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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
 
 
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Year Ended September 30, 2001
Commission File Number 0-31237
 
KEYSTONE VENTURES, INC.
(Name of Small Business Issuer in Its Charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|NEVADA                                                         |  | 88-0455940                          
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)

|                                         |  |           
|---------------------------------------- |  | ----------
|1605 MIRAGE COURT, EL CAJON, CA          |  | 92019     
|(Address of principal Executive Offices) |  | (Zip Code)

(619) 692-2438
(Issuers Telephone Number)

Securities Registered under Section 12(g) of the Exchange Act:
 
Common Stock  .001 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 of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes   X          No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant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.

Yes   X          No

The issuer had no revenues for the year ended September 30, 2001.

As of September 30, 2001, the registrant had 11,775,000 shares of common stock,
$.001 par value, issued and outstanding.



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|           |                                                                                                      |  |  |  |  |  |  | 
|---------- | ---------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1    
|           | ITEM 1 DESCRIPTION OF THE BUSINESS                                                                  
|           | ITEM 2 DESCRIPTION OF PROPERTY                                                                      
|           | ITEM 3 LEGAL PROCEEDINGS                                                                            
|           | ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                          
|PART II   
|           | ITEM 5 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
|           | ITEM 6 PLAN OF OPERATION                                                                            
|           | ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                  
|           | ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING CONTROL AND FINANCIAL DISCLOSURE 
|PART III  
|           | ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS                                
|           | ITEM 6 EXECUTIVE COMPENSATION                                                                       
|           | ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                              
|           | ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                              
|           | ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                            
|SIGNATURES
|EXHIBIT 23



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PART 1




ITEM 1
DESCRIPTION OF THE BUSINESS

Form and Year of Organization

Keystone Ventures, Inc. was incorporated in Nevada on March 10, 1999. From
inception until the date of this filing we have had no material operating
activities.

Bankruptcy or Similar Proceedings

There have been no bankruptcy, receivership or similar proceedings.

Reorganizations, Purchase or Sale of Assets

There have been no material reclassifications, mergers, consolidations, or
purchase or sale of a significant amount of assets not in the ordinary course
of business.

Principal Products or Services and their Markets

Keystone intends to become a primary supplier of computer software security
systems, firewall software, in the United States. We are currently a
development stage company. Our firewall software is a development stage
working prototype capable of performing the firewall protection functions
listed below. Management estimates our software is approximately ninety
percent complete in the programming required to begin outside site beta
testing. We have a license to utilize this software and we received a
copyright on this software in July 2000. However, we must complete our
business plan steps that include the two key elements of raising capital of
$4,000,000 through the sale of equity securities and completing final testing
of our software product. We then intend to hire two software programmers at a
cost of $75,000, hire one marketing manager at a salary of $60,000, hire two
office employees at a cost of $40,000, spend $500,000 for advertising, and
$100,000 for rent and other operating expenses. By December 2002, we intend to
complete the final development and testing phase of our software at a cost of
$100,000, expand our web site at a cost of $40,000, and purchase computers,
furniture, and equipment at a cost of $100,000. We plan to begin selling our
computer firewall software product in December 2002. We cannot guarantee we
will be successful in either raising necessary capital or completing the final
testing of our software product within the time frame stated in our business
plan.

Our proprietary firewall software was designed from 1999 through July 2000 and
is owned by our president. We have a license with our president dated March
15, 1999, to use, modify, market, and sell this software for a period of ten
years with automatic renewal each year thereafter, subject to written
notification of renewal from Keystone. We paid 5,000 shares of our restricted
common stock to our president for this license. Our software utilizes software
code and incorporates firewall industry features current as of the copyright
date in July 2000. Our president intends to be primarily responsible,
utilizing two software programmers we plan to hire, to update our software to
meet rapid firewall industry technological changes and customer changing needs
by December 2001.



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Our plan is to offer proprietary firewall software that will detect
unauthorized intrusions by hackers, gather information about hackers through
backtracking commands, utilize dynamic filters and advanced monitoring
algorithms to allow legitimate communications, stop intrusion at the front end
communication port before access is allowed into system files, protect network
systems by reporting suspicious intrusions to the network server, and feature
small memory use and silent operation. While the firewall marketplace already
has a variety of existing products, we intend to compete by emphasizing the
broad number of functions we offer and our compact coding size that keeps disc
storage space usage to a minimum.

Businesses and home computer users connected via telephone, cable, DSL, or
satellite communications links are faced with continual hacker and computer
virus threats. Hackers and virus transmitters are also using new techniques to
increase attacks on individual computer systems that are connected only
intermittently to the Internet. ISCA.net, a security consulting firm in
Virginia tested more than 2,000 sites in 1999 and found all had a firewall
system but more than 80% were inadequately protected (© February 2000
Entrepreneur Magazine).

Based upon Managements experience in the computer software and hardware
business, average prices for quality firewall software protection are $50 for
stand-alone or small computer systems, $200 for network systems, and up to
$10,000 for larger application gateway systems for major Internet sites and
Internet service providers. Our firewall software features include:

|                                                                                                                                                                                                                                                       |  |                               |  |         |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------- |  | ------- |  | ----
|Keystone firewall features                                                                                                                                                                                                                             |  | Competitors' Similar Features
|                                                                                                                                                                                                                                                       |  |                              
|                                                                                                                                                                                                                                                       |  | Symantec                      |  | Network |  | Zone
|                                                                                                                                                                                                                                                       |  | Norton                        |  | Ice     |  | Labs
|                                                                                                                                                                                                                                                       |  |                               |  |         |  |     
|1) Detect unauthorized intrusions & viruses                                                                                                                                                                                                            |  | Y                             |  | Y       |  | Y   
|                                                                                                                                                                                                                                                      
|2) Utilize backtracking software to locate the originating
site of the hacker or virus                                                                                                                                                                 |  | Y                             |  | Y       |  |     
|                                                                                                                                                                                                                                                      
|3) Allow high speed legitimate authorized communications
by using advanced dynamic filters & monitoring techniques                                                                                                                                     |  | Y                             |  | Y       |  | Y   
|                                                                                                                                                                                                                                                      
|4) Block hacker & virus intrusion at the front port of the
computer system before files are opened                                                                                                                                                     |  | Y                             |  | Y       |  | Y   
|                                                                                                                                                                                                                                                      
|5) Utilize advanced network monitoring systems to notify the server of potential unauthorized intrusions while providing hacker &  virus containment software that allows the server time to sever unauthorized entry & delete all probes or cookies |  |                               |  | Y       |  |     
|                                                                                                                                                                                                                                                      
|6) Rely on subsystem silent operating techniques for undetectable operation. Thwart users from disconnecting or disarming the firewall security protection                                                                                             |  | Y                             |  | Y       |  |     
|                                                                                                                                                                                                                                                      
|7) Able to monitor and protect Internet and Intranet network communications. Advanced version is capable of monitoring all network traffic                                                                                                             |  | Y                             |  |         |  |     



