UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-KSB

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(Mark one)

[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange
    Act of 1934

    For the fiscal year ended December 31, 2002

[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange
    Act of 1934

    For the transition period from ______________ to _____________

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                         Commission File Number: 0-31297


                          Shallbetter Industries, Inc.
        (Exact name of small business issuer as specified in its charter)


          Minnesota                                          41-1961936
  (State of incorporation)                              (IRS Employer ID Number)


                  30 Sembrado, Rancho Santa Margarita, CA 92688
                    (Address of principal executive offices)

                                 (949) 459-1220
                           (Issuer's telephone number)

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      Securities registered under Section 12 (b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock - $0.01 par value

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Check  whether  the issuer  has (1) filed all  reports  required  to be files by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period the Company was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of Company's knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

The issuer's revenues for the fiscal year ended December 31, 2002 was $-0-.

The aggregate market value of voting common equity held by  non-affiliates as of
December 31, 2002 was approximately $-0-.

As of March 25,  2003,  there were  3,623,655  shares of Common Stock issued and
outstanding.

Transitional Small Business Disclosure Format: Yes [ ]  No [X]
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.

                                INDEX TO CONTENTS

                                                                     Page Number
                                                                     -----------
PART I

Item 1     Description of Business                                           3
Item 2     Description of Property                                          13
Item 3     Legal Proceedings                                                13
Item 4     Submission of Matters to a Vote of Security Holders              13

PART II

Item 5     Market for Company's Common Stock and Related Stockholders
           Matters                                                          13
Item 6     Management's Discussion and Analysis or Plan of Operation        14
Item 7     Financial Statements                                             F-1
Item 8     Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosures                          15

PART III

Item 9     Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act                16
Item 10    Executive Compensation                                           17
Item 11    Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters                                  17
Item 12    Certain Relationships and Related Transactions                   18
Item 13    Exhibits and Reports on 8-K                                      18
Item 14    Controls and Procedures                                          18

SIGNATURES                                                                  19

CERTIFICATION PURSUANT TO SARBANES-OXLEY ACT OF 2002                        20

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                  CAUTION REGARDING FORWARD-LOOKING INFORMATION

Certain  statements  contained  in  this  annual  filing,   including,   without
limitation, statements containing the words "believes", "anticipates", "expects"
and  words  of  similar  import,  constitute  forward-looking  statements.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

Such factors include, among others, the following:  international,  national and
local general economic and market conditions:  demographic  changes; the ability
of the Company to sustain,  manage or  forecast  its growth;  the ability of the
Company to successfully make and integrate acquisitions;  raw material costs and
availability;  new product  development and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology; and other factors referenced in this and previous filings.

Given  these  uncertainties,  readers  of this Form  10-KSB  and  investors  are
cautioned not to place undue reliance on such  forward-looking  statements.  The
Company  disclaims  any  obligation  to update any such  factors or to  publicly
announce the result of any  revisions to any of the  forward-looking  statements
contained herein to reflect future events or developments.

                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

HISTORY

Shallbetter Industries,  Inc. (Company) was formed as a Minnesota corporation on
September 18, 1968, for the purpose of designing,  manufacturing,  and marketing
low and medium voltage electrical power distribution  equipment.  In February of
1969, the Company  completed an Intrastate  Minnesota  public  offering and sold
100,000 shares of its common stock to the public at $2.50 per share.

Through the 1970's, the Company expanded its operations, so that it was offering
nationally  pre-engineered  electrical  products  through  catalogs to wholesale
electrical supply houses.  Annual sales for the company were historically in the
$1.0 to $2.0 million range. In early 1982, due to recession and financial losses
at the  Company,  the  Company's  bank  withdrew the  Company's  line of credit.
Consequently,  the Company filed for chapter 11 protection from its creditors in
April 1982.  The  bankruptcy  action  converted  to Chapter 7 and the  Company's
assets were  liquidated in June of 1982. The Company then ceased  operations and
been inactive since.

On  December 9, 1999,  the sole  remaining  officer and  director of the Company
resigned his positions  following the appointment of Craig Laughlin to the Board
of  Directors.  Mr.  Laughlin was  responsible  for  restructuring  the Company,
updating the Company's financial statements, procuring a new independent auditor
for the Company and filing and having  approved a Form 10-SB - General  Form for
Registration of Securities of Small Business  Issuers Under Section 12(b) or (g)
of the Securities  Exchange Act of 1934. The Company undertook steps to actively
seek a new business venture in which to participate.

On July 19, 2002,  there was a change of control of the  Company.  The change of
control  occurred as a result of closing under a Stock  Purchase  Agreement (the
"Agreement"),  dated June 21,  2002,  between  the  Company,  the Don and Bonnie
Saunders Family Trust, (Saunders) and Mr. Laughlin.

Under  the  terms of the  Agreement,  as  modified  by two  separate  Addendums,
Saunders, on its own behalf and as Agent for certain nominees,  acquired 912,500
shares of the  issued  and  outstanding  common  stock of the  Company  from Mr.
Laughlin for a purchase price of $225,000, of which $175,000 was payable in cash
and $50,000 was payable  through  execution of a promissory note in favor of Mr.
Laughlin.  The note was due and payable in full on or before August 9, 2002, and
if it was paid in a timely manner,  did not bear  interest.  The cash portion of

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the purchase  price was payable in two  installments.  The first  installment of
$125,000 was paid by Saunders at or before Closing out of available  funds.  The
second cash  installment  of $50,000 was paid on or before  September  17, 2002,
also out of its available funds.

At the time of closing under the Agreement, the Company had a total of 1,207,885
shares of common stock issued and outstanding. Thus, the Shares purchased by the
Buyer  on its  own  behalf  and  as  Agent  for  certain  nominees,  constituted
approximately 75.55% of the Company's issued and outstanding common stock.

In conjunction  with closing under the Agreement,  Mr.  Laughlin  resigned as an
officer and  director of the Company  and the Company  appointed  Mr.  Thomas K.
Russell as the Company's President and Sole Director.

On August 6, 2002, the Company's Board of Directors authorized a 3 for 1 forward
stock split to  shareholders of record as of the close of business on August 19,
2002. The result of this action,  including  fractional  share rounding,  was to
increase the issued and  outstanding  shares from  1,207,885 to  3,623,665.  The
effects of these actions are  cumulatively  reflected in the this filing and our
financial statements as of the first day of the first period presented.

SELECTION OF A BUSINESS

The Company may be referred to as a shell  corporation  and once  trading on the
NASD  Bulletin  Board,  a  trading  and  reporting  shell   corporation.   Shell
corporations  have zero or nominal  assets and typically no stated or contingent
liabilities.  Private  companies  wishing to become publicly trading may wish to
merge with a shell (a reverse  merger)  whereby the  shareholders of the private
Company become the majority of the  shareholders  of the combined  Company.  The
private  Company may purchase for cash all or a portion of the common  shares of
the shell  corporation  from its major  stockholders.  Typically,  the Board and
officers  of the  private  Company  become  the new  Board and  officers  of the
combined  Company and often the name of the private  Company becomes the name of
the combined Company.

The Company has very limited  capital,  and it is unlikely that the Company will
be able to take  advantage  of more  than one  such  business  opportunity.  The
Company intends to seek  opportunities  demonstrating the potential of long-term
growth as opposed to short-term  earnings.  However,  at the present  time,  the
Company has not identified any business opportunity that it plans to pursue, nor
has the Company  reached any  agreement  or  definitive  understanding  with any
person concerning an acquisition.

It is  anticipated  that the  Company's  officers  and  directors  will  contact
broker-dealers  and other persons with whom they are acquainted who are involved
with corporate finance matters to advise them of the Company's  existence and to
determine if any  companies or  businesses  that they  represent  have a general
interest in considering a merger or acquisition with a blind pool or blank check
or shell entity. No direct  discussions  regarding the possibility of merger are
expected to occur until after the effective date of this registration statement.
No  assurance  can be given that the Company  will be  successful  in finding or
acquiring a desirable  business  opportunity,  given the limited  funds that are
expected to be available  for  acquisitions.  Furthermore,  no assurance  can be
given that any acquisition  which does occur will be on terms that are favorable
to the Company or its current stockholders.

The Company's search will be directed toward small and medium-sized enterprises,
which have a desire to become public corporations. In addition these enterprises
may wish to satisfy,  either  currently or in the  reasonably  near future,  the
minimum  tangible  asset  requirement  in order to qualify shares for trading on
NASDAQ or on an exchange such as the American Stock Exchange. (See Investigation
and  Selection  of Business  Opportunities).  The Company  anticipates  that the
business  opportunities  presented  to it will (i)  either be in the  process of
formation,  or be recently organized with limited operating history or a history
of  losses  attributable  to  under-   capitalization  or  other  factors;  (ii)
experiencing financial or operating  difficulties;  (iii) be in need of funds to
develop new  products or services or to expand into a new market,  or have plans
for rapid expansion through acquisition of competing  businesses;  (iv) or other
similar  characteristics.  The Company  intends to concentrate  its  acquisition
efforts on properties or businesses  that it believes to be  undervalued or that
it believes may realize a substantial  benefit from being publicly owned.  Given
the above factors,  investors  should expect that any acquisition  candidate may
have  little  or  no  operating   history,   or  a  history  of  losses  or  low
profitability.

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<PAGE>
The Company does not propose to restrict its search for investment opportunities
to any particular  geographical area or industry, and may, therefore,  engage in
essentially any business, to the extent of its limited resources.  This includes
industries such as service,  finance,  natural  resources,  manufacturing,  high
technology,  product  development,   medical,  communications  and  others.  The
Company's discretion in the selection of business opportunities is unrestricted,
subject to the  availability of such  opportunities,  economic  conditions,  and
other factors.

As a consequence of the fact that the Company's  shares are currently  traded on
the OTC Bulletin  Board,  any entity which has an interest in being acquired by,
or merging into the Company,  is expected to be an entity that desires to become
a public company and establish a public trading  market for its  securities.  In
connection with such a merger or acquisition, it is highly likely that an amount
of stock  constituting  control  of the  Company  would  either be issued by the
Company or be purchased from the current  principal  stockholders of the Company
by the  acquiring  entity  or its  affiliates.  If stock is  purchased  from the
current  principal  stockholders,   the  transaction  is  likely  to  result  in
substantial  gains  to the  current  principal  stockholders  relative  to their
purchase  price for such stock.  The sale of a  controlling  interest by certain
principal  shareholders  of the  Company  would  occur at a time  when  minority
stockholders  are  unable to sell their  shares  because of the lack of a public
market for such shares.

