FORM 10-KSB/A
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X] ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
    1934 For the fiscal year ended: December 31, 2001



                         Commission file number 000-30651

                            Industrial Minerals, Inc.
                               -----------------
                 (Name of small business issuer in its charter)

                           Formerly PNW Capital, Inc.

        Delaware                                    06-1474412
        --------                                    ----------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)

One Dundas Street West, Suite 2500, Toronto, Ontario, Canada M5G 1Z3
- --------------------------------------------------------------------
(Address of principal executive offices)

Issuer's telephone number:             (416) 999-3188
                                      -----------------
Securities registered under Section 12(b) of the Exchange Act: None
                                                               -----

Securities registered under Section 12(g) of the Exchange Act: Common Stock,
no par value

(Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period  that the issuer was  required  to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days.

        Yes X     No
           ----       ----

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

State issuer's  revenues for its most recent fiscal year: $0 ---

As of December 31, 2001, 39,268,800 shares of the Company's Common Stock, no par
value per share, were held by  non-affiliates,  which, based upon market closing
price on December 31, 2001, of $.0055 had a value of $215,978.

The  number  of  shares  of Common  Stock of the  registrant  outstanding  as of
December  31, 2001,  were  100,000,000.  A reverse  split of one for one hundred
common shares became effective on January 7, 2002.

                                       1


<PAGE>


                                TABLE OF CONTENTS

PART I                                                                     PAGE

     Item 1.   Description of Business                                         3
     Item 2.   Description of Property                                         5
     Item 3.   Legal Proceedings                                               5
     Item 4.   Submission of Matters to a Vote of Security Holders             6


PART II

     Item 5.   Market for Common Equity and Related Stockholder Matters        6
     Item 6.   Management's Discussion and Analysis or Plan of Operation       8
     Item 7.   Financial Statements                                            9
     Item 8.   Changes in and Disagreements With Accountants on Accounting     9
               and Financial Disclosure


PART III

     Item 9.   Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act              10
     Item 10.  Executive Compensation                                         11
     Item 11.  Security Ownership of Certain Beneficial Owners and Management 15
     Item 12.  Certain Relationships and Related Transactions                 15
     Item 13.  Exhibits and Reports on Form 8-K                               17


SIGNATURES                                                                    18

                                       2


<PAGE>


PART I

Item 1 - Description of Business

Background

     The  company  was formed  November  6, 1996.  The name of the  company  was
changed to PNW Capital, Inc. on May 16, 2000.

     The Company is a successor  registrant  pursuant to Section  12(g) 3 of the
Securities  Exchange Act of 1934, by virtue of a statutory merger of the Parent,
Winchester  Mining  Corp.,  a  Delaware   corporation,   and  its  wholly  owned
subsidiary,  Hi-Plains  Energy Corp.,  a Wyoming  corporation,  with  Winchester
Mining  Corporation  being the  survivor.  There was no change to the issued and
outstanding shares of Winchester mIning corporation, and all shares of Hi-Plains
Energy Corp. were retired by virtue of the merger.

     On May 15,  2000,  Winchester  Mining  Corp.  completed  a  Share  Purchase
Agreement  with  shareholders  of Hi-Plains  Energy Corp.  in  which  Winchester
Mining Corp., a Delaware corporation, acquired all 780,000 shares outstanding of
the Registrant for the purposes of  accomplishing  a Merger of Hi-Plains  Energy
Corp. and Winchester Mining Corp. The Merger was completed on May 15, 2000.

     In 1996 the Company was listed on the OTCBB with the symbol WNCR. The prior
management raised funds for a mining property in the Northwest Territories.  The
budget was spent and the Company remained inactive until March of 1999. In March
of 1999, the Company raised  $150,000 to invest in online  gambling  pursuant to
Rule 504, Regulation D for US Investors and Pursuant to Regulation S for foriegn
investors. The Company has since divested itself of these acquistions due to the
questionable nature of the online gambling industry. In September of 1999, Wayne
Miller became  president of Winchester  Mining,  Corp. The Company  commissioned
Digicorp of  Vancouver  British  Columbia,  Canada to develop  websites  for the
Company:  Hollwoodmall.net  and  Pacificnorthwestmall.net.  They have been under
development  since  October of 1999.  Radiant  Communication  of  Vancouver  was
developing and managing these websites until work was terminated in late 2000.

     Bullseye Communication Group was hired to develop an overall marketing plan
for the Company and the two "mall" websites.  All website and "mall" development
work was  terminated in the fall of 2000,  due to lack of capital and difficulty
of attacting business.

     In fall of 2000 the  Company  acquired  100% of the issued and  outstanding
stock of PB&J  Inc.,  a newly  formed  Colorado  Corporation  upon  issuance  of
47,460,000  shares of common  stock to the  principals  of PB&J,  who became the
management and Directors of PNWC.

     The PB&J transaction was brought to the company by Mssrs. Silva & McFarlane
who  were  not  officers  and  Directors  or  affiliates  of  the  company.  The
transaction was completed as a share exchange.

     The Board of Directors  determined that the  consideration for the business
concept of PB&J was  adequate  based upon the facts that:  a) the company had no
active business. b) the business plan appeared to have potential,  c) the market
price of the stock was very low.  d) no other  more  promising  businesses  were
willing to be acquired,  when the company had no capital to invest. There was an
arms length  negotiation  between the then Board of Directors and the principals
of PB&J. Two owners of PB&J Mssr. Silva & McFarlane became officers,  directors,
and affiliates of the company after to the PB&J transaction.


                                       3

<PAGE>


     PB&J had developed  magnetized  package  dispensing system for plastic bags
and dryer sheets for location on kitchen refrigerators. The product was designed
to offer enhanced  convenience which managemnet  believed represent a marketable
product.

     PB&J, the now wholly owned  subsidiary had no prior business  operations in
the prior two years,  although the  management did develope the concept and test
market the product on a limited  local basis.  The product has never been placed
in production nor significant marketing effort made due to lack of capital. PB&J
held a trademark  license on the name Peanut Butter + Jelly,  Inc. by assignment
from Joseph L. McFarlane the magnetic packaging and dispensing system.

     On January 31, 2002, PNW Capital,  Inc. ("PNW " or the "Company"),  entered
into  a  definitive   acquisition   agreement  to  acquire  Industrial  Minerals
Incorporated  ("IMI"),  a private Nevada  corporation,  owner of certain mineral
leases  located  in the  Townships  of Head,  Clara and  Maria in the  County of
Renfrew and the Province of Ontario,  Canada.  The Agreement for Share  Exchange
was executed  January 31, 2002 and approved by the Board of Directors on January
31, 2002. The negotiation was at arms length.

     Under the terms of the  acquisition  agreement,  PNW  exchanged  a total of
31,511,700  shares of its common  stock for 91% of the  issued  and  outstanding
shares of IMI. By February 20, 2002 the Company received executed documents from
the  participating  shareholders of IMI  representing  31,511,750  common shares
(91%) for the  exchange  of shares of IMI for common  shares of PNW on a one for
one basis.

     In the transaction IMI became a wholly owned subsidiary of PNW. The Company
nor  its  subsidiary  currently  have  any  revenue  producing  operations.  The
stockholders of IMI became stockholders of PNW, and their rights as stockholders
are governed by the PNW articles of  incorporation  and bylaws,  as currently in
effect, and the laws of the State of Delaware. Following the acquisition, PNW is
continuing  on  IMI's  operations  under  the  changed  company  name-Industrial
Minerals Inc. PNW's then current board of directors  resigned and a new board of
directors was be appointed after Section 14f Notice to Shareholders.

The IMI transaction was introduced to the company by a shareholder of the
company who was not an officer or director or affiliate.  The transaction
was apporved by the Board because the company had been unable to raise capital
for the PB&J project.  The purchase consideration was negotiated based upon
mineral report upon the property held by IMI.

The Board of Directors  approved the  acquisition of IMI on January 31, 2002 and
authorized  the  issuance  of the  shares on  February  20,  2002.  The vote was
unanimous to approve the agreement.

The PNW board of directors  negotiated  the  acquisition  agreement with IMI and
authorized  the  issuance  of the  exchange  shares  totalling  31,511,750  in a
transaction  exempt from registration  under Section 4(2), 4(6) and Regulation S
as applicable because the board of directors believes that this acquisition will
be to the benefit of shareholders.

The class of  persons to whom the common  shares of issuer  were  issued was the
holders  of 91% of the  common  stock  of  Incustrial  Minerals,  Inc.  A Nevada
Corporation.  The consideration for the issuance of isuers shares was to acquire
(by  exchange)  91%  of  the  shares  of  industrial  Minerals,  Inc.  a  Nevada
Corporation.  Subsequently, in May 2002 the subsidiary, Industrial Minerals,
Inc. was merged into issuer in a statutory merger of a subsidiary in to a parent
pursuant to Section 253 of Delaware General Corporation Law.


                                       4
<PAGE>

Certain Risks

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

     No Operating History or Revenue and Minimal Assets.  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,  incur operating expenses without corresponding  revenues.  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
successfully carry out any business plan.

Item 2 - Description of Property
- ----------------------------------

     After December 31, 2001 the  Company has acquired and  merged Industrial
Minerals, Incorporation a Nevada corporation into itself.  The company owns
mineral interests in a graphite mineral property in Canada as follows:

     The  company is the  "lessee"  of lease  number  364704  consisting  of the
following:  All those  parcels  or tracts  of land and land  under  water in the
Township  of Head,  Clara and Maria,  in the County of Renfrew  and  Province of
Ontario, containing by admeasurement 564.569 hectares, be the same more or less,
composed of those parts of lots 21, 22, 23, 24 and 25, Concessions IV and V, and
part of the bed of Mag Lake and the bed of the unnamed lake, and lots 23, 24 and
25 and the north half of lots 21 and 22,  Concession III as shown on the plan of
the  geographic  Township of Maria,  designated as parts 1, 2, 3 and 5 on a plan
and a field  notes  deposited  in the Land  Registry  Office at Pembroke as Plan
49R-11203,  comprising mining claims EO 608306, EO 608346, EO 608347, EO 608374,
EO 608348, EO 608373, EO 608349, EO 608372, EO 608369, SO 998760, SO 1084577, EO
800884,  EO 800880,  EO 800881,  EO 608350,  EO 608371, EO 608367, EO 608370, EO
608376, EO 608368, EO 608302, SO 1117797,  SO 998754, SO 1117798,  SO 998755, SO
1117799, SO 998756 and SO 998757.

