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                                    FORM 10-K

(Mark One)

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

         For the fiscal year ended December 31, 2000

[ ]      TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from _____________ to ______________

         Commission file number 000-27363

                            INTERNETSTUDIOS.COM, INC.
             (Exact name of registrant as specified in its charter)

         NEVADA                                             134009696
(State or other jurisdiction of                         (I.R.S. Employer)
incorporation or organization)                         Identification No.)

  1351 4TH STREET, SUITE 227                                 90401
SANTA MONICA, CALIFORNIA                                   (Zip Code)

Registrant's telephone number, including area code (310) 394-4025

Securities registered pursuant to

Section 12(b) of the Act:  None

Securities registered pursuant to section 12 (g) of the Act:  Common Stock,
$0.0001 Par Value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days

/X/      Yes               /  /     No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]

On March 30, 2001, the aggregate market value of the Common Stock
beneficially held by non-affiliates of the registrant was approximately
$31,750,000. (For purposes hereof, directors, executive officers and 10% or
greater shareholders have been deemed affiliates). On March 30, 2001, there
were 15,658,044 shares of the registrant's Common Stock outstanding.

Documents Incorporated by Reference:  See Exhibit Index.

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                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

InternetStudios.com, Inc. ("InternetStudios" or the "Company") was
incorporated in the State of Nevada on April 14, 1998 as The Enterprise, Inc.
For a period of time prior to December 14, 1998, the Company was engaged in
the word processing business. On December 14, 1998, InternetStudios withdrew
from the word processing business in anticipation of acquiring a license to
software technology for the health industry and on December 17, 1998, the
Company changed its name to eHealth.com, Inc. This acquisition was not
completed. On September 18, 1999, the stockholders of the Company approved a
name change to InternetStudios.com, Inc. in anticipation of acquiring and
developing an Internet business. The name change was effective September 21,
1999. Pursuant to an acquisition agreement, dated September 17, 1999, among
eHealth.com, Inc., Mark Rutledge and Robert MacLean (together, the
"Principals") and Online Films, LLC, a Delaware limited liability company
("Online Films"), the Principals agreed to transfer on their behalves, and on
behalf of other beneficial owners, 91.847% of the membership interests in
Online Films so that Online Films became a subsidiary of the Company. In
consideration of the transfer of the Principals' membership interests, the
Principals and other beneficial owners of Online Films received an aggregate
of 5,632,800 shares of InternetStudios' Common Stock.

InternetStudios provides full services for marketing, licensing and tracking
film and television distribution rights. The Company combines four separate
but complementary business units: (1) a digital marketplace, at
www.OnlineFilmandTVSales.com, where buyers and sellers can conduct
transactions for filmed entertainment generating transaction fees for
InternetStudios; (2) a financing arm, InternetStudios Entertainment Finance,
which generates fees and financing charges, and drives sales activity to the
OnlineFilmandTVSales site; (3) ISTS Rights Tracking, which provides filmed
entertainment rights tracking technology for which license fees and service
fees are charged, and (4) reporterTV.com, which provides streaming broadcasts
of industry news and events that generates production fees, advertising and
sponsorship revenues.

InternetStudios currently operates the following websites:

         - www.internetstudios.com
         - www.onlinefilmandtvsales.com
         - www.reportertv.com
         - www.sundanceonlineresourcecenter.org

As shown in the Company's financial statements, the Company has sustained
substantial losses from operations since inception. As of the date of this
Report, the Company has utilized substantially all of its available funding.
The Company's continuation as a going concern will depend on its ability to
raise additional capital. No assurance can be given that the Company will be
able to raise additional funds. In the absence of such funds, the Company
will be required to cease operations.

Management of the Company has taken steps to revise and reduce its operating
requirements, which it believes will be sufficient to assure continued
operations and implementation of the Company's plans. These steps include
expense reductions in staffing, marketing and consulting, as well as a
significant decrease in operating costs as a result of completion of Web
developments activities. The Company is also in the process of securing
additional capital through equity transactions, which will be required in
order to continue operations.

CORPORATE STRUCTURE

InternetStudios conducts its business through operating subsidiaries, of
which there are currently five: OnlineFilmSales.com, LLC. InternetStudios UK
Limited, OnlineFilmandTVSales.com, Inc., InternetStudios Entertainment
Finance Inc., and reporterTV.com, LLC. In addition,

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OnlineFilmSales.com, LLC is the owner of two non-operating subsidiaries:
StudioBuzz.com, LLC and Online Films, LLC.

ONLINEFILMSALES

Effective as of March 28, 2000, substantially all of InternetStudios' assets
were contributed (the "Asset Contribution") to OnlineFilmSales.com, LLC, a
newly formed Delaware limited liability company ("OnlineFilmSales"). Included
in the Asset Contribution were (i) InternetStudios' 91.847% membership
interest in Online Films so that Online Films became a subsidiary of
OnlineFilmSales, and (ii) a Secured Promissory Note, originally issued on
November 12, 1999 (as amended several times and having a final principal
balance of $2,025,000), by MediaChase Ltd., a Delaware corporation
("MediaChase") in favor of InternetStudios (the "MediaChase Note"). Excluded
from the Asset Contribution to OnlineFilmSales were all trademarks, trade
names, and domain names containing "InternetStudios.com" or "InternetStudios"
and all associated goodwill, InternetStudios' equity interest in
InternetStudios.com UK Limited (as discussed below), and InternetStudios'
rights under a Letter of Intent dated March 15, 2000 with TAMNW, Inc. (as
discussed below). In exchange for the Asset Contribution, OnlineFilmSales
issued to InternetStudios all of the Class A membership interests in
OnlineFilmSales.

OnlineFilmSales is a manager-managed limited liability company. Except for
matters as to which the approval of the members is required by Delaware law,
the manager of OnlineFilmSales has full, complete and exclusive authority,
power and discretion to manage and control the business, property and affairs
of OnlineFilmSales. OnlineFilmSales has one manager, which is
InternetStudios. The manager of OnlineFilmSales is elected by the affirmative
vote or written consent of the holders of a majority of all voting interests
of Class A members of OnlineFilmSales.

Concurrently with the Asset Contribution, two members of InternetStudios'
then management also made contributions to OnlineFilmSales in exchange for
Class B membership interests in OnlineFilmSales. Heidi Lester, the Chief
Executive Officer of InternetStudios, contributed to OnlineFilmSales, an
8.153% interest in Online Films and Steve Fredericks, the then Acting
President and Chief Financial Officer of InternetStudios, contributed all of
his interest in certain agreements relating to the development of a digital
production center and a related digital training program for artists and
producers in the People's

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Republic of China. As a result of the contribution to OnlineFilmSales of
Heidi Lester's membership interest in Online Films, Online Films became a
wholly owned subsidiary of OnlineFilmSales.

The holders of Class B membership interests in OnlineFilmSales are entitled
to convert their interests into shares of InternetStudios' Common Stock at
any time. The Class B membership interests will automatically be converted
into InternetStudios' Common Stock upon the occurrence of certain
transactions and in any event, on March 28, 2007. Each holder of a Class B
membership interest is entitled to receive distributions of cash based upon
the amount of all cash which each holder of Class B membership interests
would have received in the form of dividends on and proceeds from redemptions
of, that number of shares InternetStudios' Common Stock into which such
holder's Class B Membership Interest is convertible, if such Class B member
had held those shares during the period from such member's admission as a
Class B member of OnlineFilmSales to the date of such distribution of cash by
OnlineFilmSales. Heidi Lester's Class B Membership Interest is convertible
into 600,000 shares of InternetStudios' Common Stock and Steve Fredericks'
Class B Membership Interest is convertible into 400,000 shares of
InternetStudios' Common Stock.

INTERNETSTUDIOS UK LIMITED

On February 21, 2000, InternetStudios formed InternetStudios.com UK Limited,
a private limited company incorporated in England and a wholly owned
subsidiary of InternetStudios. The company amended its name to
InternetStudios UK Limited on September 25, 2000. This subsidiary works
closely with buyers and sellers in Europe by providing technical and
administrative support for users of the Company's web based services. There
are currently four employees, including Aline Perry, the President of
InternetStudios UK Limited. The employees of this subsidiary are responsible
for showcasing InternetStudios' full range of services at European festivals
and entertainment markets.

ONLINEFILMANDTVSALES.COM, INC.

Pursuant to an Agreement and Plan of Merger dated as of May 5, 2000, by and
among InternetStudios, OnlineTVSales.com Inc., TAMNW Inc. and itstv.com, the
Company acquired all the capital stock of itstv.com for 120,000 shares of
common stock of the Company and warrants to acquire an additional 112,500
common shares. Itstv.com was a web-based resource for television programming.
The site had search capabilities as well streaming video content. Catalogues
from over 50 of the television industry's leading distributors were
represented at the itstv.com site, including the BBC, Carlton, Chrysalis, E!,
American Public Television, HIT, King World, NBD, Screentime, RDF and TV4
(Sweden). Itstv.com also represented exclusively the worldwide distribution
rights for "Tracey Takes On."

After the acquisition, InternetStudios operated itstv.com as
OnlineTVSales.com, Inc., a wholly-owned subsidiary of the Company. On
November 16, 2000, OnlineTVSales.com, Inc. legally changed its name to
OnlineFilmandTVSales.com, Inc. ("OFTVS") to reflect the company's dedication
to the marketing of film and television rights. OFTVS' operations have been
merged with those of OnlineFilmSales such that the digital online market
place became available at www.onlinefilmandtvsales.com and the day-to-day
management of OFTVS is overseen by OnlineFilmSales.

INTERNETSTUDIOS ENTERTAINMENT FINANCE, INC.

In July 2000, the Company established InternetStudios Entertainment Finance
Inc. ("IEF"), a British Columbia company, in order to expand into the area of
financing of filmed entertainment in combination with certain of the
Company's other web-based services.

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IEF commenced operations in August 2000. The company provides interim
financing for the production of filmed entertainment. IEF operates in
conjunction with OFTVS to provide a comprehensive solution for financing and
marketing motion pictures. This subsidiary plans to specialize in projects
with budgets between $2 million and $8 million. IEF's objective is to build a
well-balanced and diversified portfolio through diligent lending practices.

RELATIONSHIP WITH MEDIACHASE LTD.

InternetStudios, through OnlineFilmSales, entered into two joint venture
relationships with MediaChase Ltd., a Delaware corporation on March 28, 2000.
MediaChase is a Los Angeles based software company that has developed
e-commerce systems and websites for telecommunications companies and
specializes in database integration and website enablement of corporate
processes. One joint venture is reporterTV.com, LLC, a Delaware limited
liability company whose sole members are MediaChase and OnlineFilmSales. The
other joint venture, operated through StudioBuzz.com, LLC, is not currently
operational.

Pursuant to a Consulting Agreement entered into between MediaChase and
OnlineFilmSales on March 28, 2000, MediaChase was engaged by OnlineFilmSales
to provide certain services at cost in connection with the design and
development of the OnlineFilmSales.com website and InternetStudios' website
at www.internetstudios.com. In order to obtain the services of one of the
principals of MediaChase on a first priority, non-exclusive basis,
OnlineFilmSales agreed in the Consulting Agreement to pay MediaChase, in
addition to cost, a monthly consulting fee in the amount of $14,000 per
month, plus a bonus of $11,200 per month for the months of February, March
and April of 2000. Additionally, pursuant to a Consulting Agreement entered
into between MediaChase and StudioBuzz, MediaChase has been engaged by
StudioBuzz to provide certain services in connection with the design and
development of a website, subject to the future agreement by the parties to
final project descriptions.

To fund the development of reporterTV while the parties negotiated definitive
agreements with respect to their two joint ventures, InternetStudios advanced
$2,025,000 to reporterTV in the form of a loan evidenced by the MediaChase
Note. As a part of the Asset Contribution, InternetStudios contributed to
OnlineFilmSales, all of its rights as payee under the MediaChase Note. In
connection with the consummation of its two joint ventures with MediaChase,
OnlineFilmSales contributed all of its rights as payee under the MediaChase
Note to reporterTV and MediaChase assigned all of its obligations as payor
under the MediaChase Note to reporterTV, as a result of which contribution
and assignment, the MediaChase Note has been cancelled. In consideration of
the cancellation of the MediaChase Note and the issuance by OnlineFilmSales
to MediaChase of Class B membership interests convertible into 250,000 shares
of InternetStudios' common stock, MediaChase (i) entered into the two
Consulting Agreements with OnlineFilmSales and StudioBuzz, respectively,
described above, (ii) contributed certain assets to reporterTV and
StudioBuzz, and (iii) contributed to OnlineFilmSales (A) a 75% membership
interest in ReporterTV and (B) a one hundred percent voting interest and
fifty percent economic interest in StudioBuzz. Pursuant to the terms of the
Limited Liability Agreement to reporterTV, MediaChase had a one-time right to
repurchase all or any part of a 25% membership interest in reporterTV, upon
the payment of certain sums to reporterTV on or before January 31, 2001,
which has expired.

On August 17, 2000, MediaChase exercised its right to convert its Class B
Membership to 250,000 shares of common stock in InternetStudios pursuant to
the terms of the Limited Liability Agreement of OnlineFilmSales.

