You should read the following discussion of our financial condition and results of operations together with the consolidated audited financial statements and the notes to consolidated audited financial statements included elsewhere in this filing prepared in accordance with accounting principles generally accepted in the United States. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.

We are an emerging Entertainment Media Company. Our business model has evolved to incorporate innovative structures and technology to address the marketing, sales and releasing of filmed entertainment. The current business direction includes the acquisition of existing libraries of motion pictures and television programming which will be marketed and sold internationally under a new and exciting brand. We will also utilize its existing online platform to maximize revenues from filmed entertainment. Additional near term plans include the formation of a releasing entity and the further acquisition of undervalued entertainment assets.

We are focused on acquiring undervalued assets to exploit through our proprietary online platform as well as through traditional marketing means.

The discussion set forth below relating to results of operations pertains to the comparison of the fiscal years ended December 31, 2002 and 2001.

We have recognized revenues to date of $220,921, all of which are from operating revenues sources. We recognized $nil revenues in the year ended December 31, 2002 as compared to $82,555 for the previous year. Historically we have recognized revenue from our customers listing material on the oftvs website as well as revenues from transactions consummated by buyers and sellers using the oftvs platform. Revenues ceased in 2001 as we focused all of our resources on raising capital, reorganizing and streamlining operations and developing a self sustaining business model that would see us focus on more traditional film and television marketing efforts.

We have currently not recognized significant revenues to date, and therefore have not allocated any significant amounts to cost of revenues. Once our revenues increase, costs of revenues will primarily consist of costs associated with marketing, customer service activities and allocation of overhead.

For the year ended December 31, 2002, we had no expenses related to advertising and marketing as compared to $222,061 for the year ended December 31, 2001. The decrease of advertising and marketing expenses is a result of the implementation of the restructuring plan.

Our general and administrative expenses consist primarily of salaries and related costs for general and corporate functions, including finance, accounting, facilities and fees for legal and other professional services. Our general and administrative expenses, excluding website development costs, for the period ended December 31, 2002 were $828,636 as compared to the year ended December 31, 2001 were $4,770,787. Our general and administrative expenses, excluding website development costs, for the period from inception and the year ended December 31, 2002 were $27,539,100 of which $10,925,152 were non-cash related to stock based compensation. The decrease of general and administrative expenses is primarily a result of the implementation of a restructuring plan that resulted in a reduction in personnel costs, lease and office costs, and a reduction in legal and accounting fees.

Presently, we have no significant sources of revenue. We have incurred operating losses since inception. The continuation of our business is dependent upon the continuing financial support of our creditors and stockholders, obtaining further financing, our acquiring additional filmed entertainment assets, the successful and sufficient market acceptance of our products and online platform and achieving a profitable level of operations. There are, however, no assurances we will be able to generate further funds required for our continued operations. Accordingly, our consolidated financial statements contain note disclosures describing the circumstances that lead there to be doubt over our ability to continue as a going concern. In their report on the consolidated financial statements, our independent auditors included an explanatory paragraph regarding our ability to continue as a going concern.

Our net loss was $1,203,871 and $26,853,427 for the fiscal years ended December 31, 2002 and 2001 respectively. The primary reason for the reduction in net loss is due to the implementation of our restructuring plan in 2001 that involved the writedown of goodwill, the reduction in personnel, office lease commitments and subsequent writedown on disposal of assets, Management feels that the restructuring plan is now complete and that ongoing net loss and/or gain will be a result from operations.

The discussion set forth below relating to results of operations pertains to the comparison of the fiscal years ended December 31, 2001 and 2000.

InternetStudios has recognized revenues to date of $220,921, all of which are from operating revenues sources. We recognize revenue from our customers listing material on the OFTVS website as well as revenues from transactions consummated by buyers and sellers using the OFTVS system.

InternetStudios has currently not recognized significant revenues to date, and therefore has not allocated any significant amounts to cost of revenues. Once InternetStudios' revenues increase, cost of revenues will primarily consist of costs associated with marketing, customer service activities, and server and network operations, and to a lesser extent, bank and escrow processing charges on fees earned on transactions, internet connection charges, depreciation of server and network equipment and allocation of overhead.

