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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                FORM 20-F

(Mark One)

[ ]  Registration statement pursuant to Section 12(b) or 12(g) of the
     Securities Exchange Act of 1934
                                       or
[X]  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the fiscal year ended August 31, 1999.
                                       or
[ ]  Transition Report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 [No fee required]

          For the transition period from___________________to__________________
          Commission file number__________________

                              Videoflicks.com Inc.
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             (Exact name of registrant as specified in its charter)

                           Province of Ontario, Canada
                           ---------------------------

                 (Jurisdiction of incorporation or organization)

                   106 Orenda Road, Brampton, Ontario L6W 3W6
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              (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code        (905) 459-5471
                                                  ------------------------------

Securities registered or to be registered pursuant to Section 12(b) of the Act.


  Title of each class                Name of each exchange on which registered

        None
________________________             _________________________________________
________________________             _________________________________________


Securities registered or to be registered pursuant to Section 12(g) of the Act:

                           Common Shares, no par value
--------------------------------------------------------------------------------
                                (Title of Class)



Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
                                      None
--------------------------------------------------------------------------------
                                (Title of Class)




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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common shares as of the close of the period covered by the annual
report - 16,760,462 common shares outstanding.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .

Indicate by check mark which financial statement item the Registrant has elected
to follow. Item 17 X . Item 18 .

Unless otherwise indicated, all references herein are expressed in U.S. dollars.


ITEM 1.  DESCRIPTION OF BUSINESS

CORPORATE HISTORY

The Internet business of Videoflicks.com Inc. (the "Company") began operations
as a division of Videoflicks Canada Limited on September 1, 1995 with the
recording of it's first sales on the Internet. The Domain Name "Videoflicks.com"
was registered with InterNIC Registration Services in January of 1995.

Videoflicks Canada Limited is in the business of rental and sales of videotape
movies through its corporate owned stores and franchise stores. Videoflicks
Canada Limited began operations as a video movie rental store in 1981 and
expanded into 4 corporate owned stores with 43 franchise video rental stores
operating under the Videoflicks name in Canada in 1999.

The Internet division of Videoflicks Canada Limited initially consisted of 2
employees who developed software and procedures to offer videos for sale and
receive payment over the Internet. As sales began to increase more employees
were added to ship movie videos and correspond with customers and web site
visitors. Initially, the video movie orders were filled by the inventory of
Videoflicks Canada Limited and by ordering directly from the movie distributor
or movie studio. The product was shipped to Videoflicks Canada Limited, packaged
and shipped out to the customer. As the number of transaction of sales grew the
company began to fill some orders by drop shipment, where the order and payment
is taken through the company's web site, the video is then ordered from the
distributor and shipped directly from the distributor to the customer. This
method accounts for 8% of current shipments in 1999. Videoflicks.com Inc.
currently employs 29 people.

In November of 1998 Videoflicks Canada Limited transferred the assets of its
Videoflicks.com Internet division to its wholly-owned private shell company
which it had incorporated on July 4, 1997, Videoflicks.com Limited, in
contemplation of amalgamating Videoflicks.com Limited with two arm's length
companies, Mantaur Petroleum Corporation, a public shell company which had no
operating business and no material assets or liabilities, and 1318780 Ontario
Limited, a private company which was formed to raise financing for the
amalgamated company and which otherwise had no business operations. Following
arm's length negotiations the amalgamating companies entered into
Pre-Amalgamation and Amalgamation Agreements reflecting their relative
contributions to the amalgamated company, being the


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Videoflicks.com Internet business of Videoflicks.com Limited, the public company
status of Mantaur Petroleum Corporation as a reporting issuer under the
Securities Act (Ontario) and the $1.2 million raised in 1318780 Ontario Limited.
The objective of the amalgamation was to create a new company having the
Videoflicks.com Internet business, $1.2 million in cash, and public company
status as a reporting issuer under the Securities Act (Ontario).

The Company, Videoflicks.com Inc.,was formed on March 23, 1999 by the
amalgamation of Mantaur Petroleum Corporation, 1318780 Ontario Limited and
Videoflicks.com Limited, on a reverse take-over basis, by means of Articles of
Amalgamation issued under the Business Corporations Act (Ontario). The legal
effect of the amalgamation was that upon the filing of the Articles of
Amalgamation each of the amalgamating companies ceased to exist as a distinct
legal entity but were combined into one new legal entity, Videoflicks.com Inc.
Under the Business Corporations Act (Ontario) the Articles of Amalgamation are
deemed to be the Articles of Incorporation of Videoflicks.com Inc. Upon
amalgamation the shares of each of the amalgamating companies were converted
into shares of the amalgamated company with the effect that all of the assets,
liabilities and contractual obligations of the amalgamating companies became the
assets, liabilities and contractual obligations of the amalgamated company,
Videoflicks.com Inc.

Upon amalgamation an aggregate of approximately 16,760,400 common shares and
4,180,200 Series A warrants of the Company were issued on the following basis as
set forth in the Amalgamation Agreement:

     a) every five issued and outstanding common shares of Mantaur Petroleum
Corporation were converted into one common share and one-half of one Series A
warrant of the Company;

     b) every one common share of Videoflicks.com Limited was converted into one
common share of the Company;

     c) every one common share of 1318780 Ontario Limited was converted into one
common share and one-half of one Series A warrant of the Company; and

     d) every one Class A share of Ontco was converted into one common share of
the Company,

     with the result that, upon amalgamation, approximately 5,960,400 common
shares and 2,980,200 Series A warrants of the Company were issued to
shareholders of Mantaur Petroleum Corporation, 8,000,000 common shares of the
Company were issued to the shareholder of Videoflicks.com Limited and 2,800,000
common shares and 1,200,000 Series A warrants of the Company were issued to
shareholders of 1318780 Ontario Limited. Each Series A warrant of the Company
entitled the holder to purchase, for the price of$0.75, one common share and one
Series B Warrant of the company on or before July 23, 1999, after which the
Series A warrants expired. Each Series B warrant of the Company entitled the
holder thereof to purchase one common share of the Company for $1.15 on or
before November 23, 1999, their expiry date.

An aggregate of 1,047,670 Series A Warrants were exercised up to July 23, 1999,
the date of expiry of the Series A Warrants, yielding aggregate gross proceeds
of $785,752.50. The remaining 1,932,530 Series A Warrants expired, unexercised
at the close of business on July 23, 1999. Pursuant to the exercise of the
aforementioned 1,047,670 Series A Warrants an aggregate of 1,047,670 Series B
Warrants were issued. As of the close of business on November 23, 1999, the date
of expiry of the Series "B" Warrants, 112 Series "B" Warrants had been
exercised, yielding aggregate gross proceeds of $128.80 to the Company, and the
remaining 1,047,648 Series "B" Warrants expired, unexercised.

Videoflicks.com Inc. currently has no officers or directors who were with
Mantaur Petroleum Corporation or 131870 Ontario Limited and has no contracts or
commitments with any former officers or directors of these companies. Michael
Kavanagh, director and President of the Company is a director of Videoflicks


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Canada Limited and beneficially owns 50% of the stock of Videoflicks Canada
Limited, the other 50% being owned by his spouse Beverley Kavanagh. Michael
Kavanagh and his spouse, through their ownership of Videoflicks Canada Limited,
are beneficial owners of approximately 47.3% of the outstanding common shares of
the Company. The Company has entered into an agreements with Videoflicks Canada
Limited relating to the supply of inventory products for sale and a rental
agreement for office space. (These agreements are Exhibits 2.4 and 2.5 to this
Form)

GENERAL

The Company is engaged in the business of selling movie videos on VHS videotape
and DVD ("Digital Video Disk") formats through its web site on the Internet
(www.videoflicks.com), utilizing software developed by the Company.

Videos may be searched for on the web site by title, category, or
actor/character. Reviews by professional critics as well as customer reviews are
provided to assist the customer. The web site also provides announcements of
forthcoming releases together with release dates. At the present time the
Company's web site has over 200,000 pages, listing more than 70,000 movies.
Sales to date include more than 23,000 different titles on videocassette and
digital video disc ("DVD") to over 60,000 customers in more than 30 countries.
The web site currently receives more than 1,000,000 visitors per month. The
database not only lists nearly all commercially available videos known to the
Company, but also those announced for forthcoming release, together with the
release date.

The Company offers search and browse features, e-mail services, web-based credit
card payment, direct shipping to customers, and customer profiled shopping
services where the customer determines the method of searching the video
database either by title, actor, category, or director. Customers determine if
they would like to be notified of the upcoming specials, new or re-leases of
videos in their interest categories either through e-mail, fax or mail and the
customer determines the method of payment and shipping of product. The Company
intends over time to expand its catalogue into other products, such as music and
video games. The Company has virtually unlimited "shelf space" and offers
customers a vast selection of videos accessible through a data search and
information retrieval page on the company's web site.

The Company strives to offer an online shopping experience that involves
discovery and fulfilment for its customers. The Company believes that the sale
of videos and other products and services over the web offers attractive
benefits to consumers, including, without limitation, enhanced selection,
convenience, ease-of-use, competitive pricing, depth of content and information
and personalization. Customers entering the Videoflicks.com web site can, in
addition to ordering videos and other products, purchase gift certificates,
conduct targeted searches, browse highlighted selections, video best sellers and
other features, search for videos by subject category, stars, directors, and the
like, read and post reviews, register for personalized services, participate in
promotions and check order status. The key features of the web site include
browsing, reviews and content, interaction with the online community (users
logged on to the Company's web site) through movie trivia and e-mail discussion
available on the web site, recommendations and personalization, and other unique
services, including the availability of multilingual videos.

The web site offers visitors a variety of highlighted subject areas and special
features arranged in a fashion intended to enhance video/movie search, selection
and discovery. In addition, the home page presents a variety of products and
information of topical or current-event interest. To enhance the shopping


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experience and increase sales, the Company features a variety of videos on a
rotating basis throughout the site.

A significant feature of the web site is its interactive, searchable catalogue
of more than 70,000 titles, including most of the English language movies
commercially available on video, and a small number of CD's, videos, audiotapes
and other products. The Company provides a selection of search tools to find
videos and other products based on title, subject, star and director.

Utilizing proprietary software, the Company has designed a fully scalable
systems architecture for the Internet shopping marketplace (i.e. the web server
and connection utilized by the Company's web site can be expanded to accommodate
increased web site "traffic"). The web site accommodate up to 500,000,000 `hits'
per month, 50 times the current number of users on existing hardware. It has
integrated all aspects of retail transaction processing, including order
placement, secure payment verification, inventory control, order fulfilment and
vendor invoicing in one seamless and automated process. The system's credit card
encryption uses state of the art 128 bit technology. The system being used now
by the Company to sell videos and DVD's can be used to sell any other products
that the Company chooses to sell.
The employment of this specialized information system by the Company allows its
customers to access an automated marketplace of video movies from the
inventories of a large number of manufacturers and distributors and provides
detailed product descriptions, product availability, delivery times, delivery
status and back-order information. All sales and payments are processed
electronically 24 hours a day, with limited employee involvement.

The Company does not maintain an inventory of videos but instead places its
customers' orders with a number of manufacturers and distributors who ship the
video products ordered directly to the Company's customers, thereby minimizing
the Company's handling, delivery and maintenance expenses. The Company does not
have written supply agreements with such manufacturers and distributors, most of
whom have been supplying the Company's Internet business since 1995.
Notwithstanding the risks inherent in such lack of written supply agreements
(See Risk Factors - Lack of Written Contracts With Distributors and
Manufacturers), Company management believes that, because of the number of
available suppliers of videos, such risks are nominal and that the Company would
be able to quickly replace any supply of product. The Company also has a Supply
Agreement with its controlling shareholder, Videoflicks Canada Limited, pursuant
to which Videoflicks Canada Limited has agreed to supply videos to the Company
from its inventory at the wholesale catalogue price charged by wholesalers on an
arm's length basis on videos, plus shipping charges and applicable taxes. A copy
of this agreement is shown in exhibit 2.4.

The Company can capture information from orders received through its web site to
develop individual and overall customer profiles with which to focus its
marketing efforts by, for example, marketing specific movies or products or
offering personalized services to customers based on such profiles. The Company
has no current plans to resell this information to other parties.

Total sales and revenues during the past three fiscal years ending August 31,
1999 for the Videoflicks.com Internet division of Videoflicks Canada Limited
were earned almost entirely through the sales of video movies over the Internet
to unrelated customers. No significant sales or revenue was earned through the
Videoflicks.com Internet division of Videoflicks Canada Limited nor by the
Company through any other method of sales or product except for a small quantity
of recorded music in compact discs ("CDs")format. Historically, sales of videos
on VHS and DVD formats and sales of CDs have represented approximately 87%, 11%
and 2% respectively of total sales revenues. Total sales for the nine months


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ending August 31 1999 are $1,782,000 and for fiscal year ending August 31, 1998
were $820,000, August 31 1997 $431,000 and August 31 1996 $71,000. Repeat
customers account for 20% to 25% of sales. The total loss for each of these
periods are, nine months ended May 31 1999 ($356,000), August 31, 1998
($113,000), August 31, 1997 ($69,000) and August 31, 1996 ($45,000). In each of
these periods the geographical breakdown of sales has remained constant with 75%
to the United States, and the balance of sales being less than 5% for any other
country.


BUSINESS PLAN

The Company's business strategy and plan of operations for the next twelve
months is to build strong brand recognition, strengthen customer loyalty and
increase customer traffic to the Videoflicks.com web site, enhance supplier
relationships, maximize repeat purchasers and develop incremental revenue
opportunities such as offering rental space for banner advertising on the site,
while creating an economic model that is superior to that of the capital and
real estate intensive traditional retailing business. Achieving increased
profitability is dependent upon the Company's continued growth through its
ability to generate and sustain substantially increased revenue levels. The
objective of Company management is to achieve growth in both revenues and
profits in a fiscally responsible and sustainable manner.

The Company's business strategy and plan of operations for both the remainder of
this fiscal year and for the first six months of the next year is to build
strong brand recognition, strengthen customer loyalty and increase customer
traffic to the Videoflicks.com web site, enhance supplier relationships,
maximize repeat purchasers, develop incremental revenue opportunities through
affiliated or related sites, related product areas, acquisition of complementary
businesses, products or technologies and by offering rental space for banner
advertising on the site,while creating an economic model that is superior to
that of the capital and real estate intensive traditional retailing business.
Achieving increased profitability is dependent upon the Company's continued
growth through its ability to generate and sustain substantially increased
revenue levels. The objective of Company management is to achieve growth in both
revenues and profits in a fiscally responsible and sustainable manner.

To continue this growth, the Company must maintain and increase its customer
base, implement and successfully execute its business and marketing strategy,
continue to develop and upgrade its technology and transaction-processing
systems, improve its web site, provide superior customer service and order
fulfilment, respond to competitive developments and attract, retain and motivate
talented personnel and management experienced in large and fast-growing
organizations.

