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Commission File No. 000-3115

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U.S. SECURITIES AND EXCHANGE COMMISSION


Washington D.C. 20549


FORM 10-KSB

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

For the Fiscal Year Ended: December 31, 2001

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

For the Transition Period From __ to __

MAGNOLIA VENTURES, INC.




(Exact Name of Small Business Issuer as Specified in its Charter)


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

Issuers telephone number: (702) 248-1047

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

none

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

$.001 Common Stock

(Title of Class)


Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  (CHECKBOX)   No  (BOX)

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part II of this Form 10-K or any amendments to this Form 10-K.   (CHECKBOX)



As of December 31, 2001, there were 21,000,000 shares of the registrants Common Stock, $.001 par value,
outstanding.

The aggregate market value of shares of Common Stock held by non-affiliates of the registrant is $-0-.

State the registrants revenues for the December 31, 2001 fiscal year:  $-0-.



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TABLE OF CONTENTS



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|Item 1. Description of Business.                                                                                        
|Item 2. Description of Property.                                                                                        
|Item 3. Legal Proceedings.                                                                                              
|Item 4. Submission of Matter to Vote of Security Holders.                                                               
|Item 5. Market for Common Company Equity and Related Stockholder Matter.                                                
|Item 6. Managements Discussion and Analysis or Plan of Operation                                                       
|Item 7. Financial Statements.                                                                                           
|Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.                           
|Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
|Item 10. Executive Compensation.                                                                                        
|Item 11. Security Ownership of Certain Beneficial Owners and Management.                                                
|Item 12. Certain Relationships and Related Transactions.                                                                
|Item 13. Exhibits and Reports on Form 8-K.                                                                              
|                                                                                                                         | SIGNATURES
|EXHIBIT 23.1                                                                                                            



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TABLE OF CONTENTS

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|Item 1.  |  | Description of Business                                                                                         |  |           | 4  |     
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|Item 2.  |  | Description of Property                                                                                         |  |           | 13 |     
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|Item 3.  |  | Legal Proceedings                                                                                               |  |           | 14 |     
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|Item 4.  |  | Submission of Matter to Vote of Security Holders                                                                |  |           | 14 |     
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|Item 5.  |  | Market for Common Registrant Equity and Related Stockholder Matter                                              |  |           | 14 |     
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|Item 6.  |  | Managements Discussion and Analysis or Plan of Operation                                                       |  |           | 18 |     
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|Item 7.  |  | Financial Statements                                                                                            |  |           | 19 |     
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|Item 8.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  |           | 28 |     
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|Item 9.  |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  |           | 28 |     
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|Item 10. |  | Executive Compensation                                                                                          |  |           | 29 |     
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|Item 11. |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  |           | 29 |     
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|Item 12. |  | Certain Relationships and Related Transactions                                                                  |  |           | 31 |     
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|Item 13. |  | Exhibits and Reports on Form 8-K                                                                                |  |           | 31 |     
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|         |  |                                                                                                                 |  | Signature |    |      | 31 | 

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Item 1.  Description of Business.

Introduction

Magnolia Ventures, Inc. (the Company) was incorporated on June 13, 1994, under the laws of the State of
Nevada. The Company has been in the developmental stage since inception and has no operations to date. Other than
issuing shares to its original shareholders pursuant to a business concept, the Company never commenced any operational
activities. As such, the Company can be defined as a shell company, whose sole purpose at this time is to locate and
consummate a merger or acquisition with a private entity. The Board of Directors of the Company has elected to commence
implementation of the Companys principal business purpose described below. The proposed business activities described
herein may now classify the Company as a blank check company.

The Company became a reporting company on a voluntary basis because the primary attraction of the
Company as a merger partner or acquisition vehicle will be its status as a public company. In addition, the Company
became a reporting company to enhance investor protection and to provide information if a trading market commences.
Only those companies that report their current financial information to the Securities and Exchange Commission, banking,
or insurance regulators are permitted to be quoted on the OTC Bulletin Board System.

Risk Factors

The Companys business is subject to numerous risk factors, including the following:



|1. |  | The Company has had no operating history nor any revenues or earnings from operations.
|-- |  | --------------------------------------------------------------------------------------

The Company has no significant assets or financial resources. The Company will, in all likelihood,
sustain operating expenses without corresponding revenues, at least until the consummation of a business combination.
This may result in the Company incurring a net operating loss which will increase continuously until the Company can
consummate a business combination with a profitable business opportunity. There is no assurance that the Company can
identify such a business opportunity and consummate such a business combination.



|2. |  | The Companys proposed operations is speculative.
|-- |  | -------------------------------------------------

The success of the Companys proposed plan of operation will depend to a great extent on the operations,
financial condition and management of the identified business opportunity. While management intends to seek business combination(s) with

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entities having established operating histories,
there can be no assurance that the Company will be successful in locating candidates meeting such criteria. In
the event the Company completes a business combination, of which there can be no assurance, the success of the
Companys operations may be dependent upon management of the successor firm or venture partner firm and numerous
other factors beyond the Companys control.



|3. |  | The Company faces intense competition for business opportunities and combinations.
|-- |  | ----------------------------------------------------------------------------------

The Company is and will continue to be an insignificant participant in the business of seeking mergers
with, joint ventures with and acquisitions of small private and public entities. A large number of established and
well-financed entities, including venture capital firms, are active in mergers and acquisitions of companies which may be
desirable target candidates for the Company. Nearly all such entities have significantly greater financial resources,
technical expertise and managerial capabilities than the Company and, consequently, the Company will be at a competitive
disadvantage in identifying possible business opportunities and successfully completing a business combination.
Moreover, the Company will also compete in seeking merger or acquisition candidates with numerous other small public
companies.



|4. |  | The Company has no agreements for a business combination or other transaction and has established no
standards for a business combination.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------

