<PAGE>

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

                                   FORM 10-QSB


    (Mark  One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the quarterly period ended September 30, 2000

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

    For the transition period from         to
                                  ---------  ---------

                          Commission File No. 000-31107


                           KEYSTONE SILVER MINES, INC.

                 (Name of Small Business Issuer in Its Charter)

            Idaho                                      82 6008705
           -------                                    ------------
(STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER INCORPORATION OR
        ORGANIZATION)                               IDENTIFICATION NO.)

                 808 S. College, Suite 300, McKinney, TX 75069
                   ------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

                                 (972) 529-1155
                          ---------------------------
                          (ISSUER'S TELEPHONE NUMBER)


          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                     (None)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          Common Stock, par value $0.05
                                (Title of Class)

State the number of shares outstanding of each of the issuer's classes of common
equity as of September 30, 2000: Common stock 2,534,070 shares

Transitional Small Business Disclosure Format

(Check one):       Yes  [ ]  No  [x]

                                        1


<PAGE>

                                TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION
                                                                   PAGE
                                                                   ----

Item 1. Financial Statements.....................................  3/12

Item 2. Plan of Operation........................................   13

PART 11 - OTHER INFORMATION

Item 1. Legal Proceedings........................................   16

Item 2. Changes in Securities....................................   16

Item 3. Defaults Upon Senior Securities..........................   16

Item 4. Submission of Matters to a Vote of Security Holders......   16

Item 5. Other Information........................................   16

Item 6. Exhibits and Reports on Form 8-K.........................   16

SIGNATURES.......................................................   17

                                        2


<PAGE>

                              FINANCIAL STATEMENTS
                                   (Unaudited)
                               September 30, 2000


                                TABLE OF CONTENTS


                                                                           PAGE

BALANCE SHEET - ASSETS                                                       4

BALANCE SHEET - LIABILITIES AND SHAREHOLDER'S EQUITY                         4

STATEMENT OF OPERATIONS                                                      5

STATEMENT OF STOCKHOLDERS' EQUITY                                            6

STATEMENT OF CASH FLOWS                                                      7

NOTES TO FINANCIAL STATEMENTS                                                8

                                        3




<PAGE>

                           KEYSTONE SILVER MINES, INC.
                                 BALANCE SHEETS
                     SEPTEMBER 30, 2000 & SEPTEMBER 30, 1999
                                   (Unaudited)


                                     ASSETS
                                     ------

                                                   SEPTEMBER 30,   SEPTEMBER 30,
                                                        2000            1999
                                                   -------------   -------------
CURRENT ASSETS

  Cash and Equivalents                             $    517,340               -
  Notes Receivable, related party                        20,000               -
  Account Receivable, related party                       6,780    $          -
                                                   -------------   -------------
        TOTAL CURRENT ASSETS                       $    544,182               -
                                                   -------------   -------------
PROPERTY AND EQUIPMENT
  Oil and gas properties (successful efforts)      $     62,500    $          -
  Less accumulated depreciation, depletion,
    and amortization                               $        536    $          -
                                                   -------------   -------------
        NET PROPERTY AND EQUIPMENT                 $     61,964    $          -
                                                   -------------   -------------
OTHER ASSETS
  Organization costs, net of accumulated
    amortization of $3,000 and $0, respectively    $     17,000    $     20,000
  Deferred tax asset, net of allowance of $22,296  $          -    $          -
                                                   -------------   -------------
        TOTAL OTHER ASSETS                         $     17,000    $     20,000
                                                   -------------   -------------

        TOTAL ASSETS                               $    623,084    $     20,000
                                                   =============   =============


                                   LIABILITIES
                                   -----------
                                                   SEPTEMBER 30,   SEPTEMBER 30,
                                                        2000            1999
                                                   -------------   -------------