Costs related to InternetStudios' advertising and marketing efforts are currently classified as general and administrative expenses. InternetStudios' advertising and marketing expenses consist mainly of advertising expenses, creative development and promotional costs and commissions, and compensation for advertising and marketing personnel. The majority of these costs were directed to programs designed to build brand name recognition, attract filmed entertainment companies and individuals to InternetStudios' websites, and to attract motion pictures and television programming for listing on the OnlineFilmandTVSales.com web site.

These expenses consist primarily of payroll and related expenses for development in network operations personnel and consultants, cost related to modifications, enhancement and new operations to enhance our websites. Website development costs as of December 31, 2000 were $9,536,992 of which $2,639,668 were capitalized under EITF 00-02 and $4,750,000 were recorded as a non-cash cost related to stock based compensation. At December 31, 2001 website development costs were $16,281, none of which were capitalized under EITF 00-02. InternetStudios expects to incur additional website development and maintenance expense in the future.

InternetStudios' general and administrative expenses consist primarily of salaries and related costs for general and corporate functions, including finance, accounting, facilities and fees for legal and other professional services. InternetStudios' general and administrative expenses, excluding website development costs, for the period from inception and ended December 31, 2000 were $22,013,775 of which $10,925,152 were non-cash related to stock based compensation. At December 31, 2001 these costs were $4,852,157.

Presently, we have no significant sources of revenue. We have incurred operating losses since inception. The continuation of our business is dependent upon the continuing financial support of our creditors and stockholders, obtaining further financing, successful and sufficient market acceptance of updated versions of our existing services and achieving a profitable level of operations. There are, however, no assurances we will be able to generate further funds required for our continued operations. Accordingly, our consolidated financial statements contain note disclosures describing the circumstances that lead there to be doubt over our ability to continue as a going concern. In their report on the consolidated financial statements, our independent auditors included an explanatory paragraph regarding our ability to continue as a going concern.

From inception, we have financed our operations entirely from private placements and loans. As at December 31, 2002, we had $2,617 in cash and cash equivalents as compared to $nil at December 31, 2001. Since inception, we have had negative cash flows from operating activities in each fiscal and quarterly period to date.

Net cash used in operating activities was $393,448 for the year ended December 31, 2002 as compared to $1,538,694 for the year ended December 31, 2001. Net cash used in operating activities was $18,576,291 for the period from inception to the year ended December 31, 2002. The net cash was used for minimal general operations. In addition, in 2002, we realized a gain in settlement on debt of $153,280 and a gain on the write off of accounts payable of $796,820 as part of the reorganization. We realized a loss on the amortization and write down of website development costs of $1,361,260.

As shown in our financial statements, we have sustained substantial losses from operations since inception. As of the date of this annual report, we have utilized substantially all of our available funding. Our continuation as a going concern will depend on our ability to raise additional capital. No assurance can be given that we will be able to raise additional funds. In the absence of such funds, we will be required to cease operations.

Our management has taken steps to revise and reduce our operating requirements, which we believe will be sufficient to assure continued operations and implementation of our plans. These steps include expense reduction in staffing, marketing and consulting, as well as a significant decrease in operating costs as a result of completion of Web developments activities. We are also in the process of securing additional capital through equity transactions, which will be required in order to continue operations.

Given our limited operating history, operating losses and other factors set out above, there can be no assurance that we will be able to achieve our goals and develop a self sustaining business model. Management intends to raise debt and equity capital as needed on a private placement basis to finance the operating and capital requirements of our company. We have recently engaged an investment bank to act as placement agent for any debt and equity offerings. In addition, management expects cash flow from operations to increase over the next year. It is management's intention to continue to continue to modify our company's business plan to focus on more traditional film and television marketing. These factors raise substantial doubt about our company's ability to continue as a going concern as described in Note 2 to the Financial Statements. The future operations of our company will depend upon our ability to obtain adequate financing and continuing support from stockholders and credit ors and to achieve and maintain profitable operations. To the extent that we cannot achieve our plans and generate revenues, which exceed expenses on a consistent basis and in a timely manner, our business, results of operations, financial condition and prospects could be materially adversely affected.

In the event that our plans or assumptions change or prove inaccurate (due to delays in development, the inability to sign any significant sales agreements or generate revenues, unfavorable economic conditions, or other unforeseen circumstances), there can be no assurance that such additional financing would be available to us, or if available, that the terms of such additional financing will be acceptable to us.

