##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|   
|    |  | FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.                                     

OR

|      |  |                                                                                                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION FROM ____________ TO ____________.

COMMISSION FILE NUMBER 000-31153

MAGNOLIA VENTURES, INC.

---

(Name of Small Business Issuer in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 88-0355504                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|6767
Tropicana Ave., Suite 207
Las Vegas, Nevada               |  | 89103                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip code)                          

N/A

---

(Former name, former address and former fiscal
year, if changed since last report.)


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 [   ]

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date:

| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | At September 30, 2001, there were outstanding 21,000,000
shares of the Registrants Common Stock, $.001 par value.

Transitional Small Business Disclosure Format:     Yes [   ]     No [X]

1



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TABLE OF CONTENTS



|                                           |                                                                                                |               |  |  |  |  |  | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------- | ------------- |  |  |  |  |  | 
|PART I Financial Information              
|                                           | Item 1. Financial Statements                                                                  
|                                           |                                                                                                | BALANCE SHEET
|STATEMENTS OF INCOME                      
|STATEMENT OF CHANGES IN STOCKHOLDER EQUITY
|STATEMENT OF CASH FLOWS                   
|NOTES TO FINANCIAL STATEMENTS             
|                                           | Item II. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                           | Item III. Qualitative and Quantitative Disclosures About Market Risk.                         
|PART II OTHER INFORMATION                 
|                                           | Item 1  Legal Proceedings                                                                    
|                                           | Item 2  Changes in the Rights of the Companys Security Holders                              
|                                           | Item 3  Defaults by the Company on its Senior Securities                                     
|                                           | Item 4  Submission of Matter to Vote of Security Holders                                     
|                                           | Item 5  Other Information                                                                    
|                                           | Item 6   Exhibits and Reports on Form 8-K                                                    
|SIGNATURE                                 



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##### Table of Contents






PART I

Financial Information




Item 1. Financial Statements

MAGNOLIA VENTURES, INC.
(A Development Stage Company)

TABLE OF CONTENTS

|                                           |  |        |       | 
|------------------------------------------ |  | ------ | ----- | 
|                                           |  | Page #
|                                           |  |       
|ASSETS                                     |  |        | 3     | 
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |        | 4     | 
|STATEMENT OF INCOME                        |  |        | 5-6   | 
|STATEMENT OF CHANGES IN STOCKHOLDER EQUITY |  |        | 7     | 
|STATEMENT OF CASH FLOWS                    |  |        | 8-9   | 
|NOTES TO FINANCIAL STATEMENTS              |  |        | 10-13 | 

2



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##### Table of Contents



MAGNOLIA VENTURES, INC.
(A Development Stage Company)




BALANCE SHEET

ASSETS

|                |                       |   |              |    |             |   |    |    | 
|--------------- | --------------------- | - | ------------ | -- | ----------- | - | -- | -- | 
|                |                       |   | September 30 |    | December 31
|                |                       |   | 2001         |    | 2000       
|                |                       |   | (Unaudited)  |    | (Unaudited)
|                |                       |   |              |    |            
|CURRENT ASSETS: |                       | $ | 31           |    |             | $ | 31 |   
|                |                       |   |              |    |             |   |    |   
|                | TOTAL CURRENT ASSETS: |   | $            | 31 |             |   | $  | 31 | 
|                |                       |   |              |    |             |   |    |   
|OTHER ASSETS:   |                       | $ | 0            |    |             | $ | 0  |   
|                |                       |   |              |    |             |   |    |   
|                | TOTAL OTHER ASSETS:   |   | $            | 0  |             |   | $  | 0  | 
|                |                       |   |              |    |             |   |    |   
|TOTAL ASSETS    |                       | $ | 31           |    |             | $ | 31 |   
|                |                       |   |              |    |             |   |    |   

See accompanying notes to financial statements

3



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MAGNOLIA VENTURES, INC.
(A Development Stage Company)