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|                                                                                                                                                                        |  |                               |  |         |  |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- |  | ------- |  | ----
|Keystone firewall features                                                                                                                                              |  | Competitors' Similar Features
|                                                                                                                                                                        |  |                              
|                                                                                                                                                                        |  | Symantec                      |  | Network |  | Zone
|                                                                                                                                                                        |  | Norton                        |  | Ice     |  | Labs
|                                                                                                                                                                        |  |                               |  |         |  |     
|8) Advanced software available to Internet Service Providers to interface with their existing network firewall systems                                                  |  | Y                             |  |         |  |     
|                                                                                                                                                                       
|9) Prevent web server cookies which are small text files that can track your movements around the web                                                                 |  | Y                             |  | Y       |  |     
|                                                                                                                                                                       
|10) Block unwanted advertising  banner ads & pop-windows which slow down your Internet access                                                                          |  | Y                             |  | Y       |  |     
|                                                                                                                                                                       
|11) Block mobile code Java applets, ActiveX controls that allow intruders to modify your data & steal passwords & files                                                 |  | Y                             |  |         |  |     
|                                                                                                                                                                       
|12) Control inbound & outbound Internet connections. Block incoming & stop unauthorized access to offsite addresses                                                     |  | Y                             |  |         |  |     
|                                                                                                                                                                       
|13) Content filtering: e-mail scanning & filtering of text files & key-word usage to guard against proprietary information
transmittal                                  |  | Y                             |  |         |  |     
|                                                                                                                                                                       
|14) Risk Management Administration functions: intrusion detection & unauthorized information transmittal are blocked & available on reports to IT authorized management |  | Y                             |  | Y       |  |     
|                                                                                                                                                                       
|15) Conserves disk space by using less than 100 mb, memory usage of less than 1%, & bandwidth speed loss less than 2%                                                   |  | Y                             |  |         |  |     

We are in the process of conducting final simulation testing of our firewall
software product. We intend to market our proprietary computer software
firewall systems throughout the world via the Internet and through retail
stores in the United States.

Distribution Methods of Products or Services

We intend to offer information about Keystone and its new generation of
computer firewall software systems to the public and Internet service providers
on our web site, superwall.net. We will sell our products worldwide via the
Internet and through retail stores throughout the U.S.

Status of Any Publicly Announced New Products or Services

Keystone has no new product or service planned or announced to the public.

Competition and Competitive Position

The size and financial strength of our primary competitors, Network ICE, Inc.,
Zone Labs, and Symantec Corporation are substantially greater than those of
Keystone. In examining major competitors, we found Network ICE, Inc. has the
largest installed base of users for both small systems and large networks and
was recommended by the technical reviewer of the Wall Street Journal (© WSJ
2/24/00). Zone Labs product was faulted for having a difficult interface per
the current Internet software review site,



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zdnet.com (© 2000). While it was
recommended on the Internet software review site, pcworld.com (© 2000), the
technical reviewer of the Wall Street Journal called it confusing and clumsy to
use (© WSJ 2/24/00). Symantec Corporation, well known for its popular Norton
tools and virus trackers, offers its Norton personal Firewall 2000 with three
levels of security, but its software is not available for large networks. Its
firewall software is recommended on the Internet software review site
pcworld.com (© 2000). The technical reviewer of the Wall Street Journal
complained it was huge, complicated, imprecise, and too overprotective (© WSJ
2/24/00).

Any consideration of competitors products and related product reviews should
include the facts that Keystones competitors have longer operating histories,
larger customer bases, and greater brand recognition than Keystone. We are not
aware of any significant barriers to Keystones entry into the firewall
software market, however, Keystone at this time has no market share of this
market.

Suppliers and Sources of Raw Materials

Keystones product is its licensed firewall software. We intend to offer our
software through our own Internet site, requiring no outside suppliers of
materials, and on CD-ROM disks, requiring only blank CD-ROM disks that are
commercially available from a variety of manufacturers and wholesalers. We
intend to transfer our software to CD-ROM disks at our own facility at a cost
not to exceed $1.00 per disk. We will not require formal contracts with any
suppliers or manufacturers of physical products.

Dependence on One or a Few Major Customers

Keystone currently does not have any market share or customers. In the future,
we do believe we will be dependent upon any one or a few major customers. We
intend to offer our firewall software through our own Internet site and through
major retailers such as CompUSA, Byte & Floppy, Circuit City, Office Depot,
Target, Sears, Wal-mart, and K-Mart. We have not yet entered into any informal
discussions or formal agreements with any of these potential retailers.

Patents, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
Contracts

Keystone has been granted copyright protection for its computer firewall
software. We own our Internet domain name, and we have setup a simple one page
web site, superwall.net. We intend to greatly expand our web site as we
receive funding per our business plan. We have no current plans for any
additional registrations such as patents, trademarks, additional copyrights,
franchises, concessions, royalty agreements or labor contracts. We will assess
the need for any additional copyright, trademark or patent applications on an
ongoing basis.

On March 15, 1999, Keystone signed an exclusive license agreement with its
president for use of his computer firewall software in exchange for 5,000
restricted shares of Keystones common stock. Keystone issued 5,000 shares of
its common stock in exchange for a ten-year exclusive right to development,
manufacturing, marketing, sale, sub-licensing, and any and all usages of the
computer firewall software in the United States and throughout the world.
After twenty years the license is subject to automatic renewal each year
thereafter, subject to written notification, sixty days in advance of the
renewal, by both parties of the license agreement.

Need for Government Approval for its Products or Services

Keystone is not required to apply for or have any government approval for its
products or services.



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Effect of Governmental Regulations on the Companys Business

Keystone will not be subject to federal laws and regulations that relate
directly or indirectly to its operations. We will be subject to common
business and tax rules and regulations pertaining to the operation of our
business in the State of California.

Research and Development Costs During the Last Two Years

Keystone has not expended funds for research and development costs since
inception.