The Company has no arrangement, agreement or understanding with respect to engaging in a merger with,
joint venture with or acquisition of, a private or public entity. There can be no assurance the Company will be
successful in identifying and evaluating suitable business opportunities or in concluding a business combination.
Management has not identified any particular industry or specific business within an industry for evaluation by the
Company. There is no assurance the Company will be able to negotiate a business combination on terms favorable to the
Company. The Company has not established a specific length of operating history or a specified level of earnings,
assets, net worth or other criteria which it will require a target business opportunity to have achieved, and without
which the Company would not consider a business combination in any form with such business opportunity. Accordingly, the
Company may enter into a business combination with a business opportunity having no significant operating history,
losses, limited or no potential for earnings, limited assets, negative net worth or other negative characteristics.
5Table of Contents



|5. |  | The Companys success is dependent on management which has other full time employment, has limited
experience and will only devote limited part time working for the Company which makes our future even
more uncertain.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

None of the Companys officers has entered into a written employment agreement with the Company and none
is expected to do so in the foreseeable future. The Company has not obtained key man life insurance on any of its
officers or directors. Notwithstanding the combined limited experience and time commitment of management, loss of the
services of any of these individuals would adversely affect development of the Companys business and its likelihood of
continuing operations.



|6. |  | The Companys officers and directors may in the future participate in business ventures which could be
deemed to compete directly with the Company.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

Additional conflicts of interest and non-arms length transactions may arise in the future in the event
the Companys officers or directors are involved in the management of any firm with which the Company transacts business.
Management has adopted a policy that the Company will not seek a merger with, or acquisition of, any entity in which
management serve as officers, directors or partners, or in which they or their family members own or hold any ownership
interest.



|7. |  | The reporting requirements under federal securities law may delay or prevent the Company from making
certain acquisitions.
|-- |  | --------------------------------------------------------------------------------------------------------------------------

Sections 13 and 5(d) of the Securities Exchange Act of 1934 (the 1934 Act), require companies subject
thereto to provide certain information about significant acquisitions, including certified financial statements for the
company acquired, covering one, two, or three years, depending on the relative size of the acquisition. The time and
additional costs that may be incurred by some target entities to prepare such statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition by the Company. Acquisition prospects that do not
have or are unable to obtain the required audited statements may not be appropriate for acquisition so long as the
reporting requirements of the 1934 Act are applicable.



|8. |  | The Company has neither conducted, nor have others made available to it, results of market research
indicating that any market demand exists for the transactions contemplated by the Company.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company does not have, and does not plan to establish, a marketing organization. Even in
the event demand is

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identified for a merger or acquisition contemplated by the Company, there is no assurance
the Company will be successful in completing any such business combination.



|9. |  | The Companys plan of operation may not permit diversification.
|-- |  | ---------------------------------------------------------------

The Companys proposed operations, even if successful, will in all likelihood result in the Company
engaging in a business combination with a one limited business opportunity. Consequently, the Companys activities may
be limited to those engaged in by business opportunities which the Company merges with or acquires. The Companys
inability to diversify its activities into a number of areas may subject the Company to economic fluctuations within a
particular business or industry and therefore increase the risks associated with the Companys operations.



|10. |  | The Investment Company Act of 1940 creates a situation wherein the Company would be required to register
and could be required to incur substantial additional costs and expenses.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although the Company will be subject to regulation under the 1934 Act, management believes the Company
will not be subject to regulation under the Investment Company Act of 1940, insofar as the Company will not be engaged in
the business of investing or trading in securities. In the event the Company engages in business combinations which
result in the Company holding passive investment interests in a number of entities, the Company could be subject to
regulation under the Investment Company Act of 1940. In such event, the Company would be required to register as an
investment company and could be expected to incur significant registration and compliance costs. The Company has obtained
no formal determination from the Securities and Exchange Commission as to the status of the Company under the Investment
Company Act of 1940 and, consequently, any violation of such Act would subject the Company to material adverse
consequences.

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|11. |  | The present management of the Company most likely will not remain after the Company completes a business
combination.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

A business combination involving the issuance of the Companys Common Stock will, in all likelihood,
result in shareholders of a private company obtaining a controlling interest in the Company. Any such business
combination may require management of the Company to sell or transfer all or a portion of the Companys Common Stock held
by them, or resign as members of the Board of Directors of the Company. The resulting change in control of the Company
could result in removal of one or more present officers and directors of the Company and a corresponding reduction in or
elimination of their participation in the future affairs of the Company.



|12. |  | At the time the Company does any business combination, each shareholder will most likely hold a
substantially lesser percentage ownership in the Company.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys primary plan of operation is based upon a business combination with a private concern
which, in all likelihood, would result in the Company issuing securities to shareholders of any such private company.
The issuance of previously authorized and unissued Common Stock of the Company would result in reduction in percentage of
shares owned by present and prospective shareholders of the Company and may result in a change in control or management
of the Company.



|13. |  | A blank-check company faces substantial additional adverse business and legal consequences.
|--- |  | -------------------------------------------------------------------------------------------

The Company may enter into a business combination with an entity that desires to establish a public
trading market for its shares. A business opportunity may attempt to avoid what it deems to be adverse consequences of
undertaking its own public offering by seeking a business combination with the Company. Such consequences may include,
but are not limited to, time delays of the registration process, significant expenses to be incurred in such an offering,
loss of voting control to public shareholders and the inability or unwillingness to comply with various federal and state
laws enacted for the protection of investors.



|14. |  | Federal and state tax consequences will, in all likelihood, be a major consideration in any business
combination in which the Company may undertake.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

Currently, such transactions may be structured so as to result in tax-free treatment to both companies,
pursuant to various federal and state tax provisions. The Company intends to structure any business combination so as to
minimize the federal and state tax consequences to both the Company and the target

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entity; however, there can be no assurance that
such business combination will meet the statutory requirements of a tax-free reorganization or that the parties
will obtain the intended tax-free treatment upon a transfer of stock or assets. A non-qualifying reorganization
could result in the imposition of both federal and state taxes which may have an adverse effect on both parties
to the transaction.



|15. |  | The requirement of audited financial statements may disqualify business opportunities.
|--- |  | --------------------------------------------------------------------------------------

Management of the Company believes that any potential business opportunity must provide audited
financial statements for review, for the protection of all parties to the business combination. One or more attractive
business opportunities may choose to forego the possibility of a business combination with the Company, rather than incur
the expenses associated with preparing audited financial statements.



|16. |  | If the Company issues additional or future shares, the present investors per share percentage interest in the
Company may be diluted.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------

Any merger or acquisition effected by the Company can be expected to have a significant dilutive effect
on the percentage of shares held by the Companys then shareholders.



|17. |  | The Companys common stock may never be public traded and an investor may have no ability to sell the shares.
|--- |  | -------------------------------------------------------------------------------------------------------------

The Company plans to seek a listing on the Over The Counter (OTC) Bulletin Board. The Company will
contact a market maker to seek the listing on our behalf.