MediaChase contributed to reporterTV all of MediaChase's right, title and
interest in and to all assets related solely to its business entertainment
news magazine broadcast over the Internet in television broadcast news format
entitled "reporterTV.com" and reporterTV assumed substantially all
obligations

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and liabilities arising under such assets (including intellectual property
claims). MediaChase contributed to StudioBuzz, all of MediaChase's right,
title and interest in and to all assets related solely to its concept for an
online database with the capability to store and provide access to
information relating to development, financing, production, talent, marketing
and distribution of filmed entertainment rights, entitled "StudioBuzz.com"
and StudioBuzz assumed substantially all obligations and liabilities arising
under such assets.

(HEREINAFTER, REFERENCE TO INTERNETSTUDIOS SHALL INCLUDE ITS SUBSIDIARIES
ONLINE FILMS, ONLINEFILMSALES, INTERNETSTUDIOS UK LIMITED,
ONLINEFILMANDTVSALES, AND INTERNETSTUDIOS ENTERTAINMENT FINANCE UNLESS THE
CONTEXT OTHERWISE REQUIRES).

BUSINESS STRATEGY

InternetStudios is a development stage company with limited revenues and an
expectation of further losses. InternetStudios' operations are subject to all
of the risks inherent in a growing business enterprise, including the
potential of operating losses. The likelihood of InternetStudios' success
must be considered in light of the expenses, difficulties and delays
frequently encountered in connection with a new business.

InternetStudios' business strategy is implemented through four business
units: (1) an online marketplace operated through OnlineFilmSales at the web
site www.onlinefilmandtvsales.com; (2) an entertainment financing arm
operated through InternetStudios Entertainment Finance; (3) rights tracking
technology operated through ISTS Rights Tracking; and (4) an online industry
news and events source operated through reporterTV.com.

The Online Marketplace

OnlineFilmandTVSales.com is a solution for the fragmented market for the
international distribution of filmed entertainment rights. OFTVS' online
transaction capability enables owners of film and television rights to list
their filmed entertainment properties on the Web at
www.OnlineFilmandTVSales.com. Qualified buyers and sellers pre-register
before accessing the Web site. The qualified buyers view content on specific
titles using state-of-the-art-streaming capabilities of the system. The Web
site includes rights and availability, corporate information, and multimedia
content such as film trailers and Electronic Press Kits (EPKs). In addition,
buyers are able to use advanced search tools to sort titles by specific
rights, availability, genre, producers, directors, or cast.

Once the buyer identifies rights they want to acquire, an offer is made to
the rights holder via the transactional functionality of the Web site. The
rights holder either accepts or rejects the offer or counteroffers to the
prospective buyer. When an agreement is reached between parties, the system
generates a binding contract automatically, and then the buyer transfers the
funds for payment through the Web site or offline using the Company's
exclusive arrangements with Fintage House (see below).

OFTVS' online listing capabilities were officially launched at the Cannes
Film Festival in May 2000. While at the Cannes Festival, OFTVS listed the
product of over 86 filmed entertainment rights' holders. These companies
owned the cinematic, video, PayTV, Free TV, Satellite TV, DVD and Internet
rights to over 6,000 available titles at that time. Some examples of the
companies who listed products are: United Artists, Film Four International,
Le Studio Canal Plus, UGC, Universal Pictures International, Lions Gate Films
International, Lakeshore International, Initial Entertainment Group, and Film
Four International. OFTVS currently has agreements for over 15,000 films and
television programs listed on its Web site.

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Through the OFTVS web based transaction platform, buyers and sellers of film
rights have convenient access to a global audience that may not be reached
through traditional marketing means. In addition, transaction costs are a
fraction of the costs incurred through traditional marketplaces.
InternetStudios' management is building an easily accessible and global
market where entertainment industry executives can buy and sell filmed
entertainment rights.

OnlineFilmandTVSales generates revenue for the Company by entering into
marketing contracts with rights holders who list their product on the OFTVS
website. The contracts provide that a fee will be paid by the rights holder
to OFTVS for marketing the properties once a transaction is initiated on the
website by either an offer to the seller or a deal is concluded. In certain
circumstances, a fee may be charged to the rights holder such as when
streaming video or other marketing materials is hosted on the Company's
website.

The Entertainment Financing Arm

InternetStudios Entertainment Finance provides interim financing to the film
and TV production industry. IEF targets independent producers who require
more specialized financing than that typically provided by conventional
commercial lenders. To date, the Company has completed two transactions
involving the financing of budgets aggregating approximately US$3 million.
With respect to one of the transactions, the co-producer of the film is a
related party. IEF earns revenue from two sources: interest on the funds
loaned to the producer and arrangement fees for structuring the transaction.
Additionally, any projects financed by IEF are listed with
OnlineFilmandTVSales, which earns a commission from their sale.

Revenue from IEF is based on two components: set-up or financing fees and
interest. Both are recognized at 1/18th per month over an 18 month period.

Rights Tracking Technology

The tracking of available rights to filmed entertainment by the holders of
such rights is an immense problem in the entertainment industry. As the
complexity of rights licensing has increased over the past 15 years with the
increase in delivery platforms, coinciding with the increase in independent
production and "split-rights" deals by the studios, the matrix of filmed
entertainment rights has increased. Most small to mid-range entertainment
companies track these library rights by a combination of paperwork and
archaic software.

InternetStudios owns and operates a comprehensive digital platform that
enables a rich transactional and community environment for worldwide buyers
and sellers of filmed entertainment. The platform has been designed to
accommodate both the developing e-commerce marketplace as well as ancillary
revenue opportunities of InternetStudios complementary business units. At the
core of this environment is an architecture, database, and proprietary
software that enables our users to conduct what is known as rights
transactions.

InternetStudios has the platform and the core capabilities in place to
execute the primary capabilities for full online and offline rights
management and tracking. This licensing system tracks rights acquired,
licensed or available for motion pictures or television properties,
including, related contractual elements such as parties to the contract,
licensed properties, rights and territories, payment terms and royalties,
deliverable materials such as film and sound elements. This software also
provides the ability to check for conflicts between licenses and allows the
parties to determine future availabilities by right or by territory.

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The Company believes that there are over 5,000 filmed entertainment
companies which could benefit from the ISTS Rights Tracking software. Of
these, 500 have been initially targeted for installation of the software as a
virtual private network system ("VPN"). The breakdown of the initial target
market would be 25 large companies, 150 medium companies and 325 smaller
companies. Fees will be a combination of initial license fees, ongoing
additional support and customization fees. However, to date no revenue has
been received from this business unit.

The Online Source for Industry News and Events

reporterTV.com ("reporterTV") is an online entertainment
newsmagazine-supplying professionals in the film industry with relevant news
from the entertainment sector. The broadcast or "webcast" (since news is
delivered through the web) delivers content and information related to
industry events and information pertinent to the entertainment industry trade
publications such as Hollywood Reporter and Variety. The service is available
free of charge and accessible via the Internet at www.reporterTV.com.
Offerings include streaming video news broadcasts from various areas of the
entertainment world, such as music, film, television and international
headlines.

In addition, reporterTV has moved aggressively to secure film and Internet
broadcast rights for important film industry events. For example, reporterTV
acquired exclusive rights for three speeches and several discussion rounds at
the eMediatainment World Conference, which debuted June 28-30, 2000 in Los
Angeles. eMediatainment serves as a forum for entertainment industry
decision-makers and takes place semi-annually. Another milestone for
reporterTV was the broadcast of nominations for the 52nd Annual Primetime
Emmy Awards directly from the Academy of Television Arts and Sciences in
Hollywood, which took place on July 20, 2000. The broadcast was released for
downloading after a delay of one hour. This was the first time the event was
available on the Internet.

Revenues from reporterTV are generated from three sources: fees charged for
production services provided by reporterTV, advertising and sponsorship
revenues and fees from the syndication of its content.

SALES AND MARKETING

Since the acquisition of Online Films, InternetStudios' management team has
focused on marketing and public relations efforts to attract vendors to list
their filmed entertainment rights on the OnlineFilmandTVSales.com web site.
InternetStudios believes that much of the awareness of the
OnlineFilmandTVSales.com website will be generated by attendance at film
festivals, entertainment industry forums and other events.

InternetStudios intends to generate additional brand awareness from specific
promotional activities such as:

         -        setting up promotional booths and kiosks at major and minor
                  film festivals; and
         -        entering into relationships with other websites to place links
                  on their sites to the OnlineFilmSales.com website.

InternetStudios expects to hire sales personnel as demand increases.

To date, InternetStudios has used a combination of online and offline
advertising to generate awareness of InternetStudios and OFTVS. This expense
was significant in fiscal 2000 as the Company built brand awareness in the
industry. However, this type of expense will be reduced in 2001 as industry
acceptance


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has been achieved. In 2001, the Company intends to establish a customer
relations center that will assist clients of OFTVS as well as aggressively
market programming on the system to end-users worldwide.

In addition, the Company intends to focus on a number of key initiatives in
order to increase the revenues in the digital marketplace:

         -        Cross-Pollination: Finding new buyers for product, especially
                  Video and DVD buyers to TV product, and bringing Feature Films
                  directly to end-user broadcasters, circumventing middlemen.
         -        Customer service: The Company will focus on localization,
                  through a variety of methods. Instructing, responding to
                  needs, and integrating with businesses in Latin America, Asia
                  and Australia as the Company's London office already does.
         -        Teaching buyers how and why: OFTVS will conduct more
                  one-on-one training, especially as the Company rolls out
                  functionality.
         -        Signing & teaching sellers: This will create volume as well as
                  more exclusivity and lead product
         -        Ancillary Revenue through Data Sales and Fee For Service:
                  available from the sale of OFTVS' data, especially Pre-Sale
                  Information.
         -        Constant updating of users' data. The Company is actively
                  enhancing its customer relation management systems.
         -        More & richer Global Directory data/Calendar/TV: This will
                  build more activity on the site.
         -        Presenting instructions & descriptions in foreign languages.
         -        Extensive E-marketing initiatives based on the existing
                  templates
         -        Producers Site: Providing Application Service Provider
                  services to targeted, knowledgeable producers to market and
                  pre-sell directly to end-users. Revenue on transaction and fee
                  for service sales
         -        Focus on Catalogues of Studios & Defunct Libraries.
         -        Focus on Niche and Specialty Broadcasters: Take advantage of
                  the growth of Niche & Specialty stations/broadcasters, with
                  smaller audiences with smaller budgets but with equivalent
                  needs in terms of hours.

Assuring a strong presence at film festivals, entertainment industry forums
and other events to service existing clients and sign new contracts and
register new buyers will generate ongoing awareness of the
OnlineFilmandTVsales.com Web site. Executives of the company will provide
sales and marketing expertise armed with the most comprehensive information
and complete catalogue of film and TV product in the world.

COMPETITION

The Internet and online commerce is new, rapidly evolving and intensely
competitive. Our current and potential competitors can launch new sites
quickly and inexpensively. No substantial barriers to entry into the online
business to business marketplace for filmed entertainment industry exist.
Increased competition from these and other sources could require us to
respond to competitive pressures by establishing pricing, marketing and other
programs or seeking out additional strategic alliances or acquisitions that
may be less favorable to us than would otherwise be established or obtained,
and thus could have a material adverse effect on our business, prospects,
financial condition and results of operations. We believe that the principal
competitive factors in our market are:

         -        filmed entertainment rights industry connections;
         -        brand recognition;
         -        selection;


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         -        variety of value-added services;
         -        ease of use, site content;
         -        user and advertiser fulfillment;
         -        reliability;
         -        quality of search tools;
         -        customer service; and
         -        technical expertise.

Key competitors include FilmBazaar.com, IFilm.com, MIPInteractive,
Reeplay.com, ScreenExchange.com, ShowBizData.com and Tivix.com. There can be
no assurance that our competitors will not develop services that are superior
to ours or achieve greater market acceptance. Our failure to provide services
that achieve success in the short term could materially and adversely affect
our business, prospects, financial condition and results of operations. In
addition, we compete with filmed entertainment rights transaction venues such
as film festivals, subscription databases and trade magazines. The online
venues competing with us may be acquired by, receive investments from, or
enter into other commercial relationships with, larger, more established and
more adequately financed companies as the use of the Internet and other
online services increases. We are aware that certain of our competitors have
and may continue to adopt aggressive pricing policies and devote
substantially more resources to web site and systems development than we do.
Increased competition may result in reduced operating margins, loss of market
share and a diminished brand franchise.

TECHNOLOGY

The OnlineFilmandTVSales.com website is currently being designed and
developed on InternetStudios behalf by MediaChase. InternetStudios' system is
being designed around industry standard architectures. InternetStudios is
unable to predict at this time whether its infrastructure is adequate to
accommodate the volume of traffic and the number of filmed entertainment
rights transactions that will actually be conducted by users on its website.
The failure of InternetStudios' systems to accommodate the volume of traffic
or the number of transactions could cause the website to become unstable and
possibly cease to operate for periods of time. InternetStudios anticipates
that it will continue to devote significant resources to develop its
technology infrastructure. InternetStudios' future success will depend 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. The failure of
InternetStudios to adapt to such changes would harm its business.

The InternetStudios technology platform has been designed to support rapid
scalable deployment of buyer and seller services both online and offline to
enhance the value for our customers which can range in size from the smallest
of companies to the largest. Our platform creates value in two primary ways
for our customers: saving costs and increasing sales.