BALANCE SHEET

LIABILITIES AND STOCKHOLDERS EQUITY

|                                            |                                                                                      |   |              |         |             |   |         |         |  
|------------------------------------------- | ------------------------------------------------------------------------------------ | - | ------------ | ------- | ----------- | - | ------- | ------- | -
|                                            |                                                                                      |   | September 30 |         | December 31
|                                            |                                                                                      |   | 2001         |         | 2000       
|                                            |                                                                                      |   | (Unaudited)  |         | (Unaudited)
|                                            |                                                                                      |   |              |         |            
|CURRENT LIABILITIES:                        |                                                                                      |   |              |         |             |   |         |        
|                                            | Accounts Payable                                                                     |   | $            | 0       |             |   | $       | 0       |  
|                                            | Officers Advances (Note 7)                                                           |   |              | 35,185  |             |   |         | 31,450  |  
|                                            |                                                                                      |   |              |         |             |   |         |        
|                                            | TOTAL CURRENT LIABILITIES                                                            |   |              | 35,185  |             |   |         | 31,450  |  
|                                            |                                                                                      |   |              |         |             |   |         |        
|STOCKHOLDERS EQUITY:                       |                                                                                      |   |              |         |             |   |         |        
|                                            | COMMON STOCK, $.001 par value; authorized
25,000,000 shares; issued and outstanding: |   |              |         |             |   |         |         |  
|                                            | December 31, 2000  21,000,000 shares                                                |   |              |         |             |   | $       | 21,000  |  
|                                            | September 30, 2001  21,000,000 shares                                               |   | $            | 21,000  |             |   |         |         |  
|                                            | ADDITIONAL PAID-IN CAPITAL                                                           |   |              | (18,900 | )           |   |         | (18,900 | )
|                                            | ACCUMULATED LOSS                                                                     |   |              | (37,254 | )           |   |         | (33,519 | )
|                                            |                                                                                      |   |              |         |             |   |         |        
|TOTAL STOCKHOLDERS EQUITY                  |                                                                                      |   | (35,154      | )       |             |   | (31,419 | )      
|                                            |                                                                                      |   |              |         |             |   |         |        
|TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY: |                                                                                      | $ | 31           |         |             | $ | 31      |        
|                                            |                                                                                      |   |              |         |             |   |         |        

See accompanying notes to financial statements

4



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MAGNOLIA VENTURES, INC.
(A Development Stage Company)




STATEMENTS OF INCOME

|                                   |                                                      |                  |       |                    |        |                   |     |              |      |              |       |            |        |   |        |            |         |  
|---------------------------------- | ---------------------------------------------------- | ---------------- | ----- | ------------------ | ------ | ----------------- | --- | ------------ | ---- | ------------ | ----- | ---------- | ------ | - | ------ | ---------- | ------- | -
|                                   |                                                      |                  |       | Three months ended |        | Nine months ended
|                                   |                                                      |                  |       |                    |        |                  
|                                   |                                                      |                  |       | September 30       |        | September 30      |     | September 30 |      | September 30
|                                   |                                                      |                  |       | 2001               |        | 2000              |     | 2001         |      | 2000        
|                                   |                                                      |                  |       | (Unaudited)        |        | (Unaudited)       |     | (Unaudited)  |      | (Unaudited) 
|                                   |                                                      |                  |       |                    |        |                   |     |              |      |             
|Revenues                           |                                                      | $                | 0     |                    |        |                   | 0   |              |      | $            | 0     |            |        |   | 0      |           
|Cost of Revenue                    |                                                      |                  | 0     |                    |        |                   | 0   |              |      |              | 0     |            |        |   | 0      |           
|                                   |                                                      |                  |       |                    |        |                   |     |              |      |              |       |            |        |   |        |           
|                                   |                                                      | Gross Profit     |       | $                  | 0      |                   |     |              | 0    |              |       | $          | 0      |   |        |            | 0       |  
|General, Selling and
Adminstrative |                                                      | $                | 2,585 |                    |        |                   | 500 |              |      | $            | 3,735 |            |        |   | 11,575 |           
|                                   |                                                      |                  |       |                    |        |                   |     |              |      |              |       |            |        |   |        |           
|                                   |                                                      | Operating (loss) |       | $                  | (2,585 | )                 |     |              | (500 | )            |       | $          | (3,735 | ) |        |            | (11,575 | )
|Nonoperating income (expense)      |                                                      |                  | 0     |                    |        |                   | 0   |              |      |              | 0     |            |        |   | 0      |           
|                                   |                                                      |                  |       |                    |        |                   |     |              |      |              |       |            |        |   |        |           
|                                   |                                                      | Net (loss)       |       | $                  | (2,585 | )                 |     |              | (500 | )            |       | $          | (3,735 | ) |        |            | (11,575 | )
|                                   |                                                      |                  |       |                    |        |                   |     |              |      |              |       |            |        |   |        |           
|                                   | Net (loss) per share, basic
and diluted (Note 2)     |                  | $     | (0.00              | )      |                   |     | (0.00        | )    |              | $     | (0.00      | )      |   |        | (0.00      | )      
|                                   |                                                      |                  |       |                    |        |                   |     |              |      |              |       |            |        |   |        |           
|                                   | Average number of shares
of common stock outstanding |                  |       | 21,000,000         |        |                   |     | 21,000,000   |      |              |       | 21,000,000 |        |   |        | 21,000,000 |        
|                                   |                                                      |                  |       |                    |        |                   |     |              |      |              |       |            |        |   |        |           