We have engaged CapStone Investments, an investment bank to assist us in securing additional capital through a combination of offering debt and securities in our company.

We expect that the implementation of our new business strategy will lead to increased revenues in 2003 and 2004. Our plans indicate a requirement of approximately $500,000 to continue to expand our operations to the end of June 30, 2003, $250,000 of which is required to complete the acquisition of the library of motion pictures. The balance of $250,000 will be required to support general corporate expenses, including expenses in connection with the engaging of both senior and intermediate management personnel, other general operating expenses and to implement our digital video disc sales and marketing program. We intend to raise the balance of the cash requirements through private placements or by debt financing.

In addition, over the next twelve months, our capital plan contemplates the company raising $10 million in order to implement our new business strategy. Seven ($7) million of this amount will be used to acquire media assets, which in the company's opinion are undervalued and exploitable in the digital video disc format and in the near future through emerging technologies. We have identified a number of opportunities in this regard. These acquisitions will also enable us to create remakes or sequels of existing motion pictures. Two ($2) million of this financing will be used to re-master motion pictures from the Trocadero Library for release on digital video disc and to create a menu of added features. We intend to role out a minimum of 20 digital video disc in the next 18 month period. The remaining $1 million will be set aside for operating expenses for the company.

Our primary objective over the twelve months ending December 31, 2003 will be to build a niche distribution platform to maximize revenues from filmed entertainment content in all formats through the building a brand, the re-labelling of classic content and strict asset management. We intend to focus on creating efficiencies through technology and innovative systems to address the marketing and sales of filmed entertainment globally.

Additionally, we intend to assemble a major library of filmed content by expanding the number of copyrights and distribution rights that InternetStudios owns, represents or brokers, which will generate growth and annuity income.

We will continue to utilize our online platform at www.oftvs.com and at the same time complete development of an off-line filmed entertainment catalogue management systems, which will communicate with the online marketplace.

The digital video disc format for movies has experienced unprecedented popularity and has driven a global swell of consumer demand for movies on disk, both for new releases and for older catalogue titles. Domestic digital video disc revenues reached $8.4 billion in 2002.

InternetStudios intends to capitalize on this opportunity by providing mainstream-friendly entertainment with worldwide commercial appeal in a low-risk, cost-efficient manner. We plan to exploit our own films in digital video disc format from the Trocadero Library featuring special features and to acquire high quality assets that will be exploitable from a video and ancillary media perspective.

As part of this plan, we intend to distribute or sell directly to mass merchandisers, such as Wal-Mart Stores Inc., Costco Wholesale Corporation, Target Corporation and Best Buy Co. Inc., and others who buy large volumes of digital video disc's to sell directly to the consumer in international markets.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities on the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (I) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 was effective for all fiscal quarters of fiscal years beginning after June 15, 2000.

Historically, our company has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, adoption of the new standards on January 1, 2001 did not affect our consolidated financial statements.

In June 2001, the Financial Accounting Standards Board ("FASB") finalized SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that we recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that we reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortise goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that we identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible asset, and cease Amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires us to complete a transitional goodwill impairment test six months from the date of adoption. We are also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively.

In December 2002, the Financial Accounting Standards Board issued Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", an amendment of Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation". The purpose of SFAS No. 148 is to: (1) provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation, (2) amend the disclosure provisions to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation, and (3) to require disclosure of those effects in interim financial information. The disclosure provisions of SFAS No. 148 were effective for our company for the year ended December 31, 2002.

The implementation of these new standards is not expected to have a material effect on the our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

We have adopted the provisions of EITF 00-2 "Accounting for Web Site Development Costs" and development costs incurred subsequent to June 30, 2000, associated with the Company's Web Sites were recorded in accordance with EITF 00-2. Website development costs of $2,639,668 were capitalized in 2000 and were being amortized on the straight-line method over a period of 3 years. At December 31, 2002 unamortized website development costs of $471,638 were written off as we have determined that these costs no longer meet the criteria for deferral.

We do not utilize derivative instruments to manage market related risks. We do not have any long-term debt instruments so our company is not subject to market related risks such as interest or foreign exchange on long-term debt. All of our operations are conducted in the United States and thus, we are not exposed to significant risk of currency loss due to fluctuations in the Canadian and U.S. exchange rates.

Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The following consolidated financial statements are filed as part of this annual report:

To the Stockholders and Board of Directors of Internetstudios.com, Inc.

We have audited the consolidated balance sheets of Internetstudios.com, Inc. as at December 31, 2002 and 2001 and the statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2002 and 2001 and the results of its operations and its cash flows for the years then ended in accordance with United States generally accepted accounting principles.

CHARTERED ACCOUNTANTS

Vancouver, B.C.

March 15, 2003

CHARTERED ACCOUNTANTS

Vancouver, B.C.

March 15, 2003

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

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

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

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

The Company was incorporated on April 14, 1998 in the State of Nevada as The Enterprise, Inc. Effective December 14, 1998, the Company changed its name to eHealth.com, Inc., and on September 20, 1999 changed its name to InternetStudios.com, Inc. The Company is emerging entertainment media company. It's business model has evolved to incorporate innovative structures and technology to address the marketing, sales and releasing of filmed entertainment. The current business direction includes the acquisition of existing libraries of motion pictures and television programming which will be marketed and sold internationally under a new and exciting brand. The Company will also utilize its existing online platform to maximize revenues from filmed entertainment. Additional near term plans include the formation of a releasing entity and the further acquisition of undervalued entertainment assets.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, as shown in the accompanying financial statements, the Company has sustained substantial losses from operations since inception. In addition, the Company has used, rather than provided, cash in its operations. As of December 31, 2002, the Company had a working capital deficiency of $1,154,759 and has significantly reduced the scope of operations due to the lack of operating capital.

In view of the matters described in the preceding paragraph, there is substantial doubt regarding the Company's ability to continue operations as a going concern. The continued operations of the Company are dependent upon the Company's ability to meet its financing requirements on a continuing basis and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Management of the Company has taken steps to revise and reduce its operating requirements, which it believes will be sufficient to assure continued operations and implementation of the Company's plans. These steps include expense reductions in staffing, marketing and consulting, as well as a decrease in operating costs.

The financial statements include the accounts of the Company and its inactive subsidiaries: OnlineFilmSales.com LLC, InternetStudios UK, Ltd., InternetStudios Entertainment Finance, Inc., and OnlineFilmandTVSales.com, Inc.; in turn, OnlineFilmsSales.com, LLC owns membership interests in two inactive limited liability companies, ReporterTV.com LLC and StudioBuzz.com LLC (collectively, "the Company"). All intercompany accounts and balances have been eliminated in consolidation.

Preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

The Company considers all liquid investments with an original maturity of three months or less to be cash equivalents.

Revenue is recognized at the time a transaction is consummated by a buyer and seller using the Company's website. The Company also may charge for its services and recognizes revenue at the time the customer lists material on the Company's website. Revenue related to financing of outside productions is amortized over the life of the agreement, typically 18 months, using a method that approximates the effective interest method.

The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations. Translation adjustments were immaterial for all periods presented.

Basic loss per share includes no dilution and is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution of securities that could share in the earnings of the Company. Convertible securities and stock options were not included in the calculation of weighted average number of shares because the effect would be anti-dilutive.

The Company has adopted the provisions of EITF 00-2 "Accounting for Web Site Development Costs" and development costs incurred subsequent to June 30, 2000, associated with the Company's Web Sites were recorded in accordance with EITF 00-2. Website development costs of $2,639,668 were capitalized in 2000 and were being amortized on the straight-line method over a period of 3 years. At December 31, 2002 unamortized website development costs of $471,638 were written off as the Company has determined that these costs no longer meet the criteria for deferral.

In December 2002, the Financial Accounting Standards Board issued Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"), an amendment of Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The purpose of SFAS No. 148 is to: (1) provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation, (2) amend the disclosure provisions to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation, and (3) to require disclosure of those effects in interim financial information. The disclosure provisions of SFAS No. 148 were effective for the Company for the year ended December 31, 2002.

In accordance with SFAS No. 123, the Company applies the fair value method using the Black-Scholes option-pricing model in accounting for options granted to consultants.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.

The Company has also adopted the provisions of the Financial Accounting Standards Board Interpretation No.44, Accounting for Certain Transactions Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN 44"), which provides guidance as to certain applications of APB 25. FIN 44 is generally effective July 1, 2000 with the exception of certain events occurring after December 15, 1998.

The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.

