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 December 31, 2000

Commission File Number
          0-25989

                         PEPPERMILL CAPITAL CORPORATION
             (Exact name of Registrant as specified in its charter)

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

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

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

Securities registered pursuant to Sections 12(b) and 12(g) of the Act:

                                                      Name of each exchange
         Title of Class                                on which registered:

         Common Stock, $.001 par value per share         NASD Bulletin Board

      Check 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.
                    /X/ Yes / / No

      Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated in Part III of the Form 10-KSB or any amendment to the Form 10-KSB.
/ /

      The Registrant's revenues for the fiscal year ended December 31, 2000,
were $0

      Based upon the average bid and asked price of $0.3437 for the Registrant's
Common Stock as of March 23, 2001. The aggregate market value of the voting
stock held by non-affiliates of the Registrant was then approximately $384,754.
(Determination of stock ownership by non-affiliates was made solely for the
purpose of responding to the requirements of this Form 10-KSB and the Registrant
is not bound by this determination for any other purpose).

      The number of shares of the Registrant's Common Stock outstanding as of
March 23, 2001, was 11,239,700 (excluding treasury shares).

      Transitional Small Business Disclosure Format (check one): / / Yes  /X/ No

<PAGE>

PART I

Item Nos. 1 and 2    Description of Business; Description of Property

      Information concerning all the factors associated with Peppermill is set
forth in this combined Item 1 and 2 below. FOR A COMPLETE UNDERSTANDING OF SUCH
FACTORS, THIS ENTIRE DOCUMENT, INCLUDING THE FINANCIAL STATEMENTS AND THEIR
ACCOMPANYING NOTES, SHOULD BE READ IN ITS ENTIRETY.

Background.

      Peppermill Capital Corporation, a Nevada corporation, was incorporated on
April 9, 1998. Peppermill has no subsidiaries and no affiliated properties. On
November 22, 1999, Varner Technologies, Inc. ("Varner") completed the purchase
of 10,116,000 shares of Peppermill Common Stock from several Peppermill
shareholders. On November 19, 1999, Peppermill entered into a Letter of Intent
with Varner Technologies, Inc. ("Varner"), relating to the merger of Varner into
Peppermill. Varner is an Internet service provider, and is further engaged in
the marketing and sale of long distance telephone services, prepaid telephone
cards and other telecommunications products and services via a network of
independent distributors, pursuant to a multilevel marketing plan, in 49 states
of the United States.

      The purchase of the shares of Peppermill's Common Stock by Varner was made
in contemplation of a business combination/merger transaction between the two
entities, whereby it is expected that all outstanding voting and non-voting
Common Stock of Varner will be exchanged for 10,116,000 shares of Peppermill's
Common Stock. The final terms of such business combination/merger by way of a
formal Acquisition Agreement are currently being negotiated and there is no
guarantee such transaction will take place. Peppermill will be required to
provide notice to and seek the consent of its shareholders to any business
combination/merger with Varner.

      Upon the purchase of Peppermill's Common Stock by Varner, the then current
officers and directors of Peppermill resigned, and Clayton W. Varner, President
and CEO of Varner, was elected sole director and President of Peppermill.

      Peppermill has obtained quotation on the NASD OTC Bulletin Board, and its
common stock commenced trading under the symbol PEPM on November 25, 1999.

      Peppermill intends to change its corporate name and trading symbol upon
the conclusion of any business combination/merger transaction between Peppermill
and Varner.

      Peppermill originally planned to explore and develop mineral rights to
certain mineral claims located in the Princeton area of British Columbia,
Canada. Peppermill currently has no planned operations or assets. It is
anticipated that after the merger, management efforts will be focused primarily
on the business of Varner and no effort will be made to develop Peppermill's
mining business.

      Upon the conclusion of any final business combination/merger transaction
by way of a formal Acquisition Agreement between Varner and Peppermill,
Peppermill anticipates that the focus of its business will be that of Varner,
namely, providing Internet Service, and engaging in the marketing and sale of
long distance telephone services, prepaid telephone cards and other


                                       1
<PAGE>

telecommunications products and services via a network of independent
distributors, pursuant to a multi-level marketing plan, in 49 states of the
United States.