Depending upon the nature of the transaction, the current officers and directors
of the Company may resign their  management and board positions with the Company
in connection with a change of control or acquisition of a business  opportunity
(See  Form of  Acquisition,  below,  and  Risk  Factors,  The  Company,  Lack of
Continuity of  Management).  In the event of such a  resignation,  the Company's
current  management  would  thereafter  have no control  over the conduct of the
Company's business.

It is  anticipated  that  business  opportunities  will  come  to the  Company's
attention from various sources,  including its officers and directors, its other
stockholders,   professional   advisors  such  as  attorneys  and   accountants,
securities  broker-dealers,   venture  capitalists,  members  of  the  financial
community,  and others who may present unsolicited proposals. The Company has no
plan,  understandings,  agreements,  or commitments with any individual for such
person to act as a finder of opportunities for the Company.

The  Company  does not foresee  that it will enter into a merger or  acquisition
transaction with any business with which its officers or directors are currently
affiliated. Should the Company determine in the future, contrary to the forgoing
expectations,  that a  transaction  with  an  affiliate  would  be in  the  best
interests  of the  Company  and its  stockholders,  the  Company is, in general,
permitted by Minnesota law to enter into a transaction if: The material facts as
to the  relationship  or interest  of the  affiliate  and as to the  contract or
transaction are disclosed or are known to the Board of Directors,  and the Board
in good faith  authorizes,  approves or ratifies the contract or  transaction by
the affirmative vote of a majority of the disinterested  directors,  even though
the disinterested directors constitute less than a quorum; or the material facts
as to the  relationship  or interest of the  affiliate and as to the contract or
transaction  are  disclosed  or are known to the  stockholders  entitled to vote
thereon, and the contract or transaction is specifically authorized, approved or
ratified  in  good  faith  by  vote  of the  stockholders;  or the  contract  or
transaction is fair as to the Company as of the time it is authorized,  approved
or ratified, by the Board of Directors or the stockholders.

INVESTIGATION AND SELECTION OF BUSINESS OPPORTUNITIES

To a large extent, a decision to participate in a specific business  opportunity
may be made upon  management's  analysis of the  quality of the other  Company's
management  and  personnel,  the  anticipated  acceptability  of new products or
marketing concepts,  the merit of technological  changes,  the perceived benefit
the business  opportunity will derive from becoming a publicly held entity,  and
numerous  other  factors  which are  difficult,  if not  impossible,  to analyze
through the  application of any objective  criteria.  In many  instances,  it is
anticipated that the historical  operations of a specific  business  opportunity
may not  necessarily  be indicative of the potential for the future because of a
variety of factors,  including,  but not limited to, the possible need to expand
substantially,  shift marketing approaches,  change product emphasis,  change or
substantially augment management, raise capital and the like.

It is  anticipated  that the  Company  will not be able to  diversify,  but will
essentially be limited to the acquisition of one business opportunity because of
the Company's limited financing.  This lack of  diversification  will not permit

                                       5
<PAGE>
the Company to offset  potential  losses from one business  opportunity  against
profits from another,  and should be considered an adverse factor  affecting any
decision to purchase the Company's securities.

Certain types of business acquisition  transactions may be completed without any
requirement  that the Company first submit the  transaction to the  stockholders
for their approval.  In the event the proposed transaction is structured in such
a fashion that  stockholder  approval is not required,  holders of the Company's
securities (other than principal  stockholders  holding a controlling  interest)
should not anticipate  that they will be provided with  financial  statements or
any other documentation prior to the completion of the transaction.  Other types
of transactions require prior approval of the stockholders.

In the event a proposed business combination or business acquisition transaction
is  structured in such a fashion that prior  stockholder  approval is necessary,
the  Company  will be  required  to  prepare  a Proxy or  Information  Statement
describing  the proposed  transaction,  file it with the Securities and Exchange
Commission  for  review  and  approval,  and  mail a copy  of it to all  Company
stockholders  prior to holding a stockholders  meeting for purposes of voting on
the  proposal.  Minority  shareholders  that do not vote in favor of a  proposed
transaction  will then have the right,  in the event the transaction is approved
by the required number of stockholders, to exercise statutory dissenter's rights
and elect to be paid the fair value of their shares.

The  analysis  of  business  opportunities  will be  undertaken  by or under the
supervision  of  the  Company's  officers  and  directors,   none  of  whom  are
professional  business analysts (See Management).  Although there are no current
plans to do so, Company management might hire an outside consultant to assist in
the  investigation  and  selection  of business  opportunities,  and might pay a
finder's fee.  Since Company  management has no current plans to use any outside
consultants or advisors to assist in the investigation and selection of business
opportunities,  no policies have been adopted  regarding use of such consultants
or advisors,  the criteria to be used in selecting such consultants or advisors,
the  services to be provided,  the term of service,  or the total amount of fees
that may be paid.  However,  because of the limited resources of the Company, it
is likely that any such fee the Company agrees to pay would be paid in stock and
not in cash.

Otherwise,  in analyzing  potential business  opportunities,  Company management
anticipates that it will consider, among other things, the following factors:

*    Potential  for  growth  and  profitability  indicated  by  new  technology,
     anticipated market expansion, or new products;
*    The Company's perception of how any particular business opportunity will be
     received by the investment community and by the Company's stockholders;
*    Whether, following the business combination, the financial condition of the
     business  opportunity would be, or would have a significant prospect in the
     foreseeable future of becoming,  sufficient to enable the securities of the
     Company to qualify for  listing on an  exchange or on a national  automated
     securities quotation system, such as NASDAQ, so as to permit the trading of
     such securities to be exempt from the requirements of Rule 1 adopted by the
     Securities   and  Exchange   Commission   (See  Risk  Factors  The  Company
     Regulations of Penny Stocks).
*    Capital requirements and anticipated  availability of required funds, to be
     provided by the Company or from operations,  through the sale of additional
     securities,  through joint ventures or similar arrangements,  or from other
     sources;
*    The extent to which the business opportunity can be advanced;
*    Competitive  position as compared to other  companies  of similar  size and
     experience  within the industry segment as well as within the industry as a
     whole;
*    Strength and diversity of existing management or management  prospects that
     are scheduled for  recruitment;  o The cost of participation by the Company
     as compared to the perceived  tangible and intangible values and potential;
     and
*    The  accessibility  of  required  management  expertise,   personnel,   raw
     materials, services, professional assistance, and other required items.

In regard to the  possibility  that the shares of the Company  would qualify for
listing on NASDAQ,  the current  standards for initial  listing  include,  among
other  requirements,  that the Company (1) have net tangible  assets of at least
$4.0 million, or a market  capitalization of $50.0 million, or net income of not

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<PAGE>
less that $0.75  million in its latest  fiscal  year or in two of the last three
fiscal  years;  (2) have a public float  (i.e.,  shares that are not held by any
officer, director or 10% stockholder) of at least 1.0 million shares; (3) have a
minimum  bid  price  of at  least  $4.00;  (4)  have  at  least  300  round  lot
stockholders (i.e., stockholders who own not less than 100 shares); and (5) have
an operating history of at least one year or have a market  capitalization of at
least $50.0 million.  Many, and perhaps most, of the business opportunities that
might be  potential  candidates  for a  combination  with the Company  would not
satisfy the NASDAQ listing criteria.

No one of the factors  described above will be controlling in the selection of a
business  opportunity,  and  management  will  attempt  to analyze  all  factors
appropriate to each  opportunity and make a determination  based upon reasonable
investigative  measures  and  available  data.  Potentially  available  business
opportunities  may occur in many  different  industries and at various stages of
development,  all of which will make the task of comparative  investigation  and
analysis  of  such  business  opportunities  extremely  difficult  and  complex.
Potential  investors  must  recognize  that,  because of the  Company's  limited
capital  available for  investigation  and  management's  limited  experience in
business analysis,  the Company may not discover or adequately  evaluate adverse
facts about the opportunity to be acquired.

The  Company  is  unable  to  predict  when  it may  participate  in a  business
opportunity.  It expects,  however,  that the analysis of specific proposals and
the selection of a business opportunity may take several months or more.

Prior to making a decision to participate in a business opportunity, the Company
will generally request that it be provided with written materials  regarding the
business  opportunity  containing  as much  relevant  information  as  possible,
including, but not limited to, such items as a description of products, services
and  Company  history;  management  resumes;  financial  information;  available
projections,  with related assumptions upon which they are based; an explanation
of proprietary products and services; evidence of existing patents,  trademarks,
or service marks, or rights thereto;  present and proposed forms of compensation
to  management;  a  description  of  transactions  between  such Company and its
affiliates  during the relevant  periods;  a description of present and required
facilities;,  an analysis of risks and competitive conditions;  a financial plan
of operation and estimated capital  requirements;  audited financial statements,
or if they are not  available,  unaudited  financial  statements,  together with
reasonable  assurance  that  audited  financial  statements  would be able to be
produced  within a  reasonable  period of time not to  exceed 60 days  following
completion of a merger or acquisition transaction; and the like.

As part of the Company's  investigation,  the Company's  executive  officers and
directors may meet personally  with management and key personnel,  may visit and
inspect  material  facilities,  obtain  independent  analysis or verification of
certain information provided,  check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise.

It is possible that the range of business  opportunities that might be available
for  consideration  by the Company  could be limited by the impact of Securities
and Exchange Commission regulations regarding purchase and sale of penny stocks.
The regulations would affect, and possibly impair, any market that might develop
in the  Company's  securities  until such time as they  qualify  for  listing on
NASDAQ or on an exchange which would make them exempt from  applicability of the
penny stock regulations. (See Risk Factors Regulation of Penny Stocks)

Company   management   believes  that  various  types  of  potential  merger  or
acquisition  candidates might find a business combination with the Company to be
attractive.  These include  acquisition  candidates  desiring to create a public
market for their shares in order to enhance liquidity for current  stockholders,
acquisition  candidates  which have long-term  plans for raising capital through
public sale of  securities  and believe that the possible  prior  existence of a
public  market  for  their  securities  would  be  beneficial,  and  acquisition
candidates  which  plan  to  acquire   additional  assets  through  issuance  of
securities rather than for cash, and believe that the possibility of development
of a public market for their  securities  will be of assistance in that process.
Acquisition  candidates,  which have a need for an immediate cash infusion,  are
not likely to find a potential  business  combination  with the Company to be an
attractive alternative.