     On June 20, 2002, the Company  acquired the following  unpatented  graphite
mining  claims.  SO 1249711 (11 units) SO 1249723 (3 units) SO 1234705 (2 units)
They covers a total area of  approximately  625 acres or 248  hectares.  They're
located in Maria township in Ontario, Canada.

     The  Company's  mailing  address is One Dundas  Street  West,  Suite  2500,
Toronto, Ontario, Canada M5G 1Z3.

Item 3 - Legal Proceedings
- ----------------------------

        The Company is not a party to any legal proceedings, nor does management
believe that any such proceedings are contemplated.

                                       5
<PAGE>

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

     No  matters  were  submitted  by the  Company  to a vote  of the  Company's
shareholders through the solicitation of proxies or otherwise, during the fiscal
year  covered by this  report,  except  that in  December  2001,  a majority  of
shareholders  of issued  and  outstanding  shares  executed  a written  consent,
pursuant to Delaware  General  Corporation Law, by which approval was given to a
one for 100 share reverse split  (consolidation)  of the issued and  outstanding
stock of the Company.  Effective  date of reverse  split was January 7, 2002. No
shareholder was reduced to less than fifty shares.

PART II

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

               (a)    The Registrant's common stock is traded in the over-the-
counter  market under the symbol PNWC (OTC  Bulletin  Board  Symbol).  The table
below sets forth the high and low bid prices of the  Registrant's  common  stock
for the periods indicated. Such prices are inter-dealer prices, without mark-up,
mark-down or commissions and do not necessarily represent actual sales.


             2000                                  High Bid      Low Bid
             ----                                  --------      -------
          1st quarter                                 .31          .13
          2nd quarter                                 .23          .07
          3rd quarter                                 .22          .12
          4th quarter                                 .087         .015


             2001                                  High Bid      Low Bid
             ----                                  --------      -------
          1st quarter                                 .31          .13
          2nd quarter                                 .23          .07
          3rd quarter                                 .14          .04
          4th quarter                                 .095         .0055


     (b) As of December 31, 2001,  there were 81  shareholders  of record of the
Registrant's common stock.

     (c) The Registrant has neither  declared nor paid any cash dividends on its
common stock,  and it is not anticipated that any such dividend will be declared
or paid in the foreseeable future.

                                       6
<PAGE>

        Effective  August 11, 1993, the Securities and Exchange Commission  (the
"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) that 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
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) states 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  offerings  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.

Dividends

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

                                       7

<PAGE>


Item 6 - Management's Discussion and Analysis or Plan of Operation

The Company has begun its  operations  to develop,  open the mine,  and commence
mining operations on its graphite mineral leases in Ontario.

The Company has begun clearing the roads and preparing the site. Equipment
purchased to date will be installed in August and September of 2002 and limited
production is scheduled for the fourth quarter of 2002. The company has
developed the following capital and operating budgets for the twelve months
commencing August 1, 2002.

            Capital Budget

Equipment and Machinery                                 350,000   USD
Property and Plant Improvements                         200,000   USD
Installation of Equipment                               425,000   USD
Total Capital Budget                                    975,000   USD

Property Operating Budget

August 1, 2002 to February 28, 2003                     130,000   USD
March 1, 2003 to April 30, 2003                         100,000   USD
May 1, 2003 to July 31, 2003                            450,000   USD
Total Property Operating Budget                         680,000   USD

Administration Budget
August 1 2002 to July 31, 2003                          350,000   USD
Total Administration Budget                             350,000   USD

TOTAL FUNDS REQUIRED                                    2,005,000 USD



The Company has no plans for any research and development in the twelve months
in 2002 or 2003. The Company has plans at this time for purchases of fixed
assets which would occur in the next twelve months as shown in its Plan of
Operation. There are no plans for sale of any fixed assets in 2002 or 2003. The
Company will hire a Project Manager to oversee the mining operation on the
Bissett Creek property.


The implementation of this plan will allow the company to process 20,000 tons of
flake crystalline graphite on a yearly basis beginning in August of 2003. During
the August 1 2002 to the July 31, 2003 period the company estimates it will
produce approximately 5,000 tons of flake crystalline graphite. The company
currently has the capacity to produce 5,000 tons of flake crystalline graphite,
with equipment on hand and acquired.  Equipment financing for mine and process
equipment to date has been through private loans by non-affiliates on terms
generally competitive to equipment financing.

                                       8


<PAGE>



Item 7 - Financial Statements
- -------------------------------

        The  response to this item is  submitted  as a separate  section of this
report beginning on page F-1.

For 2001 Michael Johnson & Co. was the auditor and that report is found @ p.F-1
to F-8.  For 2000, Bateman & Co., Inc. P.C. was the auditor and such report is
found at p. F-9 to F-22.




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

Bateman & Co., Inc., P.C.,  formerly auditors for the Company,  was dismissed as
auditor. On February 18, 2001 Michael Johnson & Co.,LLC were engaged as auditors
for Company on February 18, 2001. The Change of Accountants  was approved by the
Board of  Directors.  No audit  committee  exists  other than the members of the
Board of Directors.  In connection with audit of the two most recent fiscal year
and through the date of termination of the accountants, no disagree- ments exist
with  any  former  accountant  on any  matter  of  account-  ing  principles  or
practices, financial statement disclosure, or auditing scope of procedure, which
disagreements if not resolved to the satisfaction of the former accountant would
have caused them to make  reference  in  connection  with his report to the sub-
ject of the  disagreement(s).  The audit report by Bateman & Co., Inc., P.C. for
the two years ended  December,  31, 2000 and 1999,  contained  an opinion  which
included a paragraph  discussing  uncertainties  related to  continuation of the
Registrant  as a going  concern.  Otherwise,  the audit report by Bateman & Co.,
Inc., P.C. for the two years ended December 31, 2000 and 1999 did not contain an
adverse  opinion or disclaimer  of opinion,  nor was qualified or modified as to
uncertainty, audit scope, or accounting principles.

     In  January  2001,  the  Company  engaged  Michael  Johnson & Co.,  Denver,
Colorado,  as its new  principal  independent  accountant to audit the Company's
financial  statements.  The prior  accountant was Bateman & Co., Inc. P.C. There
has been no  disagreement  between  accountants  regarding  the  application  of
accounting principles to any specific completed or contemplated transaction,  or
as to policies as to accounting.

                                       9

<PAGE>

                                    PART III

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

 The current  Executive officers of Registrant at December 31, 2001 are:

              NAME                     POSITION HELD         TENURE

         Daniel C. Silva                President       Annual 2000-2001
                                                        to March 2002
         Joseph L. McFarland, Jr.       Secretary       Annual 2000-2001
                                                        to March 2002

The persons who are directors of the Registrant Registrant at December 31, 2001
are:

         Name                               Age
         ----                               ---
         Daniel Silva                        39
         Joseph L. McFarland Jr.             41


         Business Experience

         The following is a brief account of the business  experience  during at
least the past five years of the  persons  designated  to be new  directors  and
officers of the Registrant,  indicating the principal  occupation and employment
during  that  period  by  each,  and the  name  and  principal  business  of the
organizations by which they were employed.

      Joseph L. McFarland, Jr.
     ------------------------

     Joseph L.  McFarland,  age 41 received  an  education  at Denver  Technical
College  1983-87  in  Design  Engineering.  From 1998 to  present  he has been a
Principal  Manufacturing Engineer for Exabyte Corp. In 2000 he became a director
and principal  shareholder of Peanut Butter & Jelly, Inc. and was a principal in
a  company  with the same name from  1993 to 1996,  which  was  dissolved.  From
1996-98 he was a Consulting  Process  Engineer for Medtronic  Blood  Management.
From 1992-93 Mr. McFarland was Operations Manager for Ram-Line, Inc.

     Daniel C. Silva
     ---------------

     Mr. Silva, age 39 has been Broker/Owner of Silva Realty from October 1991 -
Present. He was  President/Marketing  Director and a major shareholder of Peanut
Butter + Jelly, Inc. June 1995 - 1996 when it was dissolved. He was President of

                                       10
<PAGE>

Board of Directors/Chief  Marketing Officer Water Enhancement Technologies (WET
TEK)  September  1993 - June 1995. He attended  Colorado Real Estate  College in
1991. He has a Bachelor of Science,  Business  Management at Metro State College
in 1989.  Mr. Silva was appointed a director and president in October of 2000.

         No  appointee  for a director  position  has been  subject of any civil
regulatory proceeding or any criminal proceeding.

     Section 16(a) of the Securities  Exchange Act of 1934 (the "Exchange  Act")
requires that the  Company's  officers and  directors,  and persons who own more
than ten percent of the  registered  class of the Company's  equity  securities,
file  reports of  ownership  and changes in ownership  with the  Securities  and
Exchange   Commission.   Officers,   directors  and  greater  than  ten  percent
stockholders  are required by regulation to furnish to the Company copies of all
Section 16(a) forms they file.