See accompanying notes to financial statements

5



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MAGNOLIA VENTURES, INC.
(A Development Stage Company)

STATEMENTS OF INCOME

|                                   |                                                      |                 |        |             |         |                |   |              |   |   |        |            |         |  
|---------------------------------- | ---------------------------------------------------- | --------------- | ------ | ----------- | ------- | -------------- | - | ------------ | - | - | ------ | ---------- | ------- | -
|                                   |                                                      |                 |        | Years Ended |         | June 13, 1994 
|                                   |                                                      |                 |        |             |         | (inception) to
|                                   |                                                      |                 |        | December 31 |         | December 31    |   | September 30
|                                   |                                                      |                 |        | 2000        |         | 1999           |   | 2001        
|                                   |                                                      |                 |        | (Unaudited) |         | (Unaudited)    |   | (Unaudited) 
|                                   |                                                      |                 |        |             |         |                |   |             
|Revenues                           |                                                      | $               | 0      |             |         |                | 0 |              |   | $ | 0      |           
|Cost of Revenue                    |                                                      |                 | 0      |             |         |                | 0 |              |   |   | 0      |           
|                                   |                                                      |                 |        |             |         |                |   |              |   |   |        |           
|                                   |                                                      | Gross Profit    |        | $           | 0       |                |   |              | 0 |   |        | $          | 0       |  
|General, Selling and
Adminstrative |                                                      | $               | 31,295 |             |         |                | 0 |              |   | $ | 37,910 |           
|                                   |                                                      |                 |        |             |         |                |   |              |   |   |        |           
|                                   |                                                      | Operating(loss) |        | $           | (31,295 | )              |   |              | 0 |   |        | $          | (37,910 | )
|Nonoperating income (expense)      |                                                      |                 |        |             |         |                |   |              |   |   |        |           
|                                   | Interest Income                                      |                 |        | 0           |         |                |   | 0            |   |   |        | 656        |        
|                                   |                                                      |                 |        |             |         |                |   |              |   |   |        |           
|                                   |                                                      | Net (loss)      |        | $           | (31,295 | )              |   |              | 0 |   |        | $          | (37,254 | )
|                                   |                                                      |                 |        |             |         |                |   |              |   |   |        |           
|                                   | Net (loss) per share, basic
and diluted (Note 2)     |                 | $      | (0.00       | )       |                |   | (0.00        | ) |   | $      | (0.00      | )      
|                                   |                                                      |                 |        |             |         |                |   |              |   |   |        |           
|                                   | Average number of shares
of common stock outstanding |                 |        | 21,000,000  |         |                |   | 21,000,000   |   |   |        | 21,000,000 |        
|                                   |                                                      |                 |        |             |         |                |   |              |   |   |        |           

See accompanying notes to financial statements

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)