Three environments are critical to InternetStudios' information technology
infrastructure:

         -      Operations/Development Network - InternetStudios owns and
                maintains the various Dell workgroup and departmental servers
                that make up the operating infrastructure, development
                environment, security, mail, and file / print services.

         -      Staging Network - InternetStudios owns and maintains the IBM
                Netfinity Servers used to stage Production releases for testing
                and Quality Assurance. The Staging environment is a scaled down
                version of the Production Platform environment complete with Web
                Servers,


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                Applications Servers, Mgmt/Reporting Servers, Database
                Servers, Raid 5 Storage, and Communications Servers.

         -      Production Platform Environment - InternetStudios owns and
                operates the IBM Netfinity Servers Co-Located at the El Segundo
                Exodus Data Center. The Production Platform is a fully
                redundant, fault tolerant, fail over capable system complete
                with Web Farm Servers, Applications Servers, Mgmt/Reporting
                Servers, Clustered Database Servers, a Raid 5 Storage Array, and
                a Communications Server. The Production environment currently
                leases two Compaq Proliant 3000 Servers running as a Tier 2 Web
                Platform suitable for launching "Non-Mission Critical" web sites
                supporting the Production Platform.

Through December 31, 2000, InternetStudios has spent approximately $9.5
million on website development. This investment has yielded an infrastructure
that is currently supporting four products (reporterTV, OnlineFilmandTVSales,
Sundance Online Resource Center and LondonPremiere Screenings). It is not
expected that any significant additional investment is required in this area
to allow the platform to support richer functionality with the products or
the addition of more products. As for the software, the functionality has
matured but additional enhancements are planned.

All production equipment is co-located at the Exodus El Segundo Data Center,
and is monitored (24/7/365) by the Exodus Network Operations Center. The
streams are hosted through our distribution partner - IBeam. Secondary
Support to the production environment is provided by InternetStudios' own IT
infrastructure team, and finally, MediaChase also provides 24/7 IT support
with remote and on-site services.

All three platforms/environments are Microsoft Windows 2000 / NT based. All
database applications are written / designed in MS SQL*Server 7.0.
InternetStudios uses several software programs developed and licensed by
Computer Associates. InternetStudios also uses various Microsoft development
tools/ software packages. In addition, it uses a number of other programs
from Vendors like Macromedia & Adobe.

InternetStudios uses the ADIC Tape Library backup system in combination with
ARCServe and ARCServe SQL Agent both in the operational development
environment as well as in the production environment. The Company is
currently employing a combined full/incremental backup scheme to ensure
reliable and timely backup and recovery.

InternetStudios applies industry standards and best practices by using
Microsoft's scalable Distributed Network Architecture with built in
redundancy and fail over capabilities.

InternetStudios will continue to devote resources to develop its technology
infrastructure. The Company's future success will depend on its ability to
upgrade its technology, to adapt its services to evolving industry standards
and to continually improve the performance, features and reliability of its
service.

INTELLECTUAL PROPERTY

InternetStudios regards the protection of its copyrights, service marks,
trademarks, trade dress and trade secrets as critical to its success.
InternetStudios relies on a combination of copyright, trademark, service mark
and trade secret laws and contractual restrictions to protect its proprietary
rights in products and services. InternetStudios maintains confidentiality
and invention assignment agreements with its employees and contractors, and
nondisclosure agreements with parties with which it conducts business to
limit access to and disclosure of its proprietary information. Any
contractual arrangements and the other


                                       11
<PAGE>

steps taken by InternetStudios to protect its intellectual property may not
prevent misappropriation of its technology or deter independent third-party
development of similar technologies. InternetStudios has current pending
applications for the servicemark of "InternetStudios.com", the trademark of
"ReporterTV" and the trademark of "StudioBuzz" with the United States Patent
and Trademark Office. In addition, InternetStudios owns the following domain
names: manmadefilms.com, manmadepictures.com, onlinefilmmarket.com,
onlinetvsales.com, reportertv.com, studiobuzz.com, OnlineFilmSales.cc,
onlinetvsales.cc, reportertv.cc and studiobuzz.cc.

EMPLOYEES

As of December 31, 2000, InternetStudios had forty-four full time employees.

INDUSTRY BACKGROUND

THE FILMED ENTERTAINMENT RIGHTS MARKET

Historically, filmed entertainment rights have been bought and sold primarily
through major and minor film festivals and trade shows. Producers create over
12,000 films and hundreds of thousand of hours of television programs each
year. Each project requires marketing of the distribution rights for
different media, such as theatrical release, video sales and rental, video on
demand, pay television, free television and the Internet, in every geographic
market. This results in six or more licenses for each production in as many
as 200 territories. The rise of independent feature film and television
productions over the last 15 years has created a demand for a more efficient
marketplace for distribution of the rights for these filmed entertainment.

The market for filmed entertainment rights is fragmented. There is no central
service available for entertainment industry executives to access information
with respect to the availability and nature of filmed entertainment rights.
Currently, the entertainment industry utilizes a combination of subscription
database services, trade magazines and relies heavily on the networking of
staff and attendance at the film markets and festivals to locate and purchase
project exploitation and distribution rights or list and license their
available inventories. The market is inefficient, labor intensive and the
cost of concluding a licensing arrangement can be prohibitively high.

InternetStudios believes that there are significant market opportunities for
an easily accessible, centralized forum where entertainment industry
executives and producers can buy and sell filmed entertainment rights. An
online database and digital market will enable holders to list and sell any
unsold filmed entertainment rights. InternetStudios also believes that the
Internet provides such a forum for the transaction of filmed entertainment
rights.

THE INTERNET

The Internet has emerged as a global platform that allows millions of people
to share information, communicate with each other and conduct business
electronically. International Data Corporation ("IDC") estimates that the
number of web users will grow from approximately 150 million worldwide in
1998 to approximately 500 million worldwide by the end of 2003. The growing
adoption of the web represents an enormous opportunity for buyers and vendors
of filmed entertainment rights to conduct commerce over the Internet. IDC
estimates that commerce over the Internet will increase from approximately
$40 billion worldwide in 1998 to approximately $900 billion worldwide in 2003.

Filmed entertainment rights have been historically bought and sold primarily
through major and minor film festivals and trade shows. These markets are
highly inefficient for the following reasons:


                                       12
<PAGE>

         -        their fragmented, regional nature makes it difficult and
                  expensive for buyers and vendors to meet, exchange information
                  and complete transactions;

         -        they offer a limited breadth of filmed entertainment rights;

         -        they often have high transaction costs from intermediaries;
                  and

         -        they are information inefficient, as buyers and vendors lack a
                  reliable and convenient means of setting prices for sales or
                  purchases.

The Internet offers for the first time the opportunity to create a compelling
global marketplace that overcomes the inefficiencies associated with traditional
trading of filmed entertainment rights by offering the benefits of
Internet-based commerce. An Internet-based centralized trading place offers the
following benefits:

         -        facilitates buyers and vendors meeting, listing filmed
                  entertainment rights for sale, exchanging information,
                  interacting with each other and, ultimately, consummating
                  transactions;

         -        allows buyers and vendors to trade directly, bypassing
                  traditional intermediaries and lowering costs for both
                  parties;

         -        is global in reach, offering buyers a significantly broader
                  selection of filmed entertainment rights to purchase and
                  providing vendors the opportunity to sell their filmed
                  entertainment rights efficiently to a broader base of buyers;
                  and

         -        offers significant convenience, allowing trading at all hours
                  and providing continually updated information.

As a result, there exists a significant market opportunity for an Internet-based
centralized marketplace that applies the unique attributes of the Internet to
facilitate the trading of filmed entertainment rights directly from vendors to
buyers.

STRATEGIC ALLIANCES

Fintage House

In August 2000, Fintage House, a company based in Amsterdam which is involved in
collection account management, reached an agreement in principle with
InternetStudios pursuant to which Fintage House's program, "Fintage e-safe" will
be adapted to process transactions conducted on the OFTVS website. Specifically,
Fintage House will provide services for placing funds in escrow, the collection
of accounts and the disbursement of funds that are generated on the
InternetStudios subsidiary's Web site, OnlineFilmandTVSales.

Fintage House's expertise over the years combined with its extensive contacts
and track record in sound independent financial services is an essential part
of conducting Internet transactions on the OnlineFilmandTVSales. The service
is specifically targeted at the growing area of film sales conducted over the
Internet. In addition, the customized payment and disbursement methods will
provide the level of trust for both buyers and sellers necessary to complete
transactions without the regular face-to-face meetings of traditional sales
of film and TV rights.


                                       13
<PAGE>

London Premier Screenings

In October 2000, InternetStudios entered a partnership agreement with London
Premier Screenings (LPS) to create the inaugural website for LPS.
InternetStudios was chosen exclusively by LPS and as the formal sponsors for
London Premiere Screenings, in association with Screen International and
PACT, InternetStudios was wholly responsible for the creation and look of the
site. The site included local maps, guides, venues and accommodations as well
as up to the minute details on screenings and schedules to create a global
and efficient business environment for attendees of the LPS. In addition,
users of the site were also able to view exclusive trailers or key art for
the featured films, and had a direct link to reporterTV, for the latest
information and news from both LPS and Hollywood.

Sundance Online Resource Center

In December 2000, InternetStudios entered a one-year sponsorship agreement
with The Sundance Institute, a not-for-profit arts organization, to
co-produce the Sundance Online Resource Center (SORC) for the 2001 Sundance
Film Festival. The SORC will showcase web sites for each film in the Sundance
Film Festival as well as provide expanded information on the filmmakers,
panel participants, and official activities at the Festival. InternetStudios
is responsible for the SORC's website design, technical functionality, and
Internet promotion and marketing. The site can be viewed at
www.sundanceonlineresourcecenter.org

ITEM 2. PROPERTIES

InternetStudios maintains its offices in Santa Monica, California, Hollywood,
California, Vancouver, British Columbia and London, England.

Pursuant to a three year lease commencing on November 1, 1999,
InternetStudios leases offices for its corporate headquarters at 1351 4th
Street, Suite 227, Santa Monica, California at a base rent of $8000 per month.

The Hollywood office is located at 1400 Cahuenga Boulevard. The Company
assumed responsibility for this lease through an assignment of lease from
MediaChase on March 28, 2000. The term of the lease is through October 2002
at a current rental of $17,500 per month (subject to annual escalation).

InternetStudios also leases office space at 1040 Hamilton Street, Vancouver,
British Columbia pursuant to a three year lease entered into on March 1,
2000. Monthly rental is CN $4,218.58 for the period commencing March 1, 2000
and ending February 28, 2001 and CN $4,354.67 for the period commencing March
1, 2001 and ending February 28, 2003.

InternetStudios UK Limited leases office space at 6/7 D'Arblay Street London,
England pursuant to a six year lease. The initial rent is 52,500 British
pounds per annum. The first rent review date is set for September 1, 2001.

InternetStudios does not own any real estate. InternetStudios believes that
it currently has sufficient space to carry on its operations for the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

On or about September 1, 2000, Steven J. Fredericks, the former acting
President and Chief Financial Officer, brought an action against the Company
and certain of its senior management, in Los Angeles County Superior Court.
Mr. Fredericks had become employed in the capacity of President and CFO in
the


                                       14
<PAGE>

spring of 2000. He was subsequently terminated in June 2000. In his lawsuit,
Mr. Fredericks alleges claims for: 1) Breach of Written Contract; 2) Breach
of Implied Contract; 3) Breach of the Implied Covenant of Good Faith and Fair
Dealing (Written Contract); 4) Breach of the Implied Covenant of Good Faith
and Fair Dealing (Implied in Fact); 5) Constructive Termination; 6)
Declaratory Relief; 7) Violation of California Labor Code Section 218.5; 8)
Inducing Breach of Contract; 9) Fraud, and; 10) Quantum Meruit. Mr.
Fredericks' various claims center on his allegation that he was wrongfully
discharged from his employment with InternetStudios. He has asked for
economic damages, general damages, punitive damages and attorneys' fees in an
amount in excess of the minimum jurisdiction of the court. The matter was
tendered to the Company's insurance carrier who is defending under a
reservation of rights.

August Entertainment, Inc. ("August") brought an action against the Company
on September 7, 2000 in Los Angeles County Superior Court for breach of
contract arising from an alleged contract for distribution of films. The
Complaint seeks damages of $2,000,000. The Company filed a demurrer to the
first amended complaint. Based on the Company's demurrer, the Court dismissed
August's first amended complaint but allowed August leave to file a new
complaint. August then filed a Second Amended Complaint and InternetStudios
subsequently filed a demurrer to the Second Amended Complaint. This Demurrer
to August's Second Amended Complaint was originally scheduled for January 26,
2001, but was moved on the court's own initiative and was heard on February
22, 2001. After taking the demurrer under submission, the court overruled the
Company's demumer on April 13, 2001 and required the Company to file its
answer on or before April 23, 2001. An application for a right to attach
order and order for issuance of a writ of attachment is scheduled for hearing
on April 19, 2001 in Los Angeles Superior Court.

Although no assurance can be given as to the outcome of the lawsuits or the
attachment application, the Company believes that the allegations in the
actions are without merit, and the Company intends to continue to vigorously
defend against each action.

