SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10KSB

                            Annual Report Pursuant to
                       The Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 2001

                         Commission file number 0-28465
                                 CIK:0001098331

                          INTERSPACE ENTERPRISES, INC.
                 ---------------------------------------------
             (Exact name of registrant as specified in its charter)

     Colorado                   0-28465                 84-1283938
----------------             -------------           ------------------
(State or other              (Commission             (IRS Employer
jurisdiction of              File Number)             Identification No.)
incorporation)

                7825 Fay Avenue, #200, La Jolla, California 92037
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (858) 456-3539

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 the filing
requirements for at least the past 90 days.
Yes X   No

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained,  to the best
of  Registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. X

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

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Transitional Small Business Disclosure Format:
Yes     No X

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant as of December 31, 2001:  $12,019,259 Number of outstanding shares of
the registrant's no par value common stock, as of December 31, 2001: 99,887,230

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                                TABLE OF CONTENTS
ITEM PAGE

                                     PART I

1.   Business.......................................................
2.   Properties..................................................
3.   Legal Proceedings....................................................
4.   Submission of Matters to a Vote of Security Holders............

                                     PART II
5.  Market for Registrant's Common Equity and Related Stockholder
    Matters ..................................................
6.  Management's Discussion and Analysis of Financial Condition
    and Results of Operations.....................................
7.  Financial Statements and Supplementary Data.....................
8.  Changes in and Disagreements with Accountants on Accounting
    and Financial Disclosure.....................................

                                    PART III

 9.  Directors and Executive Officers of the Registrant.....................
10.  Executive Compensation.................................................
11.  Security Ownership of Certain Beneficial Owners and Management.........
12.  Certain Relationships and Related Transactions.........................

                                     PART IV

13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K........
14.  Signature page.........................................................
15.  Financial Statements - December 31, 2001 and 2000....................


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ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS

InterSpace Enterprises, Inc. is a Colorado corporation. The principal executive
offices are currently located at 7825 Fay Avenue, Suite 200, La Jolla,
California 92037. All communications with the Company should be forwarded to the
foregoing address, by telephone (858) 456-3539, by facsimile at (858) 454-2679
or via the company's internet address at www.planetlotto.com.

         InterSpace Enterprises, Inc., a Delaware corporation, was formed on
June 30, 1998. Following incorporation, the InterSpace Delaware founders,
developed a preliminary business plan for the PlanetLotto lottery and game show,
raised seed capital, and began to negotiate with various foreign governments to
host the PlanetLotto lottery. For the purposes of becoming a publicly traded
company, InterSpace Enterprises acquired all of the outstanding shares of common
stock of Marathon Marketing Corporation, a Colorado corporation. After acquiring
all of the Marathon Marketing common stock, InterSpace Delaware merged into its
subsidiary on April 17, 2000, changing its name to InterSpace Enterprises, Inc.
Thereafter, the Company has begun to implement the business plan and carry on
the business activities previously initiated by Interspace Delaware. The Company
assumed, performed and became responsible for all assets, contracts,
liabilities, obligations and agreements of InterSpace Delaware as a result of
the Merger. Additionally, the company made the necessary filings to become a
fully reporting 12(g) publicly traded company and subsequently received approval
to begin trading of its common stock on the Over-The-Counter Bulletin Board
market under the symbol "ITET". Interspace Enterprises, Inc. is a company with
little revenues and no assets, and we have generated operating and net losses
since inception.

DESCRIPTION OF BUSINESS

Interspace Enterprises, Inc. is the exclusive marketer for the Planetlotto.com
web site, hosted and operated by the International Lottery in Liechtenstein
Foundation, under the rules and regulations of the Government of Liechtenstein.
The Company's web site, www.planetlotto.com, hosts various forms of online
lottery games. The web site also web casts our weekly PlanetLotto draw, which
can be viewed live through the web site, via streaming video. The Company's
principal revenue stream is derived directly from a portion of the proceeds of
every transaction on the Planetlotto.com web site.

INDUSTRY BACKGROUND

It is estimated by TLF Publications that the annual lottery revenue within the
United States in 1999 was $39 billion. Revenue for the State of California alone
was $2.5 billion. World wide, it is estimated that the total amount of lottery
revenue is around $120 billion. One of the unique aspects of the lottery market,
both in the United States and world wide, is that there has been no competition,
due to the fact that a traditional lottery ticket must be purchased within the
state or host nation in order to play, market exclusivity has, until today,
remained in effect.

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Within the United States, thirty-eight states currently sponsor a traditional
lottery system. State lottery systems are operated through public entities,
which produce, maintain and operate the state lottery and the state receives a
percentage of the lottery revenue. For instance, the California Lottery Act
grants the operator the exclusive California market, in exchange for 34% of the
weekly jackpot proceeds, which are contributed to California's public education
system. Other states have similar agreements with lottery corporations.
Globally, over 120 countries operate or sponsor lotteries. Unless the lottery is
maintained by the government itself, each of these nations has similar
agreements with their lottery operators.
The Online Gaming Market Segment. The Internet has created a wide variety of
gaming opportunities that equips the end-user with the ability to travel to any
country in the world via the web. Online gaming sites are flourishing, and the
number of sites has increased from 15 sites in 1997 to 1200-1400 today. These
sites are expected to earn a combined $1 billion this year, according to
Christiansen Capital Advisors in New York. According to ZDNet News, free gaming
and lotto sites are among the most popular destinations on the web. In Jupiter
Media Metrix's list of the 50 most popular sites on the Internet in December
2000, sweepstakes sites Grab.com and Iwon.com ranked 17th and 26th respectively
and gaming network Uproar ranked 20th. According to PC Data Online, web-based
lotteries and sweepstakes are among the fastest-growing sectors of cyberspace
and sweepstakes and lottery web sites are visited by as many as 40 percent of
all Internet users. Online Casino's such as the Sands of the Caribbean,
thesands.com one of the most popular online casinos, handled over $400 million
in wagers last year.

PRODUCTS AND SERVICES

PlanetLotto Web Site. The Company's core product is the marketing of the
PlanetLotto.com web site. The Planetlotto.com web site has incorporated all of
the traditional, as well as the new Internet functions of a lottery system.
Consumers are first greeted by a state-of-the-art web site display with a large
continuous "PlanetLotto ticker", which displays the current weekly jackpot. As
customers enter the Planetlotto.com web site, they are encouraged to become a
player. The player prompts ask the new players to answer a few simple questions,
screen name, country of origin, etc, followed by appropriate Company
disclaimers, and they are then given a player password. Players may enter any
weekly jackpot by simply purchasing a $2.00 (U.S.) entry fee and selecting their
personal 7 numbers out of a total of 49 numbers or by selecting the "Planet
Pick", a random number picking program. The player will then be given a
confirmation e-mail, complete with a PlanetLotto confirmation number. The web
site also includes visual displays and an archive video collection of past
winners. Additional games have been introduced as products including Hourly
Lotto, Instant Lotto, as well as scratchcard and bingo games.

COMPETITIVE ENVIRONMENT

Traditional lotteries are bound by the limits of their respective state lottery
machinery and systems. Although the goal of any lottery Company is to
continuously have large "rollover" jackpots, PlanetLotto believes there is a
fundamental flaw within the traditional system. As the interest for a particular
weekly lottery grows, the massive number of computer-generated quick picks,
combined with the inherent limitations of the telephone system and the limited
number of authorized lottery outlets, creates a re-occurring bottleneck that

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limits the ability to maximize additional revenue generated by the rollover
phenomenon. These bottlenecks limit the amount of the potential jackpot and
sacrifice customer loyalty, due to long lines at the retail outlets and player
frustration. Another problem associated with traditional lotteries is in the
constant maintenance and up-keep of the lottery machinery and battles regarding
ticket printing and forgery. In contrast, an Internet based lottery is not bound
by such limitations. The Internet will allow interested players to casually and
instantaneously purchase tickets over the Internet in the comfort of their own
homes, without the hassles of long lines or telephone breakdowns.

The Company believes that the market exclusivity enjoyed by traditional lottery
companies has created an industry wide complacency. The lack of competition for
market share within each lottery, state and nation has provided an opportunity
for a market penetration and direct competition with the traditional lottery
structure. The majority of the current Internet market competitors have been
ineffective in properly foreseeing the possibilities of a combined worldwide
lottery system.

Online Competitors:

iWon
URL: www.iwon.com
Location: Irvington, NY
Content: Search engine portal with daily $10,000 sweepstakes and monthly $1
million sweepstakes.
Revenue model: Advertising, sponsorship, e-commerce.
Users: N/A

LuckySurf.com
URL: www.luckysurf.com
-----------------------
Location: South San Francisco, CA
Content: $1 million sweepstakes
Lottery System: 7/50 system
Odds of Winning:  1 in 99 Million
Ticket Price: Free
Revenue model: Advertising: Sells click-thru's rather than impressions. Says its
advertisers have been averaging registration and purchase conversion rates of 13
percent, and that 95 percent of its initial advertisers have signed up for more.
Users: 125,400 registered

TreeLoot
URL: www.treeloot.com
Location: Overland Park, KS
Content: Simple "clicking" game with instant cash prizes of up to $25,000.
Revenue model: Advertising: Sells impressions and targeted impressions.
Users: Profiles approximately 6 million per year

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Uproar
URL: www.uproar.com
Location: New York
Content: Dozens of slick, multiplayer, quiz-oriented games.
Revenue model:  Advertising,  licensing  properties to other companies to create
co-branded game such as Lycos Trivia 2000.
Users: 3.6 million registered across all its properties.