     The  following  persons  failed to file forms on a timely  basis during the
past two fiscal years as required under Section 16(a) as follows:

                                   Form 3         Form 4         Form 5
                                   ----------     ----------     --------
1.   Dan Silva                     1 in 2000*     1 in 2001*     2000
                                                                 2001

2.   Joseph L. McFarland, Jr.      1 in 2000*     1 in 2001*     2000
                                                                 2001

3.   Europark Holdings, Inc.       1 in 2000      1 in 2001      2000
                                                                 2001

* For a single transaction in each instance


Compliance with Section 16(a) of the Exchange Act

        Section  16(a) of the  Securities  Exchange  Act of 1934 (the  "Exchange
Act") requires that the Company's  officers and  directors,  and persons who own
more than ten percent of a registered class of the Company's equity  securities,
file  reports of  ownership  and changes in ownership  with the  Securities  and
Exchange   Commission.   Officers,   directors  and  greater  than  ten  percent
stockholders  are required by regulation to furnish to the Company copies of all
Section 16(s) forms they file.


                                       11

<PAGE>

Conflicts of Interest

        Members of the  Company's  management  are  associated  with other firms
involved in a range of business  activities.  Consequently,  there are potential
inherent  conflicts of interest in their acting as officers and directors of the
Company.  Insofar as the officers and  directors  are engaged in other  business
activities, management anticipates it will devote only a minor amount of time to
the Company's affairs.


        The  Company's  Board of Directors has adopted a policy that the Company
will not seek a merger with, or acquisition  of, any entity in which any officer
or director  serves as an officer or  director or in which they or their  family
members own or hold a  controlling  ownership  interest.  Although  the Board of
Directors  could  elect to change this  policy,  the Board of  Directors  has no
present intention to do so.

        There can be no assurance that  management will resolve all conflicts of
interest in favor of the Company.

                                       12
<PAGE>

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

                             EXECUTIVE COMPENSATION

Cash Compensation.

     Compensation  paid for all services provided up to December 31, 2001 (1) to
each of our executive officers and (2) to all officer as a group.

<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE OF EXECUTIVES

                                    Cash Compensation                  Security Grants
<S>               <C>       <C>          <C>        <C>              <C>         <C>               <C>
NAME AND          YEAR      SALARY       BONUS      CONSULTING       NUMBER OF   SECURITIES        LONG TERM
PRINCIPAL                                           FEES/OTHER       SHARES      UNDERLYING        COMPENSATION/OPTION
POSITION                                            FEES ($)                     OPTIONS/
                                                                                 SARS (#)
================= ========= ============ ========== ================ =========== ================= ================
Daneil C          1999      0            0          0                0           0                 0
Silva,            2000      0            0          0                0           0                 0
President         2001      0            0          0                750,000*    0                 0
- ------------------------------------------------------------------------------------------------------------
Joseph L.         1999      0            0          0                0           0                 0
McFarland Jr.     2000      0            0          0                0           0                 0
Secretary         2001      0            0          0                750,000*    0                 0
- ------------------------------------------------------------------------------------------------------------
Gary Burnie,
Secretary         1999      0            0          0                 550,000    0                 0
                  2000      0            0          0                      0     0                 0
(Resigned 2000)   2001      0            0          0                      0     0                 0
- ------------------------------------------------------------------------------------------------------------
Officers as a     1999      0            0          0                0           0                 0
Group             2000      0            0          0                  550,000   0                 0
                  2001      0            0          0                1,500,000*  0                 0
- ------------------------------------------------------------------------------------------------------------
</TABLE>

* Shares issued in December 2001 for services rendered, valued at $15,000 for
each 750,000 shares.

                                       13
<PAGE>

                     SUMMARY COMPENSATION TABLE OF DIRECTORS
<TABLE>
<CAPTION>

                             (TO DECEMBER 31, 2001)
<S>                       <C>       <C>           <C>          <C>                <C>           <C>
NAME AND PRINCIPAL        YEAR      ANNUAL        MEETING      CONSULTING         NUMBER OF     SECURITIES
                                    RETAINER      FEES ($)     FEES/OTHER FEES    OPTION        UNDERLYING OPTIONS/
POSITION                            FEES ($)                   ($)                SHARES        SARS (#)
                                                                                  EXERCISED
===============================================================================================================
Daniel C. Silva           2000          0             0            0                  0             0
                          2001          0             0            0                  0             0
- ---------------------------------------------------------------------------------------------------------------
Joseph L. McFarland, Jr.  2000          0             0            0                  0             0
                          2001          0             0            0                  0             0
- ---------------------------------------------------------------------------------------------------------------
Gary Burnie, Secretary
(Resigned 2000)           1999          0             0            0                  0       550,000
                          2000    100,000             0            0          2,000,000             0
                          2001          0             0            0                  0             0
- ---------------------------------------------------------------------------------------------------------------
Wayne Miller              2000    100,000             0            0          2,000,000             0
(Resigned 2000)           2001          0             0            0                  0             0
- ---------------------------------------------------------------------------------------------------------------
Barry Miller              2000     25,000             0            0                  0       500,000
(Resigned 2000)           2002          0             0            0                  0             0
- ---------------------------------------------------------------------------------------------------------------
Directors as a            1999          0             0            0                  0       550,000
Group                     2000    225,000             0            0          4,000,000       500,000
                          2001          0             0            0                  0             0
===============================================================================================================
</TABLE>

In August,  2000, the Company adopted the 2000  Nonqualified  Stock Option Plan.
The Plan sets aside  10,000,000  shares of common  stock  option for issuance to
employees,  directors, officers, attorneys, accounts, consultants or advisors to
the company. The Plan has a ten year term.

On September 20, 2000, the company  granted  options to officers,  directors and
consultants to purchase  7,000,000 shares of the Company's common stock at $0.05
per share under thwe Plan. The options were  immediately  exercised,  and shares
wre issued in satisfaction of the Company's  obligation to the four  individuals
for consulting services rendered through September 30, 2000. The transaction was
recorded by a charge to expense for  $257,035,  and a charge of $92,965  against
amounts previously accrued for such services, for a total value of $350,000.

Also, on September 20, 2000,  the Company  granted  options to five  consultants
(0ne of whom was also a director,  Barry Miller) to purchase 2,200,000 shares at
$0.05 per share under the Plan.  The options are  exercisable at any time before
ten years from the date the Plan was adopted. The options to purchase shares are
subject to the  reverse  split of one for one  hundred  which was  completed  in
January 2002. At December 31, 2000, none of these options had been exercised.

                                       14

<PAGE>

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

The following table shows the share  ownership of officers,  directors and 5% or
greater shareholders.


Name and Address of                         Number of          Percent of Common
Beneficial Owner                          Shares Owned         Shares Owned
                                          Beneficially
                                          and of Record
--------------------                       -------------         ------------

Joseph McFarland, Director & Secretary    130,896*                13%
c/o 12925 W. Arlington Pl.
Littleton, CO 80127

Europark Holdings, Inc.                   130,896*                13%
(Beneficially Paul Enright)
Akara Bldg., 24 de Castro St.
Wickhause Cay, Road Town
Tortola BVI

Daniel C. Silva, President & Director     130,896*                13%
12925 W. Arlington Pl.
Littleton, CO 80127

Officers and Directors as a Group         392,688*                39%

*  Post reverse split one for 100 effective January 7, 2002.


Item 12.  Certain Relationships and Related Transactions

Acquisition of Peanut Butter and Jelly, Inc.
- --------------------------------------------

On September 25, 2000,  the Company  authorized  the  acquisition of 100% of the
outstanding  stock of Peanut Butter and Jelly,  Inc. in exchange for  47,460,000
restricted  common shares of the Company.  Peanut  Butter and Jelly,  Inc. was a
development stage company.  After the acquisition of Peanut Butter & Jelly, Inc.
the following shows the share ownership of officers, directors and 5% or greater
shareholders.

The  following  shares  were issued to the  persons in the amunts  indicated  in
consideration  for 100% of the  outstanding  shares of Peanut  Butter and Jelly,
Inc.:

Joseph McFarland                        12,339,600              12.7%
Europark Holdings, Inc.                 12,339,600              12.7%
Daniel C. Silva, President & Director   12,339,600              12.7%
Maya Investment Corporation*             4,460,000               4.5%
Robert Alan Kitsmiller                   3,322,200               3.4%
Daniel Enright                           2,373,000               2.4%

 *(beneficially Bruce Twa and Pete Cochrane)

                                       15
<PAGE>

On September 20, 2000, the company  granted  options to officers,  directors and
consultants to purchase  7,000,000 shares of the Company's common stock at $0.05
per share under the Plan. The options were  immediately  exercised,  and shares
wre issued in satisfaction of the Company's  obligation to the four  individuals
for consulting services rendered through September 30, 2000. The transaction was
recorded by a charge to expense for  $257,035,  and a charge of $92,965  against
amounts previously accrued for such services, for a total value of $350,000.

On May 9, 2000, the Company acquired all the outstanding stock of Hi-Plains
Energy Corp., a Wyoming corporation that was also in the development stage, for
$15,600. Concurrently therewith, the Company paid consulting and legal fees of
$134,420 to facilitate the merger of Hi-Plains into Winchester, and the filing
of related forms with the Securities and Exchange Commission. The total of
$150,020 deemed to be the cost of the Hi-Plains shares.

Effective May 13, 2000, Hi-Plains was merged into Winchester, Winchester changed
its name to PNW Capital, Inc., and each share issued and outstanding immediately
prior to the effective date remained as issued and outstanding common stock in
Winchester (renamed PNW) without change.

On December 1, 2001,  the Company  issued  750,000 shares each valued at $15,000
each for services rendered to the following persons:

        1.  Daniel Silva, President and Director
        2.  Joseph McFarland, Secretary and Director
        3.  Robert Kitsmiller
        4.  Europark Holdings, Inc.

                                       16

<PAGE>


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

(a)     No Exhibits are filed with this Annual Report.

(b)     Reports on Form 8-K

        The  Company  filed reports on Form 8k's in 2000 as follows:

        8-K filed 12/20/01

                                       17

<PAGE>


                                   Signatures

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


                                          Industrial Minerals, Inc.



