SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

--------------------------------------------------------------------------------

                                   FORM 10-KSB

              Annual Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 2001

                        Commission File Number: 000-24835

                                 PTN MEDIA, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Delaware                                            38-3399098
 ----------------------                             ---------------------------
(State of Incorporation)                           (I.R.S. Employer I.D. Number)


        455 East Eisenhower Parkway, Suite 15, Ann Arbor, Michigan 48108
               ---------------------------------------------------
              (Address of principal executive offices and Zip Code)

                                 (734) 327-0579
               --------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:   None.

Securities registered pursuant to Section 12(g) of the Exchange Act:
                                  Common Stock.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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: [X] YES [ ] NO

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of 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: [X]

Registrant's revenues for its most recent fiscal year (ended December 31, 2001):
$277,725
--------

Aggregate market value of voting stock held by non-affiliates: $5,245,449
                                                              -----------

Indicate the number of shares outstanding of each of the registrant's classes of
common stock:

6,524,161 common shares were outstanding as of December 31, 2001
---------

<PAGE>


                                TABLE OF CONTENTS
                                -----------------

Part I.......................................................................  2


Item 1. Description of Business..............................................  2

Item 2. Description of Property..............................................  6

Item 3. Legal Proceedings....................................................  6

Item 4. Submission of Matters to a Vote of Security Holders..................  7


Part II......................................................................  8


Item 5. Market for Common Equity and Related Stockholder Matters.............  8

Item 6. Management's  Discussion and Analysis of Financial Condition......... 10

Item 7. Financial Statements................................................. 10

Item 8. Changes in and Disagreements with Accountants an Accounting and
        Financial Disclosure................................................. 10


Part III..................................................................... 11


Item 9. Directors, Executive Officers, Promoters and Control Persons......... 11

Item 10. Executive Compensation.............................................. 12

Item 11. Security Ownership of Certain Beneficial Owners and Management...... 14

Item 12. Certain Relationships and Related Transactions...................... 15

Item 13. Exhibits and Reports on Form 8-K.................................... 16


Signatures .................................................................. 17

                                        i

<PAGE>



                                     PART I


ITEM 1.   DESCRIPTION OF BUSINESS.

     This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for
forward looking statements to encourage companies to provide prospective forward
looking information about themselves so long as they identify these statements
as forward looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact made in this
Annual Report on Form 10-KSB are forward looking. In particular, the statements
herein regarding industry prospects and future results of operations or
financial position are forward-looking statements. Forward-looking statements
reflect management's current expectations and are inherently uncertain. Our
actual results may differ significantly from management's expectations.

                       Our Business in Hand-Held Computers

     We are a developer and marketer of hand-held electronic products. In 2000,
we entered into an agreement with Palm, Inc., the maker of hand-held computing
devices to create branded hand-held devices based on the Palm model. Our
products also include Palm software, mobile phone covers, mobile phone handsets
and mobile phone applications. We seek to sell our products through retailers
such as the NBA Store, Michael Jordan's 23, Modell's Sporting Goods and Tower
Records.

     Our products are manufactured by third parties, including Palm Inc. and
Motorola, utilizing our designs and licensed images. We currently have licensing
agreements with Michael Jordan, Christina Aguilera and the Estate of Vince
Lombardi.

The Palm Vx-Michael Jordan Edition

     On December 29, 2000, we entered into a three-year license agreement with
Michael Jordan, the National Basketball Association player, granting us the
right to use Mr. Jordan's name, likeness and image in connection with the
proposed advertisement, promotion and sale of certain branded Palm Inc.
products, including the Palm Pilot series. In addition to the standard features
of Palm products, we plan that the Michael Jordan edition include branding,
identification and software applications that will appeal to the market segment
associated with Mr. Jordan.

     We are currently in default on the license agreement with Mr. Jordan. We
expect to cure this default in a timely manner, but there can be no assurance
that we will be able to do so. The license agreement with Mr. Jordan provides
that we pay Mr. Jordan a royalty equal to 12% of the proceeds from the sale of
certain Palm Inc. branded products, but in no event less than an annual minimum
royalty of $1,250,000, with $600,000 payable at the beginning of each year and
$650,000 payable by the end of each year. We paid Mr. Jordan his minimum annual
royalty of $1,250,000 for the year 2001 in two payments - - a payment of

                                       2

<PAGE>


$500,000 in December 2000 and $750,000 in 2001. However, as of the date hereof,
we have only paid Mr. Jordan $300,000 toward the 2002 minimum royalty even
though $600,000 was due as of the beginning of the year. Mr. Jordan's
representatives have notified us that we are in default.

The Christina Aguilera Hand-Held Computers

     On February 19, 2001, we entered into a two year license with pop music
artist Christina Aguilera granting us the right to use Ms. Aguilera's name,
likeness and image in connection with the proposed-advertisement, promotion and
sale of certain hand-held computers.

     The license agreement provides that we shall pay Ms. Aguilera a royalty
equal to twelve percent (12%) of the proceeds from the sale of certain hand-held
computers, but in no event less than an annual minimum royalty of $100,000. We
also agreed to deliver shares of PTN Media, Inc. common stock equal to $50,000,
based on the closing price of the common stock on February 19, 2001. We have
paid Ms. Aguilera the minimum $100,000 and the required shares of common stock.

     We have entered into an agreement with Motorola, Inc. to sublicense our
rights with respect to Ms. Aguilera to allow Motorola to manufacture certain
accessories and applicatons to its Iden phones that include the image and sound
recordings of Ms. Aguilera. We have amended our license agreement with Ms.
Aguilera to permit this arrangement.

The Tony Stewart Hand-Held Palm Computers

     We have entered into a license agreement with Nascar race car driver Tony
Stewart on November 16, 2001. The agreement permits us to utilize Mr. Stewart's
image and likeness in connection with the handheld Palm computer. The license
agreement requires 12% royalties and a $10,000 advance from the Company.

     Our business model is to grow in the area of mobile handsets and mobile
applications. This business model includes seeking to obtain licenses with
well-known motorsports and entertainment figures, develop large promotional
programs that permit us to market our products more effectively and develop
other distribution channels.

                             Our Sources of Revenue

Sales of Branded Electronic Devices

     We derive our limited revenues substantially from the sale of Palm devices
and mobile phones and covers for mobile phones. Our suppliers require us to
purchase these products and resell them to consumers and wholesalers.

Sales of Accessories and Software

     We also sell Michael Jordan branded carrying cases for the Palm series of
handheld computers. We also sell in CD format and via download, a single title
for the Palm Operating System entitled "Strive to Excel." This is a collection
of motivational quotes from the famed-football coach Vince Lombardi.

Sales of Mobile Applications

     We sell a Java based application for mobile phones called "Christina
Everywhere." This product is available to Nextel subscribers that have the iDen
services of phones.

     We also are seeking to sell mobile application software either via over the
air download or bundled with a particular mobile phone. These applications may
be sold as a subscription or as a single download. We have entered into an
agreement with the American Society of Composers, Authors and Publishers
("ASCAP") for the licensing of ringtones for mobile phones. ASCAP maintains the
rights to 8 million copyrighted musical works.

                                       3

<PAGE>


Marketing and Promotion

     We continually evaluate numerous ways to reach our potential customers and
to promote our products. We intend to continue to promote our products through
the following means:

     o    On-site promotions. As an example, we have negotiated for in-game
          announcements during the NBA Washington Wizards home games
          highlighting the Jordan edition of the palm. Mr. Jordan is a member of
          the Washington Wizards.

     o    Develop co-marketing and co-sales promotions. We participated during
          2001 in the Nike sponsored Michael Jordan launch event which resulted
          in product sales to Nike.

     o    Advertise our celebrity-branded phones and hand-held computers through
          traditional media such as radio, newspapers, magazines and television.

                      RISKS THAT MAY AFFECT FUTURE RESULTS

     The following risk factors and other information included in this Annual
Report should be carefully considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also may impair our
business operations. If any of the following risks actually occur, our business,
financial condition and operating results could be materially adversely
affected.

We have an accumulated deficit and anticipate further losses.

     We have incurred significant losses since we began doing business. There
can be no assurance that our services and products will ever generate sufficient
revenues or that our operations will ever be profitable. As of December 31,
2001, we had an accumulated deficit of $13,200,814. We expect to incur operating
losses for the foreseeable future due to the significant expenses which we
expect to incur in the continued development and marketing of the business we
conduct. These expenses include substantial advance royalty payments that we
have agreed to make to several models and celebrities in connection with license
agreements.

     We have generated extremely limited revenues to date from the business we
conduct and there can be no assurance that we will ever generate revenues from
the business we conduct. We also expect to significantly increase our operating
expenses to expand our sales and marketing operations, to fund greater levels of
product development, and to develop other forms of revenue generating business
and licensing of our proprietary materials to others.

                                       4

<PAGE>


We received an opinion from our accountants for the period ended December 31,
2001 which raised doubt about our ability to continue after such date as a going
concern.

     Our consolidated financial statements for the year ended December 31, 2001,
which are included in this Form 10-KSB, indicate that there was substantial
doubt as of December 31, 2001 about our ability to continue as a going concern
due to our need to generate cash from operations and obtain additional
financing.

We need to raise additional funds to fund our business operations.

     We need to raise additional funds because our cash flows have proven to be
insufficient to fund operations, including our obligations to pay minimum
royalties under our licensing agreements. There can be no assurance that
additional financing will be available to us on commercially reasonable terms,
or at all. We may raise funds through equity or debt financings, depending on
our opportunities. If we raise additional funds by issuing equity securities,
this will further dilute the interests of our current stockholders. If we raise
additional funds by issuing debt securities, we will be subject to the risks
associated with incurring substantial indebtedness, including the risks that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. We have no current arrangements with
respect to, or sources of, additional financing, and it is not anticipated that
our existing stockholders will provide any portion of our future financing
requirements.

     We may not be able to compete successfully in the hand-held device and
operating system software markets. This would have a material adverse effect on
or business, results of operations and financial condition.

     As we attempt to expand into the hand-held device and operating system
software markets, our future growth will depend on the commercial success of our
Michael Jordan and Christina Aguilera hand-held devices. The markets for these
products and services are highly competitive and we expect competition to
increase in the future. Most of our competitors in this market have
significantly greater financial, technical and marketing resources than we do.
This will make it difficult for us to compete successfully in the hand-held
device and operating system software markets.

The loss of our Chief Executive Officer's services would have a material adverse
effect on us.

     Our success will be largely dependent on the efforts of Peter Klamka, our
Chairman, President and Chief Executive Officer, and his ability to forge new
relationships with celebrities and to maintain such relationships, as well as to
oversee the development and maintenance of our products. Our success will also
be highly dependent on Mr. Klamka's ability, as well as the ability of others
employed by us, to obtain advertising placements consistent with the demographic
characteristics of the users of our web sites. The loss of his services would
have a material adverse effect on our business and prospects.