Pursuant to settlement agreements executed in May 2002 the Company agreed to assign its outstanding loans receivable of $594,561 from a film production company and $323,679 due from a related party to certain creditors in satisfaction of outstanding debts of approximately $1,074,448 of which $416,000 was owing to two companies controlled by directors and officers of the Company, resulting in a gain of $86,208.

The Company is indebted in the amount of $125,000 plus accrued interest of $15,682 by promissory notes bearing interest at 12% per annum. The notes were due on May 25, 2001. The company has received demands for payments on $90,000 of these notes. The Company is in negotiations to settle these amounts.

The Company also has a loan payable outstanding of $273,543, which is unsecured, bears no interest and has no specific terms of repayment.

During February 2001 the Company received loans in the aggregate principal amount of $199,159 pursuant to convertible note agreements. These loans were non-interest bearing and were repayable on demand. The convertible note agreements provided the lender the right to convert the outstanding loan into shares of common stock at a price approximating the market price of the Company's shares at the time of notice. During February 2002 these loans were converted into 3,487,863 shares of common stock.

The Company had management contracts with two consulting firms owned by officers of the Company. The contracts provided for combined base salaries of $384,000 per annum for a three year term ending December 31, 2002 and granting of stock options providing the right to acquire a total of 13,300 post-consolidation shares of common stock at a price of $100 per share. All of the options have fully vested. The contracts included a severance provision of 150% of base salary which totals $576,000 for these two officers. By agreement dated January 5, 2002, as consideration for the termination of these management contracts and the release of the Company from any further obligations thereunder after May 31, 2002, these two officers agreed to accept 4,040,000 shares of common stock in settlement of the severance portion of the management contracts at an agreed amount of $230,684. Refer to Note 8.

During 2002, the Company paid a total of $137,915 pursuant to oral consulting agreements with its current officers and directors..

During 2000, the Company loaned a total of approximately $535,000 to an executive officer of the Company and a film production company owned and managed by this executive officer. Advances under the loan agreement were collateralized by all of the assets of the related company, bore interest at the prime rate plus 3% until March 31, 2001 and were due on demand. During the year ended December 31, 2001, due to uncertainty of recovery the Company recorded an impairment provision of $309,832 leaving a balance outstanding at December 31, 2001 of $373,679. During 2002 the Company received payment relating to this loan totalling $50,000 and the balance of this loan receivable was assigned to creditors in settlement of outstanding debts of the Company. Refer to Note 4.

During December 2001 the Company completed a 20:1 roll-back of outstanding common shares which reduced the number of issued and outstanding shares from 16,414,844 to 820,742 shares.

During January 2002 the Directors approved a resolution to issue a maximum of 5,720,000 shares of common stock to certain directors, officers and employees in settlement of outstanding obligations that totaled $393,684. These obligations were settled at a price of $0.0571 per share resulting in a gain on settlement of debt of $67,072. These shares were issued on August 15, 2002. On December 11, 2002 the Company registered these shares for trading on a Form S-8 Registration Statement.

During February and March 2002 the Company issued a total of 3,487,863 shares of common stock on conversion of the outstanding convertible loans of $199,159.

During December, 2002 the Company completed a private placement of 171,000 common shares at a price of $.50 per share for net proceeds of $76,950 after a finder's fee of $8,550. In addition, 17,100 common shares were issued to the finder on this private placement.

In December 1999, the Company's Board of Directors approved a U.S. Stock Incentive Plan for a maximum of 1,000,000 pre-consolidation shares of common stock and a non-U.S. Stock Incentive Plan for a maximum of 500,000 pre-consolidation shares of common stock (collectively "the Plans"), under which it is authorized to issue nonqualified and incentive stock options to key employees and consultants. The options have a term not to exceed 10 years and vest over a period of two to three years. At that time, the Board also approved grants of options for 1,012,500 pre-consolidation shares. The plan was approved by the Company's shareholders in January, 2000.

Statement of Financial Accounting Standards No. 123, "Accounting For Stock Based Compensation", encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in previously issued standards. Accordingly, compensation cost for employee stock options is measured as the excess, if any, of the fair market value of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost or deferred compensation for stock options issued to employees has been recognized to the extent market value of the stock at the grant date exceeded the option price.

During 2002 the Company expensed $94,792 of previously deferred stock-based compensation relating to outstanding stock options which vested.