The Company believes that success will depend on its ability to extend its brand
position, to provide its customers with outstanding value and a superior
shopping experience and the ability to achieve sufficient sales volume to
realize economies of scale. The company plans to grow the customer base through
advertising campaigns, creating marketing relationships with other Web based
retailers and information providers and expansion of the company's affiliate
program. Our customer service representatives are movie enthusiasts who can
offer superior service to customers looking for hard to find videos and can
answer inquiries about movies, actors etc. to help a client locate the movie of
their choice, through e-mail, Chat lines or voice. The company is also
implementing technical improvements to its web site which will enable more text
and graphics to be added to its movie/actor information feature to further


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enhance the customer shopping experience. The Company believes that its emphasis
on customer service as well as management's experience in both Internet retail
since 1995 and its 10 to 18 years of experience in storefront retail of videos
to be the Company's primary competitive advantages.

To date the business of the Company has operated with little or no advertising
support, relying upon word-of-mouth publicity. Notwithstanding the lack of
advertising support, sales generated by the Company's business for the fiscal
year ended August 31, 1999 increased 117% to $1,782,000 as compared to sales for
the year ended August 31, 1998. Repeat customers represent 20 to 25% of orders.
For each of the last 3 fiscal years approximately 75% of sales were made to
customers in the United States and of the remaining sales, no more than 5% was
concentrated in any one country. Despite this historical organic growth, the
Company believes that continuing to strengthen its brand is critical to
achieving widespread acceptance of Videoflicks.com, particularly in light of the
competitive nature of the Company's market. Promoting and positioning its brand
will depend largely on the success of the Company's marketing efforts and the
ability of the Company to provide high quality services. In order to promote its
brand, the Company will need to increase its marketing budget and otherwise
increase its financial commitment to creating and maintaining brand loyalty
among users. Although sales are increasing, to date the company has not achieved
profitability and has sustained losses in each period. The Company expects to
continue to incur net losses for the next few years.

A pilot-program for advertising utilizing on-line media and print conducted in
fiscal 1998, suggested to management of Videoflicks Canada Inc. that
expenditures for advertising would result in an increase in the number of
visitors to its web site and correspondingly an increase in sales volumes.
Accordingly, management of the Company had committed $600,000 to an initial
advertising campaign, focussing on banner advertising, that is the placement of
the Company's advertisements on other web sites, which was to have commenced in
August, 1999. However management of the Company subsequently determined that the
initial advertising campaign would not be a sufficiently cost effective means of
generating new customers and therefore decided not to proceed with the proposed
campaign. Although advertising will continue to be a part of the Company's
business plan, management of the Company is also reviewing alternative means of
marketing including arrangements whereby the Company would have access to other
companies' customer bases on a sharing-of-revenue basis.

Web site development and operating infrastructure development will also be a
priority. Company management believes that the development of a high volume of
traffic on its web site will be a key element of its success. Therefore, the
satisfactory performance, reliability and availability of the web site,
transaction-processing systems and network infrastructure are critical to the
Company's reputation, and its ability to attract and retain customers and
maintain customer service levels. In this regard, during fiscal 1999 the Company
hired additional programmers to develop its web site and additional staff to
fulfill orders and ensure timely product shipments. The Company's web site
development group has increased the efficiency of the data and systems
management, thereby streamlining the order-processing system. The Company plans
to continue to implement technology-driven enhancements to its web site to
provide increasingly valuable personal service programs, make the user-interface
as intuitive, engaging and fast as possible and continuously improve the
efficiency of its order fulfilment activities. To meet the demands of
anticipated future growth in traffic on the Company's web site the Company
intends to expand and upgrade its network infrastructure by adding another T1
transmission line (a 40 megabyte per second data connection line)or similar
expansion which will be required if the average number of `users' (i.e. unique


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visitors signing on to access the Company's web site) per day increases to
100,000 from the present rate of approximately 33,000 or if the number of `hits'
(i.e. number of individual pages on the web site which are viewed by users) per
month increases to 45,000,000 from the present rate of 15,000,000.

Upon amalgamation the Company succeeded to all of the assets and liabilities of
each of the amalgamating companies which ceased to exist as distinct entities
but merged to form the Company. Included in the assets to which the Company
succeeded was the $1.2 million which one of the amalgamating companies, 1318780
Ontario Limited, had raised for the purpose of funding the Company. The Company
obtained additional funding through the exercise of warrants which it issued
pursuant to the amalgamation. In this regard, as of the close of business on
July 23, 1999, the date of expiry of the Series "A" Warrants, an aggregate of
1,047,670 Series "A" Warrants had been exercised from which the Company realized
aggregate gross proceeds of $785,752.50 and an aggregate of 1,047,670 Series "B"
Warrants were issued pursuant to the exercise of the aforementioned Series "A"
Warrants. As of the close of business on November 23, 1999, the date of expiry
of the Series "B" Warrants, 112 Series "B" Warrants had been exercised, yielding
aggregate gross proceeds of $128.80 to the Company, and the remaining 1,047,558
Series "B" Warrants expired, unexercised. The Company has outstanding and
contingent stock options, granted under the Company's Stock Option Plan,
exercisable to purchase up to 2,240,000 Company common shares at $0.50 per share
from which the Company would realize an additional $1,120,000 if all such
options were exercised. On October 26, 1999 the Company also granted a stock
option to Thomson Newspapers Inc., outside of its Stock Option Plan, to purchase
up to 750,000 common shares of the Company at $0.48 per share which would yield
aggregate proceeds to the Company of $360,000 if all the shares were purchased
under such option. The Company intends to allocate approximately 70%-75% of the
funds obtained during the current fiscal year from the amalgamation and through
the exercise of its Warrants and stock options principally for marketing to
increase the Company's sales and the remaining 25%-30% for hardware and software
improvements to the Company's web site and for general working capital purposes.

Planned expansion, growth through advertising, and upgrades to the Company's web
site will require an additional estimated $5,000,000 over the next 12 months. A
portion of these funds may or may not be raised through the exercising of the
stock options however the Company will likely need to raise additional equity or
debt financing in order to execute its business plan.

The Company views its producers and distributors as customers and seeks to
utilize the substantial competitive advantages to build strong relationships
with them. In addition, the demographic and purchasing data accumulated by the
Company will enable it to target video studios for particular product offerings
to the company's customers. Through targeted marketing and virtually unlimited
shelf space the Company intends to offer suppliers enhanced promotional
opportunities for new products, new video titles and second and third tier
titles.

The Company intends to leverage its brand, on-line commerce experience,
operating infrastructure and customer base to broaden its presence and develop
additional revenue opportunities. Management of the Company believes that it can
further its growth opportunities through revenue sharing programs with companies
that send customers to the company for video purchases, and advertising sharing
programs where the company offers advertising space on the web site for equal
space on other web sites or with Internet Service Providers. The Company will
also look to other International video retail companies and distributors to
service customers that require video and DVD in a format other than that
available in North America. In return the company can fulfill their requirements
for their North American customers. The Company will also consider developing
incremental revenue opportunities through affiliated or related sites, related
product areas and acquisition of complementary businesses, products or
technologies . The


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Company will also consider exploiting opportunities presented by its customer
demographic and substantial web site traffic to sell banner advertising on its
web site.

Commitment to research and development is an important policy of the Company as
management of the Company realizes that to stay competitive the Company must be
on the leading edge of computer hardware and software development of the web for
retail transactions and information technology. The Company has expended $69,000
in fiscal year ended August 31, 1999 for research and development, $39,000 for
August 31, 1997, and $8,000 in fiscal year ended August 31, 1996. For the none
months ended May 31, 1999 this expenditure has grown to $102,000 and is expected
to increase further in the future as the Company develops new applications and
procedures. Although management of the Company does not expect that increased
web site traffic will necessitate web site capacity upgrades in the next 12
months, the Company intends to increase its web site capacity in any case within
the next 12 months from the present 990,000 users and 15,000,000 hits per month
to 35,000,000 users and 750,000,000 hits per month, at a cost of approximately
$10,000.

COMPETITIVE ENVIRONMENT

The online commerce market, particularly over the World Wide Web, is new,
rapidly evolving and intensely competitive. In addition, the retail video
industry is intensely competitive. The company's current or potential
competitors include (i) various online video sellers such as vendors of other
information-based products such as CDs and books, including entrants into narrow
specialty niches, (ii) a number of indirect competitors that specialize in
online commerce, through which retailers other than the Company may offer
products and (iii) publishers, distributors and retail vendors of videos, music
and books, including Amazon.com, Blockbuster Video, Reel.com and other large
specialty videosellers and integrated media corporations. These characteristics
of the Industry may have a material impact on the future financial performance
of the company. See "Risk Factors Affecting the Company" for further discussion
of competition.




INTELLECTUAL PROPERTY

A trademark registration application was filed with the U.S. Patent and
Trademark Office in January 1999 for the mark "Videoflicks.com". All rights in
respect of the trademark application were acquired by the Company upon
amalgamation. The mark Videoflicks.com was first used in 1995, in connection
with the business of the Company, by Videoflicks Canada Limited from which all
rights in the mark were acquired by Videoflicks.com Limited and subsequently by
the Company upon amalgamation.

HUMAN RESOURCES

On November 23, 1999, the Company had 32 full-time employees and 3 part-time
employees. As the Company encourages share ownership, it has established an
option plan (see "Item 12. - Compensation - Stock Option Plan") to attract,
motivate and retain key employees and consultants. The Company's employees are
not governed by a collective bargaining agreement. The Company believes that its
employee relations are good.


RISK FACTORS AFFECTING THE COMPANY


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The business of the Company entails significant risks, and an investment in the
securities of the Company should be considered highly speculative. An investment
in the securities of the Company should only be undertaken by persons who have
sufficient financial resources to enable them to assume such risks. The
following is a general description of all material risks which can adversely
affect the business and in turn the financial results which can affect the value
of an investment in common stock.

The company has a limited operating history in an industry that is new and
quickly evolving with changing markets. With the company being in the
development stage with no long term operating history or history of
profitability an investor should consider the risks and difficulties early stage
companies will encounter in the new and rapidly changing market of online
commerce.

     COMPETITION

THE MARKET FOR VIDEO SALES OVER THE INTERNET IS NEW, RAPIDLY EVOLVING AND
INTENSELY COMPETITIVE. THE COMPANY MAY NOT BE ABLE TO SUCCEED AGAINST
COMPETITORS WHICH HAVE LARGER CUSTOMER BASES, GREATER BRAND RECOGNITION AND
SIGNIFICANTLY GREATER FINANCIAL, MARKETING, TECHNICAL AND OTHER RESOURCES THAN
THE COMPANY.

The market for video sales over the Internet is new, rapidly evolving and
intensely competitive, and the Company expects competition to intensify further
in the future. Barriers to entry are relatively low, and current and new
competitors can launch new sites at relatively low cost using commercially
available software.

The Company potentially faces competition from other large online communities
and services that have expertise in developing online commerce and in
facilitating online video sales interaction. Other large companies with strong
brand recognition and experience in online commerce, such as large media
companies may also seek to compete in the online video sales market. Competitive
pressures created by any one of these companies, or by the Company's competitors
collectively, could have a material adverse effect on the Company's business,
results of operations and financial condition.

The Company believes that the principal competitive factors in its market are
volume and selection of videos, population of buyers, customer service,
reliability of delivery, brand recognition, web site convenience and
accessibility, price, quality of search tools and system reliability.

Many of the Company's current and potential competitors have larger customer
bases, greater brand recognition and significantly greater financial, marketing,
technical and other resources than the Company. In addition, other online video
sales companies may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies as use of the Internet and other online services increases. Therefore,
some of the Company's competitors with other revenue sources may be able to
devote greater resources to marketing and promotional campaigns, adopt more
aggressive pricing policies, obtain more favourable terms from manufacturers and
distributors and devote substantially more resources to web site and systems
development than the Company or may try to attract traffic by offering videos at
a lower price.

The Company expects that competition in the online commerce market will
intensify in the future. For example, as various market segments obtain large,
loyal customer bases, participants in those segments may seek to leverage their
market power to the detriment of participants in other market segments. In
addition, new technologies and the expansion of existing technologies may
increase the


<PAGE>   11
                                      -11-

competitive pressures on online retailers, including the Company. For example,
"shopping agent" technologies will permit customers to quickly compare the
Company's prices with those of its competitors.

Increased competition may result in reduced operating margins, loss of market
share and diminished value in the Company's brand. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors.

Companies that control access to transactions through network access or web
browsers could promote the Company's competitors or charge the Company
substantial fees for inclusion. New technologies and the expansion of existing
technologies may increase the competitive pressures on the Company by enabling
the Company's competitors to offer a lower-cost service. Web-based applications
that direct Internet traffic to web sites may channel users to trading services
that compete with the Company. Any and all of these events could have a material
adverse effect on the Company's business, results of operations, prospects and
financial condition.

There is no assurance that the Company's responses to its competitive
environment will have a positive competitive effect.

     RISKS ASSOCIATED WITH BRAND DEVELOPMENT

IF THE COMPANY FAILS TO PROMOTE AND MAINTAIN ITS BRAND OR INCURS SUBSTANTIAL
EXPENSES IN AN ATTEMPT TO PROMOTE AND MAINTAIN ITS BRAND OR IF THE COMPANY'S
EXISTING OR FUTURE STRATEGIC RELATIONSHIPS FAIL TO PROMOTE THE COMPANY'S BRAND
OR INCREASE BRAND AWARENESS, THE COMPANY'S BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION WOULD BE MATERIALLY ADVERSELY AFFECTED.

Failure of the Company to promote and maintain its brand may have an adverse
effect on its sales revenues. However, there can be no assurance that brand
promotion activities will result in increased sales revenues in the short term
and the longer term or that any such revenues would offset the expenses incurred
by the Company in building its brand.

     RAPID TECHNOLOGICAL CHANGE

THE MARKET IN WHICH THE COMPANY COMPETES IS CHARACTERIZED BY RAPIDLY CHANGING
TECHNOLOGY AND EVOLVING INDUSTRY STANDARDS. THE FAILURE OF THE COMPANY TO ADAPT
TO SUCH CHANGES WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS,
RESULTS OF OPERATIONS, PROSPECTS AND FINANCIAL CONDITION.

The Company's future success will depend, in part, on its ability to adapt to
rapidly changing technologies, to adapt its services to evolving industry
standards and to continually improve the performance, features and reliability
of its service in response to competitive service and product offerings and
evolving demands of the marketplace.

There is the potential for emerging technologies to replace the need, or demand
for consumers to physically own video movies, such as digital cable and
on-demand movie rental. These technologies can reduce the market for movie
videocassettes and DVD. The widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures by the Company to modify or adapt its services or
infrastructure, failing which could result in material adverse effects on the
Company's business, results of operations, financial condition and continued
viability.


<PAGE>   12

                                      -12-


     WEB SITE CAPACITY

ANY INABILITY OF THE COMPANY'S WEB SITE TO ACCOMMODATE INCREASES IN WEB SITE
TRAFFIC COULD HAVE A MATERIAL ADVERSE IMPACT ON FUTURE RESULTS.