Costs and Effects of Compliance with Environmental Laws

Environmental regulations have had no materially adverse effect on Keystones
operations to date, but no assurance can be given that environmental
regulations will not, in the future, result in a curtailment of service or
otherwise have a materially adverse effect on our business, financial condition
or results of operation. Public interest in the protection of the environment
has increased dramatically in recent years. The trend of more expansive and
stricter environmental legislation and regulations could continue. To the
extent that laws are enacted or other governmental action is taken that imposes
environmental protection requirements that result in increased costs, the
business and prospects of Keystone could be adversely affected.

Number of Employees

Keystones only employees are its two officers who currently devote an
immaterial amount of time to manage the affairs of the company. The officers
intend to work on a full time basis when Keystone raises capital per its
business plan. Our business plan calls for hiring five new full-time employees
during the next twelve months.

Reports To Securities Holders

We provide an annual report that includes our financial information to our
shareholders. We make our financial information equally available to any
interested parties or investors through compliance with the disclosure rules of
Regulation S-B for a small business issuer under the Securities Exchange Act of
1934. Keystone became subject to disclosure filing requirements effective
October 2, 2000, was cleared of all comments on August 11, 2000, and is current
in its required filings, including Form 10-KSB annually and Form 10-QSB
quarterly. In addition, we will file Form 8K and other proxy and information
statements from time to time as required. We do not intend to voluntarily file
the above reports in the event our obligation to file such reports is suspended
under the Exchange Act. The public may read and copy any materials that we
file with the Securities and Exchange Commission, (SEC), at the SECs Public
Reference Room at 450 Fifth Street NW, Washington D. C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov)
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.



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Risk Factors

Investors in Keystone should be particularly aware of the inherent risks
associated with our plans and product. As of the date of this filing,
management is aware of the following material risks:

We are in the development stage of our business. Keystone has no operating
history, no material current operations, and no profits. Although we intend to
continue to make good faith efforts, our shareholders are accepting a high risk
of losing their investment at this stage of our business.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | While we fully intend to meet our goals per our business plan, our plan
may not work. In such a scenario, we could remain as a start-up company
with no material operations, revenues, or profits. Although management
has been successful in planning and operating other computer and software
businesses and believes their plan for Keystone will generate revenue and
profit, there is no guarantee their past experiences will provide
Keystone with similar future successes.

Keystones software product still must undergo final testing before its release
to the public. Testing may reveal unanticipated design and performance flaws
that could delay our products release to the public. Delays in release of our
product will likely negatively affect our business plan goals, reduce our cash,
and increase our programming expenses.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | While we believe our product will be tested and released per our business
plan schedule, there is no certainty that we will be able to strictly
adhere to a proposed release schedule. Investors need to understand that
even though our software product has been developed and copyrighted,
software errors and related correction costs are part of the normal final
testing procedures. Our business plan includes what we believe are
reasonable provisions for these delays and costs, but we cannot be
certain that we have allowed enough time and funding for all possible
occurrences.

Keystones software product has no sales, proven market, or consumer demand.
Without significant computer user demand for our product, the company could
have continued negative cash flow and be unable to remain in business.

| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The lack of a proven market for our product means that while management
may believe the public will purchase Keystones new firewall software,
the true market for this product may be minor or nonexistent. This could
result in little or no product sales.

There has been no independent review or certification of originality of
Keystones software. One or more of our competitors might challenge our right
to market our copyrighted software due to alleged infringement of their
patented or copyrighted software, resulting in possible litigation.

| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Possible copyright infringement litigation would likely consume a
material amount of Keystones management time and financial resources
which could lessen Keystones ability to remain a viable business.

Our business strategy requires us to raise funds of $4,000,000 through a
private placement. Without this funding, we could remain as a development
stage company with no material operations, revenues, or profits.

| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We require new funding of $4,000,000 in order to implement our business
plan. There can be no assurance that our planned private placement will
be successful. Potential new shareholders may



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| |                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | be unwilling to accept
either the likely dilution of their per share value or the high level of
risk involved with our unproven new product. Without this funding, we
may be only partially successful or completely unsuccessful in
implementing our business plan, and our shareholders may lose part or all
of their investment.

We have received a going concern opinion on our financial statements that
raises substantial doubt as to our ability to continue as a going
concern.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not have sufficient cash, assets, or revenues to cover our
operating costs and allow us to continue as a going concern. If no
funding is raised in the equity securities market, we will be forced to
rely on existing cash in the bank and funds loaned by the directors and
officers. In such a restricted cash flow scenario, we would be unable to
complete our business plan steps, and would, instead, delay all cash
intensive activities. Without necessary cash flow, Keystone may be
dormant until such time as necessary funding could be raised in the
equity securities market.

Our competitors have been in business longer then we have and have
substantially greater resources than we do. Should we be unable to achieve
enough customer market share in our industry, we may experience less revenue
than anticipated and a significant reduction in our profit.

| |                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We plan to utilize our managements experience in computer software
marketing. While we believe we will be able to successfully compete
against other similar computer companies, there is no assurance we will
be successful in attracting enough support to develop our product, hire
senior programmers and conduct marketing efforts in order to be a
competitive force in our industry.

Our current officers and directors currently derive their income from their
involvement in other business activities. Keystones future plans for
increased use of their services could conflict with their other business
activities. This could directly interfere with out business plan goals and
cause us to remain a start-up company with no material operations, revenues, or
profits.

| |                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Contingent upon adequate funding, our officers and directors plan to
devote their full-time work efforts to implement our business goals.
However, we have not formally adopted any plan to resolve potential or
actual conflicts of interest that exist or that may arise. Investors
should be aware that our business plan is currently completely dependent
upon the performance of our existing officers and directors.

Our registration with the Securities and Exchange Commission of 4,275,000
shares of common stock and subsequent trading of those shares on the OTC
Electronic Bulletin Board represents all of our common stock held by our
non-affiliated investors. Depending on the number of shares offered for resale
to the public, the amount of shares offered could have a material negative
impact on the market price of our common equity.

| |                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are unable to predict the number of shares of our common stock our
shareholders will offer for resale to the public. However, investors
should carefully consider the fact that, as a development stage company,
the large number of shares in our registration may all be offered for
resale and may depress the market price of all of our current shares and
any future issuance of stock by Keystone.