                                       5

<PAGE>


     We have not entered into an employment agreement with Mr. Klamka and Mr.
Klamka has not entered into any agreement restricting his involvement in a
business which competes with us. As a result, Mr. Klamka is an employee-at-will
and has the right to leave us at any time. Mr. Klamka has informed us that he
intends to devote a substantial portion of his working time to our business and
that he also intends to devote a portion of his time to other business interests
that do not compete with our business. In addition, Mr. Klamka is not restricted
from entering into a competing business after the term of his employment with
us; provided, however, that he would not be permitted to use proprietary
information and trade secrets belonging to us. Our success will also be
dependent upon our ability to hire and retain marketing, financial and other
personnel. Competition for qualified personnel is intense and there can be no
assurance that we will be able to hire or retain additional qualified personnel.

                                    Employees

     The Company presently employs two individuals, Peter Klamka, its President
and Chief Executive Officer and Chris Giordano, its Chief Operating Officer.
None of the Company's employees are represented by a labor union.

                                   Facilities

     The Company currently maintains its executive offices, consisting of 1,353
square feet of space, at 455 East Eisenhower Parkway, Suite 15, Ann Arbor,
Michigan, pursuant to a three year lease at a monthly rental of $2,227. The
telephone number is (734) 327-0579.

ITEM 2.   DESCRIPTION OF PROPERTY.

     The Company does not own any real property.

ITEM 3.   LEGAL PROCEEDINGS.

Arbitration filed by well-known model Tyra Banks

     We entered into a license agreement with a company controlled by well-known
model, Tyra Banks. In addition, we also entered into an agreement with Ms.
Banks' company in connection with the creation, marketing and sale of calendars
and electronic planners featuring photographs of Ms. Banks. On June 18, 1998,
Ms. Banks declared us in breach of both of these agreements and has refused to
perform under either of them. The basis for this declaration was our alleged
failure to pay the full amount of all advances due and payable to Ms. Banks'
company pursuant to the agreements, as well as our failure to fully reimburse
Ms. Banks for certain expenses provided for under the calendar agreement. To
date, we have advanced funds to Ms. Banks' company in the aggregate amount of
$134,000. We received a letter from Ms. Banks' attorneys, dated September 8,
1998, demanding that we pay to Ms. Banks' company an additional $153,000 on or
before September 15, 1998, cease all uses of Ms. Banks' name, picture and
likeness and return all photographs and images of Ms. Banks. This letter further
stated that in the event that we failed to comply with their demands by that
date, Ms. Banks and her company would be forced to take all "appropriate" action
to recover all amounts alleged to be owed, and to enforce their rights against
us.

                                       6

<PAGE>


     On December 8, 1998, attorneys for Tyra Banks and Bankable, Inc., an entity
controlled by Ms. Banks, made a Demand for Arbitration against the Company under
the Commercial Arbitration Rules of the American Arbitration Association. Ms.
Banks' attorneys alleged that the Company failed to make timely payments of
money due upon the execution the Web site License Agreement and Calendar
Agreement between Ms. Banks and the Company, and refused to return photographs,
pictures, prints, negatives and images of Ms. Banks. Ms. Banks sought damages
under the Calendar Agreement in the amount of $161,333, damages under the Web
site Agreement of $370,000 and legal fees. On January 15, 1999, the Company,
through its attorneys, filed an Answer and Counterclaim to Ms. Banks' Demand for
Arbitration. The Company raised several defenses to Ms. Banks' claims and
claimed a breach by Ms. Banks and Bankable, Inc. of the Web site Agreement. The
Company sought the amount of $264,000 in damages related to the Agreements. A
preliminary administrative conference was held on January 19, 1999, and a
hearing was held in October 1999 and the Company filed briefs on March 6, 2000
in response. In June, 2000 the arbitrator awarded Ms. Banks $128,000, plus
interest on this amount at 12% from April 1, 1998. In addition, the Company is
to pay the arbitrator fee and the administrative expenses of the arbitrator. The
arbitrator reaffirmed the award in August, 2000. During 2001, the Company paid
this settlement in full.

The Loni Z. Buck Matter

     The Company is currently involved in litigation entitled Loni Z. Buck f/s/a
Loni Z. Spurkeland v. PTN Media, Inc. A Summons and Complaint was filed by Loni
Z. Buck on or about May 12, 2001 in the Supreme Court of the State of New York
County of New York seeking $67,750.00 in damages related to an investment in the
Company. The parties to this action are involved in settlement negotiations at
this time.

The Global Financial Press Matter

     The Company was also involved in a litigation involving corporate printing
fees entitled Global Financial Press, Inc v. Peter Klamka and PTN Media, Inc. in
the Eastern District of Pennsylvania Bankruptcy Court. This matter was settled
on or about February 6, 2002 for $18,542.75.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters were submitted for shareholder approval during the fourth
quarter of the fiscal year covered by this Report.

                                   7

<PAGE>


                                    PART II.


ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.


     (a) Market Information. Our common stock has been quoted on the NASDAQ
Bulletin Board under the symbol "PTNM" since March 29, 1999.

     The following table sets forth the range of high and low closing prices for
our common stock for each quarterly period indicated, as reported by brokers and
dealers making a market in the capital stock. Such quotations reflect
inner-dealer prices without retail markup, markdown or commission, and may not
necessarily represent actual transactions.

                                   Price Range
                                   -----------
                                                  High        Low
                                                  ----        ---
Calendar Year 2001
------------------
First Quarter.................................... $4.31      $1.13

Second Quarter .................................. $3.80      $1.38

Third Quarter.................................... $2.75      $1.15

Fourth Quarter .................................. $1.80      $1.01

Calendar Year 2000
------------------
First Quarter....................................$15.06      $5.25

Second Quarter ..................................  9.75       3.00

Third Quarter....................................  4.97       3.25

Fourth Quarter ..................................  3.88       1.06


     (b) Recent Sales of Unregistered Securities.

     In August 2001, the Company issued two promissory notes in a private
placement totaling $400,000. One such note was payable in September 2001 and the
other was payable in October 2001. These notes have not been repaid as of the
date hereof. In connection with these notes, we also granted a total of 80,000
warrants to purchase the Company's common stock at $1 per share. The Company has
determined the fair value of these warrants to be $99,317.

     In 2001, the Company issued 115,000 shares of its common stock in a private
placement for professional services valued at $213,750. Additionally, in 2001,
the Company issued 40,000 shares of its common stock for license fees valued at
$70,550.

                                       8

<PAGE>


     For the entire year of 2001, the Company issued 1,437,200 shares of its
common stock in private placements for net proceeds of $1,371,700.

     From January 1, 2002 through February 28, 2002, the Company has issued
460,250 shares of its common stock in private placement offerings with net
proceeds to the Company of $460,250.

     (c) Holders. As of March 31, 2002, there were approximately 110 record
holders of the Company's Common Stock.

     (d) Dividends. The Company has not paid any cash or other dividends on its
Common Stock since its inception and does not anticipate paying any such
dividends in the foreseeable future. The Company intends to retain any earnings
for use in the Company's operations and to finance the expansion of its
business.

                                       9

<PAGE>


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION.

     This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for
forward looking statements to encourage companies to provide prospective forward
looking information about themselves so long as they identify these statements
as forward looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact made in this
Annual Report on Form 10-KSB are forward looking. In particular, the statements
herein regarding industry prospects and future results of operations or
financial position are forward-looking statements. Forward-looking statements
reflect management's current expectations and are inherently uncertain. Our
actual results may differ significantly from management's expectations.

     The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this document. The discussion of results, causes and trends should
not be construed to imply any conclusion that such results or trends will
necessarily continue in the future.

General

We were incorporated in Delaware on January 13, 1998 and are the successor to
Interactive Entertainment Studio, Inc. (IES). IES was incorporated in the State
of Nevada on May 27, 1997 and was merged into us in March 1998 for the sole
purpose of changing the domicile of the company to Delaware. This merger was
retroactively reflected in the December 31, 1997 financial statements. We were
in the development stage in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 7 since our inception to December 31, 2000 and had
accumulated a deficit while in the development stage of $9,187,520. Effective
January 1, 2001, we were no longer considered to be in the development stage as
we began selling our Claudia Schiffer edition of the Palm.

We are a developer and marketer of hand-held electronic products. In 2000, we
entered into an agreement with Palm, Inc., the maker of hand-held computing
devices to create branded hand-held devices based on the Palm model. Our
products also include Palm software, mobile phone covers, mobile phone handsets
and mobile phone applications. We seek to sell our products through retailers
such as the NBA Store, Michael Jordan's 23, Modell's Sporting Goods and Tower
Records. Our products are manufactured by third parties, including Palm Inc. and
Motorola, utilizing our designs and licensed images. We currently have licensing
agreements with Michael Jordan, Christina Aguilera and the Estate of Vince
Lombardi.

Since our inception, we have incurred net losses of, $13,200,814 and at December
31, 2001 current liabilities exceeded current assets by $2,084,118. In addition,
we are delinquent in certain payments due for license fees and notes payable. We
may be unable to continue in existence unless we are able to arrange additional
financing and achieve profitable operations. We plan to raise additional capital
and expect to generate cash from the sale of products in 2002.

On December 29, 2000, we entered into a three-year license agreement with
Michael Jordan, the National Basketball Association player, granting us the
right to use Mr. Jordan's name, likeness and image in connection with the
proposed advertisement, promotion and sale of certain branded Palm Inc.
products, including the Palm Pilot series. In addition to the standard features
of Palm products, we plan that the Michael Jordan edition include branding,
identification and software applications that will appeal to the market segment
associated with Mr. Jordan.

We are currently in default on the license agreement with Mr. Jordan. We expect
to cure this default in a timely manner, but there can be no assurance that we
will be able to do so. The license agreement with Mr. Jordan provides that we
pay Mr. Jordan a royalty equal to 12% of the proceeds from the sale of certain
Palm Inc. branded products, but in no event less than an annual minimum royalty
of $1,250,000, with $600,000 payable at the beginning of each year and $650,000
payable by the end of each year. We paid Mr. Jordan his minimum annual royalty
of $1,250,000 for the year 2001 in two payments - - a payment of $500,000 in
December 2000 and $750,000 in 2001. However, as of the date hereof, we have only
paid Mr. Jordan $300,000 toward the 2002 minimum royalty even though $600,000
was due as of the beginning of the year. Mr. Jordan's representatives have
notified us that we are in default.


                                       10
<PAGE>


On February 19, 2001, we entered into a two year license with pop music artist
Christina Aguilera granting us the right to use Ms. Aguilera's name, likeness
and image in connection with the proposed-advertisement, promotion and sale of
certain hand-held computers.