      Peppermill has not been subject to bankruptcy, receivership or any similar
proceedings.

Employees

      As of March 23, 2001, a minimal amount of services had been performed by
Clayton W. Varner, Peppermill's President. Peppermill is not a party to any
employment contracts or collective bargaining agreements.

Item No. 3  Legal Proceedings

      There are no legal proceedings to which Peppermill is a party or to which
its property is subject, nor to the best of management's knowledge are any
material legal proceedings contemplated.

Item No. 4  Submission of Matters to a Vote of Security Holders

                        Not Applicable

PART II

Item No. 5  Market for Registrant's Common Equity and Related Stockholder
            Matters

Market Information.

      The Company's Common Stock was admitted to trading on the NASD OTC
Bulletin Board under the symbol PEPM on November 25, 1999. Prior to that time,
there was no established public trading market for the Company's Common Stock.
As a result, there is no available trading information for the period from
January 1, 1999, to November 24, 1999.

      The high and low bid prices during fiscal 1999, and fiscal 2000, by
quarter, according to the NASD OTC Bulletin Board, were:

                                                     High                Low
                                                     -------------------------

      November 25, 1999 (the inception of trading)   $     9.00    $     6.875
      to December 31, 1999
      January 1, 2000 to
      March 31, 2000                                 $     7.250   $     4.875
      April 1, 2000 to
      June 30, 2000                                  $     5.00    $     1.50
      July 1, 2000 to
      September 30, 2000                             $     2.9062  $     1.375
      October 1, 2000 to
      December 31, 2000                              $     1.875   $      .3437


                                       2
<PAGE>

Since the foregoing are over-the-counter market quotations, the quotations
reflect inter-dealer prices without retail mark-up, mark-down or commission, and
may not represent actual transactions.

Description of Securities

      Peppermill's articles of incorporation currently provide that Peppermill
is authorized to issue up to 200,000,000 shares of common stock, par value
$0.001 per share. As of March 23, 2001, 11,239,700 shares were outstanding.

Common Stock

     Each holder of record of Peppermill's common stock is entitled to one vote
per share in the election of Peppermill's directors and all other matters
submitted to Peppermill's stockholders for a vote. Holders of Peppermill's
common stock are also entitled to share ratably in all dividends when, as, and
if declared by Peppermill's Board of Directors from funds legally available
therefor, and to share ratably in all assets available for distribution to
Peppermill's stockholders upon liquidation or dissolution. There are no
preemptive rights to subscribe to any of Peppermill's securities, and no
conversion rights or sinking fund provisions applicable to the common stock.

     Neither Peppermill's Articles of Incorporation nor its bylaws provide for
cumulative voting. Accordingly, persons who own or control a majority of the
shares outstanding may elect all of the Board of Directors, and persons owning
less than a majority could be foreclosed from electing any.

Options Outstanding

     There are currently no options, warrants or rights to purchase Peppermill's
common stock outstanding.

Holders

      The number of record holders of Peppermill Common Stock as at March 23,
2001, was 17, of which 1 was a director.

Dividends

      Peppermill has never paid cash dividends on its common stock and does not
intend to do so in the foreseeable future. Peppermill currently intends to
retain any earnings for the operation and expansion of its business.

      The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be equity securities that have a market
price (as defined) of less than $5.00 per share, subject to certain exemptions.
Peppermill's Common Stock may be deemed to be a "penny stock" and thus may
become subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the Common Stock is listed on The
NASDAQ SmallCap Market or other exchange.


                                       3
<PAGE>

      Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell Peppermill's securities, and may adversely affect the
ability of holders of Peppermill's Common Stock to resell their shares in the
secondary market.

Item No. 6  Management's Discussion and Analysis of Financial Condition and
            Results of Operations

General

      Peppermill has not received any revenues from its limited operations to
date.

Plan of Operation

      Assuming the merger is completed, it is anticipated that management's
primary focus will be on the business of Varner and that Peppermill's mining
operations will not be developed.

Liquidity and Capital Resources

      Peppermill had no assets and $38,416 of liabilities as of December 31,
2000. Peppermill will require significant additional financing in order to
continue on with any kind of business. No financing has been arranged. If
Peppermill is unable to raise additional capital, it will not be able to engage
in future operations of any kind.