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The trading in Keystones shares may be regulated by Securities and Exchange
Commission Rule 15g-9 which established the definition of a penny stock.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Securities and Exchange Commission Rule 15g-9 establishes the definition of
a penny stock, for the purposes relevant to Keystone, 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: (a) that
a broker or dealer approve a persons account for transactions in penny stocks;
and (b) 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 (a) obtain financial information and
investment experience objectives of the person; and (b) make a reasonable
determination that the transactions in penny stocks are suitable for that
person and the 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, (a) sets forth the basis on which the
broker or dealer made the suitability determination; and (b) that the broker or
dealer received a signed, written agreement from the investor prior to the
transaction. The effective result of this Rule 15g-9, is that if the share
price is below $5.00 there will be less purchasers qualified by their brokers
to purchase shares of Keystone, and therefore a less liquid market for the
securities.




ITEM 2
DESCRIPTION OF PROPERTY

Keystones principal executive office address is 1605 Mirage Court, El Cajon,
CA 92019. The principal executive office and telephone number are provided by
an officer of the corporation. The costs associated with the use of the
telephone and mailing address were deemed by management to be immaterial as the
telephone and mailing address were almost exclusively used by the officer for
other business purposes. We consider our current principal office space
arrangement adequate until such time as we achieve our business plan goal of
raising capital of $4,000,000 and then begin hiring new employees per our
business plan.




ITEM 3
LEGAL PROCEEDINGS

Keystone is not currently involved in any legal proceedings and is not aware of
any pending or potential legal actions.




ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year ended September 30, 2001, there
were no submissions of matters to a vote of security holders.



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PART II
 
ITEM 5
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND OTHER SHAREHOLDER MATTERS

On September 24, 2001 Keystone was approved for trading on the OTC Electronic
Bulletin Board which is sponsored by the National Association of Securities
Dealers (NASD). The OTC Electronic Bulletin Board is a network of security
dealers who buy and sell stock. The dealers are connected by a computer
network which provides information on current bids and asks as well as
volume information.

Although the company has been approved for trading on the OTC Bulletin Board,
as of the date of this filing there has not been a sufficient level of market
activity needed to establish a market price for the companys stock. As of
September 30, 2001, the Company had 58 shareholders of record. The Company has
paid no cash dividends. The Company has no outstanding options.




ITEM 6
PLAN OF OPERATION

Keystones current cash balance is $216. Management believes the current cash
balance is sufficient to fund the current minimum level of operations through
the first quarter of 2002, however, in order to advance our business plan we
must raise capital through the sale of our equity securities. To date, we have
sold $5,700 in equity securities, these sales have allowed us to maintain a
positive cash flow balance.

As of the date of this filing, we have taken the following steps: developed our
business plan, registered our Internet domain name, setup a preliminary one
page Internet web site, signed a licensing agreement for our software product,
applied for and received a copyright for our software, made our companys
business and financial information available to the public through filings with
the Securities and Exchange Commission subject to disclosure rule of Regulation
S-B, have filed an SB2 Registration Statement with the Securities and Exchange
Commission, and obtained a listing for public trading of our stock on the Over
the Counter Electronic Bulletin Board. We now intend to seek capital of
$4,000,000 through the sale of common stock in a private placement. We believe
we will be able to raise capital of $4,000,000 by May 2002. We then intend to
hire two software programmers at a cost of $75,000, hire one marketing manager
at a salary of $60,000, hire two office employees at a cost of $40,000, spend
$500,000 for advertising, and $100,000 for rent and other operating expenses.
By December 2002, we intend to complete the final development and testing of
our software at a cost of $100,000, expand our web site at a cost of $40,000,
and purchase computers, furniture, and equipment at a cost of $100,000. We
plan to begin selling our computer firewall software product in December 2002.
All of our future business plan steps represent managements goals, not
certainties. We intend to rely upon our managements business skills, contacts
in the software field, and knowledge of protection software in order to achieve
our business plan goals.

We will only be able to continue to advance our business plan if we receive
capital funding through the



10



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sale of equity securities. After raising capital,
we intend to hire employees, rent commercial space in El Cajon, purchase
equipment, and begin marketing our firewall protection software. We intend to
use our equity capital to fund the business plan during the next twelve months
as cash flow from sales is not estimated to begin until year two of our
business plan. We will face considerable risk in each of our business plan
steps, such as difficulty of hiring competent personnel within our budget,
longer than anticipated lead time necessary to sell and deliver the firewall
protection software to customers, and a shortfall of funding due to our
inability to raise capital in the equity securities market. If no funding is
received during the next twelve months, we will be forced to rely on existing
cash in the bank and funds loaned by the directors and officers. Keystones
officers and directors have no formal commitments or arrangements to advance or
loan funds to Keystone. In such a restricted cash flow scenario, we would be
unable to complete our business plan steps, and would, instead, delay all cash
intensive activities. Without necessary cash flow, Keystone may be dormant
during the next twelve months, or until such time as necessary funds could be
raised in the equity securities market.

We have no operating history, no material current operations, and no profit.
While we believe we have made good faith estimates of Keystones ability to
secure additional capital, there is no guarantee that we will receive
sufficient funding to implement any future business plan steps. There are no
current plans for additional product research and development. We plan to
purchase approximately $100,000 in furniture, computers, software during the
next twelve months from proceeds of our equity security sales. Our business
plan provides for an increase of five employees during the next twelve months.




ITEM 7
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The required financial statements begin on page F-1 of this document.




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

None.



11



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PART III




ITEM 9
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS

The Directors and Officers of the Company, all of those whose one year terms
will expire 3/31/02, or at such a time as their successors shall be elected and
qualified are as follows:

|                                                     |  |     |    |          |  |                                |  |              |  |        
|---------------------------------------------------- |  | --- | -- | -------- |  | ------------------------------ |  | ------------ |  | -------
|Name & Address                                       |  | Age |    | Position |  | Date First Elected             |  | Term Expires
|                                                     |  |     |    |          |  |                                |  |             
|Bruce Johnson
7582 Skyline Drive
San Diego, Ca 92114 |  |     | 50 |          |  | President,
Treasurer,
Director |  | 3/15/99      |  | 3/31/02
|                                                    
|Ann Myers
1605 Mirage Court
El Cajon, CA 92019       |  |     | 74 |          |  | Secretary,
Director            |  | 3/15/99      |  | 3/31/02

Each of the foregoing persons may be deemed a promoter of the Company, as
that term is defined in the rules and regulations promulgated under the
Securities and Exchange Act of 1933.

Directors are elected to serve until the next annual meeting of stockholders
and until their successors have been elected and qualified. Officers are
appointed to serve until the meeting of the Board of Directors following the
next annual meeting of stockholders and until their successors have been
elected and qualified.