Webstakes.com
URL: www.webstakes.com
Location: New York
Content: Weekly sweepstakes for such items as microwave ovens, high- definition
TVs, and cash prizes up to $100,000. Revenue model: Advertising, sponsorship,
syndication, licensing, consulting. Users: 2 million registered Still, the
Internet gaming and wagering industry is increasingly competitive. With
relatively low barriers to entry, new competitors are entering the online
lottery segment of gaming. Interspace expects the number of companies offering
lottery products online to increase. InterSpace expects to directly compete with
these companies, as well as other established companies that may enter the
Internet lottery industry. Many of InterSpace Enterprises' current and potential
competitors have far greater resources than InterSpace.

GOVERNMENT LICENSING AND REGULATION AND RELATED RISKS

         The planetlotto.com web site is licensed and regulated and operated
through the government of Liechtenstein and, by virtue of the Treaty Act of
Rome, Liechtenstein is allowed to sell it's products and services, including the
sale of lottery tickets via the Internet to all European states. It is the
opinion of the government of Liechtenstein that all visitors and players to
their retail outlets, including planetlotto.com are within the jurisdiction of
Liechtenstein and therefore there access to their lottery does not violate or is
not subject to such any additional laws and regulations. The company however,
has taken a conservative stance in this regard and has voluntarily restricted
access from U.S. and Swiss players by not accepting deposits in the jurisdiction
until legal clarification has been established. Therefore, the Company faces the
risk of either civil or criminal proceedings brought by governmental or private
litigants who disagree with the Company's interpretation of laws and
regulations. Because there is little guiding authority, there is a risk that the
Company could lose such lawsuits or actions and be subject to significant
damages or civil or criminal penalties and fines. Such proceedings could also
involve substantial litigation expense, diversion of the attention of key
executives, injunctions or other prohibitions being invoked against the Company.
The uncertainty surrounding the regulation of Internet gaming could have a
material adverse effect on the Company's business, revenues, operating results
and financial condition.

          Historically, gaming activities have been subject to extensive
statutory and regulatory control by government authorities, and have been very
dependent and likely significantly affected by any changes in the political

<PAGE>

climate and economic and regulatory policies of the countries where gaming
facilities are located. These changes may impact the operations of the Company
in a materially adverse way. Various laws and regulations could have a direct
and material effect on the business, and indirectly could have a material effect
on the public demand for software of InterSpace Enterprises. Most countries and
jurisdictions within countries have laws or regulations restricting gaming
activities. For example, in the United States, the Federal Interstate Wire Act
contains provisions which make it a crime for anyone in the business of gaming
to use an interstate or international wire communication line to make wagers or
to transmit information assisting in the placing of wagers, except, with respect
to transmitting information, the wagering is legal in the jurisdictions from
which and into which the transmission is made. Other United States laws
impacting gaming activities include the Interstate Horse Racing Act, the
Interstate Wagering Paraphernalia Act, the Travel Act and the Organized Crime
Control Act.

         Several countries, most notably law enforcement agencies in the United
States, believe that the laws of their country restrict, and in some instances
prohibit, interactive gaming operators from doing business with residents of
their countries and, in some instances, prohibit or restrict residents of their
respective countries from doing business with interactive gaming operators
located in a foreign country. The Department of Justice of the United States of
America has taken the position that the federal criminal laws of the United
States do, in fact, address interactive gaming operators that accept wagers from
residents of the United States. They have taken this position on legislation
pending in Congress, discussed below, and have also pursued various criminal
prosecutions. For example, of several indictments issued at the request of the
United States Attorney for the Southern District of New York, the one case that
went to trial involved Jay Cohen, an owner of World Sports Exchange, a licensed
gaming operator in Antigua. On February 28, 2000 the jury in the Federal
District Court case found Jay Cohen guilty of violating United States federal
law (18 U.S.C. Section 1084), a federal statute that purports to make it illegal
for a betting or wagering business to use a wire communication facility to
transmit bets or wagers in interstate or foreign commerce. Several of the counts
for which Mr. Cohen was found guilty solely involved his Internet operations.
The decision is on appeal.

         Other countries, such as Great Britain, have recently lent new
legitimacy to online gambling. In March 2001, Great Britain dumped its tax on
sports betting in exchange for a pledge by its famed bookmakers to shut down
their offshore Internet operations and reopen them at home. One bookmaker said
the change could turn the United Kingdom into "the hub of the global gambling
industry." The tax-code change, announced by Chancellor of the Exchequer Gordon
Brown as part of the government's budget for 2002, makes Britain the first world
power to embrace Internet gambling. Under the new scheme, the government on
January 1, 2002 scrapped its 9 percent tax on wagers, which was paid directly by

<PAGE>

bettors, and replaced it with a 15 percent tax on gross profits that will be
absorbed by bookmakers who conduct off-site wagering, either via the Internet or
by telephone, in Britain. The British bookmakers are free to accept wagers on
sports contests from all over the world, though it is still illegal to offer
online casino-style games over the Internet from the United Kingdom.

         Britain's entry into online gambling is expected to put additional
pressure on the United States and other nations to either join the rush toward
regulation or develop a workable strategy to stop Internet gambling operators
from targeting their citizens. Britain's decision is the direct result of
competition from offshore operators doing business in tax-free jurisdictions. In
the face of such competition, virtually all of Britain's bookmakers had
established their own Internet divisions in locales as Antigua, Gibraltar and
Malta, cutting into the tax revenue the British government collects from
gambling.

         Now, those bookmakers that return to Britain will enjoy a competitive
advantage over those offshore operators, who will be banned from advertising
their services in the United Kingdom. As a result of the debate on the
effectiveness of laws in the United States to address activities of interactive
gaming operators, there has been an extended effort in the United States to
prohibit certain types of interactive gaming by companies engaged in the
business of gaming. It is impossible to predict the outcome of such legislation.
If passed, such federal legislation would prohibit wagering over the Internet by
gambling businesses, with exceptions for certain forms of gaming.

         The Company believes that if such laws were found to be applicable to
activities of the Company, such laws would have a material adverse effect on the
Company's business, revenues, operating results and financial condition.

         H.R. 4419, a Bill introduced in May, 2000 in the House of
Representatives, is titled the Internet Gambling Funding Prohibition Act. In the
form introduced, this Bill would have prohibited any gambling business from
accepting any financial instrument (defined as any check, wire, credit card
charge or any other transaction facilitated by a financial institution) for the
purpose of Internet gaming. At a Banking Committee hearing on June 28, 2000, the
Bill passed out of Committee with amendments that largely removed the
international reach of the Bill and also added exceptions to the prohibitions
for pari-mutuel and lottery. It was serially referred to the House Judiciary
Committee for consideration. More than 11 federal cases against the credit card
companies and several of the issuing banks were consolidated and assigned to
Judge Stanwood R. Duval Jr. in New Orleans. The plaintiffs were people who had
lost money gambling online. They argued that the banks and credit card companies
were involved in "illegal gambling on the Internet." In sending out monthly
statements to the plaintiffs who had used the cards to gamble online, the
plaintiffs alleged that the defendants committed mail and wire fraud in trying
to collect "illegal" debts. The plaintiffs also charged that the financial
institutions were "aiding and abetting "criminal enterprises. If the casinos had
not accepted credit cards, the plaintiffs argued, they wouldn't have gambled
online.

On Feb. 23, Duval dismissed the cases outright. In an opinion Duval ruled that
the 1961 federal Wire Act, under which telephone and Internet bookmaker Jay
Cohen was convicted, applies only to sports betting and "does not prohibit
Internet casino gambling."

<PAGE>

STRATEGIC RELATIONSHIPS

         The company's current lottery partner is the International Lottery in
Liechtenstein Foundation, licensed by the Government of Liechtenstein to run the
company's Lottery. The term of the Lottery License agreement is five years. The
license is highly regulated, with auditors Ernst & Young appointed by the
government to oversee all aspects of the operation.

         As part of the Partnership with ILLF, the company's operational partner
is Zabadoo.com AG. Zabadoo.com AG provides all the website infrastructure for
the planetlotto.com web site, including hosting, bandwidth, management of the
web site and providing all customer support. This partnership has enabled the
company to outsource the following elements of the Planetlotto.com operations:

         Payment Processing. An established relationship with one of the largest
acquiring banks in Germany is in place, with backup facilities in Switzerland
and the UK, to provide Planetlotto.com (TM) with acquiring ability. Deposits are
held in accounts at the Liechtensteinische Landesbank, owned by the government,
and audited by Ernst & Young AG.