Current usage amounts could increase beyond the current capacity of the
Company's hardware and software limits. Failure of the Company's web site to
accomodate increases in web site traffic could result in material adverse
effects on the Company's business, results of operations, financial condition
and continued viability. The proprietary software has been developed to be fully
scaleable to accommodate up to 12,000,000 `users' (i.e. unique visitors signing
on to access the Company's web site) each month, being approximately 12 times
the current number of users. Current usage, being approximately 33,000 users per
day (approximately 990,000 users per month) and 15,000,000 `hits'(i.e.
individual web site pages viewed by users) per month is at 33% of the capacity
of the existing T1 transmission line (a 40 megabyte per second data connection
line), being 100,000 users per day (3,000,000 users per month) and 45,000,000
hits per month. The company also has a backup system capable of running if the
primary server system becomes overused. The system has been tested to run at 80%
of capacity.

     RISKS RELATED TO CONSUMER TRENDS

ANY DECLINE IN DEMAND FOR THE GOODS OFFERED THROUGH THE COMPANY'S SERVICE AS A
RESULT OF CHANGES IN CONSUMER TRENDS COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY'S BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

The Company derives substantially all of its revenues from selling video movies.
The Company's future revenues will depend upon continued demand for the types of
goods that are offered by the Company. Changes or trends in consumer preferences
may also cause significant fluctuations in the Company's operating results from
one quarter to the next.

Any new or complementary services, products or transaction formats introduced by
the Company or any expansion of the breadth and depth of services offered by the
Company to address such trends may not be accepted by the consumer. The lack of
market acceptance of such services or the Company's inability to generate
satisfactory revenues from such expanded services to offset their cost could
have a material adverse effect on the Company's business, results of operations,
prospects and financial conditions. There can be no assurance that the Company
would be able to expand its operations to offer such new technologies in a
cost-effective or timely manner or that any such efforts would maintain or
increase overall market acceptance. Furthermore, any new business or service
launched by the Company that is not favorably received by consumers or
wholesalers could damage the Company's reputation and diminish the value of its
brand name. Expansion of the Company's operations in this manner would also
require significant additional expenses and development, operations and other
resources and would strain the Company's management, financial and operational
resources.

     LACK OF WRITTEN CONTRACTS WITH DISTRIBUTORS AND MANUFACTURERS

THE COMPANY HAS NO WRITTEN AGREEMENTS WITH MANUFACTURERS AND DISTRIBUTORS OF
VIDEOS WITH WHOM THE COMPANY PLACES ITS CUSTOMERS' ORDERS.

Except for the Supply Agreement with Videoflicks Canada Limited, the Company has
no written agreements with manufacturers and distributors of videos with whom
the Company places its customers' orders If such manufacturers and distributors
of videos should stop shipping videos ordered by the Company or unilaterally and
adversely change the terms and conditions of the present arrangements and the
Company was unable to, in a timely fashion, secure an alternative supplier of


<PAGE>   13
                                      -13-

videos, or if an alternative supplier of videos was secured but on terms less
favorable, then this could have a significant adverse effect on the financial
performance of the Company and thereafter the continued viability of the Company
and the Company may have no recourse as against such manufacturers and
distributors.

     ONLINE COMMERCE SECURITY RISKS

SECURITY BREACHES COULD AFFECT THE SECURE TRANSMISSION OF CONFIDENTIAL
INFORMATION, INCLUDING CUSTOMER CREDIT CARD NUMBERS AND EXPOSE THE COMPANY TO
LIABILITY.

A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. Currently, a
significant number of the Company's customers authorize direct billing of their
credit card accounts directly for all videos purchased. The use of credit cards
account for 96% of all transactions. The balance of sales are paid for by check
or money order. The Company relies on encryption and authentication technology
licensed from third parties to provide the security and authentication
technology to effect secure transmission of confidential information, including
customer credit card numbers. There can be no assurance that advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments will not result in a compromise or breach of the
technology used by the Company to protect customer transaction data. If any such
compromise of the Company's security were to occur, it could have a material
adverse effect on the Company's reputation and, therefore, on its business,
results of operations, prospects and financial condition.

To the extent that activities of the Company involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could damage the Company's reputation and expose the Company to a risk
of loss or litigation and possible liability. A party who is able to circumvent
the Company's security measures could misappropriate proprietary information or
cause interruptions in the Company's operations. The Company may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of transactions conducted on the Internet and other online services and
the privacy of users may also inhibit the growth of the Internet and other
online services generally, and the web in particular, especially as a means of
conducting commercial transactions. The Company's insurance policies carry a
$2,000,000 coverage limits, which may not be adequate to reimburse the Company
for losses caused by security breaches. There can be no assurance that the
Company's security measures will prevent security breaches or that failure to
prevent such security breaches will not have a material adverse effect on the
Company's business, results of operations and financial condition.

     RISKS ASSOCIATED WITH ACQUISITIONS

THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO IDENTIFY, NEGOTIATE
OR FINANCE FUTURE ACQUISITIONS SUCCESSFULLY, OR TO INTEGRATE SUCH ACQUISITIONS
WITH ITS CURRENT BUSINESS.

If appropriate opportunities present themselves, the Company intends to acquire
businesses, technologies, services or products that the Company believes will
promote the growth required under the business plan. The process of integrating
an acquired business, technology, service or product into the Company may result
in unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of the Company's business. Moreover, there can be no assurance that the
anticipated benefits of any acquisition, will be realized. Future acquisitions
could result in potentially dilutive issuances of equity securities, the


<PAGE>   14
                                      -14-

incurrence of debt, contingent liabilities and/or amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
the Company's business, results of operations, prospects and financial
condition.

     DEPENDENCE ON THE WEB INFRASTRUCTURE

THERE CAN BE NO ASSURANCE THAT THE INFRASTRUCTURE OR COMPLEMENTARY PRODUCTS OR
SERVICES NECESSARY TO MAKE THE WEB A VIABLE COMMERCIAL MARKETPLACE FOR THE LONG
TERM WILL BE DEVELOPED OR THAT IF THEY ARE DEVELOPED, THAT THE WEB WILL BECOME A
VIABLE COMMERCIAL MARKETPLACE FOR SERVICES SUCH AS THOSE OFFERED BY THE COMPANY.

The success of the Company's service will depend in large part upon the
development and maintenance of the web infrastructure, such as a reliable
network backbone with the necessary speed, data capacity and security, or timely
development of complementary products such as high-speed modems, for providing
reliable web access and services. This service is provided by third parties to
the company. Because global commerce and the online exchange of information is
new and evolving, it is difficult to predict with any assurance whether the web
will prove to be a viable commercial marketplace in the long term. The web has
experienced, and is expected to continue to experience, significant growth in
the numbers of users and amount of traffic. To the extent that the web continues
to experience increased numbers of users, frequency of use or increased
bandwidth requirements of users, there can be no assurance that the web
infrastructure will continue to be able to support the demands placed on it by
this continued growth or that the performance or reliability of the web will not
be adversely affected.

Outages and delays could adversely affect the level of web usage and also the
level of traffic. This could have a significant negative impact on the Company's
sales. In addition, the web could lose its viability due to delays in the
development or adoption of new standards and protocols to handle increased
levels of activity or due to increased governmental regulation. The web has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face such outages and delays in
future, including outages and delays resulting from the inability of computers
or software to distinguish dates in the 21st century from dates in the 20th
century. See "--Year 2000 Implications".

There can be no assurance that the infrastructure or complementary products or
services necessary to make the web a viable commercial marketplace for the long
term will be developed or that if they are developed, that the web will become a
viable commercial marketplace for services such as those offered by the Company.
If the necessary infrastructure, standard or protocols or complementary
products, services or facilities are not developed, or if the web does not
become a viable commercial marketplace, the Company's business, results of
operations, prospects and financial condition will be materially and adversely
affected. Even if the infrastructure, standards or protocols or complementary
products, services or facilities are developed and the web becomes a viable
commercial marketplace in the long term, the Company might be required to incur
substantial expenditures in order to adapt its service to changing web
technologies, which could have a material adverse effect on the Company's
business, results of operations, prospects and financial condition.

     RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH THE COMPANY'S
     SERVICE

THERE IS THE RISK THAT CLAIMS COULD BE MADE AGAINST THE COMPANY UNDER BOTH
UNITED STATES AND FOREIGN LAW FOR DEFAMATION, LIBEL, INVASION OF PRIVACY,
NEGLIGENCE,


<PAGE>   15
                                      -15-

COPYRIGHT OR TRADEMARK INFRINGEMENT, OR OTHER THEORIES BASED ON THE NATURE AND
CONTENT OF THE MATERIALS DISSEMINATED THROUGH THE COMPANY'S SERVICE OR THIRD
PARTY ON LINE SERVICE PROVIDERS.

The law relating to the liability of online services companies for information
carried on or disseminated through their services is currently unsettled.
Several private lawsuits seeking to impose such liability upon other online
services companies are currently pending. Certain countries and jurisdictions
limit or prohibit the sales of certain videos which the Company sells. For
example, the company may not ship erotic videos into the Islamic Republic of
Iran which prohibits their importation.

New legislation could be enacted in any jurisdiction which would have the effect
of imposing liability, limiting, or prohibiting transmission over the Internet
of information that appears on the Company's web site. For example, the
Company's service features a Movie Review Publication section for each video it
sells, which includes information from users regarding their thoughts about that
movie. Although all such feedback is generated by users and not by the Company,
it is possible that a claim of defamation or other injury could be made against
the Company for content posted in the Movie Review Pages. The imposition upon
the Company and other online services providers of potential liability for
information carried on or disseminated through their services could require the
Company to implement measures to reduce its exposure to such liability, which
may require the Company to expend substantial resources and/or to discontinue
the affected service offerings.

Increased attention focussed upon liability issues as a result of these lawsuits
and legislative proposals could impact the growth of Internet use. While the
Company carries liability insurance in the amount of $2,000,000, it may not be
adequate to fully compensate the Company in the event the Company becomes liable
for information carried on or disseminated through its service. Any costs not
covered by insurance incurred as a result of such liability or asserted
liability could have a material adverse effect on the Company's business,
results of operations and financial condition.

     GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES

THE COMPANY MAY NOT BE IN FULL COMPLIANCE WITH CANADIAN AND UNITED STATES LAWS
AND REGULATIONS OR THOSE OF OTHER JURISDICTIONS.

The Company believes that it is currently in material compliance with Canadian
and United States laws and regulations applicable to access to and commerce on
the Internet, including regulations applicable to businesses generally. However,
due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Although sections of the Communications Decency Act of
1996 (the "CDA") that, among other things, proposed to impose criminal penalties
on anyone distributing "indecent" material to minors over the Internet, were
held to be unconstitutional by the U.S. Supreme Court, there can be no assurance
that similar laws will not be proposed and adopted. Certain members of the U.S.
Congress have recently discussed proposing legislation that would regulate the
distribution of "indecent" material over the Internet in a manner that they
believe would withstand challenge on constitutional grounds. The nature of such
similar legislation and the manner in which it may be interpreted and enforced
cannot be fully determined and, therefore, legislation similar to the CDA could
subject the Company and/or its customers to potential liability, which in turn


<PAGE>   16
                                      -16-

could have an adverse effect on the Company's business, results of operations,
prospects and financial condition. The adoption of any such laws or regulations
might also decrease the rate of growth of Internet use, which in turn could
decrease the demand for the Company's service or increase the cost of doing
business or in some other manner have a material adverse effect on the Company's
business, results of operations and financial condition. In addition,
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy is uncertain. The vast majority of such laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the and related
technologies. The Company does not believe that such regulations, which were
adopted prior to the advent of the Internet, govern the operations of the
Company's business nor have any claims been filed by any state implying that the
Company is subject to such legislation. There can be no assurance, however, that
a state, province or other jurisdiction will not attempt to impose these
regulations upon the Company in the future or that such imposition will not have
a material adverse effect on the Company's business, results of operations,
prospects and financial condition.

Several states and provinces have also proposed legislation that would limit the
uses of personal user information gathered online or require online services to
establish privacy policies. The Company is not collecting data on customers or
visitors for later resale. The United States Federal Trade Commission has also
initiated action against at least one online service regarding the manner in
which personal information is collected from users and provided to third
parties. Changes to existing laws or the passage of new laws intended to address
these issues, including some recently proposed changes, could create uncertainty
in the marketplace that could reduce demand for the services of the Company or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs, or could in some other manner have a material adverse
effect on the Company's business, results of operations, prospects and financial
condition. Because the Company's services are accessible worldwide, and the
Company sells videos to users worldwide, there is a risk that other
jurisdictions may claim that the Company is required to qualify to do business
as a foreign corporation in a particular state or foreign country. The Company
is qualified to do business in Canada, and failure by the Company to qualify as
a foreign corporation in a jurisdiction where it is required to do so could
subject the Company to taxes and penalties for the failure to qualify and could
result in the inability of the Company to enforce contracts in such
jurisdictions. Any such new legislation or regulation, or the application of
laws or regulations from jurisdictions whose laws do not currently apply to the
Company's business, could have a material adverse effect on the Company's
business, results of operations, prospects and financial condition.

     SALES AND OTHER TAXES

A JURISDICTION MAY IMPOSE SALES TAX COLLECTIONS OR OTHER TAX OBLIGATIONS ON THE
COMPANY.

The Company does not collect sales or other similar taxes in respect of goods
sold. However, one or more states, provinces or other jurisdictions may seek to
impose sales tax collection obligations on out-of-state or foreign companies
such as the Company which engage in or facilitate online commerce, and a number
of proposals have been made at the state and local level that would impose
additional taxes on the sale of goods and services through the Internet. Such
proposals, if adopted, could substantially impair the growth of electronic
commerce, and could adversely affect the Company's opportunity to derive
financial benefit from such activities. Moreover, a successful assertion by one
or more states or provinces or any foreign country that the Company should


<PAGE>   17
                                      -17-

collect sales or other taxes on the sale of videos on its system could have a
material adverse effect on the Company's business, results of operations,
prospects and financial condition.

Legislation limiting the ability of the states and provinces to impose taxes on
Internet-based transactions has been proposed in the U.S. Congress. There can be
no assurance that this legislation will ultimately be enacted into law or that
the final version of this legislation will not contain a limited time period in
which such tax moratorium will apply. In the event that the tax moratorium is
imposed for a limited time period, there can be no assurance that the
legislation will be renewed at the end of such period. Failure to enact or renew
this legislation could allow various states or provinces to impose taxes on
Internet-based commerce and the imposition of such taxes could have a material
adverse affect on the Company's business, results of operations, prospects and
financial condition.




<PAGE>   18
                                      -18-

     RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

THE COMPANY MAY BE UNABLE TO GENERATE REVENUES FROM FOREIGN OPERATIONS AND
EXPAND ITS INTERNATIONAL PRESENCE.

