SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

|X|   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934

                   For the fiscal year ended December 31, 2002

|_|   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 For the transition period from to .

                         Commission File Number: 0-17462

                              INSTAPAY SYSTEMS, INC
                    (fka) FILMAGIC ENTERTAINMENT CORPORATION
         IMMEDIATE PREDECESSOR NAME: "ROEDEINGER MEDICAL SYSTEMS, INC."
                      PREDECESSOR NAME: "COTTON TREE, INC."
             (Exact name of registrant as specified in its charter)

UTAH                                                            87-0404991
(State or other jurisdiction of                                (IRS Employer
Incorporation or organization)                               Identification No.)

Main: 2869 India St., San Diego, California                             92103
Alternate Mail: 419 Main St.-Ste# 424, Huntington Beach, CA             92648
(Address of principal executive offices)                              (Zip Code)

        Registrant's telephone number including area code: (858)847-0139
                     Registrant's fax number (858) 847-0163

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 par value
                                (Title of Class)

      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange Act during the past 12 months ( or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. YES X NO

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  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. [ ]

      State issuer's revenues for its most recent fiscal year. NONE .

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of March 31, 2003 was $ 10,677,582. The number of shares of Common
Stock,  $.001 par value,  outstanding at March 31, 2003 was  30,533,812  held by
approximately 240 shareholders.

<PAGE>

                                     PART I

Item 1. Description of Business

Background

      InstaPay  Systems,  Inc ("InstaPay")  incorporated in the State of Utah in
1983 as Cotton Tree, Inc. In 1985 it acquired, in a stock-for-stock acquisition,
MEDX,  Inc. and changed its name to Roedeinger  Medical  Systems,  Inc. In 1988,
Roedeinger  Medical  Systems sold its line of medical  products to a third party
company, and it acquired, on a stock-for-stock basis, Filmagic, Inc. and changed
its name to  Filmagic  Entertainment  Corporation.  On  November  11, 2002 the "
InstaPay" Board of Directors  filed,  as authorized,  the change in officers and
made  applications  with  both  the SEC and the  State  of Utah to  confirm  the
amendment in the company's  articles.  These amendments  included  effecting the
change of name from  "Filmagic"  to " InstaPay  Systems,  Inc.,  increasing  the
authorized  shares to  200,000,000  of common  stock,  and to complete a 2 for 1
split of the company's stock in December 2002.

The Company

      InstaPay (fka Filmagic ) was  initially  developed as a film  distribution
and sales agency organization and was the reason InstaPay acquired approximately
1,000 half hour films.  During the past four years  InstaPay has  maintained  no
active  employees,  with all  filings,  negotiations,  and sourcing of potential
business  opportunities  being  conducted by the  officers and  directors of the
company.  The officers and directors  have spent the majority of time  reviewing
prior  management  directives,  attempting  to  find  potential  candidates  for
mergers, acquisitions and potential sources of capital.

      During the months of October,  November  and December of 2002 the Board of
Directors continued their  conversations with potential  candidates for possible
acquisitions.  The board  decided to make a change in  officers in an attempt to
bring the company to a direction that would both increase  shareholder value and
gain  necessary  tools to activate  an income  stream.  Completion  of the Board
changes  occurred during late November 2002, after the  recommendation  to bring
Mr. Robert Bragg on board in the position of President/ CEO was made by the then
President/Chairman  Mr.  Harris.  Mr. Bragg had many years of  experience in the
securities  industry and had the  potential of bringing  technology  to InstaPay
that was currently not available to the securities industry.

      Subsequent to Mr. Robert  Bragg's taking the role as President/ CEO of now
InstaPay Systems Inc. ( fka Filmagic Entertainment  Corporation),  the company "
InstaPay"  acquired semi- exclusive rights to act as a reseller for Kryptosima's
payENKRYPT  services/technology  from the Bentley Communications  Corporation on
November 22, 2002.

      Subsequent  to year-end,  Management  decided to change the approach  from
beinga  reseller to acquiring  Kryptosima  itself in a stock  transaction.  As a
result,  the  acquisition  of  Kryptosima  by InstaPay  will be completed in the
second quarter of 2003. Kryptosima will be operated as a wholly owned subsidiary
of InstaPay.  Mr. Harry  Hargens,  President and CEO of  Kryptosima  assumed the
position of CEO of InstaPay in March 2003.


                                       2
<PAGE>

Competition

      Currently,  investors and securities firms rely on other costly methods to
transact monies that may or may not be credited to the investors'  accounts in a
timely fashion. Current methods to deliver funds, such as; bank wires, overnight
couriers, and the U.S. Post Office range in fees from approximately $10.00 to as
high as $28.00. These methods do not guarantee immediate credit for the purchase
of  securities or to meet a margin call.  Online check,  although not as costly,
still have a waiting  period for the " check to clear" and the client  still may
not have access to their funds to execute timely trades.

      With InstaPay  Systems,  your bank issued  ATM/Debit  card can  facilitate
almost immediate cash deposits into your brokerage accounts.  In addition, it is
far more  secure  and  efficient  than any  other  method.  To use an  ATM-Card,
payENKRYPT (the new InstaPay system) uses a PIN pad that easily attaches to your
PC, to securely encrypt your  transaction  data per banking industry  standards.
The device is called a PIN pad because it allows  you,  the  consumer,  to swipe
your card, and then safely enter your Personal  Identification Number (PIN) when
you use your ATM/Debit  card, just like you would at an ATM machine to get cash,
or at a supermarket to buy groceries.

      For further information view our website at www.instapaysystems.com or the
KRYPTOSIMA site at www.Kryptosima.com.

Market Strategy

      The  acquisition  of Kryptosima  will provide  InstaPay the  technology to
launch its new plan for Internet payment transactions.  Initially, InstaPay will
market the technology to fund client's stock  brokerage  accounts.  Kryptosima's
technology is a unique,  patent-pending  platform, which is capable of providing
secure  payment  transaction  services for not only the on-line stock  brokerage
industry but also the entire  Internet  eCommerce  market.  InstaPay  intends to
expand their market  parameters  beyond the brokerage  community,  as the entire
eCommerce  market will provide this company with a huge potential  market,  both
within the US markets, but the European markets have possibly a larger potential
for  the  Kryptosima   technology.   InstaPay  and  Kryptosima  are  in  current
discussions with several stock brokerages,  banks and ATM networks to coordinate
and initiate the launch of the Kryptosima's payENKRYPT system.

Item 2. Description of Property

      The company  currently  utilizes as its offices  those of one of its Board
members.  The  location  at 2869 India St. in San Diego,  California  is the law
offices of Mr. Frank DeSantis,  and is currently the company's business address.
InstaPay does not pay for any rent at this location, because it uses the offices
donated by one of its board members.

Item 3. Legal Proceedings

      The  Company is not  involved in any legal  proceedings  as of the date of
this filing.


                                       3
<PAGE>

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

      None

                                     PART II

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

      InstaPay's  (fka  Filmagic)  common  stock has been traded in the Over the
Counter Market (OTC), "pink sheets" and has been subject to sporadic trading and
pricing.  The stock has not actively  traded in the past several  years.  During
1999,  Filmagic issued 940,000 shares at a board of directors  approved value of
$.04 cents per share.  During 2001,  Filmagic issued 1,662,500 shares at a board
of directors  approved value of $ .04 cents per share.  During  November of this
year  2002,  the board of  directors  succeeding  in getting  Filmagic  to begin
trading on the OTC/BB under the symbol "FMAN",  shortly after the 30 day initial
period  the  board of  directors,  completed  a name  change of the  company  to
InstaPay  Systems,  Inc and now trades  under the symbol " IPYS" on the Over the
Counter Market (OTC).