STATEMENT OF CHANGES IN STOCKHOLDER EQUITY

|                                        |                              |  |                          |            |             |  |       |       |  |  |             |         |  
|--------------------------------------- | ---------------------------- |  | ------------------------ | ---------- | ----------- |  | ----- | ----- |  |  | ----------- | ------- | -
|                                        |                              |  |                          |            |             |  |       |       |  |  | Accumulated
|                                        |                              |  | Common Stock and Capital |            | (Deficit)  
|                                        |                              |  | In Excess of Par Value   |            | During     
|                                        |                              |  |                          |            | Development
|                                        |                              |  | Shares                   |            | Amount      |  | Stage
|                                        |                              |  |                          |            |             |  |      
|Balance                                 |                              |  |                          |            |             |  |       |       |  |  |             |        
|                                        | December 31,
          1998  |  |                          | 21,000,000 |             |  | $     | 2,100 |  |  | $           | (2,224  | )
|                                        |                              |  |                          |            |             |  |       |       |  |  |             |        
|Net (loss) year
          ended         |                              |  |                          |            |             |  |       |       |  |  |             |        
|                                        | December 31,
          1999: |  |                          |            |             |  |       |       |  |  |             | 0       |  
|                                        |                              |  |                          |            |             |  |       |       |  |  |             |        
|Balance                                 |                              |  |                          |            |             |  |       |       |  |  |             |        
|                                        | December 31,
          1999: |  |                          | 21,000,000 |             |  | $     | 2,100 |  |  | $           | (2,224  | )
|                                        |                              |  |                          |            |             |  |       |       |  |  |             |        
|Net loss
          year ended           |                              |  |                          |            |             |  |       |       |  |  |             |        
|                                        | December 31,
          2000: |  |                          | (31,295    | )          
|                                        |                              |  |                          |            |             |  |       |       |  |  |             |        
|Balance                                 |                              |  |                          |            |             |  |       |       |  |  |             |        
|                                        | December 31,
          2000: |  |                          | 21,000,000 |             |  | $     | 2,100 |  |  | $           | (33,519 | )
|                                        |                              |  |                          |            |             |  |       |       |  |  |             |        
|Net (loss) January 1,
          2001 to |                              |  |                          |            |             |  |       |       |  |  |             |        
|                                        | September 30,
          2001 |  |                          | (3,735     | )          
|                                        |                              |  |                          |            |             |  |       |       |  |  |             |        
|Balance                                 |                              |  |                          |            |             |  |       |       |  |  |             |        
|                                        | September 30,
          2001 |  |                          | 21,000,000 |             |  | $     | 2,100 |  |  | $           | (37,254 | )
|                                        |                              |  |                          |            |             |  |       |       |  |  |             |        

See accompanying notes to financial statements

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)




STATEMENT OF CASH FLOWS

|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |         |        |   | 
|------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------- | ---------------------------------------- | ------ | ------------------ | - | ----------------- | ---- | ------------ | - | ------------ | ------ | ----- | - | -- | ------- | ------ | - | 
|                                      |                                                                             |                                         |                                          |        | Three months ended |   | Nine months ended
|                                      |                                                                             |                                         |                                          |        |                    |   |                  
|                                      |                                                                             |                                         |                                          |        | September 30       |   | September 30      |      | September 30 |   | September 30
|                                      |                                                                             |                                         |                                          |        | 2001               |   | 2000              |      | 2001         |   | 2000        
|                                      |                                                                             |                                         |                                          |        | (Unaudited)        |   | (Unaudited)       |      | (Unaudited)  |   | (Unaudited) 
|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |             
|Cash Flows from
Operating Activities: |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        
|                                      | Net (Loss)                                                                  |                                         |                                          | (2,585 | )                  |   |                   | (500 | )            |   |              | (3,735 | )     |   |    | (11,575 | )     
|                                      | Adjustments to reconcile
net (loss) to cash (used in)
operating activities: |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |         |       
|                                      | Changes in assets and liabilities                                           |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |         |       
|                                      |                                                                             | Increase (decrease) in accounts payable |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |         |        |  
|                                      |                                                                             | Increase in officer advances            |                                          |        | 2,585              |   |                   |      | 500          |   |              |        | 3,735 |   |    |         | 11,575 |  
|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        
|                                      |                                                                             |                                         | Net cash (used in)
operating activities: |        |                    | 0 |                   |      |              | 0 |              |        |       | 0 |    |         |        | 0 | 
|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        
|Cash Flows from
Investing Activities: |                                                                             |                                         | 0                                        |        |                    |   | 0                 |      |              |   | 0            |        |       |   | 0  |        
|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        
|Cash Flows From
Financing Activities: |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        
|                                      | Issuance of common stock                                                    |                                         |                                          | 0      |                    |   |                   | 0    |              |   |              | 0      |       |   |    | 0       |       
|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        
|                                      |                                                                             |                                         | Net cash (used in)
financing activities  |        |                    | 0 |                   |      |              | 0 |              |        |       | 0 |    |         |        | 0 | 
|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        
|                                      |                                                                             |                                         | Net increase (decrease)
in cash          |        |                    | 0 |                   |      |              | 0 |              |        |       | 0 |    |         |        | 0 | 
|Cash, beginning of period             |                                                                             |                                         | 31                                       |        |                    |   | 31                |      |              |   | 31           |        |       |   | 31 |        
|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        
|Cash, end of period                   |                                                                             | $                                       | 31                                       |        |                    | $ | 31                |      |              | $ | 31           |        |       | $ | 31 |        
|                                      |                                                                             |                                         |                                          |        |                    |   |                   |      |              |   |              |        |       |   |    |        

