site  jagged-edge.com  and has
recently  purchased  the  domain  name  jaggededge.com  for $700 in Jagged  Edge
product at retail value.

<PAGE>

Because of the  popularity  of many of the  Company's  products and their strong
brand  identity and  distinctive  designs,  The Company  maintains an aggressive
program of  trademark  enforcement  and  cooperation  with  domestic and foreign
customs officials and other authorities,  and will continue to vigorously defend
its trademarks  against  infringement.  There is no assurance that the Company's
efforts to stop or reduce any copying or  counterfeiting  of its  trademarks  or
products will be successful,  that the Company's trademarks will not violate the
proprietary  rights  of  others,  or that the  Company  will be able to avoid or
successfully defend challenges to its trademarks or other intellectual  property
in the United States or abroad.

                                   EMPLOYEES

As of July 31, 2000, the Company had 14 non-retail store employees. In addition,
the Company had 15 retail store employees. These numbers fluctuate significantly
during  "on" and "off"  seasons.  The non-Jagged  Edge  independent  sales force
totaled 12 during  FY2000.  The Company  believes  that its  relations  with its
employees and independent sales representatives are good.

Item 2.  Properties.

  The principal executive, administrative and warehousing offices of the Company
are located at 52 Pilot Knob,  Telluride Colorado,  81435. The general location,
use and approximate size of the Company's principal locations,  all of which are
leased, are set forth below:

<TABLE>
<CAPTION>

<S>                                           <C>                        <C>                       <C>

LOCATION                                             USE              MONTHLY LEASE
--------                                             ---              -------------

52 Pilot Knob Lane, Telluride CO 81435        Corporate, Warehousing     $3,600/mo                 Expires: Nov. 1, 2004
2020 Navajo Heights, Moab, UT 48532           Administrative             $600/mo                   Expires: Oct. 31,2001
129 W. Colo. Ave., Telluride, CO 81435        Retail                     $3,000/mo                 Expires: May 15, 2005
326 Main Street, Breckenridge, CO 80424       Retail                     $3,705/mo                 Expires: Sep. 1, 2001
201 Elk Avenue, Crested Butte CO 81224        Retail                     $4,193/mo                 Expires: June 2, 2015
612 Main Street, Ouray CO 81427               Retail                     $950/mo                   Expires: Feb. 28, 2001
565 Mt. Village Blvd, Mt Village, CO 81435    Retail                     $553/mo                   Expires: Mar. 1, 2017

</TABLE>

Sublease of Location:

Ouray, CO: 612 Main Street, Ouray CO 81427
As of March 1, 2000,  this  location  was sublet for the  remaining  term of the
lease.

Change of Location:

In October,  1999 the Salt Lake City, UT office was closed and replaced with the
Moab, Utah office. The lease on the Salt Lake office was cancelled.

<PAGE>

Option to Purchase:

Jagged Edge Headquarters: 52 Pilot Knob Lane, Telluride CO 81435
The Company's  lease  contained an option to purchase the  property.  The option
expired June 1, 2000 and was not exercised by the tenant.

Expansion:

Telluride, CO: 129 W. Colo. Avenue, Telluride, CO 81435
The Company  increased  the retail  selling  area by 400 square feet in February
1999.

Termination of Lease:

In  October,  2000 the  Company  reached  an  agreement  with the  leasor of the
Mountain  Village  property.  The lease on the property  will  terminate  and be
voided at December 1, 2000.

Competitive Conditions

Jagged  Edge  Mountain  Gear  may  experience  competitive  real  estate  market
conditions at the  expiration of one or more of its leases.  It is possible that
renewal may become difficult or economically  unfavorable,  however that has not
been the experience historically.

Insurance

The  Company  carries  a  comprehensive  commercial  business  insurance  policy
consisting of a commercial package, commercial auto, commercial umbrella, inland
marine, and workers' compensation coverage for the Company. The package provides
coverage for each of the Jagged Edge Mountain Gear retail locations.

Jagged Edge Mountain Gear Locations: Address, Square Footage, and Annual Rent:

Jagged Edge Mountain Gear Corporate  Offices:  52 Pilot Knob Lane,  Telluride CO
81435
Area Square Feet: 5,000
Annual Rent: $43,200

Moab, UT: 2020 Navajo Heights, Moab, UT     48532
Area Square Feet: 1,100
Annual Rent: $7,200

Telluride, CO: 129 W. Colo. Avenue, Telluride, CO 81435
Area Square Feet: 1,838
Annual Rent: $36,700

Breckenridge, CO: 326 Main Street, Breckenridge, CO 80424
Area Square Feet: 1,100
Annual Rent: $54,200

Crested Butte, CO: 201 Elk Avenue, Crested Butte CO 81224
Area Square Feet: 1,400
Annual Rent: $47,000

<PAGE>

Ouray, CO: 612 Main Street, Ouray CO 81427
Area Square Feet: 1,000
Annual Rent: $11,400

Mountain Village, CO: 565 Mt. Village Blvd, Mountain Village, CO 81435
Area Square Feet: 689
Annual Rent: $6,600

Gross Annual Rental:

The gross annual rental  represented  by Jagged Edge Mountain Gear leases totals
approximately $206,300.

Item 3.  Legal Proceedings.

As of November 1999 the following matter has been settled:

The following legal  proceedings were pending as of July 31, 2000, or aso f date
hereof against the Company.


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

No matters were  submitted to a vote of security  holders  during the year ended
July 31, 2000.


<PAGE>



                                     PART II

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

     (a) Market Information
     ----------------------

The  Company's  common  stock is quoted on the over the counter  bulletin  board
(OTCBB)  under the symbol JEMG.  On January 14,  2000,  trading was moved to the
"pink sheets" for failure to timely comply with the filing of the Company's form
10-SB with the SEC. The Company's stock remained on the "pink sheets" until July
19,2000, when it was reinstated on the OTCBB.

The  quotations  shown below were  compiled by Jagged Edge  Mountain Gear (JEMG)
from monthly  statistical  reports supplied by OTCBB and other reliable sources.
All quotes  represent  bid and ask prices or  averages  and may not  necessarily
represent actual transactions in common stock.

                                             High                 Low
                                             ---------------------------
Fiscal Year Ended
July 31, 2000
-------------------
First Quarter  (08/99-10/99)                  $ 0.57               0.30
Second Quarter (11/99-01/00)                    0.60               0.20
Third Quarter  (02/00-04/00)                    0.50               0.20
Fourth Quarter (05/00-07/00)                    0.33               0.22

Fiscal Year Ended
July 31, 1999
-------------------
First Quarter *(08/98-10/98)                  $ 1.00             $ 0.08
Second Quarter (11/98-01/99)                    0.49               0.09
Third Quarter  (02/99-04/99)                    0.91               0.31
Fourth Quarter (05/99-07/99)                    0.75               0.41

* The OTC began quoting the Company's common stock on July 6, 1998.

These quotations reflect inter-dealer prices,  without retail mark-up,  markdown
or commission and may not represent actual transactions.

     (b) Holders
     -----------

As of July 31, 2000 and July 31,1999 the Company had  approximately  152 and 134
holders of record for its common stock  respectively,  not  including an unknown
number of beneficial holders in street name.

     (c) Dividends
     -------------

Because of its need to retain its cash for operations and the lack of a positive
cash flow,  the  Company  has never paid a dividend  with  respect to its common
stock and does not intend to pay such a dividend in the foreseeable  future.  At

<PAGE>

this time the Company  intends to retain all earnings if and when  derived,  for
use in its business.

     (d) Common Stock
     ----------------

Each  share of  common  stock is  entitled  to one vote for each  share  held of
record.  All shares of common stock will  participate  equally in dividends when
and if declared by the Board of  Directors.  The shares of common  stock have no
preference, conversion, exchange, preemptive or cumulative rights.

     (e) Options & Warrants
     ----------------------
The terms of an agreement  reached with an investor  during FY2000  required the
Company to issue an option  contract,  which contains the potential for exercise
of 3,000,000 options,  over a three-year  period.  These options are exercisable
under the following terms:

        o       June 2000 to July 31, 2001:  1,000,000 options at  strike  price
                25% below  the prior  60 days  bid  price average.  If not
                exercised,  these options expire.
        o       August 1, 2001 to July 31, 2002:  1,000,000 options  at strike
                price 20% below the prior 60 days  bid price average.  If not
                exercised, these options expire.
        o       August 1, 2002 to July 31, 2003:  1,000,000 options  at strike
                price 15% below the prior 60 days bid price average.  If not
                exercised, these options expire.
        o       These options are not cumulative.


Subsequent to July 31, 2000, the Company issued 400,000 options at $0.28,  for a
three-year term, effective September 12, 2000. These options were a condition of
a short-term loan the company received in the amount of $475,000.

     (f) Preferred Stock
     -------------------

As of this date, no preferred shares have been issued.

     (g) Common Stock Material Rights
     --------------------------------

All Common Stock will participate equally in net assets on liquidation.

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

This report on form 10-KSB,  including the information incorporated by reference
herein,  contains  forward-looking  statements within the meaning of the Private
Securities  Litigation Reform Act of 1995. Certain statements  contained in this
report  using the term "may,"  "expects  to,"  and other terms  denoting  future
possibilities, are forward looking statements. These statements include, but are
not limited to, those  statements  relating to development of new products,  the
financial  condition  of Jagged Edge  Mountain  Gear,  Inc.,  and the ability to
increase  distribution  of  the  Company's  products.   The  accuracy  of  these
statements cannot be guaranteed as they are subject to a variety of risks, which
are beyond the  Company's  ability  to predict or  control,  and which may cause
actual results to differ materially from the projections or estimates  contained
herein.  These risks are  described  in this Item 6, and also  elsewhere in this

<PAGE>

form  10-KSB.  The  business  and  economic  risks  faced by the Company and the
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors as described herein.