                                       7
<PAGE>
FORM OF ACQUISITION

It is impossible to predict the manner in which the Company may participate in a
business opportunity.  Specific business  opportunities will be reviewed as well
as the  respective  needs and desires of the Company  and the  promoters  of the
opportunity  and,  upon the basis of the  review  and the  relative  negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected.  Such structure may include,  but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual  arrangements.  The Company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing   such   structure  may  require  the  merger,   consolidation   or
reorganization  of the  Company  with other  corporations  or forms of  business
organization.  In  addition,  the present  management  and  stockholders  of the
Company  most likely will not have  control of a majority of the voting stock of
the Company following a merger or reorganization  transaction. As part of such a
transaction,  the Company's  existing directors may resign and new directors may
be appointed without any vote by stockholders.

It is likely  that the Company  will  acquire  its  participation  in a business
opportunity  through the  issuance of Common  Stock or other  securities  of the
Company.  Although the terms of any such  transaction  cannot be  predicted,  it
should be noted that in  certain  circumstances  the  criteria  for  determining
whether or not an acquisition is a so-called B tax free reorganization under the
Internal  Revenue  Code of 1986 as  amended,  depends  upon the  issuance to the
stockholders of the acquired  Company of a controlling  interest  (i.e.,  80% or
more) of the common stock of the combined  entities  immediately  following  the
reorganization.  If a transaction  were  structured  to take  advantage of these
provisions  rather than other a tax free provisions  provided under the Internal
Revenue Code, the Company's current  stockholders  would retain in the aggregate
20% or less of the total  issued and  outstanding  shares.  This could result in
substantial  additional dilution in the equity of those who were stockholders of
the Company prior to such reorganization. Any such issuance of additional shares
might also be done simultaneously with a sale or transfer of shares representing
a  controlling  interest in the Company by the current  officers,  directors and
principal stockholders.

It is anticipated that any new securities issued in any reorganization  would be
issued  in  reliance  upon  one  or  more  exemptions  from  registration  under
applicable  federal and state securities laws to the extent that such exemptions
are available.  In some  circumstances,  however, as a negotiated element of the
transaction,  the Company may agree to register  such  securities  either at the
time the  transaction is  consummated  or under certain  conditions at specified
times thereafter.  The issuance of substantial  additional  securities and their
potential  sale into any  trading  market  that might  develop in the  Company's
securities may have a depressive effect upon such market.

The  Company  will  participate  in  a  business   opportunity  only  after  the
negotiation  and  execution of a written  agreement.  Although the terms of such
agreement  cannot  be  predicted,  generally  such an  agreement  would  require
specific  representations and warranties by all of the parties thereto,  specify
certain events of default,  detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing,  outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.

As a general  matter,  the Company  anticipates  that it,  and/or its  principal
stockholders will enter into a letter of intent with the management,  principals
or owners  of a  prospective  business  opportunity  prior to  signing a binding
agreement.  Such a letter  of intent  will set  forth the terms of the  proposed
acquisition but will not bind any of the parties to consummate the  transaction.
Execution of a letter of intent will by no means indicate that  consummation  of
an acquisition is probable.  Neither the Company nor any of the other parties to
the letter of intent  will be bound to  consummate  the  acquisition  unless and
until a definitive  agreement is executed.  Even after a definitive agreement is
executed,  it is possible that the acquisition  would not be consummated  should
any party elect to exercise any right  provided in the agreement to terminate it
on specific grounds.

It is anticipated that the investigation of specific business  opportunities and
the  negotiation,  drafting  and  execution of relevant  agreements,  disclosure
documents and other  instruments  will require  substantial  management time and
attention and  substantial  costs for  accountants,  attorneys and others.  If a
decision is made not to participate i specific business  opportunity,  the costs
incurred  in the  related  investigation  would  not be  recoverable.  Moreover,
because many providers of goods and services require compensation at the time or

                                       8
<PAGE>
soon after the goods and services are provided,  the inability of the Company to
pay until an  indeterminate  future time may make it impossible to produce goods
and services.

INVESTMENT COMPANY ACT AND OTHER REGULATION

The Company may participate in a business opportunity by purchasing,  trading or
selling the securities of such business.  The Company does not, however,  intend
to engage  primarily in such  activities.  Specifically,  the Company intends to
conduct its activities so as to avoid being classified as an Investment  Company
under the Investment  Company Act of 1940 (the Investment Act), and therefore to
avoid  application  of  the  costly  and  restrictive   registration  and  other
provisions of the Investment Act, and the regulations promulgated thereunder.

The  Company's  plan of business may involve  changes in its capital  structure,
management,   control  and   business,   especially   if  it   consummates   the
reorganization  as  discussed  above.  Each of these areas is  regulated  by the
Investment Act, in order to protect purchasers of investment Company securities.
Since the Company will not register as an investment Company,  stockholders will
not be afforded these protections.

COMPETITION

The  Company  expects to  encounter  substantial  competition  in its efforts to
locate attractive  business  combination  opportunities.  The competition may in
part come from business development companies,  venture capital partnerships and
corporations, small investment companies, brokerage firms, and the like. Some of
these  types of  organizations  are likely to be in a better  position  than the
Company to obtain access to attractive  business  acquisition  candidates either
because they have greater experience, resources and managerial capabilities than
the Company,  because they are able to offer immediate access to limited amounts
of cash,  or for a variety of other  reasons.  The Company also will  experience
competition from other public companies with similar business purposes,  some of
which may also have funds available for use by an acquisition candidate.

EMPLOYEES

As of  December  31,  2002,  and  subsequent  thereto,  the  Company has no paid
employees,  including  it's sole  officer and  director.  None of the  Company's
employees is represented by a labor organization,  and the Company considers its
relationship  with  employees  to be  satisfactory.  Due to the lack of  ongoing
business operations, the Company's officer spends approximately 4 hours each per
month managing the Company's affairs.

The Company expects to use consultants, attorneys and accountants, as necessary,
and does not anticipate a need to engage any other  full-time  employees so long
as it is seeking and evaluating business  opportunities.  The need for employees
and their availability will be addressed in connection with the decision whether
or not to participate in specific business opportunities.

RISK FACTORS

CONFLICTS OF INTEREST.  Certain  conflicts of interest exist between the Company
and its officers and directors. They have other business interests to which they
currently devote attention,  and are expected to continue to do so. As a result,
conflicts of interest may arise that can be resolved only through their exercise
of judgement in a manner which is consistent with their fiduciary  duties to the
Company. (See Management, Conflicts of Interest.)

It is  anticipated  that  the  Company's  principal  shareholders  may  actively
negotiate  or  otherwise  consent to the  purchase of a portion of their  common
stock as a condition to, or in connection with, a proposed merger or acquisition
transaction.  In this process, the Company's principal shareholders may consider
their own  personal  pecuniary  benefit  rather than the best  interest of other
Company  shareholders.  Depending  upon the  nature of a  proposed  transaction,
Company  shareholders other than the principal  shareholders may not be afforded
the opportunity to approve or consent to a particular transaction.

POSSIBLE NEED FOR ADDITIONAL FINANCING.  The Company has very limited funds, and
such funds,  may not be adequate to take  advantage  of any  available  business
opportunities.  Even if the  Company's  currently  available  funds  prove to be
sufficient to pay for its operations until it is able to acquire an interest in,

                                       9
<PAGE>
or complete a transaction with, a business opportunity,  such funds will clearly
not be sufficient to enable it to exploit the  opportunity.  Thus,  the ultimate
success of the Company  will depend,  in part,  upon its  availability  to raise
additional  capital.  In the event that the Company  requires  modest amounts of
additional  capital  to fund  its  operations  until  it is able to  complete  a
business acquisition or transaction,  such funds, are expected to be provided by
the  principal  shareholders.  However,  the  Company has not  investigated  the
availability,  source,  or  terms  that  might  govern  the  acquisition  of the
additional  capital  which is  expected  to be  required  in order to  exploit a
business  opportunity,  and will not do so until it has  determined the level of
need for  such  additional  financing.  There is no  assurance  that  additional
capital  will be  available  from any  source or, if  available,  that it can be
obtained on terms  acceptable to the Company.  If not  available,  the Company's
operations  will be  limited  to those  that  can be  financed  with its  modest
capital.

REGULATION OF PENNY STOCKS. The Company's  securities are currently subject to a
Securities  and Exchange  Commission  rule that imposes  special sales  practice
requirements upon  broker-dealers who sell such securities to persons other than
established  customers or  accredited  investors.  For purpose of the rule,  the
phrase accredited investor means, in general terms,  institutions with assets in
excess of $5,000,000,  or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds  $200,000 (or that, when combined with a
spouse's income,  exceeds $300,000).  For transactions  covered by the rule, the
broker dealer must make a special  suitability  determination  for the purchaser
and receive the purchasers'  written  agreement to the transaction  prior to the
sale.  Consequently,  the rule may affect the ability of  broker-dealers to sell
the  Company's  securities  and also may affect the ability of purchasers of the
Company's  securities  to sell such  securities in any market that might develop
therefor.

In addition,  the  Securities  and Exchange  Commission  has adopted a number of
rules to  regulate  penny  stocks.  Such rules  include  Rule  3a51-1  under the
Securities Act of 1933, an Rules 15g-1,  15g-2, 15g-3, 15g-4, 15g-5, 15g-6,  and
15g-7  under the  Securities  Exchange  Act of 1934,  as  amended.  Because  the
securities of the Company  currently  constitute penny stocks within the meaning
of the rules,  the rules  currently  apply to the Company and to its securities.
The rules may further affect the ability of the Company's  shareholders  to sell
their shares in any public market, which might develop.

Shareholders  should  be  aware  that,  according  to  Securities  and  Exchange
Commission  Release No.  34-29093,  the market for penny  stocks has suffered in
recent years form patterns of fraud and abuse.  Such patterns  include ( control
of the market for the  security  by one or a few  broker-dealers  that are often
related  to  the  promoter  or  issuer;  (ii)  manipulation  of  prices  through
prearranged  matching  of  purchases  and sales and false and  misleading  press
releases;  (iii) boiler room practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons; (iv) excessive and
undisclosed bid-ask  differential and markups by selling b dealers;  and (v) the
wholesale  dumping of the same  securities by promoters and broker dealers after
prices  have been  manipulated  to a desired  level,  along  with the  resulting
inevitable  collapse of those prices and with consequent  investor  losses.  The
Company's  management is aware of the abuses that have occurred  historically in
the penny stock market. Although the Company does not expect to be in a position
to dictate the behavior of the market or of broker  dealers who  participate  in
the market,  management will strive within the confines of practical limitations
to prevent the  described  patterns form being  established  with respect to the
Company's securities.