         Statistics. In order for the company to be able to measure how
successful the company's marketing and promotion program are, an advanced
statistics system is in place, which enables the company to:

Monitor sales and site traffic in real time
Track data per advertisement banner including hits, signups, conversion rates,
Average spend and total revenue Get detailed sales and customer information
about your best players Get geographical information by sales and sign ups
Monitor detailed information about click-throughs, including the referring site
Get in-depth information about player paths through the site and most accessed
pages

         Server Room. The server room is a purpose-built Grade 1 computing
environment. It has a dual, high-capacity, under-floor air conditioners keeping
the temperature stable, and Inergen (Argonaut) fire protection systems. Power
supply is ensured with dual uninterruptible power supplies linked to a 30Kw
diesel generator.

         Disaster Recovery. A fully functional off-site disaster recovery
facility is in place 10 km from the main server center. This facility contains
up-to-date copies of all data and is linked via wireless network to the primary
site. As an autonomous system with 3 independent backbones (UUNET, GlobalOne and
IP Plus), Zabadoo.com AG manages its own BGP (Border Gateway Protocol) sessions
with the backbones giving it the ability to react to localized problems on the
Internet by rerouting traffic where necessary. Each line runs at E1 (2Mb) speed,
and further capacity will be available at short notice. Graphics are served
through a network of 8000 servers around the world provided by Akamai (TM). This

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ensures that customers always receive their graphics and other "heavy" content
from the closest server to them. All server equipment is configured in redundant
clusters to provide the highest possible resilience. This includes firewalls,
routers, utility and database servers. Web servers are accessed through a pair
of Big IP2 load balancing systems that enable Zabadoo.com AG to add new servers
very quickly, and load balance across multiple servers.

         Data Storage. Compaq Storageworks RA8000 FC Fiber Channel RAID are used
for critical data storage. This system has redundancy throughout and is
extremely fast due to its 64Mb read-write cache unit and high-speed fiber
channel connectivity. The database runs on an 8 processor Compaq Systempro 8500
server with 4Gb main memory.

         Security. There is a high level of physical security on site. Access is
controlled to all areas and alarms are monitored 24/7/365 by an on-site security
control room. In addition, firewalls and systems are configured to provide the
highest level of security, and has been tested in both internal and external
penetration tests. Three hardware engineers will also be available 24/7/365 to
solve problems if they occur. A sophisticated alerting system is in place to
notify support staff when there are problems.

         Internal Controls. Planetlotto.com weekly draws are attended by two
scrutineers from Ernst & Young AG, Vaduz. They supervise the pre-draw procedures
and take possession of a CD-ROM containing data on entries for the draw. This
record is the definitive record used to verify the winners, and is validated
against the database before the draw can take place. Draws are performed using
one of two mechanical ball machines manufactured by Editec. Prior to the draw a
ball set is selected at random and test draws are carried out to ensure that the
machine and ball sets have not been tampered with. After the draw an independent
program is run by the auditors and the results compared to the database to
verify that the data is correct and there are no errors.

         Jackpot Insurance. Planetlotto.com's weekly draw features two headline
jackpots, the weekly 7/49 Jackpot and the Bonus Play Jackpot, which are insured
by a consortium of Lloyds of London insurance underwriters.

     Real Time Broadcast.  The draws are currently  filmed and broadcast live on
the  Internet  using Real Video.  Players can also watch  archive  copies of the
draws. Draws are filmed using multiple broadcast-quality cameras.

         First Tier. Zabadoo.com offers round-the-clock customer support.
Operators are multi-lingual and trained to respond to e-mails and phone calls
making use of an extensive knowledgebase. E-mails are assigned a tracking number
via an auto-reply function and are answered personally within 1 hour.

         Second Tier. In circumstances where support queries e-mails cannot be
answered first tier customer support, the player will be informed that the query
has been passed on to a manager and the query is forwarded to the Zabadoo.com AG
team in Liechtenstein. Liechtenstein support is available 08.00 to 19.30 CET
weekdays and reduced hours over the weekend and public holidays. Support staff
has access to an extensive CRM database, which will enable them to answer
customer queries efficiently and effectively.

<PAGE>

Email Program. Zabadoo.com AG uses a state-of-the-art e-mail system that
integrates with the database and enables it to send e-mails to selections of
players based on a wide variety of criteria. E-mails are formatted in such a way
as to display correctly in all mail clients and are multilingual and able to
incorporate customer information such as name and account number. Newsletters
will also be sent out weekly to all players who have not opted out.

Additionally, InterSpace recognizes the speed at which the Internet operates,
and is committed to becoming a leader in the Internet gaming industry. As such,
InterSpace plans to enter into several key strategic relationships, and is
pursuing additional partnerships that will offer new and strong Internet
Marketing distribution channels for our products.

RESEARCH AND PRODUCT DEVELOPMENT

The Company recently launched its first product, Planetlotto.com, and new
product and marketing development will continue to be a primary focus of
InterSpace for the current fiscal year as the Company refines its business model
and adds new types of lottery style games. As the traditional lottery market and
the interactive online lottery market begin to converge, new games that redefine
the online lottery market will emerge. The Company plans to focus on a variety
of different types, styles and themes of games, focusing on different
demographic and niche markets in order to penetrate a larger user base.

NUMBER OF EMPLOYEES

As of December 31, 2001, the Company employed 4 full-time persons.

ITEM 2. PROPERTIES

The Company does not own any real property and has no long-term commitments to
lease any space. The Company currently leases office and conference facilities
on a month-to-month basis at 7825 Fay Avenue, #200, La Jolla, California 92037.

ITEM 3. LEGAL PROCEEDINGS

The Company is not aware of any current or pending legal action.
No director, officer or affiliate of InterSpace International, Inc., and no
owner of record or beneficial owner of more than 5.0% of the securities of the
Company, or any associate of any such director, officer or security holder is a
party adverse to InterSpace Interprises, Inc. or has a material interest adverse
to it in reference to pending litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders.

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                                     PART II

ITEM 5. MARKET FOR INTERSPACE ENTERPRISE'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS MARKET INFORMATION

         Our common stock is traded on the National Association of Securities
Dealers, Inc.'s OTC Bulletin Board under the symbol "ITET." On December 31,
2001, the low and high bid prices for the common stock on the Bulletin Board
were $0.18 and $0.195, respectively.

            The following table shows the range of reported low bid and high bid
per share quotations for our common stock for the periods indicated. The high
and low bid prices for the periods indicated reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

                                               High Bid            Low Bid
            2001

            First Quarter....................   $5.250              $0.125
            Second Quarter...................   $0.421              $0.055
            Third Quarter....................   $0.100              $0.010
            Fourth Quarter...................   $0.195              $0.019

Penny Stock Regulation

            Our shares are subject to the Penny Stock Reform act of 1990, which
may potentially decrease our ability to easily transfer our shares.
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated. Penny stocks generally are equity securities with a price less than
$5.00. The penny stock rules require a broker-dealer prior to a non-exempt
transaction to deliver a standardized risk disclosure document and make a
special determination that penny stocks are a suitable investment for each
investor. In addition the broker-dealer must receive the investor's written
agreement to the transaction. These disclosure requirements may have the affect
of reducing the level of trading activity in our stock and make it more
difficult for you to resell your stock in our Company.

SECURITY HOLDERS

The approximate number of holders of record of the Common stock as of December
31, 2001 is 196 inclusive of those brokerage firms and/or clearinghouses holding
shares of common stock for their clientele (with each such brokerage house
and/or clearinghouse being considered as one holder).

<PAGE>

DIVIDENDS

The Company paid no dividends in 2001.

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

OVERVIEW

The most recent fiscal year has been a trying one for the Company. Commitments
for funding that went unfulfilled resulted in the need to reconfigure the
business model such that a partnership proved the most viable means to bring the
Company's core product to market. Limited capital availability due to the
downturn in the internet and technology sectors meant that the Company was
forced to reduce its staff to core personnel in order to continue to operate. In
spite of these setbacks, the management successfully completed the company's
major milestone of making www.planetlotto.com operational in 2001 through the
partnership in September with the International Liechtenstein Lottery
foundation. Through this partnership, planetlotto.com became a retail outlet for
the Liechtenstein Lottery in December of 2001, a weekly lottery operated by
Zabadoo.com AG and regulated by ILLF and the Government of Liechtenstein,
audited by Ernst and Young, International and Insured by a Lloyds of London
Broker.

         The partnership enabled the company to leverage the existing structure
of the lottery operations already in place under Zabadoo.com AG. By virtue of
the 5 year agreement, the weekly operations of the Liechtenstein lottery and
management of the planetlotto.com web site, including customer service support,
maintenance and hosting are provided by ILLF and Zabadoo.com AG, in return for
equity in the Company and revenue sharing based on each transaction on the
Company's web site. Initially regarded as the Company's main competition, the
partnership with Zabadoo has allowed the Company to fast-forward its launch and
create the strongest internet lottery presence currently on the web. In order to
develop a progressive jackpot, with a weekly rollovers of the Planetlotto
lottery, the company modified it's lottery model from a 6/70 lottery format to a
7/49 format which eliminated the need for the company to provide its own lottery
draw equipment, and separate audit procedures, one of them most costly aspects
of the original plan. Modifications in this manner allowed Planetlotto to launch
without the need to for significant additional capital. Additionally, the
Company negotiated a supplemental insurance policy to coincide with the 7/49
Jackpot, exclusive to the Planetlotto.com website. The Supplemental 1-year
insurance was paid in equity to Zabadoo.com AG in return for providing the
initial minimum deposit required to initiate the insurance policy. The 7/49
insurance policy allows Planetlotto.com to guarantee a progressive jackpot that
parallels traditional lotteries. The jackpot insurance is scheduled to increase
on a weekly basis throughout the 2002-year in the event that there is no jackpot
winner(s). Additionally, the term of the agreement includes an allocation of
each ticket sold from the prize pool to be included within the advertised
jackpot amount. Management believes that the implementation of a coordinated
marketing plan in 2002 will drive ticket sales over the insured amount and
develop a mature lottery model without the need to purchase additional insurance
in 2003.