      An analysis of the expenses for the years ended December 31, 1999, and
December 31, 2000 are as follows:


                                             For the Year      For the Year
                                                Ended             Ended
                                             December 31,      December 31,
                                             ------------      ------------
                                                 1999             2000
                                                -------          -------

Accounting and audit                            $ 2,798          $28,703
Amoritization of Mining Rights                    2,129               --
Bank charges                                         36               --
Consulting fees                                  13,200               --
Filing Fee - EDGAR                                1,634            6,328
Legal                                                --            3,385
Office and miscellaneous                            267               --
Transfer agent's fees                             1,435               --
                                                -------          -------
      TOTAL EXPENSES                            $21,499          $38,416
                                                =======          =======


      An analysis of the above expenses is as follows:

      Accounting and Audit

      Peppermill has expended funds for accounting and auditing in connection
with a Form 15C-211B submitted to NASD in connection with the listing of its
common stock on the OTC Bulletin Board. Peppermill has also been required to
file annual reports on Form 10-KSB and quarterly reports on Form 10-QSB.


                                       4
<PAGE>

Amortization of Mining Rights

      Peppermill is amortizing costs of obtaining mining rights which were
previously capitalized.

Bank Charges

      Represents bank service charges during the period.

Consulting Fees

      Consulting fees include payments for (i) preparation of various securities
subscription agreements, Offering Memoranda, corporate minutes and various other
documents required by Peppermill, and (ii) for expenses incurred in identifying
a market maker for Peppermill. The expense was incurred subsequent to the former
President resigning.

Office and Miscellaneous

      Office and miscellaneous represents charges paid for photocopying, faxing
and delivery.

Transfer Agent's Fees

      Transfer agent's fees include an annual fee of $1,200, printing of share
certificates, obtaining a CUSIP number and maintenance of stock records.

      Peppermill has no contractual obligations for either lease premises,
employment agreements or work commitments and has made no commitments to acquire
any asset of any nature.

      The majority of the general and administrative expenses relate to filing
costs, transfer agent's fees and audit and accounting.

      To date, Peppermill has spent $2,129 for exploration and development of
certain mining claims.

      Management does not believe Peppermill's operations have been materially
affected by inflation.

Safe Harbor Provision of the Private Securities Litigation Act of 1995 and
Forward Looking Statements

      Peppermill operates in a rapidly changing environment that involves
numerous risks and uncertainties. The mining business is generally characterized
by intense competition and a fluctuating demand for the particular ores to be
mined. The statements contained in Item 1 (Description of Business) and Item 6
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) that are not historical facts may be forward-looking statements (as
such term is defined in the rules promulgated pursuant to the Securities
Exchange Act of 1934) that are subject to a variety of risks and uncertainties
more fully described in Peppermill's filings with the Securities and Exchange
Commission including, without limitation, those described under "Risk Factors"
in Peppermill's Form 10-SB Registration Statement (File No. 000-25989) effective
May 6, 1999, and its Form S-4/A Registration Statement (and all


                                       5
<PAGE>

exhibits thereto) as filed with the Securities Exchange Commission on February
14, 2001. The forward-looking statements are based on the beliefs of
Peppermill's management, as well as assumptions made by, and information
currently available to Peppermill's management. Accordingly, these statements
are subject to significant risks, uncertainties and contingencies which could
cause Peppermill's actual growth, results, performance and business prospects
and opportunities in 2001 and beyond to differ materially from those expressed
in, or implied by, any such forward-looking statements. Wherever possible, words
such as "anticipate," "plan," "expect," "believe," "estimate," and similar
expressions have been used to identify these forward-looking statements, but are
not the exclusive means of identifying such statements. These risks include the
chance that the merger with Varner Technologies, Inc. may not occur or may occur
on terms different than anticipated.