NO  OPERATING  HISTORY.  The Company has no  operating  history,  revenues  from
operations  or assets.  The Company faces all of the risks of a new business and
the special risks inherent in the investigation,  acquisition, or involvement in
a new  business  opportunity.  The Company must be regarded as a new or start-up
venture with all of the unforeseen costs,  expenses,  problems, and difficulties
to which such ventures are subject.

NO ASSURANCE OF SUCCESS OR PROFITABILITY. There is no assurance that the Company
will acquire a favorable business opportunity. Even if the Company should become
involved in a business opportunity,  there is no assurance that it will generate
revenues  or  profits,  or that the market  price of the  Company's  outstanding
shares will be increased thereby.

POSSIBLE  BUSINESS  NOT  IDENTIFIED  AND  HIGHLY  RISKY.  The  Company  has  not
identified and has no  commitments to enter into or acquire a specific  business
opportunity. As a result, it is only able to make general disclosures concerning
the risks and hazards of acquiring a business opportunity, rather than providing

                                       10
<PAGE>
disclosure  with respect to specific risks and hazards  relating to a particular
business opportunity.  As a general matter, prospective investors can expect any
potential business opportunity to be quite risky.

TYPE OF BUSINESS  ACQUIRED.  The type of business to be acquired may be one that
desires to avoid effecting its own public offering and the accompanying expense,
delays,  uncertainties,  and federal  and state  requirements  which  purport to
protect investors.  Because of the Company's limited capital,  it is more likely
than not that any  acquisition  by the Company will involve  other parties whose
primary  interest is the  acquisition of control of a publicly  traded  Company.
Moreover,  any business  opportunity  acquired may be currently  unprofitable or
present other negative factors.

IMPRACTICABILITY  OF EXHAUSTIVE  INVESTIGATION.  The Company's limited funds and
lack of full-time  management will make it  impracticable  to conduct a complete
and exhaustive  investigation and analysis of a business  opportunity before the
Company commits its capital or other resources  thereto.  Management  decisions,
therefore, will likely be made without detailed feasibility studies, independent
analysis,  market  surveys  and the like  which,  if the  Company had more funds
available to it, would be desirable.  The Company will be particularly dependent
in making decisions upon information provided by the promoter,  owner,  sponsor,
or  others  associated  with the  business  opportunity  seeking  the  Company's
participation.  A significant  portion of the Company's  available  funds may be
expended for  investigative  expenses and other expenses  related to preliminary
aspects of completing an  acquisition  transaction,  whether or not any business
opportunity investigated is eventually acquired.

LACK OF  DIVERSIFICATION.  Because of the limited  financial  resources that the
Company  has, it is  unlikely  that the Company  will be able to  diversify  its
acquisitions or operations.  The Company's  probable  inability to diversify its
activities  into  more  than one area  will  subject  the  Company  to  economic
fluctuations within a particular business or industry and therefore increase the
risks associated with the Company's operations.

NEED  FOR  AUDITED  FINANCIAL  STATEMENTS.  The  Company  will  require  audited
financial  statements  from any business that it proposes to acquire.  Since the
Company is subject to the reporting provisions of the Securities Exchange Act of
1934,  as amended (the  Exchange  Act),  it will be required to include  audited
financial  statements in its periodical reports for any existing business it may
acquire. In addition, the lack of audited financial statements would prevent the
securities  of the Company from  becoming  eligible  for listing on NASDAQ,  the
automated  quotation system sponsored by the National  Association of Securities
Dealers,  Inc., or on any existing stock  exchange.  Moreover,  the lack of such
financial  statements  is likely to discourage  broker-dealers  from becoming or
continuing to serve as market makers in the securities of the Company.  Finally,
without  audited  financial  statements,  the Company would almost  certainly be
unable  to offer  securities  under a  registration  statement  pursuant  to the
Securities Act of 1933, and the ability of the Company to raise capital would be
significantly limited. Consequently,  acquisition prospects that do not have, or
are unable to provide  reasonable  assurances  that they will be able to obtain,
the required  audited  statements  would not be  considered by the Company to be
appropriate for acquisition.

OTHER  REGULATION.  An acquisition made by the Company may be of a business that
is subject to regulation or licensing by federal,  state, or local  authorities.
Compliance  with  such  regulations  and  licensing  can  be  expected  to  be a
time-consuming,  expensive process and may limit other investment  opportunities
of the Company.

DEPENDENCE UPON MANAGEMENT;  LIMITED  PARTICIPATION  OF MANAGEMENT.  The Company
will be entirely  dependant upon the experience of its officers and directors in
seeking,  investigating,  and  acquiring  a  business  and in  making  decisions
regarding the Company's operations.  It is possible that, from time to time, the
inability of such persons to devote their full time attention to the business of
the Company  results in a delay in progress  toward  implementing  its  business
plan. Furthermore, the Company will be entirely dependent upon the experience of
its officers and  directors in seeking,  investigating  and acquiring a business
and in making decisions  regarding the Company's  operations.  Because investors
will not be able to evaluate the merits of possible future business acquisitions
by the Company,  they should  critically  assess the information  concerning the
Company's officers and directors. (See Management.)

LACK OF  CONTINUITY  IN  MANAGEMENT.  The  Company  does not have an  employment
agreement  with any of its officers or directors,  and as a result,  there is no
assurance  that they will  continue  to manage  the  Company in the  future.  In
connection with acquisition of a business opportunity,  it is likely the current

                                       11
<PAGE>
officers and  directors of the Company may resign.  A decision to resign will be
based  upon the  identity  of the  business  opportunity  and the  nature of the
transaction,  and is  likely  to  occur  without  the  vote  or  consent  of the
stockholders of the Company.

INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Company's By-Laws provide for the
indemnification  of its,  directors,  officers,  employees,  and  agents,  under
certain  circumstances,  against  attorney's fees and other expenses incurred by
them in any  litigation  to  which  they  become  a  party  arising  from  their
association  with or activities on behalf of the Company.  The Company will also
bear  the  expenses  of  such  litigation  for any of its  directors,  officers,
employees, or agents, upon such persons promise to repay the Company therefor if
it is ultimately determined that any such person shall not have been entitled to
indemnification.   This  indemnification  policy  could  result  in  substantial
expenditures by the Company, which it may be unable to recoup.

DEPENDENCE UPON OUTSIDE ADVISORS.  To supplement the business  experience of its
officers  and  directors,  the Company  may be  required to employ  accountants,
technical experts, appraisers,  attorneys, or other consultants or advisors. The
selection of any such advisors will, be made by the Company's officers,  without
any input by shareholders.  Furthermore, it is anticipated that such persons may
be  engaged  on an as needed  basis  without  a  continuing  fiduciary  or other
obligation to the Company.  In the event the officers of the Company consider it
necessary  to hire  outside  advisors,  they may elect to hire  persons  who are
affiliates, if those affiliates are at provide the required services.

LEVERAGED  TRANSACTIONS.  There  is a  possibility  that  any  acquisition  of a
business  opportunity  by the Company  may be  leveraged,  i.e.  the Company may
finance the  acquisition of the business  opportunity  by borrowing  against the
assets of the  business  opportunity  to be acquired,  or against the  projected
future revenues or profits of the business opportunity.  This could increase the
Company's exposure to larger losses. A business  opportunity  acquired through a
leveraged  transaction  is profitable  only if it generates  enough  revenues to
cover the  related  debt and  expenses.  Failure  to make  payments  on the debt
incurred to purchase  the  business  opportunity  could  result in the loss of a
portion or all of the assets  acquired.  There is no assurance that any business
opportunity  acquired through a leveraged  transaction will generate  sufficient
revenues to cover the related debt and expenses.

COMPETITION.  The search for potentially  profitable  business  opportunities is
intensely  competitive.  The  Company  expects  to  be  at a  disadvantage  when
competing  with  many  firms  that  have  substantially  greater  financial  and
management  resources  and  capabilities  than the  Company.  These  competitive
conditions  will  exist  in  any  industry  in  which  the  Company  may  become
interested.

NO FORESEEABLE DIVIDENDS. The Company has not paid dividends on its Common Stock
and does not anticipate paying such dividends in the foreseeable future.

LOSS OF CONTROL BY PRESENT  MANAGEMENT AND  STOCKHOLDERS.  In  conjunction  with
completion of a business  acquisition,  it is anticipated  that the Company will
issue an amount of the  Company's  authorized  but  unissued  Common  Stock that
represents  a  majority  of the  voting  power  and  equity of the  Company.  In
conjunction with such a transaction, the Company's current Officers,  Directors,
and  principal  shareholders  could  also  sell  all,  or a  portion,  of  their
controlling  block of  stock  to the  acquired  Company's  stockholders.  Such a
transaction  would result in a greatly  reduced  percentage  of ownership of the
Company  by its  current  shareholders.  As a  result,  the  acquired  Company's
stockholders would control the Company, and it is likely that they would replace
the Company's management with persons who are unknown at this time.

NO PUBLIC  MARKET  EXISTS.  There is currently a limited  public  market for the
Company's  common stock, and no assurance can be given that a more active market
will develop or that a shareholder will ever be able to liquidate his investment
without  considerable  delay, if at all. If a more active market should develop,
the price may be highly  volatile.  Factors such as those discussed in this Risk
Factors  section  may have a  significant  impact  upon the market  price of the
securities  offered  hereby.  Owing  to the low  price of the  securities,  many
brokerage  firms may not be willing to effect  transactions  in the  securities.
Even if a  purchaser  finds a broker  willing to effect a  transaction  in these
securities,  the combination of brokerage commissions,  state transfer taxes, if
any, and any other selling  costs may exceed the selling  price.  Further,  many
leading  institutions  will not permit the use of such  securities as collateral
for any loans.

                                       12
<PAGE>
RULE 144 SALES. Of the 3,623,655  presently  outstanding shares of the Company's
stock,  3,000,000 shares are "restricted  securities" within the meaning of Rule
144 under the Securities Act of 1933, as amended.  As restricted  shares,  these
shares may  generally  be resold  only  pursuant  to an  effective  registration
statement  or  under  an  available  exemption  from  registration  such as that
provided  by Rule 144.  In  circumstances  in which  Rule 144 is  available,  it
provides  in essence  that a person  who has held  restricted  securities  for a
prescribed period may resell limited  quantities of those  securities.  A resale
under Rule 144,  or under  another  exemption  from the Act,  if  available,  or
pursuant to subsequent  registrations  of common stock of present  shareholders,
may have a  depressive  effect upon the price of the Common  Stock in the public
market.