The license agreement provides that we shall pay Ms. Aguilera a royalty equal to
twelve percent (12%) of the proceeds from the sale of certain hand-held
computers, but in no event less than an annual minimum royalty of $100,000. We
also agreed to deliver shares of PTN Media, Inc. common stock equal to $50,000,
based on the closing price of the common stock on February 19, 2001. We have
paid Ms. Aguilera the minimum $100,000 and the required shares of common stock.

Our business model is to grow in the area of mobile handsets and mobile
applications. This business model includes seeking to obtain licenses with
well-known motorsports and entertainment figures, develop large promotional
programs that permit us to market our products more effectively and develop
other distribution channels.


                              Results of Operations

During the year ended December 31, 2001, we sold the Claudia Schiffer and
Michael Jordan edition of the Palm. Sales of the Claudia Schiffer edition Palm
began in January 2001 and sales of the Michael Jordan Palm began in late June
2001. Sales for the year ended December 31, 2001 amounted to $277,725. Sales for
the year ended December 31, 2000 were not significant. As of December 31, 2001,
we had approximately 1,500 units of the Michael Jordan edition of the Palm in
inventory that we expect to sell in 2002.

Cost of revenue for the year ended December 31, 2001 was $234,375 that resulted
is a gross margin percentage of 15.6%. There was no cost of revenue in 2000
since sales for that year were not significant.

Product development costs for the year ended December 31, 2001 was $1,637,142
compared to $3,007,539 for the same period in 2000. The significant decrease in
product development costs is a result of us spending less money on the
development of our websites and producing content for our radio shows.

General and administrative expenses for the year ended December 31, 2001 was
$1,743,268 compared to $1,548,942 for the same period in 2000. The increase of
$194,326 for the year ended December 31, 2001 compared to the year ended
December 31, 2000 is a result of an increase in advertising and travel related
to the promotion of the Michael Jordan edition of the Palm, an increase in
salaries and benefits as a result of hiring additional personnel offset by a
decrease in legal fees and professional fees as a result of the settlement of
the Tyra Banks lawsuit.

Interest expense and financing costs for the year ended December 31, 2001 was
$676,234 compared to $158,934 for the same period in 2000. The increase is due
to interest on the $1,000,000 promissory note issued by us in November 2000 that
was subsequently converted into a royalty participation certificate, the
financing charge associated with the issuance of 200,000 warrants issued in
connection with the conversion of this promissory note into a profit
participation certificate, and the financing charge associated with the issuance
of 80,000 warrants in connection with the $400,000 in notes payable issued in
August 2001.


                                       11

<PAGE>


                         Liquidity and Capital Resources

On November 22, 2000, we issued a promissory note to an individual in the amount
of $1,000,000. The note bears interest at 9.25% and was due on April 1, 2001.
During the year ended December 31, 2001, the note holder converted the full
amount of the note into a profit participation obligation that provides for the
holder to receive 7.5% of the profits from the sale of the Claudia Schiffer Palm
Pilot, the Michael Jordan Palm Pilot and any other celebrity branded Palm Pilot
that we sell. The $1,000,000 profit participation obligation will be reduced as
profits payments are made to the holder. In addition, the accrued interest on
the note of $53,958 was converted into 25,000 shares of the Company's common
stock.

In February 2001, our Chief Executive Officer loaned us $100,000 to pay the
license fee to Christina Aguilera. The loan is payable on demand and accrues
interest at 12%. The loan was repaid in full.

In 2000, we raised net proceeds of $1,293,970 in private placement offerings of
our common stock and we also raised $975,000 in a private placement offering of
the common stock of our wholly owned subsidiary, Fragrance. In addition, in
2001, we raised net proceeds of $1,371,700 in private placement offerings of our
common stock.

We have incurred net losses since our inception of $13,200,814. In order for us
to continue in existence, we will have to raise additional capital through the
sale of equity or debt or generate sufficient profits from operations, or a
combination of both.


ITEM 7.   FINANCIAL STATEMENTS.

     Our consolidated financial statements, including the notes thereto and the
report of independent accountants thereon, begin on page F-1 of this Annual
Report.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISLOSURE.

     None.

                                   PART III.


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

     (a) Directors and executive officers of the Company:

Directors and Executive Officers

     Our directors and executive officers are as follows:

         NAME                     AGE                    POSITION
         ----                     ---                    --------

     Peter Klamka...........       33        Chairman of the Board, President,
                                             Chief Executive Officer, Treasurer
                                             and Secretary

     Chris Giordano.........       46        Chief Operating Officer

     The business experience, principal occupations and employment, as well as
the periods of service, of each of our directors and executive officers during
the last five years are set forth below.

     Peter Klamka has been our Chairman of the Board and Chief Executive Officer
since our inception in May 1997. In 1994, Mr. Klamka founded Wilshire Fragrance,
a company that developed and marketed men's fragrance products. Mr. Klamka was
the chief executive officer of Wilshire Fragrance from 1994 through 1996. In
connection with his fragrance business, in 1996, Mr. Klamka developed, what he
believes to have been one of the first authorized celebrity web sites, featuring
Anna Nicole Smith promoting fragrances for Wilshire Fragrance. Mr. Klamka
continued working on this web site until early 1997. Mr. Klamka received his
Bachelor of Arts degree from the University of Michigan.

                                       12

<PAGE>


     Chris Giordano has been our Chief Operating Officer since December 1999.
Mr. Giordano has been President of Birchwood Capital Advisors Group, Inc. since
1992 and has arranged over $200 million in financings in that period. Mr.
Giordano earned a BSBA in Accounting and Finance from the University of South
Florida in 1977.

     (b) Other significant employees. None.

     (c) Family relationships. None.

     (d) Involvement in certain legal proceedings. None.

<TABLE>
<CAPTION>

Section 16(a) Beneficial Ownership Reporting Compliance

     Pursuant to Section 16(a) of the Securities Exchange Act of 1934, and the
rules issued thereunder, our directors and executive officers are required to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership of Common Stock and other equity securities of the Company.
Copies of such reports are required to be furnished to the Company. Based solely
on a review of the copies of such reports furnished to the Company, or written
representations that no other reports were required, we believe that, during our
fiscal year ended December 31, 2001, all of our executive officers and directors
complied with the requirements of Section 16(a).


ITEM 10.  EXECUTIVE COMPENSATION.

       The following table sets forth the annual compensation paid to executive
officers of the Company for the fiscal year ended December 31, 2001. No
executive officer received annual compensation in excess of $100,000.

                           Summary Compensation Table


                                                                         Long Term
                                                                        Compensation
         Name and                                                        Securities
         Principal Position    Year     Salary($)     Bonus($)     Underlying Options(#)
         ------------------    ----     ---------     --------     ---------------------
         <S>                  <C>          <C>               <C>             <C>
         Peter Klamka          2001         $0                0         384,500
         Chief Executive       2000         $0                0               0
         Officer               1999    $45,000                0         250,000


                     Option Grants in Last Fiscal Year Table

                  Shares              % of Total                   Exercise
                  Underlying          Options Granted              or Base
                  Options             to Employees in              Price
Name              Granted             Fiscal Year                  ($/Sh)
----              -------             -----------                  ------

Peter Klamka        0                    -- (1)                      --
Chief Executive
Officer

-----------------------

(1)  Mr. Klamka and Mr. Giordano were each granted options to purchase 384,500
     shares of the Company's Common Stock and warrants to purchase 115,000
     shares of the Company's Common Stock during the fiscal year ended
     December 31, 2001.

                                       13
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
                                  Values Table

                                                Number of
                                                Unexercised       Value of
                                                Options at        Unexercised
                   Shares                       FY-End (#)        In-The-Money
                   Acquired on     Value        Exercisable/      Options at FY-End ($)
Name               Exercise (#)    Realized     Unexercisable     Exercisable/Unexercisable
----               ------------    --------     -------------     -------------------------
<S>                     <C>           <C>          <C>       <C>          <C>  <C>
Peter Klamka            0             0            750,000 / 0            $0 / $0
Chief Executive
Officer


Employment and Consulting Agreements

     We have no employment or other written agreement with Peter Klamka, our
President and Chief Executive Officer. Mr. Klamka has an oral agreement with the
Company to receive a base salary of $100,000 per year and such other
compensation as the Board of Directors shall designate. The Company believes
that Mr. Klamka will continue to waive a portion of the base salary for the
foreseeable future, although no assurance thereof can be given.

     Mr. Klamka is involved in other business ventures, including the ownership
of over 500,000 shares of American Sports History Inc. (approximately 5.5% of
its outstanding capital stock), a Nasdaq Bulletin Board company, but he intends
to devote substantially all his business time and effort on behalf of the
Company for the foreseeable future. Mr. Klamka has orally committed that, for so
long as the Company shall be in existence, he shall conduct no business relating
to models or fashion personalities other than through the Company.

     We have no employment or other written agreement with Mr. Giordano.

Limitation of Liability and Indemnification Matters

     As permitted pursuant to the corporate law of the State of Delaware, our
state of incorporation, the Certificate of Incorporation requires that we
indemnify its directors and officers against certain liabilities and expenses
incurred in their service in such capacities to the fullest extent permitted by
applicable law. These provisions would provide indemnification for liabilities
arising under the federal securities laws to the extent that such
indemnification is found to be enforceable under, and to be in accordance with
applicable law. Additionally, we have entered into an indemnity agreement with
each director and officer which generally provides that they are indemnified
with respect to actions taken in good faith. Furthermore, the personal liability
of the directors is limited as provided in our Certificate of Incorporation.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of PTN Media,
Inc. pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

                                       14
</TABLE>

<PAGE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of the date of this prospectus
by: (a) each stockholder known by us to be the beneficial owner of more than 5%
of our common stock; (b) each of our directors; (c) the named executive
officers; and (d) all executive officers and directors as a group.

     Except as otherwise indicated, we believe that the beneficial owners of
common stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable.

                            Shares Beneficially Owned
                            -------------------------

Name and Address                  Number of Shares
Of Beneficial Owner               Beneficially Owned        Percent of Class (1)
-------------------               ------------------        --------------------


Peter Klamka(2)                 2,849,674(3)                       40.6%
Chris H. Giordano(2)            1,026,000(4)                       14.6%
Claudia Schiffer(5)               269,682                           4.1%
American Nortel(6)                400,000                           6.1%

All directors and executive
officers as a group (2 persons)   3,777,414                        50.2%


(1)  Based on 6,524,161 shares outstanding as of December 31, 2001.

(2)  Mr. Klamka's and Mr. Giordano's address is the same as that of the Company.

(3)  Includes 750,000 currently exercisable options to purchase 750,000 shares
     of the Company's common stock, and 115,500 currently exercisable warrants
     to purchase 115,500 shares of the Company's common stock.