Only market makers can apply to quote securities. Market makers who desire to initiate quotations in
the OTC Bulletin Board system must complete an application (Form 211) and by doing so, will have to represent that it has
satisfied all applicable requirements of the Securities and Exchange Commission Rule 15c2-11 and the filing and
information requirements promulgated under the National Association of Securities Dealers (NASD) Bylaws. The OTC
Bulletin Board does not charge the Company a fee for being quoted on the service. NASD rules prohibit market makers from
accepting any remuneration in return for quoting issuers securities on the OTC Bulletin Board or any similar medium.
The Company intends to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and,
as such, we may be deemed compliant with Rule 15c2-11. The NASD Regulation, Inc. will review the market makers
application and if cleared, it cannot be assumed by any investor that any federal, state or self-regulatory requirements other than certain NASD rules and Rule 15c2-11
have been

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considered by the NASD Regulation, Inc. Furthermore, the clearance should not construed by any
investor as indicating that the NASD Regulation, Inc., the Securities and Exchange Commission or any state
securities commission has passed upon the accuracy or adequacy of the documents contained in the submission.

The Company has not contacted any market maker for sponsorship of its shares on the OTC Bulletin Board.

The OTC Bulletin Board is a market maker or dealer-driven system offering quotation and trading
reporting capabilities  a regulated quotation service  that displays real-time quotes, last-sale prices, and volume
information in OTC equity securities. The OTC Bulletin Board securities are not listed and traded on the floor of an
organized national or regional stock exchanges. Instead, OTC Bulletin Board securities transactions are conducted
through a telephone and computer network connecting market makers or dealers in stocks.

If the Company is unable to obtain a market maker to sponsor a listing, the Company will be unable to
develop a trading market for the Common Stock. The Company may be unable to locate a market maker that will agree to
sponsor our securities. Even if the Company does locate a market maker, there is no assurance that its securities will
be able to meet the requirements for a quotation or that the securities will be accepted for listing on the OTC Bulletin
Board.

Plan of Operation

The Company intends to seek to acquire assets or shares of an entity actively engaged in business which
generates revenues in exchange for its securities. The Company has no particular acquisitions in mind and has not
entered into any negotiations regarding such an acquisition. None of the Companys officers, directors, promoters or
affiliates have engaged in any preliminary contact or discussions with any representative of any other company regarding
the possibility of an acquisition or merger between the Company and such other company as of the date of this
registration statement.

General Business Plan

The Companys purpose is to seek, investigate and, if such investigation warrants, acquire an interest in
business opportunities presented to it by persons or firms who or which desire to seek the advantages of a company who
has complied with the 1934 Act. The Company will not restrict its search to any specific business, industry, or
geographical location and the Company may participate in a business venture of virtually any kind or nature. This discussion of the proposed business
is

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purposefully general and is not meant to be restrictive of the Companys virtually unlimited discretion to search for
and enter into potential business opportunities. Management anticipates that it may be able to participate in only one
potential business venture because the Company has nominal assets and limited financial resources. This lack of
diversification should be considered a substantial risk to shareholders of the Company because it will not permit the
Company to offset potential losses from one venture against gains from another.

The Company may seek a business opportunity with entities which have recently commenced operations, or
which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or
markets, to develop a new product or service, or for other corporate purposes.

The Company anticipates that the selection of a business opportunity in which to participate will be complex and
extremely risky. Due to general economic conditions, rapid technological advances being made in some industries and
shortages of available capital, management believes that there are numerous firms seeking the benefits of an Issuer who
has complied with the 1934 Act. Such benefits may include facilitating or improving the terms on which additional equity
financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, providing
liquidity (subject to restrictions of applicable statutes), for all shareholders.

The Company has made no determination as to whether or not it will file periodic reports in the event
its obligation to file such reports is suspended under the 1934 Act.
Peggy Melilli, an officer and director of the
Company, has agreed to provide the necessary funds, without interest, for the Company to comply with the 1934 Act
reporting requirements, provided that she is an officer and director of the Company when the obligation is incurred.

It is anticipated that the Company will incur nominal expenses in the implementation of its business plan
described herein. Because the Company has no capital with which to pay these anticipated expenses, present management of
the Company will pay these charges with their personal funds, as interest free loans to the Company or as capital
contributions. However, if loans, the only opportunity which management has to have these loans repaid will be from a
prospective merger or acquisition candidate.

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Acquisition of Opportunities

In implementing a structure for a particular business acquisition, the Company may become a party to a merger,
consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. It may also
acquire stock or assets of an existing business. On the consummation of a transaction, it is probable that the present
management and shareholders of the Company will no longer be in control of the Company. In addition, the Companys
directors may, as part of the terms of the acquisition transaction, resign and be replaced by new directors without a
vote of the Companys shareholders or may sell their stock in the Company.

It is anticipated that any securities issued in any such reorganization would be issued in reliance upon
exemption from registration under applicable federal and state securities laws.

While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may
be expected that the parties to the business transaction will find it desirable to avoid the creation of a taxable event
and thereby structure the acquisition in a so-called tax-free reorganization under Sections 368(a)(1) or 351 of the
Internal Revenue Code (the Code).

The Company will participate in a business opportunity only after the negotiation and execution of
appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will
require some specific representations and warranties by all of the parties thereto, will specify certain events of
default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to and
after such closing, will outline the manner of bearing costs, including costs associated with the Companys attorneys and
accountants, will set forth remedies on default and will include miscellaneous other terms.