ITEM 2 - DESCRIPTION OF PROPERTY

The Company currently  maintains a mailing address at 30 Sembrado,  Rancho Santa
Margarita,  CA 92688, which is the address of its sole officer and director. The
Company's  telephone  number  there is (949)  459-1220.  Other than this mailing
address,  the Company does not currently  maintain any other office  facilities,
and does not anticipate the need for maintaining  office  facilities at any time
in the foreseeable future. The Company pays no rent or other fees for the use of
the mailing  address as these  offices  are used  virtually  full-time  by other
businesses of the Company's President.

It is  likely  that  the  Company  will not  establish  an  office  until it has
completed a business acquisition transaction,  but it is not possible to predict
what   arrangements  will  actually  be  made  with  respect  to  future  office
facilities.

ITEM 3 - LEGAL PROCEEDINGS

The  Company  is not a party to any  legal  proceedings,  and to the best of its
knowledge, no such proceedings by or against the Company have been threatened.

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

No matter was submitted to a shareholder  vote for the fourth the quarter of the
2002 fiscal year.

                                     PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

In July 2001,  the  Company's  common stock was included in the NASD's  Bulletin
Board system under the symbol  "SBNS".  Although  quotations  for the  Company's
common stock appear on the OTC Bulletin Board,  there is no established  trading
market for the common stock.  Since July 2001,  transactions in the common stock
can only be described as sporadic.  Consequently,  the Company is of the opinion
that any published  prices  cannot be attributed to a liquid and active  trading
market and, therefore, are not indicative of any meaningful market value.

The following table sets forth for the respective  periods  indicated the prices
of the Company's Common Stock in the  over-the-counter  market,  as reported and
summarized by the OTC Bulletin Board. Such prices are based on inter-dealer  bid
and asked prices, without markup, markdown,  commissions, or adjustments and may
not represent actual transactions.

Calendar Quarter Ended                          High Bid ($)         Low Bid ($)
----------------------                          ------------         -----------

September 30, 2001                                  $0.06               $0.08
December 31, 2001                                   $0.06               $0.11

March 31, 2002                                      $0.06               $0.06
June 30, 2002                                       $0.03               $0.07
September 30, 2002                                  $0.03               $4.00
December 31, 2002                                   $0.05               $0.75

March 31, 2003                                      $0.10               $0.11

                                       13
<PAGE>
Since its inception,  no dividends have been paid on the Company's common stock.
The Company  intends to retain any earnings for use in its business  activities,
so it is not  expected  that any  dividends on the common stock will be declared
and paid in the foreseeable future.

At December  31,  2002,  there were  approximately  291 holders of record of the
Company's common stock.

ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

(1) CAUTION REGARDING FORWARD-LOOKING INFORMATION

Certain  statements  contained  in  this  annual  filing,   including,   without
limitation, statements containing the words "believes", "anticipates", "expects"
and  words  of  similar  import,  constitute  forward-looking  statements.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

Such factors include, among others, the following:  international,  national and
local general economic and market conditions:  demographic  changes; the ability
of the Company to sustain,  manage or  forecast  its growth;  the ability of the
Company to successfully make and integrate acquisitions;  raw material costs and
availability;  new product  development and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology; and other factors referenced in this and previous filings.

Given  these  uncertainties,  readers  of this Form  10-KSB  and  investors  are
cautioned not to place undue reliance on such  forward-looking  statements.  The
Company  disclaims  any  obligation  to update any such  factors or to  publicly
announce the result of any  revisions to any of the  forward-looking  statements
contained herein to reflect future events or developments.

(2) GENERAL

Shallbetter  Industries,  Inc. (Company) was initially incorporated on September
8, 1968 under the laws of the State of Minnesota.  The Company has not conducted
any  business  operations  or  maintained  any assets  since  1982.  The current
business purpose of the Company is to seek out and obtain a merger,  acquisition
or outright sale transaction  whereby the Company's  shareholders  will benefit.
The Company is not currently  engaged in any  negotiations and continues to seek
an appropriate merger or acquisition candidate.

(3) RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES AND PLAN OF OPERATION

The  Company  had no revenue  for the years  ended  December  31, 2002 and 2001,
respectively.

General and  administrative  expenses for the years ended  December 31, 2002 and
2001  were  approximately  $21,000  and  $7,400,  respectively.  These  expenses
consisted primarily of legal and accounting expenses associated with maintaining
the corporate  status of the Company and compliance with the periodic  reporting
requirements of the Securities Exchange Act of 1934.

The Company realized a net loss of approximately  $(21,000) and $(7,400) for the
years of 2002 and 2001, respectively.

The  Company  does not  expect  to  generate  any  meaningful  revenue  or incur
operating  expenses  unless and until it acquires  an  interest in an  operating
company.

At December  31, 2002,  the Company had no available  cash, a deficit in working
capital  of  approximately   $(17,000)  and  negative  shareholders'  equity  of
approximately $(17,000).

                                       14
<PAGE>
Through July 16, 2002,  working  capital was  provided by the  Company's  former
chief executive officer,  Craig Laughlin. In July 2002, Mr. Laughlin advanced an
additional  $2,561 to the Company to bring his total  advances to  approximately
$10,461.  On July 24, 2002, Mr. Laughlin  forgave the $10,461 in working capital
advances  to the Company  and these  amounts  were  reclassified  to  additional
paid-in capital on that date.

Subsequent  to July 16, 2002,  the  Company's  working  capital  needs have been
provided by Don Saunders, the current controlling shareholder.

The Company is currently  fully dependent upon either future sales of securities
and/or advances or loans from significant  stockholders or corporate officers to
provide  sufficient  working  capital to preserve the integrity of the corporate
entity.

There is no assurance that the Company will be able to obtain additional funding
through the sales of additional  securities or, that such funding, if available,
will be obtained on terms favorable to or affordable by the Company.

It  is  the  intent  of  management  and  significant  stockholders  to  provide
sufficient  working  capital  necessary to support and preserve the integrity of
the  corporate  entity.  However,  there  is  no  legal  obligation  for  either
management or significant stockholders to provide additional future funding.

The  Company's  need for  capital  may change  dramatically  if it  acquires  an
interest  in a business  opportunity  during the next 12 months.  The  Company's
current  operating  plan  is to (i)  handle  the  administrative  and  reporting
requirements  of a public  company;  and (ii) search for  potential  businesses,
products,  technologies and companies for acquisition.  At present,  the Company
has no understandings, commitments or agreements with respect to the acquisition
of any  business,  product,  technology or company and there can be no assurance
that the Company will identify any such business, product, technology or company
suitable for acquisition in the future.  Further, there can be no assurance that
the Company would be successful in  consummating  any  acquisition  on favorable
terms  or that it will be able  to  profitably  manage  the  business,  product,
technology or company it acquires.

ITEM 7 - FINANCIAL STATEMENTS

The  financial  statements  of the  Company  appear  at the end of  this  report
beginning with the Index to Financial Statements on page F-1.

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

None.
                                    PART III

ITEM 9 -  DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS AND
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934.

DIRECTORS AND OFFICERS

The following  table sets forth the names,  ages, and positions with the Company
for the sole director and officer of the Company.

     Name                       Age                     Position Held and Tenure
     ----                       ---                     ------------------------
Thomas K. Russell               49                       President and Director

The  directors  named  above will  serve  until the next  annual  meeting of the
Company's  stockholders  or until  their  successors  are duly  elected and have
qualified.   Directors  will  be  elected  for  one-year  terms  at  the  annual
stockholders meeting.  Officers will hold their positions at the pleasure of the
board of directors,  absent any  employment  agreement,  of which none currently
exists or is contemplated.  There is no arrangement or understanding between any
of the  directors  or officers of the Company and any other  person  pursuant to
which any director or officer was or is to be selected as a director or officer,
and there is no arrangement, plan or understanding as to  whether non-management

                                       15
<PAGE>
shareholders  will exercise their voting rights to continue to elect the current
directors to the Company's board. There are also no arrangements,  agreements or
understandings  between   non-management   shareholders  that  may  directly  or
indirectly participate in or influence the management of the Company's affairs.

The directors and officers will devote their time to the Company's affairs on an
as needed  basis,  which,  depending  on the  circumstances,  could amount to as
little as two hours per month, or more than forty hours per month, but more than
likely encompass less than four (4) hours per month.  There are no agreements or
understandings  for any  officer or director to resign at the request of another
person,  and none of the officers or directors  are acting on behalf of, or will
act at the direction of, any other person.

BIOGRAPHICAL INFORMATION

Mr. Thomas K. Russell was appointed as the Company's President and Sole Director
on July Since  February,  1998, Mr. Russell has served as Director and President
of PCMA,  Inc., a consulting  firm  specializing  in mergers,  acquisitions  and
financings  for  companies  desiring  to trade and access  capital in the public
markets.  From  December  1989 through  February  1998,  Mr.  Russell  served as
founder,  director,  general counsel and chief  financial  officer of MTR Gaming
Group,  Inc., a successful  operator of gaming facilities  (Nasdaq:  MNTG). From
1979  through  1989,   Mr.  Russell   practiced  law  in  Southern   California,
specializing in general  business and corporate law, and the  representation  of
alternative  health  care  providers.  During  this  period,  Mr.  Russell  also
represented  American  Indian tribes,  for which he also served as a legislative
lobbyist in  Washington,  D.C. From 1971 through 1989,  Mr. Russell served as an
officer,  director or general  counsel for several public and private  companies
doing business in the hospitality, petroleum, mining, motion picture, television
broadcasting and wholesale travel industries.

Mr.  Russell  received a Bachelor of Arts from  California  State  University at
Fullerton in Business Administration in 1975, and received his Juris Doctor from
Pepperdine  University  School of Law in 1978. He is licensed by the  California
State Bar.

OTHER SHELL COMPANY ACTIVITIES

The possibility exists that either Mr. Russell or persons affiliated with Donald
G. Saunders,  who controls a majority ownership  position in the Company,  could
become an officer  and/or  director  of other  shell  companies  in the  future.
Certain conflicts of interest are inherent in the participation of the Company's
sole officer and director as management in other shell  companies,  which may be
difficult,  if not impossible,  to resolve in all cases in the best interests of
the Company. Failure by management to conduct the Company's business in its best
interests  may  result  in  liability  of  management  of  the  Company  to  the
stockholders.