See accompanying notes to financial statements

8



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MAGNOLIA VENTURES, INC.
(A Development Stage Company)

STATEMENT OF CASH FLOWS

|                                      |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |         |        |        |  
|------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------- | ---------------------------------------- | ------- | ----------- | - | -------------- | - | ------------ | - | -- | ------- | ------ | ------ | -
|                                      |                                                                             |                                         |                                          |         | Years Ended |   | June 13, 1994 
|                                      |                                                                             |                                         |                                          |         |             |   | (inception) to
|                                      |                                                                             |                                         |                                          |         | December 31 |   | December 31    |   | September 30
|                                      |                                                                             |                                         |                                          |         | 2000        |   | 1999           |   | 2001        
|                                      |                                                                             |                                         |                                          |         | (Unaudited) |   | (Unaudited)    |   | (Unaudited) 
|                                      |                                                                             |                                         |                                          |         |             |   |                |   |             
|Cash Flows from
Operating Activities: |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        
|                                      | Net (Loss)                                                                  |                                         |                                          | (31,295 | )           |   |                | 0 |              |   |    | (37,254 | )     
|                                      | Adjustments to reconcile
net (loss) to cash (used in)
operating activities: |                                         |                                          |         |             |   |                |   |              |   |    |         |       
|                                      | Changes in assets and liabilities                                          
|                                      |                                                                             | Increase (decrease) in accounts payable |                                          |         | 0           |   |                |   | 0            |   |    |         | 0      |       
|                                      |                                                                             | Increase in officer advances            |                                          |         | 31,295      |   |                |   | 0            |   |    |         | 35,185 |       
|                                      |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        
|                                      |                                                                             |                                         | Net cash (used in)
operating activities: |         |             | 0 |                |   |              | 0 |    |         |        | (2,069 | )
|                                      |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        
|Cash Flows from
Investing Activities: |                                                                             |                                         | 0                                        |         |             |   | 0              |   |              |   | 0  |        
|                                      |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        
|Cash Flows From
Financing Activities: |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        
|                                      | Issuance of common stock                                                    |                                         |                                          | 0       |             |   |                | 0 |              |   |    | 2,100   |       
|                                      |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        
|                                      |                                                                             |                                         | Net cash (used in)
financing activities  |         |             | 0 |                |   |              | 0 |    |         |        | 2,100  |  
|                                      |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        
|                                      |                                                                             |                                         | Net increase (decrease)
in cash          |         |             | 0 |                |   |              | 0 |    |         |        | 31     |  
|Cash, beginning of period             |                                                                             |                                         | 31                                       |         |             |   | 31             |   |              |   | 0  |        
|                                      |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        
|Cash, end of period                   |                                                                             | $                                       | 31                                       |         |             | $ | 31             |   |              | $ | 31 |        
|                                      |                                                                             |                                         |                                          |         |             |   |                |   |              |   |    |        

See accompanying notes to financial statements

9



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MAGNOLIA VENTURES, INC.
(A Development Stage Company)




NOTES TO FINANCIAL STATEMENTS
September 30, 2001 and December 31, 2000

Note 1  Nature of Business and Significant Accounting Policies

Nature of Business:

Magnolia Ventures, Inc. (Company) was organized June 13, 1994 under the laws
of the State of Nevada. The Company currently has no operations and, in
accordance with Statement of Financial Accounting Standard
(SFAS) No. 7,
Accounting and Reporting by Development Stage
Enterprises, is considered a
development stage company.