Date: August 5, 2002                      By: Edward V. Verby
                                              -----------------------------
                                              Edward V. Verby, 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:    August5, 2002          By: Edward V. Verby
       --------------          ----------------------------------------
                               Edward V. Verby, President, Chairman and Director


Date:   August 5, 2002          /s/John Melnyk
       --------------          -----------------------------------------
                                John Melnyk, Secretary



                                DIRECTORS:


                                Edward V. Verby
                                -------------------------------------------
                                Edward V. Verby



                                /s/John Melnyk
                                -------------------------------------------
                                John Melnyk


                                /s/ Stephen Weathers
                                -------------------------------------------
                                Stephen Weathers



                                       18
<PAGE>

                                PNW CAPITAL, INC.
                    (Formerly Winchester Mining Corporation)
                          (A Development Stage Company)
                              FINANCIAL STATEMENTS
                                December 31, 2001





<PAGE>


                           Michael Johnson & Co., LLC
                          Certified Public Accountants
                        9175 East Kenyon Ave., Suite 100
                             Denver, Colorado 80237


Michael B. Johnson C.P.A.                             Telephone:  (303) 796-0099
Member:  A.I.C.P.A.                                         Fax:  (303) 796-0137
Colorado Society of C.P.A.s





                          INDEPENDENT AUDITOR'S REPORT


Board of Directors
PNW Capital, Inc.
Denver, CO


We have audited the accompanying balance sheets of PNW Capital, Inc., (A
Development Stage Company) as of December 31, 2001 and the related statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
2001, and for the period November 6, 1996 (Inception) to December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PNW Capital, Inc., as of
December 31, 2001, and the results of their operations and their cash flows for
the year ended December 31, 2001, and the period November 6, 1996 (Inception) to
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America.

The financial statements for the year ended December 31, 2000 and for the period
November 6, 1996 (Inception) to December 31, 2000, were audited by other
accountants, whose report dated May 4, 2001, expressed an unqualified opinion on
those statements. They have not performed any auditing procedures since that
date.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company is in the development stage, conditions exist
which raise substantial doubt about the Company's ability to continue as a going
concern unless it is able to generate sufficient cash flows to meet its
obligations and sustain its operations. The Company lost $67,251 from operations
in the year ended December 31, 2001. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC
Denver, Colorado
February 13, 2002

<PAGE>

<TABLE>
<CAPTION>

                                       PNW CAPITAL, INC.
                               (Formerly Winchester Mining Corp.)
                                 (A Development Stage Company)
                                         Balance Sheets
                                          December 31,


                                                                                  2001                      2000
                                                                            -----------------         ------------------
<S>                                                                               <C>                        <C>
ASSETS:
Current Assets:
   Cash                                                                                 $ 21                      $ 102
                                                                            -----------------         ------------------

      Total current assets                                                                21                        102
                                                                            -----------------         ------------------

TOTAL ASSETS                                                                            $ 21                      $ 102
                                                                            =================         ==================


LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
   Accounts Payable and Accrued Expenses                                            $ 17,629                   $ 10,459
                                                                            -----------------         ------------------

     Total Current Liabilities                                                        17,629                     10,459
                                                                            -----------------         ------------------

Stockholders' Equity:
Preferred Stock, par value $0.01 per share; 50,000,000
 shares authorized; no shares issued and outstanding                                       -                          -
Common Stock, par value $.0001; 100,000,000 shares authorized;
   1,000,863 shares issued and outstanding for 2001,                                  10,000                      9,700
   and 970,000 shares issued and outstanding for 2000
Additional paid-in Capital                                                         1,744,635                  1,684,935
Deficit accumulated during the development stage                                  (1,772,243)                (1,704,992)
                                                                            -----------------         ------------------

Total Stockholders' Equity                                                           (17,608)                   (10,357)
                                                                            -----------------         ------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              $ 21                      $ 102
                                                                            =================         ==================


</TABLE>


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

                                      F-2

<PAGE>

<TABLE>
<CAPTION>

                                          PNW CAPITAL, INC.
                                  (Formerly Winchester Mining Corp.)
                                    (A Development Stage Company)
                                       Statements of Operations

                                                                                                   November 6, 1996
                                                                   Year Ended                      (Inception) to
                                                                  December 31,                     December 31,
                                                              2001             2000                2001
                                                             ------           ------               ----------------
<S>                                                           <C>              <C>                 <C>
Revenue
    Sales                                                           $ -              $ -               $ 15,537
    Cost of Goods Sold                                                -                -                 76,201
                                                          --------------   --------------     ------------------
Gross Profit                                                          -                -                (60,664)
                                                          --------------   --------------     ------------------
Expenses:
   Consulting and management fees                                60,000          293,003                933,529
   Depreciation and amortization                                      -            7,753                  8,292
   Impairment of long-lived assets                                    -          306,176                582,176
   Other general and administrative                               7,371           88,606                190,900
                                                          --------------   --------------     ------------------
Total Expenses                                                   67,371          695,538              1,714,897
                                                          --------------   --------------     ------------------
Other Income
   Interest income                                                    -              419                  2,724
   Foreign exchange                                                   -              474                    474
   Other income                                                     120              113                    594
                                                          --------------   --------------     ------------------
 Total Other Income                                                 120              780                  3,318
                                                          --------------   --------------     ------------------
Net Loss                                                      $ (67,251)       $(694,758)          $ (1,772,243)
                                                          ==============   ==============     ==================

Per Share Information:

   Weighted average number of
     common shares outstanding                                  970,863          530,554

Net Loss per Common Share                                         (0.07)           (1.31)
                                                          ==============   ==============


</TABLE>


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

                                      F-3

<PAGE>

<TABLE>
<CAPTION>

                                   PNW CAPITAL, INC.
                           (Formerly Winchester Mining Corp.)
                             (A Development Stage Company)
                                Statements of Cash Flows

                                    Indirect Method


                                                                                         November 6, 1996
                                                            Year Ended                   (Inception) to
                                                           December 31,                     December 31,
                                                             2001            2000             2001
                                                          ------------    -----------   -----------------
<S>                                                         <C>            <C>              <C>
Cash Flows from Operating Activities:
Net Loss                                                    $ (67,251)     $(694,758)       $ (1,772,243)
  Adjustments to reconcile net loss to cash used in
    operating activities:
   Provision for bad debts                                          -          4,169              49,676
   Issuance of common stock for services                       60,000        354,696             414,606
   Impairment of long-lived assets                                  -        306,174             306,174
   Increase in accounts payable                                 7,170        (40,778)             17,629
   (Increase) in accounts receivable                                -         (4,169)             (4,169)
   Decrease (increase) in prepaid expenses                          -            970                (539)
   Decrease (increase) due to related parties                       -        (36,332)            595,000
   (Increase) in inventory                                          -         (2,592)             (5,527)
                                                          ------------    -----------   -----------------
Net Cash Used for Operations                                      (81)      (112,620)           (399,393)
                                                          ------------    -----------   -----------------
Cash Flows from Investing Activities:
   Purchase of equipment                                            -         (4,699)             (4,160)
   Investment in Multiplex                                          -        (75,000)            (75,000)
   Website development costs                                        -        (71,861)            (71,861)
   Acquisition of goodwill                                          -       (149,057)           (149,057)
   Loan to related parties                                          -              -             (50,000)
   Loan repayments                                                  -              -               4,493
                                                          ------------    -----------   -----------------
Net Cash Used for Investing Activities                              -       (300,617)           (345,585)

Cash Flows from Financing Activities:
   Acquisition of Peanut Butter & Jelly, Inc.                       -             50                 140
   Issuance of common stock                                         -        413,070             744,859
                                                          ------------    -----------   -----------------
Net Cash Provided by Financing Activities                           -        413,120             744,999

Net Increase (decrease) in cash and cash equivalents              (81)          (117)                 21
                                                          ------------    -----------   -----------------
Cash and cash equivalents - Beginning of period                   102            219                   -
                                                          ------------    -----------   -----------------
Cash and cash equivalents - End of period                        $ 21          $ 102                $ 21
                                                          ============    ===========   =================

Supplemental Disclosure of Cash Flow Information
   Cash Paid During the Year for:
      Interest                                                    $ -            $ -               $ 113
                                                          ============    ===========   =================
      Income Taxes                                                $ -            $ -                 $ -
                                                          ============    ===========   =================

NON-CASH TRANSACTIONS
    Common stock issued in exchange for services             $ 60,000      $ 354,696             414,646
                                                          ============    ===========   =================
    Common stock issued for debt                                  $ -            $ -           $ 595,000
                                                          ============    ===========   =================
    Common stock issued for investment                            $ -            $ -                $ 30
                                                          ============    ===========   =================

</TABLE>


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

                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                                               PNW CAPITAL, INC.
                                       (Formerly Winchester Mining Corp.)
                                         (A Development Stage Company)
                                  Statement of Stockholders' Equity (Deficit)
                                               December 31, 2001


                                                                                                       Deficit
                                                                                                     Accumulated
                                                                                  Additional         During the
                                                      Common Stock                  Paid-In          Development
                                            # of Shares          Amount             Capital             Stage             Totals
                                          ---------------    --------------     --------------     --------------     --------------
<S>                                             <C>                 <C>            <C>                <C>                <C>
Inception  - November 6, 1996                           -               $ -                $ -                $ -              $ -