Item No. 7  Financial Statements

      SEE ATTACHED

Item No. 8  Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure

      Disagreement With Accountants and Financial Disclosure

      From inception to April 7, 2000, Peppermill's principal accountant was
Andersen Andersen & Strong, L.C. of Salt Lake City, Utah. On April 7, 2000,
Peppermill voluntarily changed its independent accountants from Andersen
Andersen & Strong, L.C. to Kaufman, Rossin & Company. This change was approved
by Peppermill's Board of Directors on March 23, 2000. The financial statements
for the years ended December 31, 2000 and December 31, 1999 were audited by
Kaufman, Rossin & Company. The report of Andersen Andersen & Strong, L.C. for
the period from inception to February 28, 1999 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or application of accounting principles. The report of Andersen Andersen &
Strong, L.C. covering the period ended February 28, 1999, contains an
explanatory paragraph that states that the developmental state of Peppermill and
the need for additional working capital for its planned activities, raise
substantive doubt about its ability to continue as a going concern. Through the
date of replacement, there were no disagreements with Andersen Andersen &
Strong, L.C. on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.

PART III

Item No. 9  Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act

Directors and Executive Officers

The Company's current directors and executive officers and their ages, as of
March 23, 2001, are as follows:



                                       6
<PAGE>

Name                          Age               Position with Company
----                          ---               ---------------------

Clayton W. Varner             41                Chairman, Chief Executive
                                                Officer, and Director

Robert Rapp                   53                Director

Tjody Varner                  40                Director

All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Information with respect to the business experience
and affiliation of the directors and the executive officers of the Company is
set forth below.

      Clayton W. Varner, Chairman, Chief Executive Officer and Director. Mr.
Varner was appointed as Chairman, Chief Executive Officer, and Director in
November, 1999. Mr. Varner is responsible for the overall management and
direction of Peppermill. Mr. Varner is the founder, and has been the President
and Chief Executive officer of Varner Technologies, Inc. since its inception in
1994. Mr. Varner has over 20 years of experience in the areas of computer
technology and Information Services, and was instrumental in the development and
management of an Information System for a start-up network marketing business,
Reliv International, Inc., which grew to be a public company with sales of $50
million per year (NASDAQ NM- "RELV"). Mr. Varner is educated in Business
Administration and Computer Science.

      Robert W. Rapp, Director. Mr. Rapp was appointed as Director in November,
1999. Mr. Rapp has been a Director and Executive Vice President of Varner
Technologies, Inc. since January 1997, and has been self-employed as a
consultant for the past 13 years in areas of capitalization and investment in
start-up companies. Mr. Rapp was Senior Vice-President and Director of American
Life Investors, a holding company and previous majority owner of Reliv
International, Inc.

      Tjody Varner, Director. Ms. Varner was appointed as Director in November,
2000. Ms. Varner was a founding independent representative upon the
establishment of Varner Technologies, Inc.'s marketing arm, Networking People
with Technology, established in March 1997. In July 1999, Ms. Varner was
appointed president of sales and marketing of Varner Technologies, Inc. From
April, 1990 to January, 1997, Ms. Varner owned and operated Unique Creations a
sales and marketing firm where she developed experience and knowledge in sales
and marketing by designing and marketing her own designs.

Section 16(a) Beneficial Ownership Reporting Compliance

      There were no late filings required by Section 16(a) during the most
recent fiscal year or prior years by any officer, director or 10% shareholder.



                                       7
<PAGE>

Item No. 10 Executive Compensation

Executive Compensation

      Neither Peppermill's President nor any of its executive officers have
received compensation since Peppermill's incorporation except as noted below.

      No compensation was given to any of Peppermill's Directors or Executive
Officers during 1999 or 2000 other than $4,000 that was paid to the former
president and director, Brent Vickers, in consulting fees in 1999. Mr. Vickers
was appointed to the Board of Directors on April 14, 1998 and resigned as
President and Director on May 27, 1998.

      There are no stock options outstanding as at December 31, 2000, but it is
contemplated that Peppermill may issue stock options in the future to certain
individuals, including but not limited to its officers, directors, advisers and
future employees.

Director Compensation

      Members of the Board of Directors do not receive cash compensation for
their services as Directors. Directors are not presently reimbursed for expenses
incurred in attending Board meetings.

Employment Agreements

      Peppermill is not a party to any individual employment contracts or
collective bargaining agreements.

Item No. 11 Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information with respect to the
beneficial ownership of each person who is known to be an executive officer,
director or the beneficial owner of more than 5% of Peppermill's Common Stock as
of March 23, 2001.