TOTAL LIABILITIES                                  $          -    $          -

SHAREHOLDERS' EQUITY
  Common stock, $0.05 par, 10,000,000 shares
     authorized, 2,534,070 and 349,070 shares
     outstanding, respectively                     $    126,703    $     17,453
  Additional paid-in-capital                          1,053,959    $    440,709
  Outstanding stock options                             100,000    $    100,000
  Retained deficit                                     (657,578)   $   (538,162)
                                                   -------------   -------------
        TOTAL SHAREHOLDERS EQUITY                  $    623,084    $     20,000
                                                   -------------   -------------

                                                   $    623,084    $     20,000
                                                   =============   =============

                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                         OF THESE FINANCIAL STATEMENTS.

                                       4
<PAGE>

<TABLE>
                                   KEYSTONE SILVER MINES, INC.
                                     STATEMENT OF OPERATIONS
                   For the three months ending September 30, 2000 and 1999, and
                      For the nine months ending September 30, 2000 and 1999
                                           (UNAUDITED)
<CAPTION>

                                                  THREE MONTHS ENDING        NINE MONTHS ENDING
                                                  -------------------        ------------------
                                                      SEPTEMBER 30              SEPTEMBER 30
                                                      ------------              ------------
                                                   2000         1999         2000         1999
                                                ----------   ----------   ----------   ----------
<S>                                             <C>          <C>          <C>          <C>
REVENUE
     Oil and gas revenue                        $   8,534    $       -    $  14,025    $       -
                                                ----------   ----------   ----------   ----------

EXPENSES
     Lease operating expense                    $   4,408    $       -    $   7,245    $       -
     Depreciation, depletion and amortization       1,168    $       -        3,536    $       -
     Consulting expense                                 -    $       -    $ 100,000    $       -
      General and Administrative                $  22,660                 $  22,660
                                                ----------                ----------

     TOTAL EXPENSES                             $  28,236    $       -    $ 133,441    $       -
                                                ----------   ----------   ----------   ----------


NET LOSS BEFORE PROVISION FOR INCOME TAXES      $ (19,702)   $       -    $(119,416)   $       -
                                                ----------   ----------   ----------   ----------

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

   NET LOSS                                     $ (19,702)   $       -    $(119,416)   $       -
                                                ----------   ----------   ----------   ----------

LOSS PER SHARE:
     Basic                                      $   (0.01)   $       -    $   (0.05)   $       -
                                                ----------   ----------   ----------   ----------
     Diluted                                    $   (0.01)   $       -    $   (0.01)   $       -
                                                ----------   ----------   ----------   ----------
</TABLE>
                           THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                                  OF THESE FINANCIAL STATEMENTS.

                                                5
<PAGE>

<TABLE>
                                                 KEYSTONE SILVER MINES, INC.
                                        Statements of Changes in Shareholders' Equity
                                      For the Nine Months Ended September 30, 2000, and
                                            For the Year Ended December 31, 1999
                                                         (Unaudited)
<CAPTION>

                                                                    DISCOUNT/
                                                                    ADDITIONAL    OUTSTANDING
                                                       COMMON        PAID-IN-        STOCK         RETAINED
                                        SHARES         STOCK         CAPITAL        OPTIONS         DEFICIT        TOTAL
                                     ------------   ------------   ------------   ------------   ------------   ------------
<S>                                   <C>           <C>            <C>            <C>            <C>            <C>
Balance, December 31, 1998             9,034,868    $   451,743    $   (13,581)   $         -    $  (538,162)   $  (100,000)

Reverse stock split                   (8,905,798)      (445,290)       445,290              -              -              -
Stock Options issued for reduction
   of payable to shareholder                   -              -              -              -              -        100,000
Shares issued for services               220,000         11,000          9,000              -              -         20,000
Net income                                     -              -              -              -              -              -
                                     ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31, 1999               349,070         17,453        440,709        100,000       (538,162)        20,000