The risks inherent in doing business on an international basis include meeting
regulatory requirements, legal uncertainty regarding liability, tariffs, and
other trade barriers, difficulties in staffing and managing foreign operations
and potentially adverse tax consequences. These conditions could adversely
affect the success of the Company's international operations. A component of the
Company's business plan is to expand internationally. Approximately 75% of the
Company's current sales are made to residents of the United States and Company
management believes that the sales of its principal competitors are also
concentrated in the increasingly competitive U.S. market. Expansion in the
international markets will require management attention and resources. The
Company has limited experience in establishing its service in new local markets,
and the Company believes that many of its competitors are also undertaking
expansion into foreign markets. There can be no assurance that the Company will
be successful in expanding into international markets. There can be no assurance
that one or more of the factors discussed above will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, results of operations, prospects and financial
condition.

     PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS

THE COMPANY'S RELIANCE ON TRADEMARK REGISTRATION, CONTRACTUAL ARRANGEMENTS OR
APPLICABLE LAWS WILL PROVE INSUFFICIENT TO PREVENT MISAPPROPRIATION OF THE
COMPANY'S TECHNOLOGY OR TO DETER INDEPENDENT THIRD-PARTY DEVELOPMENT OF SIMILAR
TECHNOLOGIES.

The Company regards the protection of its trademark copyright, service marks,
trade dress and trade secrets as critical to its future success and relies on a
combination of trademark registration and copyright, trademark, service mark and
trade secret laws and contractual restrictions to establish and protect its
proprietary rights in products and services. The Company has entered into
confidentiality and invention assignment agreements with its employees and
contractors, and non-disclosure agreements with parties with which it conducts
business in order to limit access to and disclosure of its proprietary
information. The Company pursues the registration of its trademarks and service
marks in the U.S. and internationally. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which the Company's services are made available online. The Company expects that
it may license in the future its proprietary rights, such as trademarks or
copyrighted material, to third parties. While the Company attempts to ensure
that the quality of the Videoflicks.com brand is maintained by such licensees,
there can be no assurance that such licensees will not take actions that might
materially adversely affect the value of the Company's proprietary rights or
reputation, which could have a material adverse effect on the Company's
business, results of operations, prospects and financial condition.




<PAGE>   19
                                      -19-

     AVAILABILITY OF THIRD PARTY TECHNOLOGIES

THIRD-PARTY TECHNOLOGIES UTILIZED BY THE COMPANY MAY CEASE TO BE AVAILABLE TO
THE COMPANY AND OR CEASE TO BE AVAILABLE ON COMMERCIALLY REASONABLE TERMS.

The Company relies on technologies that it has purchased from third parties
under shrink-wrap licence agreements, such as Microsoft and O'Rilieys Web Site,
the suppliers of key database technology, the operating system and specific
hardware components from which the systems for operating the Company's web site
have been developed. The loss of such technologies could require the Company, in
the course of upgrading or changing their systems, to obtain substitute
technologies of lower quality or performance standards or at greater cost, which
could materially adversely affect the Company's business, results of operations,
prospects and financial condition.

     INFRINGEMENT CLAIMS

THIRD PARTIES MAY CLAIM INFRINGEMENT BY THE COMPANY WITH RESPECT TO PAST,
CURRENT OR FUTURE TECHNOLOGIES.

The Company expects that participants in its markets will be increasingly
subject to infringement claims as the number of services and competitors in the
Company's industry segment grows. Any such claim, whether meritorious or not,
could be time-consuming, result in costly litigation, cause service upgrade
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements might not be available on terms acceptable
to the Company or at all. As a result, any such claim could have a material
adverse effect upon the Company's business, results of operations, prospects and
financial condition.

     LACK OF MARKET FOR COMPANY'S SHARES

THERE IS NO ASSURANCE THAT A LIQUID MARKET WILL BE DEVELOPED OR BE SUSTAINED IN
THE UNITED STATES FOR THE COMMON SHARES OF THE COMPANY

Although the common shares of the Company trade on the over the counter market
in Toronto, Ontario (see "Item 5. Nature of Trading Market"), there is no
trading market at present in the United States for the common shares of the
Company and there is no assurance that a liquid market for the common shares of
the Company in the United States will be developed or be sustained. The lack of
a liquid market in the United States for the common shares of the Company could
have a negative impact on the ability of investors to buy and sell the common
shares of the Company and on the value of the shares.

     POSSIBLE VOLATILITY OF SHARE PRICE

THE TRADING PRICE OF THE COMMON SHARES IS LIKELY TO BE HIGHLY VOLATILE AND COULD
BE SUBJECT TO WIDE FLUCTUATIONS

The trading price of the common shares is likely to be highly volatile and could
be subject to wide fluctuations in response to factors such as actual or
anticipated variations in the Company's quarterly operating results,
announcements of technological innovations, or new services by the Company or
its competitors, changes in financial estimates by securities analysts,
conditions or trends in the Internet and online commerce industries, changes in
the market valuations of other Internet or online service companies,
announcements by the Company or its competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments, additions or
departures of key personnel, sales of common shares or other securities of the
Company in the open market and other events or factors, many of which are beyond
the Company's control. Further,


<PAGE>   20
                                      -20-

the stock markets in general, and the NASDAQ National Market and the market for
Internet-related and technology companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect valuations substantially above historical levels. There can be no
assurance that these trading prices and valuations will be sustained. These
broad market and industry factors may materially and adversely affect the market
price of the common shares regardless of the Company's operating performance.
Market fluctuations, as well as general political and economic conditions such
as recession or interest rate or currency rate fluctuations, may also adversely
affect the market price of the common shares. In the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such company. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse effect
on the Company's business, results of operations, prospects and financial
condition.

     LIQUIDITY AND CAPITAL NEEDS

THE COMPANY MAY NOT BE ABLE TO ACQUIRE THE FUNDS NEEDED TO IMPLEMENT AND
COMPLETE ITS BUSINESS PLAN.

Planned expansion, growth through advertising, and upgrades to the Company's web
site will require an additional estimated $5,000,000 over the next 12 months. A
portion of these funds may or may not be raised through the exercising of the
Series "B" Warrants and exercising of stock options. The Company will likely
need to raise additional equity or debt financing. There can be no assurance
that additional funding will be available or, if available, that it will be
available on acceptable terms. The inability of the Company to obtain additional
funding could have a material adverse impact on the business, financial
condition and future prospects of the Company. There can be no assurance that
the Company will be able to raise additional capital if its capital resources
are exhausted.

     CONTROL OF SHARES

MICHAEL KAVANAGH AND HIS ASSOCIATES EXERCISE EFFECTIVE VOTING CONTROL

Michael Kavanagh, President, CEO and a director of the Company and his spouse
together beneficially own approximately 47% of the outstanding common shares of
the Company. Accordingly, Mr. Kavanagh and his spouse will be able to influence
the election of the Company's Board of Directors and the outcome of corporate
actions requiring shareholder approval. This level of ownership by such persons
may have the effect of delaying, deterring, or preventing a change of control of
the Company's Board of Directors and management.

     MANAGEMENT

NOT ALL KEY MANAGEMENT PERSONNEL DEVOTE THEIR FULL TIME TO THE COMPANY'S AFFAIRS

Michael Kavanagh and Robert Bray devote 75% and 70% of their time respectively
to the business and affairs of the Company. If Messrs. Kavanagh and Bray have
conflicting demands placed on their time such that they are unable to
effectively carry out their managerial functions in a timely and effective
manner the business of the Company could be detrimentally affected.

     SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

Some of the statements contained in or incorporated by reference in this
registration statement discuss the Company's plans and strategies for our


<PAGE>   21
                                      -21-

business or state other forward-looking statements. The words "anticipate",
"believe", "estimate", "expect", "plan", "intent", "should", "seek", "will" and
similar expressions are intended to identify these forward-looking statements,
but are not the exclusive means of identifying them. These forward-looking
statements reflect the current views of Company management; however, various
risks, uncertainties and contingencies could cause the Company's actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements, including the following:


     --   the success or failure of the Company's efforts to implement its
          business strategy;

     --   the other factors discussed under the heading "Risk Factors" and
          elsewhere in this memorandum.

For a discussion of important risks of an investment in the Company's
securities, including factors that could cause actual results to differ
materially from results referred to in the forward-looking statements, see "Risk
Factors". You should carefully consider the information set forth under the
caption "Risk Factors". In light of these risks, no certainties and assumptions,
the forward-looking events discussed in this registration statement might not
occur.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company's principal facility, which is sub-leased from Videoflicks Canada
Limited, is located at 1654 Avenue Road, Toronto, Ontario. The sub-lease expires
on July 30, 2000. The sub-lease covers approximately 1,300 square feet and, if
required, can be expanded to 2,500 square feet at this location. The Company
pays a proportionate amount of the lease obligations of Videoflicks Canada
Limited based on the amount of space covered by the sub-lease relative to the
total floor space leased by Videoflicks Canada Limited. Management believes that
they will outgrow this capacity in the near future and are looking at
alternative locations to meet the needs of anticipated future growth.

ITEM 3.  LEGAL PROCEEDINGS

There are no legal proceedings of a material nature pending or known to be
contemplated against the Company by any party, including any governmental
authorities.

ITEM 4.  CONTROL OF REGISTRANT

(a)  At the close of business on February 28, 2000, there were 17,809,055 common
     shares of the Company outstanding with an authorized capital of an
     unlimited number of shares. To the best of Management's knowledge, the only
     person beneficially owning 10% or more of the Company's outstanding shares
     as of February 28, 2000 was Videoflicks Canada Limited which owned
     8,000,000 common shares of the Company, comprising approximately 44.9% of
     the outstanding common shares of the Company. All of the shares of
     Videoflicks Canada Limited are beneficially owned by Michael Kavanagh and
     his spouse, as to 50% each through their respective holding companies. As a
     result, Mr. Kavanagh and his spouse, through their ownership of Videoflicks
     Canada Limited, also have beneficial ownership of the shares owned by
     Videoflicks Canada Limited and have effective voting control with respect
     to all matters requiring shareholder approval except for those matters
     which pursuant to the Business Corporations Act (Ontario) require approval
     by special resolution of shareholders (i.e. a resolution passed by at least
     two thirds of the votes cast at a special meeting of shareholders called
     for the purpose of considering the resolution).


<PAGE>   22

                                      -22-


(b)  The following table lists each person who as at February 28, 2000 is known
     to the Registrant to be the owner of more than 10% of the Registrant's
     outstanding common shares, the only class of voting securities of the
     Registrant, and the total amount of common shares owned by the directors
     and officers of the Registrant as a group:

<TABLE>
<CAPTION>

Identity of
Person or Group                     Amount Owned           Percent of Class
---------------                     ------------           ----------------
<S>                                 <C>                    <C>


Michael Kavanagh                    8,800,000(1)                47.3%
106 Orenda Road
Brampton, Ontario L6W 3W6

Videoflicks Canada Limited          8,000,000                   44.9%
106 Orenda Road
Brampton, Ontario L6W 3W6

All directors and others as a       8,800,000(2)                47.3%
group

</TABLE>


     1)   Consists of the 8,000,000 common shares owned by Videoflicks Canada
          Limited, of which Mr. Kavanagh and his spouse each own 50% of the
          outstanding capital stock, together with the presently exercisable
          options to purchase 800,000 common shares held by Mr. Kavanagh.

     2)   Consists of 8,000,000 common shares owned by Videoflicks Canada
          Limited, of which Mr. Kavanagh and his spouse each beneficially own
          50% of the outstanding capital stock, together with the presently
          exercisable options to purchase 1,066,667 common shares held by Mr.
          Kavanagh. A portion of the Options held by the other directors and
          officers are subject to vesting requirements which provide that these
          options are not exercisable prior to March, 2000. See "Item 12.
          Options to Purchase Securities from Registrant or Subsidiaries - Stock
          Option Plan".

               At the close of February 28, 2000, officers and directors, as a
               group, owned no shares of the Company other than the 8,000,000
               common shares of the Company owned by Videoflicks Canada Inc.,
               all of the shares of which are beneficially owned by Michael
               Kavanagh and his spouse, as to 50% each through their respective
               holding companies.

(c)  There are no arrangements, known to the Company, the operation of which may
     at a subsequent date result in a change in control of the Company.

ITEM 5.  NATURE OF TRADING MARKET

The Company's shares commenced trading over-the-counter on The Canadian Dealing
Network Inc., Toronto, Ontario on April 26, 1999. The following is a summary of
trading in the common shares of the Company on The Canadian Dealing Network
Inc.(stated in U.S. dollars):

<TABLE>
<CAPTION>

                              High                Low
                             -----               ----
<S>                          <C>                 <C>

Fiscal 1999

Third Quarter (1)            $1.80               $0.90
Fourth Quarter(2)            $0.95               $0.35

</TABLE>

<PAGE>   23

                                      -23-

<TABLE>
<CAPTION>

<S>                          <C>                 <C>

Fiscal 2000

First Quarter(3)             $0.75               $0.20
Second Quarter(4)            $0.60               $0.22

</TABLE>

     1.   For quarter ending May 31, 1999, from commencement of trading on April
          26,1999.

     2.   For quarter ending August 31, 1999, for trades up to and including
          August 31,1999.

     3.   For quarter ending November 30, 1999, for trades up to and including
          November 30,1999.

     4.   For quarter ending February 29, 2000, for trades up to and including
          February 28, 2000.

The closing sales price of the shares as quoted on The Canadian Dealing Network
Inc. on February 28, 2000 was $0.58 per share.

Although the Company intends to apply to have its common shares quoted on the
NASD (National Association of Securities Dealers) Bulletin Board, there is no
trading market at present in the United States for the common shares of the
Company (see "Item 1, Business of the Company - Risk Factors Affecting the
Company - Lack of Market for Company's Shares").

At February 28, 2000 the Company had 2,950 shareholders of record. At February
28, 2000, there were 2,144 United States shareholders of record, holding
2,700,536 shares, which represented approximately 15.2% of the outstanding
shares.


ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

     a)   There are no laws or governmental decrees or regulations in Canada
          that restrict the export or import of capital, or affect the
          remittance of dividends, interest or other payments to holders of the
          Company's securities who are not residents of Canada, other than
          withholding tax requirements. Reference is made to "Item 7. Taxation".

     b)   There are no limitations imposed by the laws of Canada, the laws of
          Ontario or by the charter or other governing documents of the Company
          on the right of a non-resident to hold or vote common shares of the
          Company, other than as provided in the Investment Canada Act (the
          "Investment Act"). The following summarizes the principal features of
          the Investment Act for a non-resident who proposes to acquire common
          shares. The summary is of a general nature only and is not intended to
          be nor is it, a substitute of independent advice from an investor's
          own advisor. The summary does not anticipate statutory or regulatory
          amendments:

The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture that is not a "Canadian" as defined in the Investment Act (a
"non-Canadian"), unless after review, the minister responsible for the
Investment Act (the "Minister") is satisfied that the investment is likely to be
of a net benefit to Canada. Under the Investment Act, a United States citizen
qualifies as a "World Trade Organization Investor." Subject to the restrictions


<PAGE>   24

                                      -24-

noted below, an investment in a Canadian business by a World Trade Organization
Investor would be reviewable under the Investment Act only if it is an
investment to acquire control of such Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is not less
than a specified amount, which for 1999 is $184 million. An investment in the
shares of a Canadian business by a non-Canadian other than a "World Trade
Organization Investor" when the Company is not controlled by a World Trade
Organization Investor, would be reviewable under the Investment Act if it is an
investment to acquire control of the Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is CDN$5
million or more, or if an order for review is made by the federal cabinet on the
grounds that the investment relates to Canada's cultural heritage or national
identity.