The Company will not acquire or merge with any entity which cannot provide independent audited financial
statements within a reasonable period of time after closing of the proposed transaction. The Company is subject to all
of the reporting requirements included in the 1934 Act. Included in these requirements is the affirmative duty of the
Company to file independent audited financial statements as part of its Form 8-K to be filed with the Securities and
Exchange Commission upon consummation of a merger or acquisition, as well as the Companys audited financial statements
included in its annual report on Form 10-KSB (or 10-K, as applicable).
12Table of Contents

Competition

The Company will remain an insignificant participant among the firms which engage in the acquisition of
business opportunities. There are many established venture capital and financial concerns which have significantly
greater financial and personnel resources and technical expertise than the Company. In view of the Companys combined
extremely limited financial resources and limited management availability, the Company will continue to be at a
significant competitive disadvantage compared to the Companys competitors.

Investment Company Act of 1940

Although the Company will be subject to regulation under the Securities Act of 1933, as amended, and the
1934 Act, management believes the Company will not be subject to regulation under the Investment Company Act of 1940
insofar as the Company will not be engaged in the business of investing or trading in securities. In the event the
Company engages in business combinations which result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment Company Act of 1940. In such event, the
Company would be required to register as an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the Securities and Exchange Commission as to
the status of the Company under the Investment Company Act of 1940 and, consequently, any violation of such Act would
subject the Company to material adverse consequences.

Employees

The Company has no full time or part-time employees.

None of the officers and directors anticipates devoting more than ten (10%) percent of his or her time
to Company activities. The Companys President and Secretary have agreed to allocate a portion of said time to the
activities of the Company, without compensation. These officers anticipate that the business plan of the Company can be
implemented by their devoting minimal time per month to the business affairs of the Company and, consequently, conflicts
of interest may arise with respect to the limited time commitment by such officers.




Item 2.  Description of Property.

The Company has no properties and at this time has no agreements to acquire any properties.

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The Company presently occupies office space supplied by an shareholder of the Company at 6767
Tropicana Avenue, Suite 207, Las Vegas, Nevada 89103. This space is provided to the Company on a rent free
basis, and it is anticipated that this arrangement will remain until such time as the Company successfully
consummates a merger or acquisition. Management believes that this arrangement will meet the Companys needs
for the foreseeable future.




Item 3.  Legal Proceedings.

There is no litigation pending or threatened by or against the Company.




Item 4.  Submission of Matter to Vote of Security Holders.

There has been no matters submitted to the Companys security holders.




Item 5.  Market for Common Company Equity and Related Stockholder Matter.

(a)   Market Price.

There is no trading market for the Companys Common Stock at present and there has been no trading
market to date. There is no assurance that a trading market will ever develop or, if such a market does develop, that it
will continue. The Company intends to request a broker-dealer to make application to the NASD Regulation, Inc. to have
the Companys securities traded on the OTC Bulletin Board Systems or published, in print and electronic media, or either,
in the Pink Sheets, LLC Pink Sheets.

The Securities and Exchange Commission adopted Rule 15g-9, which established the definition of a penny
stock, for purposes relevant to the Company, as any equity security that has a market price of less than $5.00 per share
or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a persons account for transactions in
penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting
forth the identity and quantity of the penny stock to be purchased. In order to approve a persons account for
transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and
objectives of the person; and (ii) make a reasonable

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determination that the transactions in penny stocks are suitable for that person and that person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny
stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure
schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth
the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer
received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made
about the risks of investing in penny stock in both public offering and in secondary trading, and about
commissions payable to both the broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.
Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.

For the initial listing in the NASDAQ SmallCap market, a company must have net tangible assets of $4
million or market capitalization of $50 million or a net income (in the latest fiscal year or two of the last fiscal
years) of $750,000, a public float of 1,000,000 shares with a market value of $5 million. The minimum bid price must be
$4.00 and there must be 3 market makers. In addition, there must be 300 shareholders holding 100 shares or more, and the
company must have an operating history of at least one year or a market capitalization of $50 million.

For continued listing in the NASDAQ SmallCap market, a company must have net tangible assets of $2
million or market capitalization of $35 million or a net income (in the latest fiscal year or two of the last fiscal
years) of $500,000, a public float of 500,000 shares with a market value of $1 million. The minimum bid price must be
$1.00 and there must be 2 market makers. In addition, there must be 300 shareholders holding 100 shares or more.

Management intends to strongly consider undertaking a transaction with any merger or acquisition
candidate which will allow the Companys securities to be traded without the aforesaid limitations. However, there can
be no assurances that, upon a successful merger or acquisition, the Company will qualify its securities for listing on
NASDAQ or some other national exchange, or be able to maintain the maintenance criteria necessary to insure continued
listing. The failure of the Company to qualify its securities or to meet the relevant maintenance criteria after such
qualification in the future may result in the discontinuance of the inclusion of the Companys securities on a national

15



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##### Table of Contents



exchange. In such events, trading, if any, in the Companys securities may then continue in the non-NASDAQ
over-the-counter market. As a result, a shareholder may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Companys securities.

(b)   Holders.

There are twenty five (25) holders of the Companys Common Stock. On June 20, 1994, the Company issued
21,000,000, as adjusted for a forward stock split of its Common Shares, for cash. All of the issued and outstanding
shares of the Companys Common Stock were issued in accordance with the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended.

As of the date of this Form 10-KSB, all of the issued and outstanding shares of the Companys Common
Stock held by non-affiliates are eligible for sale under Rule 144 promulgated under the Securities Act of 1933, as
amended, subject to certain limitations included in said Rule. In general, under Rule 144, a person (or persons whose
shares are aggregated), who
has satisfied a one year holding period, under certain circumstances, may sell within any three-month period a number of
shares which does not exceed the greater of one percent of the then outstanding Common Stock or the average weekly
trading volume during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances,
the sale of shares without any quantity limitation by a person who has satisfied a
two-year holding period and who is not, and has not been for the preceding three months, an affiliate of the Company.