ITEM 10 - EXECUTIVE COMPENSATION

The Company has no  agreement  or  understanding,  express or implied,  with any
officer, director, or principal stockholder,  or their affiliates or associates,
regarding employment with the Company or compensation for services.
The Company has no plan, agreement,  or understanding,  express or implied, with
any  officer,  director,  or  principal  stockholder,  or  their  affiliates  or
associates,  regarding  the  issuance  to  such  persons  of any  shares  of the
Company's  authorized  and  unissued  common  stock.  There is no  understanding
between the Company and any of its present stockholders  regarding the sale of a
portion or all of the common stock currently held by them in connection with any
future  participation  by the Company in a business.  There are no other  plans,
understandings,   or  arrangements   whereby  any  of  the  Company's  officers,
directors, or principal stockholders,  or any of their affiliates or associates,
would receive  funds,  stock,  or other assets in connection  with the Company's
participation  in a business.  No advances have been made or contemplated by the
Company to any of its officers,  directors, or principal stockholders, or any of
their affiliates or associates.

There is no policy that prevents management from adopting a plan or agreement in
the future that would provide for cash or stock based  compensation for services
rendered to the Company.

On acquisition of a business, it is possible that current management will resign
and be replaced by persons associated with the business  acquired,  particularly
if the Company participates in a business by effecting a stock exchange, merger,
or  consolidation  as discussed  under "Item 1. Business." In the event that any

                                       16
<PAGE>
member of current  management  remains after  effecting a business  acquisition,
that member's time commitment and compensation  will likely be adjusted based on
the nature and location of such business and the services required, which cannot
now be foreseen.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  following  table  sets  forth as of  December  31,  2002,  the  number  and
percentage  of the  outstanding  shares of common stock which,  according to the
information supplied to the Company,  were beneficially owned by (i) each person
who is currently a director of the Company,  (ii) each executive officer,  (iii)
all current directors and executive  officers of the Company as a group and (iv)
each person who, to the  knowledge of the Company,  is the  beneficial  owner of
more than 5% of the outstanding common stock. Except as otherwise indicated, the
persons named in the table have sole voting and  dispositive  power with respect
to all shares  beneficially  owned,  subject to  community  property  laws where
applicable.

                                                                 % of Class
   Name and address                      Number of Shares     Beneficially Owned
   ----------------                      ----------------     ------------------
Thomas K. Russell (1)                        150,000                4.14%
   30 Sembrado
   Rancho Santa Margarita, CA 92688
Donald G. Saunders (2)                     2,227,499               61.47%
   2877 Paradise Road, Suite 3603
   Las Vegas, NV 89109
Bonnie Saunders (2)                        2,227,499               61.47%
   2877 Paradise Road, Suite 3603
   Las Vegas, NV 89109
Scott Saunders (3)                           290,001                8.00%
   3370 NE 190th Street, #2612
   Aventura, FL 33180
Craig Laughlin (4)                           262,500                7.24%
   11900 Wayzata Blvd., Suite 100
   Hopkins, MN 55305
All Officers and Directors
   as a Group (1 in Number)                  150,000                4.14%
----------
(1)  Mr. Russell is the current Officer and Sole Director of the Company
(2)  Donald  G. and  Bonnie  Saunders  are the  trustees  of the Don and  Bonnie
     Saunders Family Trust and of the Saunders  Childrens' Trust,  which are the
     record owners of the shares. As trustees, they are the beneficial owners of
     the shares which are held of record by the  respective  trusts.  A total of
     1,227,500  shares are owned by Don and Bonnie  Saunders  Family Trust and a
     total of 999,999 shares are held by the Saunders Childrens' Trust.
(3)  Includes 225,000 shares owned by Scott Saunders, son of Donald G. Saunders,
     and  65,001  shares  owned by Hannah  Saunders,  the  minor  child of Scott
     Saunders.
(4)  Mr. Laughlin is the immediate former Officer and Director of the Company

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Through July 16, 2002,  working  capital was  provided by the  Company's  former
chief executive officer,  Craig Laughlin. In July 2002, Mr. Laughlin advanced an
additional  $2,561 to the Company to bring his total  advances to  approximately
$10,461.  On July 24, 2002, Mr. Laughlin  forgave the $10,461 in working capital
advances  to the Company  and these  amounts  were  reclassified  to  additional
paid-in capital on that date.

Subsequent  to July 16, 2002,  the  Company's  working  capital  needs have been
provided by Don Saunders, the current controlling shareholder.

                                       17
<PAGE>
Mr. Thomas K.  Russell,  the  Company's  President  and Sole Director  currently
provides  the  Company  with a mailing  address  at 30  Sembrado,  Rancho  Santa
Margarita, CA 92688. The Company's telephone number there is (949) 459-1220. The
Company  pays no rent or other fees for the use of the mailing  address as these
offices  are used  virtually  full-time  by other  businesses  of the  Company's
President.

ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

Exhibit No.

2.1(++)   Stock Purchase Agreement, dated as of June 21, 2002, among the Don and
          Bonnie   Saunders   Family  Trust,   Craig  Laughlin  and  Shallbetter
          Industries, Inc. (a Minnesota corporation)
2.2(++)   Addendum to Stock Purchase  Agreement,  dated June 21, 2002, among the
          Don and Bonnie Saunders  Family Trust,  Craig Laughlin and Shallbetter
          Industries, Inc. (a Minnesota corporation)
2.3(++)   Second  Addendum to Stock  Purchase  Agreement,  dated June 21,  2002,
          among the Don and Bonnie  Saunders  Family Trust,  Craig  Laughlin and
          Shallbetter Industries, Inc. (a Minnesota corporation)
3.1(+)    Restated Articles of Incorporation
3.2(+)    By-Laws
----------
(+)  These  exhibits  are  incorporated  herein by  reference  to the  Company's
     Registration  Statement  on Form  10-SB   filed  with  the  Securities  and
     Exchange Commission on August 9, 2000.
(++) These  exhibits  are  incorporated  herein by  reference  to the  Company's
     Current  Report on Form 8-K filed with the U. S.  Securities  and  Exchange
     Commission on July 19, 2002.

FORM 8-K FILINGS

No reports on Form 8-K were filed during the fourth  quarter ended  December 31,
2002.

ITEM 14 - CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Exchange  Act,  within the 90 days prior to
the filing date of this report,  the Company  carried out an  evaluation  of the
effectiveness of the design and operation of the Company's  disclosure  controls
and  procedures.  This evaluation was carried out under the supervision and with
the  participation  of  the  Company's   management,   including  the  Company's
President,  Chief Executive and Financial  Officer.  Based upon that evaluation,
the Company's  President,  Chief Executive and Financial  Officer concluded that
the Company's disclosure controls and procedures are effective.  There have been
no significant  changes in the Company's  internal controls or in other factors,
which could  significantly  affect internal controls  subsequent to the date the
Company carried out its evaluation.

Disclosure  controls and procedures are controls and other  procedures  that are
designed to ensure that information  required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported,  within the time  periods  specified  in the  Securities  and Exchange
Commission's  rules and  forms.  Disclosure  controls  and  procedures  include,
without limitation,  controls and procedures designed to ensure that information
required to be  disclosed  in Company  reports  filed under the  Exchange Act is
accumulated  and  communicated  to  management,  including the  Company's  Chief
Executive  and  Financial  Officer as  appropriate,  to allow  timely  decisions
regarding required disclosure.

                                       18
<PAGE>
                                   SIGNATURES

 Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities Act of
1933,  the  registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                      SHALLBETTER INDUSTRIES, INC.


Date: March 26, 2003                  By: /s/ Thomas K. Russell
      --------------                     ---------------------------------------
                                                               Thomas K. Russell
                                             President, Chief Executive Officer,
                                         Chief Financial Officer & Sole Director

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


Date: March 26, 2003                By: /s/ Thomas K. Russell
      --------------                   -----------------------------------------
                                                               Thomas K. Russell
                                             President, Chief Executive Officer,
                                       Chief Financial Officer and Sole Director

                                       19
<PAGE>
                    CERTIFICATION PURSUANT TO 18 USC, SECTION
            1350, AS ADOPTED PURSUANT TO SECTIONS 302 AND 906 OF THE
                           SARBANES-OXLEY ACT OF 2002


In  connection  with  the  Quarterly  Report  of  Shallbetter  Industries,  Inc.
(Registrant)  on Form 10-KSB for the year ended December 31, 2002, as filed with
the  Securities  and  Exchange  Commission,  on the date  hereof,  I,  Thomas K.
Russell,  Chief Executive and Financial  Officer of the Company,  certify to the
best of my knowledge, pursuant to 18 USC 1350, as adopted pursuant to ss.302 and
promulgated  as 18 USC 1350  pursuant  to ss.906 of  the  Sarbanes-Oxley Act  of
2002, that:

(1)  I  have  reviewed  this  Annual  Report  on  Form  10-KSB  of   Shallbetter
     Industries, Inc. for the year ended December 31, 2002.

(2)  Based on my  knowledge,  this  Annual  Report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

(3)  Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this Annual Report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this Annual Report;

(4)  The Registrant's other certifying  officers,  if any, and I are responsible
     for  establishing  and maintaining  disclosure  controls and procedures (as
     defined in Exchange  Act Rules  13a-14 and 15d-14) for the  Registrant  and
     have:
     (a) designed  such  disclosure  controls  and  procedures  to  ensure  that
         material  information   relating  to  the  Registrant,   including  its
         consolidated  subsidiaries,  is made known to us by others within those
         entities, particularly during the period in which this Annual Report is
         being prepared;
     (b) evaluated the effectiveness of the Registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         Annual Report (the "Evaluation Date"); and
     (c) presented in this Annual Report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

(5)  The Registrant's other certifying  officers,  if any, and I have disclosed,
     based on our most recent evaluation,  to the Registrant's  auditors and the
     audit committee of registrant's  board of directors (or persons  performing
     the equivalent functions):
     (a) all  significant  deficiencies  in the design or  operation of internal
         controls  which  could  adversely  affect the  Registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  Registrant's  auditors any material  weaknesses in
         internal controls; and
     (b) any fraud,  whether or not material,  that involves management or other
         employees  who have a  significant  role in the  Registrant's  internal
         controls; and

(6)  The Registrant's other certifying officers, if any, and I have indicated in
     this  Annual  Report  whether  or not there  were  significant  changes  in
     internal  controls  or in other  factors  that could  significantly  affect
     internal  controls  subsequent  to the date of our most recent  evaluation,
     including any corrective  actions with regard to  significant  deficiencies
     and material weaknesses.