The acquisition by a World Trade Organization Investor of control of a Canadian
business in any of the following sectors is also subject to review if the value
of the assets of the Canadian business exceeds CDN$5 million (as shown on its
financial statements): uranium, financial services (except insurance),
transportation services and cultural businesses, which include broadcast media
(publication, distribution or sale of books, magazines, periodicals, newspapers,
music, film and video products and the exhibition of film and video products),
television and radio services. As the Company's business falls under the
aforementioned broadcast media sub-category, the acquisition of control of the
Company, in excess of the CDN$5 million threshold, by a World Trade Organization
Investor would be subject to such review.

A non-Canadian would acquire control of the Company for purposes of the
Investment Act if the non- Canadian acquired a majority of the common shares.
The acquisition of less than a majority but one-third or more of the common
shares would be presumed to be an acquisition of control of the Company unless
it could be established that, on acquisition, the Company was not controlled in
fact by the acquirer through the ownership of common shares. Notwithstanding the
review provisions, any transaction involving the acquisition of control of a
Canadian business or the establishment of a new business in Canada by a
non-Canadian is a notifiable transaction and must be reported to Industry Canada
by the non-Canadian making the investment either before or within thirty (30)
days after the investment.

Certain transactions relating to common shares are exempt from the Investment
Act, including:


     a)   an acquisition of common shares by a person in the ordinary course of
          that person's business as a trader or dealer in securities;

     b)   an acquisition of control of the Company in connection with the
          realization of security granted for a loan or other financial
          assistance and not for a purpose related to the provisions of the
          Investment Act; and

     c)   an acquisition of control of the Company by reason of an amalgamation,
          merger, consolidation or corporate reorganization, following which the
          ultimate direct or indirect control in fact of the Company, through
          the ownership of common shares, remained unchanged.

     COMPETITION ACT REVIEW

Investments giving rise to the acquisition or establishment, directly or
indirectly, by one or more persons of control over, or a significant interest in
the whole or part of a business of a competitor, supplier, customer or other
person are subject to substantive review by Canada's Competition Law Authority,


<PAGE>   25
                                      -25-

the Director of Investigation and Research (the "Director"). If or when the
Director concludes that a merger, whether by purchase or lease of shares or
assets, by amalgamation or by combination, or otherwise, prevents or lessens, or
is likely to prevent or lessen competition substantially, he may apply as may be
necessary to eliminate the substantial lessening or prevention of competition.
Such substantive merger review power applies to all mergers, whether or not they
meet limits for pre- notification under the Competition Act.

In addition to substantive merger review, the Competition Act provides for a
pre-notification regime respecting mergers of certain size. The regime applies
in respect of share acquisitions, asset acquisitions, amalgamations and
combinations, for ease of reference. This filing refers specifically to share
acquisition, although the pre-notification regime applies, with the appropriate
modification, to other types of acquisition of control as well.

In order for a share acquisition transaction to be pre-notifiable, the parties
to the transaction (being the person or persons who proposed to acquire shares,
and the Corporation the shares of which are to be acquired), together with their
affiliates (being all firms with a 50% or more voting shares linkage up and down
the chain) must have:

     (i)  aggregate gross assets in Canada that exceed $400,000,000 in value,
          as shown on their audited financial statements for the most recently
          completed fiscal year (which must be within the last fifteen
          (15) months); or

     (ii) aggregate gross revenue from sales in, from or into Canada that exceed
          $400,000,000 for the most recently completed fiscal year shown on the
          said financial statements; and

     (iii)the party being acquired or corporations controlled by that party
          must have gross assets in Canada, or gross revenues from sales in or
          from Canada, exceeding $35,000,000 as shown on the said financial
          statements. Acquisition of shares carrying up to 20% of the votes of a
          publicly traded corporation, or 35% of the votes in a private
          corporation will not be subject to pre-notification, regardless of the
          above thresholds. However, exceeding the 20% or the 35% threshold, and
          again exceeding the 50% threshold, gives rise to an obligation of
          notification if the size threshold is met.

If a transaction is pre-notifiable, a filing must be made with the Director
containing the prescribed information with respect to the parties, and a waiting
period, (either seven or twenty-one days, depending on whether a long or short
form filing is chosen) must expire prior to closing.

As an alternative to pre-notification, the Director may grant an Advance Ruling
Certificate which exempts the transaction from pre-notification. Advance Ruling
Certificates are granted where the Director concludes, based on the information
provided to him, that he would not have sufficient grounds on which to apply to
the Competition Tribunal to challenge the Merger.

ITEM 7.  TAXATION

The following summary describes the principal Canadian federal income tax
considerations generally applicable to a holder of the Company's shares who, for
purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and the Canada-


<PAGE>   26
                                      -26-

United States Income Tax Convention, 1980 (the "Convention") and at all relevant
times is resident in the United States and not resident in Canada, deals at
arm's length with the Company, holds the Company's shares as capital property,
and does not use or hold and is not deemed to use or hold the Company's shares
in or in the course of carrying on business in Canada (a "United States
Holder").

This following summary is based upon the current provisions of the Canadian Tax
Act, the regulations there under, all specific proposals to amend the Canadian
Tax Act and the regulations announced by the Minister of Finance (Canada) prior
to the date hereof and the Company's understanding of the published
administrative practices of Revenue Canada, Customs, Excise and Taxation. This
summary does not take into account or anticipate any other changes in the
governing law, whether by judicial, governmental or legislative decision or
action, nor does it take into account the tax legislation or considerations of
any province, territory or non-Canadian (including U.S.) jurisdiction, which
legislation or considerations may differ significantly from those described
herein.

This summary is of a general nature only and is not intended to be, and should
not be interpreted as, legal or tax advice to any prospective purchaser or
holder of the Company's shares and no representation with respect to the
Canadian federal income tax consequences to any such prospective purchaser is
made. Accordingly, prospective purchasers of the Company's shares should consult
with their own tax advisors with respect to their individual circumstances.

DIVIDENDS ON THE COMPANY'S SHARES

Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, pursuant to the Convention, the withholding tax rate on the gross
amount of dividends paid to residents of the United States is reduced to 15% or,
in the case of a U.S. corporation which owns at least 10% of the voting stock of
the Canadian corporation paying the dividends, to 5% of the gross amount of such
dividends.

Pursuant to the Convention, certain tax-exempt entities resident in the United
States may be exempt from Canadian withholding taxes, including any withholding
taxes levied in respect of dividends received on the Company's shares.

DISPOSITION OF THE COMPANY'S SHARES

In general, a United States shareholder will not be subject to Canadian income
tax on capital gains arising on the disposition of the Company's shares, unless
such shares are "taxable Canadian property" within the meaning of the Canadian
Tax Act and no relief is afforded under any applicable tax treaty. The shares of
the Company would be taxable Canadian property of a non-resident if at any time
during the five year period immediately preceding a disposition by the
non-resident of such shares, not less than 25% of the issued shares of any class
or series of all classes of shares of the Company belonged to the non-resident,
to persons with whom the non-resident did not deal at arm's length, or to the
non-resident and persons with whom the non-resident did not deal at arm's length
for purposes of the Canadian Tax Act. For this purpose, issued shares includes
options to acquire such shares (including conversion rights) held by such
persons. Under the Convention, a capital gain realized by a resident of the
United States will not be subject to Canadian tax unless the value of the shares
of the Company is derived principally from real estate (as defined in the
Convention) situated in Canada.


<PAGE>   27

                                      -27-


ITEM 8.  SELECTED FINANCIAL DATA

The following selected financial data has been extracted from the financial
statements dated June 15, 1999 for the years ended August 31, 1998, 1997 and
1996 and for the periods ended May 31, 1999 and 1998. This financial data
reflects the carved-out operations of the business of Videoflicks Canada Limited
on a continuity of interest basis. The selected financial data is presented for
the life of the Videoflicks.com Internet business which began operations on
September 1, 1995 as a division of Videoflicks Canada Limited.



                              VIDEOFLICKS.COM INC.
                             SELECTED FINANCIAL DATA
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>

                                       AUGUST 31             AUGUST 31           AUGUST 31            AUGUST 31
                                          1999                  1998                1997                1996
                                       12 MONTHS             12 MONTHS           12 MONTHS           12 MONTHS
                                 ----------------------- ------------------- ------------------- -------------------
<S>                              <C>                     <C>                 <C>                 <C>

Net Operating Revenues                  $1,782,000             $820,000           $431,000             $71,000

Operating Loss                          $1,032,000             $113,000           $ 69,000             $45,000

Loss Per Share                          $     0.06             $   0.01           $   0.01             $  0.01

Total Assets                            $1,250,000             $ 12,000           $ 18,000             $27,000

Long Term Obligations                   $        0             $      0           $      0             $     0

Redeemable Preferred
Stock                                   $        0             $      0           $      0             $     0

Cash Dividends Declared
Per Common Share
                                        $        0             $      0           $      0             $     0
                                 ----------------------- ------------------- ------------------- -------------------

EXCHANGE RATES
(CDN$ TO US$)

Period End                                  0.6698               0.6396             0.7203              0.7314

Average                                     0.6637               0.6949             0.7310              0.7335

Low                                         0.6375               0.6311             0.7130              0.7212

High                                        0.6917               0.7307             0.7540              0.7535

EXCHANGE RATE @
JANUARY 27, 2000 - .6952

</TABLE>




<PAGE>   28

                                      -28-

The above selected financial data has been prepared in accordance with generally
accepted accounting principles in Canada which conform in all material respects
with accounting principles generally accepted in the United States. In the
preparation of the above selected financial data there were no material issues
requiring reconciliation of Canadian with United States generally accepted
accounting principles.

ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included herein (see "Item 17. Financial
Statements"). The financial statements have been prepared in accordance with
generally accepted accounting principles in Canada which conform in all material
respects with accounting principles generally accepted in the United States. In
addition to historical information, the following discussion and analysis
includes forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those expressed in the
forward-looking statements as a result of certain factors, including those
described in "Risk Factors" and elsewhere herein.

OVERVIEW

The Company sells movies on VHS videotape and DVD formats through its Internet
web site at www.videoflicks.com. The Company is in its early stages as a public
company, having been formed as a public company under Ontario securities
legislation by amalgamation in March, 1999. The Company is not public in the
United States. Prior thereto the business of the Company was, since 1995,
operated as a division of Videoflicks Canada Limited, a private company which,
as its principal business, owned , operated and franchised video retail outlets.
Management of Videoflicks Canada Limited, recognizing the potential of the
Internet as a retail medium, determined that it was essential to the success of
its Internet business that it have access to the public financial markets to
raise the necessary funds for advertising and web site development. Effective
November 30, 1998 Videoflicks Canada Limited completed a 'spin-out' of its
Internet business, transferring it to its wholly-owned subsidiary,
Videoflicks.com Limited which, in March, 1999 amalgamated with two other
companies to form the Company. As a consequence of the amalgamation in March
1999, the Company obtained $1,200,000 which had been raised by 1318780 Ontario
Limited, one of the amalgamating companies, in contemplation of the
amalgamation.

The historical financial statements presented herein in respect of the fiscal
years ended August 31, 1998 and 1997 reflect the carved-out operations of the
Internet business of Videoflicks Canada Limited on a continuity of interest
basis. During part of these fiscal periods acquisitions by the Company's
business were financed as a division of Videoflicks Canada Limited. The
financial results of the individual companies which amalgamated to form the
Company are not presented or commented on as they do not reflect the business
activity the Company is currently involved.

Sales are recognized when products are shipped to customers and are net of any
allowances for returns. Sales figures include sale of products and shipping
revenue. For the periods 1995 through 1999 the average selling price of the
products has remained consistent. The Company includes in cost of sales all
products purchased and shipped to customers, discounts from credit card
purchases and costs of shipping. The Company incurred no significant advertising
expenses for the periods covered by the financial statements herein. Site
operating


<PAGE>   29
                                      -29-

expenses include all costs associated with maintaining the Internet web server.
These costs include rental of the T1 transmission line (40 megabyte per second
data connection line), hardware maintenance and software upgrade costs. Capital
expenditures are recorded at book value.

RESULTS OF OPERATIONS

Fiscal 1999 Compared to Fiscal 1998

For the year ended August 31, 1999 sales increased to $1,782,000 compared to
$820,000 for the same period ended August 31, 1998, an increase of 117%. This
sales growth was a result of increased sales orders. The selling price of the
product and product mix has remained constant year over year. The company
believes that competitive product pricing, high customer service and prompt
delivery meeting customers' needs is the reason for the increase in sales
orders. Also, in 1999 a decision was made to reduce the shipping charges to
customers to a level that competitive companies were charging. Repeat customers
represented 20% to 25% of orders. Cost of sales for the year ending August 31,
1999 was $1,204,000.


Wages and benefits have increased significantly in 1999 over 1998 due primarily
to the increase in sales volumes. Additional staff was hired to fulfill orders
and ship product in a timely manner. Since this time, Company management has
invested in streamlining the order processing system by increasing efficiencies
in data management and systems management. As a result, management believes that
future increases in sales will not lead to corresponding increases in personnel
to process orders and that the average shipping costs per order will decrease.
The increase in wages also reflects the hiring of additional programmers for the
year ended August 31, 1999 to enhance the web site and program better tracking
of customers purchases from ordering product through to the shipping stages.

Increased administration costs, which include all office wages and general
expenses needed to run the Company, also reflect the increased business
activity; however these are not expected to significantly increase in the near
future.

The investor relations expenses, incurred shortly after the Company's shares
became publicly traded, relate to advertising the Company to the investment
community to increase the awareness of the stock. Management believes these
costs should be expensed when they are incurred instead of amortizing them over
a period of time, as the residual factor of the value after the advertising
cannot be determined.

Depreciation of capital assets has increased for the year ended August 31, 1999
over 1998 from $4,000 to $25,000 due to the increase in asset purchases.

The gross profit rate for the year ended August 31, 1999 moved insignificantly
from 33% in 1998 to 32% in 1999. This slight decrease was due to management's
decision to reduce shipping charges to match competitor's rate, and due to the
implementation of partial shipments, which increased the shipping costs with no
increase in revenues. These changes have reduced the margin on the gross profit
figures in 1999 slightly.

The net loss for the year ended August 31, 1999 of $1,032,000 was comprised
mostly of a $554,000 charge for investor relations and $274,000 for advertising
expenses. The balance of $204,000 loss is made up of increased costs of order
processing, systems upgrades and preparing for expansion in the near future.