Balance -  December 31, 1998                   25,250,000              2525            502,643           (750,830)        (245,662)
Issuance of stock for cash                      3,000,000               300            146,321                  -          146,621
Issuance of stock for services                  5,500,000               550            274,450                  -          275,000
Net Loss                                                -                 -                  -           (259,404)        (259,404)
                                           ---------------    --------------     --------------     --------------   --------------
Balance - December 31, 1999                    35,750,000             3,375            923,414         (1,010,234)         (83,445)
                                           ---------------    --------------     --------------     --------------   --------------
Issuance of stock for cash                      8,490,000               849            412,221                  -          413,070
Issuance of stock for services                    700,000               700            349,300                  -          350,000
Issuance of stock for Multiplex Stock             300,000                30                  -                  -               30
Issuance of stock for acquisition              47,460,000             4,746                  -                  -            4,746
Net Loss for year                                       -                 -                  -           (694,758)        (694,758)
                                           ---------------    --------------     --------------     --------------   --------------
Balance - December 31, 2000                       970,863                97          1,684,935         (1,704,992)         (10,357)
                                           ---------------    --------------     --------------     --------------   --------------
Issuance of stock for compensation              3,000,000               300             59,700                  -           60,000
Net Loss for year                                       -                 -                  -            (67,251)         (67,251)
                                           ---------------    --------------     --------------     --------------   --------------
Balance - December 31, 2001                   100,000,000           $10,000        $ 1,744,635        $(1,772,243)       $ (17,608)
                                           ===============    ==============     ==============     ==============   ==============

</TABLE>

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

                                      F-5

<PAGE>


                                PNW CAPITAL, INC.
                    (Formerly Winchester Mining Corporation)
                          (A Development Stage Company)
                          Notes to Financial Statements
                                December 31, 2001


Note 1 - Organization and Summary of Significant Accounting Policies:
         ------------------------------------------------------------

Organization:
- ------------

The Company was incorporated on November 6, 1996, as Winchester Mining
Corporation in the state of Delaware. The Company is in the development stage
and was organized for the purpose of raising capital in organizing and
developing internet business. On May 13, 2000, in connection with its merger
with Hi-Plains Energy Corp. the Company changed its name from Winchester Mining
Corporation to PNW Capital, Inc.. The Company's fiscal year end is December 31.

Basis of Presentation - Development Stage Company:
- -------------------------------------------------

The Company has not earned significant revenues from limited principal
operations. Accordingly, the Company" activities have been accounted for as
those of a "Development Stage Enterprise" as set forth in Financial Accounting
Standards Board Statement No. 7 ("SFAS 7"). Among the disclosures required by
SFAS 7 are that the Company's financial statements be identified as those of a
development stage company, and that the statements of operations, stockholders'
equity (deficit) and cash flows disclose activity since the date of the
Company's inception.

Basis of Accounting:
- -------------------

The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.

Cash and Cash Equivalents:
- -------------------------

The Company considers all highly liquid debt instruments, purchased with an
original maturity of three months or less, to be cash equivalents.

Use of Estimates:
- ----------------

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

Net Loss Per Share:
- ------------------

Net loss per share is based on the weighted average number of common shares and
common shares equivalents outstanding during the period.


                                      F-6

<PAGE>


                                PNW CAPITAL, INC.
                    (Formerly Winchester Mining Corporation)
                          (A Development Stage Company)
                          Notes to Financial Statements
                                December 31, 2001



Other Comprehensive Income
- --------------------------

The Company has no material components of other comprehensive income (loss), and
accordingly, net loss is equal to comprehensive loss in all periods.

Note 2 - Federal Income Taxes:
         --------------------

The Company has made no provision for income taxes because the Company has
incurred operating losses in all periods and for all jurisdictions.

The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards Number 109 ("SFAS 109"). "Accounting for Income
Taxes", which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.

Deferred tax assets
         Net operating loss carryforwards                $   1,722,243
         Valuation allowance                                (1,722,243)
                                                         --------------
         Net deferred tax assets                         $           0
                                                         ==============

At December 31, 2001, the Company had net operating loss carryforwards of
approximately $1,772,243 for federal income tax purposes. These carryforwards if
not utilized to offset taxable income will begin to expire in 2008.

Note 3 - Capital Stock Transactions:
         --------------------------

The authorized capital stock of the Company is 100,000,000 shares of common
stock at $.0001 par value.  During the period ended December 31, 2001, the
Company issued 3,000,000 shares of common stock for services.




                                      F-7

<PAGE>


                                PNW CAPITAL, INC.
                    (Formerly Winchester Mining Corporation)
                          (A Development Stage Company)
                          Notes to Financial Statements
                                December 31, 2001




Note 4 - Going Concern:
         -------------

The Company's financial statements have been presented on the basis that it is a
going concern.

The Company is in the development stage and has not earned any revenues from
operations. The Company's current liabilities exceed current assets by $17,608
and the Company recorded a loss of $67,251 in the current year. The Company's
ability to continue as a going concern is dependent upon its ability to develop
additional sources of capital or locate a merger candidate and ultimately,
achieve profitable operations. The accompanying financial statements do not
include any adjustments that might result from the outcome of these
uncertainties. Management's plan is to obtain sufficient additional debt or
equity financing to finance operations, capital improvements and other necessary
activities or to acquire a profitable business.

Note 5 - Prior Period Restatement
         ------------------------

On March 18, 1999, the Company entered into an Internet casino license agreement
for a period of three years. Under the license agreement the Company was
committed to make fee payments over the next three years in the amount of
$25,000. In 1999 the Company accrued a provision of $25,000 to provide for these
payments, as of December 31, 2001 these payments are no longer due. Consulting
fees and Accounts Payable in the amount of $52,492 were overstated in the year
ended 2000.

Note 6 - Related Party Transactions:
         --------------------------

The Company paid  Management and Consulting fees of $146,078 in 2000 and $31,663
in 1999, to current or former officers and directors or companies controlled by
current or former officers and directors.  The current and former officers and
directors were issued 7,000,000 shares of common stock valued at $.05 per share
in September 2000 for compensation.  In December 2001, an issuance of 3,000,000
shares of common stock, having a stipulated value of $.02 per share were issued
for consulting fees to directors and officers of the company.

Note 7 - Segment Information
         -------------------

PNW Capital,  Inc. operates primarily in a single operating segment, the capital
raising business.





                                      F-8


<PAGE>
Bateman & Co., Inc., P.C.
Certified Public Accountants

                                                           5 Briardale Court
                                                      Houston, Texas 77027-2904
                                                           (713) 552-9800
                                                          FAX (713) 552-9700
                                                        www.batemanhouston.com



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To The Board of Directors and Stockholders
PNW Capital, Inc. (Formerly Winchester Mining Corporation)

We have audited the  accompanying  consolidated  balance  sheets of PNW Capital,
Inc. (Formerly Winchester Mining Corporation)(a development stage enterprise) as
of  December  31,  2000  and  the  related  consolidated   statements  of  loss,
stockholders'  equity  (deficit),  and cash flows for the two years then  ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit. We conducted our audit in accordance with U.S.  generally accepted
auditing  standards.  Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of PNW  Capital,  Inc. as of
December 31, 2000,  and the results of its operations and cash flows for the two
years  then  ended  in  conformity  with  U.S.  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 2 to the
financial statements,  the Company has suffered recurring losses from operations
and negative cash flows from operations since  inception,  had a working capital
deficiency approximating $88,000 at December 31, 2000, and negative net worth at
that date. These conditions raise  substantial doubt about the Company's ability
to continue as a going  concern.  Management's  plans in regard to those matters
are also  described  in Note 2. The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.


                                                     BATEMAN & CO., INC., P.C.
Houston, Texas
May 4, 2001

                                     Member
               INTERNATIONAL ASSOCIATION OF PRACTICING ACCOUNTANTS
                  Offices in Principal Cities Around The World

                                       F-9


<PAGE>
<TABLE>
<CAPTION>

           PNW CAPITAL, INC. (Formerly Winchester Mining Corporation)
                        (A development stage enterprise)
                           Consolidated Balance Sheets
                                December 31, 2000

<S>                                                                                           <C>


ASSETS
  Current assets:
    Cash                                                                                                    $ 102
                                                                                              --------------------
      Total current assets                                                                                    102
                                                                                              --------------------
                                                                                              --------------------
      Total assets                                                                                          $ 102
                                                                                              ====================


LIABILITIES
  Current liabilities:
    Bank overdraft                                                                                          $ 119
    Accounts payable and accrued expenses                                                                $ 62,832
    Accrued liability for contingencies                                                                    25,000
                                                                                              --------------------
      Total current liabilities                                                                            87,951
                                                                                              --------------------
                                                                                              --------------------
      Total liabilities                                                                                    87,951
                                                                                              --------------------

  Commitments and contingencies                                                                         -

STOCKHOLDERS' EQUITY (DEFICIT)
  Common stock, $.0001 par value, 100,000,000 shares
    shares authorized, 97,000,000
    shares issued and outstanding                                                                           9,700
  Capital in excess of par value                                                                        1,684,935
  Deficit accumulated during the
    development stage                                                                                  (1,782,484)
                                                                                              --------------------
      Total stockholders' equity (deficit)                                                                (87,849)
                                                                                              --------------------
                                                                                              --------------------
      Total liabilities and stockholders' equity                                                            $ 102
                                                                                              ====================
</TABLE>
The accompanying notes are an integral part of these statements.