      In  December  2002,  the  Company  authorized  a 2 for 1 stock  split  and
increased the number of shares  authorized to 200,000,000.  All stock amounts in
this document have been adjusted to reflect the stock split retroactively.


                                       4
<PAGE>

Item 6. Management's Discussion and Analysis or Plan of Operation.

PLAN OF OPERATION

      From the Company's inception and as stated in the 10KSB's filed during the
prior years the Board `s direction  was to have (fka)  Filmagic  now  "InstaPay"
seek, investigate,  and if such investigations  warrant,  acquire an interest in
one or more business opportunities  presented to it by persons or firms desiring
the perceived advantages of a publicly held corporation. For all the prior years
InstaPay (fka  Filmagic) had no plan,  proposal,  agreement,  understanding,  or
arrangement  to acquire or merge with any  specific  business  or  company,  and
InstaPay had not identified any specific  business or company for  investigation
and evaluation.  InstaPay did not restrict its search to any specific  business,
industry, or geographical  location,  and could participate in business ventures
of virtually any kind or nature.  Discussion of the proposed business under this
caption and throughout its prior Annual Reports was purposefully general and was
not meant to restrict InstaPay's  virtually  unlimited  discretion to search for
and enter  into a  business  combination.  The board of  directors  could seek a
business combination with a firm which only recently commenced operations,  or a
developing  company in need of  additional  funds to expand into new products or
markets  or  seeking to develop a new  product  or  service,  or an  established
business,  which may be  experiencing  financial or operating  difficulties  and
needs additional  capital,  which is perceived to be easier to raise by a public
company.  The InstaPay  board was  authorized  to purchase  assets and establish
wholly owned subsidiaries in various businesses or purchase existing  businesses
as  subsidiaries.  Selecting  a  business  opportunity  had been a  complex  and
extremely risky venture  considering the direction the market had been since the
September 11, 2001 events, which changed the focus of many businesses. The board
began  during the mid to later part of the third  quarter,  having  meeting  and
reviewing various  opportunities  which would help complete the process to bring
the company  back to an active  trading  basis.  The board  however knew that to
truly bring shareholder value a business  opportunity that could generate a good
profit  potential  would be necessary for this company and it's  shareholders to
have good value and a chance for a profitable future.

      Management  believed that InstaPay (fka  Filmagic)  once it became trading
would have a much better  opportunity to acquire potential  candidates and bring
operational management to that table to help establish higher shareholder value.
Management has spent the majority of this year in  establishing  contacts within
various markets to find potential  candidates for acquisition,  which brought to
the table  Mr.  Robert  Bragg,  who  served  briefly  (Nov.  02 ~ Mar 03) as the
Company's President and CEO. Mr. Bragg brought to (fka) Filmagic,  now INSTAPAY,
an  acquisition  which  would help bring this  company  into a market that could
generate  value and a revenue  stream for the  shareholders  that would increase
their share value.

The Company

      InstaPay ( fka Filmagic) was originally  developed as a film  distribution
and sales agency  organization  for  feature-length  motion picture,  television
programming and DVD entertainment for Cable and Network channels.

      During the first  quarter of 2002 the focus of the board of directors  was
to review new directions for  opportunity.  With this process the board began to
spread out and attempted to utilize their own contacts to find opportunities for
acquisition,  without  losing the direction to continue doing the work necessary
to bring this company back to a full trading status.  Focusing on various merger
opportunities  or  acquisitions  would  allow the board a more  diverse  view on
opportunities.  One of these opportunities began looking more like the direction
the  company  should take  during  late third  quarter,  but did not truly begin
boiling until the middle of October 2002.  With the addition of Mr. Robert Bragg
as the new President/ CEO that company pushed rapidly into making a play for the
technology under development by Kryptosima, LLC founded by Mr. Harry Hargens.


                                       5
<PAGE>

Major Management Objectives

      The primary objective of (fka Filmagic) InstaPay during all of 2002 was to
bring the company back to a full trading basis, in an effort to create a vehicle
to raise necessary capital for expansion and/ or acquisition opportunities. Once
that  was   accomplished   the  Board  could  focus  its  attention  on  various
opportunities,  which would offer the most likelihood for producing revenues and
shareholder value.

Execution

      In order to implement (fka Filmagic)  InstaPay's plans,  management had to
concentrate its initial efforts on the following:

      a.    Completing the process for returning to the OTC.

      b.    Attract the interest of potential  management and marketing  experts
            to help develop opportunities.

      c.    Develop an active plan  utilizing  all of the board's  personal  and
            business relationships.

Resource Requirements

      Management has made the current  acquisition of the Kryptosima  technology
by utilizing  144 stock  issuances  and raising  capital  through  shareholders,
management,  and  directors  as has  been  necessary  for the  past  operations.
Management however, does feel to meet its current focus they need to seek from $
3,000,000  to $  10,000,000  which  ,  should  be  raised  from  either  private
investors,  or through the public market via SEC  registrations  or  exemptions.
These  capital  requirements  could become  necessary  depending  on  InstaPay's
objectives  which are currently being reviewed by the board along with modifying
the  company's  long & short range  objectives  and  projections,  which will be
contained in it's new business plan under development.

Sources of Opportunities

      InstaPay (fka Filmagic) will seek potential  business  opportunities  from
all known  sources,  but will  rely  principally  on  personal  contacts  of its
officers and directors,  as well as indirect associations between them and other
business and  professional  people.  It was not anticipated  that InstaPay would
engage   professional   firms   specializing   in   business   acquisitions   or
reorganizations,  but instead spent the year relying upon their own efforts and,
to  a  much  lesser  extent,   the  efforts  of  InstaPay's   shareholders,   in
accomplishing  the business  purposes of InstaPay.  The board utilized their own
contact to develop the  opportunities  that became  available  during the fourth
quarter and resulted in the acquisition of the Kryptosima technology.  The board
utilized stock issuances and options to bring the opportunity to a reality.


                                       6
<PAGE>

Evaluation of Opportunities

      The analysis of new business  opportunities  will  continue even though an
agreement for the  acquisition  Kryptosima  has been acquired by InstaPay as the
results of efforts by the  InstaPay  then CEO Mr.  Robert  Bragg.  These  future
potential  opportunities  will be undertaken by or under the  supervision of the
officers  and  directors  of  InstaPay.  Management  intends to  concentrate  on
identifying  prospective  business  opportunities,  which may be  brought to its
attention through present associations with management. In analyzing prospective
business  opportunities,  management  will consider,  among other factors,  such
matters as:

      -     the available technical, financial and managerial resources; working
            capital and other financial  requirements;  history of operation, if
            any;

      -     prospects for the future;

      -     present and  expected  competition;  the quality and  experience  of
            management  services  which may be  available  and the depth of that
            management;

Opportunities in which InstaPay participates will present certain risks, many of
which cannot be identified adequately prior to selecting a specific opportunity.
InstaPay's  shareholders must,  therefore,  depend on management to identify and
evaluate  such risks.  Promoters of some  opportunities  may have been unable to
develop a going concern or may present a business in its  development  stage (in
that it has not  generated  significant  revenues  from its  principal  business
activities   prior  to   InstaPay's   participation).   Even  after   InstaPay's
participation,  there is a risk that the  combined  enterprise  may not become a
going concern or advance beyond the development stage.  Other  opportunities may
involve new and untested products,  processes,  or market strategies,  which may
not succeed. Filmagic, and therefore its shareholders, assume such risks.