<PAGE>   30

                                      -30-


The prepaid expenses account includes retainers paid to on-line service
providers. They are deposits made to the suppliers for services that are to be
provided at a later date. As such they are recorded as prepaid items.

The Company made significant investments in assets of computer hardware and
software in the year ended August 31,1999 to upgrade the web site and increase
capacity for the future. The Company believes that the continued development of
its software and systems to allow the consumer to purchase product more easily,
to increase their selection of product and to make the shopping experience more
personalized and enjoyable will increase its sales and customer base over the
coming periods.

Inventory of product for sale increased as the Company purchased hard to find
and specialized products for inventory for the year ended August 31,1999. Prior
to this period the company operated as a division of Videoflicks Canada Limited,
which held the inventory. The Company has entered into an agreement with
Videoflicks Canada Limited to purchase product for sale at prices that are the
same as those purchased from a third party vendor. This agreement allows the
Company to purchase product from a secure source without having to set up terms
with suppliers or maintain a sizeable inventory. The advances from Videoflicks
Canada Limited reflect the accounts payable owed to it for these purchases.

The increase in net cash of $1,020,000 for the year ended August 31, 1999 was
primarily due to the $1,200,000 cash acquired on amalgamation plus the $786,000
proceeds from the exercise of the Series A Warrants less the issue costs.


Fiscal 1998 Compared to Fiscal 1997

Net sales increased to $820,000 for the fiscal year ended August 31,1998
compared to $431,000 for the year ended August 31,1997. Sales have increased
dramatically year over year. This increase in sales dollars is due to an
increase in volume of product sold and not to an increase in prices. Prices have
been steady for the past year.

Advertising expenses include all marketing and advertising expenses. The figures
shown in 1998 reflect an initial on-line media buy and print purchase to see if
advertising has an effect on the number of visitors to the site and an increase
in sales. The results indicated there is an increase that has led management to
commit $600,000 of the funds raised in March of 1999 for an initial advertising
campaign to begin in August of 1999. However management of the Company
subsequently determined that the initial advertising campaign would not be a
sufficiently cost effective means of generating new customers and therefore
decided not to proceed with the proposed campaign.

Cost of sales for the year ended August 31,1998 were $553,000 compared to
$290,000 for the year ended August 31,1997. This amount as a percentage of sales
has remained constant from the previous year at 67%.

Wages increased significantly as compared to 1997 as a result of increased
business activity. More staff was hired to fulfil orders due to the increased
volume of sales. The increase in Information Technology wages is due to more
programmers being hired to upgrade the web site and develop better software
systems.

Capital expenditures are recorded at book value and have been minimal during
this period.


<PAGE>   31

                                      -31-


Gross profit remained constant for the years ending August 31,1998 and August
31,1997 at 33%. This is due to management's decision to concentrate on selling
video product that has a higher mark-up, and sourcing various suppliers to
attain the least cost on purchases of video product for sale.


Fiscal 1997 Compared to Fiscal 1996

Net sales increased to $431,000 for the year ended August 31,1997 compared to
$71,000 for the year ended August 31,1996. This increase in sales is largely due
to an increase in volume by users surfing the Internet, finding the site and
making a purchase. A small portion of the increase in sales is due to management
raising the price of products for sale. Cost of sales for the year ended August
31,1997 were $290,000 compared to $54,000 for the year ended August 31,1996.
Gross profit for the year ending August 31,1997 increased to 33% from 24% in the
year ended August 31,1996.

The lower margin in 1996 reflects the beginning of the business and management
determining the margins which they want to achieve in the operation. Prices were
increased to achieve higher margins through the year 1997 compared to 1996 on
product for sale as management recognized the expenses of purchasing and
shipping various video products. In 1997 management also began sourcing product
from other suppliers which had the same good for lower cost. This also
contributed to the high margins.

Capital expenditures are recorded at book value and have been minimal this
period.

Wages increased significantly as compared to 1996 as a result of increased
business activity. The largest increase is in Information Technology wages as a
full time programmer was hired to further develop the site. Wages and benefits
increased in 1997 as a result of the increased volume of sales compared to 1996.

LIQUIDITY AND CAPITAL RESOURCES

Supplementary to the $1,200,000 obtained by the Company in connection with the
amalgamation, an aggregate of 610,900 Series A Warrants of the Company were
exercised up to May 31, 1999 from which the Company realized aggregate gross
proceeds of $458,175 and subsequent to May 31, 1999 an additional 436,770 Series
A Warrants of the Company were exercised from which the Company realized
aggregate gross proceeds of $327,577.50; in total 1,047,670 Series A Warrants
were exercised up to July 23, 1999, the date of expiry of the Series A Warrants,
yielding aggregate gross proceeds of $785,752.50. Upon the exercise of the
aforementioned Series A Warrants an aggregate of 1,047,670 Series B Warrants
were issued. Each Series B Warrant was exercisable to purchase one common share
of the Company at the price of $1.15 per share on or before November 23, 1999.
As of the close of business on November 23, 1999, the date of expiry of the
Series "B" Warrants, 112 Series "B" Warrants had been exercised, yielding
aggregate gross proceeds of $128.80 to the Company, and the remaining 1,047,648
Series "B" Warrants expired, unexercised. The Company also has outstanding and
contingent stock options exercisable to purchase up to 3,523,333 Company common
shares at $0.50 per share and 750,000 Company common shares at $0.48 per share.

The Company has no short term or long term debt. Management believes cash on
hand of approximately $600,000 together with cash flow from operations will be
sufficient to fund operations and planned capital expenditures for the short


<PAGE>   32
                                      -32-

term, covering the next six months. In the longer term the Company will need to
raise additional equity or debt financing to fund operations after this period
to cover working capital, operating losses and capital expenditures. There can
be no assurance that additional funding will be available or, if available, that
it will be available on favorable terms. The inability of the Company to obtain
additional funding could have an adverse impact on the business, financial
condition and future prospects of the Company.


ITEM 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company has not invested in any market risk sensitive items for trading
purposes or other than trading purposes.

The Company is exposed to market risk through foreign currency exchange rate
risk. The functional currency of sales is the same as the reporting currency,
$US, whereas the functional currency of cost of sales and expenses other than
investor relations is $Canadian. A decrease in the exchange rate differential
between $Canadian and $US would increase the cost of expenses relative to the
sales revenue and would decrease the operating income.

During the period from the beginning of Internet operations in September 1995 to
May 31, 1999, the exchange rates ($CDN to $US) have varied from a low of 0.6311
to a high of 0.7540 with a weighted average of 0.7059 as disclosed in Item 8, of
this Form 20-F.

Applying these exchange rates to the operations for the nine months ended August
31, 1999 would result in the following variations:

<TABLE>
<CAPTION>

                                                PER                                              WEIGHTED
                                           FINANCIAL             LOW             HIGH             AVERAGE
                                           STATEMENTS          (0.6311)         (0.7540)         (0.7059)
                                         -------------      ------------     -----------       -----------
<S>                                       <C>               <C>              <C>               <C>


Sales                                     $ 1,782,000       $ 1,782,000      $ 1,782,000       $ 1,782,000
Cost of sales                               1,204,000         1,144,000        1,367,000         1,280,000
                                          -----------       ---------------- -----------       -----------

Gross profit                                  578,000           377,000          415,000           502,000

Investor
relations                                     554,000           554,000          554,000           554,000

Other expenses                              1,056,000         1,015,000        1,199,000         1,123,000
                                          -----------        ----------      -----------       -----------

Operating loss                            $ 1,032,000        $  931,000      $ 1,338,000       $ 1,175,000
                                          ===========        ==========      ===========       ===========

Loss per share                                  (0.06)            (0.05)           (0.08)            (0.07)
                                          ===========        ==========      ===========       ===========


</TABLE>


<PAGE>   33

                                      -33-


ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT

The following table outlines the names and municipalities of residence of each
of the directors and officers of the Company and their principal occupations.
All persons have served in these capacities since March 23,1999. Each director
is expected to hold these positions until the next Annual General Meeting of
shareholders.

<TABLE>
<CAPTION>

     Name and Municipality
         of Residence                              Office
     ---------------------          ------------------------------------
     <S>                            <C>

     Michael P. Kavanagh            Director, President and
     Toronto, Ontario               Chief Executive Officer

     John Waddell                   Director, Vice-President
     Toronto, Ontario               Information Technology
     Robert Bray*                   Director, Secretary-Treasurer,
     Toronto, Ontario               Chief Financial Officer

     Allen Karp*                    Director
     Toronto, Ontario

</TABLE>

Notes:

     1.   Denotes a member of the Audit Committee of the Board of Directors.

     2.   The Company does not have an executive committee of the Board of
          Directors.


DIRECTORS AND OFFICERS

Michael P. Kavanagh is the President and a director of Videoflicks Canada
Limited which he founded in 1981. Videoflicks Canada Limited presently has 35
video rental/sales stores of which 31 are franchised. Mr. Kavanagh is also Chief
Executive Officer of MSO Construction Co., a private company with 300 employees
and CDN$25 million in annual sales, and T.J. Pounder (Ontario) Ltd., a private
family manufacturing company. Mr. Kavanagh devotes 75% of his time to the
company.

John Waddell has been chief programmer in charge of information technology for
Videoflicks Canada Limited since 1983. Mr. Waddell has developed many
proprietary systems for tracking and processing sales and managing inventory and
is responsible for developing and maintaining the computerized data base and
hardware requirements for systems management. He functions as the chief
programmer for the Videoflicks.com web site. Mr. Waddell received his Masters of
Science degree from the University of Guelph, Ontario in 1973. Mr. Waddell
devotes 100% of his time to the Company.

Robert Bray is the chief financial officer of Videoflicks Canada Limited since
1989, during the course of which he has designed and implemented accounting
systems and related corporate structures. Mr. Bray holds an MBA degree from the
University of Toronto, an Honours BA in Economics from York University, and is a
Certified General Accountant. Mr. Bray devotes 70% of his time to the company.


<PAGE>   34

                                      -34-


Allen Karp, Q.C. is Chairman and Chief Executive Officer of Cineplex Odeon
Corporation, the Canadian subsidiary of Loews Cineplex Entertainment Corporation
and a Director of Loews Cineplex Entertainment Corporation. For the past eight
years, Mr. Karp has served as President and Chief Executive Officer of Cineplex
Odeon. Mr. Karp practised corporate law, ultimately as a senior partner with the
law firm of Goodman and Carr, Toronto, from 1966 until 1986, the year in which
he also received his appointment as Queen's Counsel. During his career as a
business lawyer, he became a Director and senior legal advisor to many Canadian
and U.S. corporations, both private and public. Mr. Karp is also the author of a
variety of legal articles and papers and lectured extensively in the fields of
taxation, corporate and commercial law and, his primary specialty, the field of
franchising and licensing. In addition to the Board of Cineplex Odeon
Corporation, Mr. Karp sits on the Boards of Loews Cineplex Entertainment
Corporation, Speedy Muffler King Inc., Alliance/Atlantis Communications Inc.,
Teknion Corporation. He is also involved in various community activities
including the Boards of Canadian Film Centre, for which he is Chair of the "Fast
Forward" Capital Campaign, the Toronto International Film Festival/Cinematheque
Ontario, for which he is Chairman, the Motion Picture Pioneers and the Council
for Canadian Unity. As well, Mr. Karp is a member of the Canadian Civil
Liberties Association. Mr. Karp is available for discussion of significant
events within the company and regularly attends board meetings.


ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS

EMPLOYMENT CONTRACTS

The Company is party to Employment Agreements with each of Michael Kavanagh,
Chief Executive Officer, President and a director, John Waddell, Vice-President,
Information Technology and a director, and Robert Bray, Secretary-Treasurer,
Chief Financial Officer and director, pursuant to which, respectively:

     (a)  Michael Kavanagh is entitled to an annual salary of $1.00 and an
          annual bonus equal to 2% of annual revenues up to $10 million and 1%
          of annual revenues in excess of $10 million. In the event of a change
          of control of the Company he will receive a lump sum payment equal to
          three (3) times the amount of the last annual bonus paid, or will have
          his employment extended for a further three (3) year period on the
          same terms and conditions. If his employment is terminated without
          cause, at any time he will receive a lump sum payment equal to two (2)
          times the most recent annual bonus paid to him.

     (b)  John Waddell is entitled to an annual salary CDN$125,000 per annum and
          in the event that his employment is terminated without cause prior to
          the end of its one year term, or any renewal thereof, a lump sum
          payment equal to two (2) years' annual salary.

     (c)  Robert Bray is entitled to an annual salary of CDN$75,000 per annum
          and in he event that his employment is terminated without cause prior
          to the end of its one year term, or any renewal thereof, a lump sum
          payment equal to two (2) years' annual salary.

COMPENSATION OF DIRECTORS

The company has no pension, retirement or similar benefits for directors or
officers of the company. Total compensation paid to all board members and
officers for the fiscal year ended August 31,1999 was CDN$112,572. Pursuant to
their employment agreements John Waddell was paid CDN$59,460, Robert Bray was


<PAGE>   35
                                      -35-

paid CDN$31,250, Michael Kavanagh received CDN$21,862. Allen Karp received no
compensation as a director for the fiscal year ended August 31,1999.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

WARRANTS

Pursuant to the amalgamation forming the Company on March 23, 1999, the Company
issued an aggregate of 4,180,200 Series A Warrants. Each Series A Warrant was
exercisable on or before July 23, 1999 at the exercise price of $0.75 to acquire
one (1) common share and one (1) Series B Warrant of the Company. An aggregate
of 1,047,670 Series A Warrants were exercised up to July 23, 1999, the date of
expiry of the Series A Warrants, yielding aggregate gross proceeds of
$785,752.50. The remaining 1,932,530 Series A Warrants expired, unexercised at
the close of business on July 23, 1999. Pursuant to the exercise of the
aforementioned 1,047,670 Series A Warrants an aggregate of 1,047,670 Series B
Warrants were issued. As of the close of business on November 23, 1999, the date
of expiry of the Series "B" Warrants, 112 Series "B" Warrants had been
exercised, yielding aggregate gross proceeds of $128.80 to the Company, and the
remaining 1,047,648 Series "B" Warrants expired, unexercised.

STOCK OPTION PLAN

The Company maintains a stock option plan pursuant to which the Board of
Directors of the Company may grant options exercisable to purchase up to a
maximum of 4,000,000 common shares of the Company to executive officers,
directors, employees and consultants of the Company in such numbers, for such
periods of time and at the exercise prices as the Board may approve and
according to the rules and regulations of any stock exchange or over-the-counter
market on which the common shares may be listed or quoted for trading from time
to time.