As discussed  in Note B to the  financial  statements,  the Company has suffered
recurring  losses,  negative cash flows from  operations  and resulting  working
capital shortages.

As a result of  significant  negative  operating  cash flow  during  FY2000  the
Company had, at July 31, 2000, working capital of approximately  $496,700 versus
$514,900  at  July  31,  1999.  The  opinion  of  the  Company's  auditors  that
accompanies the financial statements contains a going concern qualification.

Unless the Company can obtain raise additional equity or obtain additional debt,
there is  substantial  doubt as to the Company's  ability to continue as a going
concern.  Management's  plans in regard to these  matters are  described in this
Item 6. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.

Senior management has taken a number of steps, starting in FY2000 and continuing
into  FY2001,   to  restructure   and   streamline  the  Company's   management,
infrastructure,  product line, product costing,  and expense structure to better
match and monitor individual revenue and cost centers. Key to this restructuring
is the installation of the Company's new integrated  computer system,  described
in Part I, above.  Additionally,  the Company is implementing personnel policies
directly  addressing the hiring of, and retention of, quality  management staff.
Professional  management  is being sought to  complement  the  Company's  growth
curve,  and to help guide the  Company  through  and beyond the  current  growth
cycle. This restructuring will enable senior management to significantly improve
their  analysis of the Company's  operations on a  center-by-center  basis,  and
reduce or eliminate  non-performing  or  non-critical  areas.  In addition,  the
Company has taken an  approximate  $120,000  write off of excess  inventory  and
sales  samples in the fourth  quarter of FY2000.  The Company is also  currently
discounting  its prior  seasons  unsold  finished  goods  inventory.  Management
expects that gross margins will improve materially on FY2001 sales as management
focuses on sales  within the revenue  centers  providing  the  greatest  product
margins, and the overall profitability of the Company is expected to improve due
to control over the Company's various cost centers. The Company cannot offer any
assurance, however, that profitability will, in fact, increase.

Due to the fundamental requirement for the Company to achieve positive cash flow
from  operations  and positive net income,  the Company will  continue to direct
it's Management  efforts toward reviewing and improving  product profit margins,
throughout the Company lines, and increasing  revenues from the sale of products
with higher profit  margins.  To continue the Company's  objective of curtailing
operating  losses,  negative  cash flow from  operations  and further  liquidity

<PAGE>

erosion,  management is continually reviewing product profit margins and general
expense accounts,  and will reduce or eliminate all non-essential  expenditures.
Purchasing  procedures and inventory  control measures are also now in place, or
are being  implemented  to ensure  minimized  product  costs and to avoid excess
inventory levels.

The Company anticipates negative cash flow from operations for the first quarter
of FY2001, through the end of the fiscal year. During FY2000, cash flow deficits
were  funded by the sale of common  stock.  The  Company's  ability  to fund its
future  operations  will be dependent upon achieving  profitability,  generating
positive cash flow from operations or by raising additional debt or equity.

Unless the  Company is able to  accomplish  one or more of the above,  it may be
facing  significant   working  capital  shortages   continuing  through  FY2001.
Management of the Company does not believe that its existing  capital  resources
are  sufficient  for the 2001 fiscal year if it continues  to grow  revenues and
expenses in proportion to what it  experienced  during FY2000 and is required to
repay its debt  according  to  existing  maturities.  The  Company is  currently
seeking  additional  debt or equity  capital  to  augment  its  working  capital
position, or an arrangement with another company,  although no assurances can be
made as to the  availability  of such  debt or  equity  capital  or if it can be
obtained  at prices and terms that are in the best  interest  of the Company and
its  shareholders.  If the  Company is able to raise  additional  debt or equity
capital, it would allow the Company to fund its operating losses until such time
as its  restructuring  efforts  result  in a  level  of  positive  cash  flow or
profitability, although no assurance of that fact can be given.

If the Company is not able to obtain  additional  debt or equity capital it will
continue  its  efforts  in  reducing  the  size  and  operating  expense  of the
organization in the form of personnel and facilities in order to slow its growth
and downsize the operation to such an extent that it can continue to operate off
its own  internally  generated  cash flow.  No assurance  can be given as to the
success of such measures or whether they could be  accomplished  in a time frame
that would allow the Company to remain an ongoing entity.

Subsequent to July 31, 2000 the Company obtained a loan totaling $475,000 from a
non-related  party. Loan proceeds were received in two separate  installments of
$75,000 and $400,000, paid in August and September, 2000 respectively.  Proceeds
were used  primarily  to release  Jagged  Edge  production  goods from  overseas
suppliers,  and to a lesser extent for day to day  operational  expenses  during
the "off peak" seasons.

Liquidity and Capital Resources
--------------------------------

During the fiscal year ended July 31, 2000, the Company's current ratio
Declined  slightly  to 1.79 as compared  to 1.92 at July 31,  1999.  Net working
capital  decreased  to $496,716 at July 31, 2000 from  514,919 at July 31, 1999.
The Company's cash balances  increased to $64,279 at July 31, 2000, from $42,606
at July 31, 1999.

<PAGE>

Principal  changes in the components of net working  capital for the fiscal year
ended July 31, 2000 as compared to fiscal year ended July 31, 1999 consist of:

<TABLE>
<CAPTION>

<S>                                             <C>         <C>         <C>        <C>             <C>

                                                                                                  ---------------------------
                                                                                                    Change From FY1999 to
                                                  %                       %                                 FY2000
                                                                                                  ---------------------------
Working Capital Components:                     Total      FY2000       Total      FY1999                      $
                                                -----      ------       -----      ------                      -

Cash & cash equivalents                            6.6%         64,277     4.0%        42,606       $      21,671
Trade receivables                                  3.0%         28,854     3.0%        32,652       $      (3,798)
Other receivable                                   3.0%         29,341    12.1%       129,341       $    (100,000)
Inventories                                       87.2%        851,087    80.9%       866,558       $     (15,471)
Pre-paid expenses                                  0.3%          2,977     0.0%           525       $       2,452
                                              ------------------------------------------------     --------------------------
Current Assets                                   100.0%        976,536   100.0%     1,071,682              53,325

Accounts payable and accrued liabilities          67.7%        526,909    63.2%       351,897       $     175,012
Current maturities of notes payable               23.3%        181,157    25.1%       139,886       $      41,271
Other current payables                             9.1%         70,461    11.7%        64,980       $       5,481
                                              ------------------------------------------------     --------------------------
Current Liabilities                              100.0%        778,527   100.0%       556,763             221,764

                                                       ----------------        ---------------     --------------------------
Working Capital                                         $    198,009            $   514,919         $    (316,910)
                                                       ================        ===============     ==========================

</TABLE>

The principal  reason for the decrease in working  capital during FY2000 include
negative  cash flows from  operating  activities  primarily due to an aggressive
increased print  marketing  campaign,  increased labor costs,  and a significant
inventory reduction sale. Additionally, working capital further decreased due to
increases in current  maturities of notes payable,  accounts payable and accrued
expenses to help fund operating expenses.

Throughout  the  third  and  fourth  quarter  of  FY2000,  Management  has taken
substantive  measures  to reduce  expenses by a decrease in the number of sales,
marketing,  and administrative  personnel,  the closure of non-performing retail
locations  (Telluride  Mountain  Village and Ouray),  along with expense cuts in
management  compensation,  consulting and some  advertising.  The Company cannot
offer any assurance,  however, that profitability will, in fact, increase due to
these measures.

Issuance of, and sale of restricted stock for cash
---------------------------------------------------

Offsetting the expenditures of cash used for operating and investing activities,
were net proceeds of $898,970  received from the sale of 3,913,834 shares of the
Company's  common stock placement to accredited  investors  pursuant to Sections
4(2) and 4(6) of The Securities Act.

Currently,  as a condition of an  independent  investors  June 2000 common stock
investment,  there are 1,000,000 common stock options outstanding as of July 31,
2000.  These options are exercisable  under the following  terms: o June 2000 to
July 31, 2001: At strike price 25% below the prior 60 days bid price average.
        o       June 2000 to July 31,  2001:  1,000,000 options  at strike price
                25% below the prior 60 days bid price average. If not exercised,
                the options expire.
        o       August 1,  2001 to July 31,  2002:  1,000,000 options  at strike
                price 20%  below the  prior 60  days bid  price average.  If not
                exercised, the options expire.
        o       August 1,  2002 to July 31,  2003:  1,000,000 options  at strike
                price 15%  below the  prior 60  days bid  price average.  If not
                exercised, the options expire.


<PAGE>

Subsequent to July 31, 2000, the company issued 400,000 options at $0.28,  for a
three-year term, effective September 12, 2000. These options were a condition of
a short-term loan the company  received for $475,000 during August and September
2000.

If exercised (of which there can be no  assurance),  these options would provide
additional working capital to the Company.

The Company is exposed to market risks,  which include  foreign  currency risks,
interest rate risks and inflation risk. The Company does not engage in financial
transactions for trading or speculative purposes.

Foreign Currency Exchange Rate Risk
-----------------------------------

The Company's  inventory  purchases from contract  manufacturers in the Far East
are  denominated  in United States  dollars;  however,  purchase  prices for the
Company's  products may be impacted by fluctuations in the exchange rate between
the United States dollar and the local currencies of the contract manufacturers,
which  may have the  effect of  increasing  the  Company's  cost of goods in the
future.