In summary, Rule 144 applies to affiliates (that is, control persons) and nonaffiliates when they resell
restricted securities (those purchased from the issuer or an affiliate of the issuer in nonpublic transactions).
Nonaffiliates reselling restricted securities, as well as affiliates selling restricted or nonrestricted securities, are
not considered to be engaged in a distribution and, therefore, are not deemed to be underwriters as defined in Section
2(11), if six conditions are met:



| | (1) |  | Current public information must be available about the issuer unless sales are limited to those made by
nonaffiliates after two years.                   
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | When restricted securities are sold, generally there must be a one-year holding period.                                                                  
|
| | (3) |  | When either restricted or nonrestricted securities are sold by an affiliate after one year, there are
limitations on the amount of securities that may be

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| |     |  | sold; when restricted securities are sold by non-affiliates between the first and second years, there are
identical limitations; after two years, there are no volume limitations for resales by non-affiliates.                                                                                                   
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (4) |  | Except for sales of restricted securities made by nonaffiliates after two years, all sales must be made
in brokers transactions as defined in Section 4(4) of the Securities Act of 1933, as amended, or a
transaction directly with a market maker as that term is defined in Section 3(a)(38) of the 1934 Act.
|
| | (5) |  | Except for sales of restricted securities made by nonaffiliates after two years, a notice of proposed
sale must be filed for all sales in excess of 500 shares or with an aggregate sales price in excess of
$10,000.                                                                                              
|
| | (6) |  | There must be a bona fide intention to sell within a reasonable time after the filing of the notice
referred to in (5) above.                                                                                                                                                                                      

(c)   Dividends.

The Company has not paid any dividends to date, and has no plans to do so in the immediate future.

(d)   Application of California law.

Section 2115 of the California General Corporation law, however, provides that a corporation
incorporated under the laws of a jurisdiction other than California, but which has more than one-half of its outstanding
voting securities and which has a majority of its property, payroll and sales in California, based on the factors used
in determining its income allocable to California on its franchise tax returns, may be required to provide cumulative
voting until such time as the Company has its shares listed on certain national securities exchanges, or designated as a
national market security on NASDAQ (subject to certain limitations). Accordingly, holders of the our common stock may be
entitled to one vote for each share of common stock held and may have cumulative voting rights in the election of
directors. This means that holders are entitled to one vote for each share of common stock held, multiplied by the
number of directors to be elected, and the holder may cast all such votes for a single director, or may distribute them
among any number of all of the directors to be elected.

Our existing directors who are also shareholders, acting in harmony, will be able to elect all of the
members of our board of directors even if Section 2115 is applicable.

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Item 6.  Managements Discussion and Analysis or Plan of Operation

The Company has no current business activities and has no assets or operations. The Company is
dependent upon its officers to meet any de minimis costs which may occur.

Peggy Melilli, an officer of the Company, has agreed to provide the necessary funds, without interest,
for the Company to comply with the Securities Exchange Act of 1934, as amended, provided that she is an officer and
director of the Company when the obligation is incurred. All advances are interest-free.

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

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##### Table of Contents






Item 7.  Financial Statements.



MAGNOLIA VENTURES, INC.
(A Development Stage Company)

CONTENTS

|                                                         |                                    |  |    |       | 
|-------------------------------------------------------- | ---------------------------------- |  | -- | ----- | 
|INDEPENDENT AUDITORS REPORT ON THE FINANCIAL STATEMENTS |                                    |  | 20 |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                    |  |    |      
|                                                        
|                                                        
|                                                        
|                                                        
|FINANCIAL STATEMENTS                                     |                                    |  |    |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                    |  |    |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Balance Sheets                     |  |    | 21    | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                    |  |    |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Statements of Income               |  |    | 22    | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                    |  |    |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Statements of Stockholders Equity |  |    | 23    | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                    |  |    |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Statements of Cash Flows           |  |    | 24    | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                    |  |    |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Notes to Financial Statements      |  |    | 25-26 | 

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Independent Auditors Report

To the Board of Directors
Magnolia Ventures, Inc.
Las Vegas, Nevada

I have audited the accompanying balance sheets of Magnolia Ventures,
Inc. (A Development Stage Company) as of December 31, 2001 and 2000,
and the related statements of income, stockholders equity, and cash
flows for the years then ended and the period June 13, 1994
(inception) through December 31, 2001. These financial statements
are the responsibility of the Companys management. My
responsibility is to express an opinion on these financial
statements based on my audit. The financial statements of Magnolia
Ventures, Inc. (A Development Stage Company) as of December 31, 1999
were audited by other auditors whose has ceased operations and whose
report dated February 28, 2000, expressed an unqualified opinion on
those statements.

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

In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Magnolia
Ventures, Inc. (A Development Stage Company) as of December 31, 2001
and 2000 and the results of its operations and cash flows for the
years then ended, and the period June 13, 1994 (inception) through
December 31, 2001, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 4 to the financial statements, the Company has no operations
and has no established source of revenue. This raises substantial
doubt about its ability to continue as a going concern. Managements
plan in regard to these matters is also described in Note 4. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



Kyle L. Tingle, CPA. LLC

March 18, 2002
Henderson, Nevada

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##### Table of Contents



MAGNOLIA VENTURES, INC.
(A Development Stage Company)
BALANCE SHEETS

|                                     |                                                                                      |                            |                                            |         |              |    |              |         |         |    | 
|------------------------------------ | ------------------------------------------------------------------------------------ | -------------------------- | ------------------------------------------ | ------- | ------------ | -- | ------------ | ------- | ------- | -- | 
|                                     |                                                                                      |                            |                                            |         | December 31, |    | December 31,
|                                     |                                                                                      |                            |                                            |         | 2001         |    | 2000        
|                                     |                                                                                      |                            |                                            |         |              |    |             
|ASSETS                               |                                                                                      |                            |                                            |         |              |    |              |        
|                                    
|                                    
|                                    
|                                    
|CURRENT ASSETS                       |                                                                                      |                            |                                            |         |              |    |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | Cash                                                                                 |                            | $                                          | 31      |              |    | $            | 31      |        
|                                     |                                                                                      |                            |                                            |         |              |    |              |        
|                                     |                                                                                      | Total current assets       |                                            | $       | 31           |    |              | $       | 31      |   
|                                     |                                                                                      |                            |                                            |         |              |    |              |        
|                                     |                                                                                      |                            | Total assets                               |         | $            | 31 |              |         | $       | 31 | 
|                                     |                                                                                      |                            |                                            |         |              |    |              |        
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                      |                            |                                            |         |              |    |              |        
|                                    
|                                    
|                                    
|                                    
|CURRENT LIABILITIES                  |                                                                                      |                            |                                            |         |              |    |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                     |                            | $                                          | 0       |              |    | $            | 0       |        
|                                    
|                                    
|                                    
|                                    
|                                     | Officers advances (Note 7)                                                           |                            |                                            | 36,506  |              |    |              | 31,450  |        
|                                     |                                                                                      |                            |                                            |         |              |    |              |        
|                                     |                                                                                      | Total current liabilities  |                                            | $       | 36,506       |    |              | $       | 31,450  |   
|                                     |                                                                                      |                            |                                            |         |              |    |              |        
|STOCKHOLDERS EQUITY                 |                                                                                      |                            |                                            |         |              |    |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock: $.001 par value;
authorized 25,000,000 shares;
issued and outstanding: |                            |                                            |         |              |    |              |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | 21,000,000 shares at December 31, 2000:                                              |                            | $                                          |         |              |    | $            | 21,000  |        
|                                    
|                                    
|                                    
|                                    
|                                     | 21,000,000 shares at December 31, 2001;                                              |                            |                                            | 21,000  |              |    |              |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Additional Paid In Capital                                                           |                            |                                            | (18,900 | )            |    |              | (18,900 | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated deficit during development stage                                         |                            |                                            | (38,575 | )            |    |              | (33,519 | )      
|                                     |                                                                                      |                            |                                            |         |              |    |              |        
|                                     |                                                                                      | Total stockholders equity |                                            | $       | (36,475      | )  |              | $       | (31,419 | ) 
|                                     |                                                                                      |                            |                                            |         |              |    |              |        
|                                     |                                                                                      |                            | Total liabilities and
stockholders equity |         | $            | 31 |              |         | $       | 31 | 
|                                     |                                                                                      |                            |                                            |         |              |    |              |        