                             Amount and Nature
   Name and Address            of Beneficial        Percent
 of Beneficial Owner          Ownership(1)(2)      Ownership
 -------------------          ---------------      ---------

Varner Technologies, Inc.        10,116,000           90%
1819 Clarkson Road
Suite 204
Chesterfield, MO 63017

Clayton W. Varner                     4,252(3)         *

Tjody Varner                              0(4)         *

Robert W. Rapp                            0(5)         *
                                 ----------

All Officers and
Directors as a group
(2 persons)                           4,252            *

*     less than one percent

                       (footnotes continued on next page)


                                       8
<PAGE>


(1)   As of March 23, 2001, there were 11,239,700 common shares outstanding.
      Unless otherwise noted, the security ownership disclosed in this table is
      of record and beneficial.

(2)   Under Rule 13-d of the Exchange Act, shares not issued but under options,
      warrants, rights, conversion privileges where such shares may be acquired
      in the next 60 days, are deemed to be outstanding for the purpose of
      computing the percentage of shares owned by the persons having such
      rights, but not for other persons.

(3)   As of March 23, 2001, Mr. Varner was the beneficial owner of
      5,480,000 shares, comprising approximately 22% of Varner
      Technologies, Inc. Capital Stock

(4)   As of March 23, 2001, Ms. Varner was the beneficial owner of
      3,500,000 shares, comprising approximately 14% of Varner
      Technologies, Inc. Capital Stock.

(5)   As of March 23, 2001, Mr. Rapp was the beneficial owner of 2,705,741
      shares, comprising approximately 11% of Varner Technologies, Inc.
      Capital Stock.

Item No. 12 Certain Relationships and Related Transactions

                                 Not Applicable

Item No. 13 Exhibits and Reports on Form 8-K

Exhibits

   Exhibit
   Number   Description

  * 3.1  Articles of Incorporation of Peppermill Capital Corporation filed
         April 9, 1998.
  * 3.2  By-laws of Peppermill Capital Corporation
  * 4.1  Text of Certificate for Common Stock of Peppermill Capital Corporation
 **10.1  Letter of Intent dated November 19, 1999, between Peppermill Capital
         Corporation and Varner Technologies, Inc.
   11.1  Computation of Earnings Per Share - Annual

*     Incorporated by reference to Exhibits contained in Peppermill's Form
      10-SB Registration Statement (File No. 000-25989) effective May 6,
      1999.
**    Incorporated by reference to Exhibits contained in the report on Form
      8-KSB, as filed by Peppermill on December 7, 1999.

Reports on Form 8-K

      No report on Form 8-KSB was filed by Peppermill during the last quarter of
fiscal 2000.



                                       9
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on March 29, 2001.


                                    PEPPERMILL CAPITAL CORPORATION


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

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

Signatures                    Title                         Date
----------                    -----                         ----

 /s/ Clayton W. Varner        President, Secretary      March 29, 2001
-------------------------     and Director
Clayton W. Varner

/s/ Robert W. Rapp            Director                  March 29, 2001
-------------------------
Robert W. Rapp

/s/ Tjody Varner              Director                  March 29, 2001
-------------------------
Tjody Varner



                                       10
<PAGE>


                                                PEPPERMILL CAPITAL CORPORATION
------------------------------------------------------------------------------

                                                          FINANCIAL STATEMENTS

                                                             DECEMBER 31, 2000



<PAGE>



C O N T E N T S
                                                                      Page
------------------------------------------------------------------------------

INDEPENDENT AUDITORS' REPORT                                            1

FINANCIAL STATEMENTS

      Balance Sheet                                                     2

      Statements of Operations                                          3

      Statements of Deficiency in Assets                                4

      Statements of Cash Flows                                          5

      Notes to Financial Statements                                   6 - 7



<PAGE>



INDEPENDENT AUDITORS' REPORT
------------------------------------------------------------------------------


To the Stockholders
Peppermill Capital Corporation
Chesterfield, Missouri


We have audited the accompanying balance sheet of Peppermill Capital Corporation
as of December 31, 2000, and the related statements of operations, deficiency in
assets and cash flows for each of the two years in the period ended December 31,
2000.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Peppermill Capital Corporation
as of December 31, 2000, and the results of its  operations,  and its cash flows
for each of the two years in the period ended  December 31, 2000,  in conformity
with accounting principles generally accepted in the United States.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 4 to the
financial  statements,  the Company does not have working capital as of December
31, 2000. This raises  substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.