In addition, the Company's sales in Japan and Canada are denominated at the time
of order  commitment,  in the United  States  dollar,  which may have a negative
impact  on order  completion  or  fulfillment  or the rate of growth of sales in
those countries if the U.S. dollar were to strengthen  significantly  versus the
related foreign currency.  Due to the number of foreign currencies  involved and
the fact that not all of these foreign  currencies  fluctuate in the same manner
against the United States dollar,  the Company cannot quantify in any meaningful
way the potential effect of such fluctuations on future income.

Furthermore, the Company may be affected by economic and political conditions in
each of the  countries in which it transacts  business.  Risks  associated  with
operating in the international arena include:
        o       Economic  instability,  including  the possible  revaluation  of
                currencies.
        o       Extreme currency exchange fluctuations where the Company has not
                entered into  foreign currency  forward and  option contracts to
                manage exposure to certain  foreign currency  commitments hedged
                any forward transactions.
        o       Changes to import or export regulations (including quotas).
        o       Labor or civil unrest.
        o       In certain parts of the world, political instability.

The Company  has not as yet been  materially  affected  by any such  risks,  but
cannot  predict the likelihood of such  developments  occurring or the impact of
any such risks to the future profitability of the Company.

<PAGE>

Interest Rate Risk
-------------------

The  interest  payable  on some of the  Company's  loans is  based  on  variable
interest rates and therefore  affected by changes in market  interest  rates. If
interest  rates on existing  variable  rate debt rises due to  increases  in the
prime  rate,  the  Company's  results  from  operations  and cash flows would be
impacted, although the Company believes, not materially.

Inflation Risk
--------------

The Company  believes that the  relatively  moderate rates of inflation over the
last three years in the United States, where it primarily competes, have not had
a significant effect on its net sales or results of operations.  Higher rates of
inflation have been  experienced  in a number of foreign  countries in which the
Company's  products are manufactured,  but this has not had a material effect on
the Company's net sales or results of  operations.  In the past, the Company has
been able to offset its cost increases by negotiation, increasing selling prices
or changing suppliers.

Results of Operations.

Jagged Edge Mountain  Gear  operations  resulted in a net loss of  approximately
$1,160,722  during FY2000 as compared to a net loss of $503,200  during  FY1999.
Net loss per share for FY2000 and FY1999 was $(0.08) and  $(0.04),  respectively
based upon weighted  average shares  outstanding  of 14,323,232 and  12,729,001,
respectively.  Company  Management  attributes  the increased loss during FY2000
primarily to the following factors.
o        A significant sale of surplus  inventories to one wholesale customer at
         a margin less than  standard  markup.  The sale was completed to reduce
         inventory levels and generate operating cash during the "off season."
o        Late seasonal  winter weather  patterns in the Colorado ski towns where
         Company owned and operated retail stores are located. Resulting in less
         than expected  sales volumes,  particularly  over the  Thanksgiving  to
         Christmas season.
o        The closure of two retail store locations - Telluride  Mountain Village
         and Ouray. Disappointing sales revenues, coupled with fixed operational
         and labor costs necessitated the closures.
o        Additional print advertising and marketing expenditures to support both
         increased catalog sales and the Company's wholesale division expansion.
o        Substantial  cost  inefficiencies  associated with a rapid expansion of
         the Company.  Increased  employee costs and  infrastructure  to support
         increased sales and expansion.

Beginning  in the second  quarter of FY2000,  the  Company  has made  efforts to
delete  non-profitable  operations  and reduce  expenses as a method of creating
positive cash flow and eventual profitability in the future.

Additionally,  as an aid to understanding  trends of the Company,  the following
two ratios describe historical summaries of liquidity and inventory activity for
the fiscal years ended July 31, 2000 and 1999.

The current ratio, which is computed by dividing total current assets by current
liabilities,  is a  measure  of  the  Company's  ability  to  meet  its  current
obligations as they come due. The Company's current ratios for FY2000 and FY1999
were 1.79 and 1.92 respectively, with a change of (0.13).

The inventory  turnover ratio, which is computed by dividing total cost of sales
by inventory,  is a measure of inventory  turns  completed  during the year. The
Company's  inventory  turnover  ratios for FY2000 and FY1999  were 3.01 and 2.53
respectively, with a change of 0.49.

Revenues
--------
Jagged Edge Mountain Gear total net product sales for all sales divisions during
FY2000 and FY1999 were approximately $2,739,050 and $2,206,384 respectively, for
an increase of $532,666 or 24.1%.

<PAGE>

Retail store gross sales for FY2000 and FY1999 were approximately $1,408,210 and
$1,455,682  respectively,  for a decrease of $(47,471) or (3.3)%. For FY2000 and
FY1999  retail  store gross  sales  comprised  51.4% and 66.0% of total  product
sales,  respectively.  The primary  reason retail sales were down from FY1999 is
the retail store closings of the Ouray and Mountain Village,  Colorado locations
during March and April 2000.  Gross retail store sales during  FY2000 and FY1999
for the three remaining locations (Telluride,  Breckenridge, Crested Butte) were
$1,261,064 and $1,256,385 respectively.

Wholesale  division  gross  sales  for  FY2000  and  FY1999  were  approximately
$1,004,243 and $486,075 respectively, for an increase of $518,168 or 106.6%. For
FY2000 and FY1999  wholesale  division gross sales  comprised 36.7% and 22.0% of
total product sales,  respectively.  During FY2000 international wholesale sales
totaled $253,300,  primarily to Japanese customers.  FY1999  international sales
totaled approximately $88,300, although exact numbers are not available.

Catalog  and Mail  Order  division  gross  sales  for  FY2000  and  FY1999  were
approximately $393,957 and $291,376 respectively, for an increase of $102,581 or
35.2%.  For FY2000 and FY1999 Catalog and Mail Order  division  sales  comprised
14.4% and 13.2% of total product sales, respectively.

Sales returns for FY2000 and FY1999 totaled  $107,231 and $43,485  respectively,
for an  increase  in  returns of $63,746  or  146.6%.  Sales  divisions  in this
analysis do not break down data for sales returns.


The following table is provided as an aid to further understand Company sales.

<TABLE>
<CAPTION>

<S>                                       <C>        <C>          <C>       <C>               <C>       <C>

                                                                                            -----------------------
                                            %                       %                       Change From FY1999 to
                                                                                                    FY2000
                                                                                            -----------------------
Revenues:                                 Total      FY2000       Total      FY1999             %          $
                                          -----      ------       -----      ------             -          -

 Retail Division                            51.4%     $1,408,210    66.0%    $1,455,682         -3.3%    $ (47,472)
 Wholesale Division                         36.7%      1,004,243    22.0%       486,075        106.6%    $ 518,168
 Mail Order Division                        14.4%        393,957    13.2%       291,376         35.2%    $ 102,581
                                        ------------------------------------------------    -----------------------
Total Gross Sales Revenues                 102.5%      2,806,410   101.2%     2,233,133         25.7%      573,277
  Less: Returns                             -3.9%      (107,231)    -2.0%      (43,485)        146.8%      (63,746)
                                        ------------------------------------------------    -----------------------
Net Sales Revenues                          98.5%      2,699,179    99.2%     2,189,648         23.3%      509,531
Shipping & Freight Collected                 1.5%         39,871     0.8%        16,736        138.2%       23,135
                                        ------------------------------------------------    -----------------------
Total Net Revenues                         100.0%     $2,739,050   100.0%    $2,206,384         24.1%    $ 532,666
                                        ================================================    =======================

</TABLE>

Management believes that contribution  margins from these divisions will improve
as the  percentage of sales costs and expenses are decreased and brought in line
with  existing and  projected  revenues by  division.  There can be no assurance
these  positive  changes  will ever  result in an increase in cash flow from the
Company's  operations or net income (as compared to the Company's historical net
losses).

Cost of Goods Sold
------------------

The Company's total product cost of sales for all sales divisions  during FY2000
and FY1999  were  approximately  $2,041,852  and  $1,406,694  or 75.6% and 63.7%
respectively, for an increase of $635,158 or 45.2%.

Cost of sales  percentages  increased  to 75.6%  from  63.7% of total  sales due
primarily to a surplus  inventory  sale to a wholesaler  below  standard  markup
price.  Additionally,  overall discounting within sales divisions contributed to
this decreased margin.

Cost of sales dollars have  historically  been allocated  based upon total sales
dollars equally among sales divisions.  The Company does not currently  maintain
sales costs by  division.  With the  installation  of the new  computer  system,
Management  feels  that the  Company  will have the  ability  to more  precisely
measure gross profit and contribution margin by sales division.

<PAGE>

Selling & Marketing Expenses
----------------------------
Selling and marketing expenses for FY2000 and FY1999 were approximately $432,104
and $143,372 for an increase of $288,732 or 201.4%.

The  $288,732  increase  in  selling  and  marketing   expenses  in  FY2000  was
attributable to an increase in mail order catalog printing and mailing costs for
the fiscal year of  approximately  $215,000  (both  winter and the addition of a
spring/summer),  the  addition of and  expansion of  sales/marketing  personnel,
including the costs  associated with the  installation  of a national  wholesale
sales force, and an increase in national magazine print  advertisements.  During
the first quarter of FY2001, the number of  sales/marketing  personnel have been
reduced as well as marketing  expenditures  in an effort to reduce the more than
proportional increase in selling and marketing expenses relative to sales.

<PAGE>

General & Administrative Expenses
---------------------------------

General and  Administrative  expenses  for FY2000 and FY1999 were  approximately
$1,361,634  and  $1,138,921  for an increase of $222,713 or 19.6%.  The $222,713
increase  in  general  &   administrative   expenses  in  FY2000  is   primarily
attributable to a general increase in  administrative  expense  proportionate to
increased sales,  increased  product sample purchases and write downs,  non-cash
increases in depreciation and amortization of $16,000, and a non-cash adjustment
of $25,000 to record a reserve for inventory obsolescence.