                                      F-10

<PAGE>
<TABLE>
<CAPTION>


           PNW CAPITAL, INC. (Formerly Winchester Mining Corporation)
                        (A development stage enterprise)
              Consolidated Statements of Loss For The Periods Ended
                           December 31, 2000 and 1999
<S>                                                          <C>                  <C>                   <C>


                                                                     Cumulative
                                                                    November 6,
                                                                   1996 through
                                                                   December 31,                    Years Ended December 31,
                                                                                  ------------------------------------------

                                                                           2000                  2000                  1999
                                                             -------------------  --------------------  --------------------
                                                             -------------------  --------------------  --------------------

Revenues                                                               $ 15,537                   $ -              $ 15,537
                                                             -------------------  --------------------  --------------------
                                                             -------------------  --------------------  --------------------

Less, Costs and expenses:
  Cost of revenues                                                       76,201                     -                76,201
  Consulting and management fees                                        901,021               345,495               140,309
  Provision for contingencies                                            25,000                     -                25,000
  Depreciation and amortization                                           8,292                 7,753                   305
  Impairment of long-lived assets                                       306,176               306,176                     -
  Writeoffs and abandonments of
    mineral properties                                                  276,000                     -                     -
  Other general and administrative                                      208,416               113,606                33,126
                                                             -------------------  --------------------  --------------------
                                                             -------------------  --------------------  --------------------
    Total operating expenses                                          1,801,106               773,030               274,941
                                                             -------------------  --------------------  --------------------
                                                             -------------------  --------------------  --------------------
    Loss from operations                                             (1,785,569)             (773,030)             (259,404)
                                                             -------------------  --------------------  --------------------
                                                             -------------------  --------------------  --------------------

Other income (expense):
  Interest income                                                         2,724                   419                     -
  Foreign exchange                                                          474                   474                     -
  Interest expense                                                         (113)                 (113)                    -
                                                             -------------------  --------------------  --------------------
                                                             -------------------  --------------------  --------------------
    Total other income (expense)                                          3,085                   780                     -
                                                             -------------------  --------------------  --------------------
                                                             -------------------  --------------------  --------------------
    Loss before taxes on income                                      (1,782,484)             (772,250)             (259,404)

  Provision for income taxes                                                  -                     -                     -
                                                             -------------------  --------------------  --------------------
                                                             -------------------  --------------------  --------------------
      Net loss                                                      $(1,782,484)            $(772,250)            $(259,404)
                                                             ===================  ====================  ====================
                                                             ===================  ====================  ====================


Basic earnings (loss)
  per common share                                                                            $ (0.01)              $ (0.01)
                                                                                  ====================  ====================
                                                                                  ====================  ====================

Weighted average shares outstanding                                                        53,055,929            31,895,206
                                                                                  ====================  ====================
                                                                                  ====================  ====================
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-11
<PAGE>
<TABLE>
<CAPTION>

                          WINCHESTER MINING CORPORATION
                        (A development stage enterprise)
  Consolidated Statements of Stockholders' Equity (Deficit) For The Years Ended
                           December 31, 2000 and 1999




                                                                                            Deficit
                                                                                          Accumulated
                                                                    Additional             During the
                                      Common Stock                    Paid In             Development
                                Shares              Amount            Capital                Stage                 Total
                          -------------------   --------------  -------------------   --------------------   ------------------
<S>                       <C>                   <C>             <C>                   <C>                    <C>

 Year ended December 31, 1999:
 Balances,
  December 31,
  1998                            25,250,000            2,525              502,643               (750,830)            (245,662)
 Shares issued
   for cash                        3,000,000              300              146,321                                     146,621
 Shares issued
   for debt                        5,500,000              550              274,450                                     275,000
 Development
   stage net
   loss                                                                                          (259,404)            (259,404)
                          -------------------   --------------  -------------------   --------------------   ------------------
 Balances,
  December 31,
  1999                            33,750,000            3,375              923,414             (1,010,234)             (83,445)

 Year ended December 31, 2000:
 Shares issued
   for cash                        8,490,000              849              412,221                                     413,070
 Shares issued
   for services                    7,000,000              700              349,300                                     350,000
 Shares issued
   for Multiplex
   Raceway stock                     300,000               30                    -                                          30
 Shares issued
   for Peanut
   Butter & Jelly,
   Inc. stock and
   for services                   47,460,000            4,746                    -                                       4,746
 Development
   stage net
   loss                                                                                          (772,250)            (772,250)
                          -------------------   --------------  -------------------   --------------------   ------------------
 Balances,
  December 31,
  2000                            97,000,000          $ 9,700          $ 1,684,935           $ (1,782,484)            $(87,849)
                          ===================   ==============  ===================   ====================   ==================


</TABLE>
The accompanying notes are an interal part of these statements.

                                      F-12

<PAGE>
<TABLE>
<CAPTION>



           PNW CAPITAL, INC. (Formerly Winchester Mining Corporation)
                        (A development stage enterprise)
           Consolidated Statements of Cash Flows For The Periods Ended
                           December 31, 2000 and 1999
<S>                                                             <C>                   <C>                  <C>



                                                                         Cumulative
                                                                        November 6,
                                                                       1996 through
                                                                       December 31,                Years Ended December 31,
                                                                                      --------------------------------------
                                                                                      --------------------------------------
                                                                               2000                2000                1999
                                                                --------------------  ------------------   -----------------
                                                                --------------------  ------------------   -----------------

 Cash flows from operating activities:
  Net loss                                                              $(1,782,484)         $ (772,250)         $ (259,404)
  Adjustments to reconcile net income to
   cash provided (used) by development
   stage activities:
    Provision for bad debts                                                  49,676               4,169                   -
    Depreciation and amortization                                             8,292               7,753                 305
    Stock issued for services                                               354,696             354,696                   -
    Impairment of long-lived assets                                         306,174             306,174                   -
    Change in current assets and liabilities:
      Accounts receivable                                                    (4,169)             (4,169)                  -
      Inventory                                                              (5,527)             (2,711)             (2,816)
      Prepaid expenses                                                         (539)                970                (970)
      Accounts payable and accrued expenses                                  62,832              36,714              21,669
      Accrued liability for contingencies                                    25,000                   -              25,000
      Due to related parties                                                595,000             (36,332)             69,665
                                                                --------------------  ------------------   -----------------
                                                                --------------------  ------------------   -----------------
  Cash flows from operating activities                                     (391,049)           (104,986)           (146,551)
                                                                --------------------  ------------------   -----------------
                                                                --------------------  ------------------   -----------------

 Cash flows from investing activities:
   Purchase of equipment                                                    (12,452)            (12,452)                  -
   Investment in Multiplex                                                  (75,000)            (75,000)                  -
   Website development costs                                                (71,861)            (71,861)                  -
   Acquisition of goodwill                                                 (149,057)           (149,057)                  -
   Loan to related party                                                    (50,000)                  -                   -
   Loan repayments                                                            4,493                   -                   -
                                                                --------------------  ------------------   -----------------
                                                                --------------------  ------------------   -----------------
  Cash flows from investing activities                                     (353,877)           (308,370)                  -
                                                                --------------------  ------------------   -----------------
                                                                --------------------  ------------------   -----------------

 Cash flows from financing activities:
  Net proceeds from sale of common stock                                    744,859             413,070             146,621
  Cash acquired in acquisition of Peanut
    Butter & Jelly, Inc.                                                         50                  50                   -
                                                                --------------------  ------------------   -----------------
                                                                --------------------  ------------------   -----------------
  Cash flows from financing activities                                      744,909             413,120             146,621
                                                                --------------------  ------------------   -----------------
                                                                --------------------  ------------------   -----------------

 Net increase (decrease)
  in cash and equivalents                                                     $ (17)               (236)                 70
                                                                ====================
                                                                ====================

 Cash and equivalents:
  Beginning of period                                                                               219                 149
                                                                                      ------------------   -----------------
                                                                                      ------------------   -----------------
  End of period                                                                                   $ (17)              $ 219
                                                                                      ==================   =================
                                                                                      ==================   =================


 Supplemental cash flow disclosures:
  Cash paid for interest                                                      $ 113               $ 113                 $ -
  Cash paid for income taxes                                                      -                   -                   -
  Non-cash financing and
   investing activities:
    Shares issued for debt                                                  595,000                   -             275,000
    Shares issued for services                                              354,696             354,696                   -
    Shares issued for investment                                                 30                  30                   -

</TABLE>
The accompanying notes are an interal part of these statements.

                                      F-13

<PAGE>

           PNW CAPITAL, INC. (Formerly Winchester Mining Corporation)
                        (A development stage enterprise)
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999





Note 1 - Organization and summary of significant accounting policies: Following
is a summary of the Company's organization and significant accounting policies:

         Organization and nature of business - The Company was incorporated as
         Winchester Mining Corporation on November 6, 1996 in the state of
         Delaware, and is a development stage enterprise engaged in searching
         for capital, in organizing and developing internet businesses, and in
         organizing and developing magnetized packaging systems. Its goal is to
         develop an on-line international network of entertainment based
         websites and payment clearing systems, including a shopping mall, and,
         through its subsidiary, to manufacture magnetized packaging systems for
         household products. It has also engaged in referrals of internet
         browsers for a fee to an offshore online gambling casino. Although its
         principal office is in Littleton, Colorado (having relocated there from
         Vancouver, BC, Canada in the fourth quarter of 2000), it expects its
         internet businesses to invite customers from anywhere in the world. It
         expects its magnetized packaging systems to be distributed nationwide
         throughout the U.S. In 1996 through 1997, the company attempted to
         establish a mining business and pursued several unsuccessful Canadian
         mining opportunities.

         As a development stage enterprise, the Company anticipates incurring
         substantial additional losses as it pursues its internet and packaging
         businesses and as it investigates other business opportunities.

         On May 13, 2000, in connection with its merger with Hi-Plains Energy
         Corp. (see Note 3 below), the Company changed its name from Winchester
         Mining Corporation to PNW Capital Corp.

         Basis of presentation - The accounting and reporting policies of the
         Company conform to U.S. generally accepted accounting principles of
         development stage enterprises.

         Principles of consolidation - The accompanying financial statements
         include the accounts of PNW Capital, Inc., and its wholly owned
         subsidiary, Peanut Butter & Jelly, Inc., a Colorado corporation. All
         significant intercompany transactions have been eliminated.

         Use of estimates - The preparation of financial statements in
         conformity with generally accepted accounting principles requires
         management to make estimates and assumptions that affect the reported
         amounts of assets and liabilities and disclosure of contingent assets
         and liabilities at the date of the financial statements and the
         reported amount of revenues and expenses during the reporting period.
         Actual results could differ from those estimates. The Company's
         periodic filings with the Securities and Exchange Commission include,
         where applicable, disclosures of estimates, assumptions, uncertainties
         and concentrations in products and markets which could affect the
         financial statements and future operations of the Company.