Shares issued for cash                   560,000         28,000        532,000              -              -        560,000
Shares issued for acquisition
   of oil and gas properties             625,000         31,250         31,250              -              -         62,500
Shares issued for services             1,000,000         50,000         50,000              -              -        100,000
Net loss                                       -              -              -              -       (119,416)      (119,416)
                                     ------------   ------------   ------------   ------------   ------------   ------------

Balance, September 30, 2000            2,534,070    $   126,703    $ 1,059,959    $   100,000    $  (657,578)   $   623,084
                                     ============   ============   ============   ============   ============   ============

                                         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                                               OF THESE FINANCIAL STATEMENTS.
</TABLE>
                                                             6
<PAGE>

<TABLE>
                                 KEYSTONE SILVER MINES, INC.
                                   Statements of Cash Flows
                    For the Nine Months Ended September 30, 2000, and 1999
                                         (Unaudited)
<CAPTION>

                                                                SEPTEMBER 30,   SEPTEMBER 30,
                                                                     2000            1999
                                                                -------------   -------------
<S>                                                             <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                         (119,416)              -
   Adjustment to reconcile net loss to net cash
      Provided by operating activities
         Depreciation, depletion, and amortization                     3,536               -
         Services acquired with common stock                         100,000               -
         Changes in assets and liabilities:
               Increase in account receivable, related party          (6,780)              -
   Net cash flows provided by operating activities                         -               -
                                                                -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES                                 (20,000)              -

CASH FLOWS FROM FINANCING ACTIVITIES                                 560,000               -

NET INCREASE IN CASH                                                 540,000               -

CASH, beginning                                                            -               -

CASH, ending                                                    $    517,340               -
                                                                =============   =============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
       AND FINANCING ACTIVITIES

       Shares issued for services related to organization costs                       20,000
                                                                                -------------

       Shares issued for acquisition of oil and gas properties        62,500               -
                                                                -------------

       Shares issued for services                                    100,000               -
                                                                -------------

       Options issued for reduction in payable to shareholder              -               -
</TABLE>

                         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                                OF THESE FINANCIAL STATEMENTS.

                                              7
<PAGE>

                           KEYSTONE SILVER MINES, INC.
                          Notes to Financial Statements


              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000


NOTE A - BASIS OF PRESENTATION

         The consolidated financial statements included in this report have been
         prepared by Keystone Silver Mines, Inc. (the "Company") pursuant to the
         rules and regulations of the Securities and Exchange Commission for
         interim reporting and include all normal and recurring adjustments
         which are, in the opinion of management, necessary for a fair
         presentation. These financial statements have not been audited by an
         independent accountant.

         Certain information and footnote disclosures normally included in
         financial statements prepared in accordance with accounting principles
         generally accepted in the United States of America have been condensed
         or omitted pursuant to such rules and regulations for interim
         reporting. The Company believes that the disclosures are adequate to
         make the information presented not misleading. However, these financial
         statements should be read in conjunction with the Company's audited
         financial statements and notes thereto for the years ended December 31,
         1999 and 1998. The financial data for the interim periods presented may
         not necessarily reflect the results to be anticipated for the complete
         year.


NOTE B - SIGNIFICANT ACCOUNT POLICIES

         Organization
         ------------

         Keystone Silver Mines, Inc. (the Company), was originally incorporated
         in the State of Idaho on July 1, 1957, as Uranium Discovery and
         Development Company, for the purpose of exploring and developing
         uranium properties in Utah and acquiring mining claims and exploring
         for silver and lead in Shoshone County, Idaho and Mineral County,
         Montana. In 1962, the Company changed its name to Keystone Silver
         Mines, Inc.

         In 1993, the mining laws in the U.S. were changed with the result that
         the Bureau of Land Management (BLM) placed a $200 fee per unpatented
         mining claim for that year with an annual fee of $100 per mining claim
         thereafter. The Board of Directors decided in 1993 that the Company
         could not afford the annual fees to the BLM and therefore dropped all
         but ten of the unpatented claims. Subsequently, the remaining value of
         claims was reduced to zero.