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

No matters were submitted to a vote of the shareholders of InternetStudios
during the fourth quarter of 2000.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since September 23, 1999, InternetStudios' Common Stock has been quoted on
the NASD OTC Bulletin Board under the symbol "ISTS." Prior to that date,
InternetStudios' Common Stock traded under the symbol "EHLC." The trading
market is limited and sporadic and should not be deemed to constitute an
"established trading market." The following table sets forth the high ask and
low bid information for each fiscal quarter during 1999 and 2000. The bid
information was obtained from Bloomberg and Silicon Investor and reflects
interdealer prices, without retail mark-up, markdown or commission, and may
not necessarily represent actual transactions.

FISCAL YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>

                                                        High        Low
<S>                                                    <C>          <C>
Quarter Ended March 31, 1999........................    $6.00       $1.09
Quarter Ended June 30, 1999.........................   $10.13       $1.04
Quarter Ended September 30, 1999....................    $6.75       $2.00


                                       15
<PAGE>

Quarter Ended December31, 1999......................    $6.50       $4.75

</TABLE>

FISCAL YEAR ENDED DECEMBER 31, 2000

<TABLE>
<CAPTION>

                                                        High        Low
<S>                                                    <C>         <C>
Quarter Ended March 31, 2000........................   $22.50       $5.50
Quarter Ended June 30, 2000.........................   $19.12      $13.00
Quarter Ended September 30, 2000....................   $13.06       $7.00
Quarter Ended December31, 2000......................    $7.06       $4.75

</TABLE>

On March 30, 2001 the closing price for the common stock as reported by the
NASD OTC Electronic Bulletin Board was $2.38.

As of December 31, 2000 there were approximately 53 holders of record of the
Common Stock. As of such date, 15,658,044 shares were outstanding.

InternetStudios currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends on its capital
stock in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

This schedule contains summary financial information extracted from the
financial included in this Form 10-K and is qualified in its entirety by
these financial statements.

<TABLE>
<CAPTION>

                                          Twelve months ended Dec.         Twelve months ended
                                                  31, 2000                    Dec. 31, 1999
                                          ------------------------         -------------------
                                                (in $)                              $
<S>                                       <C>                              <C>
Operating Revenues ................                   137,736                       --
General and administrative expenses                20,629,094                  2,730,811
Net Loss ..........................               (36,205,668)                (2,730,811)
Loss per share ....................                     (2.41)                     (0.32)
Total assets ......................                25,768,567                 14,151,685

</TABLE>

         The consolidated financial statements dated December 31, 1999
include the acquisition of Online Films, LLC effective on September 30, 1999.
Accordingly, the assets of Online Films, LLC are included in the total
assets. The loss from continuing operations includes the losses of Online
Films, LLC since October 1, 1999.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

FORWARD LOOKING STATEMENTS. The following presentation of management's
discussion and analysis of the Company should be read in conjunction with the
Company's Consolidated Financial Statements and other financial information
included herein. This Management's Discussion and Analysis of Financial
Condition and Result of Operations and other sections of this report contain
forward-looking statements that are based on the current beliefs and
expectations of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. Such statements
include those regarding general economic and internet industry trends.
Because such statements involve risks and uncertainties, actual actions and
strategies and the timing and expected results thereof may differ materially
from those expressed or implied by such forward-looking statements,


                                       16
<PAGE>

and the Company's future results, performance or achievements could differ
materially from those expressed in, or implied by, any such forward-looking
statements. Future events and actual results could differ materially from
those set forth in or underlying the forward-looking statements.

This Report on Form 10-K for the year ended December 31, 2000 contains
"forward-looking" statements within the meaning of the Federal securities
laws. These forward-looking statements involve a number of risks and
acceptance of products and technologies, successful integration of
acquisitions, the ability to secure additional sources of financing, the
ability to reduce operating expense and other factors described in the
Company's filings with the Securities and Exchange Commission. The actual
results that the Company achieves may differ materially from any
forward-looking statements due to such risks and uncertainties. The
forward-looking statements in this Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 are subject to risks and results expressed in or
implied by the statements contained herein.

OVERVIEW

The Company was incorporated in the State of Nevada on April 14, 1998 as The
Enterprise, Inc. For a period of time prior to December 14, 1998, the Company
was engaged in the word processing business. On December 14, 1998,
InternetStudios withdrew from the word processing business in anticipation of
acquiring a license to software technology for the health industry and on
December 17, 1998, the Company changed its name to eHealth.com, Inc. This
acquisition was not completed. On September 18, 1999, the stockholders of the
Company approved a name change to InternetStudios.com, Inc. in anticipation
of acquiring and developing an Internet business. The name change was
effective September 21, 1999.

InternetStudios provides full services for marketing, licensing and tracking
film and television distribution rights. The Company combines four separate
but complementary business units: (1) a digital marketplace, at
www.OnlineFilmandTVSales.com, where buyers and sellers can conduct
transactions for filmed entertainment generating transaction fees for
InternetStudios; (2) a financing arm, InternetStudios Entertainment Finance,
which generates fees and financing charges, and drives sales activity to the
OnlineFilmandTVSales site; (3) ISTS Rights Tracking, which provides filmed
entertainment rights tracking technology for which license fees and service
fees are charged, and (4) reporterTV.com, which provides streaming broadcasts
of industry news and events that generates production fees, advertising and
sponsorship revenues.

InternetStudios currently operates the following websites:

         - www.internetstudios.com
         - www.onlinefilmandtvsales.com
         - www.reportertv.com
         - www.sundanceonlineresourcecenter.org

The Company's predecessor, Online Films LLC, was organized in July of 1999
and commenced development activities in August, 1999.

InternetStudios has incurred significant losses since inception, and as of
December 31, 2000 had an accumulated net loss of $38,952,616. InternetStudios
and its subsidiaries have made a significant investment in its web based
services to maintain its technological advantage and to brand and market
these services.

                                       17
<PAGE>

As of the date of this Report, the Company has utilized substantially all of
its available funding. The Company's continuation as a going concern will
depend on its ability to raise additional capital. No assurance can be given
that the Company will be able to raise additional funds. In the absence of
such funds, the Company will be required to cease operations.

RESULTS OF OPERATIONS

During 1999, the Company did not recognize any revenues. Accordingly, the
Company did not have any cost of revenues. The discussion set forth below
relating to results of operations pertains only to fiscal year 2000. In view
of the limited activities of the Company in 1999, any comparison would not be
meaningful.

REVENUES. InternetStudios has recognized revenues to date of $415,250 of
which $137,736 are from operating revenues sources. The Company recognizes
revenue from its customers listing material on the OFTVS website as well as
revenues from transactions consummated by buyers and sellers using the OFTVS
system. In addition, revenues from reporterTV.com consist of fees for
production services, sponsorship and content syndication and are recognized
at the time the services are rendered or the products delivered. Revenues
from IEF relating to the financing of film entertainment is amortized over
the life of the agreement, typically 18 months, using a method that
appropriates the effective interest method.

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

ADVERTISING AND MARKETING EXPENSES. Costs related to InternetStudios'
advertising and marketing efforts were $2,780,920 for the period ended
December 31, 2000. InternetStudios' advertising and marketing expenses
consist mainly of advertising expenses, creative development and promotional
costs and commissions, and compensation for advertising and marketing
personnel. The majority of these costs were directed to programs designed to
build brand name recognition, attract filmed entertainment companies and
individuals to InternetStudios' websites, and to attract motion pictures and
television programming for listing on the OnlineFilm and TVSales.com web site.

WEBSITE AND DEVELOPMENT EXPENSES. These expenses consist primarily of payroll
and related expenses for development in network operations personnel and
consultants, cost related to modifications, enhancement and new operations to
enhance our websites. Website development costs as of December 31, 2000 were
$9,536,992 of which $2,779,668 were capitalized under EITF 00-02 and
$4,750,000 were recorded as a non-cash cost related to stock based
compensation. InternetStudios expects to incur additional website development
and maintenance expense in the future.

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

                                       18
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

From inception, InternetStudios has financed its operations entirely from
private placements. On December 31, 2000 InternetStudios had $700,068 in cash
and cash equivalents, including $360,000 used to secure letters of credit.
From inception, InternetStudios has had negative cash flows from operating
activities in each fiscal and quarterly period to date.

Net cash used in operating activities was $4,178,534 for the period from
inception and ended December 31, 1999, and $13,647,501 the period ended
December 31, 2000.

Pursuant to the Financing Agreement, dated September 17, 1999, among
InternetStudios, Online Films and Pacific Capital Markets, Inc., Pacific
Capital arranged for the sale of 1,000,000 shares of InternetStudios' Common
Stock at $8 per share to investors in offshore transactions. As of December
31, 1999, a total of 562,500 shares of Common Stock were issued to five
unrelated third party, non U.S. investors for a total offering price of
$4,500,000. As of March 15, 2000, an additional 437,500 shares of Common
Stock were issued to three additional unrelated third party, non-U.S.
investors for a total offering price of $3,500,000. These offerings were done
pursuant to Regulation S.

As of March 29, 2000, an additional 950,000 shares of Common Stock were
issued for $10 per share to an unrelated third party, U.S.-based investor.
This offering was done pursuant to Regulation D. As of April 5, 2000, an
additional 480,000 shares of Common Stock were issued for $10 per share to
four unrelated third party, non U.S. investors for a total offering price of
$4,800,000. This offering was done pursuant to Regulation S. As of April 10,
2000, an additional 15,000 shares of Common Stock were issued for $10 per
share to an unrelated third party non U.S. investor. A finder's fee of 4% was
paid pursuant to this offering.

As shown in the Company's financial statements, the Company has sustained
substantial losses from operations since inception. As of the date of this
Report, the Company has utilized substantially all of its available funding.
The Company's continuation as a going concern will depend on its ability to
raise additional capital. No assurance can be given that the Company will be
able to raise additional funds. In the absence of such funds, the Company
will be required to cease operations.

In accordance with its original business plan, the Company was required to
make a significant investment in technology and website development. In
addition, the plan called for the necessary investments to market the Company
and its services to brand the Company globally. Website development was
substantially completed in October 2000. Revenues derived from implementation
of the Company's platform commenced in the fourth quarter of 2000.

Management of the Company has taken steps to revise and reduce its operating
requirements, which it believes will be sufficient to assure continued
operations and implementation of the Company's plans. These steps include
expense reductions in staffing, marketing and consulting, as well as a
significant decrease in operating costs as a result of completion of Web
developments activities. The Company is also in the process of securing
additional capital through equity transactions, which will be required in
order to continue operations. In this regard, the Company has engaged an
investment bank and has circulated a Private Placement Memorandum seeking to
raise an additional $20.0 million.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, (SFAS No. 133). SFAS No. 133 requires
companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to
the hedged risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging instrument, the
gain or loss is recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2001 to
affect its financial statements.

In March 2000, EITF 00-2 "Accounting for Web Site Development Costs" was
released. EITF 00-2 provides guidance on how an entity should account for
costs involved in such areas as planning, developing software to operate the
web site, graphics, content, and operating expenses. EITF 00-2 is

                                       19

<PAGE>

effective for web site development costs incurred for fiscal quarters
beginning after June 30, 2000. The Company adopted EITF 00-2 and development
costs incurred subsequent to June 1, 2000, associated with the Company's Web
Site were recorded in accordance with EITF 00-2. Development costs of
$2,779,668 were capitalized during the year ended December 31, 2000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

InternetStudios' Financial Statements, together with the report of
independent certified public accountants, appear at pages F-1 through F-21
of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Effective April 18, 2000, the Company dismissed LaBonte & Co. ("LaBonte") as
the Company's independent accountants, and engaged Pricewaterhouse Coopers
LLP ("PWC") as the Company's new independent accountants. The dismissal of
LaBonte and the retention of PWC were approved by the Company's Board of
Directors. Prior to the engagement of PWC, neither the Company nor anyone on
its behalf consulted with such firm regarding the application of accounting
principles to a specified transaction, either completed or uncompleted, or
type of audit opinion that might be rendered on the Company's financial
statements.

LaBonte audited the Company's financial statements for the years ended
December 31, 1999 and 1998. LaBonte's reports for each of such periods did
not contain an adverse opinion or a disclaimer of opinion, nor were the
reports qualified or modified as to uncertainty, audit scope or accounting
principles, except as to the comments by auditors for U.S. readers on
Canada-United States reporting differences regarding the Company's ability to
continue as a going concern. During the period from January 1, 2000 to April
8, 2000 and the years ended December 31, 1999 and 1998, there were no
disagreements with LaBonte on matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of LaBonte, would have
caused such firm to make reference to the subject mater of the disagreements
in connection with its reports on the Company's financial statements. In
addition, there were no such events as described under Item 304(a)(1)(v) of
Regulation S-K during the fiscal years ended December 31, 1999 and 1998 and
the subsequent interim periods through April 18, 2000.