   /s/ Thomas K. Russell                                  Dated: March 26, 2003
---------------------------                                      --------------
Thomas K. Russell
Chief Executive Officer and
Chief Financial Officer

                                       20
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.

                                    CONTENTS

                                                                        Page
                                                                        ----

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                       F-2

FINANCIAL STATEMENTS

   Balance Sheets
     as of December 31, 2002 and 2001                                    F-3

   Statements of Operations and Comprehensive Loss
     for the years ended December 31, 2002 and 2001                      F-4

   Statement of Changes in Shareholders' Equity
     for the years ended December 31, 2002 and 2001                      F-5

   Statements of Cash Flows
     for the years ended December 31, 2002 and 2001                      F-6

   Notes to Financial Statements                                         F-7

                                       F-1
<PAGE>
S. W. HATFIELD, CPA
certified public accountants

Member: Texas Society of Certified Public Accountants
        Press Club of Dallas


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders
Shallbetter Industries, Inc.

We have audited the accompanying balance sheets of Shallbetter Industries,  Inc.
(a  Minnesota  corporation)  as of  December  31,  2002 and 2001 and the related
statements of operations and comprehensive loss, changes in shareholders' equity
and cash flows for each of the two years then ended. These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  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 Shallbetter Industries, Inc. as
of December 31, 2002 and 2001,  and the results of operations and cash flows for
each of the two years then ended,  respectively,  in conformity  with accounting
principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note C to the
financial statements, the Company has no viable operations or significant assets
and is dependent upon  significant  shareholders to provide  sufficient  working
capital to maintain the integrity of the corporate entity.  These  circumstances
create  substantial  doubt  about the  Company's  ability to continue as a going
concern and are discussed in Note C. The financial statements do not contain any
adjustments that might result from the outcome of these uncertainties.


                                        /s/ S. W. HATFIELD, CPA
Dallas, Texas
March 19, 2003


                      Use our past to assist your future(sm)

P. O. Box 820395                               9002 Green Oaks Circle, 2nd Floor
Dallas, Texas  75382-0395                               Dallas, Texas 75243-7212
214-342-9635 (voice)                                          (fax) 214-342-9601
800-244-0639                                                      SWHCPA@aol.com

                                       F-2
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.
                                 BALANCE SHEETS
                           December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                 December 31,     December 31,
                                                                    2002             2001
                                                                  --------         --------
<S>                                                               <C>              <C>
                                     ASSETS
CURRENT ASSETS
  Cash in bank                                                    $     --         $     80
                                                                  --------         --------

TOTAL ASSETS                                                      $     --         $     80
                                                                  ========         ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
  Advances from Officer                                           $ 17,326         $  6,600
                                                                  --------         --------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
  Preferred stock - $0.01 par value
   5,000,000 shares authorized;
   none issued and outstanding                                          --               --
  Common stock - $0.01 par value
   45,000,000 shares authorized
   3,623,655 shares issued and outstanding                          36,237           36,237
  Additional paid-in capital                                         3,953           (6,508)
  Accumulated deficit                                              (57,516)         (36,249)
                                                                  --------         --------

       TOTAL SHAREHOLDERS' EQUITY                                  (17,326)          (6,520)
                                                                  --------         --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                        $     80         $     80
                                                                  ========         ========
</TABLE>

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

                                       F-3
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                     Years ended December 31, 2002 and 2001


                                              Year ended             Year ended
                                             December 31,           December 31,
                                                 2002                  2001
                                              -----------           -----------

REVENUES                                      $        --           $        --
                                              -----------           -----------

EXPENSES
  General and administrative                       21,267                 7,376
                                              -----------           -----------

      TOTAL EXPENSES                               21,267                 7,376
                                              -----------           -----------

LOSS FROM OPERATIONS                              (21,267)               (7,376)

OTHER INCOME
  Interest income                                      --                    --
                                              -----------           -----------

LOSS BEFORE INCOME TAXES                          (21,267)               (7,376)

PROVISION FOR INCOME TAXES                             --                    --
                                              -----------           -----------

NET LOSS                                          (21,267)               (7,376)

OTHER COMPREHENSIVE INCOME                             --                    --
                                              -----------           -----------

COMPREHENSIVE INCOME                          $   (21,267)          $    (7,376)
                                              ===========           ===========
Loss per weighted-average share of
 common stock outstanding, computed
 on Net Loss - basic and fully diluted        $     (0.01)                  nil
                                              ===========           ===========
Weighted-average number of shares
 of common stock outstanding                    3,623,655             3,623,655
                                              ===========           ===========

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

                                       F-4
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.
                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                     Years ended December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                        Common Stock         Additional                     Stock
                                     -------------------      paid-in      Accumulated   subscription
                                     Shares       Amount      capital       deficit       receivable     Total
                                     ------       ------      -------       -------       ----------     -----
<S>                                <C>            <C>        <C>            <C>            <C>         <C>
BALANCES AT JANUARY 1, 2001,
 AS REPORTED                       1,197,285      $11,973    $ 17,756       $(28,873)      $   --      $    856

Correction of cumulative
 clerical errors found in
 Fiscal 2001 reconciliation
 of shareholders' listing             10,600          106        (106)            --           --            --

Effect of 3 for 1 forward
 stock split on
 August 28, 2002                   2,415,770       24,158     (24,158)            --           --            --
                                   ---------      -------    --------       --------       ------      --------

BALANCES AT JANUARY 1, 2001,
 AS RESTATED                       3,623,655       36,237      (6,508)       (28,873)          --           856

Net loss for the year                     --           --          --         (7,376)          --        (7,376)
                                   ---------      -------    --------       --------       ------      --------

BALANCES AT DECEMBER 31, 2001      3,623,655       36,237      (6,508)       (36,249)          --        (6,520)

Advances payable to former
 shareholder converted to
 additional paid-in capital
 on July 16, 2002                         --           --      10,461             --           --        10,461

Net loss for the year                     --           --          --        (21,267)          --       (21,267)
                                   ---------      -------    --------       --------       ------      --------

BALANCES AT DECEMBER 31, 2002      3,623,655      $36,237    $  3,953       $(57,516)      $   --      $(17,326)
                                   =========      =======    ========       ========       ======      ========
</TABLE>

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

                                       F-5
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.
                            STATEMENTS OF CASH FLOWS
                     Years ended December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                Year ended        Year ended
                                                                December 31,      December 31,
                                                                    2002             2001
                                                                  --------         --------
<S>                                                               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Loss                                                        $(21,267)        $ (7,376)
  Adjustments to reconcile net income to net cash
   provided by operating activities
    Depreciation                                                        --               --
                                                                  --------         --------

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                (21,267)          (7,376)
                                                                  --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES                                    --               --
                                                                  --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES
  Advances from shareholder                                         21,187            6,600
                                                                  --------         --------

NET CASH PROVIDED BY FINANCING ACTIVITIES                           21,187            6,600
                                                                  --------         --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       (80)            (776)

Cash and cash equivalents at beginning of period                        80              856
                                                                  --------         --------

Cash and cash equivalents at end of period                        $     --         $     80
                                                                  ========         ========

SUPPLEMENTAL DISCLOSURES OF INTEREST AND INCOME TAXES PAID
  Interest paid during the period                                 $     --         $     --
                                                                  ========         ========
  Income taxes paid (refunded)                                    $     --         $     --
                                                                  ========         ========
</TABLE>

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

                                       F-6
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.

                          NOTES TO FINANCIAL STATEMENTS


NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Shallbetter  Industries,  Inc. (Company) was initially incorporated on September
8, 1968 under the laws of the State of Minnesota.  The Company has not conducted
any  business  operations  or  maintained  any assets  since  1982.  The current
business purpose of the Company is to seek out and obtain a merger,  acquisition
or outright sale transaction  whereby the Company's  shareholders  will benefit.
The Company is not currently  engaged in any  negotiations and continues to seek
an appropriate merger or acquisition candidate.

NOTE B - PREPARATION OF FINANCIAL STATEMENTS

The  Company  follows  the  accrual  basis  of  accounting  in  accordance  with
accounting principles generally accepted in the United States of America and has
adopted a year-end of December 31.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America 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 reporting period. Actual results could differ from those estimates.

Management further acknowledges that it is solely responsible for adopting sound
accounting  practices,   establishing  and  maintaining  a  system  of  internal
accounting  control and preventing and detecting  fraud. The Company's system of
internal  accounting  control is designed to assure,  among other items, that 1)
recorded  transactions  are valid; 2) valid  transactions  are recorded;  and 3)
transactions  are  recorded in the proper  period in a timely  manner to produce
financial  statements which present fairly the financial  condition,  results of
operations  and cash  flows of the  Company  for the  respective  periods  being
presented

NOTE C - GOING CONCERN UNCERTAINTY

The Company has not conducted any business  operations or maintained  any assets
since  1982.  The  current  business  purpose of the  Company is to seek out and
obtain a merger,  acquisition or outright sale transaction whereby the Company's
shareholders  will  benefit.  The  Company  is  not  currently  engaged  in  any
negotiations  and  continues  to  seek  an  appropriate  merger  or  acquisition
candidate.

The  Company's  need for  capital  may change  dramatically  if it  acquires  an
interest  in a business  opportunity  during the next 12 months.  The  Company's
current  operating  plan  is to (i)  handle  the  administrative  and  reporting
requirements  of a public  company;  and (ii) search for  potential  businesses,
products,  technologies and companies for acquisition.  At present,  the Company
has no understandings, commitments or agreements with respect to the acquisition
of any  business,  product,  technology or company and there can be no assurance
that the Company will identify any such business, product, technology or company
suitable for acquisition in the future.  Further, there can be no assurance that
the Company would be successful in  consummating  any  acquisition  on favorable
terms  or that it will be able  to  profitably  manage  the  business,  product,
technology or company it acquires or, if  successful,  that any  acquisition  or
merger will result in the  appreciation of our  stockholders'  investment in our
common stock.

The  Company's  continued  existence is  dependent  upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis.