      The investigation of specific business  opportunities and the negotiation,
drafting, and execution of relevant agreements,  disclosure documents, and other
instruments  will require  substantial  management time and attention as well as
substantial  costs for accountants,  attorneys,  and others.  If a decision were
made not to participate in a specific business opportunity the costs incurred in
the related  investigation  would not be  recoverable.  Furthermore,  even if an
agreement is reached for the participation in a specific  business  opportunity,
the failure to consummate that transaction may result in the loss by InstaPay of
the related costs incurred.  Management does not believe  InstaPay will generate
revenue  without  finding and  completing the  acquisition of suitable  business
opportunities or transactions with a suitable target company. The first of these
potential  acquisitions  was the  Kryptosima  licensing  rights from the Bentley
Communications  Company.  The board and management  are currently  reviewing the
potential total acquisition of Kryptosima and all of its potential patents.


                                       7
<PAGE>

Acquisition of Opportunities

      In  implementing  a  structure  for  a  particular  business  acquisition,
InstaPay may become a party to a merger,  consolidation,  reorganization,  joint
venture,  franchise,  or licensing agreement with another corporation or entity.
It may also purchase stock or assets of an existing business. Once a transaction
is complete,  it is possible that the present  management  and  shareholders  of
InstaPay will not be in control. In addition,  a majority or all of the officers
and  directors  may,  as part of the  terms of the  transaction,  resign  and be
replaced by new officers and directors without a vote of the shareholders.

      It is anticipated that securities issued in any such reorganization  would
be issued in reliance on exemptions from registration  under applicable  federal
and state  securities  laws.  In some  circumstances,  however,  as a negotiated
element of this  transaction,  InstaPay  may agree to register  such  securities
either at the time the transaction is consummated,  under certain conditions, or
at  a  specified  time  thereafter.   The  issuance  of  substantial  additional
securities and their potential sale into any trading  market,  which may develop
in InstaPay's common shares, may have a depressive effect on such market.

      While the actual terms of a transaction  to which  InstaPay may be a party
cannot  be  predicted,  it may be  expected  that the  parties  to the  business
transaction  will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so called "tax free" reorganization under
Sections  368(a)(1) or 351 of the Internal Revenue Code of 1986, as amended (the
"Code").  In order to  obtain  tax-free  treatment  under  the  Code,  it may be
necessary  for the  owners of the  acquired  business  to own 80% or more of the
voting  stock of the  surviving  entity.  In such  event,  the  shareholders  of
InstaPay would retain less than 20% of the issued and outstanding  common shares
of the  surviving  entity,  which could  result in  significant  dilution in the
equity of such shareholders.

      As part of  InstaPay's  investigation,  officers and directors of InstaPay
may:

      -     meet personally with management and key personnel; visit and inspect
            material facilities;

      -     obtain independent  analysis or verification of certain  information
            provided;

      -     check references of management and key personnel, and;

      -     take  other  reasonable  investigative  measures,  to the  extent of
            InstaPay's limited financial resources and management expertise.

      The manner in which InstaPay  participates in an opportunity with a target
company will depend on the nature of the  opportunity,  the respective needs and
desires of InstaPay and other parties,  the management of the  opportunity,  and
the relative  negotiating  strength of InstaPay and such other management.  With
respect  to any  mergers  or  acquisitions,  negotiations  with  target  company
management  will be expected to focus on the  percentage  of InstaPay  which the
target company's  shareholders would acquire in exchange for their shareholdings
in the target company.  Depending upon, among other things, the target company's
assets and liabilities,  InstaPay's shareholders will, in all likelihood, hold a
lesser  percentage  ownership  interest  in  InstaPay  following  any  merger or
acquisition. The percentage ownership may be subject to significant reduction in
the event InstaPay acquires a target company with substantial assets.


                                       8
<PAGE>

Results of Operations for 2002 and 2001

      InstaPay  (  fka  Filmagic)  had  effectively  been  a  development  stage
enterprise since inception in 1983.  Historically,  its cumulative revenues have
arisen from the  forgiveness  of debt.  InstaPay had not  generated  any revenue
during the last nine (9) plus  years.  InstaPay  had no  contracts  to develop a
master tape library of older television  programming acquired in 1988. Filmagic'
s  principal  expenses  during  this  development  period  have  been due to the
amortization  and  write-down  of the tape  library,  and more  recently  to the
administrative  expenses  incurred in  connection  with  Filmagic  bringing it's
financial reporting current.

      During the fiscal years ended  December  31, 2002 and 2001,  respectively,
InstaPay's (fka Filmagic)  operating  activity  pertained  primarily to non-cash
transactions  and  expenses  paid on behalf of  InstaPay  by  certain  officers,
directors and other related  parties.  With the  acquisition  of the  Kryptosima
technology,  the  Company  should  begin  generating  revenues  during  the 2003
calendar year, depending upon potential contracts.

      During the year ended December 31, 2002,  Filmagic issued common shares in
exchange for services rendered by the Board of Directors,  the President and for
legal and  accounting  services.  The total shares  issued were  5,500,000 at an
agreed-upon  value of $ .02 cents per  share  for a charge  to  operations  of $
110,000.  4,182,800  shares were issued to existing  shareholders who had loaned
$10,457 to the Company during the year. The total expenses charged to operations
during  2002  were $  177,850,  an  increase  of $ 98,850 or 125% from the total
expenses charged to operations of $79,000 during 2001.

Results of Operations for 2001 compared to 2000

      During the year ended December 31, 2001,  Filmagic  agreed to contingently
issue 1,000,000  shares of common stock (500,000 to a shareholder at a $ .04 per
share  discount and another  500,000  shares to  InstaPay's  former  President),
should the price of the common stock reach $.10 per share, resulting in a charge
to  operations  of  $70,000.  Another $ 9,000  was  expensed,  writing  down the
impaired  tape  library  for a total  charge  to  operations  of  $79,000.  This
represents  an increase of $ 41,400 or 110.1 % increase over the total charge to
operations of $37,600 in 2000.

Liquidity

      As of December  31,  2002,  the Company had a working  capital  deficit of
approximately  $66,000.  The Company did have a  commitment  to receive  another
$57,000  loan from an  investor.  The Company  does not have  enough  capital to
achieve its near,  medium or long-term  goals.  Management is relying on the new
relationship  with  Kryptosima to provide a viable  operation once its investors
can provide the necessary working capital, in the form of new loans and sales of
securities to fund marketing of the technology.