                                       8
<PAGE>

                           KEYSTONE SILVER MINES, INC.
                    Notes to Financial Statements (Continued)


         Effective August 9, 1999, the Company affected a reverse stock split.
         At that date 9,034,868 shares of common stock were outstanding. These
         shares were cancelled and converted at a ratio of 1 share of Keystone
         Silver Mines, Inc. common stock for every 70 shares of Keystone Silver
         Mines, Inc. common stock outstanding.

         Business Activity
         -----------------

         The Company is principally engaged in the production of oil and gas.
         The Company owns a working interest in an oil and gas property located
         in Kansas. The Company is planning to acquire and develop oil and gas
         properties within the mid-continent region of the United States.

         Estimates
         ---------

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

         Oil and Gas Properties
         ----------------------

         The Company follows the successful efforts method of accounting for its
         oil and gas producing activities. Under the successful efforts method,
         the Company capitalizes all oil and gas leasehold acquisition costs.
         For unproved properties, leasehold impairment is recognized based upon
         an individual property assessment and exploration experience. Upon
         discovery of commercial reserves, such leasehold costs are transferred
         to proved properties.

         Geological and geophysical expenses, production costs, and overhead are
         charged against income as incurred. Exploratory drilling costs are
         capitalized when incurred. If exploratory wells are determined to be
         unsuccessful (dry holes), applicable costs are expensed. Costs incurred
         to drill and equip developmental wells, including unsuccessful
         development wells, are capitalized.

         Expenditures related to extensive well workover are capitalized upon
         determining that the workover resulted in significantly increased
         proved reserves. All other workover costs are expensed as incurred.
         These costs include those for deepening existing producing wells within
         the same producing formation when such operations are conducted for the
         purpose of restoring efficient operating conditions as well as other
         repairs, reconditioning, or reworking costs of wells already drilled
         and operating.

                                       9

<PAGE>


                           KEYSTONE SILVER MINES, INC.
                    Notes to Financial Statements (Continued)


         Depreciation, depletion, and amortization of the cost of proved
         producing oil and gas properties, including wells and related equipment
         and facilities, are determined by the units-of-production method based
         on quantities produced as a percent of estimated proved recoverable
         reserves. Depreciation, depletion, and amortization was $536 for the
         nine months ended September 30, 2000. There was no depreciation,
         depletion, or amortization for the year ended December 31, 1999.

         When complete units of depreciable property are retired or sold, the
         asset costs and related accumulated depreciation and depletion are
         eliminated with any gain or loss reflected in income.

         Federal Income Taxes
         --------------------

         The Company accounts for federal income taxes under the provisions of
         SFAS No. 109 which requires the recognition of deferred tax assets and
         liabilities for the future tax consequences attributable to differences
         between financial statement carrying amounts of existing assets and
         liabilities and their respective tax basis. In addition, the
         recognition of future tax benefits, such as net operating loss
         carryforwards, are required to the extent that realization of such
         benefits are more likely.


NOTE C - RELATED PARTY TRANSACTIONS

         At December 31, 1998, the Company had an outstanding payable due to a
         majority shareholder totaling $100,000. During the year ended December
         31, 1999, an agreement was entered into with Jeff Johnson, whereby he
         would obtain controlling interest in the Company. Mr. Johnson paid
         $100,000 directly to the shareholder. Pursuant to the agreement, the
         Company's capital structure was reorganized as discussed at NOTE A and
         Mr. Johnson received an option to purchase 5,000,000 shares of common
         stock at $.05 per share. (NOTE F - As of September 30, 2000, Mr.
         Johnson has not exercised this option, however, Mr. Johnson holds a
         64% interest in the Company as of September 30, 2000.)