                                       KAUFMAN, ROSSIN & CO.

Miami, Florida
March 23, 2001


<PAGE>


PEPPERMILL CAPITAL CORPORATION
BALANCE SHEET
DECEMBER 31, 2000
================================================================================
LIABILITIES AND DEFICIENCY IN ASSETS
================================================================================

CURRENT LIABILITIES
     Accrued liabilities, to related parties (Note 2)                  $ 38,416
-------------------------------------------------------------------------------

DEFICIENCY IN ASSETS
     Common stock, 200,000,000 shares authorized, at $0.001
         par value; 11,239,700 shares issued and outstanding             11,240
     Additional paid-in capital                                          33,291
     Accumulated deficit                                                (82,947)
-------------------------------------------------------------------------------
         Total deficiency in assets                                      38,416
-------------------------------------------------------------------------------

                                                                       $     --
================================================================================


                             See accompanying notes.

                                        2

<PAGE>

<TABLE>
<CAPTION>
PEPPERMILL CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
===================================================================================================
                                                                           2000            1999
===================================================================================================
<S>                                                                   <C>               <C>
REVENUE                                                               $        --       $        --

EXPENSES                                                                   38,416            21,499
---------------------------------------------------------------------------------------------------

NET LOSS                                                             ($    38,416)     ($    21,499)
===================================================================================================

WEIGHTED AVERAGE NUMBER OF COMMON
     SHARES OUTSTANDING                                                11,239,700        11,239,700
===================================================================================================

NET LOSS PER SHARE - BASIC AND DILUTED                                $        --       $        --
===================================================================================================
</TABLE>


                             See accompanying notes.


                                       3
<PAGE>

<TABLE>
<CAPTION>
PEPPERMILL CAPITAL CORPORATION
STATEMENTS OF DEFICIENCY IN ASSETS
YEARS ENDED DECEMBER 31, 2000 AND 1999
=================================================================================================================================
                                                    Common Stock
                                             -------------------------    Additional            Accumulated
                                                 Shares       Amount    Paid-in Capital           Deficit             Total
=================================================================================================================================
<S>                                            <C>         <C>         <C>                  <C>                   <C>
BALANCE - DECEMBER 31, 1998                    11,239,700  $   11,240  $   21,930           ( $    23,032)        $    10,138

Contribution of capital                                --          --      11,361                      --              11,361

Net loss for the year ended December 31, 1999          --          --          --           (      21,499)      (      21,499)
---------------------------------------------------------------------------------------------------------------------------------

BALANCE - DECEMBER 31, 1999                    11,239,700      11,240      33,291           (      44,531)                --

Net loss for the year ended December 31, 2000          --          --          --           (      38,416)      (      38,416)
---------------------------------------------------------------------------------------------------------------------------------

BALANCE - DECEMBER 31, 2000                    11,239,700  $   11,240  $   33,291           ( $    82,947)      ( $    38,416)
=================================================================================================================================
</TABLE>


                             See accompanying notes.


                                       4
<PAGE>

<TABLE>
<CAPTION>

PEPPERMILL CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
===========================================================================================================
                                                                                         2000        1999
===========================================================================================================
<S>                                                                                   <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                         ( $38,416)   ($21,499)
-----------------------------------------------------------------------------------------------------------
     Adjustments to reconcile net loss to net cash used in operating activities:
         Amortization                                                                       --        2,129
         Change in accounts payable and accrued liabilities                             38,416        3,245
-----------------------------------------------------------------------------------------------------------
              Total adjustments                                                             --        5,374
-----------------------------------------------------------------------------------------------------------
                  Net cash used in operating activities                                     --      (16,125)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Collection of note receivable                                                          --       15,000
-----------------------------------------------------------------------------------------------------------

NET DECREASE IN CASH                                                                        --       (1,125)

CASH AT BEGINNING OF YEAR                                                                   --        1,125
-----------------------------------------------------------------------------------------------------------

CASH AT END OF YEAR                                                                   $     --     $     --
===========================================================================================================

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
-----------------------------------------------------------------------------------------------------------

     During 1999, certain stockholders of the Company converted amounts owed to
         them into capital                                                            $     --     $ 11,361
===========================================================================================================
</TABLE>


                             See accompanying notes.