No Executive Officer or Director of the Corporation has been the subject of any
Order, Judgement, or Decree of any Court of competent jurisdiction, or any
regulatory agency permanently or temporarily enjoining, barring, suspending or
otherwise limiting him or her from acting as an investment advisor,
underwriter, broker or dealer in the securities industry, or as an affiliated
person, director or employee of an investment company, bank, savings and loan
association, or insurance company or from engaging in or continuing any conduct
or practice in connection with any such activity or in connection with the
purchase or sale of any securities.

No Executive Officer or Director of the Corporation has been convicted in any
criminal proceeding (excluding traffic violations) or is the subject of a
criminal proceeding which is currently pending.

No Executive Officer or Director of the Corporation is the subject of any
pending legal proceedings.

Resumes

Bruce Johnson, President, Treasurer & Director

|       |  |                                                                                           
|------ |  | ------------------------------------------------------------------------------------------
|1990 - |  | Current President, Seaside Computers, Inc. Specializing in hardware sales, custom software



12



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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | design, and information system security for a
variety of commercial customers in Southern California. Responsible for
design and installation of software security systems comprised of risk
analysis, encryption, intrusion detection and blocking, network adapters,
security testing, monitor alerts, and security system administration.
Customers include engineering, financial, accounting and law offices,
manufacturing, wholesaling, retailing, financial services, health care
services, transportation firms, and warehousing businesses.

Ann Myers, Secretary & Director

|       |  |                                                                                                                                                                                                                                                                                
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1985 - |  | Current Independent contractor providing accounting and management
information services for manufacturing and service businesses.
Responsibilities include financial statement reporting, inventory control,
data processing, billings, and selection of applications software.




ITEM 6
EXECUTIVE COMPENSATION

The companys current officers receive no compensation.

Summary Compensation Table

|                          |  |      |  |            |  |           |  |                                 |  |                            |  |                  |  |              |  |                             
|------------------------- |  | ---- |  | ---------- |  | --------- |  | ------------------------------- |  | -------------------------- |  | ---------------- |  | ------------ |  | ----------------------------
|Name &
principle
position |  | Year |  | Salary
($) |  | Bonus
($) |  | Other
annual
compen-
sation ($) |  | Restricted
stock
awards($) |  | Options
SARs
($) |  | LTIP
Payouts |  | All other
compen-
sation ($)
|                          |  |      |  |            |  |           |  |                                 |  |                            |  |                  |  |              |  |                             
|B Johnson                 |  | 2000 |  | -0-        |  | -0-       |  | -0-                             |  | -0-                        |  | -0-              |  | -0-          |  | -0-                         
|President                 |  | 2001 |  | -0-        |  | -0-       |  | -0-                             |  | -0-                        |  | -0-              |  | -0-          |  | -0-                         
|A Myers                   |  | 2000 |  | -0-        |  | -0-       |  | -0-                             |  | -0-                        |  | -0-              |  | -0-          |  | -0-                         
|Director                  |  | 2001 |  | -0-        |  | -0-       |  | -0-                             |  | -0-                        |  | -0-              |  | -0-          |  | -0-                         

There are no current employment agreements between the Company and its
executive officers.

The Board agreed to pay Mr. Johnson 5,000 shares of the Companys common stock
for an exclusive license agreement on March 15, 1999. The stock was valued at
the price unaffiliated investors paid for stock sold by the Company, $1.00 per
share. 45,000 shares of the Companys common stock were issued to him per a 10
for 1 stock split on March 30, 2000. 3,700,000 shares of the Companys common
stock were issued to him per a 75 for 1 stock split on June 15, 2000.

The Board agreed to pay Ms. Myers for administrative services and services
related to the Companys business plan 5,000 shares of the Companys common
stock on March 15, 1999. The stock was valued at the price unaffiliated
investors paid for stock sold by the Company, $1.00 per share. 45,000 shares
of the Companys common stock were issued to her per a 10 for 1 stock split on
March 30, 2000. 3,700,000 shares of the Companys common stock were issued to
her per a 75 for 1 stock split on June 15, 2000.



13



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The terms of these stock issuances were as fair to the Company, in the Boards
opinion, as could have been made with an unaffiliated third party.

The Officers currently devote an immaterial amount of time to manage the
affairs of the Company. The Directors and Principal Officers have agreed to
work with no remuneration until such time as the Company receives sufficient
revenues necessary to provide proper salaries to all Officers and compensation
for Directors participation. The Officers and the Board of Directors have the
responsibility to determine the timing of remuneration for key personnel based
upon such factors as positive cash flow to include stock sales, product sales,
estimated cash expenditures, accounts receivable, accounts payable, notes
payable, and a cash balance of not less than $100,000 at each month end. When
positive cash flow reaches $100,000 at each month end and appears sustainable
the board of directors will readdress compensation for key personnel and enact
a plan at that time which will benefit the Company as a whole. At this time,
management cannot accurately estimate when sufficient revenues will occur to
implement this compensation, or the exact amount of compensation.

There are no annuity, pension or retirement benefits proposed to be paid to
officers, directors or employees of the Corporation in the event of retirement
at normal retirement date pursuant to any presently existing plan provided or
contributed to by the Corporation or any of its subsidiaries, if any.




ITEM 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table sets forth information on the ownership of the Companys
voting securities by Officers, Directors and major shareholders as well as
those who own beneficially more than five percent of the Companys common stock
through the most current date  September 30, 2001:

|                                                      |  |                                                      |  |                 |    |         |    |  
|----------------------------------------------------- |  | ---------------------------------------------------- |  | --------------- | -- | ------- | -- | -
|Title Of                                              |  | Name &                                               |  | Amount &        |    | Percent
|Class                                                 |  | Address                                              |  | Nature of owner |    | Owned  
|                                                      |  |                                                      |  |                 |    |        
|Common                                                |  | Bruce Johnson
7582 Skyline Drive
San Diego, CA 92114 |  | 3,750,000(a)    |    |         | 32 | %
|                                                     
|Common                                                |  | Ann Myers
1605 Mirage Court
El Cajon, CA 92019       |  | 3,750,000(b)    |    |         | 32 | %
|                                                     
|Total Shares Owned by Officers & Directors As a Group |  | 7,500,000                                            |  |                 | 64 | %      

(a)  Mr. Johnson received 5,000 shares of the Companys common stock on March
15, 1999 for a license agreement related to the Companys business plan.
45,000 shares of the Companys common stock were issued to him per a 10 for 1
stock split on March 30, 2000. 3,700,000 shares of the Companys common stock
were issued to him per a 75 for 1 stock split on June 15, 2000.