Interest Expense
----------------

Interest expense for FY2000 and FY1999 totaled $47,700 and $21,500 respectively,
or an increase of $26,200 or 121.9%. Interest expense increased due to increased
borrowing and debt incurred to supplement cash flow.  Interest includes non-cash
charges  for the fair  market  value of stock  issued as  payment  for  interest
expense.

<PAGE>

Year 2000 Compliance
--------------------

Although  there  can be no  assurance,  the  Company  does not feel  that it has
incurred  any adverse  impact as a result of Year 2000 (Y2k)  computer  software
issues  either  as a result  of third  party  non-compliance  or as a result  of
internal matters.  The Company has suffered no impact through November 29, 2000.
None of the  information  technology  or other  software  and  hardware  systems
utilized by the Company incorporates technology that is incapable of recognizing
dates beyond December 31, 1999.

In making the foregoing determination, the Company has assessed embedded systems
contained in their  office  building,  retail  locations,  equipment,  and other
infrastructures. As a result, the Company has not established a contingency plan
to come into effect in the event of a Y2k  catastrophe  and management  does not
believe that such a plan is  necessary.  Of course,  the Company is dependant on
facilities outside of their control, such as electrical power supplies,  banking
facilities,  transportation  facilities  (such as  airlines)  and  communication
facilities.  While  the  Company  believes,  based on  public  reports  and some
notifications it has received,  that these outside facilities are or will be Y2k
compliant, the Company has no other basis for determining their compliance.  The
operations of the Company would be significantly  and adversely  affected if any
of these outside  facilities were adversely affected by the millennium and other
issues related to Y2k.

Effect of Changing Prices and Inflation
---------------------------------------

Generally,  inflation  has  not  been a  significant  factor  on  the  Company's
operations.


Item 7. Financial Statements.

The following consolidated financial statements are filed as a part of this Form
10-KSB and are included immediately following the signature page.

<PAGE>

Reports of Independent Public Accountants (Page F-2 and F-3)

Balance Sheet - July 31, 2000 (Page F-4)

Statement of Operations - Years ended July 31, 2000 and 1999
(Page F-5)

Statements of Cash Flows - Years ended July 31, 2000 and 1999 (Page F-6)

Statement  of  Stockholders'  Equity - Years  ended July 31, 2000 and 1999 (Page
F-7) Notes to Financial Statements (Page F-8)


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

Changes in Registrant's Certifying Accountant

Dalby,  Wendland & Co., P.C. formerly CPAs for the Company,  resigned as auditor
in July 2000. Oatley, Bystrom & Hanson, CPAs of Englewood, Colorado were engaged
in July 2000 as auditors for the Company.

In connection  with the audit of the most recent  fiscal year, no  disagreements
exist  with any former  accountant  on any matter of  accounting  principles  or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of the former accountant would
have caused them to make reference in connection  with his report to the subject
of the disagreement(s).

The audit report by Dalby, Wendland, & Co., PC for the year ended July 31, 1999,
contained an opinion which included a paragraph discussing uncertainties related
to  continuation  of the  Registrant as a going  concern.  Otherwise,  the audit
report by Dalby,  Wendland & Co.,  PC for the year  ended July 31,  1999 did not
contain an adverse  opinion or  disclaimer  of  opinion,  nor was  qualified  or
modified as to uncertainty, audit scope, or accounting principles.



<PAGE>



                               PART III


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

         (a) Identification of Directors and Executive Officers.
         -------------------------------------------------------

The following table sets forth certain  information  regarding the directors and
executive officers of Jagged Edge Mountain Gear, Inc. (the "Company"):

Name                    Age         Position
------------------      ---   --------------------------

Margaret A. Quenemoen   39       CEO / President / Director
PO Box 2514
Telluride, CO 81435

Paula S. Quenemoen      39       Executive VP / Director
PO Box 2514
Telluride, CO 81435

No arrangement  exists between any of the above officers and directors  pursuant
to which any one of those  persons was elected to such office or  position.  All
directors were elected by the shareholders,  and have held their positions since
the founding of the Company.

Directors  hold  office  until  the next  meeting  of  shareholders  and until a
successor is elected and qualified, or until their resignation.

Executive  officers  are elected at annual  meetings of the Board of  Directors.
Each such officer  holds office for one year or until a successor  has been duly
elected and qualified or until death, resignation or removal. No director of the
Company is a director of another  company  having  securities  registered  under
Section 12 of the Securities  Exchange Act of 1934 or a company registered under
the Investment Company Act of 1940.

MARGARET A. QUENEMOEN, CEO, President,  Director, and founder of the Company. In
1998, Ms.  Quenemoen was a finalist for the Ernst and Young  Entrepreneur of the
Year Award.  Margaret's  organizational skills are demonstrated by her competent
overseeing all  departments and aspects of the Company  particularly  including,
design, image and strategy. She steers and directs the Company, devising Company
plans and goals.  Ms.  Quenemoen  works closely with bankers,  lawyers and other
advisors.  Previous  employment  includes  an  outerwear  production  management
position at Odyssey of America in 1992, overseeing 100 plus employees.  Margaret
graduated from the University of Colorado at Boulder with a BA in Economics. Ms.
Quenemoen  has served as a director  of the  Company  since its  inception.  Ms.
Quenemoen holds no directorships in any other companies.

<PAGE>

PAULA S. QUENEMOEN, Executive Vice President, Director. Ms. Quenemoen began with
Jagged  Edge  Mountain  Gear in 1993.  Her  position  encompasses  all  areas of
management,  with special emphasis placed on catalog  production and design, web
site development,  wholesale development, trade shows and business strategy. Ms.
Quenemoen  oversees  the image and  marketing of the  Company.  Ms.  Quenemoen's
business experience includes working as an international offshore buyer in China
for  Occidental  Petroleum.  Her fluent  Chinese and contacts in China have been
utilized in  establishing  relationships  with  manufacturers  in China and Hong
Kong.  She graduated from the University of Utah with BA majors in Asian Studies
and Political  Science,  a Minor in Chinese and a Certificate  of  International
Relations.  Ms.  Quenemoen  has served as a director  of the  Company  since its
inception. Ms. Quenemoen holds no other directorships in any companies.

         (b) Identification of Certain Significant Employees.
         ----------------------------------------------------

Members of senior  management who make significant  contributions to Jagged Edge
Mountain Gear, Inc include:

CRAIG K. CARR, Chief Financial Officer

Mr. Carr was hired as the Company's Chief  Financial  Officer as of August 2000.
He graduated  from  Metropolitan  State College of Denver with a B.S.  degree in
financial accounting, and from the University of Colorado at Boulder with an MBA
in information systems. Mr. Carr is a licensed Certified Public Accountant (CPA)
and has earned his Certified Management Accountant (CMA) designation.

He is responsible for all financial areas of the Company including audits,  bank
relations, budgeting and forecasting,  implementing strategic plans, information
systems,  financial analysis,  human resources, SEC reporting and all day-to-day
financial  operations.  In  addition,  he  will  be  working  closely  with  the
production department and planning to best manage cash flows.

His background includes over 20 years diversified experience as CFO / Controller
in companies  such as OP  Childrenswear,  Crested  Butte  Mountain  Resort,  and
Western Horizon Resorts, all Colorado based companies.

JORDAN CAMPBELL, Marketing and PR Manager

Mr.  Campbell  joined  the  Company  in June of  1999.  He  graduated  from  the
University   of  Colorado  in  1990  with  a  B.A.   degree  in  marketing   and
communication.

He brings to the Company extensive knowledge and experience in promoting outdoor
garments  to  retailers  and the  public.  The  Company  plans  to  utilize  Mr.
Campbell's skills to accelerate the Company's growth.

Mr. Campbell was Promotions Manager with The North Face, Inc. from 1998 to 1999.
From 1997 to 1998 Mr. Campbell was the Marketing  Director for Boulder  Mountain
Sports. From 1992 to 1997 he was Outreach Director with REI.

<PAGE>

ERIC GILMORE, Lead Designer and Production Manager

Mr. Gilmore has been the Company's  lead  outerwear and clothing  designer since
1997. He specs designs, sources materials, oversees production, and is an expert
in high tech  fabrics.  He also acts as liaison  between the Asian and  domestic
clothing factories, and the Company. Mr. Gilmore joined the Company from Eastern
Mountain Sports, where he was Product Developer & Designer from 1993 to 1997.

         (c) Family relationships.
         -------------------------

Margaret A. Quenemoen, CEO / President,  and Paula S. Quenemoen,  Executive Vice
President, are identical twin sisters and form the whole Board of Directors.

         (d) Involvement in Certain Legal Proceedings.
         ---------------------------------------------

During the past five years, no Director,  Executive Officer, Promoter or Control
Person of the Company has:

1)       Filed  or has had  filed  against  him a  petition  under  the  federal
         bankruptcy laws or any state insolvency law, nor has a receiver, fiscal
         agent or similar  officer been appointed by a court for the business or
         property of such person,  or any  partnership in which he was a general
         partner, or any corporation or business  association of which he was an
         executive officer at or within two years before such filings;
2)       Been convicted in a criminal proceeding or is a named subject of a pend
         -ing criminal proceeding (excluding traffic violations  and other minor
         offenses);
3)       Been the subject of any order,  judgment,  or decree,  not subsequently
         reversed, suspended or vacated, of any court of competent jurisdiction,
         permanently  or  temporarily  enjoining  such person from, or otherwise
         limiting his involvement in any type of business, securities or banking
         activities.
4)       Been found by a court of competent  jurisdiction in a civil action, the
         Securities  and Exchange  Commission or the Commodity  Futures  Trading
         Commission  to  have  violated  any  federal  or  state  securities  or
         commodities  law, which judgment has not been reversed,  suspended,  or
         vacated.