         Jeff Johnson, president and shareholder of the Company, is the sole
         shareholder of Scope Operating Company. Scope Operating Company is the
         operator for the Company's oil and gas property. Scope Operating
         Company receives the oil and gas revenue and pays the direct operating
         expenses of the property. The summary of transactions between Scope
         Operating Company and the Company for the nine months ended September
         30, 2000, and the year ended December 31, 1999, are as follows:

                                       10




<PAGE>

                           KEYSTONE SILVER MINES, INC.
                    Notes to Financial Statements (Continued)


                                                   SEPTEMBER 30,    DECEMBER 31,
                                                       2000            1999

         Oil and gas revenue-working interest       $ 14,025          $   -
         Less:  lease operating expenses            $  7,245          $   -
         Net income remitted to the Company         $  6,780          $   -


         Effective April 11, 2000, the Company entered into an agreement to
         purchase a twenty-five percent working interest in an oil and gas
         property from Scope Operating Company. During April 2000, this property
         began its initial production. Pursuant to this agreement, the Company
         issued 625,000 of its unregistered, restricted stock at a value of
         $62,500, which is the discounted value of the Company's unregistered
         common stock. The property value recorded is significantly less than
         the value presented in the current reserve study.

         The Company had an account receivable balance from Scope Operating
         Company in the amount of $6,780 at September 30, 2000.

         Additionally, the Board of Directors of the Company authorized two
         loans To Scope Operating Company, each for $10,000.00, the first on
         September 15, 2000 and the second on September 20, 2000. Both notes are
         due in on year from the date of issue with interest at the rate of 10%
         per annum, principal and interest all due on the due date. Scope
         Operating operates the properties in which Keystone has a working
         interest. The purpose of the loans were for working capital for Scope
         Operating.

NOTE D - ORGANIZATION COSTS

         Costs incurred to accomplish the changes in the capital structure have
         been capitalized as organization costs. These costs will be amortized
         over sixty months beginning in January 2000. During the nine months
         ended September 30, 2000, the Company incurred amortization expense in
         the amount of $3,000.


NOTE E - FEDERAL INCOME TAX AND DEFERRED FEDERAL INCOME TAX

         Due to a net operating loss, the Company currently has no liability for
         the state or federal income taxes. The Company has no significant
         temporary differences between financial statement carrying amounts and
         their respective tax basis resulting in deferred taxes. A deferred tax
         asset of $22,296 related to the net operating loss carryforward has
         been recorded; however, a valuation allowance has been provided for the
         entire balance of this deferred tax asset. Therefore, the provision for
         income taxes for the nine months ended September 30, 2000, and the year
         ended December 31, 1999, is zero. The Company has an aggregate net
         operating loss carryforward of $119,416. The net operating loss
         carryforward will expire in 2020.

                                       11




<PAGE>

                           KEYSTONE SILVER MINES, INC.
                    Notes to Financial Statements (Continued)


NOTE F - COMMITMENTS AND CONTINGENCIES

         The exploration, development, and production of oil and gas is subject
         to various federal and state laws and regulations to protect the
         environment. Various state and governmental agencies are considering or
         have adopted laws and regulations regarding environmental control which
         could adversely affect the business of the Company. Compliance with
         such legislation and regulations, together with penalties resulting
         from noncompliance therewith, will increase the cost of oil and gas
         development and production. Some of these costs may ultimately be borne
         by the Company.

         As a part of the agreement with Jeff Johnson (NOTE C), options were
         issued for the purchase of 5,025,000 shares of post-split common stock
         at $0.05 per share. Jeff Johnson receive 5,000,000 of the options and
         various other individuals received the remaining 25,000 options. The
         options expire August 9, 2001. As of September 30, 2000, none of the
         options have been exercised.


NOTE G - CONCENTRATIONS

         One customer accounted for all of the Company's oil and gas sales for
         the nine months ended September 30, 2000.