         Foreign currency translation - Foreign currency transactions have been
         translated into U.S. dollars using:

o Year-end rates for monetary assets and liabilities;
o Historical rates for all
other assets and liabilities; and
o Average rates during the year for revenues and expenses.

                                      F-14

<PAGE>


         Exchange gains and losses arising from these foreign currency
         translations are reflected in income or expense as incurred.

         Cash and cash equivalents - For purposes of the statement of cash
         flows, the Company considers all cash in banks, money market funds, and
         certificates of deposit with a maturity of less than three months to be
         cash equivalents.

         Fair value of financial instruments and derivative financial
         instruments - The carrying amounts of cash and accounts payable and
         accrued expenses approximate fair value because of the short maturity
         of these items. These fair value estimates are subjective in nature and
         involve uncertainties and matters of significant judgment, and,
         therefore, cannot be determined with precision. Changes in assumptions
         could significantly affect these estimates. At December 31, 2000 and
         1999, the Company had no derivative financial instruments.

         Provision for doubtful accounts - Management evaluates receivables
         based on historical collection experience, and provides an allowance
         for estimated uncollectible accounts. In addition, provision is made
         for specific accounts when the estimated allowance is not sufficient to
         absorb specific accounts deemed uncollectible. During the year ended
         December 31, 2000, an account in the amount of $4,169 was deemed
         uncollectible, and a provision was recorded to accommodate the doubtful
         account.

         Inventory - Inventories are stated at the lower of cost or market, with
         cost determined using the first-in first-out (FIFO) method.

         Because of the matters described in Note 2, Management determined that
         the carrying value of its inventory had become impaired during the
         fourth quarter of 2000, and it was written off, as described in Note 7,
         below.


         Property and equipment - Property and equipment are stated at cost less
         accumulated depreciation, computed on the straight-line method over the
         estimated useful lives of the assets. Estimated lives of depreciable
         assets range from five to seven years.

         Federal income taxes - Deferred income taxes are reported for timing
         differences between items of income or expense reported in the
         financial statements and those reported for income tax purposes in
         accordance with FASB Statement Number 109 Accounting for Income Taxes,
         which requires the use of the asset/liability method of accounting for
         income taxes. Deferred income taxes and tax benefits are recognized for
         the future tax consequences attributable to differences between the
         financial statement carrying amounts of existing assets and liabilities
         and their respective tax bases, and for tax loss and credit
         carryforwards. Deferred tax assets and liabilities are measured using
         enacted tax rates expected to apply to taxable income in the years in
         which those temporary differences are expected to be recovered or
         settled. The Company provides deferred taxes for the estimated future
         tax effects attributable to temporary differences and carryforwards
         when realization is more likely than not.
                                      F-15

<PAGE>


         Earnings (loss) per share of common stock - Earnings (loss) per share
         is computed on the weighted average number of shares outstanding during
         the year, in accordance with FASB Statement Number 128, Earnings Per
         Share.

Note 2 - Going concern assumption:
Since its inception in 1996, the Company has incurred operating losses
approximating $1,800,000 and negative cash flows from operations approximating
$391,000. Operating revenues since inception have been insignificant. Although
the Company sold common stock in March, 2000 and May, 2000 resulting in cash
proceeds approximating $413,000, substantially all of the proceeds have been
spent, with no significant cash remaining at December 31, 2000. At December 31,
2000, the Company had a working capital deficiency approximating $88,000 and
negative net worth. Therefore, management expects that additional debt or equity
financing will be required to complete its business plan. The Company intends to
seek additional equity financing; however, there is no assurance these endeavors
will be successful.

These factors create substantial doubt about the Company's ability to continue
as a going concern. The ability of the Company to continue as a going concern is
dependent upon (a) obtaining sufficient additional debt or equity financing to
finance operations, capital improvements, and other necessary activities, (b)
achieving a profitable level of operations, (c) acquiring a profitable business,
or (d) a combination of these actions. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.

Note 3 - Merger with Hi-Plains:
On May 9, 2000, the Company acquired all the outstanding stock of Hi-Plains
Energy Corp., a Wyoming corporation that was also in the development stage, for
$15,600. Concurrently therewith, the Company paid consulting and legal fees of
$134,420 to facilitate the merger of Hi-Plains into Winchester, and the filing
of related forms with the Securities and Exchange Commission. The total of
$150,020 deemed to be the cost of the Hi-Plains shares.

Effective May 13, 2000, Hi-Plains was merged into Winchester, Winchester changed
its name to PNW Capital, Inc., and each share issued and outstanding immediately
prior to the effective date remained as issued and outstanding common stock in
Winchester (renamed PNW) without change.

The purchase of the Hi-Plains stock and subsequent merger into PNW has been
treated as a purchase, under which the excess of the purchase price ($150,020)
over the net assets of Hi-Plains ($963) was capitalized as Goodwill ($149,057)
and amortized over a 15 year life. Amortization of $6,625 was recognized during
the year ended December 31, 2000.

Because of the matters described in Note 2 above, Management determined that the
goodwill had become impaired during the fourth quarter of 2000, and it was
written off, as described in Note 7, below.

Note 4 - Property and equipment:
During 2000, the Company acquired office and computer equipment having a cost of
$12,452, and recorded depreciation of $1,128. Because of the matters described
in Note 2 above, Management determined that the equipment had become impaired
during the fourth quarter of 2000, and it was written off, as described in Note
7, below.

                                      F-16

<PAGE>


Note 5 - Investment in Multiplex Raceway Systems:
In May, 2000, the Company purchased 300,000 shares of Multiplex Raceway Systems,
a privately-held company engaged in the development of fiber optic multiple
access systems, at a cost of $75,000 in cash. Then, in September, 2000, the
Company issued 300,000 shares of restricted common stock as additional purchase
price; this transaction was recorded at the par value of the stock issued, or
$30. The investment represents 2.4% of the total outstanding stock of Raceway.
The stock purchase represents the Company's initial investment against a total
commitment to purchase 25% of Raceway's stock for total consideration of
$500,000 in cash and 2,000,000 shares of PNW Capital, Inc. common stock. The
investment was recorded at cost.

Raceway is a development stage company, and PNW's management was subsequently
unable to obtain credible information regarding the status of Raceway or the
Company's investment in it. Accordingly, during the fourth quarter of 2000,
Management determined that the investment had become impaired, and it was

written off, as described in Note 7, below.

Note 6 - Website development costs in process:
As indicated in Note 1, the company is in the process of developing websites
from which to conduct its on-line retail operations. In March 2000, the Emerging
Issues Task Force reached a consensus on Issue No. 00-2, Accounting for Website
Development Costs, ("EITF Issue No. 00-2") to be applicable to all website
development costs incurred for the quarter beginning after June 30, 2000, with
early application permitted. The consensus states that for specific website
development costs, the accounting should be based generally on AICPA Statement
of Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Under SOP 98-1, development costs are capitalized and
amortized to income over the estimated useful life of the website. The Company
has elected to adopt EITF Issue No. 00-2 and SOP 98-1 retroactively to January
1, 2000.

The Company incurred $71,861 in development costs through December 31, 2000,
which were capitalized; no amortization was recorded, as the sites were
incomplete. No costs had been incurred prior to January 1, 2000.

Because of the matters described in Note 2 above, Management determined that the
website development costs in process had become impaired during the fourth
quarter of 2000, and such costs were written off, as described in Note 7, below.

Note 7 - Impairment of long-lived assets:
The Company follows FASB Statement Number 121 - Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Because of the matters described in Note 2 above, Management
determined during the fourth quarter of 2000 that the carrying amount of certain
assets may not be recoverable, and accordingly they were written off by a charge
to income. The non-recoverable assets were as follows:

        Inventory                                                      $5,527
        Property and equipment, net of accumulated depreciation        11,324
        Investment in Multiplex Raceway Systems                        75,030
        Website development costs in process                           71,861
        Goodwill, net of accumulated amortization                     142,432
                                                                     -----------
          Total                                                      $306,174
                                                                     ===========
                                      F-17

<PAGE>


Note 8 - Acquisition of Peanut Butter & Jelly, Inc.:
On September 25, 2000, the Company authorized the acquisition of 100% of the
outstanding stock of Peanut Butter and Jelly, Inc. in exchange for 47,460,000
restricted common shares of the Company. In connection therewith, the Company's
three Directors, Wayne Miller, Gary Burnie, and Barry Miller, resigned, and were
replaced by Daniel C. Silva and Joseph L. McFarland, Jr.

Peanut Butter and Jelly, Inc. ("PB&J") is also a development stage company,
which plans to develop and manufacture magnetized packaging systems for
household products. The acquisition was completed in October 2000, and was
recorded as a purchase. At the date of acquisition, PB&J's sole asset was $50 in
cash, and it had not yet incurred any revenues and expenses. The acquisition was
recorded as follows:

        Investment in Peanut Butter & Jelly, Inc.                        $50
        Amount deemed to be compensation for services rendered by
          the principals of PB&J, recorded as a charge to income       4,696
                                                                     -----------
          Total fair value of shares issued                           $4,746
                                                                     ===========



Note 9 - Related party transactions:
The Company paid Management and Consulting fees of $146,078 (2000) and $31,663
(1999) to current or former officers and directors, or companies controlled by
current or former officers and directors. In addition, the Company paid $177,137
in Management and Consulting fees to non-officer shareholders in 2000. Of the
above amounts, $350,000 (which included $31,663 accrued in 1999) was paid by the
issuance in September, 2000 of 7,000,000 shares of common stock having a
stipulated value of $0.05 per share.