(4)  Includes 509,500 currently exercisable options to purchase 509,500 shares
     of the Company's common stock, and 115,500 currently exercisable warrants
     to purchse 115,500 shares of the Company's common stock.

(5)  Ms. Schiffer's business address is c/o Peter Klamka, 455 East Eisenhower
     Parkway, Suite 15, Ann Arbor, Michigan 48108.

(6)  American Nortel's address is 7201 East Camelback Road, Suite 320,
     Scottsdale, Arizona 85251.

                                       15

<PAGE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     In June 1997, Mr. Klamka purchased 2,117,008 shares of our Common Stock for
an aggregate purchase price, paid by delivery of a promissory note of $2,117.01.
In June 1997 Chris Giordano purchased 540,340 shares of our Common Stock for an
aggregate purchase price, paid by delivery of a promissory note, of $540.34. In
June 1997 Michael Giordano purchased 300,000 shares of our Common Stock for an
aggregate purchase price, paid by delivery of a promissory note, of $300.00. All
three promissory notes have been paid in full. Messrs. Klamka, Chris Giordano
and Michael Giordano are each deemed to be founders and promoters of the
Company.

     In April 1998, Mr. Klamka provided the Company with a revolving credit line
with a maximum of $500,000 available. In September 1998, the Board of Directors
of the Company authorized an increase in this line to $610,000, and in November
and December 1998, further increases to $1,000,000 were authorized. Loans drawn
on the credit line bear interest at a rate of 9% per annum from the date they
are made and are payable by May 2001. Monies loaned were used to make certain
payments to Niki Taylor's company, to provide a payment required under the
Calendar Agreement with Claudia Schiffer, and for working capital. In January
2000 the then current balance of $548,500 owed to Mr. Klamka was converted into
110,000 shares of Common Stock.

     During the years ended December 31, 2001 and 2000, the Company paid
Birchwood Capital Advisors Group, Inc. $103,000 and 62,500, respectively, in
commissions in connection with monies raised for the Company and for investor
relations. Chris Giordano, our Chief Operating Officer, is an officer of
Birchwood Capital Advisors Group, Inc.

     During the year ended December 31, 2000, Mr. Giordano exercised 100,000
options to purchase the Company's common stock and executed a note payable in
favor of the Company with a principal amount of $156,300.

                                       16

<PAGE>


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits

Exhibit
Number                              Description

3.1(1)         Certificate of Incorporation of PTN Media, Inc. dated as of
               January 13, 1998.

3.2(1)         By-Laws of PTN Media, Inc.

4.2(2)         PTN Media, Inc. 2000 Stock Option Plan

10.1(3)        Amendment to Palm, Inc. and PTN Media, Inc. Agreement of October
               5, 2000

10.2(3)        License Agreement dated February 19, 2001 between 3 Wishes
               Production f/s/o Christina Aguilera and PTN Media, Inc.

10.3(4)        General Agreement dated July 28, 2000, between PTN Media, Inc.
               and NeoHand, Inc . 10.4(4) Partnering Agreement dated October 27,
               2000, between PTN Media, Inc. and TWEC.com, LLC

10.5(4)        Palm, Inc. OEM Partner Agreement dated October 5, 200, between
               PTN Media, Inc. and Palm, Inc.

10.6(4)        Merchant and Partner Network Agreement dated May 8, 2000, between
               PTN Media, Inc. and Dynamic Trade Inc.

10.7(5)        License Agreement dated January 4, 2001 between PTN Media, Inc.
               and Michael Jordan

10.8(6)        License Supply and Distributor Agreement between PTN Media, Inc.
               and Motorola, Inc. dated February 25, 2002

10.9(6)        License Amendment between PTN Media, Inc. and Christina Aguilera

21.1(6)        List of PTN Media, Inc. Subsidiaries

23.1(6)        Consent of Independent Certified Public Accountants
---------------------

(1)  Incorporated by reference from the Company's Registration Statement on Form
     SB-2 (File #333-51933).

(2)  Incorporated by reference from the Company's Definitive Proxy Statement
     filed on July 24, 2000.

(3)  Incorporated by reference from the Company's Form 10-KSB for the fiscal
     year ended December 31, 2000.

(4)  Incorporated by reference from the Company's Registration Statement on Form
     S-3 filed on December 11, 2000.

(5)  Incorporated by reference from the Company's Form 8-K filed January 9,
     2001.

(6)  Filed herewith.

     (b) Reports on Form 8-K.

         None.

                                       17

<PAGE>


                                   SIGNATURES

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

                                            PTN MEDIA, INC.

                                            /s/  Peter Klamka
                                            -----------------------------------
                                                 Peter Klamka
                                                 Chairman, President, Secretary
                                                 and Chief Executive Officer


     In accordance with the requirements of the Exchange Act, this report is
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.

Name and Capacity                                             Date
-----------------                                             ----

/s/  Peter Klamka                                             April 15, 2002
-----------------------------
Name:     Peter Klamka
Title:    Chairman, President, Secretary
          and Chief Executive Officer
          (Principal Executive Officer and
          Principal Financial and Accounting
          Officer)

                                       18

<PAGE>


                                 PTN MEDIA, INC.
                          INDEX TO FINANCIAL STATEMENTS




                                                                         Page(s)
                                                                         -------

INDEPENDENT AUDITORS' REPORTS

     Report on Financial Statements for the Years ended
         December 31, 2001 and 2000                                        F-2

FINANCIAL STATEMENTS

     Consolidated Balance Sheet as of December 31, 2001                    F-4

     Consolidated Statements of Operations for the Years Ended
         December 31, 2001 and 2000                                        F-5

     Consolidated Statements of Shareholders' Deficit for the
         two years Ended December 31, 2001                                 F-6

     Consolidated Statements of Cash Flows for the Years Ended
         December 31, 2001 and 2000                                        F-8

     Notes to Consolidated Financial Statements                            F-10


<PAGE>



                        PTN MEDIA, INC. AND SUBSIDIARIES
                        --------------------------------




                                      INDEX


                                                                         Page(s)
                                                                         -------

INDEPENDENT AUDITORS' REPORT

     Report on financial statements for the years ended
        December 31, 2001 and 2000                                          F-2

FINANCIAL STATEMENTS

     Consolidated Balance Sheet as of December 31, 2001                     F-3

     Consolidated Statements of Operations for the Years
        Ended December 31, 2001 and 2000                                    F-4

     Consolidated Statements of Changes in Shareholders'
        Deficit for the two years ended December 31, 2001                   F-5

     Consolidated Statements of Cash Flows for Years
        Ended December 31, 2001 and 2000                                    F-6

     Notes to Consolidated Financial Statements                             F-7





                                      F-1
<PAGE>


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------




To the Board of Directors and Shareholders
PTN Media, Inc.

We have audited the accompanying consolidated balance sheet of PTN Media, Inc.
and subsidiaries as of December 31, 2001, and the related statements of
operations, shareholders' (deficit), and cash flows for each of the two years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PTN
Media, Inc. and subsidiaries as of December 31, 2001, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company has incurred net losses since its inception and has experienced severe
liquidity problems. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                      /s/ STONEFIELD JOSEPHSON, INC.
                                      ------------------------------
                                      STONEFIELD JOSEPHSON, INC.
                                      Certified Public Accountants


Santa Monica, California
April 9, 2002



                                      F-2
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                   - ASSETS -

                                                                   December 31,
                                                                       2001
                                                                   ------------

CURRENT ASSETS:
     Cash                                                          $     14,022
     Accounts receivable, net of allowance of $6,000                     13,203
     Other receivables                                                   45,576
     Inventory                                                          132,748
     Advance to officers                                                 50,000
     Deposits and prepaid expenses                                       14,726
                                                                   ------------
TOTAL CURRENT ASSETS                                                    270,275

FIXED ASSETS - NET                                                       12,812
OTHER ASSETS                                                              2,226
                                                                   ------------
TOTAL ASSETS                                                       $    285,313
                                                                   ============

                   - LIABILITIES AND SHAREHOLDERS' DEFICIT -

CURRENT LIABILITIES:
     Accounts payable                                              $    185,642
     Accrued expenses                                                    50,421
     Accrued interest                                                    77,080
     License fee payable                                              1,450,000
     Notes payable                                                      591,250
                                                                   ------------
TOTAL CURRENT LIABILITIES                                             2,354,393
                                                                   ------------

PROFIT PARTICIPATION OBLIGATION                                       1,000,000

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT:
     Preferred stock, $0.01 par value;
         1,000,000 shares authorized,
         2,350 shares issued and outstanding                                 24
     Common stock, $0.001 par value;
         10,000,000 shares authorized,
         6,524,161 shares issued and outstanding                          6,524
     Additional paid-in capital                                      10,281,486
     Shareholder receivable                                            (156,300)
     Accumulated deficit                                            (13,200,814)
                                                                   ------------
TOTAL SHAREHOLDERS' DEFICIT                                          (3,069,080)
                                                                   ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                        $    285,313
                                                                   ============


                             See accompanying notes.

                                       F-3
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                      Year Ended December 31,
                                                   ----------------------------
                                                       2001             2000
                                                   -----------      -----------

REVENUE                                            $   277,725      $     5,613

COST OF REVENUE                                        234,375             --
                                                   -----------      -----------

GROSS PROFIT                                            43,350            5,613
                                                   -----------      -----------

OPERATING EXPENSES:
   Product development                               1,637,142        3,007,539
   General and administrative expenses               1,743,268        1,548,942
                                                   -----------      -----------

TOTAL OPERATING EXPENSES                             3,380,410        4,556,481
                                                   -----------      -----------

LOSS FROM OPERATIONS                                (3,337,060)      (4,550,868)
                                                   -----------      -----------

INTEREST EXPENSE AND FINANCING COSTS                  (676,234)        (158,934)
                                                   -----------      -----------

LOSS BEFORE PROVISION FOR INCOME TAXES              (4,013,294)      (4,709,802)

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

NET LOSS                                           $(4,013,294)     $(4,709,802)
                                                   ===========      ===========

BASIC AND DILUTED
   LOSS PER COMMON SHARE                           $     (0.72)     $     (1.06)
                                                   ===========      ===========

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING - BASIC AND DILUTED            5,563,580        4,431,781
                                                   ===========      ===========


                             See accompanying notes.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>


                                        PTN MEDIA, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT


                                                             Preferred Stock                 Common Stock
                                                      ----------------------------    ---------------------------
                                                         Shares          Amount          Shares         Amount
                                                      ------------    ------------    ------------   ------------
<S>                                                   <C>             <C>             <C>            <C>
Balance, December 31, 1999                                   5,600    $         56       4,049,862   $      4,050