<PAGE>

         Through the result of these strategic alliances, it is management's
belief that the company is well position within the online lottery industry to
capture a significant percentage of market share within this industry sector.
The current focus of the Company is to develop the Planetlotto brand through
strategic alliances with Internet based portals to distribute it's product on
the Internet. It is management's belief that the Company will be able to secure
adequate funding to enable the company to market the Planetlotto brand and
translate it's marketing effort into self-sufficient revenues and positive cash
flow, however, there can be no assurances that funding will occur.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001 the Company had $130,815 in cash resources available to
satisfy requirements for operations, which are not sufficient to sustain
long-term operations. No assurances can be given that the Company will be
successful in realizing sufficient funding to continue any operations. Based on
the partnership arrangement with Zabadoo.com AG, the Company was able launch the
PlanetLotto website and begin the generation of its first revenues. While the
website is fully operational, very little cash is available to begin the process
of marketing and promoting the site.

The Company is currently working to create exposure for the website via
strategic alliances and cross-marketing opportunities. While the deterioration
of funding sources for internet based businesses has created financial stress
for the Company, the cost of web-based advertising has likewise decreased. The
Company plans to strategically place test-marketing campaigns via web portals
and other internet sources to determine the most effective means to attract its
core audience. The Company plans to raise capital during the second quarter of
2002 via a formal registration statement. Funds from this placement will be used
to expand our marketing efforts to a much wider audience, via both online and
offline placements.

The Company's consolidated financial statements have been prepared on a
continuing operations basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.
Management recognizes that the Company must generate additional investment in a
timely manner to maintain its current level of development and launch timeframe.
If such investment is delayed, management will be required to reduce the
Company's operations. The Company plans to seek private placements of equity
capital to fund its operations but has no commitments at date of this report for
funding.

As of December 31, 2001, there were no material commitments for capital
expenditures.

RESULTS OF  OPERATIONS  FOR THE YEAR ENDED  DECEMBER 31, 2001 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2000

The Company did not generate revenue in 2001 or 2000. The Company general and
administrative expenses of $1,663,264 in 2001 compared with $1,274,835 in 2000.
The Company's main expenses continue to be consulting and legal fees as well as
compensation costs. The Company incurred $495,685 in 2001 and $257,250 in 2000

<PAGE>

for consulting fees, much of this related to stock-based compensation as a
result of the Company's lack of cash resources. In 2001 the legal and
professional fees increased to $118,039 from $50,201 in 2000 as a result of
costs associated with licensing and financing related items. Other
administrative expenses increased to $410,465 from $120,671 in 2000 due to the
cost of website development, insurance and associated operational costs.
Salaries expense increase to $577,405 from $466,880 as a result of hiring 5
additional staff for most of 2001.

The Company incurred a loss on operations of ($1,663,264) in 2001 compared to
($1,274,835) in 2000. The Company had a net loss of ($1,694,934) in 2001 after
interest expense of $39,774 and interest income of $8,904. In 2000 the net loss
was ($1,230,269) after interest income of $54,471 and interest expense of
$9,105. The loss per share was ($.02) in both 2001 and 2000.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included as a separate exhibit to this report.
Please see pages F-1 - F-14.

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

Siegel,  Smith & Garber, LLP have audited the Company's records since inception.
There were no disagreements with them on any matter of accounting  principles or
practices, financial statement disclosure, or auditing scope or procedure.



                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS AND SIGNIFICANT MEMBERS OF MANAGEMENT
DIRECTORS

(a) The following persons are currently serving as directors of the Company.
Certain information regarding each director is set forth below, including each
individual's principal occupation, and the year in which the individual was
elected a director of the Company or one of its predecessor companies.

<PAGE>

DIRECTORS

NAME                 AGE    PRINCIPAL OCCUPATION                          SINCE
----                 ---    -----------------------                       -----
Daniel P. Murphy     32     Founder, President, Chief Executive            1998
                            Officer, Chairman and Director

Alejandro Trujillo   32     Founder, Chief Technology Officer              1998
                            and Director

EXECUTIVE OFFICERS

The executive officers of the Company are as follows:

NAME                 AGE      POSITION WITH COMPANY                      TERM
----                 -----    ----------------------                     -----
Daniel P. Murphy     32       Chairman of the Board, President and       4 years
                              Chief Executive Officer

Andrew P. Patient    31       Chief Financial Officer, Treasurer
                              and Secretary                              2 years

(b) Identification of Certain Significant Employees. None
(c) Family Relationships. None
(d) Business Experience

The following is a brief account of the business experience during the past five
years of each of the Company directors and executive officers, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which such
occupation and employment were carried on.

Daniel P. Murphy, President, Chief Executive Officer, Chairman and Director
Mr. Murphy is a co-founder, President/Chief Executive Officer, and Chairman of
the Board of the Company. His primary responsibility is to develop and maintain
the Company vision, oversee all areas and Company departments, approve all
financial obligations, seek business opportunities and strategic alliances with
other organizations, and plan, develop and establish policies and objectives of
business organization in accordance with board directives and Company charter.
Mr. Murphy, educated at the University of California, San Diego (UCSD) in the
field of Urban Studies and Planning, has an entrepreneurial background in
marketing, sales and business development arising through his tenure as the
Principal of a wholesale belt manufacturing company from 1990 to 1992. Mr.
Murphy was in charge of all aspects of business operations including
advertising, marketing, administration, sales, manufacturing and design. Mr.
Murphy also has experience in operations management.

Alejandro Trujillo, Co-Founder and Director
As a co-founder and Director of the Company, Mr. Trujillo's primary
responsibility is to oversee the technical development of the Company. Mr.
Trujillo, educated at the University of California, San Diego (UCSD) in the
field of Cognitive Science, has an extensive background within the programming

<PAGE>

and Internet industry. During his tenure as the Vice President of Production of
an emerging multimedia corporation, Mr. Trujillo handled all aspects of his
division, including project management, coordinator, and operations management.

Andrew P. Patient, Chief Financial Officer and Secretary
As the Chief Financial Officer and Secretary, Mr. Patient's primary
responsibility is to direct and coordinate financial programs to provide for new
or continuing operations in order to maximize return on investments. Mr. Patient
is a Certified Public Accountant and Canadian Chartered Accountant. His
experience includes seven years of public accounting experience in both the U.S.
and Canada working with clients from small owner-operated businesses to large
multi-national public companies. Mr. Patient has spent the last two and a half
years serving as Chief Financial Officer of a publicly-traded multimedia company
where he was an integral part of structuring and preparing private placement
offerings, raising capital and taking the Company public. Mr. Patient has
in-depth experience with investor relations and shareholder communications as
well as a strong background in all financial aspects of business, including
budgeting, projections, cash flow management, financing alternatives, internal
controls and financial reporting.

(e) Committees of the Board of Directors

During 2001, the Board of Directors met on twenty-six occasions. All directors
attended 100% of the meetings of the Board during 2001.

         The Company is currently actively seeking additional Board members and
has identified several potential candidates in the areas of finance, gaming and
technology. It is the intent of the Company to instate an additional 3 members
to the Board in the 2002 fiscal year.

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

(a) Officer's Compensation
         The following table sets forth the compensation by the Company of the
Chief Executive Officer and the four most highly compensated other executive
officers of the Company in 2000, for services in all capacities to the Company
and its subsidiaries during the two fiscal years ended December 31, 2000.

<TABLE>
<CAPTION>

                  ANNUAL COMPENSATION
               ---------------------------

Name and Principal                            Annual Salary         Bonus          Other Annual        Long Term
Position                         Year                                              Compensation        Awards of
                                                                                                        Options
<S>                              <C>             <C>                  <C>                <C>               <C>
Daniel P. Murphy                 2001            $120,000             0                  0                 4,000,000
Chairman of the Board,           2000            $90,000              0                  0                   250,000
President and CEO                1999            $63,333              0                  0                         0

Alejandro Trujillo               2001            $48,000              0                  0                         0
Director, Chief                  2000            $83,333              0                  0                   250,000
Technology Officer               1999            $63,333              0                  0                         0

Andrew P. Patient                2001            $83,333              0                  0                 1,000,000
Chief Financial Officer          2000            $86,250              0                  0                   250,000
and Secretary                    1999            $18,750              0                  0                         0

</TABLE>


(b) Directors' Compensation

The Company's director compensation program provides that each director who does
not receive other direct compensation from the Company is eligible to receive
upon his or her initial election to the Board a warrant to purchase 100,000
shares of the Company's common stock at the market price at the date of grant.
Each warrant has a term of five years. No warrants have yet to be granted under
this program, as all members of the current Board receive other direct
compensation from the Company.