See Accompanying Notes to Financial Statements.

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENTS OF INCOME

|                                             |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        |               |         |  
|-------------------------------------------- | ---------------------------------------------------- | ---------------- | ----- | ------------ | ------ | ---- | ------ | ------------ | ------- | ------------ | - | ------------ | - | -------------- | ------ | ------------- | ------- | -
|                                             |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        | June 13, 1994
|                                             |                                                      |                  |       |              |        |      |        | Year ended   |         |              |   |              |   | (inception) to
|                                             |                                                      |                  |       |              |        |      |        | December 31, |         | December 31, |   | December 31,
|                                             |                                                      |                  |       | December 31, |        | 2000 |        | 1999         |         | 2001        
|                                             |                                                      |                  |       |              |        |      |        |              |         |             
|Revenues                                     |                                                      | $                | 0     |              |        | $    | 0      |              |         | $            | 0 |              |   | $              | 0      |              
|                                            
|                                            
|                                            
|                                            
|Cost of revenue                              |                                                      |                  | 0     |              |        |      | 0      |              |         |              | 0 |              |   |                | 0      |              
|                                             |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        |              
|                                             |                                                      | Gross profit     |       | $            | 0      |      |        | $            | 0       |              |   | $            | 0 |                |        | $             | 0       |  
|                                            
|                                            
|                                            
|                                            
|General, selling and
administrative expenses |                                                      |                  | 5,056 |              |        |      | 31,295 |              |         |              | 0 |              |   |                | 39,231 |              
|                                             |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        |              
|                                             |                                                      | Operating (loss) |       | $            | (5,056 | )    |        | $            | (31,295 | )            |   | $            | 0 |                |        | $             | (39,231 | )
|                                            
|                                            
|                                            
|                                            
|Nonoperating income (expense)                |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        |              
|                                            
|                                            
|                                            
|                                            
|                                             | Interest income                                      |                  |       | 0            |        |      |        | 0            |         |              |   | 0            |   |                |        | 656           |        
|                                             |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        |              
|                                             | Net (loss)                                           |                  | $     | (5,056       | )      |      | $      | (31,295      | )       |              | $ | 0            |   |                | $      | (38,575       | )      
|                                             |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        |              
|                                             | Net (loss) per share, basic
and diluted (Note 2)     |                  | $     | (0.00        | )      |      | $      | (0.00        | )       |              | $ | 0.00         |   |                | $      | (0.00         | )      
|                                             |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        |              
|                                             | Average number of shares
of common stock outstanding |                  |       | 21,000,000   |        |      |        | 21,000,000   |         |              |   | 21,000,000   |   |                |        | 21,000,000    |        
|                                             |                                                      |                  |       |              |        |      |        |              |         |              |   |              |   |                |        |              

See Accompanying Notes to Financial Statements.

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY

|                                                |  |                          |            |             |  |       |       |  |  |             |         |  
|----------------------------------------------- |  | ------------------------ | ---------- | ----------- |  | ----- | ----- |  |  | ----------- | ------- | -
|                                                |  |                          |            |             |  |       |       |  |  | Accumulated
|                                                |  | Common Stock and Capital |            | (Deficit)  
|                                                |  | In Excess of Par Value   |            | During     
|                                                |  |                          |            | Development
|                                                |  | Shares                   |            | Amount      |  | Stage
|                                                |  |                          |            |             |  |      
|Balance, December 31, 1998                      |  |                          | 21,000,000 |             |  | $     | 2,100 |  |  | $           | (2,224  | )
|                                               
|                                               
|                                               
|                                               
|Net (loss), December 31, 1999                   |  |                          |            |             |  |       |       |  |  |             | 0       |  
|                                                |  |                          |            |             |  |       |       |  |  |             |         |  
|Balance, December 31, 1999                      |  |                          | 21,000,000 |             |  | $     | 2,100 |  |  | $           | (2,224  | )
|                                               
|                                               
|                                               
|                                               
|Net (loss), December 31, 2000                   |  |                          |            |             |  |       |       |  |  |             | (31,295 | )
|                                                |  |                          |            |             |  |       |       |  |  |             |         |  
|Balance, December 31, 2000                      |  |                          | 21,000,000 |             |  | $     | 2,100 |  |  | $           | (33,519 | )
|                                               
|                                               
|                                               
|                                               
|Net (loss) January 1, 2001 to
December 31, 2001 |  |                          |            |             |  |       |       |  |  |             | (5,056  | )
|                                                |  |                          |            |             |  |       |       |  |  |             |         |  
|Balance, December 31, 2001                      |  |                          | 21,000,000 |             |  | $     | 2,100 |  |  | $           | (38,575 | )
|                                                |  |                          |            |             |  |       |       |  |  |             |         |  

See Accompanying Notes to Financial Statements.