Shares issued in exchange for
  loan payable and accrued interest                           --              --           110,000            110
Shares issued in payment of professional fees                 --              --             9,500              9
Shares issued in payment of license fees                      --              --            61,600             62
Exercise of warrants                                          --              --             1,000              1
Conversion of Series A preferred to common                  (3,250)            (32)         65,000             65
Waiver of compensation payable                                --              --              --             --
Shares issued in private placements, net                      --              --           336,000            336
Fair value of warrants issued in
  connection with promissory note                             --              --              --             --
Shares of common stock issued
  in connection private placement
  of shares of Fragrancedirect.com, net                       --              --              --             --
Net loss for year                                             --              --              --             --
                                                      ------------    ------------    ------------   ------------
Balance, December 31, 2000                                   2,350              24       4,632,962          4,633

Shares issued in exchange for accrued interest                --              --            25,000             25
Shares issued in payment of professional fees                 --              --           115,000            115
Shares issued in payment of license fees                      --              --            40,000             40
Exercise of options for note receivable                       --              --           100,000            100
Shares issued in exchange for Fragrancedirect stock           --              --           173,999            174
Waiver of compensation payable                                --              --              --             --
Shares issued in private placements, net                      --              --         1,437,200          1,437
Fair value of warrants issued in
  connection with notes payable                               --              --              --             --
Fair value of warrants issued in connection
  with conversion of promissory note to
  profit participation obligation                             --              --              --             --
Fair value of warrants issued in
  connection with professional services                       --              --              --             --
Net loss for year                                             --              --              --             --
                                                      ------------    ------------    ------------   ------------
Balance, December 31, 2001                                   2,350    $         24       6,524,161   $      6,524
                                                      ============    ============    ============   ============

Table continues on following page.

                                                      F-5
<PAGE>


                                        PTN MEDIA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT, continued


                                                       Additional
                                                        Paid-in        Shareholder    Accumulated        Total
                                                        Capital        Receivable        Deficit       (Deficit)
                                                      ------------    ------------    ------------    ------------

Balance, December 31, 1999                            $  3,954,175    $       --      $ (4,477,718)   $   (519,437)

Shares issued in exchange for
  loan payable and accrued interest                        498,642            --              --           498,752
Shares issued in payment of professional fees               34,116            --              --            34,125
Shares issued in payment of license fees                   324,938            --              --           325,000
Exercise of warrants                                           999            --              --             1,000
Conversion of Series A preferred to common                     (33)           --              --              --
Waiver of compensation payable                             100,000            --              --           100,000
Shares issued in private placements, net                 1,293,634            --              --         1,293,970
Fair value of warrants issued in
  connection with promissory note                          138,000            --              --           138,000
Shares of common stock issued
  in connection private placement
  of shares of Fragrancedirect.com, net                    975,000            --              --           975,000
Net loss for year                                             --              --        (4,709,802)     (4,709,802)
                                                      ------------    ------------    ------------    ------------
Balance, December 31, 2000                               7,319,471            --        (9,187,520)     (1,863,392)

Shares issued in exchange for accrued interest              53,933            --              --            53,958
Shares issued in payment of professional fees              213,635            --              --           213,750
Shares issued in payment of license fees                    70,510            --              --            70,550
Exercise of options for note receivable                    156,200        (156,300)           --              --
Shares issued in exchange for Fragrancedirect stock           (174)           --              --              --
Waiver of compensation payable                             100,000            --              --           100,000
Shares issued in private placements, net                 1,370,263            --              --         1,371,700
Fair value of warrants issued in
  connection with notes payable                             99,317            --              --            99,317
Fair value of warrants issued in connection
  with conversion of promissory note to
  profit participation obligation                          491,331            --              --           491,331
Fair value of warrants issued in
  connection with professional services                    407,000            --              --           407,000
Net loss for year                                             --              --        (4,013,294)     (4,013,294)
                                                      ------------    ------------    ------------    ------------
Balance, December 31, 2001                            $ 10,281,486    $   (156,300)   $(13,200,814)   $ (3,069,080)
                                                      ============    ============    ============    ============


                                             See accompanying notes.

                                                   F-5 (Con't)
<PAGE>


                           PTN MEDIA, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                               Year Ended December 31,
                                                             --------------------------
                                                                 2001           2000
                                                             -----------    -----------

Cash flows from operating activities:
   Net loss                                                  $(4,013,294)   $(4,709,802)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation of fixed assets                               14,272         11,906
       Warrants and shares issued for professional and
         legal fees                                              620,750         34,125
       Waiver of compensation payable                            100,000        100,000
       Shares issued for license fees and production costs        70,550        325,000
       Fair value of warrants issued in connection with
         promissory note                                          99,317        138,000
       Fair value of warrants issued in connection with
         conversion of promissory note to profit
         participation obligation                                491,331           --
   Changes in operating assets and liabilities:
     Increase in receivables                                     (58,779)          --
     Increase in inventory                                      (132,748)          --
     Decrease in deposits and prepaid expenses                    97,289        603,610
     Increase in accounts payable and accrued expenses           134,998         41,705
     Increase in license fees payable                            367,500        682,500
                                                             -----------    -----------

Net cash used in operating activities                         (2,208,814)    (2,772,956)
                                                             -----------    -----------

Cash flows from investing activities:
   Purchase of fixed assets                                       (2,500)       (11,691)
   Advance to officers                                           (50,000)          --
   Security deposit (paid) refunded                                 --           (2,226)
                                                             -----------    -----------

Net cash used in investing activities                            (52,500)       (13,917)
                                                             -----------    -----------

Cash flows from financing activities:
   Loans paid to officer                                            --          (26,000)
   Proceeds from notes payable                                   400,000           --
   Proceeds from promissory note                                    --        1,000,000
   Proceeds from exercise of warrants                               --            1,000
   Proceeds from sale of common stock of subsidiary                 --          975,000
   Proceeds from sale of common and preferred stock, net       1,371,700      1,293,970
                                                             -----------    -----------

Net cash provided by financing activities                      1,771,700      3,243,970
                                                             -----------    -----------

Increase (decrease) in cash                                     (489,614)       457,097

Cash, beginning of period                                        503,636         46,539
                                                             -----------    -----------

Cash, end of period                                          $    14,022    $   503,636
                                                             ===========    ===========

                                See accompanying notes.

                                          F-6
</TABLE>
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS, continued


                                                       Year Ended December 31,
                                                    ----------------------------
                                                        2001            2000
                                                    ------------   -------------

Supplemental disclosures of cash flow information

       Interest paid                                $       --     $        --
                                                    ============   =============

       Income taxes paid                            $       --     $        --
                                                    ============   =============

Supplemental disclosures of non-cash investing and financing activities

     During 2000, (i) the Company converted $432,844 of the loans payable to an
     officer and $65,908 of interest payable to an officer in exchange for
     110,000 shares of common stock, (ii) the Company issued 9,500 shares of
     common stock for professional services valued at $34,125, (iii) the Company
     issued 61,600 shares of common stock for license fees valued at $325,000,
     (iv) the Company converted 3,250 shares of Series A preferred stock into
     65,000 shares of common stock, (v) the Company issued 100,000 warrants in
     connection with a promissory note whose fair value is estimated to be
     $138,000 and (vi) the Company recognized additional paid in capital of
     $100,000 related to the waiver of payment of compensation by the Company's
     CEO.

     During 2001, (i) the Company converted $53,958 of accrued interest in
     exchange for 25,000 shares of common stock, (ii) the Company issued 115,000
     shares of common stock for legal and professional services valued at
     $213,750, (iii) the Company issued 40,000 shares of common stock for
     license fees valued at $70,550, (iv) the Company issued 173,999 shares of
     common stock in exchange for 173,999 shares of Fragrancedirect.com, Inc.
     common stock valued resulting in PTN's ownership increasing from 83% to
     89%, (v) the Company issued 80,000 warrants in connection with two notes
     payable whose fair value is estimated to be $99,317, (vi) the Company
     issued 400,000 warrants in connection with professional services whose fair
     value is estimated to be $407,000, (vii) the Company issued 200,000
     warrants in connection with the conversion of a $1,000,000 promissory note
     into a profit participation obligation whose fair value is estimated to be
     $491,331, (viii) the Company recognized additional paid in capital of
     $100,000 related to the waiver of payment of compensation by the Company's
     CEO, and (ix) the Company issued 100,000 shares of common stock pursuant to
     the exercise of an employee stock option in exchange for a note receivable
     of $156,300.

                             See accompanying notes.

                                       F-7
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 1 - DESCRIPTION OF COMPANY AND GOING CONCERN UNCERTAINTY:

     PTN Media, Inc., (the "Company"), was incorporated in Delaware on January
     13, 1998 and is the successor to Interactive Entertainment Studio, Inc.
     (IES). IES was incorporated in the State of Nevada on May 27, 1997 and was
     merged into the Company in March 1998 for the sole purpose of changing the
     domicile of the Company to Delaware. This merger was retroactively
     reflected in the December 31, 1997 financial statements. The Company was in
     the development stage in accordance with Statement of Financial Accounting
     Standards ("SFAS") No. 7 since its inception to December 31, 2000 and had
     accumulated a deficit while in the development stage of $9,187,520.
     Effective January 1, 2001, the Company was no longer considered to be in
     the development stage as it began selling its Claudia Schiffer edition of
     the Palm.

     The Company is a developer and marketer of hand-held electronic products.
     In 2000, the Company entered into an agreement with Palm, Inc., the maker
     of hand-held computing devices to create branded hand-held devices based on
     the Palm model. The Company's products also include Palm software, mobile
     phone covers, mobile phone handsets and mobile phone applications.

     In July 1999, the Company formed, FragranceDirect.com, Inc. ("Fragrance"),
     a majority owned subsidiary. Through this entity, the Company sells
     fragrance products over the Internet.

     In February 2001, the Company formed a new wholly owned subsidiary, PTN
     Wireless, Inc. There was no activity in this subsidiary during the year
     ended December 31, 2001.

     The Company, since its inception, has incurred net losses of, $13,200,814
     and at December 31, 2001 current liabilities exceeded current assets by
     $2,084,118. In addition, the Company is delinquent in certain payments due
     for license fees and notes payable. In 2000, the Company raised net
     proceeds of $1,293,970 in private placement offerings of its common stock
     and the Company also raised $975,000 in a private placement offering of the
     common stock of its wholly owned subsidiary, Fragrance. The Company also
     raised $1,000,000 in 2000 by issuing a promissory note. In addition, in
     2001, the Company raised net proceeds of $1,371,700 in private placement
     offerings of its common stock. The Company may be unable to continue in
     existence unless it is able to arrange additional financing and achieve
     profitable operations. Management plans to raise additional capital and
     expects to generate cash from the sale of products in 2002.