<TABLE>
<CAPTION>

----------------- -------- ----------- ------------ --------------- ----------- --------------- --------- -------------
<S>               <C>      <C>         <C>          <C>             <C>         <C>             <C>       <C>
Name and          Year     Annual      Meeting      Consulting/     Number of   Securities      LTIP      All Other
Principal                  Retainer    Fees ($)     Other Fees ($)  Shares (#)  Underlying      Payments  Compen-sation
Position                   Fees ($)                                             Options/
                                                                                SARSs
                                                                                (#shares)
----------------- -------- ----------- ------------ --------------- ----------- --------------- --------- -------------
----------------- -------- ----------- ------------ --------------- ----------- --------------- --------- -------------
Daniel P.         2001
Murphy,           2000         0            0             0             0             0            0           0
(1)Director       1999         0            0             0             0             0            0           0
----------------- -------- ----------- ------------ --------------- ----------- --------------- --------- -------------
----------------- -------- ----------- ------------ --------------- ----------- --------------- --------- -------------
Alejandro         2001
Trujillo,         2000         0            0             0             0             0            0           0
(1)Director       1999         0            0             0             0             0            0           0
----------------- -------- ----------- ------------ --------------- ----------- --------------- --------- -------------
</TABLE>


(1) Both Mr.  Murphy and Mr.  Trujillo  were  compensated  and have  options and
incentive  participation  pursuant to their  Employment  Contracts  as Officers.
Details of compensation are shown in Officers  Compensation above and Employment
Agreements below.

EMPLOYMENT AGREEMENTS

In April 2000, as a result of the reorganization, the Company entered into new
employment agreements with Daniel P. Murphy, its Chairman of the Board,
President and Chief Executive Officer and Andrew P. Patient, its Chief Financial
Officer and Secretary.

<PAGE>

Mr.  Murphy's  employment  contract is for an initial  term of four  years.  The
employment  agreement provides for a minimum base salary of $80,000 in its first
year, with  requirements  for minimum increase of 50% each January 1. Mr. Murphy
is eligible for a performance  bonus based on the greater of 1% of the Company's
operating income or a calculation based on the Company's increased market value.
No bonus was triggered under this clause during 2000. In addition, Mr. Murphy is
eligible to receive an annual stock incentive bonus equal to 1% of the Company's
outstanding shares and participate in the Company's Incentive Stock Option Plan.
No shares or options were granted for 2000 under the terms of the contract.  The
agreement  further provides that in the event of the termination of Mr. Murphy's
employment  by the Company  without  cause,  the Company will pay Mr. Murphy his
base  salary  for the  remainder  of the  initial  term,  a  prorated  bonus and
continuation of medical insurance  coverage,  and his restricted stock and stock
options will vest  immediately.  In the event of the termination of Mr. Murphy's
employment by the Company as a result of change in control,  the Company will be
required to pay Mr. Murphy a  termination  fee equal to 10 times his annual base
salary, plus any accrued bonuses or other incentive compensation.

Mr. Patient's employment contract is for an initial term of two years. The
employment agreement provides for a minimum base salary of $80,000 in its first
year, with requirements for minimum increase of 25% each January 1. Mr. Patient
is eligible for a performance bonus based on the greater of 0.25% of the
Company's operating income or a calculation based on the Company's increased
market value. No bonus was triggered under this clause during 2000. In addition,
Mr. Patient is eligible to receive an annual stock incentive bonus equal to
0.25% of the Company's outstanding shares and participate in the Company's
Incentive Stock Option Plan. No shares or options were granted for 2000 under
the terms of the contract. The agreement further provides that in the event of
the termination of Mr. Patient's employment by the Company without cause, the
Company will pay Mr. Patient his base salary for the remainder of the initial
term, a prorated bonus and continuation of medical insurance coverage, and his
restricted stock and stock options will vest immediately.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each exercise of stock options made during the
year ended December 31, 2001 by the current Chief Executive Officer, and the
four most highly compensated other executive officers and the fiscal year-end
value of unexercised options held by those individuals as of December 31, 20010.
There were no exercises or holdings of stock appreciation rights by any officers
during 2001, and there are no outstanding stock appreciation rights.

<TABLE>
<CAPTION>

                        OPTION GRANTS IN LAST FISCAL YEAR
----------------------- --------------------- -------------------- --------------------- --------------------
<S>                     <C>                   <C>                  <C>                   <C>

Name                    Number of             Percentage of        Exercise or Base      Expiration Date
                        Securities            Total Options        Price Per Share ($)
                        Underlying Options    Granted to
                        Granted               Employees in
                                              Fiscal 2001 (%)
----------------------- --------------------- -------------------- --------------------- --------------------
----------------------- --------------------- -------------------- --------------------- --------------------
Daniel P. Murphy             4,000,000               80.0%                $0.01            Sept. 30, 2006
Chairman of the
Board, President and
CEO

----------------------- --------------------- -------------------- --------------------- --------------------
----------------------- --------------------- -------------------- --------------------- --------------------
Alejandro Trujillo              -0-                   -0-                  -0-                   ---
Director, Chief
Technology Officer
----------------------- --------------------- -------------------- --------------------- --------------------
----------------------- --------------------- -------------------- --------------------- --------------------
Andrew P. Patient            1,000,000               20.0%                $0.01            Sept. 30, 2006
Chief Financial
Officer and Secretary
----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>

<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, file with the Securities
and Exchange Commission initial reports of ownership and reports of change in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms that they file.

To the Company's knowledge, during the fiscal year ended December 31, 2001, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.

(a) The following table lists any person  (including any "group" as that term is
used in Section  13(d)(3)  of the  Exchange  Act) who, to the  knowledge  of the
Company,  was the  beneficial  owner as of December 31, 2001, of more than 5% of
the outstanding voting shares of the Company.  Unless otherwise noted, the owner
has sole voting and dispositive power with respect to the securities.

Title                                          Beneficially        Percent
Of Class    Beneficial Owner                   Owned                Owned (1)
----------  -------------------------          ---------------     -------------

Common      Robert K. Swanson                  14,372,000 (2)       13.44%
            Shareholder

Common      Zabadoo.com, AG                    12,000,000 (3)       11.44%
            Shareholder
Common      Prudential Overseas Company, Ltd.  6,048,000            6.05%

<PAGE>

(1) With respect to the Common Stock, percentages shown are based upon
99,887,230 shares of Common Stock actually outstanding as of December 31, 2001.

(2) Includes 7,000,000 options to purchase common stock at strike price of $0.01
per share and assumes exercise of all options.

(3) Includes 5,000,000 options to purchase common stock at strike prices range
from $0.02 per share to $0.20 per share and assumes exercise of all options.

(b) The  following  table sets forth as of December  31,  2001,  the  beneficial
ownership of the Company's voting shares by all current  directors and executive
officers  of the Company as a group.  Unless  otherwise  indicated,  each person
listed below has sole voting and investment  power over all shares  beneficially
owned by him.


Title                                          Beneficially         Percent
Of Class      Beneficial Owner                 Owned                 Owned (1)
----------    -------------------------        ---------------      ------------
Common        Daniel P. Murphy
              President, Chairman, CEO,        19,750,000 (2)(3)     19.01%
              and Director

Common        Alejandro Trujillo
              Chief Technology Officer and     15,750,000 (4)        15.75%
              Director

Common        Andrew P. Patient
              CFO, Treasurer, and Secretary    7,750,000  (5)(6)     7.68%

         Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all Common and
Preferred Stock and options or warrants to purchase stock.

(1) With respect to the Common Stock, percentages shown are based upon
99,887,230 shares of Common Stock actually outstanding as of December 31, 2001.

(2) Includes 6,750,000 shares pledged against payment of a promissory note to
the Company in the amount of $67,500 used to exercise the options under which
the shares were acquired. Mr. Murphy has full power to vote the shares and
exercise all other rights of ownership, other than sale of the shares.

(3) Includes 4,000,000 options to purchase common stock at strike price of $0.01
per share and assumes exercise of all options.

(4) Includes 6,750,000 shares pledged against payment of a promissory note to
the Company in the amount of $67,500 used to exercise the options under which

<PAGE>

the shares were acquired. Mr. Trujillo has full power to vote the shares and
exercise all other rights of ownership, other than sale of the shares.

(5) Includes 3,600,000 shares pledged against payment of a promissory note to
the Company in the amount of $36,000 used to exercise the options under which
the shares were acquired. Mr. Patient has full power to vote the shares and
exercise all other rights of ownership, other than sale of the shares.