Compliance with Section 16(a) of the Exchange Act

Section  16(a) of the  Securities  Exchange  Act of 1934  (the  "Exchange  Act")
requires the Company's  directors and officers and persons who own more than ten
percent of the  Company's  equity  securities,  to file reports of ownership and
changes in ownership with the Securities  and Exchange  Commission  (the "SEC").
Directors,  officers and greater than  ten-percent  shareholders are required by
SEC  regulation  to furnish the Company with copies of all Section 16(a) reports
filed.

During the period February 17, 2000 through July 31, 2000 the following  persons
failed to file reports:

        Margaret A. Quenemoen - Form 3

        Paula S. Quenemoen - Form 3

<PAGE>

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

Margaret  A.  Quenemoen,  President  / CEO is  paid  $15,600  cash  compensation
annually for all services performed on behalf the Company. The Company also pays
approximately  $340 per  month for the  Company  car used by Ms.  Quenemoen  and
approximately   $1,000  per  month  for  Ms.  Quenemoen's  living  quarters  and
miscellaneous  personal expenses.  Visiting employees and consultants frequently
use Ms.  Quenemoen's  adjoining  living  quarters  in  order to  reduce  Company
expenditures  in this area.  Ms.  Quenemoen is committed  to the  viability  and
growth of the  Company.  Her  financial  needs are modest and she chooses to the
have the  funds  stay in the  Company  at this  time.  No  cash,  stock or other
compensation plan currently exists for Ms. Quenemoen. No assurances can be given
that this arrangement will not change at a future date.

Paula S. Quenemoen,  Executive  Vice-President is paid $24,960 cash compensation
annually for all services performed on behalf the Company. The Company also pays
approximately  $320 per  month for the  Company  car used by Ms.  Quenemoen  and
approximately  $600 per  month  for Ms.  Quenemoen's  living  and  miscellaneous
personal  expenses.  Ms.  Quenemoen is committed to the  viability and growth of
Jagged Edge Mountain  Gear.  Her  financial  needs are modest and she chooses to
have the  funds  stay in the  Company  at this  time.  No  cash,  stock or other
compensation plan currently exists for Ms. Quenemoen. No assurances can be given
that this arrangement will not change at a future date.

<TABLE>
<CAPTION>
<S>                     <C>   <C>        <C>   <C>          <C>           <C>

NAME / POSITION         ANNUAL                    OTHER     RESTRICTED    ALL CASH
                        YEAR    SALARY   BONUS    COMP.     STOCK         COMP.

Margaret A. Quenemoen   2000   15,600    $0    $16,080      0             $31,680
President / CEO         1999  $15,000    $0    $14,100      0             $29,100
                        1998  $ 7,346    $0    $10,115      0             $17,461
                        1997  $15,703    $0    $ 6,740      4,236,000     $22,443



Paula S. Quenemoen      2000  $24,960    $0    $11,040      0             $36,000
Executive VP            1999  $24,960    $0    $ 7,080      0             $31,840
                        1998  $24,960    $0    $ 6,615      0             $31,575
                        1997  $14,825    $0    $ 4,480      2,824,000     $19,305

</TABLE>

<PAGE>

         (b) Stock Option Plans.
         -----------------------

In summary,  the Jagged Edge Mountain Gear, Inc. Stock Plan (the "Plan") is used
as a means whereby the Company may,  through  awards of stock options within the
meaning of section 422 of the Code:
        o       Provide  employees  of the Company  with additional incentive to
                promote the success of the  Company's  businesses  and encourage
                such employees to remain employed with the Company.
        o       Provide  incentive for potential  employees to accept employment
                with the Company.
        o       Provide  directors  of the  Company who are not also  employees
                of the Company, and consultants and other independent
                contractors who provide services to the Company, with additional
                incentive  to promote the success of the Company's business.

The laws of the State of Colorado govern the  construction  and operation of the
Plan.

Stock Subject to the Plan.

The aggregate number of shares of the Company's .001 par value Common Stock that
may be issued  under  Options  or as  Restricted  Stock  under this Plan may not
exceed 5,000,000  shares of Common Stock. If any awards terminate or expire,  as
to any number of shares,  new Options,  and  Restricted  Stock may thereafter be
awarded with respect to such shares.

No  Participant  may be granted  awards under the Plan in any  calendar  year in
respect of more than 500,000 shares of Common Stock.  Option terms may vary, but
are typically for periods from five to ten years.

The Board shall  administer  the Plan. In addition to any other powers set forth
in this Plan, the Board has the exclusive authority:
        o       To construe and interpret the Plan, and to remedy any ambigui-
                ties  or  inconsistencies  therein.
        o       To establish,  amend and rescind appropriate rules and regula-
                tions  relating to the Plan.
        o       To determine the individuals  who will receive awards of Options
                or Restricted Stock, the times when they will receive them, the
                number of shares to be subject to each award and the Option
                Price, payment terms,  payment method,  and expiration date
                applicable to each award.

As of the date of this filing,  the Company has not issued, nor have any options
been exercised, under this or any other incentive stock option plan.


         (c) Long-Term incentive compensation plans.
         -------------------------------------------

The Company has no long term incentive compensation plans.

         (d) Other Compensation
         ----------------------

There are no plans to pay bonuses or deferred  compensation  to employees of the
Company.

The Company  provides access to a medical  insurance plan,  which provides major
medical  and basic term life  insurance  for its  employees.  The  Company  also
provides  access  to  other  types  of  coverage  such  as  supplemental   life,
disability,  and other insurance plans for the benefit of its employees,  but at
the employee's expense.

     (e) Compensation of Directors
     -----------------------------

General.  The Company's  directors have not been paid cash  compensation for any
directors  meeting  attended by them. To date,  the directors  have waived their
right  to  receive  director's  fees.  No  assurances  can be  given  that  this
arrangement will not change at a future date.

Indemnification  Agreements. The Company's bylaws provide for indemnification of
officers,  directors,  employees and agents to the fullest  extent  permitted by
Colorado  law. The Company  carries no Directors  and Officers  (D&O)  insurance
policy.

<PAGE>

The  Company has no other  arrangements  pursuant  to which it  compensates  its
directors for acting in their capacities as such.

(f)      Employee Contracts and Change of Control Provisions
     --------------------------------------------------------

The  Company  currently  has no  employment  contracts  with  its two  executive
officers.  The Company has no compensatory  arrangement  which may result from a
change-of-control  of  the  Company  or  a  change  in  any  executive  officers
responsibilities

         (g) Re-pricing of Options

No options were re-priced during the fiscal year.


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

     (a) and (b) Security ownership of certain beneficial owners and management.
     -----------------------------------------------------------------

At July  31,  2000,  the  Company  had  only one  class  of  outstanding  voting
securities,  its common stock. The following table sets forth  information as of
November 15, 2000 with respect to the  ownership of the  Company's  Common Stock
for all directors,  individually, all officers and directors as a group, and all
beneficial  owners of more than five percent of the Common Stock.  The following
shareholders  have sole voting and investment  power with respect to the shares,
unless it has been indicated otherwise.


Name of beneficial         Shares owned              * Percent
Owner                      Beneficially (1)           Of Class
------------------         ----------------          ---------

Margaret A. Quenemoen         4,196,000              25.1%
52 Pilot Knob Lane
Telluride, CO 80537

Paula S. Quenemoen            2,824,000              16.9%
52 Pilot Knob Lane
Telluride, CO 80537

Top Summit, LLC               2,000,000              12%
P.O. Box 1971
Colorado Springs, CO  80971


All officers and directors
as a group (two persons)   7,020,000 (1)             42.0%


* Percent  of class  based upon  shares  outstanding  on  November  15,  2000 of
16,710,283.

(1) As used in this section,  the term  beneficial  ownership  with respect to a
security is defined by Rule 13d-3 under the  Securities  Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
or direct the  disposition)  with respect to the security  through any contract,
arrangement,   understanding,   relationship  or  otherwise.   Unless  otherwise
indicated,  beneficial  ownership  is of record and  consists of sole voting and
investment power.


         (c) Changes in Control.
         -----------------------

<PAGE>

The Company knows of no arrangement, the operation of which may, at a subsequent
date, result in change in control of the Company.

Item 12. Certain Relationships and Related Transactions.

Eileen W.  Cotro-Manes,  mother of the Quenemoen  sisters is a shareholder  with
ownership listed below:

Eileen W. Cotro-Manes
1899 Wellington Circle
Salt Lake City, Utah 84117

Common stock (Restricted), 300,000 shares


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

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

     The following is a complete  list of exhibits  filed as part of this Annual
Report on Form 10-KSB, which Exhibits are incorporated herein.

Exhibit
Number        Description
-------       -----------

3.1(k)        Articles of Incorporation*

3.2(n)        Bylaws*

10.3(j)       1999 Stock Option Plan*

23.1          Consent of Dalby, Wendland and Company, LLP

*  Incorporated  by  reference  to Form 10-SB and  amendments  thereto  File No.
   028499, filed December 14, 1999.

<PAGE>

                                   SIGNATURES
                                   ----------

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the  Company  has duly  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.

Dated: November 29, 2000          JAGGED EDGE MOUNTAIN GEAR, INC.



                                   By:/s/ Margaret A. Quenemoen
                                   -------------------------
                                   Margaret A. Quenemoen,
                                   President


                                   By:/s/ Craig K. Carr
                                   --------------------
                                   Craig K. Carr,
                                   Chief Financial Officer,
                                   Principal Accounting Officer


In accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the  following  persons on behalf of the Company
and in the capacities and on the dates indicated.