14



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(b)  Ms. Myers received 5,000 shares of the Companys common stock on March 15,
1999 for administrative services and services related to the Companys business
plan. 45,000 shares of the Companys common stock were issued to her per a 10
for 1 stock split on March 30, 2000. 3,700,000 shares of the Companys common
stock were issued to her per a 75 for 1 stock split on June 15, 2000.




ITEM 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The principal executive office and telephone number are provided by Ms. Myers,
an officer of the corporation. The costs associated with the use of the
telephone and mailing address were deemed by management to be immaterial as the
telephone and mailing address were almost exclusively used by the officer for
other business purposes.




ITEM 13
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

Exhibit 23      Consent of Experts and counsel

Reports filed on Form 8-K: None

Reports required to be filed by Regulation S-X: None




SIGNATURES

Pursuant to the requirements of Section 13 and 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.

|                          |                                     |                  
|------------------------- | ----------------------------------- | -----------------
|                          | Keystone Ventures, Inc.            
|                         
|Date    December 27, 2001 | By                                  | /s/ Bruce Johnson
|                          |                                    
|                          | Bruce Johnson, President & Director

|                          |                                         |              
|------------------------- | --------------------------------------- | -------------
|Date    December 27, 2001 | By                                      | /s/ Ann Myers
|                          |                                        
|                          | Ann Myers, Secretary, Treas. & Director



15



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Keystone Ventures, Inc.
(A Development Stage Company)
 Balance Sheets
as of
September 30, 2001 and 2000
 and
 Statements of Income,
Stockholders Equity, and
Cash Flows
for the years ended
September 30, 2001 and 2000



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##### Table of Contents



TABLE OF CONTENTS

|                                  |  |  |      |  | 
|--------------------------------- |  |  | ---- |  | 
|                                  |  |  | PAGE
|                                  |  |  |     
|Independent Auditors Report      |  |  | F-1  | 
|Balance Sheet                     |  |  | F-2  | 
|Income Statement                  |  |  | F-3  | 
|Statement of Stockholders Equity |  |  | F-4  | 
|Statement of Cash Flows           |  |  | F-5  | 
|Footnotes                         |  |  | F-6  | 



---



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G. BRAD BECKSTEADCertified Public Accountant

330 E. Warm Springs
Las Vegas, NV 89119
702.257.1984
702.362.0540 (fax)


INDEPENDENT AUDITORS REPORT

December 26, 2001
 
Board of Directors
Keystone Ventures, Inc.
El Cajon, CA

I have audited the Balance Sheet of Keystone Ventures, Inc. (the Company)
(a development stage company), as of September 30, 2001 and 2000 and the
related Statements of Operations, Stockholders Equity, and Cash Flows for the
years then ended, and for the period from March 10, 1999
(date of inception) through September 30, 2001. These financial statements are
the responsibility of the Companys management. My responsibility is to
express an opinion on these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Keystone Ventures, Inc. (a
development stage company) as of September 30, 2001 and 2000 and the results
of its operations and its cash flows for years then ended, and for the period March 10, 1999 (date of inception) through September
30, 2001, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 4 to the financial
statements, the Company has had limited operations and have not commenced
planned principal operations. This raises substantial doubt about its ability
to continue as a going concern. Managements plan in regard to these matters
are also described in Note 4. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



G. Brad Beckstead, CPA




F-1



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##### Table of Contents



Keystone Ventures, Inc.
(A Development Stage Company)
Balance Sheet

|                                     |                                                                                                        |                           |     |               |     |               |       |         |       | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------ | ------------------------- | --- | ------------- | --- | ------------- | ----- | ------- | ----- | 
|                                     |                                                                                                        |                           |     | September 30, |     | September 30,
|                                     |                                                                                                        |                           |     | 2001          |     | 2000         
|                                     |                                                                                                        |                           |     |               |     |              
|Assets                               |                                                                                                        |                           |     |               |     |               |       |        
|Current assets:                      |                                                                                                        |                           |     |               |     |               |       |        
|                                     | Cash and equivalents                                                                                   |                           | $   | 216           |     |               | $     | 1,589   |      
|                                     |                                                                                                        |                           |     |               |     |               |       |        
|                                     |                                                                                                        | Total current assets      |     |               | 216 |               |       |         | 1,589 | 
|                                     |                                                                                                        |                           |     |               |     |               |       |        
|                                     |                                                                                                        | $                         | 216 |               |     | $             | 1,589 |        
|                                     |                                                                                                        |                           |     |               |     |               |       |        
|                                    
|Liabilities and Stockholders Equity |                                                                                                        |                           |     |               |     |               |       |        
|                                    
|Current liabilities:                 |                                                                                                        | $                         |    |               |     | $             |      |        
|                                     |                                                                                                        |                           |     |               |     |               |       |        
|                                     |                                                                                                        | Total current liabilities |     |               |    |               |       |         |      | 
|                                     |                                                                                                        |                           |     |               |     |               |       |        
|Stockholders equity:                |                                                                                                        |                           |     |               |     |               |       |        
|                                     | Common stock, $0.001 par value, 50,000,000 shares
authorized, 11,775,000 shares issued and outstanding |                           |     | 11,775        |     |               |       | 11,775  |      
|                                     | Additional paid-in capital                                                                             |                           |     | 3,925         |     |               |       | 3,925   |      
|                                     | (Deficit) accumulated during development stage                                                         |                           |     | (15,484       | )   |               |       | (14,111 | )    
|                                     |                                                                                                        |                           |     |               |     |               |       |        
|                                     |                                                                                                        |                           | 216 |               |     |               | 1,589 |        
|                                     |                                                                                                        |                           |     |               |     |               |       |        
|                                     |                                                                                                        | $                         | 216 |               |     | $             | 1,589 |        
|                                     |                                                                                                        |                           |     |               |     |               |       |        