A summary of the Companys significant accounting policies is as follows:

Estimates

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

Cash

For the Statement of Cash Flows all highly liquid investments with maturity of
less than three months or less are considered to be cash equivalents. There
were no cash equivalents as of September 30, 2001 and 2000, and December 31,
2000 and 1999.

Income taxes

Income taxes are provided for using the liability method of accounting in
accordance with SFAS No. 109 Accounting for Income Taxes. A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax accounting. Temporary differences between the reported amounts of
assets and liabilities and their tax basis. Deferred tax assets are reduced by
a valuation allowance when 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.
Deferred tax assets and liabilities are adjusted for the effect of changes in
tax laws and rates on the date on enactment.

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS
September 30, 2001 and December 31, 2000

Reporting on costs for start-up activities

Statement of Position 98-5 (SOP 98-5), Reporting on the Costs of Start-Up
Activities which provides guidance on the financial reporting of start-up and
organization costs, requires most costs of start-up activities and organization
costs to be expensed as incurred. With the adoption of SPO 98-5, there has
been little to no effect on the Companys financial Statements.

Note 2  Stockholders Equity

Common Stock

The authorized common stock of the Company consists of 25,000,000 shares with
par value of $0.001. On June 13, 1994, the Company issued 2,100 shares of its
no par value common stock in consideration of $2,100 in cash.

On December 3, 1999, the State of Nevada approved the Companys restated
Articles of Incorporation, which increased its capitalization from 25,000
common shares to 25,000,000 common shares. The no par value was changed to
$0.001 per share.

On December 3, 1999 , the Companys shareholders approved a forward split of
its common stock at one hundred shares for one share of the existing shares.
The number of common stock shares outstanding increased from 2,100 to 210,000.
Prior period information has been restated to reflect the stock split.

On February 8, 2000 , the Companys shareholders approved a forward split of
its common stock at one hundred shares for one share of the existing shares.
The number of common stock shares outstanding increased from 210,000 to
21,000,000. Prior period information has been restated to reflect the stock
split.

Preferred stock

On February 8, 2000, the State of Nevada approved the Companys restated
Articles of Incorporation which created a new class of serial preferred stock,
with a par value of $0.01. The Company has authorized 10,000,000 shares of
Serial Preferred Stock. No shares of Serial Preferred Stock has been issued.

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS
September 30, 2001 and December 31, 2000

Net loss per common share

Net loss per share is calculated in accordance with SFAS No. 128, Earnings Per
Share. The weighted-average number of common shares outstanding during each
period is used to compute basic loss per share. Diluted loss per share is
computed using the weighted average number of shares and dilutive potential
common shares outstanding. Dilutive potential common shares are additional
common shares assumed to be exercised.

Basic net loss per common share is based on the weighted average number of
shares of common stock outstanding of 1,860,000 during 2001, 2000, 1999, and
since inception. As of September 30, 2001 and 2000, December 31, 2000, 1999,
and since inception, the Company had no dilutive potential common shares.

Note 3  Income Taxes

There is no provision for income taxes for the period ended September 30, 2001,
due to the net loss and no state income tax in Nevada, the state of the
Companys domicile and operations. The Companys total deferred tax asset as of
September 30, 2001 is as follows:

|                                 |  |   |         |  
|-------------------------------- |  | - | ------- | -
|Net operating loss carry forward |  | $ | 37,254  |  
|Valuation allowance              |  | $ | (37,254 | )
|                                 |  |   |         |  
|Net deferred tax asset           |  | $ | 0       |  

The net federal operating loss carry forward will expire between 2016 and 2021.
This carry forward may be limited upon the consummation of a business
combination under IRC Section 381.

Note 4  Going Concern

The Companys financial statements are prepared in accordance with generally
accepted accounting principles applicable to a going concern. This contemplates
the realization of assets and the liquidation of liabilities in the normal
course of business. Currently, the Company does not have significant cash or
other material assets, nor does it have operations or a source of revenue
sufficient to cover its operation costs and allow it to continue as a going
concern. It is the intent of the Company to seek a merger with an existing
operating company. Until that time, the stockholders, officers, and directors
have committed to advancing the operating costs of the Company.