November 29, 2000     /s/ Margaret A. Quenemoen
                      ----------------------
                      Margaret Quenemoen, Principal Executive
                      Officer and Director

November 29, 2000     /s/ Paula S. Quenemoen
                      ----------------------
                      Paula S. Quenemoen, Executive Vice President and Director


November 29, 2000     /s/ Craig K. Carr
                      ----------------------
                      Craig K. Carr, Chief Financial Officer
                      Principle Accounting Officer

<PAGE>

                             Oatley & Hansen, P.C.
                        6061 S. Willow Drive, Suite #230
                          Greenwood Village, CO 80111
                                 (303) 770-2595
                              (303) 721-6925 - Fax



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS'

October 20, 2000

To the Board of Directors
Jagged Edge Mountain Gear, Inc.
Telluride, Colorado

We have audited the  accompanying  balance sheet of Jagged Edge  Mountain  Gear,
Inc.  as  of  July  31,  2000,   and  the  related   statements  of  operations,
stockholders'  equity and cash flows for the year then  ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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 Jagged Edge Mountain Gear, Inc.
at July 31, 2000,  and the results of its  operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been presented  assuming that the
Company will continue as a going concern,  which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.  As
discussed  in Note B to the  financial  statements,  the  Company  has  incurred
significant recurring losses and has a substantial liquidity shortage as of July
31,  2000.  As  a  consequence,  the  Company  requires  significant  additional
financing to satisfy outstanding obligations and continue operations. Unless the
Company successfully obtains suitable significant  additional financing there is
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters are also discussed in Note B. The
financial  statements  do not include any  adjustments  to reflect the  possible
future effect on the  recoverability and classification of assets or the amounts
and  classification  of  liabilities  that may result  from the  outcome of this
uncertainty.



/s/ OATLEY & HANSEN, P.C.
Greenwood Village, Colorado


                                      F-2

<PAGE>

                           DALBY, WENDLAND & CO., PC
                   Certified Public Accountants & Consultants
                                464 Main Street
                                  P.O. Box 480
                         Grand Junction, CO 81502-0430
                             Telephone 970/243-1921
                                Fax 970/243-9214


Jagged Edge Mountain Gear, Inc.


Report of  Independent Public Accountants

We have audited the accompanying statements of operations,  stockholders' equity
and cash flows of Jagged Edge  Mountain  Gear,  Inc. for the year ended July 31,
1999.  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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of  operations  and cash flows for the year
then ended in conformity with generally accepted accounting principles.

The financial  statements referred to above have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note B to the
financial statements,  the Company has suffered recurring losses from operations
and a liquidity  shortage,  which raise  substantial  doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note B. The financial  statements  referred to above do not include
any adjustments that might result from the outcome of this uncertainty.



DALBY, WENDLAND & CO., P.C.
Grand Junction, Colorado

October 16, 1999

                                      F-3

<PAGE>

                         JAGGED EDGE MOUNTAIN GEAR, INC.
                              Financial Statements
                                Table of Contents


                                                                           PAGE

Reports of Independent Public Accountants                           F-2 and F-3

Financial Statements

              Balance Sheet                                                 F-4

              Statement of Operations                                       F-5

              Statement of Cash Flows                                       F-6

              Statement of Changes in Stockholders' Equity                  F-7

              Notes to Financial Statements                                 F-8

<PAGE>

<TABLE>
<CAPTION>

                         JAGGED EDGE MOUNTAIN GEAR, INC.
                                  BALANCE SHEET
                                  July 31, 2000

<S>                                                                              <C>

ASSETS
Current Assets
Cash                                                                               $ 64,277
Accounts receivable, less allowance for
   doubtful accounts of $10,000                                                      28,854
Other receivables                                                                    29,341
Inventories                                                                         851,087
Prepaid expenses                                                                      2,977
                                                                                      -----

Total Current Assets                                                                976,536

Equipment and Leasehold Improvements, net                                           234,649

Other Assets
Trade name, net                                                                      19,667
Deposits                                                                             22,951
                                                                                     ------

Total Assets                                                                     $1,253,803
                                                                                 ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable and accrued liabilities                                           $526,909
Credit cards                                                                         70,461
Current portion of long-term debt                                                   181,157
                                                                                    -------

Total Current Liabilities                                                           778,527

Long-Term Debt, net of current portion                                              164,041
                                                                                    -------

Total Liabilities                                                                   942,568
                                                                                    -------


Stockholders' Equity
Preferred stock $.001 par value; 10 million shares authorized,
  none issued                                                                             -
Common stock $.001 par value; 50 million shares authorized,
  16,741,978 shares issued and outstanding                                           16,742
Additional paid-in capital                                                        2,208,262
Accumulated (deficit)                                                            (1,913,769)
                                                                                 -----------

Total Stockholders' Equity                                                          311,235
                                                                                    -------


Total Liabilities and Stockholders' Equity                                       $1,253,803
                                                                                 ==========


</TABLE>

                            See accompanying notes.

                                      F-4

<PAGE>

                         JAGGED EDGE MOUNTAIN GEAR, INC.
                             STATEMENT OF OPERATIONS
                        For the Year Ended July 31, 2000 and 1999

                                                    2000              1999
                                          --------------- -----------------
Sales                                        $ 2,739,050        $2,206,384
Cost of Goods Sold                             2,041,852         1,406,694
                                               ----------        ---------

Gross Profit                                     697,198           799,690
Operating Expenses
Selling                                        1,153,306           630,806
General and administrative                       612,752           623,472
Depreciation and amortization                     44,151            28,015
                                                  -------           ------

                                               1,810,209         1,282,293

Operating loss                                (1,113,011)         (482,603)

Other Income (Expense)
Interest expense                                 (47,711)          (21,531)
Other income                                          -                934
                                               ----------         ---------

Net Loss Before Income Tax                    (1,160,722)         (503,200)
Provision for Income Tax                              -                 -
                                               ----------        ----------

Net (Loss)                                   $(1,160,722)       $ (503,200)
                                             ============       ===========

Basic and Diluted (Loss) Per Share               $ (0.08)          $ (0.04)
                                                 ========          ========

Weighted Average Shares                       14,323,232        12,729,001
                                              ===========       ==========

                            See accompanying notes.

                                      F-5

<PAGE>

<TABLE>
<CAPTION>

                         JAGGED EDGE MOUNTAIN GEAR, INC.
                             STATEMENT OF CASH FLOWS
                    For the Year Ended July 31, 2000 and 1999

<S>                                                                  <C>                <C>

                                                                             2000              1999
                                                               ------------------- -----------------
Cash Flows from Operating Activities:
Net (loss)                                                            $(1,160,722)       $ (503,200)
Depreciation and amortization                                              44,151            28,015
Common stock issued as compensation                                        10,494            35,078
Common stock issued in lieu of interest                                    41,794             9,523
Changes in assets and liabilities
Decrease (increase) in accounts receivable                                  3,798            18,556
Decrease (increase) in settlement receivable                              100,000          (100,000)
Decrease (increase) in inventories                                         15,471          (155,729)
Decrease (increase) in prepaid expenses                                    (2,452)             (525)
Increase (decrease) in other assets                                             -           (17,100)
Increase in accounts payable and accrued liabilities                      175,012           245,478
Increase in credit cards                                                    5,481            52,006
                                                                            ------           ------

Net Cash Used by Operating Activities                                    (766,973)         (387,898)
                                                                         ---------         ---------

Cash Flows from Investing Activities
Purchase of equipment                                                     (27,569)          (80,222)
Acquisition of trade name                                                 (10,000)                -
Deposits                                                                    9,410                 -
                                                                            ------          --------

Net Cash Used by Investing Activities                                     (28,159)          (80,222)
                                                                          --------          --------

Cash Flows from Financing Activities
Proceeds from short-term debt                                                   -           147,518
Principal payments on short-term debt                                     (49,268)          (51,419)
Proceeds from long-term debt                                               10,000           224,159
Principal payments on long-term debt                                      (42,899)          (66,443)
Proceeds from issuance of stock                                           898,970           209,207
                                                                          --------           -------

Net Cash Provided by Financing Activities                                 816,803           463,022
                                                                          --------           -------

Decrease in Cash and Cash Equivalents                                      21,671            (5,098)

Cash and Cash Equivalents - Beginning of Year                              42,606            47,704
                                                                           -------            ------

Cash and Cash Equivalents - End of Year                                  $ 64,277          $ 42,606
                                                                         =========          ========

Supplemental disclosures:
Cash paid for interest                                                   $ 17,741           $ 3,594
Non-cash transactions -
   Stock issued to acquire trade name (Note C)                             10,000                 -
   Note payable exchanged for common stock (Note E)                             -            25,000


</TABLE>

                            See accompanying notes.