                                       F-7
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED


NOTE C - GOING CONCERN UNCERTAINTY - CONTINUED

The Company  remains  dependent upon additional  external  sources of financing;
including being dependent upon its management and/or significant stockholders to
provide  sufficient  working capital.  The Company  anticipates  offering future
sales of equity securities. However, there is no assurance that the Company will
be able to obtain  additional  funding  through the sales of  additional  equity
securities  or,  that such  funding,  if  available,  will be  obtained on terms
favorable to or affordable by the Company.

It  is  the  intent  of  management  and  significant  stockholders  to  provide
sufficient  working  capital  necessary to support and preserve the integrity of
the corporate entity.  However, no formal commitments or arrangements to advance
or loan funds to the Company or repay any such advances or loans exist. There is
no legal obligation for either management or significant stockholders to provide
additional future funding.

In such a restricted cash flow scenario, the Company would be unable to complete
our  business  plan  steps,  and  would,  instead,   delay  all  cash  intensive
activities.  Without  necessary cash flow, the Company may become dormant during
the next twelve months, or until such time as necessary funds could be raised in
the equity securities market.

The Company has not conducted any business  operations or maintained  any assets
since 1982, has minimal cash on hand, no profit, is not currently engaged in any
merger or acquisition  negotiations and continues to seek an appropriate  merger
or acquisition candidate.  Because of these factors, our auditors have issued an
audit opinion for the Company which  includes a statement  describing  our going
concern status.  This means, in our auditor's  opinion,  substantial doubt about
our ability to continue as a going  concern  exists at the date of their  latest
audit opinion.

While the Company is of the opinion that good faith  estimates of the  Company's
ability to secure additional  capital in the future to reach our goals have been
made, there is no guarantee that the Company will receive  sufficient funding to
sustain operations or implement any future business plan steps.

NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.   CASH AND CASH EQUIVALENTS

     The Company considers all cash on hand and in banks,  including accounts in
     book overdraft  positions,  certificates of deposit and other highly-liquid
     investments with maturities of three months or less, when purchased,  to be
     cash and cash equivalents.

2.   INCOME TAXES

     The Company  utilizes  the asset and  liability  method of  accounting  for
     income  taxes.  At December  31, 2002 and 2001,  the deferred tax asset and
     deferred tax liability  accounts,  as recorded when material,  are entirely
     the  result  of  temporary  differences.  Temporary  differences  represent
     differences  in the  recognition  of  assets  and  liabilities  for tax and
     financial  reporting  purposes,   primarily  accumulated  depreciation  and
     amortization.  As of December  31, 2002 and 2001,  the  deferred  tax asset
     related to the Company's net operating loss carryforward was fully reserved
     due to the unpredictability of ultimate realization.

                                       F-8
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED


NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.   EARNINGS (LOSS) PER SHARE

     Basic  earnings  (loss) per share is computed  by  dividing  the net income
     (loss) by the weighted-average  number of shares of common stock and common
     stock  equivalents  (primarily  outstanding  options and warrants).  Common
     stock equivalents  represent the dilutive effect of the assumed exercise of
     the  outstanding  stock  options and  warrants,  using the  treasury  stock
     method.  The calculation of fully diluted earnings (loss) per share assumes
     the dilutive effect of the exercise of outstanding  options and warrants at
     either the  beginning  of the  respective  period  presented or the date of
     issuance, whichever is later. As of December 31, 2002 and 2001, the Company
     has no warrants and/or options issued and outstanding.

NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash,  accounts  receivable,  accounts  payable and notes
payable, as applicable,  approximates fair value due to the short term nature of
these items  and/or the current  interest  rates  payable in relation to current
market conditions.

Interest  rate risk is the risk  that the  Company's  earnings  are  subject  to
fluctuations  in interest  rates on either  investments  or on debt and is fully
dependent  upon  the  volatility  of  these  rates.  The  Company  does  not use
derivative instruments to moderate its exposure to interest rate risk, if any.

Financial  risk  is  the  risk  that  the  Company's  earnings  are  subject  to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the  volatility  of  these  rates.  The  company  does  not use  derivative
instruments to moderate its exposure to financial risk, if any.

NOTE F - SEASONALITY OF OPERATIONS

The  Company   experiences   fluctuations  in  quarterly   operating   expenses,
principally  professional  services for compliance with the Securities  Exchange
Act of 1934, which are charged to operations in the period in which the services
are incurred.

NOTE G - ADVANCES FROM OFFICER

To support  operations,  the  Company's  former  chief  executive  officer  made
non-interest bearing working capital advances to support operations. On July 24,
2002, this former officer forgave the $10,460 in working capital advances to the
Company and these amounts were  reclassified  to additional  paid-in  capital on
that date.

                                       F-9
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED


NOTE H - COMMON STOCK TRANSACTIONS

During  the  first  quarter  of  2001,   the  Company   performed  an  extensive
reconciliation  of its shareholder list in conjunction with the appointment of a
new stock  transfer  agent.  As a result  of this  reconciliation  process,  the
Company noted various clerical errors in its issued and outstanding  shares. The
net effect of this reconciliation process was to add 10,600 shares to the issued
and  outstanding  shares of the Company as of the first day of the first  period
presented.

On August 6, 2002, the Company's Board of Directors authorized a 3 for 1 forward
stock split to  shareholders of record as of the close of business on August 19,
2002. The result of this action,  including  fractional  share rounding,  was to
increase the issued and  outstanding  shares from  1,207,885 to  3,623,665.  The
effects  of  these  actions  are  cumulatively  reflected  in  the  accompanying
financial statements as of the first day of the first period presented.

NOTE I - INCOME TAXES

The components of income tax (benefit) expense for the six months ended June 30,
2002 and 2001, respectively, are as follows:

                                             December 31,         December 31,
                                                 2002                 2001
                                               -------              -------

     Federal:
       Current                                 $    --              $    --
       Deferred                                     --                   --
                                               -------              -------
                                                    --                   --
                                               -------              -------
     State:
       Current                                      --                   --
       Deferred                                     --                   --
                                               -------              -------
                                                    --                   --
                                               -------              -------

     Total                                     $    --              $    --
                                               =======              =======

As of December 31, 2002,  the Company has a net operating loss  carryforward  of
approximately  $38,000  to offset  future  taxable  income.  Subject  to current
regulations,  this  carryforward  will  begin to expire in 2020.  The amount and
availability  of  the  net  operating  loss  carryforwards  may  be  subject  to
limitations set forth by the Internal  Revenue Code.  Factors such as the number
of shares ultimately issued within a three year look-back period;  whether there
is a deemed more than 50 percent change in control; the applicable long-term tax
exempt bond rate;  continuity of historical  business;  and subsequent income of
the  Company  all  enter  into  the  annual   computation  of  allowable  annual
utilization of the carryforwards.

                                      F-10
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED


NOTE I - INCOME TAXES - CONTINUED

The Company's  income tax expense for the year ended December  31,2002 and 2001,
respectively, are as follows:

                                                      Year ended    Year ended
                                                      December 31,  December 31,
                                                          2002         2001
                                                        -------      -------
Statutory rate applied to income before income taxes    $(7,231)     $(2,508)
Increase (decrease) in income taxes resulting from:
  State income taxes                                        --           --
  Other, including reserve for deferred tax asset
   and application of net operating loss carryforward     7,231        2,508
                                                        -------      -------

  Income tax expense                                    $    --      $    --
                                                        =======      =======

Temporary  differences,  consisting primarily of statutory deferrals of expenses
for organizational costs and statutory  differences in the depreciable lives for
property and equipment, between the financial statement carrying amounts and tax
bases of assets and liabilities give rise to deferred tax assets and liabilities
as of December 31, 2002 and 2001, respectively:

                                                  December 31,      December 31,
                                                      2002             2001
                                                    -------          -------
Deferred tax assets
  Net operating loss carryforwards                 $ 12,850         $  5,620
  Less valuation allowance                          (12,850)          (5,620)
                                                   --------         --------

Net Deferred Tax Asset                             $     --         $     --
                                                   ========         ========

During the years ended December 31, 2002 and 2001, respectively, the reserve for
the deferred  current tax asset  increased by  approximately  $7,230 and $2,510,
respectively.

NOTE J - COMMON STOCK TRANSACTIONS

During  the  first  quarter  of  2001,   the  Company   performed  an  extensive
reconciliation  of its shareholder list in conjunction with the appointment of a
new stock  transfer  agent.  As a result  of this  reconciliation  process,  the
Company noted various clerical errors in its issued and outstanding  shares. The
net effect of this reconciliation process was to add 10,600 shares to the issued
and  outstanding  shares of the Company as of the first day of the first  period
presented.

On August 6, 2002, the Company's Board of Directors authorized a 3 for 1 forward
stock split to  shareholders of record as of the close of business on August 19,
2002. The result of this action,  including  fractional  share rounding,  was to
increase the issued and  outstanding  shares from  1,207,885 to  3,623,665.  The
effects  of  these  actions  are  cumulatively  reflected  in  the  accompanying
financial statements as of the first day of the first period presented.

                                      F-11
<PAGE>
                          SHALLBETTER INDUSTRIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED


NOTE K - SELECTED FINANCIAL DATA (UNAUDITED)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 2001 and 2000, respectively.

<TABLE>
<CAPTION>
                                 Quarter ended    Quarter ended    Quarter ended    Quarter ended     Year ended
                                    March 31         June 30       September 30      December 31      December 31
                                    --------         -------       ------------      -----------      -----------
<S>                               <C>              <C>              <C>              <C>              <C>
YEAR ENDED DECEMBER 31, 2002

Net revenues                      $       --       $       --       $       --       $       --       $       --
Gross profit                              --               --               --               --               --
Net loss from operations              (2,364)          (1,577)         (14,906)          (2,420)         (21,267)
Basic and fully diluted
 earnings per share                      nil              nil              nil              nil            (0.01)
Weighted-average number
 of shares outstanding             3,623,655        3,623,655        3,623,655        3,623,655        3,623,655

YEAR ENDED DECEMBER 31, 2001

Net revenues                      $       --       $       --       $       --       $       --       $       --
Gross profit                              --               --               --               --               --
Net loss from operations              (1,521)            (920)          (4,004)            (931)          (7,376)
Basic and fully diluted
 earnings per share                      nil              nil              nil              nil            (0.01)
Weighted-average number
 of shares outstanding             3,623,655        3,623,655        3,623,655        3,623,655        3,623,655
</TABLE>

The  Company   experiences   fluctuations  in  quarterly   operating   expenses,
principally  professional services, which are charged to expense as the services
are incurred.

                                      F-12