                                       12




<PAGE>

Item 2. Plan of Operation

The Company was organized July 1, 1957 (Date of Inception) under the laws of the
State of Idaho, as Uranium Discovery & Development Company. The corporate
purpose was to explore and develop uranium properties in Utah and in the silver
and lead areas of Shoshone County, Idaho and Mineral County, Montana. The
Company authorized 10,000,000 shares of common stock at $.05 per share par
value.

On February 12, 1962, the Company changed its name to Keystone Silver Mines,
Inc. In 1993, mining law changed with the result that a fee was placed on
unpatented mining claims of $200.00 per claim for that year and $100.00 annual
renewal fees in following years. The Board of Directors at the time dropped all
but ten unpatented claims that it then held. Subsequently, the value of all
mining claims was reduced to zero.

As of August 9, 1999, there were 9,034,868 shares of common stock outstanding.
On that date, the Board of Directors authorized a 70 to 1 reverse split.
Following the split, the Company had 129,070 shares outstanding. It then issued
220,000 shares in exchange for services rendered with the result that as of
December 31, 1999, there were 349,070 shares of common stock outstanding.

As part of the reorganization which occurred on August 9, 1999, the Company
acquired a working interest in an oil and gas property located in the State of
Kansas in exchange for 625,000 post-split shares of common stock and issued an
additional 1,000,000 shares for services in connection with the acquisition.

As of September 30, 2000, the Company had 2,534,070 shares of common stock
outstanding. 149,070 of those common shares are free-trading. The balance of the
common shares outstanding are unregistered and restricted having been issued
pursuant to Section 4(2) of the Securities & Exchange Act of 1933, as amended.
These shares are commonly referred to as "restricted stock" which under certain
circumstances may, in the future, be sold in compliance with Rule 144 adopted
under the Securities Act. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted shares of Common Stock for at
least one year is entitled to sell, in certain brokerage transactions, within
any three-month period, a number of shares that does not exceed the greater of
1% of the total number of outstanding shares of the same class, or if the Common
Stock is quoted on NASD or a stock exchange, the average weekly trading volume
during the four calendar weeks immediately preceding the sale. A person who
presently is not and who has not been an affiliate of the Company for at least
three months immediately preceding the sale and who has beneficially owned the
shares of Common Stock for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the volume limitations described above.

Also, on August 9, 1999, the Company authorized certain stock options as
follows:

To S. Jeff Johnson, an option to purchase 5,000,000 shares at $.05 at any time
within 2 years of August 9, 1999; to Harry F. Magnuson, an option to purchase
11,500 shares at $.05 at any time within 2 years of August 9, 1999; to Terry
Dunne, an option to purchase 11,500 shares at $.05 at any time within 2 years of
August 9, 1999; to Mark Absec, an option to purchase 500 shares at $.05 at any
time within 2 years of August 9, 1999; to Dennis O'Brien, an option to purchase
500 shares at $.05 at any time within 2 years of August 9, 1999 to R. M.
MacPhee, an option to purchase 500 shares at $.05 at any time within 2 years of
August 9, 1999; and to Thomas R. Magnuson, an option to purchase 500 shares at
$.05 at any time within 2 years of August 9, 1999. None of these options had
been exercised as of September 30, 2000.

The Company will now engage in the oil and gas business including production
from currently owned operations and the acquisition and development of
additional mid-continent oil and gas properties.

On August 9, 1999, the Company purchased a 25% undivided interest in the oil and
gas lease which the Company acquired was formerly owned by Scope Operating
Company and Scope will remain as the operator of the lease. Scope Operating
Company is the holder of the other 75% of the lease and will continue to own
that portion of the leasehold.