     The financial statements do not include any adjustments relating to the
     recoverability of assets that might be necessary in the event the Company
     cannot continue in existence.

                                      F-8
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Principles of Consolidation:
     ----------------------------

     The accompanying financial statements include the accounts of the Company
     and its majority owned subsidiary, Fragrance and wholly owned subsidiary
     PTN Wireless, Inc. All intercompany accounts and transactions have been
     eliminated.

     Estimates:
     ----------

     In preparing financial statements in conformity with accounting principles
     generally accepted in the United States of America, management makes
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosures of contingent assets and liabilities at the
     date of the financial statements, as well as the reported amounts of
     revenues and expenses during the reporting period. Actual results could
     differ from those estimates.

     Statements of Cash Flows:
     -------------------------

     For purposes of the statements of cash flows, the Company considers all
     highly liquid investments purchased with a remaining maturity of three
     months or less to be cash equivalents.

     Inventory
     ---------

     Inventory consists principally of products purchased for resale and are
     stated at the lower of cost (determined by the first-in, first-out method)
     or market.

     Fixed Assets:
     -------------

     Furniture and equipment are recorded at cost. Depreciation is provided on a
     straight-line basis over estimated useful lives of the assets as follows:

          Computer equipment                       3 years
          Furniture and fixtures                   5 years

     Expenditures for maintenance and repairs are charged to operations as
     incurred while renewals and betterments are capitalized. Gains and losses
     on disposals are included in the results of operations.

     Revenue Recognition:
     --------------------

     The Company generates revenue from the sale of products on its web sites
     and through other channels. The Company recognizes revenue for these
     product sales when the product is shipped to the customer. Shipping and
     handling cost are recorded as revenue.

                                      F-9
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

     Royalties/License Fees:
     -----------------------

     Royalties/license fees paid under the terms of license agreements entered
     into are charged to expense in accordance with the terms of the agreements.
     Any guaranteed minimum payments will be amortized over the period of the
     license agreement.

     The Company has expensed the guaranteed minimum royalties upon execution of
     the license agreements since there is no assurance that the Company will be
     able to derive significant revenues such that the royalties due will exceed
     the minimum annual royalty payment. See also Note 4.

     Income Taxes:
     -------------

     The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
     requires the recognition of deferred tax assets and liabilities for the
     expected future tax consequences of events that have been included in the
     financial statements or tax returns. Under this method, deferred income
     taxes are recognized for the tax consequences in future years of
     differences between the tax bases of assets and liabilities and their
     financial reporting amounts at each period end based on enacted tax laws
     and statutory tax rates applicable to the periods in which the differences
     are expected to affect taxable income. Valuation allowances are
     established, when necessary, to reduce deferred tax assets to the amount
     expected to be realized.

     Stock Based Compensation:
     -------------------------

     SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
     encourages the use of the fair value based method of accounting for
     stock-based compensation arrangements under which compensation cost is
     determined using the fair value of stock-based compensation determined as
     of the date of grant and is recognized over the periods in which the
     related services are rendered. The statement also permits companies to
     elect to continue using the current intrinsic value accounting method
     specified in Accounting Principles Board ("APB") Opinion No. 25,
     "Accounting for Stock Issued to Employees," to account for stock-based
     compensation. The Company has elected to use the intrinsic value based
     method and has disclosed the pro forma effect of using the fair value based
     method to account for its stock-based compensation. The Company uses the
     fair value method for options granted to non-employees.

                                      F-10
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

     Earnings (Loss) Per Share:
     --------------------------

     The Company reports earnings (loss) per share in accordance with SFAS No.
     128, "Earnings per Share." Basic earnings (loss) per share is computed by
     dividing income (loss) available to common shareholders by the weighted
     average number of common shares available. Diluted earnings (loss) per
     share is computed similar to basic earnings (loss) per share except that
     the denominator is increased to include the number of additional common
     shares that would have been outstanding if the potential common shares had
     been issued and if the additional common shares were dilutive. Diluted
     earnings (loss) per share has not been presented since the effect of the
     assumed conversion of options and warrants to purchase common shares would
     have an anti-dilutive effect. The following potential common shares have
     been excluded from the computation of diluted net loss per share for the
     year ended December 31 2001 and 2000 because the effect would have been
     anti-dilutive:

                                                             2001         2000
                                                           ---------   ---------
       Conversion of Series A preferred stock                 47,000      47,000
       Stock options issued to employees and consultants
           under the Company's stock option plan           1,150,000     481,000
       Stock options issued outside of plan                   25,000      25,000
       Warrants issued with Series A preferred                  --        43,200
       Warrants issued to officers                           231,000        --
       Warrants issued for services                          600,000     200,000
       Warrants issued with notes                            235,000     308,334
       Warrants issued with note conversion                  200,000        --
                                                           ---------   ---------
                                                           2,488,000   1,104,534
                                                           =========   =========


     See Note 13 for issuance of additional shares of common stock subsequent to
     December 31, 2001.

     Fair Value of Financial Instruments:
     ------------------------------------

     The Company measures its financial assets and liabilities in accordance
     with accounting principles generally accepted in the United States of
     America. For certain of the Company's financial instruments, including
     cash, accounts receivable, accounts payable and accrued expenses, and
     license fees payable, the carrying amounts approximate fair value due to
     their short maturities. The amounts shown for short-term loans also
     approximate fair value because current interest rates offered to the
     Company for debt of similar maturities are substantially the same.

     Comprehensive Income:
     ---------------------

     For the year ended December 31, 1999, the Company adopted SFAS No. 130,
     "Reporting Comprehensive Income." This statement establishes standards for
     reporting other comprehensive income and its components in a financial
     statement. Comprehensive income, as defined, includes all changes in equity
     (net assets) during a period from non-owner sources. Examples of items to
     be included in comprehensive income, which are excluded from net income,
     include foreign currency translation adjustments and unrealized gains and
     losses on available-for-sale securities. Comprehensive income is not
     presented in the Company's financial statements since the Company did not
     have any of the items of other comprehensive income in any period
     presented.

                                      F-11
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

     Recently Issued Accounting Pronouncements:
     ------------------------------------------

     In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
     No. 141 requires that the purchase method of accounting be used for all
     business combinations initiated after June 30, 2001. Goodwill and certain
     intangible assets will remain on the balance sheet and not be amortized. On
     an annual basis, and when there is reason to suspect that their values have
     been diminished or impaired, these assets must be tested for impairment,
     and writedowns may be necessary. The Company adopted SFAS No. 141 on July
     1, 2001 which had no impact on its financial position or results of
     operations.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
     Assets." SFAS No. 142 changes the accounting for goodwill from an
     amortization method to an impairment-only approach. Amortization of
     goodwill, including goodwill recorded in past business combinations, will
     cease upon adoption of this statement. The Company is required to implement
     SFAS No. 142 on January 1, 2002 and does not expect adoption of SFAS No.
     142 to have a material impact its financial position or results of
     operations.

     In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset
     Retirement Obligations," which requires companies to record the fair value
     of a liability for asset retirement obligations in the period in which they
     are incurred. The statement applies to a company's legal obligations
     associated with the retirement of a tangible long-lived asset that results
     from the acquisition, construction, and development or through the normal
     operation of a long-lived asset. When a liability is initially recorded,
     the company would capitalize the cost, thereby increasing the carrying
     amount of the related asset. The capitalized asset retirement cost is
     depreciated over the life of the respective asset while the liability is
     accreted to its present value. Upon settlement of the liability, the
     obligation is settled at its recorded amount or the company incurs a gain
     or loss. The statement is effective for fiscal years beginning after June
     30, 2002. The Company does not expect the adoption to have a material
     impact to the Company's financial position or results of operations.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets". Statement 144 addresses the
     accounting and reporting for the impairment or disposal of long-lived
     assets. The statement provides a single accounting model for long-lived
     assets to be disposed of. New criteria must be met to classify the asset as
     an asset held-for-sale. This statement also focuses on reporting the
     effects of a disposal of a segment of a business. This statement is
     effective for fiscal years beginning after December 15, 2001. The Company
     does not expect the adoption to have a material impact to the Company's
     financial position or results of operations.

                                      F-12
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

     Minority Interest:
     ------------------

     Minority interest represents the minority shareholders' proportionate share
     of the equity of Fragrance. During the year ended December 31, 2000, the
     Company sold 410,000 or 17% of the common stock of Fragrance. Fragrance, on
     a stand-alone basis, had a shareholders' deficit. As a result, the
     Company's investment in Fragrance had a negative carrying value. The
     increase in capitalization of Fragrance resulting from the sale of 410,000
     shares of common stock to outside investors benefited the Company in that
     it reduced the negative carrying value of the Company's investment in
     Fragrance. Accordingly, the Company has accounted for the change in its
     proportionate share of Fragrance's equity resulting from the issuance of
     stock to outside investors as an increase in shareholders' equity and a
     reduction in minority interest liability in the consolidated financial
     statements. During 2001, three of the Fragrance shareholders exchanged
     173,999 shares of Fragrance common stock for 173,999 shares of the
     Company's common stock. The accompanying consolidated financial statements
     do not reflect a minority interest liability as of December 31, 2001 as
     Fragrance, on a stand-alone basis, had a shareholders' deficit as of such
     date. The accompanying consolidated statements of operations for the years
     ended December 31, 2001 and 2000 do not reflect the minority interest's
     share of Fragrance's losses for said years as the related accrual would
     result in the Company's recordation of a minority interest receivable.

     Concentration of Credit Risk:
     -----------------------------

     Financial instruments, which potentially subject the Company to
     concentrations of credit risk, consist of cash and accounts receivables.
     The Company places its cash with high-credit, quality financial
     institutions. At times, such amounts may be in excess of the Federal
     Deposit Insurance Corporation limit. As of December 31, 2001, there were no
     uninsured portions of the balances held at these financial institutions.
     The Company has not experienced any losses in such accounts and believes it
     is not exposed to any significant credit risk on cash and cash equivalents.
     The Company extends credit based on an evaluation of the customer's
     financial condition, generally without collateral. Exposure to losses on
     receivables is principally dependent on each customer's financial
     condition.


                                      F-13
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 3 - FIXED ASSETS:

     Fixed assets at December 31, 2001 consisted of the following:

                                                                    2001
                                                                  -------

       Computer equipment                                         $41,994
       Furniture and fixtures                                       3,452
                                                                  -------
                                                                   45,446
           Less accumulated depreciation                           32,634
                                                                  -------
                Total                                             $12,812
                                                                  =======


     Depreciation expense for the years ended December 31, 2001 and 2000 was
     $14,272 and $11,906, respectively.