Effective November 28, 2000, the Company accepted the resignation of PWC as
the Companys' independent accountants. Effective November 28, 2000, the
Company engaged Grant Thornton LLP ("Grant") as the Company's new independent
accountants. The resignation of PWC and the retention of Grant were accepted
by the Company's Board of Directors. Prior to the engagement of Grant,
neither the Company nor anyone on its behalf consulted with such firm
regarding the application of accounting principles to a specified
transaction, either completed or uncompleted, or type of audit opinion that
might be rendered on the Company's financial statements. During the course of
its engagement, PWC did not audit the Company's financial statements. During
the period from April 18, 2000 to November 8, 2000, there were no
disagreements with PWC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. In addition,
there were no such events as described under Item 304(a)(1)(v) of Regulation
S-K during the period from April 18, 2000 to November 28, 2000.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                                       20

<PAGE>

The following table and text sets forth the names and ages of all of
InternetStudios' directors and executive officers as of March 31, 2001. All
of the directors will serve until the next annual meeting of stockholders and
until their successors are elected and qualified, or until their earlier
death, retirement, resignation or removal. Executive officers serve at the
discretion of the board of directors, and are appointed to serve until the
first board of directors meeting following the annual meeting of stockholders.
<TABLE>
<CAPTION>

POSITION                                                     NAME                           AGE
<S>                                                         <C>                           <C>
Chairman of the Board, Director                              Robert MacLean                 45

Vice Chairman, Secretary, Treasurer, Director                Mark Rutledge                  41

Chief Executive Officer, InternetStudios                     Heidi Lester                   39

President, InternetStudios UK Limited                        Aline Perry                    47

President, InternetStudios Entertainment Finance             Robert Beattie                 41

Director                                                     Michael Edwards                32
</TABLE>

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

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

HEIDI LESTER has been Chief Executive Officer of InternetStudios since
September 1999. Ms. Lester has over 15 years of experience in the film
acquisition and distribution industry. From 1994 to 1999, she held the
position of Senior Vice President of Acquisition and Production at Summit
Entertainment. In 1994, Ms. Lester was Vice President of Acquisitions at
Largo Entertainment. From 1989 to 1994, Ms. Lester was in charge of the Los
Angeles Liaison office for the JVC Visual Software Division. She is currently
the Co-Chairman of Industry Relations Committee for the American Film Market
Association ("AFMA") and is a member of the Internet Committee for AFMA. Ms.
Lester has previously served as a member of the Board of Directors of AFMA.

ALINE PERRY has been President of InternetStudios.com UK Limited since its
formation. Ms. Perry was the President of Polygram Film International between
1992 and 1999. During her tenure she oversaw the growth of a small sales
operation into a major international distribution company, handling
world-
                                       21

<PAGE>

class pictures such as FOUR WEDDINGS AND A FUNERAL, MISTER BEAN, SLEEPERS,
FARGO and NOTTING HILL. She played a key role in the development and green
lighting process, and held overall responsibility for marketing, publicity,
international distribution and sales.

ROBERT BEATTIE has been President of InternetStudios Entertainment Finance
Inc. since its formation. Mr. Beattie recently headed Equicap Financial
Corporation, a subsidiary of Alliance Atlantis Communications Inc., which
specialized in providing interim production financing to independent motion
picture and television producers. During the four years which he headed the
division, Mr. Beattie was responsible for financing 38 projects with budgets
ranging from $2 million to over $30 million with an aggregate total in excess
of $280 million. Prior to joining Alliance Atlantis, Mr. Beattie was the team
leader and co-manager of Royal Bank's Toronto Media and Entertainment Group.
While at Royal Bank, Mr. Beattie was responsible for financing both
independent producers as well as some of Canada's largest publicly traded
film and television companies. Mr. Beattie was with Royal Bank for a total of
9 years. Mr. Beattie holds an MBA in Finance, is a Chartered Financial
Analyst and a member of the Association for Investment Management Research
and the Toronto Society of Financial Analysts. A frequent speaker at industry
conferences, Mr. Beattie is recognized as one of Canada's most knowledgeable
lenders in the film and television production financing industry.

MICHAEL EDWARDS served as Chief Operating Officer from September 1999 until
April 12, 2000. From 1991 to 1997, Mr. Edwards was the controller of Alik
Enterprises Ltd., a British Columbia, Canada based restaurant business. From
1997 to 1999, Mr. Edwards was the president of Soul Rider Sports, Inc., a
consumer goods manufacturing and distribution company.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons
who own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership (Forms 3, 4
and 5) of Common Stock with the Securities and Exchange Commission and the
National Association of Securities Dealers. Officers, directors and
greater-than-ten percent holders are required to furnish the Company with
copies of all such forms which they file.

To the Company's knowledge, based solely on the Company's review of copies of
such reports or written representations from certain reporting persons that
no Form 5 were required to be filed by those persons, the Company believes
that for fiscal 2000 all filing requirements applicable to its officers,
directors, greater-than-ten-percent beneficial owners and other persons
subject to Section 16 of the Exchange Act were complied with.

                                       22

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth, for the years ended December 31, 1999 and
December 31, 2000, all compensation to the Chief Executive Officer and the
other executive officers of the Company who served in 2000 and received
salary and bonus in excess of $100,000. The executive officers of
InternetStudios did not receive compensation prior to 1999.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                        Annual Compensation
---------------------------------------------------------------------------------------------------------------------
Name & Principle Position       Year         Salary ($)        Bonus ($)        Other Annual          Long Term
                                                                                Compensation(1)       Awards (2)
---------------------------------------------------------------------------------------------------------------------
<S>                            <C>          <C>                <C>              <C>               <C>
HEIDI LESTER                    2000          252,000           50,000             7,200                  -
---------------------------------------------------------------------------------------------------------------------
CEO                             1999           63,000             -                 -                  175,000
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
ROBERT MACLEAN                  2000          192,000           50,000             7,200                  -
---------------------------------------------------------------------------------------------------------------------
Chairman                        1999           43,000             -                 -                  175,000
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
MARK RUTLEDGE                   2000          192,000           50,000             7,200                  -
---------------------------------------------------------------------------------------------------------------------
Vice Chairman                   1999           43,000             -                 -                  175,000
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
ALINE PERRY,                    2000          250,000           50,000              -                   50,000
---------------------------------------------------------------------------------------------------------------------
President,  InternetStudios UK  1999             -                -                 -                     -
LTD
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
ROBERT BEATTIE                  2000          170,000           75,000             7,200                  -
---------------------------------------------------------------------------------------------------------------------
President, IEF                  1999             -                -                 -                     -
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)      Other compensation reflects a car allowance paid to management.
(2)      Represents the number of securities underlying stock options granted.

EMPLOYMENT AGREEMENTS

InternetStudios, through one of its subsidiaries OnlineFilmSales, entered
into a Management Agreement with Heidi Lester on April 1, 2000. Under Ms.
Lester's Management Agreement, Ms. Lester is serving as Chief Executive
Officer for a term of three years. The term may be renewed upon a written
agreement between the parties for two additional one year periods. The
provisions of the Management Agreement include:

         -        base salary of $252,000 per year, subject to an increase at
                  the end of each year of the term determined by the Board of
                  Directors in its sole discretion;

         -        annual bonus, determined by the Board of Directors in its sole
                  discretion;

         -        an option to purchase 175,000 shares of InternetStudios'
                  Common Stock at an exercise price of $5.00 per share, subject
                  to vesting requirements and approval of the Board of Directors
                  and stockholders;

         -        customary employee benefits and reimbursement of reasonable
                  expenses incurred in connection with the performance of her
                  duties; and

         -        noncompetition, nondisclosure and nonconsolidation covenants.

                                       23

<PAGE>

In the event InternetStudios, or one of its subsidiaries, as the case may be,
terminates Ms. Lester for any reason other than death, disability, or for
cause, or in the event Ms. Lester terminates her services for cause, Ms.
Lester will be entitled to the following compensation on the eighth day after
her signing a Confidential Severance Agreement and a letter confirming that
she did not revoke and will take no action to revoke the Confidential
Severance Agreement:

         -        a lump sum severance payment equal to one and one-half times
                  her base - salary;

         -        any accrued and unpaid vacation or other benefits;

         -        any accrued and unpaid bonus; and

         -        accelerated vesting of her stock options.

InternetStudios, through one of its subsidiaries OnlineFilmSales, entered
into an Agreement with Spray Point Consulting Limited for the services of
Robert MacLean on April 1, 2000. Under this Agreement, Mr. MacLean will serve
as the Company's Chairman for a term of three years. The term may be renewed
upon a written agreement between the parties for two additional one year
periods. The provisions of the Agreement include:

         -        base salary of $142,000 per year, subject to an increase at
                  the end of each year of the term determined by the Board of
                  Directors in its sole discretion;

         -        one time bonus of $50,000 paid in May 2000;

         -        annual bonus, determined by the Board of Directors in its sole
                  discretion;

         -        customary employee benefits and reimbursement of reasonable
                  expenses incurred in connection with the performance of his
                  duties; and

         -        noncompetition, nondisclosure and nonconsolidation covenants.

In the event InternetStudios, or one of its subsidiaries, as the case may be,
terminates Mr. MacLean for any reason other than death, disability, or for
cause, or in the event Mr. MacLean terminates his services for cause, Mr.
MacLean will be entitled to the following compensation on the eighth day
after his signing a Confidential Severance Agreement and a letter confirming
that he did not revoke and will take no action to revoke the Confidential
Severance Agreement:

         -        a lump sum severance payment equal to one and one-half times
                  his base salary;

         -        any accrued and unpaid vacation or other benefits;

         -        any accrued and unpaid bonus; and

         -        accelerated vesting of his stock options.

In addition to the agreement between OnlineFilmSales and Spray Point
Consulting Limited, Mr. MacLean also entered into an Employment Agreement
with InternetStudios UK LTD and InternetStudios for a term commencing on July
1, 2000 and ending on December 1, 2002. The agreement provided for a 2000
notional annual salary of US$50,000. In addition, Mr. MacLean is entitled to
receive an additional $1000 for each day worked (i) in excess of 50 days in
that year if a complete year or, (ii) where employment terminates during the
year an additional $1000 for each day worked in excess of 50 days per year
prorated

                                       24

<PAGE>

to the total period of employment for that year. Where Mr. MacLean works less
than 50 days in the preceding year or, where less than a year, has worked
less than the proportionate number of days, Mr. MacLean is required to pay to
InternetStudios UK Limited $1000 for each such day less than 50 days or the
proportionate number of days as the case may be. The Employment Agreement
also provides for:

         -        option to purchase 175,000 shares of InternetStudios' Common
                  Stock at an exercise price of $5.00 (US) per share, subject to
                  vesting requirements and approval of the Board of Directors
                  and stockholders;

         -        term life insurance in the amount of $1,500,000 to be procured
                  and maintained by InternetStudios UK Limited, payable to such
                  beneficiary or beneficiaries designated by Mr. MacLean;

         -        annual bonus, determined by the Board of Directors in its sole
                  discretion;

         -        customary employee benefits and reimbursement of reasonable
                  expenses incurred in connection with the performance of his
                  duties; and

         -        noncompetition, nondisclosure and nonconsolidation covenants.

In the event InternetStudios or its subsidiary InternetStudios UK LTD, as the
case may be, terminates Mr. MacLean for any reason other than death,
disability, or for cause, or in the event Mr. MacLean terminates his services
for cause, Mr. MacLean will be entitled to the following compensation on the
eighth day after his signing a Confidential Severance Agreement and a letter
confirming that he did not revoke and will take no action to revoke the
Confidential Severance Agreement:

         -        a lump sum severance payment equal to one and one-half times
                  his base - salary;

         -        any accrued and unpaid vacation or other benefits;

         -        any accrued and unpaid bonus; and

         -        accelerated vesting of his stock options.

InternetStudios, through one of its subsidiaries OnlineFilmSales, entered
into an Agreement with Carraway Management Inc. for the services of Mark
Rutledge on April 1, 2000. Under this Agreement, Mr. Rutledge will serve as
the Company's Vice President Business Affairs and as Corporate Secretary for
a term of three years. The term may be renewed upon a written agreement
between the parties for two additional one year periods. The provisions of
the Agreement include:

         -        base salary of $192,000 per year, subject to an increase at
                  the end of each year of the term determined by the Board of
                  Directors in its sole discretion;

         -        a one time bonus of $50,000 that was paid on May 28, 2000;

         -        an annual bonus, determined by the Board of Directors in its
                  sole discretion;

         -        customary employee benefits and reimbursement of reasonable
                  expenses incurred in connection with the performance of his
                  duties; and

         -        noncompetition, nondisclosure and nonconsolidation covenants.

                                       25

<PAGE>

In the event InternetStudios, or one of its subsidiaries, as the case may be,
terminates Mr. Rutledge for any reason other than death, disability, or for
cause, or in the event Mr. Rutledge terminates his services for cause, Mr.
Rutledge will be entitled to the following compensation on the eighth day
after his signing a Confidential Severance Agreement and a letter confirming
that he did not revoke and will take no action to revoke the Confidential
Severance Agreement:

         -        a lump sum severance payment equal to one and one-half times
                  his base salary;

         -        any accrued and unpaid vacation or other benefits;

         -        any accrued and unpaid bonus; and

         -        accelerated vesting of his stock options.

InternetStudios UK LTD and InternetStudios entered into a service agreement
with Aline Perry for a term commencing on February 1, 2000 and ending on
January 31, 2002. The agreement provided for a 2000 base salary of US$250,000
(subject to a review at the conclusion of each year of the agreement). In
addition, Ms. Perry is entitled to participate in the Company's other benefit
plans. The agreement also provided for a one-time bonus of $50,000 upon the
completion of a second round of financing being completed by the company by
the end of the second quarter of the calendar year in 2000, which Ms. Perry
received. Other provisions of the service agreement include:

         -        an option to purchase 50,000 shares of InternetStudios' Common
                  Stock at an exercise price of $5.00 (US) per share, subject to
                  vesting requirements and approval of the Board of Directors
                  and stockholders;

         -        customary employee benefits and reimbursement of reasonable
                  expenses incurred in connection with the performance of her
                  duties; and

         -        noncompetition, nondisclosure and nonconsolidation covenants.