During 2002 the Company settled debt totaling $393,684 by the issuance of 5,720,000 shares at a price of $0.0571 per share resulting in a gain of $67,072.

Income taxes are provided pursuant to SFAS No. 109, Accounting for Income Taxes. The statement requires the use of an asset and liability approach for financial reporting for income taxes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. Accordingly, as the realization and use of the net operating loss carryforward is not probable, the tax benefit of the loss carryforward has been offset by a valuation allowance of the same amount.

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments, including cash and cash equivalents and notes and accounts receivable and payable, approximate carrying value due to the short-term maturity of the instruments.

On February 13, 2003, the Company entered into a Letter of Intent with Dominique Bigle ("Bigle") to acquire Bigle's library of over 1500 motion pictures (the "Trocadero Library"). In consideration for acquiring the Trocadero Library, the Company agreed to issue to Bigle one million (1,000,000) common shares of its capital stock and to pay $300,000 to Bigle. As of March 14, 2003, the Company has paid a deposit of $50,000 to Bigle. The Company expects to complete the acquisition on May 1, 2003. Once this acquisition is complete, the Company intends to exploit the Trocadero Library on digital video disc and video on demand and will market the products through the internet using its proprietary technology platform as well as traditional marketing means. Bigle will be appointed as a new Director and will be responsible for the exploitation of and maximization of revenues from the Trocadero Library. The Company also plans to continue exploring other available business opportunities whereby it can add to its library of filmed entertainment assets and build a niche-oriented digital video disc releasing and merchandising company.

Not applicable.

All directors of our company hold office until the next annual meeting of the shareholders or until their successors have been elected and qualified. The officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office. Executive directors serve at the discretion of the board of directors and are appointed to serve until the first board of directors meeting following the annual meeting of our shareholders.

As of March 24, 2003, our directors and executive officers, their ages, positions held, and duration as such, are as follows:

Mr. MacLean has been Chairman of the Board of Directors and a director of InternetStudios since September 1999, and served as President from September 1999 to December 1999. Mr. MacLean continues to act in an executive capacity for InternetStudios, however he currently has no title or defined responsibility. For the past five years, Mr. MacLean has been an independent producer of filmed entertainment projects. He has produced over twelve independent motion pictures and television movies including such films as CRIMINAL LAW, BRIGHT ANGEL and MAN WITH A GUN. Mr. MacLean also served as head of production at RKO Pictures in Los Angeles and has developed and produced a number of miniseries and movies of the week for ABC, CBS, and HBO. Mr. MacLean began his film career as a documentary filmmaker based in Paris, France where he produced several documentary series including, THE LAST SAILORS and THE GOLD LUST. Mr. MacLean obtained a Bachelor's of Art degree from University of Oregon and a Cer tificate of Advanced Motion Picture Productions from Banff School of Fine Arts.

Mr. Rutledge has been Secretary, Treasurer, Vice President of Business Affairs and a director of InternetStudios since September 1999. He has a Bachelor of Arts (Honors) and a Bachelor of Laws from University of British Columbia. He was the Vice President of Business Affairs for Northwood Entertainment Corp. from 1997 to August 1999, and was the Vice President of Business Affairs for Movie Vista Productions from 1994 to 1997. As Vice President of those two companies, Mr. Rutledge was responsible for negotiating and preparing contracts for film and television distribution and financing of film and television productions. Prior to these positions, Mr. Rutledge practiced law for six years, specializing in the areas of corporate finance and entertainment law. In addition, Mr. Rutledge produced a number of award winning medical documentaries.

There are no family relationships among our directors or officers.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

To our knowledge, based solely upon our review of copies of such reports or written representations from certain reporting persons that no Form 5 was required to be filed by those persons, we believe that for the year ended December 31, 2002, all filing requirements applicable to our officers, directors and greater than 10% beneficial shareholders and other persons subject to Section 16(a) of the Securities and Exchange Act of 1934 were complied with.

The following table summarizes the compensation of our Chairman of the Board and other officers and directors who received annual compensation in excess of $100,000 during the fiscal years ended December 31, 2002, 2001, and 2000. For the year ended December 31, 2002, named executive officers include Robert MacLean and Mark Rutledge. No other officers or directors received annual compensation in excess of $100,000 during the fiscal years ended December 31, 2002, 2001 and 2000.