                                       9
<PAGE>

Item 7. Financial Statements

                             INSTAPAY SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND THE
  CUMULATIVE PERIOD FROM DECEMBER 7, 1983 (INCEPTION) THROUGH DECEMBER 31, 2002

                                    CONTENTS

                                                                           Page

INDEPENDENT AUDITORS' REPORT                                                12

FINANCIAL STATEMENTS

         Consolidated Balance Sheets                                        13

         Consolidated Statements of Operations                              14

         Consolidated Statement of Changes in Stockholders' Equity          15

         Consolidated Statements of Cash Flows                              20

         Notes to Consolidated Financial Statements                         21


                                       10
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
InstaPay Systems, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Filmagic
Entertainment  Corporation (A Development Stage Company) as of December 31, 2002
and 2001 and the  related  consolidated  statements  of  operations,  changes in
stockholders'  equity  and cash  flows for each of the two  years in the  period
ended  December  31, 2001 and for the  cumulative  period from  December 7, 1983
(inception of  development  stage) through  December 31, 2002. The  consolidated
financial  statements  are the  responsibility  of the  management  of  Filmagic
Entertainment Corporation.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Filmagic  Entertainment  Corporation  as of December 31, 2002 and 2001,  and the
consolidated  results of their  operations  and their cash flows for each of the
two years in the period ended  December 31, 2001 and for the  cumulative  period
from December 7, 1983  (inception of  development  stage)  through  December 31,
2002, in conformity with accounting  principles generally accepted in the United
States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated   financial  statements,   the  Company,  as  a  development  stage
enterprise,  has no  significant  assets and has not  generated  any revenue for
several years which raises  substantial doubt about its ability to continue as a
going concern unless additional capital is obtained.  Management's plan to raise
capital is also discussed in Note 2. The  consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

                                            Hurley & Company

Granada Hills, CA
April 4, 2003


                                       11
<PAGE>

                             INSTAPAY SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001

                                                         2002           2001
                                                     -----------    -----------
                          ASSETS

Current assets:
   Cash                                              $       646    $        --
                                                     -----------    -----------
      Total current assets                                   646             --

Investment                                                50,000             --
Other assets                                               1,000          1,000
                                                     -----------    -----------
Total assets                                         $    51,646    $     1,000
                                                     ===========    ===========

            LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
   Accounts payable and accrued liabilities          $    13,969    $     8,930
   Note payable                                           53,000             --
                                                     -----------    -----------
      Total liabilities                                   66,969          8,930
                                                     -----------    -----------

STOCKHOLDERS' DEFICIT:

Common Stock, $.001 par value, 200,000,000
   shares authorized, 29,533,812 and 19,851,012
   shares issued and outstanding, respectively            29,534         19,851
Additional paid-in-capital                             1,747,482      1,586,708
Deficit accumulated during the development stage      (1,792,339)    (1,614,489)
                                                     -----------    -----------
      Total stockholders' deficit                        (15,323)        (7,930)

Total liabilities and
   stockholders' deficit                             $    51,646    $     1,000
                                                     ===========    ===========

      See  accompanying   independent   auditors'  report  and  notes  to  these
consolidated financial statements.


                                       12
<PAGE>

                             INSTAPAY SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 YEARS ENDED DECEMBER 31, 2002 AND 2001 AND THE
  CUMULATIVE PERIOD FROM DECEMBER 7, 1983 (INCEPTION) THROUGH DECEMBER 31, 2002

                                                                   Dec. 07, 1983
                                                                    (Inception)
                                                                      Through
                                       2002            2001        Dec. 31, 2002
                                   ------------    ------------    ------------

Revenues                           $         --    $         --    $    261,023

Expenses                                177,850          79,000       2,053,362
                                   ------------    ------------    ------------
Net loss                           $   (177,850)   $    (79,000)   $ (1,792,339)
                                   ============    ============    ============

Net loss per share -
  Basic and diluted                $       (.01)   $       (.01)
                                   ============    ============

Weighted average number of
  shares outstanding                 22,821,443      16,662,656
                                   ============    ============

      See  accompanying   independent   auditors'  report  and  notes  to  these
consolidated financial statements


                                       13
<PAGE>

                             INSTAPAY SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
           FROM DECEMBER 7, 1983 (INCEPTION) THROUGH DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                                                                             Deficit
                                                                                           Accumulated
                                                                          Additional       During the
                                               Common Stock                Paid-in         Development
                                         * Shares          Amount          Capital            Stage              Total
                                        ----------       ----------       ----------        ----------        ----------
<S>                                     <C>              <C>              <C>               <C>               <C>
Issuance of stock -  Dec. 7, 1983          126,012       $      126       $      (76)       $       --        $       50
                                        ----------       ----------       ----------        ----------        ----------
Balance Dec. 31, 1983                      126,012              126              (76)               --                50

Net loss                                        --               --               --               (16)              (16)
                                        ----------       ----------       ----------        ----------        ----------
Balance Dec. 31, 1984                      126,012              126              (76)              (16)               34

Issuance of stock                          600,000              600            7,296                --             7,896
Acquisition of MEDX                     13,200,000           13,200          501,693                --           514,893
Issuance of stock to
 effect MEDX acquisition                   720,000              740             (600)               --               120

Net loss                                        --               --               --           (58,661)          (58,661)
                                        ----------       ----------       ----------        ----------        ----------
Balance Dec. 31, 1985                   13,646,012       $   14,646       $  508,313        $  (58,677)       $  464,282
</TABLE>

*     All share amounts restated for December, 2002 2 for 1 stock split.

      See  accompanying   independent   auditors'  report  and  notes  to  these
consolidated financial statements.


                                       14
<PAGE>

                              INSTAPAY SYSTEMS, INC
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
           FROM DECEMBER 7, 1983 (INCEPTION) THROUGH DECEMBER 31, 2002
                                   (Continued)

<TABLE>
<CAPTION>
                                                                                                       Deficit
                                                                                                     Accumulated
                                                                                    Additional       During the
                                                        Common Stock                 Paid-in         Development
                                                  Shares            Amount           Capital            Stage               Total
                                                ----------        ----------        ----------        ----------         ----------
<S>                                             <C>               <C>               <C>               <C>                <C>
Shareholder contribution                                --        $       --        $    2,800        $       --         $    2,800
Net loss                                                --                --                --           (63,917)           (63,917)
                                                ----------        ----------        ----------        ----------         ----------
Balance Dec. 31, 1986                           14,646,012            14,646           511,113          (122,594)           403,165

Shareholder contribution                                --                --             6,700                --              6,700
Net loss                                                --                --                --           (55,278)           (55,278)
                                                ----------        ----------        ----------        ----------         ----------
Balance Dec. 31, 1987                           14,646,012            14,646           517,813          (177,872)           354,587

Acquisition of Filmagic, Inc.                           --                --           800,000                --            800,000
Net loss                                                --                --                --          (202,612)          (202,612)
                                                ----------        ----------        ----------        ----------         ----------
Balance Dec. 31, 1988                           14,646,012            14,646         1,317,813          (380,484)           951,975

Cancellation of note relative
 to purchase of film library                            --                --           100,000                --            100,000
Net loss                                                --                --                --          (340,532)          (340,532)
                                                ----------        ----------        ----------        ----------         ----------
Balance Dec. 31, 1989                           14,646,012        $   14,646        $1,417,813        $ (721,016)        $  711,443
</TABLE>

      See  accompanying   independent   auditors'  report  and  notes  to  these
consolidated financial statements.