                                       13
<PAGE>

The lease is known as the Felts Lease which is located in the Cherokee Platform
Province which extends from South Eastern Kansas and into part of South Western
Missouri and North Eastern Oklahoma. The Cherokee Platform Province covers a
total of 37 counties, is 235 miles long and 210 miles wide in an area of
approximately 26,500 square miles. The Felts Lease consists of 90 acres within
that broader expanse. The development of the Cherokee Platform Province began in
the 1860's with drilling in Bourbon and Cherokee Counties in Kansas with the
first discovery of oil in Allen County, Kansas in 1873. Over 200,000 wells have
been drilled in the province and 431 fields larger than 1 MMBOE have been
discovered. By the end of 1990, over 5.3 billion barrels of oil had been
discovered and 4.3 trillion cubic feet of gas had been discovered.

The Felts Lease is comprised of approximately 90 acres near Coffeyville, Kansas,
approximately 110 miles North North East of Tulsa, Oklahoma. The acreage is
bound by a river on the West side and is adjacent to an improved roadway (State
Highway 169) on the East.

From 1983 to 1984 29 wells were drilled East of the river. The original operator
was Black Star Petroleum, now defunct. Most of the wells were fully equipped and
were oil wells or injection wells. Black Star produced approximately 17,000
barrels of oil over a two year period before declaring bankruptcy. The wells
then sat idle for many years until the landowner began pumping 3 to 5 wells on
an intermittent basis. From mid 1993 through 1995, the landowner recovered and
received approximately $100,000.00 from oil sales. In 1999, the lease was sold
to Scope Operating Company, the property was cleaned up and access to the wells
was again established.

Oil production is from the Red Fork Sandstone at approximately 600 feet. The
feature is a North East/South West trending sandbar with accumulations of over
thirty feet of sand under some areas of the lease. Cores from an adjacent lease
show the Red Fork to have an average porosity of 19% and an average permeability
of 100 millidracys. Engineering calculations indicate 240,000 barrels of
recoverable oil under the Felts Lease with only 20,000 barrels having already
been recovered. All 20,000 barrels were recovered with primary production
methods. This leaves approximately 220,000 barrels recoverable by primary and
secondary production methods.

All wells were drilled through the Red Fork, cased, cemented to surface,
perforated and lightly fraced. This gives the operator logs of the formation as
well as control over the injection fluids which will be used for secondary
recovery. All of these factors should increase the amount of oil recovered and
increase the effect of secondary recovery.

During 1999, Scope Operating Company implemented a Phase I program that included
ten producing wells. The ten wells were pulled, cleaned out, downhole pumps were
repaired or replaced. New electrical wiring was installed throughout and a
portion of a new storage facility was constructed. Initially, the ten wells were
produced over a thirty day period with the result of approximately 10 to 12
barrels of oil production per day and good gas production with a ratio of an
average water/oil of 50/50. All indications were that the property would flood
successfully.

Phase II was completed in early 2000 bringing in a total of 21 producing oil
wells, 7 injector wells and a single water supply well. The storage facility and
injection plant were completed under this program.

Presently the wells are producing and all oil is sold pursuant to a division
order dated April 1, 2000 to Cooperative Refining, LLC. Payment for the crude
oil is adjusted on a daily basis and is based upon the common benchmark SPC West
Texas Intermediate Sweet, plus $1.00 per barrel as a premium due to the fact
that the oil produced is of high quality being 32 degree API gravity and because
of the close proximity of the wells to the refinery.

                                       14
<PAGE>

The crude oil contract can be terminated at any time by either party. There are
other purchasers in the area who would buy the oil if Cooperative Refining no
longer wished to do so. Management of Scope Operating is confident that there
will always be a ready market for the sale of the crude oil produced from the
Felts Lease for as long as oil can be produced from it.

Revenues received are divided by the payment of 12% to the landowner and 87% to
Scope Operating Company. Scope Operating then deducts the lease operating
expenses from the gross revenue and distributes the net proceeds to the Company,
Keystone, and other working interest participants in the leasehold.