                                      F-6


<PAGE>

<TABLE>
<CAPTION>


                                         JAGGED EDGE MOUNTAIN GEAR, INC.
                                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                    For the Year Ended July 31, 2000 and 1999

<S>                                   <C>            <C>          <C>         <C>    <C>             <C>

                                                                                                       Additional
                                          Common Stock          Subscribed Common         Paid-In     Accumulated
                                          -------------        -------------------
                                          Shares       Amount   Shares      Amount       Capital         (Deficit)
                                          -------      -------              -------      --------        ---------

 Balances, July 31, 1998               12,380,000     $12,380           -      $ -       $972,558       $(249,847)

 Issuance of Stock:

 Cash                                     788,438         789           -        -        208,418               -

 In exchange for debt and
   related interest expense                62,000          62           -        -         30,938               -

 To employees as compensation              76,200          76           -        -         35,002               -

 Subscribed as required by
   notes payable terms                         -           -       13,395       13          3,510               -

 Net (loss)                                    -           -           -        -              -         (503,200)
                                      -----------      ------      ------       --      ---------        ---------

 Balances, July 31, 1999               13,306,638      13,307      13,395       13      1,250,426        (753,047)

 Issuance of stock:

    Cash                                3,913,834       3,914           -        -        895,056               -

    In lieu of interest                   123,750         124           -        -         41,670               -

    To employees and others as
       compensation for services           37,972          38           -        -         10,456               -

    Partial payment to acquire                                                                                  -
       trade name (Note C)                 22,222          22           -        -          9,978

 Issuance of stock previously
    subscribed                             13,395          13     (13,395)     (13)             -               -

 Settlement of dispute (Note G)          (642,500)       (643)          -        -            643               -

 Stock over-issued in 1999                                                                                      -
    returned                              (33,333)        (33)          -        -             33

 Net (loss)                                    -           -           -        -              -       (1,160,722)
                                      -----------      ------      ------       --      ---------     -- ---------

 Balances, July 31, 2000              16,741,978     $16,742         $ -      $ -     $2,208,262      $(1,913,769)
                                      ===========    ========        ====     ====    ===========     ============


</TABLE>

                            See accompanying notes.

                                      F-7
<PAGE>

                         JAGGED EDGE MOUNTAIN GEAR, INC.
                          NOTES TO FINANCIAL STATEMENTS



NOTE A - ORGANIZATION AND NATURE OF BUSINESS
Jagged Edge Mountain Gear, Inc. (the  "Company"),  incorporated in Colorado July
27,  1997,  is engaged  in the  design,  production,  marketing  and  selling of
technical outdoor clothing and accessories using high-performance fabrics. Sales
are made through three Colorado retail stores located in ski resorts, mail-order
catalogue, via the Internet, and wholesale to other retail vendors.


NOTE B - BASIS OF PRESENTATION
Going Concern Consideration
The Company has  incurred  significant  losses  since its  inception,  and this,
coupled with a shortage of liquidity, raises substantial doubt about its ability
to continue as a going  concern.  These  conditions  are partially the result of
less than expected sales volumes  during fiscal 2000 and 1999; in addition,  the
Company incurred substantial cost inefficiencies associated with rapid expansion
in fiscal 2000 and 1999.  The Company  hopes to achieve  increased  future sales
volume by substantially  increasing the distribution of their mail order catalog
and adding a new product brand targeted at younger  customers.  Management hopes
to  improve  the  gross  margin  by  increasing  sales  prices  and  controlling
discounting.  The  success of these  plans will  directly  affect the  Company's
ability to meet its short-term obligations.

NOTE C - SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the financial  statements and accompanying notes.
Significant areas requiring the use of management estimates are determination of
the  allowance  for  doubtful  accounts  receivable,   valuation  of  inventory,
assessment  of  realization  of  intangible  assets,   useful  asset  lives  for
depreciation  and  amortization,  valuation  of stock  issued for  services  and
interest and valuation of deferred tax assets.  Actual results could differ from
those  estimates and changes in such  estimates may affect  amounts  reported in
future periods.

Revenue Recognition
The Company recognizes retail sales revenue at the point of sale. For wholesale,
mail order and Internet sales, revenue is recognized upon shipment.

Customers returning  merchandise within thirty days of the sale can receive cash
or merchandise at their option.  For returns from thirty to sixty days after the
sale,  the Company  will accept  exchanges  for credit or  merchandise.  Factory
damaged  merchandise  is repaired or replaced at the Company's  discretion.  The
Company records these  transactions  when  merchandise is returned,  replaced or
repaired.   Historically,   returns,   replacements   and   repairs   have  been
insignificant.

Inventories
Inventories  are valued at the lower of cost  (first-in,  first-out)  or market.
Management  monitors  quantities of inventory to determine  over and under stock
situations  at the  Company's  retail stores and  warehouse.  When  inventory is
identified  as  obsolete,  it is  segregated  and  adjusted  to lower of cost or
salvage value. As of July 31, 2000, inventories consisted of the following:

Raw materials                                                        $321,792
Finished goods                                                        529,295
                                                                     ---------

                                                                     $851,087
                                                                     =========

Equipment and Leasehold Improvements
Equipment  and  leasehold   improvements  are  stated  at  cost.   Equipment  is
depreciated  using the  straight-line  method over the estimated  economic life.

                                      F-8

<PAGE>

                        JAGGED EDGE MOUNTAIN GEAR, INC.
                         NOTES TO FINANCIAL STATEMENTS


Leasehold  improvements  are amortized  over the lesser of the lease term or the
economic life of the improvements using the straight-line method. As of July 31,
2000, equipment and leasehold improvements consist of the following:

Leasehold improvements                                                $ 101,262
Office fixtures and equipment                                            56,682
Auto                                                                     37,691
Computer system, not in service (Note G)                                125,278
                                                                      ----------
                                                                        320,913
Accumulated depreciation                                                (86,264)
                                                                      ----------

                                                                      $ 234,649
                                                                      ==========

Depreciation expense for fiscal 2000 and 1999 was $43,818 and $28,015.

The  average  estimated  useful  lives are as  follows:  leasehold  improvements
approximately  5  years  with a  range  of 3 to 7  years;  office  fixtures  and
equipment  approximately  3  years  with a range  of 2 to 5  years;  and,  autos
approximately  3 years  with a range  of 1 to 6 years.  Because  most all of the
office fixtures and equipment and autos are purchased used, the average expected
useful life is estimated to be shorter than if purchased new.

Trade name
The Company uses a distinctive  trademark  including the words "Jagged Edge"(TM)
on all of its products.  Prior to  cancellation in June 2000, the trade name was
used pursuant to a royalty agreement with an individual,  and in fiscal 2000 and
1999, royalties of $1,500 and $2,000 were paid, respectively.  In June 2000, the
Company  acquired the trade name from the individual  for $20,000:  $10,000 cash
and 22,220 shares of common stock valued at $10,000.  The cost of the trade name
is being amortized on a straight-line  basis over an estimated useful life of 10
years. As of July 31, 2000, the cost and accumulated amortization is as follows:

               Trade name costs                      $  20,000
                   Accumulated amortization            (   333)
                                                     ----------

                                                      $ 19,667
                                                      =========

Advertising Expenses
The Company expenses all advertising costs as incurred.  Advertising  expense in
fiscal 2000 and 1999 was $14,491 and $19,758, respectively.

Research and Development
All research and development costs are expensed when incurred.

Income Taxes
Income taxes are  calculated  using the liability  method  specified by SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax  consequences of
events that have been  recognized  in a company's  financial  statements  or tax
returns.  Under this method,  deferred  liabilities are determined  based on the
difference  between the financial  statement  carrying  amounts and tax basis of
assets and  liabilities  using enacted tax rates in effect in the years in which
the  differences  are expected to reverse.  Deferred tax assets are reduced by a
valuation allowance to the extent realization is uncertain. (See Note F.)

Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares common stock  outstanding  during each period.
Diluted  earnings  per share is computed  on the basis of the average  number of

                                      F-9

<PAGE>

                        JAGGED EDGE MOUNTAIN GEAR, INC.
                         NOTES TO FINANCIAL STATEMENTS


common shares  outstanding  plus the dilutive effect of convertible  debt, stock
options and warrants. The basic and the dilutive earnings per share are the same
in fiscal 2000 and 1999 since the Company  had net losses and  inclusion  of the
effect of stock options would be anti-dilutive.

Cash Equivalents
For purposes of the statements of cash flows,  the Company  considers all highly
liquid debt  instruments  purchased  with a maturity of three months or less, as
well as demand deposits, to be cash equivalents.

Long-Lived Assets
Long-lived  assets,  such as intangible  assets and property and equipment,  are
evaluated for impairment when events or changes in  circumstances  indicate that
the carrying  amount of the assets may not be recoverable  through the estimated
undiscounted  future  cash  flows  from the use of these  assets.  When any such
impairment  exists,  the related  assets will be written down to fair value.  No
write-downs were necessary for fiscal 2000 or 1999.

Concentrations
The Company's  customers are not concentrated in any specific geographic region,
however its retail  stores are all in ski resort areas of Colorado.  At July 31,
2000 and 1999, no single customer accounted for a significant amount of accounts
receivable.   During   fiscal  2000  sales  to  one   wholesale   customer  were
approximately 18% of total sales, however in fiscal 1999, no customers accounted
for more than 5% of sales.  International wholesale sales approximated 9% and 4%
of sales in fiscal 2000 and 1999, respectively.

Effect of New Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board ("FASB"), issued Statement
of  Financial   Accounting   Standards  No.  133;   "Accounting  for  Derivative
Instruments and Hedging  Activities,"  (SFAS No. 133"). SFAS No. 133 (as amended
by SFAS No. 137)  requires  companies to  recognize  all  derivatives  as either
assets or liabilities  in the statement of financial  position and measure those
instruments at fair value.  SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000. The Company does not presently enter into any  transactions
involving  derivative  financial  instruments  and, does not  anticipate the new
standard will have any effect on its financial  statements  for the  foreseeable
future.

In March 2000, the FASB issued Financial  Interpretation No. 44, "Accounting for
Certain  Transactions  Involving Stock  Compensation,  an  Interpretation of APB
Opinion 25." Interpretation No. 44 is effective July 1, 2000. Interpretation No.
44 clarifies the application of Accounting  Principles  Board ("APB") Opinion 25
for various matters,  specifically:  the criteria for determining whether a plan
qualifies as a  non-compensatory  plan;  the  accounting  consequence of various
modifications  to the terms of a previously fixed stock option or award; and the
accounting  for  an  exchange  of  stock  compensation   awards  in  a  business
combination. Management does not believe that the adoption of Interpretation No.
44  will  have a  material  impact  on its  financial  position  or  results  of
operations.