Note 10 - Accrued liability for contingencies:
Certain former officers and directors of the Company, or companies controlled by
the former officers and directors, have asserted two claims against the Company,
as follows:

o    A convertible debenture dated April 15, 1998 in the amount of $150,000,
     bearing 5% interest payable semi-annually, convertible into common shares
     at the rate of $0.05 per share at the option of the debenture holder for
     the then remaining balance of unpaid principal and interest. The former
     officers and directors assert this debenture was issued as consideration
     for expenditures made on the Company's behalf in connection with a 1997
     option agreement to purchase 50% interest in certain mineral properties in
     the Northwest Territories, Canada. The option agreement was abandoned by
     the Company, resulting in losses of approximately $276,000.

o    A convertible debenture dated April 15, 1998 in the amount of $100,000,
     bearing 5% interest payable semi-annually, convertible into common shares
     at the rate of $0.05 per share at the option of the debenture holder for
     the then remaining balance of unpaid principal and interest. The former
     officers and directors assert this debenture was issued as consideration
     for the pledge of Company shares owned by a company controlled by former
     officers and directors as collateral in connection with a proposed mineral
     property deal. The mineral property deal was not consummated.

                                      F-18

<PAGE>


The debenture holders have demanded that the Company convert the debentures into
common shares. However, current management of the Company disputes the validity
of the debentures, and believes they do not represent either bonafide
transactions or legally enforceable obligations. Accordingly, the debentures
have not been recognized as liabilities on the accompanying balance sheets.

Current management intends to vigorously contest the validity of these two
asserted debentures.

On March 18, 1999, the Company entered into an internet casino license agreement
for a period of three years. During fiscal 1999, Hollywood Casino Corporation
filed a domain name dispute complaint regarding the domain names used by the
Company in its internet casino referral operations. Subsequent to December 31,
1999, the National Arbitration Forum rendered a decision under which the Company
lost rights to all but one internet casino domain name.

Included in Costs of revenues for the year ended December 31, 1999 are $13,000
of casino licensing fees and $50,026 for the initial license payment. Under the
license agreement, the Company also was committed to make fee payments of
$15,000 in 2000, $12,000 in 2001, and $3,000 in 2002. However, the licensor has
not asked for payment of these amounts, and the Company has not paid them.

In 1999, the Company accrued a provision of $25,000 for defending against the
above contingent claims.

Note 11 - Federal income tax:
The currently payable (refundable) provision (credit) for Federal income tax
consists of the following:

                                                             December 31,
                                                       2000                1999
      Currently payable (refundable)
       provision (credit) attributable to:
          Current operations                      ($262,500)           ($88,100)
          Less, Limitation due to absence of
            prior taxable income                     262,500              88,100
                                                 -----------         -----------
          Net amount payable (refundable)           $     -             $     -
                                                 ===========         ===========

The Company follows FASB Statement Number 109 (SFAS 109), Accounting for Income
Taxes. Deferred income taxes reflect the net effect of (a) temporary difference
between carrying amounts of assets and liabilities for financial purposes and
the amounts used for income tax reporting purposes, and (b) net operating loss
carryforwards. The cumulative tax effect at the expected rate of 34% of
significant items comprising the Company's net deferred tax amounts are as
follows:

                                                           December 31,
                                                     2000                1999
      Deferred tax assets attributable to:
        Net operating loss carryforward            $606,000            $343,400
      Less, Valuation allowance                    (606,000)           (343,400)
                                                 -----------         -----------
        Net deferred tax assets                    $      -            $      -
                                                 ===========         ===========
                                      F-19

<PAGE>


At December 31, 2000 the Company had net operating loss carryovers which expire
as follows:

       Expires:                                                 Amount
         December 31, 2011                                      $10,100
         December 31, 2012                                      489,200
         December 31, 2013                                      251,500
         December 31, 2014                                      259,400
         December 31, 2015                                      772,200
                                                              ----------
           Total                                             $1,782,400
                                                              ==========

Note 12 - Commitments:
On October 1, 1999, the Company entered into a three year management agreement
with a company controlled by a former director of the company. The future
minimum management fees were as follows:

       Year ending December 31,                                  Amount
         2001                                                   $41,571
         2002                                                    31,179
                                                              ----------
           Total                                                $72,750
                                                              ==========

Also on October 1, 1999, the Company entered into a three year operating lease
for office space with a company controlled by a former director of the Company.
The future minimum rent payments were as follows:

       Year ending December 31,                                   Amount
         2001                                                     $4,367
         2002                                                      3,275
                                                               ----------
           Total                                                  $7,642
                                                               ==========

Both agreements were terminated simultaneously with the issuance of stock in
exchange for amounts then owed, as described in Note 9 above.

The Company incurred rent expense of $2,744 (2000) and $2,302 (1999).

Note 13 - Common stock:
During the development stage, the Company has issued shares of its common stock
as follows:

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

                                                                                          Price
      Description and Dates                                                                Per            Net
                                                                         Shares           Share          Amount
      Shares issued for cash:
        November 7, 1996                                                       50,000       $0.010              $500
        February 27, 1997                                                  20,000,000      0.00923           184,668
        July 17, 1998                                                       5,200,000        0.062           320,000
        March 15, 1999                                                      2,000,000      0.04887            97,747
        March 31, 1999                                                      1,000,000      0.04887            48,874
        March 13, 2000                                                      1,790,000        0.149           266,768
        May 17, 2000                                                        6,700,000        0.218           146,302

</TABLE>

                                      F-20

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


      Shares issued for debt (1):
        March 15, 1999                                                      3,500,000        0.050           175,000
        March 31, 1999                                                      2,000,000        0.050           100,000

      Shares issued for services(2):
        September 20, 2000                                                  7,000,000        0.050           350,000

      Shares issued for Multiplex stock (3):
        September 27, 2000                                                    300,000       0.0001                30

      Shares issued for PB&J:
        October 2, 2000:                                                   47,460,000
          Allocated to underlying assets (4)                                                0.0001                50
          Allocated to services (3)                                                         0.0001             4,696
                                                                           ----------                     ----------
                                                                           97,000,000                     $1,694,635
                                                                           ==========                     ==========
</TABLE>


(1)      Value based on face value of obligation relieved.
(2)      Value based on quoted value of shares issued.
(3)      Value based on value of services rendered.
(4)      Value based on value of net underlying assets.

Note 14 - Stock options and stock issued for services:
In August, 2000, the Company adopted the 2000 Nonqualified Stock Option Plan.
The Plan sets aside 10,000,000 shares of common stock option for issuance to
employees, directors, officers, attorneys, accountants, consultants or advisors
to the company. The Plan has a ten year term.

On September 20, 2000, the Company granted options to two officers and two
consultants to purchase 7,000,000 shares of the Company's common stock at $0.05
per share under the Plan. The options were immediately exercised, and shares
were issued in satisfaction of the Company's obligation to the four individuals
for consulting services rendered through September 30, 2000. The transaction was
recorded by a charge to expense for $257,035, and a charge of $92,965 against
amounts previously accrued for such services, for a total value of $350,000.

Also on September 20, 2000, the Company granted options to five consultants (one
of whom is also a director) to purchase an aggregate of 2,200,000 shares at
$0.05 per share under the Plan. No compensation cost was recognized when the
options were granted because the option price was equal to or greater than the
then quoted market value. The options are exercisable at any time before ten
years from the date the Plan was adopted. At September 30, 2000, none of these
options had been exercised.

Note 15 - Restatement of first quarter, 2000 results of operations:
As a result of the implementation of SOP 98-1 (see Note 5 above), the Company
retroactively capitalized $69,261 in website development costs that had
previously been expensed during the quarter ended March 31, 2000. Following is a
summary of the Company's operations for the quarter ended March 31, 2000, as
restated:

                                      F-21

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


                                                                                      Quarter Ended
                                                                                        March 31,
                                                                                   2000              1999
      Revenues                                                                       $      -         $      -
      Less:
        Costs of revenues                                                                   -           50,026
        Consulting and management fees                                                 35,669          113,833
        Provision for contingencies                                                         -           25,000
        Other general and administrative                                               21,349              346
                                                                                    ----------       ----------
      Loss before taxes on income                                                     (57,018)        (189,205)
        Provision for taxes on income                                                       -                -
                                                                                    ----------       ----------
      Net loss                                                                       ($57,018)       ($189,205)
                                                                                    ==========       ==========
</TABLE>

The effect of the restatement on cash flows for the quarter ended March 31, 2000
was to increase operating cash flows by $69,261, and to decrease cash flows from
investing activities by the same amount.

Note 16 - New accounting pronouncements: The following recent accounting
pronouncements:

FASB Statements

Number 133, Accounting for Derivative Instruments and Hedging Activities,

Number  134,  Accounting  for  Mortgage-Backed  Securities  Retained  after  the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,

Number 135, Recission of FASB Statement No. 75 and Technical Corrections,

Number 136,  Transfers of Assets to a Not-for-Profit  Organization or Charitable
Trust That Raises or Holds Contributions for Others,

Number 137,  Accounting  for  Derivative  Instruments  and Hedging  Activities -
Deferral of the Effective Date of FASB Statement No. 133,

Number 138,  Accounting for Certain  Dervative  Instruments  and Certain Hedging
Activities - an amendment of FASB Statement No. 133,

Number 139, Recission of FASB Statement No. 53 and amendments to FASB Statements
No. 63, 89 and 121, and

Number 140,  Accounting  for  Transfers  and  Servicing of Financial  Assets and
Extinguishments of Liabilities - a Replacement of FASB Statement No. 125,
and FASB Interpretations

Number 43, Real Estate Sales, and

Number 44, Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB Opinion No. 25,

are not currently expected to have a material effect on the Company's  financial
Statements.


B.      Financial statement schedules

Schedules are omitted because of the absence of the conditions  under which they
are required,  or because the information  required by such omitted  schedule is
contained in the financial statements or the notes thereto.

                                      F-22