(6) Includes 1,000,000 options to purchase common stock at strike price of $0.01
per share and assumes exercise of all options.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The 1999 Omnibus Stock Plan (the "Executive Plan"), approved by
shareholders in 1999, was implemented in March, 2000 with 3 employees
participating. Mr. Murphy, the Company's Chairman, President and Chief Executive
Officer, was granted options to purchase 250,000 shares at $1.10 per share for a
period of 5 years. Mr. Trujillo, the Company's Director and Chief Technology
Officer was granted options to purchase 250,000 shares at $1.10 per share for a
period of 5 years, and Mr. Patient, the Company's Chief Financial Officer, was
granted options to purchase 250,000 shares at $1.00 per share for 5 years. Under
the terms of the Executive Plan, eligible key employees were granted the right
to purchase shares of the Company's Common Stock at the market price, or in the
case of owners of 10% or more of the outstanding shares 110% of the market
price, which was estimated at $1.00 per share at the time of grant. All options
were exercised on March 22, 1999 and were financed through promissory notes from
the Company at the Federal Rate for Mid-Term Funds, payable on or before March
22, 2004. On October 1, 2001, the Board of Directors, in consideration of the
decline in market value of the common shares, agreed to reduce the value of the
original purchase transaction to an effective price of $0.01 per share, thereby
reducing the promissory notes and accrued interest by approximately 85%. The
repayment dates and other terms remain the same.

                                     PART IV

ITEM 13. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial  Statements and Schedules.  The following financial statements and
schedules for InterSpace Enterprises,  Inc. as of December 31, 2001 are filed as
part of this report.

(1) Financial  statements of InterSpace  Enterprises,  Inc.  (formerly  Marathon
Marketing Corp.) and subsidiaries.

(2) Financial Statement Schedules:

All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

<PAGE>

                                   SIGNATURES

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

DATE: April 10, 2002
                                              /s/ Daniel P. Murphy
                                              ----------------------------------
                                              Daniel P. Murphy, President, CEO,
                                              Chairman of the Board, Director


                                              /s/ Andrew Patient
                                              ----------------------------------
                                              Andrew Patient, CFO, Secretary,


INTERSPACE ENTERPRISES, INC.

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

April 10, 2002

                                              DIRECTORS



                                              /s/ Daniel P. Murphy
                                              ----------------------------------
                                              Daniel P. Murphy



                                              /s/ Alejandro Trujillo
                                              ----------------------------------
                                              Alejandro Trujillo


<PAGE>


                          INTERSPACE ENTERPRISES, INC.
                         (A Developmental Stage Company)
                              FINANCIAL STATEMENTS
                      For the Year Ended December 31, 2001
                             SIEGEL, SMITH & GARBER
                          Certified Public Accountants


                  INTERSPACE ENTERPRISES, INC. AND SUBSIDIARIES
                                  AUDIT REPORT


<PAGE>


                          SIEGEL, SMITH & GARBER, LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                               FINANCIAL ADVISORS
                          Member American Institute of
                          Certified Public Accountants
                        400 S. Sierra Avenue, Suite 100
                         Solana Beach, California 92075
                               Tel. 858.792.8606
                                Fax 858.792.8608


                 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REPORT

The Board of Directors and Shareholders'
InterSpace Enterprises, Inc.

We have audited the accompanying balance sheet of InterSpace Enterprises, Inc.
(a development stage company) as of December 31, 2001, and 2000 and the related
statement of operations, shareholders' equity (deficit) and cash flows for the
years then ended and for the period from inception (June 30, 1998) to December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
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, on a test
basis, examination of evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InterSpace Enterprises, Inc. as
December 31, 2001 and 2000, and the results of operations and their cash flows
for the years then ended and the period from inception (June 30, 1998) to
December 31, 2001, in conformity with generally accepted accounting principles
in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note L to the
financial statements, the Company cannot successfully implement its operating
plan without raising significant capital. This condition raises substantial
doubt about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


/s/ Siegel Smith, LLP
SIEGEL  SMITH, LLP
Certified Public Accountants

Solana Beach, California
March 28, 2002


                                      F-1

<PAGE>

<TABLE>
<CAPTION>

                            InterSpace Enterprises, Inc.
                           (A Development Stage Company)
                                   Balance sheet
                                    December 31


                                     ASSETS

                                                                  2001             2000
                                                                 ------           ------
<S>                                                         <C>              <C>
Current Assets
    Cash                                                    $      130,815   $        17,343
    Prepaid expenses                                                     0            14,750
    -----------------------------------------------------------------------------------------
       Total current assets                                        130,815            32,093

Fixed Assets
    Computer and office equipment                                   11,281            11,281
    Accumulated depreciation                                        (6,662)           (4,315)
    -----------------------------------------------------------------------------------------
      Total property and equipment                                   4,619             6,966
    -----------------------------------------------------------------------------------------
         Total Assets                                       $      135,434   $        39,059
    =========================================================================================

           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities
    Accounts payable and accrued liabilities                $      232,886   $       260,053
    Notes payable                                                   30,000           136,000
    Accrued payroll liabilities                                    746,361           279,332
    Accrued income tax                                               2,400             1,600
    Convertible notes payable                                      178,000           136,000
    Accrued interest                                                     0             9,105
    Current portion long term debt                                     700               930
    -----------------------------------------------------------------------------------------
      Total current liabilities                                  1,190,347           823,020

Long Term Liabilities                                                  842             1,111

Stockholders' Equity (Deficit)
    Common stock                                                       998               658
    Accounts receivable subscribed-related parties                (185,697)       (1,187,097)
    Additional paid in capital                                   2,736,043         2,313,532
    Accumulated deficit during development stage                (3,607,099)       (1,912,165)
    -----------------------------------------------------------------------------------------
      Total stockholders' equity                                (1,055,755)         (785,072)
    -----------------------------------------------------------------------------------------
       Total Liabilities and Stockholders' Equity           $      135,434   $        39,059
    =========================================================================================

</TABLE>

               See the Accompanying Notes to Financial Statements

                                      F-2

<PAGE>

<TABLE>
<CAPTION>


                          InterSpace Enterprises, Inc.
                         (A Development Stage Company)
                            Statement of Operations
             For the Years Ended December 31 and Inception to Date



                                                                                   From Inception
                                                                                   June 30, 1998
                                                                                      Through
                                                        2001          2000        December 31,2001
   --------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>                  <C>
Revenues

Research and Development                                                                       5,059

Administrative and Selling Expenses
   License fees                                                 0       333,000              373,000
   Consulting                                             495,685       257,250              826,510
   Depreciation and amortization                            2,347         2,347                6,662
   Legal and professional                                 118,039        50,201              319,556
   Marketing and promotion                                 18,322        14,468              117,953
   Office expense                                          29,628        24,241               88,993
   Other administrative expenses                          410,465       120,671              578,674
   Rent                                                    11,373         5,777               22,196
   Salaries                                               577,405       466,880            1,279,792
   --------------------------------------------------------------------------------------------------
      Total Administrative Expense                      1,663,264     1,274,835            3,613,336

   --------------------------------------------------------------------------------------------------
        Net Loss from Operations                       (1,663,264)   (1,274,835)          (3,618,395)

Other (Income) Expense
   Interest income                                         39,774       (54,471)             (14,697)
   Interest expense                                        (8,904)        9,105                  201
   --------------------------------------------------------------------------------------------------
      Total Other (Income) Expense                         30,870       (45,366)             (14,496)

Income Taxes                                                  800           800                3,200
   --------------------------------------------------------------------------------------------------
        Net Income                               $     (1,694,934)   (1,230,269)          (3,607,099)
   ==================================================================================================


   Weighted Average Shares                             81,561,061    58,321,405
   Loss per share                                           (0.02)        (0.02)

</TABLE>


               See the Accompanying Notes to Financial Statements

                                      F-3

<PAGE>

<TABLE>
<CAPTION>

                                          INTERSPACE ENTERPRISES, INC.
                                         (A Development Stage Company)
                             Statement of Changes in Stockholders' Equity (Deficit)
                            From Inception, June 30, 1998 through December 31, 2000

--------------------------------------------------------------------------------------------------------------------------------
                                    Common Stock                 Additional Paid      Accounts        Accumulated
     Date         Description          Shares         Dollars      in Capital      Rec. Subscribed      Deficit          Total
--------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                        <C>           <C>            <C>             <C>           <C>             <C>
               Beginning                  -              -              -                              -               -
                  balance

June 30,1998   Shares issued              3,475,000        3,475                                                        $ 3,475
                  to founders

Nov 24,1998    Shares issued                120,000        $ 120        $ 59,880                                       $ 60,000
                  for cash

Nov 24,1998    Shares issued                  5,000          $ 5         $ 2,495                                        $ 2,500
                  for services

Dec. 31,1998   Net loss                                                                               $ (68,678)      $ (68,678)
--------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998                 3,600,000      $ 3,600        $ 62,375                      $ (68,678)       $ (2,703)
--------------------------------------------------------------------------------------------------------------------------------
Shares issued for cash                      183,200        $ 183       $ 220,307       $ (5,000)                      $ 215,490

Shares issued for services                  242,000        $ 242       $ 155,758                                      $ 156,000

Nov. 2, 1999   Cancelled Stock              (25,000)       $ (25)                                                         $ (25)

Nov. 18, 1999  Reincorporating                          $ 36,002       $ (36,002)                                           $ -

Dec. 31,1999   Net loss                                                                              $ (613,218)     $ (613,218)
--------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999                 4,000,200     $ 40,002       $ 402,438       $ (5,000)     $ (681,896)     $ (244,456)
--------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                 See Accompanying Notes to Financial Statements