NOTE 4 - LICENSE FEES PAYABLE:

     A summary of the guaranteed minimum payments as of December 31, 2001, is as
     follows:

                                                                      Balance
                                      Guaranteed        Less         Owed as of
                                        Minimum        Amounts        December
                                       Royalties        Paid          31, 2001
                                      -----------    -----------    -----------
       Tyra Banks Web Site            $   100,000    $  (100,000)   $      --
       Tyra Banks Calendar                100,000       (100,000)          --
       Claudia Schiffer Web Site        1,200,000     (1,000,000)        200,000
       Chely Wright Web Site              125,550       (125,550)          --
       Mandy Moore Web Site               137,500       (137,500)          --
       Daisy Fuentes Host Agreement        75,000        (75,000)          --
       Michael Jordan Palm License      2,500,000     (1,250,000)      1,250,000
       Christina Aguilera License         150,000       (150,000)          --
                                      -----------    -----------    -----------
                                      $ 4,388,050    $(2,938,050)   $ 1,450,000
                                      ===========    ===========    ===========


     In January 1998, the Company entered into a License Agreement (the
     "Agreement") with an entity controlled by model Tyra Banks pursuant to
     which Ms. Banks would host the Company's next web site under terms similar
     to that negotiated with Ms. Taylor. This agreement expired on March 31,
     1999, but provided for automatic extensions for up to two additional
     12-month periods, unless terminated by either party prior to such
     extension. The Company had guaranteed the payment of minimum royalties in
     the amount of $100,000. $50,000 of this amount was paid at the time of
     execution of this agreement and the balance to be paid upon the
     consummation of the Company's proposed IPO. The remaining $50,000 was paid
     during 2001 in connection with the settlement of a lawsuit with Ms. Banks.
     (See Note 11.)

                                      F-14
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 4 - LICENSE FEES PAYABLE, continued:

     Also in January 1998, the Company entered into a separate agreement with
     this entity for the rights to utilize the name and likeness of Ms. Banks in
     connection with the "Tyra Banks Calendar." These rights were applicable to
     the calendar for the 16-month period ending December 31, 1999. The Company
     agreed to pay this entity up to $87,000 for production expenses incurred in
     connection with the creation of this calendar and guaranteed minimum
     royalties in the amount of $100,000, of which only $50,000 was paid as of
     December 31, 2000. The Company paid $59,000 toward the production expenses
     of the Tyra Banks calendar. The remaining balances of $50,000 for the
     license agreement and $28,000 for in accrued expenses were paid during 2001
     in connection with the settlement of a lawsuit with Ms. Banks. (See Note
     11.)

     In October 1998, the Company entered into a License Agreement (the
     "Agreement") with model Claudia Schiffer under terms similar to those
     negotiated with Ms. Taylor and Ms. Banks. This agreement expires on the
     third anniversary of the launch of this web site, and may be extended only
     upon mutual agreement of the parties. The Company guaranteed the payment of
     minimum royalties in the amounts of $300,000 for the first year of the
     agreement, $400,000 for the second year and $500,000 for the third.
     $150,000 of the royalties for the first year was payable at the time of
     execution of this agreement and the balance before December 23, 1998. The
     Company paid $145,000 in 1998 and the remaining balance of $155,000 was
     paid in February 1999 in full payment of royalties for the first year. In
     November 1999 and November 2000, the Company paid $100,000 and $300,000 due
     in connection with the second year royalty. In addition the Company paid
     $25,000 and $250,000 in August 2000 and November 2000, respectively, due in
     connection with the third year royalty. In connection with this agreement,
     the Company also issued an aggregate of 269,682 shares of common stock,
     valued at $4.00 per share, to Ms. Schiffer as additional compensation
     during 1998. As of December 31, 2001, the Company had paid $300,000 towards
     royalties for the third year and the remaining $200,000 is included in
     license fees payable.

     In March 2000, the Company entered into a website license agreement with
     country music artist Chely Wright to give the Company an exclusive license
     for an area on the Company's on-line Fashionwindow.com Internet service and
     to use her name and likeness in the creation and promotion of the Internet
     service. Chely Wright will be the sole country artist associated with
     Fashionwindow.com Internet service for the term of the agreement, which is
     two years with an option to renew for two additional one-year terms. In
     connection with this contract, the Company has issued to Ms. Wright, 15,000
     shares of the Company's common stock valued at $105,000 which was the fair
     market value of the Company's stock at the date of issuance and issued her
     an additional 15,000 shares of common stock on the contract's first
     anniversary valued at $20,550.

                                      F-15
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 4 - LICENSE FEES PAYABLE, continued:

     In July 2000, the Company entered into a website license agreement with pop
     music artist Mandy Moore to give the Company a license for an on-line
     Internet service and to use her name and likeness in the creation and
     promotion of the Internet service. The term of the agreement is for one
     year and maybe renewed on the first anniversary for an additional year if
     certain conditions are met. In connection with this agreement, the Company
     has issued to a company controlled by Ms. Moore and Ms. Moore's agent
     31,000 and 3,100 shares of the Company's common stock valued at $125,000
     and $12,500, respectively, which was the fair market value of the Company's
     stock at the date of issuance.

     In August 2000 the Company entered into a host agreement with a company
     controlled by Daisy Fuentes for Ms. Fuentes to host "The Style Minute with
     Daisy Fuentes." The term of the agreement is for one year following the
     first airing of the program. In connection with this agreement, the Company
     is obligated to pay $37,500 at the signing of the agreement and $37,500
     three months following the signing of this agreement. These two payments
     are advances against future royalties. Ms. Fuentes will also receive a
     royalty of 50% of gross proceeds received by the Company in connection with
     the services of Ms. Fuentes. The Company paid Ms. Fuentes $37,500 in
     September 2000, $30,000 in December 2000 and the remaining $7,500 is was
     paid in 2001.

     On December 29, 2000, the Company entered into a three year license
     agreement with Michael Jordan that provides the Company an exclusive,
     worldwide license to use, distribute, display and transmit Michael Jordan's
     full name, image, likeness, and endorsement in connection with the proposed
     manufacture, advertisement, distribution and sale of certain approved Palm
     Products. Jordan is to receive a royalty equal to 12% of the proceeds from
     the Palm sales. The Company must pay Jordon an annual minimum royalty of
     $1,250,000. The Company paid Mr. Jordan $500,000 in December 2000 and the
     remaining $750,000 was paid in 2001. The Company has accrued the second
     year annual minimum royalty of $1,250,000 that is included in license fee
     payable at December 31, 2001. The Company is currently in default on the
     agreement.

     In February 2001, the Company also entered into a similar licensing
     agreement with pop music artist Christina Aguilera and is currently
     developing products that will use Christina Aguilera's name and likeness to
     promote the sale of products. In connection with this agreement, the
     Company paid $100,000 in cash and issued Ms. Aguilera 25,000 shares of the
     Company's common stock valued at $50,000

                                      F-16
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 5 - NOTES PAYABLE:

     In July and August 1997, the Company received $56,250 through the issuance
     of 8% promissory notes and common stock purchase warrants to acquire
     Company stock. The 45,000 warrants issued, which expired in July 2001,
     entitle the holders to purchase 45,000 shares of common stock at an
     exercise price of $3.00 per share, the deemed fair value of the warrants at
     the time of issuance. The notes and accrued interest are payable one year
     from the date of issuance or the closing of an equity funding of the
     Company of a minimum of $500,000, whichever is sooner. In 1999, one of the
     note holders converted $25,000 of principal and $5,500 of accrued interest
     into 6,100 shares of the Company's common stock. The remainder of the notes
     which amounts to $31,250 continue to be outstanding notwithstanding the
     fact that payments owed by the Company thereunder are now past due.
     Interest accrued as of December 31, 2001 aggregated to $8,500.

     In July and August of 1999, the Company's subsidiary, Fragrance issued 10%
     promissory notes aggregating to $160,000. The notes are due the earlier of
     one year or the completion of an initial public offering of Fragrance
     common stock. In addition, Fragrance issued to the note holders an
     aggregate of 96,000 two-year stock purchase warrants to purchase Fragrance
     common stock at $3.50 per share. As of December 31, 2001, these notes are
     still outstanding. The principal amount of $160,000 plus accrued interest
     of $38,667 is in default at December 31, 2001.

     In August 2001, the Company issued two notes payable totaling $400,000. One
     of the notes was payable in 60 days and the other was payable in 14 days.
     These notes have not currently been repaid. In connection with the issuance
     of these two notes, the Company granted the note holders an aggregate of
     80,000 warrants to purchase the Company's common stock at $1 per share. The
     Company has determined that the fair value of these warrants to be $99,317
     and has recognized the expense in the accompanying statement of operations.
     The Company used the Black-Scholes model to determine the fair value of
     these warrants with the following assumptions: (i) dividend yield of 0%,
     (ii) expected volatility of 118%, (iii) weighed-average risk-free interest
     rate of approximately 4.0%, and (iv) expected life of 3 years

                                      F-17
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 6 - LOANS PAYABLE - OFFICER AND ADVANCE TO OFFICERS:

     In April 1998, the Company's Chairman, President and Chief Executive
     Officer, provided the Company with a revolving credit line with a maximum
     available limit of $500,000. In September 1998, the Board of Directors of
     the Company authorized an increase in this line to $610,000 and in November
     and December 1998, further increases to $1,000,000, were authorized. Loans
     drawn under this line bear interest at a rate of 9% per annum from the date
     they were made to the Company and were payable by May 2001, provided,
     however, that if the Company raised gross proceeds in an IPO of at least
     $1,500,000, the entire outstanding amount and accrued interest will be
     repaid from the proceeds of the IPO. In January 2000 the Company borrowed
     an additional $4,000 on this line of credit and repaid $26,000. In February
     2000, the principal and accrued interest of $432,844 and $65,908,
     respectively, were converted into an aggregate of 110,000 shares of the
     Company's common stock valued at $4.53 per share.

     The Company also advanced $50,000 to a company that the Company's officers
     have an ownership interest. The advance is non-interest bearing.

NOTE 7 - PROFIT PARTICIPATION OBLIGATION:

     On November 22, 2000 the Company issued a promissory note to an investor in
     the amount of $1,000,000. The note bears interest at 9.25% and was due on
     April 1, 2001. The holder of the note had the option of converting the note
     to a royalty participation certificate or converting into shares of the
     Company's common stock at a 20% discount. In addition, the holder of the
     note was issued a two-year warrant to purchase 100,000 shares of the
     Company's common stock at $3.00 per share. The Company, in 2000, took a
     charge to earnings of $138,000 that represents the fair value of the
     warrants issued in connection with the promissory note. The Company used
     the Black Scholes model to estimate the fair value of the warrants with the
     following assumptions: (i) dividend yield of 0%, (ii) expected volatility
     of 118%, (iii) weighed-average risk-free interest rate of approximately
     5.5%, and (iv) expected life of 2 years.