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS
September 30, 2001 and December 31, 2000

Note 5  Related Party Transactions

The Company neither owns nor leases any real property. An officer of the
corporation provides office services without charge. Such costs are immaterial
to the financial statements and accordingly, have not been reflected therein.
The officers and directors for the Company are involved in other business
activities and may in the future, become involved in other business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interest. The Company has not formulated a policy for resolution of
such conflicts.

Note 6  Warrants and Options

There are no warrants or options outstanding to acquire any additional shares
of common stock of the Company.

Note 7  Officers Advances

The Company has incurred costs while seeking additional capital through a
merger with an existing company. An officer of the Company has advanced funds
on behalf of the Company to pay for these costs. These funds have been advanced
interest free.

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Item II. Managements Discussion and Analysis of Financial Condition and Results of Operations

The Company currently has no business activities and
has no assets or operations. The Company has had no preliminary
negotiations to effectuate a business combination.

The Company is dependent upon its officers to meet any
de minimis costs which may occur. Peggy Melilli, an officer and
director of the Company, has agreed to provide the necessary
funds, without interest, for the Company to comply with the
Securities Exchange Act of 1934, as amended; provided that she is
an officer and director of the Company when the obligation is
incurred. All advances are interest-free.

In addition, since the Company has had no operating
history nor any revenues or earnings from operations, with no
significant assets or financial resources, the Company will in
all likelihood sustain operating expenses without corresponding
revenues, at least until the consummation of a business
combination. This may result in the Company incurring a net
operating loss which will increase continuously until the Company
can consummate a business combination with a profitable business
opportunity and consummate such a business combination.

This discussion may contain certain forward looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results could differ
materially from those forward-looking statements. The factors
that may cause actual results to differ materially is that the
Company has no arrangement, agreement or understanding with
respect to engaging in a merger with, joint venture with or
acquisition of, a private or public company and that there can be
no assurance that the Company will be successful in identifying
and evaluating suitable business opportunities or including a
business combination.




Item III. Qualitative and Quantitative Disclosures About Market Risk.

The Company has neither considered or conducted any
research concerning qualitative and quantitative market risk.

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PART II

OTHER INFORMATION




Item 1  Legal Proceedings

None




Item 2  Changes in the Rights of the Companys Security Holders

None




Item 3  Defaults by the Company on its Senior Securities

None




Item 4  Submission of Matter to Vote of Security Holders

None




Item 5  Other Information

(a)  Board Meeting

The board held one meeting during the current quarter,
which was a special meeting.

(b)  Committees

The board of directors has not established any audit
committee. In addition, the Company does not have any other
compensation or executive or similar committees. The Company
will not, in all likelihood, establish any audit committee until
such time as the Company completes a business combination, of
which there can be no assurance. The Company recognizes that an
audit committee, when established, will play a critical role in
the financial reporting system of the Company by overseeing and
monitoring managements and the independent auditors
participation in the financial reporting process. At such time
as the Company establishes an audit committee, its additional
disclosures with the Companys auditors and management may
promote investor confidence in the integrity of the financial
reporting process.

Until such time as an audit committee has been
established, the full board of directors will undertake those
tasks normally associated with an audit committee to include, but
not by way of limitation, the (i) review and discussion of the
audited financial statements with management, (ii) discussions
with the independent auditors the matters required to be
discussed by the Statement On Auditing Standards No. 61, as may
be modified or supplemented, and (iii) received from the auditors
disclosures regarding the auditors Independents Standards Board
Standard No. 1, as may be modified or supplemented.

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Item 6   Exhibits and Reports on Form 8-K

The following exhibits are filed with this report:



| | (a) |  | No reports on Form 8-K were filed during the
quarter for which the report is filed.
| | --- |  | -----------------------------------------------------------------------------------




SIGNATURE

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



|Dated: March 25, 2002 | MAGNOLIA VENTURES, INC.
|--------------------- | -----------------------



| | By: | /s/ Peggy Melilli      
| | --- | -----------------------
| |     | Peggy Melilli
President

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