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS

|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |               |        |  
|------------------------------------ | --------------------------------------------------------------------------- | --------------------------------------- | -- | ------------ | - | ------------ | -- | ------------ | - | -------- | -- | - | - | -------------- | -- | ------------- | ------ | -
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    | June 13, 1994
|                                     |                                                                             |                                         |    |              |   |              |    | Year ended   |   |          |    |   |   | (inception) to
|                                     |                                                                             |                                         |    | December 31, |   | December 31, |    | December 31, |   | June 30,
|                                     |                                                                             |                                         |    | 2001         |   | 2000         |    | 1999         |   | 2001    
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |         
|Cash Flows From
Operating Activities |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              
|                                    
|                                    
|                                    
|                                    
|                                     | Net (loss)                                                                  |                                         | $  | (5,056       | ) |              | $  | (31,295      | ) |          | $  | 0 |   |                | $  | (38,575       | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Adjustments to reconcile net (loss)
to cash (used in) operating activities: |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |               |       
|                                    
|                                    
|                                    
|                                    
|                                     | Changes
in assets and liabilities
Increase in accounts payable              |                                         |    | 0            |   |              |    | 0            |   |          |    | 0 |   |                |    | 0             |       
|                                    
|                                    
|                                    
|                                    
|                                     | Increase in officer advances                                                |                                         |    | 5,056        |   |              |    | 31,295       |   |          |    | 0 |   |                |    | 36,506        |       
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              
|                                     |                                                                             | Net cash (used in)
operating activities |    | $            | 0 |              |    | $            | 0 |          |    | $ | 0 |                |    | $             | (2,069 | )
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              
|Cash Flows From
Investing Activities |                                                                             | $                                       | 0  |              |   | $            | 0  |              |   | $        | 0  |   |   | $              | 0  |              
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              
|Cash Flows From
Financing Activities |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              
|                                    
|                                    
|                                    
|                                    
|                                     | Issuance of common stock                                                    |                                         |    | 0            |   |              |    | 0            |   |          |    | 0 |   |                |    | 2,100         |       
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              
|                                     |                                                                             | Net cash (used in)
financing activities |    | $            | 0 |              |    | $            | 0 |          |    | $ | 0 |                |    | $             | 2,100  |  
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              
|                                     |                                                                             | Net increase (decrease)
in cash         |    | $            | 0 |              |    | $            | 0 |          |    | $ | 0 |                |    | $             | 31     |  
|                                    
|                                    
|                                    
|                                    
|Cash, beginning of period            |                                                                             |                                         | 31 |              |   |              | 31 |              |   |          | 31 |   |   | $              | 0  |              
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              
|Cash, end of period                  |                                                                             | $                                       | 31 |              |   | $            | 31 |              |   | $        | 31 |   |   | $              | 31 |              
|                                     |                                                                             |                                         |    |              |   |              |    |              |   |          |    |   |   |                |    |              

See Accompanying Notes to Financial Statements.

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000

Note 1.  Nature of Business and Significant Accounting Policies

Nature of business:

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

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

Estimates

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

Cash

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

Income taxes

Income taxes are provided for using the liability method of accounting in
accordance with SFAS No. 109 Accounting for Income Taxes.A deferred
tax asset or liability is recorded for all temporary differences between
financial and tax reporting. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effect of changes in tax laws and
rates on the date of enactment.

Reporting on costs for start-up activities

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

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MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000

Note 2.  Stockholders Equity

Common stock

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

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

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

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

Preferred stock

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

Net loss per common share

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

Basic net loss per common share is based on the weighted average number of shares
of common stock outstanding of 21,000,000 during 2001, 2000, 1999,
and since inception. As of December 31, 2001, 2000, and 1999, and since
inception, the Company had no dilutive potential common shares.

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##### Table of Contents



MAGNOLIA VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000

Note 3.  Income Taxes

There is no provision for income taxes for the period ended December 31,
2001, due to the net loss and no state income tax in Nevada, the state of
the Companys domicile and operations. The Companys total deferred tax
asset as of December 31, 2001 is as follows:

|                                 |  |   |         |  
|-------------------------------- |  | - | ------- | -
|Net operating loss carry forward |  | $ | 38,575  |  
|                                
|                                
|                                
|                                
|Valuation allowance              |  | $ | (38,575 | )
|                                 |  |   |         |  
|Net deferred tax asset           |  | $ | 0       |  

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

Note 4.  Going Concern

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

Note 5.  Related Party Transactions

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

Note 6.  Warrants and Options

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

Note 7.  Officers Advances

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

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

There have been no changes nor any disagreements with the accountants or the accountants findings.




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

The members of the Board of Directors of the Company serve until the next annual meeting of the
stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company is as follows:

|                                                                  |  |      |    |          |  |                             
|----------------------------------------------------------------- |  | ---- | -- | -------- |  | ----------------------------
|Name                                                              |  | Ages |    | Position
|                                                                  |  |      |    |         
|Peggy Melilli
38740 Maracaibo Circle
Palm Springs, CA 92264-0243  |  |      | 49 |          |  | President/Director          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Dennis Melilli
38740 Maracaibo Circle
Palm Springs, CA 92264-0243 |  |      | 51 |          |  | Secretary/Treasurer/Director
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Sherri Lynn Cooper
759 Tawny Court
Oceanside, California 92057    |  |      | 53 |          |  | Director                    

The principal occupation and business experience during the last five years for each of the present
directors and executive officers of the Company are as follows:



| |  |  | Peggy Melilli                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Peggy Melilli is the President and a Director of the Company. From 1995 to the present, Ms. Melilli has
been an Interior Designer with Kreiss Collection and International Corporation with 16 offices in the
United States and abroad and a past owner of her own design firm and manager of showrooms for other
independent design firms.                                                                                           
|
| |  |  | Dennis Melilli                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | Dennis Melilli is the Secretary, Treasurer and a Director of the Company. From 1990 to the present, Mr.
Melilli has been a Developer/General Contractor under the name Melilli Construction with offices in Palm
Desert and San Diego. He specializes in shopping centers, radio stations and movie theaters. He is
also the developer of the new Festival of the Arts Theater, home for the Palm Springs International Film
Festival.
|
| |  |  | Sherri Lynn Cooper                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Sherri Lynn Cooper is a Director of the Company. From 1994 to the present, Ms. Cooper has been a
Publishing Agent and College Career Counselor. Ms. Cooper has been responsible for major fund raisers
for several large disabled childrens charities and the San Diego Chapter of the Womens Resource Center
for abused women and children.                                                                                        

The officers and directors may be deemed parents and promoters of the Company as those terms are defined
by the Securities Act of 1933, as amended. All directors hold office

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##### Table of Contents



until the next annual stockholders meeting or
until their death, resignation, retirement, removal, disqualification, or until their successors have been
elected and qualified. Officers of the Company serve at the will of the Board of Directors.