The following table sets out information relating to options to purchase common
shares granted by the Company under its stock option plan that are outstanding
as at the date hereof with the number of persons in each category shown in
parentheses:

<TABLE>
<CAPTION>

                                        Number of
                                         Common                      Exercise
                                         Shares                       Price                       Expiry
                                        Optioned                    Per Share                      Date
                                  -------------------               ---------               -------------------
<S>                            <C>                                  <C>                      <C>

Directors & Officers

M.  Kavanagh                             800,000                      $0.50                  March 23, 2004
                                         266,667                      $0.50                  December 21, 2004

J.  Waddell                              400,000(1)                   $0.50                  March 23, 2004
                                         133,333                      $0.50                  December 21, 2004

R.  Bray                                 400,000(1)                   $0.50                  March 23, 2004
                                         133,333                      $0.50                  December 21, 2004

A.  Karp                                 300,000(1)                   $0.50                  April 22, 2004
                                       ---------
                                       2,433,333

All Other Option Holders                 140,000                      $0.50                  April 22, 2004
                                       ---------


</TABLE>
<PAGE>   36



                                      -36-
<TABLE>
<S>                            <C>

Total                                  2,573,333(2)
                                       ---------

</TABLE>

1. These Options vest as to one third thereof on each of the first, second and
third anniversaries of their date of grant.

2. Options to acquire an additional 200,000 common shares at $0.50 per share on
or before April 22, 2004 have been granted subject to compliance of such grant
with applicable securities legislation.


OPTIONS OUTSIDE STOCK OPTION PLAN

Pursuant to an agreement entered into with Thomson Newspapers Inc. ("Thomson")
on October 26, 1999, the Company granted an option to Thomson to acquire, at any
time and from time to time, on or after August 10, 2000 up to 750,000 common
shares of the Company at the price of $0.48 per share. This option has no expiry
date.

Pursuant to an agreement dated as of February 23, 2000 the Company granted an
option to James H. Simpson to acquire up to 750,000 common shares of the Company
at the price of $0.50 per share until February 23, 2005.


ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     a)   Upon amalgamation, the Company succeeded to the following agreements:

          1)   A Supply Agreement which was made between Videoflicks Canada
               Limited, a Company of which Michael Kavanagh and his spouse
               together beneficially own 100% of equity shares, and its
               wholly-owned subsidiary, Videoflicks.com Limited, under which
               Videoflicks Canada Limited agreed to sell videos to
               Videoflicks.com Limited at the wholesale catalogue price charged
               by arm's length wholesalers of videos, plus shipping and
               applicable taxes. The value of purchases from Videoflicks Canada
               Limited for the nine months ended May 31, 1999 was $893,000 of
               video product;

          2)   A Sub-Lease Agreement made between Videoflicks Canada Limited and
               Videoflicks.com Limited pursuant to which the Company sub-leases
               15% of the space leased by Videoflicks Canada Limited at 1654
               Avenue Road, Toronto, Ontario. The amount of rent paid to
               Videoflicks Canada Limited for the nine months ended May 31, 1999
               was $15,000; and

          3)   Employment Agreements made between Videoflicks.com Limited and
               each of Michael Kavanagh, John Waddell and Robert Bray as
               described in more detail under "Employment Contracts" under Item
               11 hereof.

Subsequent to the amalgamation the Company entered into stock option agreements
with its directors and officers pursuant to which the Company granted options to
purchase up to 1,900,000 common shares of the Company at $0.50 per share, as
described under "Stock Option Plan" above.

     b)   None of the officers or directors of the Company or any of their
          associates are currently indebted to the Company or has been so
          indebted at any time in the last three years.


<PAGE>   37


                                      -37-

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED

Not applicable.

ITEM 17. FINANCIAL STATEMENTS

Audited balance sheet as at August 31, 1999 and August 31, 1998 and the audited
statements of operations, deficit and cash flow for the years ended August 31,
1999, August 31, 1998 and August 31, 1997, which are reported on by BDO Dunwoody
LLP. The historical financial statements in respect of the years ended August
31, 1998 and 1997 reflect the carved-out operations of the Internet business of
Videoflicks Canada Limited on a continuity of interest basis. The financial
statements have been prepared by management of the Company in accordance with
generally accepted accounting principles in Canada which are not materially
different from generally accepted accounting principles in the United States. In
the preparation of the financial statements there were no material issues
requiring reconciliation of Canadian with United States generally accepted
accounting principles.

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

(1)  Financial Statements

Audited balance sheet as at August 31, 1999 and August 31, 1998 and the audited
statements of operations, deficit and cash flow for the years ended August
31,1999, August 31, 1998 and August 31, 1997, which are reported on by BDO
Dunwoody LLP. The historical financial statements in respect of the years ended
August 31, 1998 and 1997 reflect the carved-out operations of the Internet
business of Videoflicks Canada Limited on a continuity of interest basis. The
financial statements have been prepared by management of the Company in
accordance with generally accepted accounting principles in Canada which are not
materially different from generally accepted accounting principles in the United
States. In the preparation of the financial statements there were no material
issues requiring reconciliation of Canadian with United States generally
accepted accounting principles.

(2)  Exhibits

All of the following exhibits were previously filed with the Securities and
Exchange Commission:


          1.   Articles of Amalgamation and By-laws

          2.   Material Agreements

               2.1  Employment Agreement with Michael Kavanagh
               2.2  Employment Agreement with Robert Bray
               2.3  Employment Agreement with John Waddell
               2.4  Supply Agreement with Videoflicks Canada Limited


<PAGE>   38
                                      -38-


               2.5 Sub-lease Agreement with Videoflicks Canada Limited
               2.6 Stock Option Agreement with Michael Kavanagh
               2.7 Stock Option Agreement with Robert Bray
               2.8 Stock Option Agreement with John Waddell
               2.9 Stock Option Agreement with Alan Karp
               2.10 Coverstory Agreement with Thomson Target Media
               2.11 Stock Option Agreement with Thomson Newspapers Inc.




<PAGE>   39
                                      -39-




                                   SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                              VIDEOFLICKS.COM INC.



                                              By: /s/ MICHAEL KAVANAGH
                                                  ------------------------------
                                              Michael P. Kavanagh
                                              President and Chief
                                              Executive Officer

                                              February 29, 2000












<PAGE>   40
                                                            VIDEOFLICKS.COM INC.
                                                            FINANCIAL STATEMENTS
                              FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997



<PAGE>   41


VIDEOFLICKS.COM INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1999


<TABLE>
<CAPTION>

                                                                        CONTENTS
================================================================================
<S>                                                                     <C>

AUDITOR'S REPORTS                                                              2

FINANCIAL STATEMENTS

  Balance Sheet                                                                3

  Statement of Deficit                                                         4

  Statement of Operations                                                      5

  Statement of Cash Flows                                                      6

  Summary of Significant Accounting Policies                             7 and 8

  Notes to Financial Statements                                          9 to 14

</TABLE>




<PAGE>   42

================================================================================
                                                                AUDITOR'S REPORT
--------------------------------------------------------------------------------



TO THE SHAREHOLDERS OF
VIDEOFLICKS.COM INC.



We have audited the balance sheet of Videoflicks.com Inc. as at August 31, 1999
and 1998 and the statements of operations, deficit and cash flows for the years
in the three year period ended August 31, 1999. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at August 31, 1999 and 1998
and the results of its operations and cash flows for the years in the three year
period ended August 31, 1999 in accordance with Canadian generally accepted
accounting principles.



BDO Dunwoody LLP
Chartered Accountants


Owen Sound, Ontario
October 13, 1999

                                       2
<PAGE>   43


================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                                   BALANCE SHEET
                                            (EXPRESSED IN UNITED STATES DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


AUGUST 31                                                                           1999            1998
--------------------------------------------------------------------------------------------------------
<S>                                                                           <C>            <C>

ASSETS

CURRENT
  Cash                                                                        $  1,020,000    $       --
  Accounts receivable                                                               58,000            --
  Inventory                                                                         49,000            --
  Prepaid expenses and deposits                                                      9,000            --
                                                                              ------------    ----------
                                                                                 1,136,000            --

CAPITAL ASSETS (Note 3)                                                            114,000        12,000
                                                                              ------------    ----------
                                                                              $  1,250,000    $   12,000
========================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT
  Accounts payable and accrued liabilities                                    $    420,000    $       --
  Due to related company (Note 4)                                                   56,000            --
                                                                              ------------    ----------
                                                                                   476,000            --
                                                                              ------------    ----------

SHAREHOLDERS' EQUITY
  Share capital (Note 2)                                                         1,799,000            --
  Equity (deficit) (Page 4)                                                     (1,025,000)       12,000
                                                                              ------------    ----------
                                                                                   774,000        12,000
                                                                              ------------    ----------
                                                                              $  1,250,000    $   12,000
========================================================================================================
</TABLE>

Approved by:

/s/  Michael P. Kavanagh
--------------------------------------------

President and CEO

/s/  Robert Bray
--------------------------------------------


CFO

The accompanying summary of significant accounting policies and notes are an
                  integral part of these financial statements.

                                       3
<PAGE>   44

================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                            STATEMENT OF DEFICIT
                                            (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31                                     1999              1998               1997
-----------------------------------------------------------------------------------------------------------
<S>                                                      <C>              <C>               <C>

EQUITY, beginning of the year                              $     12,000        $   12,000      $    12,000

NET LOSS FOR THE YEAR (Page 5)                               (1,032,000)         (113,000)         (69,000)

CAPITAL CONTRIBUTION TO INTERNET OPERATIONS
   PRIOR TO ACQUISITION (Note 6)                                   7,000           113,000          69,000

RECLASSIFICATION OF NET ASSETS ACQUIRED OF
   INTERNET OPERATIONS TO SHARE CAPITAL                         (12,000)               --               --
                                                           ------------        ----------     ------------

EQUITY (DEFICIT), end of the year                          $ (1,025,000)       $   12,000     $     12,000
==========================================================================================================
</TABLE>

  The accompanying summary of significant accounting policies and notes are an
                  integral part of these financial statements.

                                       4
<PAGE>   45


================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                         STATEMENT OF OPERATIONS
                                            (EXPRESSED IN UNITED STATES DOLLARS)



<TABLE>
<CAPTION>

FOR THE YEARS ENDED AUGUST 31                                     1999              1998               1997
-----------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>              <C>


REVENUE                                                     $  1,782,000       $   820,000     $    431,000

COST OF SALES                                                  1,204,000           553,000          290,000
                                                            ------------       -----------     ------------
GROSS PROFIT                                                     578,000           267,000          141,000
                                                            ------------       -----------     ------------

EXPENSES
    Advertising                                                  274,000            23,000               --
    Site operating                                                72,000            88,000           26,000
    Wages and benefits                                           381,000           124,000           89,000
    Information Technology
      Department wages                                           167,000            69,000           39,000
    Rent                                                          19,000            21,000           22,000
    Administration                                               118,000            49,000           26,000
    Amortization of capital assets                                25,000             6,000            8,000
    Investor relations                                           554,000                 -                -
                                                            ------------       -----------     ------------
                                                               1,610,000           380,000          210,000
                                                            ------------       -----------     ------------
NET LOSS FOR YEAR                                           $ (1,032,000)      $  (113,000)    $    (69,000)
                                                            ============       ===========     ============
LOSS PER SHARE (NOTE 5)                                     $      (0.09)      $     (0.01)    $         --
===========================================================================================================
</TABLE>

  The accompanying summary of significant accounting policies and notes are an
                  integral part of these financial statements.

                                      5

<PAGE>   46

================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                         STATEMENT OF CASH FLOWS
                                            (EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>

FOR THE YEARS ENDED AUGUST 31                                     1999              1998              1997
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>             <C>


CASH PROVIDED BY (USED IN)

OPERATING ACTIVITIES
  Net loss for the year                                  $    (1,032,000)    $   (113,000)     $   (69,000)
    Amortization of capital assets                                25,000            6,000            8,000
    Changes in non-cash working capital balances
        Accounts receivable                                      (58,000)              --               --
        Inventory                                                (49,000)              --               --
        Prepaid expenses                                          (9,000)              --               --
        Accounts payable                                         420,000           (6,000)          (8,000)
                                                         ---------------     ------------      -----------
                                                                (703,000)        (113,000)         (69,000)
                                                         ---------------     ------------      -----------


INVESTING ACTIVITIES
  Purchase of capital assets                                    (127,000)              --               --
                                                         ---------------     ------------      -----------

FINANCING ACTIVITIES
  Advances from Videoflicks Canada Limited                        56,000               --               --
  Proceeds from Series A warrants                                786,000               --               --
  Cash acquired upon amalgamation (note 1(b))                  1,200,000               --               --
  Capital contribution to internet operations
      prior to acquisition                                         7,000          113,000           69,000
  Net issue costs                                               (199,000)              --               --
                                                         ---------------     ------------      -----------
                                                               1,850,000          113,000           69,000
                                                         ---------------     ------------      -----------

INCREASE IN CASH DURING THE YEAR                               1,020,000               --               --

CASH, beginning of year                                               --               --               --
                                                         ---------------     ------------      -----------

CASH, end of year                                        $     1,020,000     $         --      $        --
==========================================================================================================
</TABLE>

  The accompanying summary of significant accounting policies and notes are an
                  integral part of these financial statements.

                                       6

<PAGE>   47

================================================================================
                                                            VIDEOFLICKS.COM INC.
                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1999
--------------------------------------------------------------------------------

NATURE OF BUSINESS                  The Company was incorporated under the laws
                                    of Ontario on July 4, 1997 as
                                    Videoflicks.com Limited. Following an
                                    amalgamation on March 23, 1999, the company
                                    was continued as Videoflicks.com Inc. The
                                    company is engaged in the business of
                                    selling pre-recorded video/movie cassettes
                                    through an internet world wide web site.


BASIS OF FINANCIAL STATEMENTS       The financial statements are stated in
                                    United States dollars "the reporting
                                    currency". The transactions of the company
                                    have been recorded during the period in
                                    Canadian dollars, "the functional currency".
                                    The translation of Canadian dollars into
                                    United States dollars have been made at the
                                    period end exchange rate for balance sheet
                                    items and the average exchange rate for the
                                    period for revenues, expenses, gains and
                                    losses. Translation adjustments for the
                                    periods presented are not material.

                                    These financial statements have been
                                    prepared by management in accordance with
                                    generally accepted accounting principles in
                                    Canada, which are not materially different
                                    from generally accepted accounting
                                    principles in the United States.

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

PREPAID EXPENSE                     Payments made for advertising and investor
                                    relation services are expensed when the
                                    services are provided. Retainers and
                                    advances paid prior to the providing of the
                                    contracted services are recorded as a
                                    prepaid expense.

REVENUE RECOGNITION                 The Company sells merchandise to consumers
                                    over the internet. These transactions are
                                    paid by credit card and the Company is the
                                    credit card merchant of record. These
                                    transactions are recorded at the aggregate
                                    retail value at the time of the shipment
                                    net of any discounts or rebates. Costs of
                                    sales include all direct costs incurred to
                                    fulfill the order (product costs, handling,
                                    etc.). The Company provides an allowance for
                                    sales returns based on its actual
                                    experience.

INVENTORY                           Inventory is stated at the lower of cost
                                    and net realizable value. Cost is
                                    determined on a weighted average cost
                                    basis.