                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                                          INTERSPACE ENTERPRISES, INC.
                                         (A Development Stage Company)
                             Statement of Changes in Stockholders' Equity (Deficit)
                            From Inception, June 30, 1998 through December 31, 2000


                                      Common Stock                 Additional Paid      Accounts        Accumulated
     Date         Description            Shares         Dollars      in Capital      Rec. Subscribed      Deficit          Total
----------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                     <C>            <C>          <C>               <C>             <C>             <C>

January, 2000  Cash Received                                                              $ 5,000                         $ 5,000

Shares issued for cash                     99,000        $ 990       $ 195,510                                          $ 196,500

March, 2000    Officer Options          1,900,000     $ 19,000     $ 1,068,500       $ (1,087,500)                            $ -

March, 2000    Exercised options          175,000      $ 1,750       $ 117,000          $ (45,126)                       $ 73,624

March, 2000    Stock for Services         469,000      $ 4,690       $ 464,310                                          $ 469,000

April, 2000    Merger                     672,000     $(66,359)       $ 66,359                                                $ -

July, 2000     Dividend 8 X 1          58,521,600        $ 585          $ (585)                                               $ -

December 31    Interest on Notes                                                        $ (54,471)                      $ (54,471)

Dec. 31,2000   Net loss                                                                              $ (1,230,269)   $ (1,230,269)
----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000              65,836,800        $ 658     $ 2,313,532       $ (1,187,097)   $ (1,912,165)     $ (785,072)
==================================================================================================================================

</TABLE>


                 See Accompanying Notes to Financial Statements

                                      F-5

<PAGE>

<TABLE>
<CAPTION>

                                          INTERSPACE ENTERPRISES, INC.
                                         (A Development Stage Company)
                             Statement of Changes in Stockholders' Equity (Deficit)
                            From Inception, June 30, 1998 through December 31, 2000


                                      Common Stock                 Additional Paid      Accounts        Accumulated
     Date         Description            Shares         Dollars      in Capital      Rec. Subscribed      Deficit          Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>               <C>       <C>                 <C>           <C>             <C>
Conversion of notes payable               366,300          $ 4       $ 183,146                                          $ 183,150

Shares issued for services             22,554,030        $ 225       $ 867,945                                          $ 868,170

Shares issued for cash                 11,130,100        $ 111       $ 287,919                                          $ 288,030

Interest on notes                                          $ -             $ -           $ 39,774                        $ 39,774

Officer Options                                            $ -      $ (916,500)         $ 916,500                             $ -

Due from shareholder                                       $ -             $ -           $ 45,126                        $ 45,126

Net loss                                                                                             $ (1,694,934)   $ (1,694,934)
----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2001              99,887,230        $ 998     $ 2,736,042         $ (185,697)    $(3,607,099)   $ (1,055,756)
==================================================================================================================================

</TABLE>


                 See Accompanying Notes to Financial Statements

                                      F-6

<PAGE>

<TABLE>
<CAPTION>

                                   INTERSPACE ENTERPRISES, INCC.
                                   (A Development Stage Company)
                                      Statements of Cash Flows
                 For the Years Ended December 31 and From Inception, June 30, 1998
                                     Through December 31, 2000


                                                                                               From Inception
                                                                                                June 30, 1998
                                                                                                   Through
                                                              2001              2000          December 31,2001
                                                          --------------   ---------------   --------------------
<S>                                                     <C>              <C>               <C>
Cash Flows From Operating Activities
     Net Loss                                           $    (1,694,934) $     (1,230,269) $          (3,607,099)

     Adjustments to reconcile net income to net cash provided by operating
     activities:
         Depreciation                                             2,347             2,347                  6,662
         Stock for services                                     868,170           469,000              1,499,120
         Changes in:
         Prepaid expense                                         14,750           (14,750)                     0
         Accounts payable                                       (27,167)          112,316                232,886
         Accrued interest                                        (9,105)            9,105                      0
         Accrued payroll expenses                               467,030           168,805                746,362
         State tax payable                                          800               800                  2,400
-----------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities                          (378,109)         (482,646)            (1,119,669)

Cash Flows from Investing Activities
         Accrued interest related parties                        39,774           (54,471)               (14,697)
         Computer and equipment purchases                                          (1,982)                (8,335)
         Note receivable (payments)                              45,126                                        0
-----------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities                            84,900           (56,453)               (23,032)

Cash Flows from Financing Activities
         Notes payable                                         (106,000)          136,000                 39,200
         Sale of common stock                                   489,550           275,124              1,040,164
         Repayment of notes                                        (499)             (905)               (10,604)
         Convertible notes                                       23,630           136,000                159,630
-----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                       406,681           546,219              1,228,390

         Net Increase in Cash                                   113,472             7,120                 85,689

     Cash, beginning of the year                                 17,343            10,223                      0
-----------------------------------------------------------------------------------------------------------------
     Cash, December 31                                  $       130,815  $         17,343  $              85,689
=================================================================================================================

Supplemental Non Cash Investing and Financing Activities:
     Stock issued for a Lottery license                 $                $        333,000  $                   0
     Stock for consulting service                       $       868,170  $        136,000  $           1,004,170
     Acquisition of computer on note                    $                $                 $               2,946

Supplemental Information:
         Interest paid                                  $                $            353 $                    0
         Taxes paid                                     $                $              0 $                    0


</TABLE>


               See the Accompanying Notes to Financial Statements

                                      F-7

<PAGE>



NOTE A -  Summary of Significant Accounting Policies
          ------------------------------------------

Organization
------------
Interspace Enterprises, Inc. (the "Company") was originally incorporated in the
State of Nevada on June 30,1998. The Company reincorporated as a Delaware
Corporation on November 17, 1999. Additionally, on April 14, 2000 the Company
entered into a stock exchange with Marathon Marketing Corp., ("MM") a Colorado
Corporation. The Company issued 672,000 shares of common stock for all the
outstanding shares of MM, which was also 672,000 and the transaction was
accounted for as a reverse reorganization. As part of the reorganization all
officers of MM resigned and MM changed its name to InterSpace Enterprises, Inc.

The Company plans to develop a website "PlanetLotto.com", incorporating a global
lottery combined with an interactive half-hour game show. International viewers
will have the potential to win cash and will be able to watch a weekly game show
tailored to meet the needs of diverse international participants. Guests may
enter any weekly jackpot by purchasing a $2.00 (US) entry and selecting their
lucky numbers. Guests may also purchase PlanetLotto.com merchandise online. All
transactions will be secured through an established online credit card
transaction company. All ticket purchases will be confirmed via e-mail.

Development Stage Operations
----------------------------
Since inception, June 30, 1998, the Company has devoted significantly all of its
efforts to development of a web site, obtaining capital resources and obtaining
lottery licenses. Therefore, the Company is considered a development stage
company as described in SFAS No. 7.

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

Basic and Diluted Net Loss Per Share
------------------------------------
Net loss per share is calculated in accordance with SFAS128, Earnings Per Share
for the period presented. Basic net loss is based upon the weighted average
number of common shares outstanding.

Comprehensive Income
--------------------
The Company has adopted SFAS 130, Reporting Comprehensive Income, which
establishes standards for reporting comprehensive loss and its components in the
financial statements. To date, the Company's comprehensive loss equals its net
loss.

Reportable Operating Segments
-----------------------------
SFAS 131, Segment Information, amends the requirements for companies to report
financial and descriptive information about their reportable operating segments.
Operating segments, as defined in SFAS 131, are components of an enterprise for
which separate financial information is available and is evaluated regularly by
a company in deciding how to allocate resources and in assessing performance.
The financial information is required to be reported on the basis that is used
internally for evaluating segment performance. The Company currently is the
development stage and does not have reportable operating segments.

Cash and Cash Equivalents
-------------------------
Cash equivalents include cash on hand and in banks.


                                      F-8

<PAGE>


Accounting Method
-----------------
The Company uses the accrual method of accounting, which recognizes income as it
is earned and expenses as they are incurred.

Equipment and Depreciation
--------------------------
Property and equipment are carried at historical cost. Depreciation is computed
using the straight-line method over the useful life of the asset. Asset lives
are five years for equipment and software. Total depreciation from June 30,
1998, date of inception, through December 31, 2001 was $6,662, which represents
$2,347 for the current calendar year, $2,347 for 2000, $1,660 for 1999 and $308
for the period of inception through December 31, 1998. The Company uses the
modified accelerated cost recovery method for income tax purposes.

Income Taxes
------------
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred
income taxes reflect the net tax effects of temporary differences between the
financial statement carrying amounts and tax rates in effect in the years in
which the differences are expected to reverse. The Company has a net operating
loss ("NOL") as of December 31, 2000 of approximately $3,100,000 for federal
purposes and $1,550,000 for State tax purposes. This NOL will begin to expire in
the year 2013 if not previously utilized.