     During 2001, the note holder converted the full amount of the note into a
     profit participation obligation that provides for the holder to receive
     7.5% of the profits from the sale of the Claudia Schiffer Palm Pilot, the
     Michael Jordan Palm Pilot and any other celebrity branded Palm Pilot that
     the Company sells. In connection with this conversion, the Company issued
     the holder a warrant to purchase 200,000 shares of the Company's common
     stock at $1.50. The warrant expires three years from the date of grant. The
     Company has estimated the fair value of these warrants to be $491,331 using
     the Black-Scholes pricing model with the following assumptions: (i)
     dividend yield of 0%, (ii) expected volatility of 118%, (iii)
     weighed-average risk-free interest rate of approximately 4.0%, and (iv)
     expected life of 3 years. The $1,000,000 profit participation obligation
     will be reduced as profits payments are made to the holder. In addition,
     the accrued interest on the note of $53,958 was converted into 25,000
     shares of the Company's common stock.

                                      F-18
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 8 - SHAREHOLDERS' EQUITY:

     The Company's authorized capital consists of 1,000,000 shares of preferred
     stock, $.01 par value and 10,000,000 shares of common stock, $.001 par
     value.

     In February 2000, the Company converted $432,844 of the loans payable to
     officer and $65,908 of interest payable to officer in exchange for 110,000
     shares of common stock.

     In 2000 the Company issued 9,500 shares of common stock for professional
     services valued at $34,125. The value was determined using the market value
     of the Company's stock at the date of issuance. Also in 2000, the Company
     issued 61,600 shares of common stock for license fees valued at $325,000.
     The value was determined using the market value of the Company's stock at
     the date of issuance.

     In 2000, the Company converted 3,250 shares of Series A preferred stock
     into 65,000 shares of common stock.

     In 2000 the Company issued 336,000 shares of its common stock in connection
     with private placement offerings for net proceeds of $1,293,970.

     In addition in 2000, the Company sold a total of 410,000 shares or
     approximately 17% of the common stock of its subsidiary, Fragrance for net
     proceeds of $975,000. Fragrance, on a stand-alone basis, had a
     shareholders' deficit. As a result, the Company's investment in Fragrance
     had a negative carrying value. The increase in capitalization of Fragrance
     resulting from the sale of 410,000 shares of common stock to outside
     investors benefited the Company in that it reduced the negative carrying
     value of the Company's investment in Fragrance. Accordingly, the Company
     has accounted for the change in its proportionate share of Fragrance's
     equity resulting from the issuance of stock to outside investors as an
     increase in shareholders' equity in the consolidated financial statements.
     During 2001, certain investors of Fragrance exchanged 173,999 shares of
     Fragrance common stock for 173,999 shares of the Company's common stock
     which increased the Company's ownership percentage of Fragrance from 83% to
     89%.

     In 2001 the Company issued 115,000 shares of common stock for professional
     services valued at $213,750. The value was determined using the market
     value of the Company's stock at the date of issuance. Also in 2001, the
     Company issued 40,000 shares of common stock for license fees valued at
     $70,550. The value was determined using the market value of the Company's
     stock at the date of issuance.

     In 2001 the Company issued 1,437,200 shares of its common stock in
     connection with private placement offerings for net proceeds of $1,371,700.

                                      F-19
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 9 - STOCK OPTIONS:

     The Company adopted the 1998 Stock Option Plan and the Year 2000 Stock
     Option Plan (the Plans), which provides for the grant of options to
     purchase up to 1,250,000 shares of the Company's common stock. Under these
     Plans incentive stock options may be granted to employees and non-statutory
     stock options may be granted to employees and non-employees.

     The Company has adopted only the disclosure provisions of SFAS No. 123,
     "Accounting for Stock-Based Compensation" for stock options issued to
     employees. It applies Accounting Principles Bulletin ("APB") Opinion No.
     25, "Accounting for Stock Issued to Employees," and related interpretations
     in accounting for its Stock Option Plan and does not recognize compensation
     expense for its Stock Option Plan other than for restricted stock and
     options issued to outside third parties. If the Company had elected to
     recognize compensation expense based upon the fair value at the grant date
     for awards under the Stock Option Plan consistent with the methodology
     prescribed by SFAS No. 123, the Company's net income and earnings per share
     would be reduced to the pro forma amounts indicated below for the years
     ended December 31, 2001 and 2000:

                                                    2001              2000
                                                -------------    -------------
       Net loss
           As reported                          $  (4,013,294)   $  (4,709,802)
           Pro forma                            $  (5,110,059)   $  (4,709,802)

       Basic and diluted loss per common share
           As reported                          $       (0.72)   $       (1.06)
           Pro forma                            $       (0.92)   $       (1.06)


     For purposes of computing the pro forma disclosures required by SFAS No.
     123, the fair value of each option granted to employees and directors is
     estimated using the Black-Scholes option-pricing model. The fair value is
     computed as of the date of grant using the following assumptions for grants
     in 2001: (i) dividend yield of 0%, (ii) expected volatility of 118%, (iii)
     weighed-average risk-free interest rate of approximately 4.0, and (iv)
     expected life of 5 years.

                                      F-20
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


     Stock Option Plan, continued
     ----------------------------

     The following is table summarizes the options and warrants outstanding:

                                              Weighted-                Weighted-
                                     Stock    Average                  Average
                                    Option    Exercise                 Exercise
                                     Plan      Price      Warrants      Price
                                   ---------  -------     ---------    -------
       Balance, December 31,
         1999                        506,000   $  3.82      451,534    $  4.22
         Granted                           -   $     -      100,000    $  3.00
         Exercised                         -   $     -            -    $     -
         Canceled                          -   $     -            -    $     -
                                   ---------              ---------

       Balance, December 31,
         2000                        506,000   $  3.82      551,534    $  4.00
         Granted                     769,000   $  1.26      911,000    $  2.02
         Exercised                 (100,000)   $  1.56            -    $     -
         Canceled                          -   $     -     (196,534)   $  4.54
                                   ---------              ---------

       Balance, December 31,
         2001                      1,175,000   $  2.34    1,266,000    $  2.49
                                   =========              =========

       Exercisable, December
         31, 2001                  1,175,000   $  2.34    1,266,000    $  2.49
                                   =========              =========


     There were no options available for future grant at December 31, 2001 under
     the Company's Plans.

     The weighted average remaining contractual life of options outstanding
     issued under the Plans is 7.48 years at December 31, 2001. The exercise
     price for the options outstanding under the Stock Option Plan at December
     31, 2001 ranged from $1.125 to $4.50. No compensation expense was
     recognized as a result of the issuance of stock options during the years
     ended December 31, 2001.

     For options granted during the year ended December 31, 2001 where the
     exercise price equaled the stock price at the date of the grant, the
     weighted-average fair value of such options was $0.79 and the
     weighted-average exercise price of such options was $1.27. For options
     granted during the year ended December 31, 2001 where the exercise price
     was greater than the stock price at the date of the grant, the
     weighted-average fair value of such options was $0.82 and the
     weighted-average exercise price of such options was $1.24.


NOTE 10 - INCOME TAXES

     No provision for Federal and state income taxes has been recorded since the
     Company has incurred losses for the period from inception through December
     31, 2001. Deferred tax assets at December 31, 2001and 2000 consist
     primarily of the tax effect of a net operating loss carry forwards which
     amount to approximately $4,046,000 and $3,075,000, respectively. The
     operating loss carryforwards begin to expire in 2012. The Company has
     provided a 100% valuation allowance on the deferred tax assets at December
     31, 2001 to reduce such asset to zero, since there is no assurance that the
     Company will generate future taxable income to utilize such asset.
     Management will review this valuation allowance requirement periodically
     and make adjustments as warranted.

                                      F-21
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE  11   -     COMMITMENTS AND CONTINGENCIES:

     Operating Leases:
     -----------------

     Effective April 1, 2000, the Company entered into a three-year lease for
     office space. Annual lease commitments for the next two years and in the
     aggregate are:

                2002                        28,498
                2003                         7,188
                                        ----------
                                        $   35,686
                                        ==========

     Rent expense for the years ended December 31, 2001 and 2000 aggregated
     $23,029 and $32,444, respectively.

     Employment Agreements:
     ----------------------

     The Chairman/President of the Company is entitled to receive an annual base
     salary of $100,000 from the Company. In 2001 and 2000 this individual
     waived all rights to receive accrued salaries payable to him in the amounts
     of $100,000, and $100,000, respectively, and, accordingly, such amount has
     been presented as a contribution to the Company's additional paid-in
     capital.


                                      F-22
<PAGE>


                        PTN MEDIA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2001 and 2000


NOTE 11 - COMMITMENTS AND CONTINGENCIES, continued:

     Legal Proceedings:
     ------------------

     On December 8, 1998, attorneys for Tyra Banks and Bankable, Inc., an entity
     controlled by Ms. Banks, made a Demand for Arbitration against the Company
     under the Commercial Arbitration Rules of the American Arbitration
     Association. Ms. Banks' attorneys alleged that the Company failed to make
     timely payments of money due upon the execution of the Website License
     Agreement and Calendar Agreement between Ms. Banks and the Company
     ("Agreements"), and refused to return photographs, pictures, prints,
     negatives and images of Ms. Banks. Ms. Banks sought damages under the
     Calendar Agreement in the amount of $161,333, damages under the Website
     Agreement of $370,000, and legal fees. On January 15, 1999, the Company,
     through its attorneys, filed an Answer and Counterclaim to Ms. Banks'
     Demand for Arbitration. The Company raised several defenses to Ms. Banks'
     claims and claimed a breach by Ms. Banks and Bankable, Inc. of the Website
     Agreement. The Company sought the amount of $264,000 in damages related to
     the Agreements. A preliminary administrative conference was held on January
     19, 1999, and a hearing was held in October 1999 and the Company filed
     briefs on March 6, 2000 in response. In June, 2000 the arbitrator awarded
     Ms. Banks $128,000, plus interest on this amount at 12% from April 1, 1998.
     In addition, the Company is to pay the arbitrator fee and the
     administrative expenses of the arbitrator. The arbitrator reaffirmed the
     award in August 2000. During 2001, the Company paid this settlement in
     full.

NOTE 12 - RELATED PARTY TRANSACTIONS:

     During the years ended December 31, 2001 and 2000, the Company paid
     $103,000 and $62,500 to a firm that the Company's Chief Operating Officer
     is an owner. The payments were for investor relations and assistance with
     raising debt and equity capital.

NOTE 13 - SUBSEQUENT EVENT (Unaudited):

     From January 1, 2002 to February 28, 2002, the Company has issued 460,250
     shares of its common stock in a private placement offering with gross
     proceeds to the Company of $460,250.




                                      F-23