In the event InternetStudios or its subsidiary InternetStudios UK LTD, as the
case may be, terminates Ms. Perry for any reason other than death,
disability, or for cause, or in the event Ms. Perry terminates her services
for cause, Ms. Perry will be entitled to the following compensation on the
eighth day after her signing a Confidential Severance Agreement and a letter
confirming that she did not revoke and will take no action to revoke the
Confidential Severance Agreement:

         -        a lump sum severance payment equal to one and one-half times
                  her base salary;

         -        any accrued and unpaid vacation or other benefits;

         -        any accrued and unpaid bonus; and

         -        accelerated vesting of her stock options.

The Company, and its subsidiary InternetStudios Entertainment Finance Inc.,
entered into a management agreement with Robert Beattie commencing on July 1,
2000 and ending on June 30, 2003, subject to potential two one-year
extensions in the absence of a notice of termination by either the Company or
the executive. The agreement provided for a 2000 annual base salary of
CDN$260,000 which salary will be subject to a review at the conclusion of
each year of the term of the agreement. In addition, the agreement

                                       26

<PAGE>

provides that IEF will pay to Mr. Beattie as a bonus, an additional amount
equal to ten (10) percent of the pre-tax profit from IEF less the base salary
for a given year of the agreement.

Other provisions of the agreement include:

         -        an option to purchase 150,000 shares of InternetStudios'
                  Common Stock at an exercise price equal to the fair market
                  value of the shares at the commencement of the agreement,
                  subject to vesting requirements and approval of the Board of
                  Directors and stockholders;

         -        customary employee benefits and reimbursement of reasonable
                  expenses incurred in connection with the performance of her
                  duties; and

         -        noncompetition, nondisclosure and nonconsolidation covenants.

In the event InternetStudios or its subsidiary IEF, as the case may be,
terminates Mr. Beattie for any reason other than death, disability, or for
cause, or in the event Mr. Beattie terminates his services for cause, Mr.
Beattie will be entitled to the following compensation on the eighth day
after his signing a Confidential Severance Agreement and a letter confirming
that he did not revoke and will take no action to revoke the Confidential
Severance Agreement:

         -        a lump sum severance payment equal to one and one-half times
                  his base salary;

         -        any accrued and unpaid vacation or other benefits;

         -        any accrued and unpaid bonus; and

         -        accelerated vesting of his stock options.

BOARD OF DIRECTORS

During the year ended December 31, 2000, three meetings of the Board of
Directors were held. All other corporate actions were conducted by unanimous
written consent of the Board of Directors.

Directors may be paid their expenses for attending each meeting of the
directors and may be paid a fixed sum for attendance at each meeting of the
directors or a stated salary as director. No payment precludes any director
from serving InternetStudios in any other capacity and being compensated for
the service. Members of special or standing committees may be allowed like
reimbursement and compensation for attending committee meetings.


                                       27



<PAGE>

OPTION GRANTS

Pursuant to the Company's 1999 Stock Option Plans, options to acquire 850,000
shares were awarded to executive officers of the Company in December 1999.
Pursuant to the terms of the Plans, the Company was required to obtain
shareholder approval within 12 months of the adoption of the Plans by the
Board of Director of the Company. On January 18, 2000, the Company's
shareholders approved the Plans. For financial reporting purposes, the date of
the adoption of the Plans by the Company's shareholders is deemed to be the
date of the grant.

AGGREGATED OPTION EXERCISES AND YEAR-END VALUES

The following table sets forth information with respect to the executive
officers named in Item 10 concerning the number and value of options
outstanding at the end of the last fiscal year. There were no option
exercises during the last fiscal year.
<TABLE>
<CAPTION>
                                            Value of
Number of                                   Unexercised In-the-
Unexercised                                 Money Options at
Options at                                  December 31, 2000
December 31, 2000                           Vested/Unvested(1)
Vested/Unvested
-----------------                           ----------------------
<S>                                        <C>
Robert MacLean..................................................................
49,792/80,208                                       0/0

Mark Rutledge...................................................................
55,792/80,208                                       0/0

Heidi Lester....................................................................
94,792/80,208                                       0/0
</TABLE>

(1) Value as of December 31, 2000 is the difference between the option
exercise price and the closing price of $4.75 as reported on the NASD OTC
Bulletin Board at December 31, 2000 multiplied by the number of shares
underlying the option.

PERFORMANCE GRAPH

The following performance graph shall not be deemed incorporated by reference
by any general statement incorporating by reference this Form 10-K into any
filing under the Securities Act of 1933 or under the Securities Act of 1934,
except to the extent that InternetStudios specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.

The following graph compares the annual percentage change in the cumulative
total return on the Common Stock of InternetStudios with the cumulative total
return of the S & P 500 and the ISDEX Internet Stock Index for the period
commencing September 23, 1999 and ending December 29, 2000. The stock price
performance shown on the graph below assumes: (i) $100 invested on September
23, 1999 in the Common Stock of InternetStudios and in the stocks of the
companies comprising the S & P 500 and the ISDEX Internet Stock Index; and
(ii) immediate reinvestment of all dividends. This stock price performance is
not necessarily indicative of future price performance.

                                       28

<PAGE>

<TABLE>
<CAPTION>
                                            9/23/99           12/31/99          12/29/2000
                                            -------           --------          ----------
<S>                                       <C>               <C>               <C>
InternetStudios                             $100.00           $385.50             281.56
ISDEX Internet Stock Index                  $100.00           $182.82              92.69
S & P 500                                   $100.00           $114.88             104.42
</TABLE>

REPORT ON EXECUTIVE COMPENSATION - YEAR ENDED DECEMBER 31, 2000:

        The Company's compensation program for its executive officers is
administered and reviewed by the Board of Directors. Historically, executive
compensation consists of a combination of base salary and bonuses. Individual
compensation levels are designed to reflect individual responsibilities,
performance and experience, as well as Company performance. The determination
of discretionary bonuses is based on various factors, including
implementation of the Company's business plan, acquisition of assets,
development of corporate opportunities and completion of financing.

        The Board of Directors also believes that executives should have a
substantial equity ownership, both through direct share ownership and through
stock options, to provide long-term incentives which link executive
compensation to the Company's long-term performance and return to its
shareholders. The Company also believes that non-employee directors should
have an equity interest in the Company. In that regard, the Company has
adopted the 1999 Incentive Stock Option Plans.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 31, 2001, with
respect to the beneficial ownership of the Common Stock of (1) each of our
directors, each of our executive officers and all of our executive officers
and directors as a group, and (2) each stockholder known by InternetStudios
to be the beneficial owner of 5% or more of the Common Stock, and the
percentage of Common Stock so owned.

As used in this table, the term "beneficial ownership" with respect to a
security is defined by Rule 13d-3 under the Exchange Act of 1934, as amended,
as consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose of or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
subject to community property laws where applicable. Each person has sole
voting and investment power with respect to the shares of common stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated. The
address of those individuals for which an address is not otherwise indicated
is: 207-1040 Hamilton Street, Vancouver, British Columbia.

Beneficial Ownership of Management
<TABLE>
<CAPTION>
                                                 NUMBER OF SHARES OF                     PERCENTAGE OF
NAME AND ADDRESS                                    COMMON STOCK                          OUTSTANDING
OF BENEFICIAL OWNER (1)                          BENEFICIALLY OWNED                      COMMON STOCK
<S>                                             <C>                                     <C>
Robert MacLean (2)                                      1,201,984                              7.65

Mark Rutledge (3)                                       1,189,792                              7.57

Heidi Lester (4)                                           94,792                              .006

Michael Edwards (5)                                       118,750                              .007

Aline Perry (6)                                            25,000                              .001


                                       29

<PAGE>
<S>                                              <C>                                      <C>
Robert Beattie                                                  --                               --

All Directors and Officers as a group
(six persons)                                            2,630,318                            15.23
</TABLE>

(1) The address for each such person is 1341 4th Street, Santa Monica, CA
    Suite 227, Santa Monica, CA 90401

(2) Includes 49,792 vested options issued pursuant to the Stock Option Plan.

(3) Includes 54,792 vested options issued pursuant to the Stock Option Plan.

(4)  Does not include the Class B Membership Interest of OnlineFilmSales Ms.
     Lester acquired as of March 28, 2000 which is convertible into 600,000
     shares of Common Stock includes 94,792 vested options issued pursuant to
     the Stock Option Plan.

(5)  Includes 18,750 vested options pursuant to the Stock Option Plan.

(6)  Includes 25,000 vested options pursuant to the Stock Option Plan.

Beneficial Owner of More than 5%

<TABLE>
<CAPTION>
                                                   NUMBER OF SHARES OF                     PERCENTAGE OF
NAME AND ADDRESS                                      COMMON STOCK                          OUTSTANDING
OF BENEFICIAL OWNER(1)                              BENEFICIALLY OWNED                     COMMON STOCK
<S>                                             <C>                                      <C>
Clipper Bay & Co.                                          950,000                             6.07
c/o Capital Research
  Management Corp.
333 South Hope, 55th Floor
Los Angeles, California 90071
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 2000, the Company loaned approximately $423,000 including accrued
interest of approximately $12,000, to a film production company owned and
managed by an executive officer of the Company. Repayment of the loan is at
the demand of the Company. Advances under the loan agreement are
collateralized by all of the assets of the related company and bear interest
at the prime rate plus 3%.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (A) (1)  Financial Statements

         (2)      Exhibits


         (B)      Exhibits

<TABLE>
<CAPTION>
         Exhibits          Description
         --------          ---------------------------
<S>                       <C>
         2.1(1)            Acquisition Agreement

         3.1(1)            Articles of Incorporation

                                       30

<PAGE>
<S>                      <C>
         3.2(1)            Certificate of Amendment of Articles of Incorporation

         3.3(1)            Certificate of Amendment of Articles of Information

         3.4(1)            By-laws

         3.5(1)            Amended By-laws

         3.6(1)            Financing Agreement

         10.1(1)           Financing Agreement

         10.2(1)           Consulting Agreement

         10.3(1)           Letter Agreement between InternetStudios and
                           MediaChase

         10.4(1)           Secured Promissory Note and Allonge to Secured
                           Promissory Note

         10.5(1)           Allonge to Secured Promissory Note dated November 21, 1999

         10.6(1)           Allonge to Secured Promissory Note dated February 1, 2000

         10.7(2)           Allonge to Secured Promissory Note dated March 27, 2000

         10.8(2)           Allonge to Secured Promissory Note dated March 28, 2000

         10.9(2)           Termination Agreement dated March 28, 2000

         10.10(2)          Limited Liability Agreement of OnlineFilmSales.com LLC

         10.11(2)          Contribution, Assignment, and Assumption Agreement by InternetStudios

         10.12(2)          Consulting Agreement between OnlineFilmSales.com, LLC
                           and MediaChase Ltd. to StudioBuzz.com, LLC

         10.13(2)          Limited Liability Company Agreement of reportTV.com, LLC

         10.14(2)          Contribution, Assignment and Assumption by MediaChase
                           Ltd. and Dot to Watch to reporterTV.com, LLC

         10.15(2)          Limited Liability Company Agreement of
                           StudioBuzz.com, LLC

         10.16(2)          Contribution, Assignment, and Assumption Agreement by
                           MediaChase Ltd.

         10.17(2)          Consulting Agreement between StudioBuzz.com, LLC and
                           MediaChase Ltd.

         10.18(2)          1999 Non-US Stock Incentive Plan

         10.19(2)          1999 US Stock Incentive Plan

         10.21(2)          Loan Agreement between Pacific Capital Markets Inc.
                           and InternetStudios

         10.22(2)          Memorandum and Articles of Association of
                           InternetStudios.com, UK Limited

         10.23(2)          Letter Agreement between InternetStudios and MediaChase

         10.24*            Management Agreement between OnlineFilmSales.com, LLC
                           and

                                       31

<PAGE>
<S>                      <C>
                           Heidi Lester

         10.25*            Service Agreement between InternetStudios.com U.K.
                           Limited and Aline Perry

         10.26*            Consultant Agreement between OnlineFilmSales.com LLC
                           and Spray Point Consulting Limited

         10.27*            Consultant Agreement between OnlineFilmSales.com LLC
                           and Carraway Management Inc.

         10.28*            Agreement and Plan of Merger dated as of May 5, 2000
                           by and among InternetStudios, OnlineTVSales.com,
                           Inc., TAMNW, Inc. and the shareholders of the Company
                           listed on the signature pages hereto

         10.29*            Management Agreement between InternetStudios and
                           Robert Beattie

         10.30*            Employment Agreement between InternetStudios.com U.K.
                           Limited and Robert Maclean

         10.31*            20001 Sundance Online Resource Center (SORC)
                           Principal Sponsorship Proposal between The Sundance
                           Institute and InternetStudios

         21.1(2)           List of Subsidiaries

         23.1*             Consent of Labonte & Co.

         23.2*             Consent of Grant Thornton

         24.1              Power of Attorney (Included in signature page)
</TABLE>
*        Filed herewith

(1)      Incorporated herein by reference to the exhibits to InternetStudios'
         Registration Statement on Form 10 (File No. 000-27363)), as amended.