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



F-2



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##### Table of Contents



Keystone Ventures, Inc.
(A Development Stage Company)
Statement of Operations

|                                                     |                                 |                |            |               |       |                |            |       |       |   |            |        |        | 
|---------------------------------------------------- | ------------------------------- | -------------- | ---------- | ------------- | ----- | -------------- | ---------- | ----- | ----- | - | ---------- | ------ | ------ | 
|                                                     |                                 |                |            | Years ended   |       | March 10, 1999
|                                                     |                                 |                |            | September 30, |       | (inception) to
|                                                     |                                 |                |            |               |       | September 30, 
|                                                     |                                 |                |            | 2001          |       | 2000           |            | 2001 
|                                                     |                                 |                |            |               |       |                |            |      
|Revenue                                              |                                 | $              |           |               |       | $              |           |       |       | $ |           |       
|                                                     |                                 |                |            |               |       |                |            |       |       |   |            |       
|Expenses:                                            |                                 |                |            |               |       |                |            |       |       |   |            |       
|                                                     | General administrative expenses |                |            | 1,373         |       |                |            | 4,111 |       |   |            | 5,484  |       
|                                                     | Management fees                 |                |            |              |       |                |            |      |       |   |            | 10,000 |       
|                                                     |                                 |                |            |               |       |                |            |       |       |   |            |       
|                                                     |                                 | Total expenses |            |               | 1,373 |                |            |       | 4,111 |   |            |        | 15,484 | 
|                                                     |                                 |                |            |               |       |                |            |       |       |   |            |       
|Net (loss)                                           |                                 | $              | (1,373     | )             |       | $              | (4,111     | )     |       | $ | (15,484    | )     
|                                                     |                                 |                |            |               |       |                |            |       |       |   |            |       
|Weighted average number of
common shares outstanding |                                 |                | 11,775,000 |               |       |                | 11,325,388 |       |       |   | 11,499,048 |       
|                                                     |                                 |                |            |               |       |                |            |       |       |   |            |       
|Net (loss) per share                                 |                                 | $              | (0         | )             |       | $              | (0         | )     |       | $ | (0         | )     
|                                                     |                                 |                |            |               |       |                |            |       |       |   |            |       

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



F-3



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##### Table of Contents



Keystone Ventures, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders Equity
For the period March 10, 1999 (Date of Inception) to September 30, 2001

|                                                   |  |              |            |            |  |             |        |               |  |        |         |   |  |             |         |   |  |   |         |  
|-------------------------------------------------- |  | ------------ | ---------- | ---------- |  | ----------- | ------ | ------------- |  | ------ | ------- | - |  | ----------- | ------- | - |  | - | ------- | -
|                                                   |  |              |            |            |  |             |        |               |  |        |         |   |  | (Deficit)   |         |   |  |  
|                                                   |  |              |            |            |  |             |        |               |  |        |         |   |  | Accumulated |         |   |  |  
|                                                   |  | Common Stock |            | Additional |  | During      |        | Total        
|                                                   |  |              |            | Paid-in    |  | Development |        | Stockholders'
|                                                   |  | Shares       |            | Amount     |  | Capital     |        | Stage         |  | Equity
|                                                   |  |              |            |            |  |             |        |               |  |       
|March 15, 1999
Founders shares issued
for services |  |              | 7,500,000  |            |  | $           | 10     |               |  | $      | 9,990   |   |  | $           |        |   |  | $ | 10,000  |  
|April 30, 1999
Shares issued for cash              |  |              | 4,275,000  |            |  |             | 6      |               |  |        | 5,694   |   |  |             |         |   |  |   | 5,700   |  
|Net (loss) for the period ended
September 30, 1999 |  |              |            |            |  |             |        |               |  |        |         |   |  |             | (10,000 | ) |  |   | (10,000 | )
|                                                   |  |              |            |            |  |             |        |               |  |        |         |   |  |             |         |   |  |   |         |  
|Balance, September 30, 1999                        |  |              | 11,775,000 |            |  |             | 16     |               |  |        | 15,684  |   |  |             | (10,000 | ) |  |   | 5,700   |  
|Reclassification of paid-in
capital                |  |              |            |            |  |             | 11,759 |               |  |        | (11,759 | ) |  |             |         |   |  |   |        |  
|Net (loss) for the year ended
September 30, 2000   |  |              |            |            |  |             |        |               |  |        |         |   |  |             | (4,111  | ) |  |   | (4,111  | )
|                                                   |  |              |            |            |  |             |        |               |  |        |         |   |  |             |         |   |  |   |         |  
|Balance, September 30, 2000                        |  |              | 11,775,000 |            |  |             | 11,775 |               |  |        | 3,925   |   |  |             | (14,111 | ) |  |   | 1,589   |  
|Net (loss) for the year ended
September 30, 2001   |  |              |            |            |  |             |        |               |  |        |         |   |  |             | (1,373  | ) |  |   | (1,373  | )
|                                                   |  |              |            |            |  |             |        |               |  |        |         |   |  |             |         |   |  |   |         |  
|Balance, September 30, 2001                        |  |              | 11,775,000 |            |  | $           | 11,775 |               |  | $      | 3,925   |   |  | $           | (15,484 | ) |  | $ | 216     |  
|                                                   |  |              |            |            |  |             |        |               |  |        |         |   |  |             |         |   |  |   |         |  

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



F-4



---



##### Table of Contents



Keystone Ventures, Inc.
(A Development Stage Company)
Statement of Cash Flows

|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |       |           | 
|----------------------------------------- | -------------------------------------------- | ------------------------------------ | ------ | ------------- | - | -------------- | ------ | ---- | - | - | ------- | ----- | --------- | 
|                                          |                                              |                                      |        | Year ending   |   | March 10, 1999
|                                          |                                              |                                      |        | September 30, |   | (inception) to
|                                          |                                              |                                      |        |               |   | September 30, 
|                                          |                                              |                                      |        | 2001          |   | 2000           |        | 2001
|                                          |                                              |                                      |        |               |   |                |        |     
|Cash flows from operating activities      |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|Net (loss)                                |                                              | $                                    | (1,373 | )             |   | $              | (4,111 | )    |   | $ | (15,484 | )    
|Shares issued for services                |                                              |                                      |        |               |   |                |        |      |   |   | 10,000  |      
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|Net cash (used) by operating activities   |                                              |                                      | (1,373 | )             |   |                | (4,111 | )    |   |   | (5,484  | )    
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|Cash flows from investing activities      |                                              |                                      |       |               |   |                |       |      |   |   |        |      
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|Cash flows from financing activities      |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|                                          | Issuance of common stock                     |                                      |        |              |   |                |        |     |   |   |         | 5,700 |          
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|Net cash provided by financing activities |                                              |                                      |       |               |   |                |       |      |   |   | 5,700   |      
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|Net increase (decrease) in cash           |                                              |                                      | (1,373 | )             |   |                | (4,111 | )    |   |   | 216     |      
|Cash  beginning                          |                                              |                                      | 1,589  |               |   |                | 5,700  |      |   |   |        |      
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|Cash  ending                             |                                              | $                                    | 216    |               |   | $              | 1,589  |      |   | $ | 216     |      
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|Supplemental disclosures:                 |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|                                          | Interest paid                                |                                      | $      |              |   |                | $      |     |   |   | $       |      |          
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|                                          | Income taxes paid                            |                                      | $      |              |   |                | $      |     |   |   | $       |      |          
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|                                          | Non-cash investing and financing activities: |                                      |        |               |   |                |        |      |   |   |         |       |          
|                                          |                                              | Common stock issued for services     |        | $             |  |                |        | $    |  |   |         | $     | 10,000    | 
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      
|                                          |                                              | Number of shares issued for services |        |               |  |                |        |      |  |   |         |       | 7,500,000 | 
|                                          |                                              |                                      |        |               |   |                |        |      |   |   |         |      