Accounting for Stock-Based Compensation
---------------------------------------
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No. 123) prescribes a fair value method of accounting for
stock based compensation plans and for transactions in which stock options or
other equity instruments are exchanged for goods or services. The Company
adopted this accounting standard at inception. Accordingly, the fair value of
the equity instruments issued is used to account for the payment of services
rendered. Also, in accordance with SFAS No. 123, the Company has footnote
disclosure with respect to stock-based non-employee compensation. The cost of
stock based compensation is measured at the grant date on the value of the award
and recognizes this cost over the service period. The value of the stock-based
award is determined using a pricing model whereby compensation cost is the
excess of the fair market valued of the stock as determined by the model at
grant date or other measurement date over the amount an employee must pay to
acquire the stock.

New Accounting Pronouncements
-----------------------------
In December 1999, the Staff of the Securities and Exchange Commission released
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenues in
financial statements. In June 2000, the SEC staff amended SAB 101to provide
registrants with additional time to implement SAB 101. The Company will be
required to adopt SAB 101 by the fourth quarter of fiscal 2001. Upon
commencement of operations, the Company intends to adopt the revenue recognition
practices to conform to SAB 101. Furthermore, the Company does not expect the
adoption of SAB 101 to have a material effect on its financial position or
results of operation.


NOTE B - Notes Payable
         -------------

The Company has obtained from two interested parties a total of $30,000 in
informal loans to meet the Company's day-to-day cash operating needs. The loans
total $15,000 from each party. Neither party has asked the Company to
collateralize the loan, sign notes or state an interest rate. The Company
intends to repay these parties when significant funding has been obtained. These
notes are demand notes and therefore classified as a current liability. The


                                      F-9

<PAGE>

Company has not accrued interest on these friendly advances. Subsequent to
year-end one $15,000 note was converted to 250,000 shares of the Company's
common stock.

The Company has assumed a liability from an officer of the Company for
approximately $1,500. The Officer used his personal credit to acquire computer
equipment on a revolving credit basis. The loan is unsecured and bears 18%
interest annually.

The following table represents the annual principal payments due on the
revolving credit over the next five years:

                      YEAR                          AMOUNT
                      2002                        $    700
                      2003                        $    800
                      2004                        $    -0-
                      2005                        $    -0-
                      2006                        $    -0-


NOTE C - Convertible Notes Payable
         -------------------------

In December 2001 the Company raised $178,000 of capital via unsecured
convertible notes. The terms of the notes are between six and twelve months with
interest at 10% annually. The notes are convertible to equity at either the note
holders' wishes or, if certain events occur within the Company, the Company has
the right to convert. At December 31, 2001 no note holders or events had
occurred to trigger conversion. Since these notes were issued at various times
during the last two weeks of the year the accrued interest is insignificant at
December 31, 2001. Subsequent to year-end the outstanding notes were converted
to stock.

The convertible notes, and accrued interest, outstanding at December 31, 2000
were converted to stock in February 2001.


NOTE D - Income Taxes
         ------------

Income tax expense of $800 represents the minimum California franchise tax for
the year ended December 31, 2001. The deferred income taxes consisted of the
following as of December 31, 2001:

        Deferred tax assets
             Net operating loss                             $1,054,000

        Deferred tax liabilities
             Non deductible items                               39,000
                                                                ------

                         Net deferred assets                $1,015,000
                         Valuation allowance                $1,015,000
                                                            ----------
                         Net deferred tax                       -0-

                         Change in valuation allowance      $  839,200

Deferred tax assets relates to the Company's net operating loss from inception
through December 31, 2001. The net operating loss totals $3,100,000 as of
December 31, 2001 and begins to expire in 2013. A valuation allowance has been
provided against this deferred tax asset as it more likely than not that the
deferred tax asset will not be realized.


                                      F-10

<PAGE>


NOTE E - Preferred Stock
         ---------------

The Company has authorized 40,000,000 shares of $0.0001 par value preferred
stock. As of December 31, 2001 and 2000 no shares were issued and outstanding.


NOTE F - Common Stock
         ------------

The Company has authorized 200,000,000 shares of $0.00001 par value common
stock. On December 31, 2001 and 2000 there were 99,887,230 and 65,836,800 shares
issued and outstanding, respectively. During 2001 the Company sold 11,130,100
shares totaling $306,400 less a $18,370 commission. Additionally, 22,554,030
shares were issued for services, valued at $868,170. The shares issued for
services were valued at various rates. These transactions were recorded at an
amount that approximates the value of the Company's freely traded stock at the
time the transactions were entered into. During the year the stock price has
fluctuated from approximately $0.50 to $0.018.


NOTE G - Stock Options
         -------------

During 2001 the Company issued two options totaling 9,500,000 shares to a
Director for his continued participation in the Company's leadership. The
options are for a period of two years beginning September 19, 2001 (2,500,000
shares) and October 9, 2001 (7,000,000 shares) and can be exercised at any time
within the two years. The option price is at $0.01 on both options. On the dates
of grant the bid price for the stock was also $0.01. No options had been
exercised as of December 31, 2001.

The Company has also issued options to the President (4,000,000 shares) and the
CFO (1,000,000 shares) for their services. The options are exercisable at 110%
of the closing price of the stock on October 8, 2001. No options had been
exercised as of December 31, 2001.


NOTE H - Non-Monetary Transactions
         -------------------------

The Company has an agreement with an agent, whereby a commission is paid for
referrals of investors in the Company's notes and stock. During 2001 and 2000
the Company paid $18,370 and $26,000 respectively for referrals.

The Company issued 22,554,030 shares for certain consulting and advisory
services provided to the Company. The Company valued these transactions at what
they believed approximated the fair market value of the stock at the time the
agreements for services were signed. The Company's stock price ranges from
approximately $0.50 to $0.018 during the year. Therefore, the value recorded for
these services also ranges from $0.50 to $0.02.


NOTE I - Related Party Transactions
         --------------------------

The Company currently has assumed a liability from an officer of the Company for
approximately $1,500. The Officer used his personal credit to acquire computer
equipment on a revolving credit basis. The loan is unsecured and bears 18%
interest annually, (see Note B).



                                      F-11

<PAGE>


Certain officers and consultants were granted options to purchase stock of the
Company in 1999. In March 2000 all outstanding options totaling 18,675,000
shares, at a cost of $1,206,250 were exercised. The options exercised by the
officers for 17,100,000 shares however, were completed by promissory notes to
the Company for $1,087,500 and interest at the annual Federal mid-term rate. In
October the Company adjusted the price of the stock for the officers of the
Company. The total adjustment, ($916,500), reduced Additional Paid in Capital as
well as the Accounts Receivable from Officers. Total accrued interest, at
December 31, 2001, from officer receivable was $14,700.

The Company has issued a total of two options totaling 9,500,000 shares to a
Director for his continued participation in the Company's leadership. The
options are for a period of two years beginning September 19, 2001 (2,500,000
shares) and October 9, 2001 (7,000,000 shares) and can be exercised at any time
within the two years. The option price is at $0.01 on both options. On the dates
of grant the bid price for the stock was also $0.01. (Note G)

The Company has also issued options to the President (4,000,000 shares) and the
CFO (1,000,000 shares) for their services. The options are exercisable at 110%
of the closing price of the stock on October 8, 2001. (Note G)


NOTE J - Subsequent events
         -----------------

The Company has converted the entire $178,000 of convertible notes to 9,203,326
shares of common stock. Additionally, the note holder of the $15,000 note
converted their note to 250,000 shares of common stock.


NOTE K - Commitments and Contingencies
         -----------------------------

The Company currently leases space for their corporate headquarters in an
Executive Suite complex in the La Jolla area of San Diego, California. The
Company pays a minimum amount of rent, ($185 monthly) for limited use of
conference and meeting rooms. The Company is also charged for additional
services such as secretarial services, call forwarding and facsimiles. During
2001 the Company paid $11,373 for these services and the service can be
terminated on 30 days written notice.

The Company is currently obligated under the terms of an operating lease for an
automobile used by the CEO. The lease was originally for 36 months, at $618 a
month, and matures August 2002.


NOTE L - Going Concern
         -------------

At December 31, 2001 the Company had a working capital deficit in excess of
$1,000,000. Additionally, the Company has recurring, losses during their
development stage, negative stockholders' equity as well as
approximately$350,000 liability to the Internal Revenue Service for payroll
taxes and penalties. These factors raise doubt about the Company continuing as a
going concern.

Management continues to seek capital via the sale of common stock. The Company
is also discussing financing alternatives with various investment groups. There
can be no assurance that the Company will be successful in its efforts to raise
adequate capital. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.


                                      F-12

<PAGE>


NOTE M - Concentrations of Credit Risks
         ------------------------------

The Company maintains cash balances at a financial institution in San Diego,
California. The account is insured by the Federal Deposit Insurance Corporation,
("FDIC") up to $100,000. At various times during 2001 the Company's cash
balances exceeded FDIC insurance amounts.


NOTE O - Lottery Drawing
         ---------------

On December 20, 2001 the Company began selling tickets for the first lottery
drawing held January 18, 2002. The lottery, including ticket sales are operated
by a casino in Liechtenstein. The Company will receive 17% of the net proceeds
from the drawing. The proceeds from this drawing are insignificant and the
Company has not recorded any anticipated receipts in the December 31, 2001
financials.







                                      F-13