In March 2000 the FASB's Emerging Issue Task Force ("EITF")  reached a consensus
on EITF 00-2,  "Accounting for Web Site Development  Costs." EITF 00-2 discusses
how an entity should  account for costs incurred to develop a web site. The EITF
is effective in the first  quarter of fiscal 2001.  Management  does not believe
that the  adoption  of EITF 00-2 will have a  material  impact on the  Company's
financial position or results of operations.

Reclassifications
Certain  reclassifications  were made to fiscal 1999  balances to conform to the
fiscal 2000 presentation.


NOTE D - LONG-TERM DEBT
Note payable to bank, monthly principle payments of $2,443 plus
interest at 2.25% over the bank's prime lending rate (currently
9.5%), due September 26, 2002.  Collateralized by inventory and
equipment.                                                             $  58,537

Note payable to bank, monthly payments including interest at 9.75%
of $320, due December 15, 2002, collateralized by vehicle.                 8,290

                                      F-10

<PAGE>

                        JAGGED EDGE MOUNTAIN GEAR, INC.
                         NOTES TO FINANCIAL STATEMENTS


Note payable to bank (assumed by the Company from an officer),
monthly payments including interest at 9% of $340, due February
2002, collateralized by vehicle.                                           6,002

Note payable, monthly payments of $221 including interest at 11.75%.
Due April 15, 2001.  Collateralized by accounts receivable, inventory,
equipment, and personal guarantee of officers.                             1,820

Stockholder debt:

Note to stockholder, interest at 10.5% and 1,500 shares of common
stock each month the loan is outstanding, due December 9, 2000.          125,271

Note to stockholder, interest at 8.00%, due March 31, 2002, unsecured.    10,000


Related party debt:

Note payable to relative of an officer, interest at 8.00%, due
March 31, 2002, unsecured.                                                10,000

Capital lease (Note G)                                                   125,278
                                                                      ----------
Total long-term debt                                                     345,198

Less current maturities                                                (181,157)
                                                                      ----------
Long term maturities                                                   $164,041

                                                                      ==========
Future maturities of long-term debt are as follows:

                                 Year Ending      Notes     Capital
                                  July, 31      Payable       Lease       Total
                                  --------      -------       -----       -----

                                   2001       $ 157,575    $ 23,583    $ 181,158
                                   2002          52,388      39,648       92,036
                                   2003           9,957      45,457       55,414
                                   2004             -        16,590       16,590
                                              ---------    --------     --------
                                              $ 219,920    $125,278    $ 345,198
                                              =========    ========    =========


NOTE E - COMMON STOCK
During fiscal 2000, the Company sold 2 million shares to an investment group for
$400,000.  The  agreement  also provides the investor an option to acquire up to
one million  shares of common stock each year at 75%, 80% and 85% of the average
bid price for the 60 day trading  period prior to exercise  during  fiscal 2001,
2002 and 2003, respectively.

Certain note payable agreements include provisions whereby common stock is to be
issued in lieu of principal or interest  payments.  During fiscal 2000,  123,750
shares were issued in lieu of interest totaling $41,794. During the fiscal 1999,
62,000  shares of common stock were issued in  consideration  for a note payable
with principal of $25,000 and interest of $6,000.

During the fiscal 2000 and 1999,  the Company issued 37,972 and 76,200 shares of
restricted common stock with an aggregate market value of $10,494 and $35,078 to
employees and others as compensation for services, respectively.


NOTE F - STOCK PLAN
In December 1999, the Board of Directors  adopted the Jagged Edge Mountain Gear,
Inc.  Stock  Plan (the  "Plan")  as a means to award  incentive  stock  options,
non-qualified  stock  options  and  restricted  stock  to  employees,  potential

                                      F-11

<PAGE>

                        JAGGED EDGE MOUNTAIN GEAR, INC.
                         NOTES TO FINANCIAL STATEMENTS


employees,  directors,   consultants  and  other  independent  contractors,  and
reserved 5 million shares of common stock for issuance under the Plan. The Board
of Directors is the  administrator  of the Plan. As of July 31, 2000, no options
or stock awards have been granted.


NOTE G - INCOME TAXES
The Company utilizes the asset and liability  approach for financial  accounting
and reporting for income taxes. The primary  objectives of accounting for income
taxes are to (a)  recognize  the amount of tax payable  for the  current  fiscal
year,  and (b)  recognize  the amount of deferred tax liability or asset for the
future tax  consequences  of events that have been  reflected  in the  Company's
financial statements or tax returns.

The Company did not record a provision for  corporate  taxes in the statement of
operations due to cumulative net operating losses, which substantially  accounts
for the deferred tax asset described below.

Deferred  income taxes reflect the impact of temporary  differences  between the
amount of assets and  liabilities  for  financial  reporting  purposes  and such
amounts as measured by tax laws and  regulations.  Deferred tax assets consisted
of the following at July 31, 2000:

         Deferred tax assets:
            Net operating loss carryforwards         $ 375,000
            Less valuation allowance                  (375,000)
                                                       --------

         Deferred tax asset, net                     $    -
                                                       ========

The valuation allowance was increased by $88,000 in fiscal 2000.

The  difference  between  income taxes at the federal tax rate and the effective
tax rate was as follows for fiscal 2000 and 1999:

                                                     2000              1999
                                                     ----              ----

         Computed at the federal tax rate            (20)%             (40)%
         Increase in valuation allowance              20                40
                                                     ---               ---

         Effective rate, net                          - %               - %
                                                     ====              ====

As of July 31, 2000, the Company had net operating loss  carryforwards  totaling
approximately  $1,884,000  resulting  from operating  losses.  The amount of net
operating  loss  carryforwards  that may be  utilized to offset  future  taxable
income, when earned, may be subject to certain  limitations,  based upon changes
in the ownership of the Company's common stock. The loss carryforwards expire in
various amounts from 2013 through 2020.


NOTE H - COMMITMENTS AND CONTINGENCIES
Settlement of Dispute
October 15, 1999, the Company  settled a dispute with former legal counsel.  The
settlement provided for payment of $100,000 by the attorney and a relinquishment
of 642,500  shares of common stock.  The settlement was recorded as a receivable
and a reduction of expense in fiscal 1999.  The  receivable  was  collected  and
stock returned to the Company during fiscal 2000.

Purchase Commitments
As of July 31,  2000,  the  Company  had  firm  outstanding  inventory  purchase
commitments totaling approximately $781,000 for its winter sales season.

Capital Lease
On June 30,  2000,  the  Company  entered  into a  capital  lease to  finance  a
networked  computer  system,  to  include  installation  and  setup,  equipment,

                                      F-12

<PAGE>

                        JAGGED EDGE MOUNTAIN GEAR, INC.
                         NOTES TO FINANCIAL STATEMENTS


software and warranty.  The system was placed in service in the first quarter of
fiscal  2001.  The total cost of the  system,  $125,278,  has been  included  in
property and equipment,  and amortization  will commence in August 2000.  Future
minimum lease payments are as follows:



                  Year Ending
                    July 31,

                2001                            $ 35,136
                2002                              52,704
                2003                              52,704
                2004                              17,566
                Amount representing interest      32,832)
                                                ---------
                Present value of future
                   minimum lease payments       $125,278
                                                =========

Operating Leases
The Company leases its retail stores,  warehouse and office space.  Total rental
expense for 2000 and 1999 was $193,320 and $197,406, respectively. The following
summarizes future minimum lease payments for operating leases:

                                   Year Ending
                                    July 31,

                                     2001         $141,493
                                     2002          142,092
                                     2003          131,006
                                     2004           48,892
                                     2005           50,356
                                     2006-2010     276,648
                                     2011-2012     111,464
                                                  ---------

                                                 $ 901,951
                                                ==========

The foregoing  minimum rentals for fiscal 2001 are reduced by $6,650 for amounts
to be received under a non-cancelable sublease.


NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS
The  carrying  amount for  accounts  receivable,  accounts  payable  and accrued
expenses  approximates fair value because of the short-term  maturities of these
instruments.  The fair value of notes payable approximates fair value because of
the market rate of interest on the debt.

The  determinations  of fair value  discussed above are subjective in nature and
involve  uncertainties  and  significant  matters of judgment and do not include
income tax  considerations.  Therefore  the results  cannot be  determined  with
precision and cannot be substantiated by comparison to independent market values
and may not be realized in actual sale or settlement of the instruments.


NOTE J - FOURTH QUARTER ADJUSTMENTS
During the fourth  quarter of fiscal  2000,  the  Company  recorded  significant
adjustments that decreased income by approximately $133,000 as follows:

                                    Expense sales samples         $95,000
                                    Reserve excess inventory       25,000
                                    Reserve doubtful accounts      13,000

                                      F-13

<PAGE>

                        JAGGED EDGE MOUNTAIN GEAR, INC.
                         NOTES TO FINANCIAL STATEMENTS


NOTE K - EVENT SUBSEQUENT TO JULY 31, 2000 BALANCE SHEET DATE
During  August  and  September  2000,  the  Company  borrowed  $475,000  from an
individual through a corporation controlled by him. The loan bears interest at 1
1/4% over the London  Interbank Offer Rate, is due in 120 days and is secured by
inventory.  As consideration for making the loan, the lender was granted options
to purchase 400,000 shares of common stock at $.28 per share for three years.

                                      F-14