(2)      Incorporated herein by reference to the exhibits to InternetStudios'
         1999 annual report on Form 10-K (File No. 000-27363).

                                   32

<PAGE>

                                   SIGNATURES

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

                                  INTERNETSTUDIOS.COM, INC.

Dated:  April 17, 2001            By /s/  MARK RUTLEDGE
                                     --------------------------------------
                                     Name: Mark Rutledge
                                     Title: Secretary, Treasurer, Vice President


                                POWER OF ATTORNEY

     We, the undersigned officers and directors of InternetStudios.com, Inc.,
hereby severally constitute and appoint Heidi Lester and Mark Rutledge, and each
of them singly, our true and lawful attorneys, with full power to them and each
of them singly, to sign for us in our names in the capacities indicated below,
all amendments to this report, and generally to do all things in our names and
on our behalf in such capacities to enable InternetStudios.com, Inc. to comply
with the provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission.

     In accordance with the Securities Exchange Act of 1934, this report has
been signed below on April 17, 2001 by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

/s/ HEIDI LESTER
-----------------------------------------------------
Heidi Lester
Chief Executive Officer


/s/ MARK RUTLEDGE
-----------------------------------------------------
Mark Rutledge
Secretary, Treasurer, Vice President
Business Affairs and Director


/s/ MICHAEL EDWARDS
-----------------------------------------------------
Michael Edwards
Director


/s/ ROBERT MACLEAN
-----------------------------------------------------
Robert Maclean
Chairman of the Board, Director


                                       33
<PAGE>





                                 C O N T E N T S

<TABLE>
<CAPTION>

                                                                             PAGE

<S>                                                                        <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS--GRANT THORNTON LLP        F-2

REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS--LABONTE & CO.                    F-3

FINANCIAL STATEMENTS

      CONSOLIDATED BALANCE SHEETS                                             F-4

      CONSOLIDATED STATEMENTS OF OPERATIONS                                   F-5

      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                          F-6

      CONSOLIDATED STATEMENTS OF CASH FLOWS                                   F-7

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              F-9




                                    F-1


</TABLE>


<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
InternetStudios.Com, Inc.

We have audited the accompanying consolidated balance sheet of
InternetStudios.Com, Inc. (a development stage enterprise) as of December 31,
2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended and for the period from inception
to December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
InternetStudios.Com, Inc. as of December 31, 2000, and the consolidated results
of its operations and its consolidated cash flows for the year then ended, and
for the period from inception to December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has continued to incur operating losses, has used, rather than provided, cash
from operations and has an accumulated deficit of $38,953,000. Continued losses
are projected for at least the next 12 months. These factors, and others, raise
substantial doubt about the Company's ability to continue as a going concern.
The ability of the Company to continue operations is subject to its ability to
secure additional capital to meet its obligations and to fund operations.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.


                                       /s/ GRANT THORNTON LLP


Los Angeles, California
April 14, 2001


                                    F-2
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



                                  [LETTERHEAD]


                                AUDITORS' REPORT

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


To the Board of Directors of InternetStudios.com, Inc.

We have audited the consolidated balance sheets of InternetStudios.com, Inc. (a
development stage company) as at December 31, 1999 and December 31, 1998 and the
consolidated statements of operations, changes in stockholders' equity and cash
flows for the periods then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with 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 consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and December 31, 1998 and the results of its operations and the changes in
stockholders' equity and cash flows for the periods then ended in accordance
with generally accepted accounting principles in the United States.

                                                             "LABONTE & CO."

                                                           CHARTERED ACCOUNTANTS

Vancouver, B.C.
February 29, 2000 except for Note 9 which is dated March 28, 2000


                    COMMENTS BY AUDITORS FOR U.S. READERS ON
                   CANADA-UNITED STATES REPORTING DIFFERENCES
--------------------------------------------------------------------------------

In the United States, reporting standards for auditors' would require the
addition of an explanatory paragraph following the opinion paragraph when the
financial statements are affected by a significant uncertainty such as referred
to in Note 1 regarding the Company's ability to continue as a going concern. Our
report to the directors dated February 29, 2000 is expressed in accordance with
Canadian reporting standards which do not permit a reference to such
uncertainties in the auditors' report when the uncertainties are adequately
disclosed in the financial statements.

                                                             "LABONTE & CO."

                                                           CHARTERED ACCOUNTANTS


Vancouver, B.C.
February 29, 2000


                                    F-3
<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)
                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 1999

<TABLE>
<CAPTION>


                                     ASSETS
                                                                                          2000                 1999
<S>                                                                                   <C>                 <C>
CURRENT ASSETS
    Cash and cash equivalents                                                          $ 700,068            $ 661,124
    Restricted cash                                                                      435,000                    -
    Taxes recoverable                                                                     55,685               17,963
    Accounts receivable                                                                   57,318                    -
    Loans receivable from related party                                                  535,217              137,940
    Prepaid expenses                                                                     138,096              507,245
                                                                                     -----------          -----------
               Total current assets                                                    1,921,384            1,324,272

LOANS RECEIVABLE                                                                         759,065            1,306,849

FURNITURE AND EQUIPMENT
    Website development costs                                                          2,779,668
    Computer equipment and furniture                                                     993,942               75,651
                                                                                     -----------          -----------
                                                                                       3,773,610               75,651
    Less - accumulated depreciation                                                     (786,762)              (9,210)
                                                                                     -----------          -----------
                                                                                       2,986,848               66,441
OTHER ASSETS
    Goodwill and other intangible assets, net of accumulated
       amortization of $602,848 in 1999 and $8,194,621 in 2000                        20,004,337           11,454,123
    Deposits and other                                                                    96,933                    -
                                                                                     -----------          -----------
                                                                                     $25,768,567          $14,151,685
                                                                                     ===========          ===========
                   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable and accrued expenses                                              $ 976,270            $ 531,453
    Deferred revenue                                                                     148,626                    -
                                                                                     -----------          -----------
               Total current liabilities                                               1,124,896              531,453

COMMITMENTS AND CONTINGENCIES                                                                  -                    -

STOCKHOLDERS' EQUITY
    Common stock, $.0001 par value, 100,000,000 shares authorized; 15,658,044
       and 13,312,500 issued and outstanding as of December 31, 2000 and 1999,
       respectively                                                                        1,567                1,331
    Deferred compensation                                                             (2,536,804)                   -
    Additional paid-in capital                                                        66,131,524           16,365,849
    Deficit accumulated during the development stage                                 (38,952,616)          (2,746,948)
                                                                                     -----------          -----------
                                                                                      24,643,671           13,620,232
                                                                                     -----------          -----------
                                                                                     $25,768,567          $14,151,685
                                                                                     ===========          ===========
</TABLE>


        The accompanying notes are an integral part of these statements.


                                    F-4

<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     Years ended December 31, 2000 and 1999
            and from inception (April 14, 1998) to December 31, 1998

<TABLE>
<CAPTION>


                                                                                From inception   From inception
                                                                                to December 31,  to December 31,
                                                      2000            1999            1998           2000
                                                -------------   -------------   ---------------  ---------------
<S>                                            <C>             <C>             <C>              <C>
Revenue                                         $    137,736    $       --      $       --      $    137,736

Operating expenses:
    General and administrative                    20,629,094       1,368,544          16,137      22,013,775
    Sales and marketing                            2,780,920         126,476            --         2,907,396
    Amortization of goodwill                       7,592,773         602,848            --         8,195,621
    Website development costs                      6,124,381         632,943            --         6,757,324

                                                ------------    ------------    ------------    ------------
               Loss from operations              (36,989,432)     (2,730,811)        (16,137)    (39,736,380)

Other income (expense)
    Interest, net                                    277,514            --              --           277,514
                                                ------------    ------------    ------------    ------------
               Loss before minority interest     (36,711,918)     (2,730,811)        (16,137)    (39,458,866)

Minority interest in loss of subsidiary
                                                     506,250            --              --           506,250
                                                ------------    ------------    ------------    ------------
               Net loss                         $(36,205,668)   $ (2,730,811)   $    (16,137)   $(38,952,616)
                                                ============    ============    ============    ============
Basic and diluted loss per share                $      (2.41)   $      (0.32)   $      (0.01)   $      (4.25)
                                                ============    ============    ============    ============
Weighted average number of shares outstanding     14,992,909       8,611,289       1,528,145       9,154,608
                                                ============    ============    ============    ============

</TABLE>


                                    F-5
<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     Years ended December 31, 2000 and 1999
            and from inception (April 14, 1998) to December 31, 1998


<TABLE>
<CAPTION>

                                                                                                                     Additional
                                                                    Number                          Deferred           paid-in
                                                                  of shares            Amount      Compensation        capital
                                                              -------------------  ------------   --------------   ---------------
<S>                                                         <C>                    <C>            <C>             <C>
Common stock issued for cash                                           7,117,200      $     712   $            -    $     37,588

Net loss for the period                                                        -              -                -               -
                                                              -------------------  ------------   ---------------   --------------

Balance at December 31, 1998                                           7,117,200            712                -          37,588

Common stock issued for acquisition
    of Online Films, LLC                                               5,632,800            563                -      11,828,317

Common stock issued for cash
    pursuant to Regulation S offering                                    562,500             56                -       4,499,944

Net loss for the period                                                        -              -                -               -
                                                              -------------------  ------------   ---------------   --------------
Balance at December 31, 1999                                          13,312,500          1,331                -      16,365,849

Common stock options granted
    for services, net of cancellations                                         -              -       (5,019,895)       5,019,895

Amortization of deferred compensation                                          -              -        2,483,091               -

Common stock issued for cash
    pursuant to Regulation S offering                                    437,500             44                -       3,499,956

Exercise of employee stock options                                        66,044              7                -         842,054

Common stock issued for cash
    pursuant to Regulation D offerings, net of costs                   1,445,000            145                -      14,180,685

Common stock issued for acquisition of itsTV.com                         120,000             12                -       1,859,988

Common stock warrants issued for acquisition of itsTV.com                      -              -                -       1,119,375

Common stock issued for services                                          27,000              3                -              (3)

Acquisition of minority interest in OnlineFilmSales.com                        -              -                -      11,400,000

Common stock equity interest issued for services                               -              -                -       7,600,000

Conversion of LLC membership                                             250,000             25                -       4,243,725

Net loss for the period                                                        -              -                -               -
                                                              -------------------  ------------   ---------------   --------------
Balance at December 31, 2000                                          15,658,044      $   1,567    $  (2,536,804)    $66,131,524
                                                              ===================  ============   ===============   ==============
</TABLE>


<TABLE>
<CAPTION>


                                                              Deficit accumulated
                                                                  during the
                                                                development stage            Total
                                                             -----------------------   ------------------
<S>                                                         <C>                       <C>
Common stock issued for cash                                      $           -         $     38,300

Net loss for the period                                                 (16,137)             (16,137)
                                                             -----------------------   ------------------

Balance at December 31, 1998                                            (16,137)              22,163

Common stock issued for acquisition
    of Online Films, LLC                                                      -           11,828,880

Common stock issued for cash
    pursuant to Regulation S offering                                         -           4,500,000

Net loss for the period                                              (2,730,811)          (2,730,811)
                                                             -----------------------   ------------------
Balance at December 31, 1999                                         (2,746,948)          13,620,232

Common stock options granted
    for services, net of cancellations                                        -                    -

Amortization of deferred compensation                                         -            2,483,091

Common stock issued for cash
    pursuant to Regulation S offering                                         -            3,500,000

Exercise of employee stock options                                            -              842,061

Common stock issued for cash
    pursuant to Regulation D offerings, net of costs                          -           14,180,830

Common stock issued for acquisition of itsTV.com                              -            1,860,000

Common stock warrants issued for acquisition of itsTV.com                     -            1,119,375

Common stock issued for services                                              -                    -

Acquisition of minority interest in OnlineFilmSales.com                       -           11,400,000

Common stock equity interest issued for services                              -            7,600,000

Conversion of LLC membership                                                  -            4,243,750

Net loss for the period                                             (36,205,668)         (36,205,668)
                                                             -----------------------   ------------------
Balance at December 31, 2000                                       $(38,952,616)       $  24,643,671
                                                             =======================   ==================
</TABLE>

                                    F-6

<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Years ended December 31, 2000 and 1999
            and from inception (April 14, 1998) to December 31, 1998

<TABLE>
<CAPTION>

                                                                                                From inception      From inception
                                                                                                to December 31,     to December 31,
                                                                   2000             1999            1998                 2000
                                                            ---------------    ---------------  ---------------   ------------------
<S>                                                        <C>                <C>              <C>                <C>
Cash flows from operating activities

    Net loss for the period                               $   (36,205,668)   $    (2,730,811)   $       (16,137)   $   (38,952,616)

    Adjustments to reconcile net loss to net cash
       used in operating activities:

          Amortization and depreciation                         8,370,325            612,808                  -          8,983,133

          Minority interest in loss of subsidiary                (506,250)                 -                  -           (506,250)

          Compensation expense related to stock and            10,925,152                  -                  -         10,925,152
            stock options

          Stock based website development expense               3,185,882                  -                  -          3,185,882

          Changes in assets and liabilities:

            Restricted cash                                      (435,000)                 -                  -           (435,000)

            Accounts receivable                                   (57,318)                 -                  -            (57,318)

            Taxes recoverable                                     (37,722)                 -                  -            (37,722)