Forward Looking Statements:

This Quarterly Report on Form 10-QSB may be deemed to contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company intends that
such forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Annual Report contains forward-looking statements regarding
the financial condition, operating results, business prospects or any other
aspect of the Company, please be advised that the Company's actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, disadvantageous currency exchange rates, termination of
contracts, loss of suppliers, technological obsolescence of the Company's
products, technical problems with the Company's products, price increases for
supplies and components, inability to raise prices, failure to obtain new
customers, litigation and administrative proceedings involving the Company, the
possible acquisition of new businesses that result in operating losses or that
do not perform as anticipated, resulting in unanticipated losses, the possible
fluctuation and volatility of the Company's operating results, financial
condition and stock price, losses incurred in litigating and settling cases,
dilution in the Company's ownership of its business, adverse publicity and news
coverage, inability to carry out marketing and sales plans, loss or retirement
of key executives, changes in interest rates, inflationary factors, and other
specific risks that may be alluded to in this Annual Report or in other reports
issued by the Company. In addition, the business and operations of the Company
are subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.

                                       15

<PAGE>

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Changes in Securities

On August 9, 1999, the Company authorized certain stock options as follows:

To S. Jeff Johnson, an option to purchase 5,000,000 shares at $.05 at any time
within 2 years of August 9, 1999; to Harry F. Magnuson, an option to purchase
11,500 shares at $.05 at any time within 2 years of August 9, 1999; to Terry
Dunne, an option to purchase 11,500 shares at $.05 at any time within 2 years of
August 9, 1999; to Mark Absec, an option to purchase 500 shares at $.05 at any
time within 2 years of August 9, 1999; to Dennis O'Brien, an option to purchase
500 shares at $.05 at any time within 2 years of August 9, 1999 to R. M.
MacPhee, an option to purchase 500 shares at $.05 at any time within 2 years of
August 9, 1999; and to Thomas R. Magnuson, an option to purchase 500 shares at
$.05 at any time within 2 years of August 9, 1999. None of these options had
been exercised as of September 30, 2000.

S. Jeff Johnson who received this option is President and owns 64% of the
outstanding stock in the Company. He is also President and the sole shareholder
of Scope Operating Company which is the company acting as the operator of the
Company's oil and gas properties. Scope Operating Company receives oil and gas
revenue and pays the direct operating expenses of the oil and gas properties in
which the Company has an interest.

During the third quarter, the Company entered into a stock purchase agreement to
sell common stock pursuant to Section 4(2) of the Securities & Exchange Act of
1933. The stock was sold to the following investors at $1.00 per share and a
total of $560,000.00 was raised which was paid into the Company treasury. The
stock is restricted and contains a legend condition and is not to be registered.
A copy of the Stock Purchase Agreement is attached hereto as Exhibit 1. The
names, addresses, number of shares purchased and the amount paid by each
investor is set forth below:

Kevin Allodi
11445 79th Street
Burr Ridge, IL 60525            500,000 shares with $500,000.00 cash paid

John Austin
763 Holly Oak Drive
Palo Alto, CA 94303             15,000 shares with $15,000.00 cash paid

Eugene Baron
24061 Majestic
Oak Park, MI 48237              10,000 shares with $10,000.00 cash paid

Lena Hoffman
42160 Woodward, Apt. 19
Bloomfield, MI 48304            10,000 shares with $10,000.00 cash paid

Jerome Katz
1701 Strathcona Drive
Detroit, MI 48203                5,000 shares with $5,000.00 cash paid

Arnold Miles
31150 E. Huntley Sq.
Beverly Hills, MI 40825         10,000 shares with $10,000.00 cash paid

Robert Netzei
2700 Colonial Way
Bloomfield Hills, MI 48304      10,000 shares with $10,000.00 cash paid

Item 3. Defaults upon Senior Securities

None

Item 4. Submission to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K




         Ex 1. Stock Purchase Agreement

                                       16

<PAGE>

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized Section 12 of the Securities Exchange Act of 1934, the registrant

Dated: November 10, 2000


By: /s/ S. Jeff Johnson
---------------------------------
S. Jeff Johnson
Chief Executive Officer, Director

                                       17