                                       15
<PAGE>

                             INSTAPAY SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
           FROM DECEMBER 7, 1983 (INCEPTION) THROUGH DECEMBER 31, 2002
                                   (Continued)

<TABLE>
<CAPTION>
                                                                                                     Deficit
                                                                                                   Accumulated
                                                                               Additional          During the
                                                Common Stock                     Paid-in           Development
                                         Shares               Amount             Capital              Stage                Total
                                       -----------         -----------         -----------         -----------          -----------
<S>                                     <C>                <C>                 <C>                 <C>                  <C>
Net loss                                        --         $        --         $        --         $  (180,007)         $  (180,007)
                                       -----------         -----------         -----------         -----------          -----------
Balance Dec. 31, 1990                   14,646,012              14,646           1,417,813            (901,023)             531,436

Net income                                      --                  --                  --              28,964               28,964
                                       -----------         -----------         -----------         -----------          -----------
Balance Dec. 31, 1991                   14,646,012              14,646           1,417,813            (872,059)             560,400

Net loss                                        --                  --                  --             (70,200)             (70,200)
                                       -----------         -----------         -----------         -----------          -----------
Balance Dec. 31, 1992                   14,646,012              14,646           1,417,813            (942,259)             490,200

Net loss                                        --                  --                  --             (70,200)             (70,200)
                                       -----------         -----------         -----------         -----------          -----------
Balance Dec. 31, 1993                   14,646,012              14,646           1,417,813          (1,012,459)             420,000

Net loss                                        --                  --                  --             (70,000)             (70,000)
                                       -----------         -----------         -----------         -----------          -----------
Balance Dec. 31, 1994                   14,646,012              14,646           1,417,813          (1,082,459)             350,000

Net loss                                        --                  --                  --             (70,000)             (70,000)
                                       -----------         -----------         -----------         -----------          -----------
Balance Dec. 31, 1995                   14,646,012         $    14,646         $ 1,417,813         $(1,152,459)         $   280,000
</TABLE>

      See  accompanying   independent   auditors'  report  and  notes  to  these
consolidated financial statements.


                                       16
<PAGE>

                              INSTAPAY SYSTEMS, INC
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
           FROM DECEMBER 7, 1983 (INCEPTION) THROUGH DECEMBER 31, 2002
                                   (Continued)

<TABLE>
<CAPTION>
                                                                                                      Deficit
                                                                                                    Accumulated
                                                                                    Additional       During the
                                                       Common Stock                  Paid-in         Development
                                                  Shares           Amount            Capital            Stage              Total
                                               -----------       -----------       -----------       -----------        -----------
<S>                                             <C>              <C>               <C>               <C>                <C>
Net loss                                                --       $        --       $        --       $   (70,000)       $   (70,000)
                                               -----------       -----------       -----------       -----------        -----------
Balance Dec. 31, 1996                           14,646,012            14,646         1,417,813        (1,222,459)           210,000

Net loss                                                --                --                --           (70,000)           (70,000)
                                               -----------       -----------       -----------       -----------        -----------
Balance Dec. 31, 1997                           14,646,012            14,646         1,417,813        (1,292,459)           140,000

Net loss                                                --                --                --          (130,000)          (130,000)
                                               -----------       -----------       -----------       -----------        -----------
Balance Dec. 31, 1998                           14,646,012            14,646         1,417,813        (1,422,459)            10,000

Stock issued for services                        1,880,000             1,880            35,720                --             37,600

Net loss                                                --                --                --           (37,600)           (37,600)
                                               -----------       -----------       -----------       -----------        -----------
Balance Dec. 31, 1999                           16,526,012            16,526         1,453,533        (1,460,059)            10,000

Contingent issuance of
  1,000,000 shares for services                         --                --            70,000                --             70,000

Net loss                                                --                --                --           (79,000)           (79,000)
                                               -----------       -----------       -----------       -----------        -----------
Balance Dec. 31, 2000                           16,526,012       $    16,526       $ 1,523,533       $(1,539,059)       $     1,000
</TABLE>

      See  accompanying   independent   auditors'  report  and  notes  to  these
consolidated financial statements.


                                       17
<PAGE>

                              INSTAPAY SYSTEMS, INC
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
           FROM DECEMBER 7,1983 (INCEPTION) THROUGH DECEMBER 31, 2002
                                   (Continued)

<TABLE>
<CAPTION>
                                                                                                      Deficit
                                                                                                     Accumulated
                                                                                    Additional       During the
                                                        Common Stock                 Paid-in         Development
                                                  Shares           Amount            Capital            Stage              Total
                                               -----------       -----------       -----------       -----------        -----------
<S>                                             <C>              <C>               <C>               <C>                <C>
Balance Dec 31, 2000                            16,526,012       $    16,526       $ 1,523,533       $(1,539,059)       $     1,000

Issuance of shares for services                  3,325,000             3,325            63,175                --             66,500

Net loss                                                --                --                --           (75,430)           (75,430)
                                               -----------       -----------       -----------       -----------        -----------

Balance Dec 31, 2001                            19,851,012            19,851         1,586,708        (1,614,489)            (7,930)

Issuance of shares for services                  5,500,000             5,500           104,500                --            110,000

Issuance of shares for debt                      4,182,800             4,183             6,274                --             10,457

Options granted below market
  to directors                                                                          50,000                               50,000

Net loss                                                --                --                --          (177,850)          (177,850)

                                               -----------       -----------       -----------       -----------        -----------
Balance Dec 31, 2002                            29,533,812       $    29,534       $ 1,747,482       $(1,792,339)       $   (15,323)
                                               ===========       ===========       ===========       ===========        ===========
</TABLE>

      See  accompanying   independent   auditors'  report  and  notes  to  these
consolidated financial statements.


                                       18
<PAGE>

                             INSTAPAY SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 YEARS ENDED DECEMBER 31, 2002 AND 2001 AND THE
  CUMULATIVE PERIOD FROM DECEMBER 7, 1983 (INCEPTION) THROUGH DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                                                                                            Dec. 7, 1983
                                                                                                             (Inception)
                                                                                                               Through
                                                                 2002                    2001               Dec. 31, 2002
                                                             -----------             -----------            ------------
<S>                                                          <C>                     <C>                     <C>
Cash flows from operating activities:
         Net loss                                            $  (177,850)            $   (75,430)            $(1,792,339)
         Non-cash items:
          Stock issued for services and
            payment of expenses                                  120,457                  66,500                 905,075
          Granting of options to board                            50,000                      --                  50,000
          Debt forgiveness                                            --                      --                (250,156)
          Write-down of assets                                        --                      --                 539,895
          Depreciation and amortization                               --                      --                 513,756
          Increase in accounts payable
                and accrued expenses                               5,039                   8,930                  13,969
                                                             -----------             -----------             -----------
         Net cash used by
           operating activities                                   (2,354)                     --                 (18,800)

Cash flows from investing activities:                                 --                      --                      --
           Investment in technology                              (50,000)                     --                 (50,000)

Cash flows from financing activities:
           Issuance of stock                                          --                      --                   7,946
           Shareholder contributions                                  --                      --                   9,500
           Proceeds from borrowings                               53,000                      --                  53,000
                                                             -----------             -----------             -----------
           Net cash provided by                                   53,000                                          67,446
              financing activities                                    --                      --

Net increase in cash and cash equivalents                            646                      --                     646
Cash and cash equivalents,
     beginning of year                                                --                      --                      --
                                                             -----------             -----------             -----------
Cash and cash equivalents, end of year                       $       646             $        --             $       646
                                                             ===========             ===========             ===========
Supplemental Disclosures:
         Interest paid                                       $        --             $        --             $        --
         Income taxes paid                                   $        --             $        --             $        --
Non-cash investing and financing activities:
           Assets acquired for stock                         $        --             $        --             $ 1,315,013
</TABLE>

      See  accompanying   independent   auditors'  report  and  notes  to  these
consolidated financial statements.


                                       19
<PAGE>

                              INSTAPAY SYSTEMS, INC
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Organization

      InstaPay  Systems,  Inc  (fka)Filmagic   Entertainment   Corporation  (the
      "Company") was  incorporated in Utah in 1983 as Cotton Tree, Inc. In 1985,
      the Company acquired all the shares of MEDX, Inc. (an Arizona Corporation)
      through a tax-free exchange of stock with all the MEDX  shareholders,  and
      changed its name to Roedinger  Medical Systems,  Inc. The primary business
      of MEDX was the  development  and marketing of patented  medical  products
      under the names Vida and Prevent.