There are no agreements or understandings for any officer or director of the Company 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.

The Company has checked the box provided on the cover page of this Form to indicate that there is no
disclosure in this form of reporting person delinquencies in response to Item 405 of Regulation S-B.




Item 10.  Executive Compensation.

None of the Companys officers and/or directors receive any compensation for their respective services
rendered unto the Company, nor have they received such compensation in the past. They all have agreed to act without
compensation until authorized by the Board of Directors, which is not expected to occur until the Company has generated
revenues from operations after consummation of a merger or acquisition. As of the date of this report statement, the
Company has no funds available to pay directors. Further, none of the directors are accruing any compensation pursuant
to any agreement with the Company.

No retirement, pension, profit sharing, stock option or insurance programs or other similar programs
have been adopted by the Company for the benefit of its employees.




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

(a)   Security Ownership of Certain Beneficial Owners.

The following table sets forth the security and beneficial ownership for each class of equity securities
of the Company for any person who is known to be the beneficial owner of more than five percent of the Company.
29Table of Contents

|               |  |                                                                           |  |               |            |            |  |         |       |   |  | 
|-------------- |  | ------------------------------------------------------------------------- |  | ------------- | ---------- | ---------- |  | ------- | ----- | - |  | 
|               |  |                                                                           |  | Name and      |            |            |  |         |       |   |  | 
|               |  |                                                                           |  | Address of    |            | Amount and |  |         |       |  
|               |  |                                                                           |  | Beneficial    |            | Nature of  |  | Percent
|Title of Class |  | Owner                                                                     |  | Ownership (*) |            | of Class  
|               |  |                                                                           |  |               |            |           
|Common         |  | Peggy Melilli
        38740 Maracaibo Circle
Palm Springs, CA 92264-0243  |  |               | 5,500,000  |            |  |         | 26.19 | %
|              
|              
|              
|              
|Common         |  | Dennis Melilli
        38740 Maracaibo Circle
Palm Springs, CA 92264-0243 |  |               | 5,500,000  |            |  |         | 26.19 | %
|              
|              
|              
|              
|Common         |  | Sherri Lynn Cooper
        759 Tawny Court
Oceanside, California 92057    |  |               | 3,500,000  |            |  |         | 16.67 | %
|              
|              
|              
|              
|Common         |  | All Officers and
        Directors as a Group
(three [3] individuals)     |  |               | 14,500,000 |            |  |         | 69.05 | %



| |  | (*) Record Ownership
| |  | --------------------

The total of the Companys outstanding Common Stock are held by 25 persons.

(b)   Security Ownership of Management.

The following table sets forth the ownership for each class of equity securities of the Company owned
beneficially and of record by all directors and officers of the Company.

|               |  |                                                                           |  |               |            |            |  |         |       |   |  | 
|-------------- |  | ------------------------------------------------------------------------- |  | ------------- | ---------- | ---------- |  | ------- | ----- | - |  | 
|               |  |                                                                           |  | Name and      |            | Amount and |  |         |       |  
|               |  |                                                                           |  | Address       |            | Nature of  |  | Percent
|Title of Class |  | of Owner                                                                  |  | Ownership (*) |            | of Class  
|               |  |                                                                           |  |               |            |           
|Common         |  | Peggy Melilli
        38740 Maracaibo Circle
Palm Springs, CA 92264-0243  |  |               | 5,500,000  |            |  |         | 26.19 | %
|              
|              
|              
|              
|Common         |  | Dennis Melilli
        38740 Maracaibo Circle
Palm Springs, CA 92264-0243 |  |               | 5,500,000  |            |  |         | 26.19 | %
|              
|              
|              
|              
|Common         |  | Sherri Lynn Cooper
        759 Tawny Court
Oceanside, California 92057    |  |               | 3,500,000  |            |  |         | 16.67 | %
|              
|              
|              
|              
|Common         |  | All Officers and
        Directors as a Group
(three  ̈3© individuals)     |  |               | 14,500,000 |            |  |         | 69.05 | %



| |  | (*) Record Ownership
| |  | --------------------

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##### Table of Contents






Item 12.  Certain Relationships and Related Transactions.

There have been no related party transactions, or any other transactions or relationships required to be
disclosed pursuant to Item 404 of Regulation S-B.

Peggy Melilli has agreed to provide the necessary funds, without interest, for the Company to comply
with the 1934 Act provided that she is an officer and director of the Company when the obligation is incurred. All
advances will be interest-free.




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

There are no reports on Form 8-K incorporated herein by reference.

The following document is filed as part of this report:



| |  |  | 23.1   Consent of Kyle L. Tingle, CPA.
| |  |  | --------------------------------------




SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company has duly caused
this Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized.

|                     |  |                         |  |                        
|-------------------- |  | ----------------------- |  | -----------------------
|Date: March 29, 2002 |  | MAGNOLIA VENTURES, INC.
|                    
|                    
|                    
|                    
|                     |  |                         |  |                        
|                    
|                    
|                    
|                    
|                     |  | By:                     |  | /s/ Peggy Melilli      
|                     |  |                         |  |                        
|                     |  |                         |  | Peggy Melilli
President

Pursuant to the requirements of 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 29, 2002 |  | MAGNOLIA VENTURES, INC.
|                     |  |                         |  |                        
|                    
|                    
|                    
|                    
|                     |  | By:                     |  | /s/ Peggy Melilli      
|                     |  |                         |  |                        
|                     |  |                         |  | Peggy Melilli
President

31