                                       7




<PAGE>   48
================================================================================
                                                            VIDEOFLICKS.COM INC.
                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1999
--------------------------------------------------------------------------------

CAPITAL ASSETS                      Management reviews long-lived assets for
                                    impairment whenever events or changes in
                                    circumstances indicate that the carrying
                                    amount of an asset may not be recoverable,
                                    and, if deemed impaired, measurement and
                                    recording of an impairment loss is based on
                                    the fair value of the asset. Capital assets
                                    are recorded at cost less accumulated
                                    amortization. Office equipment is being
                                    amortized over three years on a straight-
                                    line basis.

<TABLE>
<CAPTION>
<S>                                                                   <C>
                                    Furniture and fixtures   -        20% declining balance
                                    Computer equipment       -        30% declining balance
                                    Computer software        -        30% declining balance
</TABLE>


INCOME TAXES                        The company accounts for income taxes
                                    under the assets and liability method.
                                    Under the assets and liability method,
                                    deferred income taxes are recognized for
                                    the tax consequences of temporary
                                    differences by applying enacted tax rates
                                    applicable to future years to differences
                                    between the financial statement carrying
                                    amounts and tax bases of existing assets
                                    and liabilities.

FINANCIAL INSTRUMENTS               The carrying amounts of financial
                                    instruments of the company approximate their
                                    fair value because of their short maturity.


                                       8

<PAGE>   49



================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1999
--------------------------------------------------------------------------------

1.   BUSINESS COMBINATIONS AND BASIS OF ACCOUNTING

     (a)  INCORPORATION AND BUSINESS ACQUISITION

          Videoflicks.com Limited was incorporated under the laws of Ontario on
          July 4, 1997 and issued 100 common shares for $100.

          Effective November 30, 1998, the Videoflicks.com Limited acquired from
          Videoflicks Canada Limited the business of selling pre-recorded
          video/movie cassettes through an internet world wide web site (the
          "Business") in exchange for 7,999,900 common shares. For purposes of
          the exchange the Business acquired was valued at $5,148,000, however,
          for accounting purposes the assets acquired are valued at their
          carrying values and goodwill as well as other intangible assets
          including the domain name "Videoflicks.com" for $5,136,000 is not
          recorded because the companies were under common control.

          The net assets acquired at carrying values as at November 30, 1998
          were as follows:
<TABLE>
<CAPTION>

<S>                                                                                          <C>
          Computer equipment                                                                 $        11,000
          Software                                                                                     1,000
                                                                                             ---------------
          Total consideration attributed to shares of Videoflicks.com Limited                $        12,000
                                                                                             ===============
</TABLE>

          The historical financial statements for the years ended August 31,
          1998 and 1997 reflect the carved-out operations of the internet
          business of Videoflicks Canada Limited on a continuity of interest
          basis. The internet business began operations September 1, 1995 as a
          division of Videoflicks Canada Limited and operated as such until
          November 30, 1998 when the internet business was acquired by
          Videoflicks.com Limited as described above.

     (b)  AMALGAMATION AND REVERSE TAKE OVER

          Pursuant to an amalgamation agreement effective March 23, 1999,
          Videoflicks.com Limited was amalgamated with Mantaur Petroleum
          Corporation (Mantaur) and 1318780 Ontario Limited (Ontco). The
          Amalgamated Company continues under Videoflicks.com Inc.

          Upon amalgamation all issued common shares of Mantaur and Ontco were
          exchanged for units of Videoflicks.com Inc., each unit consisting of
          one common share and one-half Series A Share Purchase Warrant. The
          transaction resulted in the former shareholders of Videoflicks.com
          Limited owning 47.7% of Videoflicks.com Inc. The exercising of Series
          A and Series B warrants referred to in Note 2(iii) during the period
          resulted in the former shareholders owning 44.9% at August 31, 1999.
          If all remaining Series B Warrants referred to in Note 2(iii) are
          exercised the former shareholders holdings will be diluted to 44.2%.
          The former shareholders of Videoflicks.com Limited will still own the
          controlling block of shares and will have the majority representation
          on the Board of Directors of Videoflicks.com Inc., therefore, the
          amalgamation has been treated for accounting purposes as an
          acquisition of Mantaur and Ontco by Videoflicks (the acquirer for
          accounting purposes), referred to as a "reverse take-over".
          Application of "reverse take-over" accounting results in the
          following:

                                       9

<PAGE>   50

================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1999
--------------------------------------------------------------------------------

1.   BUSINESS COMBINATIONS AND BASIS OF ACCOUNTING (CONTINUED)

     (i)  Videoflicks.com Limited is deemed to be the acquirer for accounting
          purposes; its assets and liabilities are included in the balance sheet
          at their carrying values.

     (ii) The acquisition of Mantaur and Ontco is accounted for under the
          purchase method. The net assets acquired at fair value as at March 23,
          1999 were as follows:

<TABLE>
<CAPTION>

                                                                              ONTCO           MANTAUR
                                                                       ------------        ----------
<S>                                                                   <C>                       <C>

               Cash                                                    $  1,200,000        $    3,000
               Capital assets                                                    --             6,000

                                                                          1,200,000             9,000
               Less:  Liabilities assumed
                      Accounts payable                                           --            93,000
                                                                       ------------        ----------

               Total consideration attributed to shares
                 of Amalgamated Videoflicks                            $  1,200,000        $  (84,000)
                                                                       ============        ==========
</TABLE>



     The deficit of Mantaur was recorded as a cost of issue.
--------------------------------------------------------------------------------

2.   SHARE CAPITAL

     (i)  AUTHORIZED

          Unlimited number of common shares

     (ii) ISSUED

<TABLE>
<CAPTION>

<S>                                                                       <C>                    <C>
               Videoflicks.com Limited
                Issued on incorporation                                      $         100               --
                Shares issued upon purchase
                of "Business" (Note 1(a))                                        7,999,900           12,000
               Mantaur Petroleum Corporation shareholders                        5,960,462               --
               1318780 Ontario shareholders                                      2,400,000        1,200,000
               Advisory services fees                                              400,000          200,000
               Cost of issue                                                            --         (399,000)
                                                                             -------------      -----------
                                                                                16,760,462        1,013,000

               Series A Warrants exercised                                       1,047,667          786,000
               Series B Warrants exercised                                              11               --
                                                                             -------------      -----------
                                                                             $  17,808,140      $ 1,799,000
                                                                             =============      ===========

</TABLE>


                                       10


<PAGE>   51

================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1999
--------------------------------------------------------------------------------

2.  SHARE CAPITAL (CONTINUED)

          Advisory service fees are share remuneration to an arm's-length
          investment dealer for assistance in raising $1,200,000 in Ontco. These
          have been included as a cost of issue.

          Prior to the amalgamation, Mantaur was at arm's-length with
          Videoflicks.com Limited and Videoflicks Canada Limited, Ontco was
          incorporated to raise capital for the amalgamated company and
          Videoflicks.com Limited was a 100% owned subsidiary of Videoflicks
          Canada Limited.

     (iii)WARRANTS

          Videoflicks.com Inc has the following warrants to issue common shares
          outstanding:

<TABLE>
<CAPTION>

                                                                               SERIES A             SERIES B
                                                                           ------------          -----------
<S>                                                                        <C>                   <C>


               Warrants issued on amalgamation                               4,180,200                    --
               Warrants exercised during the period                         (1,047,667)                  (11)
               Warrants issued during the period                                    --             1,047,667
               Warrants expired during period                               (3,132,533)                   --
                                                                            ----------           -----------
               Unexercised warrants at August 31, 1999                              --             1,047,656
                                                                            ==========           ===========
</TABLE>


          Series A Warrants were exercisable at $0.75 per warrant until four (4)
          months following the effective date of the amalgamation to purchase
          one Class B Unit; each Class B Unit consists of one Videoflicks.com
          Inc. common share and one Videoflicks.com Inc. Series B Warrant. Each
          Series B Warrant will enable the holder to subscribe for one
          Videoflicks.com Inc. common share at $1.15 until eight (8) months
          following the effective date of the amalgamation. Subsequent to August
          31, 1999 no Series B Warrants were exercised. The Series B Warrants
          will expire on November 23, 1999.

     (iv) STOCK OPTION PLAN

          Videoflicks.com Inc. has established a directors, officers, eligible
          employees and consultants stock option plan (the "Plan"). The maximum
          number of common shares that may be reserved for issuance under the
          Plan is limited to 4,000,000 common shares.

          Subsequent to the Amalgamation on March 23, 1999, options were granted
          to purchase 2,040,000 common shares at an exercise price of the
          current market value at the date of issue, of $0.50 per share expiring
          in March and April, 2004. All options vest as to one third thereof on
          each of the first, second and third anniversaries of their date of
          grant except for 800,000 options granted to one director, all of which
          vested immediately. Options to acquire an additional 200,000 common
          shares at $0.50 per share on or before April 22, 2004 have been
          granted.

                                       11

<PAGE>   52
================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1999
--------------------------------------------------------------------------------
3.  CAPITAL ASSETS

<TABLE>
<CAPTION>

                                                                 1999                                   1998
                                                          ACCUMULATED                            Accumulated
                                              COST       AMORTIZATION               Cost        Amortization
                                  ----------------       ------------           --------        ------------
<S>                               <C>                    <C>                    <C>             <C>


      Furniture and fixtures      $        18,000        $      2,000           $     --        $         --
      Computer equipment                  115,000              36,000             31,000              20,000
      Computer software                    26,000               7,000              1,000                  --
                                  ---------------        ------------           --------        ------------
                                  $       159,000        $     45,000           $ 32,000        $     20,000
                                  ===============        ============           ========        ============
      Net book value                                     $    114,000                           $     12,000
                                                         ============                           ============
</TABLE>
--------------------------------------------------------------------------------


4.   RELATED PARTY TRANSACTIONS

     Amounts due to related parties are as follows:

<TABLE>
<CAPTION>
                                                                            1999               1998
                                                                       ---------            -------
<S>                                                                    <C>                  <C>

     Videoflicks Canada Limited                                        $  56,000            $    --
</TABLE>



     The amount due at August 31, 1999 is non interest bearing and is due on
     demand.

     Accounts payable and accrued liabilities include $82,000 due to Videoflicks
     Canada Limited, payable at normal trade terms and conditions.

     The company has entered into the following transactions with a related
     party, Videoflicks Canada Limited. Videoflicks Canada Limited owns the
     controlling block of shares of the Company. These transactions are in the
     normal course of operations and are measured at the exchange value (the
     amount of consideration established and agreed to by the related parties).

<TABLE>
<CAPTION>
                                                                  1999              1998              1997
                                                            ------------       -----------       ---------
<S>                                                         <C>                 <C>              <C>

      Purchases and freight                                  $ 1,150,000       $   533,000       $  708,000
      Wages and benefits                                         153,000           124,000          106,000
      Information Technology Department wages                     63,000            69,000           40,000
      Rent                                                        19,000            21,000           11,000
      Administration                                              81,000            49,000           28,000
                                                             -----------       -----------       ----------
                                                             $ 1,466,000       $   796,000       $  893,000

</TABLE>
     The company has entered into a supply agreement with Videoflicks Canada
     Limited under which Videoflicks Canada Limited has agreed to sell videos to
     Videoflicks.com Inc. at the wholesale catalogue price charged by
     arm's-length wholesalers of videos, plus shipping and applicable taxes.

                                       12
<PAGE>   53

================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1999
--------------------------------------------------------------------------------

4.   RELATED PARTY TRANSACTIONS (CONTINUED)

     Cost of sales and operating expenses do not include any mark up from the
     costs of Videoflicks Canada Limited.

     Administration expense is recorded at 15% of other operating expenses for
     the period September 1, 1995 to March 23, 1999. This charge to Internet
     Operations reflects an allocation of overhead costs including management,
     administration, accounting services and office costs. Subsequent to March
     23, 1999, administrative costs were incurred directly by the company.


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

5.   LOSS PER SHARE

     Loss per share has been calculated based on the weighted average number of
     shares outstanding for each period. For the years ended August 31, 1998 and
     1997, the weighted number is 8,000,000 and represents the shares
     outstanding after the recapitalization of the operating company and the
     amalgamation (see note 1). For the year ended August 31, 1999 the weighted
     average number of shares is 11,109,218.

     The Company had losses for all the years presented, therefore the exercise
     of the warrants and employee stock options would have an antidilutive
     effect on loss per share.

     Under United States generally accepted accounting principles for the years
     ended August 31, 1998 and 1997, the weighted number is 16,760,462 and
     represents the shares outstanding after the recapitalization of the
     operating company and the amalgamation. For the year ended August 31, 1999
     the weighted average number of shares is 16,981,476. The loss per share
     would be:

<TABLE>
<CAPTION>

                                                                  1999              1998           1997
                                                             ---------         ---------      ---------
<S>                                                          <C>               <C>            <C>

    Loss per share                                           $   (0.06)        $   (0.01)     $      --
                                                             =========         =========      =========
</TABLE>



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

6.   CAPITAL CONTRIBUTION TO INTERNET OPERATIONS PRIOR TO ACQUISITION

     The statements of operations represent the results of the internet
     operations on a continuity of interest basis. All losses incurred prior to
     the acquisition on November 30, 1998 were losses of Videoflicks Canada
     Limited which operated the internet operations. The capital contributions,
     net of the losses, are presented as the assets of the internet division.



                                       13

<PAGE>   54

================================================================================
                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1999
--------------------------------------------------------------------------------

7.   INCOME TAXES

     The reconciliation of income taxes calculated at the effective rate of
     44.5% to the total tax provision as follows:

<TABLE>
<CAPTION>
                                                                                 1999
                                                                      ---------------
<S>                                                                   <C>

      Income taxes (recovery) at statutory rates                      $       227,000
      Adjustment to valuation adjustment                                     (227,000)
                                                                      ---------------
                                                                      $            --


      Tax losses available to reduce taxable income of future years   $       227,000
      Less: Deferred tax assets valuation allowance                          (227,000)
                                                                      ---------------

      Net tax assets                                                  $            --

</TABLE>

     The Company has net operation loss carry-forwards to reduce taxable income
     of approximately $511,000 which expires during 2006.


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

8.   UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

     The Year 2000 Issue arises because many computerized systems use two digits
     rather than four to identify a year. Date-sensitive systems may recognize
     the year 2000 as 1900 or some other date, resulting in errors when
     information using year 2000 dates is processed. In addition, similar
     problems may arise in some systems which use certain dates in 1999 to
     represent something other than a date. The effects of the Year 2000 Issue
     may be experienced before, on, or after January 1, 2000.

     If the Year 2000 Issue is not addressed by the company and its major
     customers, suppliers and other third party business associates, the impact
     on the company's operations and financial reporting may range from minor
     errors to significant systems failure which could affect the company's
     ability to conduct normal business operations. It is not possible to be
     certain that all aspects of the Year 2000 Issue affecting the company,
     including those related to the efforts of customers, suppliers, or other
     third parties, will be fully resolved.

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

9.   SEGMENTED INFORMATION

     Approximately 75% of the Company's sales are to the United States with the
     remaining 25% having no more than 5% concentrated in any one country. The
     assets of the company are in Canada.
--------------------------------------------------------------------------------

                                       14