      In 1988, the Company  acquired all the shares of Filmagic  Incorporated (a
      Delaware  Corporation)  through a tax-free  exchange of stock, and changed
      its name to Filmagic  Entertainment  Corporation.  All shares of Roedinger
      Medical  Systems,  Inc.  required for the acquisition were donated back to
      the Company by the then principal shareholder.

      Filmagic Incorporated was organized in 1987. Its principal business was to
      acquire tape masters of half-hour television programming and the rights to
      license those tapes for television and home video in the United States and
      foreign markets where such programming is applicable.  Its principal asset
      was a library of over 900 tape  masters.  No licensing  transactions  have
      been made since inception.

      The Company has conducted minimal  operations since inception and is still
      considered a development stage enterprise.

      In December  2002,  the Company  changed its name to InstaPay  and entered
      into an agreement to resell certain technology services.  In January 2003,
      the Company entered into an agreement to acquire  Kryptosima,  the company
      who owned the technology.

      Other Assets

      The other assets  consist of a film library and story rights.  The cost of
      these assets has been amortized to a de minimus value.

      Use of Estimates

      The  preparation  of financial  statements  in accordance  with  generally
      accepted  accounting  principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      the reported  amounts of income and expenses  during the reported  period.
      Actual results may differ from these estimates.


                                       20
<PAGE>

                              INSTAPAY SYSTEMS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Income Taxes

      The  Company  accounts  for  income  taxes in  accordance  with  Financial
      Accounting  Standards  Board  Statement  109,  which  provides for the tax
      effect of transactions reported in the financial statements and consist of
      taxes currently due plus any deferred taxes. Deferred taxes are recognized
      for temporary  differences between the basis of assets and liabilities for
      financial statements and income tax purposes.  The deferred tax assets and
      liabilities represent future tax return consequences of those differences.
      Deferred  taxes  are  reviewed  for the  probability  of  realization  and
      reserves are recorded accordingly.

      Loss Per Share - Basic and Diluted

      Loss per  share is  calculated  based on the  weighted  average  number of
      common  shares and common share  equivalents  outstanding  for the periods
      presented.  Common share equivalents represent shares that would be issued
      on exercise of  options,  reduced by the number of shares,  which would be
      purchased  from the related  proceeds.  Common share  equivalents  are not
      included at December 31, 2002 because their effect would be anti-dilutive.

      Stock Options

      The Company uses the intrinsic-value  method of accounting for stock-based
      awards  granted  to  employees  and,   accordingly,   does  not  recognize
      compensation expense for its stock based compensation in the statements of
      operations.  See footnote 6 for pro forma information on the impact of the
      fair value method of accounting for stock options.

Note 2. BASIS OF PRESENTATION

      The Company has  recently  acquired  significant  assets and an  operating
      entity that could generate revenue.  However, as of December 31, 2002, the
      Company had neither  revenues  nor  significant  assets.  As such there is
      substantial  doubt  about the  Company's  ability to  continue  as a going
      concern.  Management has completed a business combination that they expect
      will  bring  about  an  infusion  of  capital  or   significant   business
      operations.  Management  will  continue  to seek  financing  from  various
      shareholders in exchange for the issuance of restricted shares.

      The ability of the Company to  continue  as a going  concern is  dependent
      upon  its  securing  additional   financing  and  commencing   significant
      operations.  The financial  statements do not include any  adjustments  to
      reflect the uncertainty of discontinuing operations.


                                       21
<PAGE>

                              INSTAPAY SYSTEMS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

Note 3. RELATED PARTY TRANSACTIONS

      The officers of the Company have  provided  certain  services and incurred
      some costs on behalf of the Company for the last few years ended  December
      31, 2002.

      During 2002, two shareholders  advanced funds to the Company or paid bills
      on behalf of the Company totaling $10,457.  In early November,  Management
      decided to repay the debt by issuing 4,182,800 shares of restricted common
      stock.  The imputed value per share was $.005,  as at the time of issuance
      the company had not begun trading.  The investors had provided  capital as
      needed  during  prior  periods.  The  market  price for the shares in late
      November after the company began active trading was  approximately  $1.00.
      These  two  shareholders  both  own over 5% of the  Company's  outstanding
      shares.

      In 2001,  the Company  issued Bruce Harris,  the president of the Company,
      1,000,000 shares for his services in 2001.  Further the Company  committed
      to issue him  2,000,000  shares a year for four years,  beginning in 2002.
      Additionally, the Company granted him options to purchase 1,000,000 shares
      at $.02. He received 2,000,000 shares in 2002 valued at $40,000.

      In 2001,  the Company  issued  100,000  shares to a board member for legal
      services  rendered  in 2001.  Further,  the Company  committed  to pay him
      either  $1,500 a month in cash or issue  75,000  shares each month for the
      year ending  December  31,  2002.  The Company  issued him 900,000  shares
      during 2002, valued at $18,000.

      In 2001, the Company issued 225,000 shares to a shareholder for accounting
      services  rendered  in 2001.  Further,  the Company  committed  to pay him
      $1,000 a month or issue 50,000  shares a month,  valued at $.02 per share,
      for the year ending  December  31,  2002.  The Company  issued him 600,000
      shares during 2002 valued at $12,000.

      In 2001,  the  Company  issued  400,000  shares  to each  board  member as
      compensation  for board  services  during  the year.  Further,  each board
      member was granted an option to purchase  200,000  shares at $.02.  During
      2002,  each board member  received  200,000  shares as board  compensation
      valued at $10,000.  Also in November  2002 each board  member  received an
      option to purchase 200,000 shares at an under market strike price of $.02.

      In 2000,  the Company  agreed to grant Bruce Harris,  the president of the
      Company,  1,000,000 shares for his services in 2000 should the stock price
      reach $.05 per  share.  There was no time limit set for the stock to reach
      the  target  price.  Stock-based  employee  compensation,   along  with  a
      corresponding  increase  to  additional  paid-in  capital in the amount of
      $50,000  (1,000,000 shares times the $.05 target price) were recognized on
      this  transaction,  in accordance  with Statement of Financial  Accounting
      Standards No. 123.


                                       22
<PAGE>

                              INSTAPAY SYSTEMS, INC
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

Note 3. RELATED PARTY TRANSACTIONS ( cont.)

      In 2000,  the  Company  agreed to sell Triad  Investment  Group  1,000,000
      shares at a discount of 40% of the market price should the stock price hit
      $.05 per  share.  There is no time  limit  set for the  stock to reach the
      target  price.  Stock-based  compensation,   along  with  a  corresponding
      increase to additional paid-in capital in the amount of $20,000 (1,000,000
      shares times the $.02  discount to the target  price) were  recognized  on
      this  transaction,  in accordance  with Statement of Financial  Accounting
      Standards No. 123.

Note 4. COMMITMENTS AND CONTINGENCIES

      The tape library is held by an independent company. Since Filmagic has not
      paid storage  charges for several years,  the storage  company has filed a
      lien against those  charges.  Management  has not pursued  recovery of the
      tapes due to a lack of capital,  and the library is carried on the balance
      sheet at a nominal  value due to this  impairment.  There is no  certainty
      that the  Company  can obtain the  library  and it is now likely  that the
      actual  library will be abandoned.  The Company still has story rights and
      may pursue  obtaining  other  copies of the tapes to make  copies in other
      media.  Those  costs  have  not  been  accrued  and  may  prove  to  be so
      significant as to make the marketing of those rights unfeasible.