                                       5
<PAGE>


PEPPERMILL CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
================================================================================

NOTE 1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
                  Organization and Business Activity

                  Peppermill Capital  Corporation (the Company) was incorporated
                  in April  1998,  under the laws of the State of Nevada for the
                  purpose of exploration and development of mineral  properties.
                  The  Company was  considered  to be in the  development  stage
                  through December 31, 1998.

                  On  November  22,  1999,  in  a  private  transaction,  Varner
                  Technologies, Inc. (Varner) purchased approximately 90% of the
                  Company's  outstanding  common stock.  The final terms of this
                  business  combination/merger  have  been  negotiated,  and are
                  contained  in  a  formal  Acquisition  Agreement,   which  was
                  executed on June 2, 2000.  This merger is contingent  upon and
                  will not  become  effective  until  such  time as the  Company
                  completes  the  registration  of  the  underlying   stock.  In
                  connection   therewith,   the  Company  filed  a  Registration
                  Statement  on  Form  S-4  with  the  Securities  and  Exchange
                  Commission on July 7, 2000, and is currently in the process of
                  revising the content and disclosures made in said Registration
                  Statement pursuant to comments received from the SEC, in order
                  to achieve the effectiveness of said Registration Statement.

                  At December  31, 2000,  the Company had no planned  operations
                  and was not considered to be in the development stage.

                  Use of Estimates

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

                  Income Taxes

                  The Company  accounts for income taxes  according to Statement
                  of Financial  Accounting Standards (SFAS) No. 109, "Accounting
                  for Income  Taxes".  Under the liability  method  specified by
                  SFAS No. 109,  deferred  income taxes are  recognized  for the
                  future tax consequences of temporary  differences  between the
                  financial  statement  carrying amounts and tax bases of assets
                  and liabilities.

                  Net Loss Per Share

                  The  Company   applies   Statement  of  Financial   Accounting
                  Standards No. 128,  "Earnings  Per Share" (FAS 128).  Net loss
                  per share is  computed by  dividing  net loss by the  weighted
                  average  number  of  common  shares   outstanding  during  the
                  reported period. There were no potentially dilutive securities
                  outstanding at December 31, 2000 or 1999.


                                       6
<PAGE>



--------------------------------------------------------------------------------
NOTE 2.           RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

                  Varner  Technologies,  Inc.  (90% owner of the  Company)  paid
                  $38,416 of expenses on behalf of the Company during 2000.


--------------------------------------------------------------------------------
NOTE 3.           INCOME TAXES
--------------------------------------------------------------------------------

                  At December  31, 2000 the Company had a deferred  tax asset of
                  approximately $31,000,  resulting from net operating losses of
                  approximately  $83,000.  The  deferred  tax  asset  is  offset
                  entirely by a valuation  allowance.  The net operating  losses
                  will expire in through 2020.

                  Deferred tax assets are reduced by a valuation  allowance  if,
                  in the opinion of management,  it is more likely than not that
                  some  portion or all of the  deferred  tax assets  will not be
                  realized. Management's valuation procedures consider projected
                  utilization of deferred tax assets prospectively over the next
                  several  years,  and  continually  evaluate new  circumstances
                  surrounding the future realization of such assets.

                  The income tax  benefit  differs  from the amount  computed by
                  applying the federal  statutory tax rate to loss before income
                  taxes principally due to an increase in the deferred tax asset
                  valuation allowance of approximately $14,000.


--------------------------------------------------------------------------------
NOTE 4.           GOING CONCERN UNCERTAINTIES
--------------------------------------------------------------------------------

                  The  accompanying  financial  statements have been prepared in
                  conformity  with  generally  accepted  accounting  principles,
                  which  contemplates  continuation  of the  Company  as a going
                  concern.  The Company has  sustained  losses and negative cash
                  flows from inception and has no working  capital  available to
                  fund any possible future  expenditures  necessary to remain in
                  business. The Company believes any future capital requirements
                  will be provided by the majority stockholder.


                                       7