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



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##### Table of Contents



Keystone Ventures, Inc.
Notes

Note 1  Significant accounting policies and procedures

Organization

The Company was organized March 10, 1999 (Date of Inception) under the laws of
the State of Nevada, as Keystone Ventures, Inc. The Company is authorized to
issue 50,000,000 shares of $0.001 par value common stock. The Company has
limited operations, and in accordance with SFAS #7, the Company is considered a
development stage company.

Estimates

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

Cash and cash equivalents

The Company maintains a cash balance in a non-interest-bearing account that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.

Revenue recognition

The Company recognizes revenue on an accrual basis as it invoices for services.

Reporting on the costs of start-up activities

Statement of Position 98-5 (SOP 98-5), Reporting on the Costs of Start-Up
Activities, which provides guidance on the financial reporting of start-up
costs and organizational costs, requires most costs of start-up activities and
organizational costs to be expensed as incurred. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998. With the adoption of SOP 98-5,
there has been little or no effect on the Companys financial statements.

Loss per share

Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS #128) Earnings Per Share. Basic loss per
share is computed by dividing losses available to common stockholders by the
weighted average number of common shares outstanding during the period. The
Company had no dilutive common stock equivalents, such as stock options or
warrants as of September 30, 2001.

Advertising Costs

The Company expenses all costs of advertising as incurred. There were no
advertising costs included in selling, general and administrative expenses for
the period ended September 30, 2001.

Fair value of financial instruments

Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of September 30, 2001.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
accounts payable. Fair values were assumed to approximate carrying values for
cash and payables because they are short term in nature and their carrying
amounts approximate fair values or they are payable on demand.

Impairment of long lived assets

Long lived assets held and used by the Company are reviewed for possible
impairment whenever events or circumstances indicate the carrying amount of an
asset may not be recoverable or is impaired. No such impairments have been
identified by management at September 30, 2001.

Segment reporting

The Company follows Statement of Financial Accounting Standards No. 130,
Disclosures About Segments of an Enterprise and Related Information. The
Company operates as a single segment and will evaluate additional segment
disclosure requirements as it expands its operations.



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##### Table of Contents



Keystone Ventures, Inc.
Notes

Dividends

The Company has not yet adopted any policy regarding payment of dividends. No
dividends have been paid or declared since inception.

Income taxes

The Company follows Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes (SFAS No. 109) for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be realized, a
valuation allowance is required to reduce the deferred tax assets to the amount
that is more likely than not to be realized. Future changes in such valuation
allowance are included in the provision for deferred income taxes in the period
of change.

Deferred income taxes may arise from temporary differences resulting from
income and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.

Recent pronouncements

The FASB recently issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133. The Statement defers for one year the effective date of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. The rule now will apply to all fiscal quarters of all fiscal
years beginning after June 15, 2000. In June 1998, the FASB issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. The
Statement will require the company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income, if the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivatives change in fair value will be immediately recognized in earnings.
The company does not expect SFAS No. 133 to have a material impact on earning s
and financial position.

In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not impact the
companys revenue recognition policies.

Note 2  Income taxes

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS No. 109), which
requires use of the liability method. SFAS No. 109 provides that deferred
tax assets and liabilities are recorded based on the differences between the
tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences. Deferred tax assets
and liabilities at the end of each period are determined using the currently
enacted tax rates applied to taxable income in the periods in which the
deferred tax assets and liabilities are expected to be settled or realized.

The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences are as follows:

|                           |  |  |       |   
|-------------------------- |  |  | ----- | --
|U.S federal statutory rate |  |  | (34.0 | %)
|Valuation reserve          |  |  | 34.0  | % 
|                           |  |  |       |   
|Total                      |  |  |      | % 
|                           |  |  |       |   



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##### Table of Contents



Keystone Ventures, Inc.
Notes

As of September 30, 2001, the Company has a net operating loss carryforward of
approximately $15,000 for tax purposes, which will be available to offset
future taxable income. If not used, this carryforward will expire in 2020 and
2021. The deferred tax asset relating to the operating loss carryforward of
approximately $5,100 has been fully reserved at September 30, 2001.

Note 3  Stockholders equity

The Company is authorized to issue 50,000,000 shares of its $0.001 par value
common stock.

All references to shares issued and outstanding reflect the 10-for-1 forward
stock split effected March 30, 2000, and the 75-for-1 forward stock split
effected June 15, 2000.

On March 24, 1999, the Company issued 7,500,000 shares of its $.001 par value
common stock to its officers as founders stock issued for services valued at
$10,000.

On April 30, 1999, the Company issued 4,275,000 shares of its $.001 par value
common stock for cash in the amount of $5,700.

There have been no other issuances of common stock.

Note 4  Going concern

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern which contemplates the recoverability
of assets and the satisfaction of liabilities in the normal course of business.
As noted above, the Company is in the development stage and, accordingly, has
not yet generated revenues from operations. Since its inception, the Company
has been engaged substantially in financing activities and developing its
product line, incurring substantial costs and expenses. As a result, the
Company incurred accumulated net losses from March 10, 1999 (inception)
through the year ended September 30, 2001 of $15,484. In addition, the
Companys development activities since inception have been financially
sustained by capital contributions.

The ability of the Company to continue as a going concern is dependent upon its
ability to raise additional capital from the sale of common stock and,
ultimately, the achievement of significant operating revenues. The accompanying
financial statements do not include any adjustments that might be required
should the Company be unable to recover the value of its assets or satisfy its
liabilities.

Note 5  Related party transactions

Office space and services are provided without charge by a director and
shareholder. Such costs are immaterial to the financial statements and,
accordingly, have not been reflected therein.

The officers and directors of the Company are involved in other business
activities and may, in the future, become involved in other business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interests. The Company has not formulated a policy for the resolution
of such conflicts.

Note 6  Warrants and options

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



F-8