      Michael Roedinger, a former principal  shareholder,  has asserted that the
      Company owes him  approximately  $75,000 for funds advanced to the Company
      prior to 1988.  Management  contends  that this issue was  resolved  by an
      exchange of property,  equipment and cash.  Management and counsel believe
      neither claim will adversely affect the Company. Further, Bruce Harris has
      placed  restrictions  on the 318,276  shares  owned by Michael  Roedinger.
      Those shares are currently  included in the shares issued and  outstanding
      and the Company has no specific remedy noted for the shares to be traded.

      Management and council  believe neither of the above claims will adversely
      affect the Company.


                                       23
<PAGE>

                       FILMAGIC ENTERTAINMENT CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

Note 5. INCOME TAXES

      The  Company  has a net  operating  loss  carry-forward  of  approximately
      $1,800,000 that may be used to offset future taxable income.  However, the
      tax  benefit  has  not  been  recorded  due  to  the  uncertainty  of  the
      utilization  of these  carry-forwards.  The  carry-forwards  all expire by
      2021. The Company has not filed federal tax returns since 1993.

                                                      2002               2001
                                                    ---------         ---------
      Deferred tax benefit of
        net operating loss carry-forwards           $ 600,000         $ 570,000

      Valuation allowance                            (600,000)         (570,000)
                                                    ---------         ---------
      Income tax benefit                            $       0         $       0
                                                    =========         =========

Note 6. STOCK OPTIONS

      As  of  December  31,  2001,   the  Company  had  the  following   options
      outstanding:

<TABLE>
<CAPTION>
                                                                                     Black-Scholes
                                                   Shares       Price       Expires      Value        Total
<S>                                              <C>            <C>           <C>       <C>         <C>
Bruce Harris                                     1,200,000      $  .02        2006      $.0307      $   18,420
Four other board members                           800,000      $  .02        2006       .0307          12,280
                                                 ---------                                          ----------
                                                 2,000,000                                              30,700

Options granted in 2002 are as follows:
Robert Bragg                                     1,000,000      $ 1.00        2004      $.2568         256,800
Board member shares                              3,200,000      $  .02        2007      $.0307          98,240
Board member shares                              1,000,000      $  .02        2005      $ .824         824,000
                                                                                        ------      ----------
Total outstanding at
    December 31, 2002                            6,200,000                                          $1,209,740
                                                 =========                                          ==========
</TABLE>

The loss per share as reported        2002      $.01          2001     $.01
The pro forma loss per share          2002      $.05          2001     $.01


                                       24
<PAGE>

                       FILMAGIC ENTERTAINMENT CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

Note 6. STOCK OPTIONS (continued)

      The pro forma  amounts  may not be  representative  of future  disclosures
      since the estimated fair market value of the stock options is amortized to
      expense over the vesting period and  additional  options may be granted in
      future years.

      The Black Scholes  option-pricing model used to value the options used the
      following assumptions:

                                                      2002        2001
                                                      ----        ----
             Risk free interest rate                    1%         5%
             Expected years until exercise            2/5          5
             Expected stock volatility                100%       100%
             Dividend yield                             0%         0%

      The options to the board members vest over a 12-month period.  The options
      granted to Robert Bragg vested upon the date of the  agreement in November
      2002 and expire in 24 months.

Note 7. NOTE PAYABLE

      The Company  entered into an  agreement  with one of its counsel to obtain
cash to complete the acquisition of the Kryptosima  technology in exchange for a
note. The note is for $110,000,  bearing  interest at 10% and is due in December
2003. The loan is  collateralized by substantially all the assets of the Company
including its rights to the Kryptosima technology.

      As of  December  31,  2002,  the  Company  had  received  $53,000  and the
remaining $57,000 was still to be advanced by the lender.

Note 8. COMMITMENTS

      The Company has  committed  to issuing  Bruce Harris  1,000,000  shares of
common stock each year for three more years.

      The Company  renewed its  agreement to issue  200,000  shares to the board
members each quarter in 2003,  but has not renewed its agreements to issue stock
to the internal accountant or attorney in 2003;  however,  Management expects to
reach a compensation  agreement that will probably include a stock-based element
by June 2003.


                                       25
<PAGE>

                       FILMAGIC ENTERTAINMENT CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

Note 8. SUBSEQUENT EVENTS

      In December 2002, the Company acquired  semi-exclusive  rights to act as a
reseller of the Kryptosima  Technology  from the Bentley Company for $200,000 in
cash and 1,000,000  worth of stock,  based on the share price as of November 22,
2002, ($1.00). By December 31, 2002, the Company had paid $50,000 to Bentley but
had not issued any stock. In January 2003, the Company reached an agreement with
the principals of Bentley,  to convert the deal to an acquisition of Kryptosima.
The terms of the new deal are as follows:

      The Company will issue  1,000,000  common  shares to the  shareholders  of
Kryptosima.

      The Company  will grant an option for 500,000  shares of common stock at a
strike price of $1.50,  effective as soon as Kryptosima's  system "goes live" on
any ATM network. The option will expire 18 months after issuance.

      If the  Company  accepts a buyout  offer less than  $2.50 per  share,  the
option price will decline to $1.00 less than the buyout price or $.01, whichever
is less. If the buyout price is less than $1.00 per share, the number of options
shall be increased  such that the buyout price  multiplied  by the option shares
equals $500,000.

      The $50,000 in funds paid to Bentley will be retained by Bentley.

      The Company is limited to 3,000,000 shares of common stock it can issue in
a six-month  period without  granting  additional  shares to the shareholders of
Kryptosima  to  avoid  diluting  the  shareholder  ownership  of the  Kryptosima
shareholders.

      The Company is obligated by the  acquisition  agreement to fund Kryptosima
operations  for at least 6 months,  per an  approximate  budget agreed to by the
parties,  in order to  guarantee  a serious  effort to launch the  business  and
create  value for all  involved.  Kryptosima's  former  owners have the right to
"unwind" the acquisition if this condition is not met.

      Kryptosima  is  organized  as an LLC with  members  rather  than a regular
corporation with  shareholders.  In order to make the acquisition  transaction a
non-taxable event for Kryptosima's  members, the transaction will be effected as
a merger between Kryptosima and a wholly owned subsidiary of InstaPay formed for
this  transaction.  The  surviving  entity of this  merger  will be  Kryptosima,
thereby making Kryptosima a wholly owned subsidiary of InstaPay. It should noted
that as of this stage in its  operations,  Kryptosima  has not yet  generated  a
revenue stream.


                                       26
<PAGE>

Item 8.   Changes  In and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure.

      None

                                    Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

      Mr. Robert Bragg:  Age 54,  President/  CEO/ Director,  Mr. Bragg has over
      twenty five years experience in the securities  brokerage industry and has
      served as Vice  President  for two  brokerage  firms.  He has  worked as a
      consultant  to several  public  companies  aiding in  financing,  mergers,
      acquisitions,  Initial Public Offerings, and marketing. For the last three
      and a half  years Mr.  Bragg  has  focused  primarily  on  developing  and
      marketing ATM card w/pin transactions for the securities  industry via the
      Internet.

      Mr. Frank DeSantis: Age 44, Director,  Corporate Counsel, Mr. DeSantis has
      been involved in all phases of corporate law,  investment  banking,  trial
      litigation, contracts, and franchise agreements.

      Ms.  Aubrye  Harris:  Age 27,  Director.  Ms.  Harris  has a BS  degree in
      International Management and has many years experience in finance. She has
      worked  with  corporate  accounts,   financial   planning,   and  investor
      relations.

      Mr. Harvey Lalach:  Age 35, Director.  Mr. Lalach has been involved in all
      areas of  retail  equity  markets  for the past 14  years.  He  previously
      served,  as a Branch  Manager for a major retail  brokerage firm in Canada
      and most recently was involved with a number of small cap companies with a
      variety of responsibilities.

      Ms. Song Liping: Age 44, Director. Ms. Song Liping has an MBA, British and
      American Language & Literature. She has been a Foreign Development Manager
      with the  Development  Department of Shanghai  Pudong Real Estate Company.
      Ms.  Song has been a  Lecturer,  Director  and  Interpreter,  of the First
      Teaching & Research Office and Business Head for the External  Cooperation
      Department for Shanghai New Asia.

      Mr.  R.B.  Harris:  Age 51,  Director.  Mr.  Harris has been  involved  in
      International  Business  for many  years.  Mr.  Harris has  experience  in
      international mergers and acquisitions, management, and development.


                                       27
<PAGE>

Item 10. Executive Compensation.

Name and Principal        Year       Salary          Bonus       Other Annual
Position                                                         Compensation
--------------------------------------------------------------------------------
R. Bruce Harris           2002       $    -0-       $    -0-       $40,000(2)(3)
                          2001            -0-            -0-        28,000(1)
   Director/Chairman      2000            -0-            -0-        20,000
                          1999            -0-            -0-            -0-

Aubrye A. Harris          2002       $    -0-       $    -0-       $10,000(3)
                          2001            -0-            -0-         8,000
    Secretary             2000            -0-            -0-            -0-
                          1999            -0-            -0-            -0-

Frank DeSantis            2002       $    -0-       $    -0-       $28,000(3)
                          2001            -0-            -0-         8,000
   Director               2000            -0-            -0-            -0-
                          1999            -0-            -0-            -0-

Harvey Lalach             2002       $    -0-       $    -0-       $10,000(3)
                          2001            -0-            -0-         8,000
   V.P./Director          2000            -0-            -0-            -0-
                          1999            -0-            -0-            -0-

Song Liping               2002       $    -0-       $    -0-       $10,000(3)
                          2001            -0-            -0-         8,000
  Director                2000            -0-            -0-            -0-
                          1999            -0-            -0-            -0-

(1)
(2)
(3)   Includes


                                       28
<PAGE>

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

The following "Table"  represents the Ownership of Certain Beneficial Owners and
Management as of December 31, 2002:

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

<TABLE>
<CAPTION>
(1) Title of Class         (2) Name and Address             (3) Amount and Nature         (4) Percent of
                               of beneficial owner              of beneficial ownership       Class(2)
--------------------------------------------------------------------------------------------------------
<S>                        <C>                                  <C>                         <C>
Common Stock
Par value $.001
                           R. Bruce Harris(3)                   5,800,000                   19.3%
                           Director/ Past President
                           419 Main, Ste 414
                           Huntington Beach, California 92648

                           Aubrye A. Harris (1)(5)                800,000                    2.6%
                           Secretary/ Director
                           1042 N. Mountain #B348
                           Upland, California 91786

                           Harvey Lalach (1)                      800,000                    2.6%
                           Vice Pres./ Director
                           2575 Alberta Court
                           Kelowna, BC  V1W2X8

                           Frank DeSantis (1)                   1,800,000                    5.9%
                           Director
                           2869 India St.
                           San Diego, California 92103

                           Song Liping (1)                        800,000                    2.6%
                           Director
                           Rm504 Bldg #305,Datong RD
                           Gaquaiao, Shanghai, PRChina

                                 Total of all officers
                                 and directors as a group      ----------                   -----
                                 (Five Persons):               10,000,000                   32.7%
                                                               ----------                   -----

                           R. G. Harris (4)                       200,000                     .7%
                           1777 Woodland St-Ste G1
                           Upland, Calif. 91786

                           Triad Investment Group               2,982,800(6)                 9.8%
                           Unit A 6F Two Chinache Pl
                           135 Des Voeux Rd.
                           Hong Kong

                           Timoleon Kabilifkas                  2,280,000                    7.5%
                           14319 Peach Hill Rd.
                           Moor Park, CA. 93021

                           R. Brandyn Harris 1,450,000 4.7% 1042 N. Mountain
                           Ave.#B348
                           Upland, CA  91786
</TABLE>


                                       29
<PAGE>

      (1)   Denotes Officers or Directors

      (2)   Based on 29,533,812  shares issued and  outstanding,  plus 1,000,000
            contingently issuable shares

      (3)   Includes 1,000,000 contingently issuable shares to be deliverable if
            share  value  exceeds  $.05/share,  including  shares held by Pamala
            J.Harris (wife) and R.Brandyn Harris (son)

      (4)   R. G.  Harris is the  father of R. Bruce  Harris,  CEO.  Mr.  Harris
            disclaims all beneficiary interest in any of his father's shares

      (5)   Aubrye A. Harris is also the daughter of the President

      (6)   Includes 1,000,000 contingently issuable shares to be deliverable if
            share value `exceeds $.05/ share.

Item 12. Certain Relationships and Related Transactions.

      Based  solely  upon a  review  of  Forms  3,  4,  and 5  furnished  to the
registrant  under  Section  16(a) of the  Securities  Exchange Act of 1934,  the
following persons failed to timely file reports required by Section 16(a) during
the most recent fiscal year or prior years:

R. Bruce Harris,  Director and Board Chairman(past  Pres.),  beneficial owner of
1,000,000 contingently issuable common shares (5.71%)

No Form 3 - initial filing of equity  securities by directors and officers - for
            the fiscal year ended December 31, 2000

No Form 5 - annual  statement  of  ownership  of  securities  by  directors  and
            officers - for the fiscal year ended December 31, 2000

Triad Investment Group, beneficial owner of 700,000 common shares plus 1,000,000
contingently issuable common shares ( 16.43%)

No Form 3 - initial filing of equity  securities by a 10 percent owner (700,000)
            common shares shares  (11.38%) - for the fiscal year ended  December
            31, 1999

No Form 4 - changes to a previously  filed Form 3, beneficial  owner ( 11.38% to
            16.43 %) - for the fiscal year ended December 31,2000

No Form 5 - annual  statement of ownership of  securities  by a 10 percent owner
            for the fiscal years ended December 31, 2000 and 1999, respectively


                                       30
<PAGE>

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

      A Form 8-K was filed on November  26th,  2002  indicating  a change in the
officers and directors of the  Registrant.  An additional  Form 8-K was filed on
December  24, 2002  indicating  the Board had filed with the State of Utah for a
name change from Filmagic Entertainment Corporation to the current name InstaPay
Systems, Inc., simultaneously effectuating a forward 2 for 1 split.

                                   SIGNATURES

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

INSTAPAY SYSTEMS, INC.
            REGISTRANT

By: //S//
   -------------------------------------------------
   Robert Bragg, President/ Director

By: //S//
   -------------------------------------------------
   Frank DeSantis, Director

By: //S//
   -------------------------------------------------
   Harvey Lalach, Director

By: //S//
   -------------------------------------------------
   Aubrye A. Harris, Director

By: //S//
   -------------------------------------------------
   Song Liping, Director

By: //S//
   -------------------------------------------------
   R. B. Harris, Director

Dated: January 31, 2003


                                       31
<PAGE>

                                    EXHIBITS

                                   ATTACHMENTS