            Loans receivable                                      150,507         (1,408,326)           (20,000)        (1,277,819)

            Prepaid expenses                                      369,149           (624,930)                 -           (255,781)

            Accounts payable and accrued expenses                 444,817                  -              8,862            453,679

            Deferred revenue                                      148,625                  -                  -            148,625
                                                          ---------------    ---------------    ---------------    ---------------

               Cash used in operating activities:             (13,647,501)        (4,151,259)           (27,275)       (17,826,035)

Cash flows from investing activities

    Acquisition of furniture and equipment for cash            (2,133,841)           (61,401)                 -         (2,195,242)

    Acquisition of reporterTV.com, net of cash acquired        (1,531,192)                 -                  -         (1,532,192)

    Incorporation costs                                                 -                  -             (1,000)            (1,000)

    Acquisition of itsTV.com                                     (232,274)                 -                  -           (232,274)

    Cash acquired on acquisition of
       Online Films, LLC                                                -            363,759                  -            363,759

    Increase in deposits and other                                (96,933)                 -                  -            (96,933)
                                                          ---------------    ---------------    ---------------    ---------------

        Cash provided by (used in) investing activities        (3,994,240)           302,358             (1,000)        (3,692,882)

</TABLE>

                                    F-7

<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years ended December 31, 2000 and 1999
            and from inception (April 14, 1998) to December 31, 1998


<TABLE>
<CAPTION>

                                                                                                From inception      From inception
                                                                                                to December 31,     to December 31,
                                                                   2000             1999            1998                 2000
                                                            ---------------    ---------------  ---------------   ------------------
<S>                                                       <C>                <C>               <C>                <C>
Cash flows from financing activities

    Net proceeds on sale of common stock                    $  17,680,685         $4,500,000         $   38,300      $  22,218,985
                                                            ---------------    ---------------  ---------------   ------------------

               Cash provided by financing activities           17,680,685          4,500,000             38,300         22,218,985
                                                            ---------------    ---------------  ---------------   ------------------

               Net increase in cash and cash equivalents           38,944            651,099             10,025            700,068

Cash and cash equivalents at beginning of period                  661,124             10,025                  -                  -
                                                            ---------------    ---------------  ---------------   ------------------

Cash and cash equivalents at end of period                  $     700,068         $  661,124         $   10,025      $     700,068
                                                            ===============    ===============  ===============   ==================

Supplemental disclosure of non-cash investing and
    financing activities:

    Issuance of common stock and warrants for acquisitions  $  14,379,363         $        -         $        -      $  14,379,363
                                                            ===============    ===============  ===============   ==================

    Issuance of common stock for capitalized website
    development                                             $   1,564,118         $        -         $        -      $   1,564,118
                                                            ===============    ===============  ===============   ==================

Supplemental disclosure of cash flow information:

    Interest expense paid                                   $      11,000         $        -         $        -      $      11,000
                                                            ===============    ===============  ===============   ==================
</TABLE>


                                    F-8
<PAGE>



                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999



NOTE 1 - DESCRIPTION OF BUSINESS

     InternetStudios.com, Inc. and its wholly-owned subsidiaries:
     InternetStudios UK, Ltd., InternetStudios Entertainment Finance, Inc.,
     OnlineFilmSales.com LLC, StudioBuzz.com LLC (inactive) and
     OnlineFilmandTVSales.com, Inc. (collectively, "the Company") are in the
     business of the management, marketing and delivery of digital filmed
     entertainment. The Company operates in one reportable business segment and
     is in the development stage.

     The Company was incorporated on April 14, 1998 in the State of Nevada as
     The Enterprise, Inc. Effective December 14, 1998, the Company changed its
     name to eHealth.com, Inc., and on September 20, 1999 changed its name to
     InternetStudios.com, Inc. Effective September 30, 1999, the Company
     acquired a 91.847% interest in Online Films, LLC, a private Delaware
     company developing a business of compiling an online database of filmed
     entertainment and facilitating a digital marketplace targeted at the
     entertainment industry. See Note 4.


NOTE 2 - GOING CONCERN

     The accompanying financial statements have been prepared in conformity with
     accounting principles generally accepted in the United States of America,
     which contemplate continuation of the Company as a going concern. However,
     as shown in the accompanying financial statements, the Company has
     sustained substantial losses from operations since inception. In addition,
     the Company has used, rather than provided, cash in its operations. As of
     April 14, 2001, the Company has utilized substantially all of its available
     funding.

     In view of the matters described in the preceding paragraph, recoverability
     of a major portion of the recorded asset amounts shown in the accompanying
     balance sheet is dependent upon continued operations of the Company, which
     in turn is dependent upon the Company's ability to meet its financing
     requirements on a continuing basis and to succeed in its future operations.
     The financial statements do not include any adjustments relating to the
     recoverability and classification of recorded asset amounts or amounts and
     classification of liabilities that might be necessary should the Company be
     unable to continue in existence.

     In accordance with its original business plan, the Company was required to
     make a significant investment in technology and website development. In
     addition, the plan called for the necessary investments to market the
     Company and its services to brand the Company globally. Website development
     was substantially completed in October 2000. Revenues derived from
     implementation of the Company's platform commenced in the fourth quarter of
     2000.

                                    F-9

<PAGE>



                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999


NOTE 2 - GOING CONCERN - Continued

     Management of the Company has taken steps to revise and reduce its
     operating requirements, which it believes will be sufficient to assure
     continued operations and implementation of the Company's plans. These steps
     include expense reductions in staffing, marketing and consulting, as well
     as a significant decrease in operating costs as a result of completion of
     web development costs. The Company is also in the process of attempting to
     secure additional capital through equity transactions, which will be
     required in order to continue operations. In this regard, the Company has
     engaged an investment bank and prepared a private placement memorandum
     seeking a maximum of $20,000,000.


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


     PRINCIPLES OF CONSOLIDATION

     The financial statements include the accounts of the Company and its
     subsidiaries described above. All intercompany accounts and balances have
     been eliminated in consolidation.

     USE OF ESTIMATES AND ASSUMPTIONS

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

     CASH AND CASH EQUIVALENTS

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

     REVENUE RECOGNITION

     Revenue is recognized at the time a transaction is consummated by a buyer
     and seller using the Company's website. The Company also may charge for its
     services and recognizes revenue at the time the customer lists material on
     the Company's website.


                                    F-10

<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     Revenue for ReporterTV.com typically consists of fees for production
     services, advertising, sponsorship and content syndication and are
     recognized at the time the services are rendered or the products delivered.

     Revenue related to financing of outside productions is amortized over the
     life of the agreement, typically 18 months, using a method that
     approximates the effective interest method.

     FURNITURE AND EQUIPMENT

     Furniture and equipment are stated at cost. Depreciation is recorded using
     accelerated methods over useful lives of three to five years. Carrying
     values are reviewed periodically for impairment whenever events or changes
     in circumstances indicate the carrying amount of assets may not be
     recoverable.

     FOREIGN CURRENCY TRANSLATION

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

     NET LOSS PER COMMON SHARE

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


                                    F-11

<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999




NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     WEBSITE DEVELOPMENT COSTS

     In March 2000, EITF 00-2 "Accounting for Web Site Development Costs" was
     released. EITF 00-2 provides guidance on how an entity should account for
     costs involved in such areas as planning, developing software to operate
     the web site, graphics, content, and operating expenses. EITF 00-2 is
     effective for web site development costs incurred for fiscal quarters
     beginning after June 30, 2000. The Company adopted EITF 00-2 and
     development costs incurred subsequent to June 30, 2000, associated with the
     Company's Web Site were recorded in accordance with EITF 00-2. Development
     costs of $2,779,668 were capitalized during the year ended December 31,
     2000 and are being amortized on the straight-line method over a period of 3
     years.

     ADVERTISING COSTS

     The Company charges advertising costs to expense as incurred. Advertising
     expense for the years ended December 31, 2000 and 1999 and for the period
     from inception (April 14, 1998) to December 31, 1998 was approximately
     $619,000, $102,000 and $0, respectively.

     STOCK BASED COMPENSATION

     The Company has adopted the disclosure provisions of Statement of Financial
     Accounting Standard (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED
     COMPENSATION. The Company has chosen under the provisions of SFAS 123 to
     continue using the intrinsic-value method of accounting for employee
     stock-based compensation in accordance with Accounting Principles Board
     (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.

     IMPAIRMENT OF LONG LIVED ASSETS

     The Company evaluates its long-lived assets by measuring the carrying
     amount of the assets against the estimated undiscounted future cash flows
     associated with them. If such evaluations indicate that the future
     undiscounted cash flows of certain long-lived assets are not sufficient to
     recover the carrying value of such assets, the assets are adjusted to their
     fair values.


                                    F-12
<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     GOODWILL

     Intangible assets, principally goodwill, are amortized on the straight-line
     method over a period of 3 years. The carrying amount of intangible assets
     are assessed for impairment when operating profit from the related business
     indicates the carrying amount of the assets may not be recoverable.
     Carrying values are reviewed periodically for impairment whenever events or
     changes in circumstances indicate that the carrying amounts of intangible
     assets may not be recoverable. Amortization for the years ended December
     31, 1999 and 2000 was $602,848 and $7,592,773, respectively.

    RECLASSIFICATIONS

     Certain amounts in the prior period financial statements have been
     reclassified to conform with the 2000 presentation.

NOTE 4 - ACQUISITION OF ONLINE FILMS, LLC

     In September 1999 the Company acquired a 91.847% interest in Online Films,
     LLC in consideration for the issuance of 5,632,800 restricted common shares
     valued at $2.10 per share for a total purchase price of $11,828,880. This
     business combination has been accounted for using the purchase method of
     accounting and, as the fair value of liabilities exceeds the fair value of
     identifiable assets, no minority interest arises on the acquisition. The
     purchase price has been allocated as follows:

<TABLE>
<CAPTION>

             <S>                                            <C>

                 Assets acquired at fair value:
                     Current assets                                     $    521,562
                     Capital assets                                           15,000
                     Goodwill                                             12,056,771
                                                                     ------------------
                                                                          12,593,533
                 Liabilities assumed at fair value:
                     Notes payable                                          (756,302)
                     Accounts payable                                         (8,351)
                                                                     ------------------
                 Total purchase price                                    $11,828,880
                                                                     ==================
</TABLE>


Since there was minimal activity in the acquired company prior to the
business combination, pro forma results would not have been materially
different than actual.

                                    F-13
<PAGE>

                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999


NOTE 5 - ONLINEFILMSALES.COM, LLC

     In March 2000, the Company contributed substantially all of its assets to
     the capital of OnlineFilmSales.com, LLC, a newly-formed Delaware limited
     liability company ("OnlineFilmSales"). Included in the assets contributed
     to OnlineFilmSales were (i) the Company's 91.847% membership interest in
     Online Films so that Online Films became a subsidiary of OnlineFilmSales,
     and (ii) a Secured Promissory Note, originally issued on November 12, 1999
     (having a final principal balance of $2,025,000), by MediaChase Ltd.
     Excluded from the assets contributed to OnlineFilmSales were all
     trademarks, trade names, and domain names containing "InternetStudios.com"
     or "InternetStudios" and all associated goodwill. As a result of the Asset
     Contribution, the Company conducts all operations through operating
     subsidiaries.

     In exchange for the assets which OnlineFilmSales received in the Asset
     Contribution, OnlineFilmSales issued a one hundred percent Class A
     membership interest, constituting one hundred percent of the voting power
     of the Class A members of OnlineFilmSales. The Company is the sole holder
     of a Class A membership interest in OnlineFilmSales.

     Concurrently with the Asset Contribution, two officers of the Company also
     made contributions to OnlineFilmSales. Heidi Lester, the Chief Executive
     Officer, contributed an 8.153% interest in Online Films in exchange for
     Class B Membership Interests in OnlineFilmSales and Steve Fredericks, the
     Acting President and Chief Financial Officer contributed to OnlineFilmSales
     all of his right, title and interest in and to, certain agreements with the
     Longevity-Southland Group for the development of a digital production
     center and a related digital training program for artists and producers in
     the People's Republic of China in exchange for Class B Membership Interests
     in OnlineFilmSales. As a result of the contribution to OnlineFilmSales of
     Heidi Lester's membership interest in Online Films, Online Films is now a
     wholly-owned subsidiary. The acquisition of the 8.153% interest in Online
     Films was accounted for using the purchase method of accounting, resulting
     in recording goodwill totaling $11,400,000. The Class B Membership
     Interests issued to Steve Fredericks were accounted for as compensation
     expense totaling $7,600,000.

     The holders of Class B membership interests in OnlineFilmSales are entitled
     to convert their interests into up to 1,000,000 shares of common stock of
     the Company at any time. The Class B membership interests will
     automatically be converted into the Company's common stock upon the
     occurrence of certain transactions and in any event, on March 28, 2007.
     Each holder of a Class B membership interest is entitled to receive
     distributions of cash based upon the amount of all cash which each holder
     of Class B membership interests would have received in the form of
     dividends on and proceeds from redemptions of that number of shares of
     common stock into which such holder's Class B Membership Interest is
     convertible, if such Class B member had held those shares during the period
     from such


                                    F-14
<PAGE>

                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999

     member's admission as a Class B member of OnlineFilmSales to the date of
     such distribution of cash by OnlineFilmSales.

     NOTE 6 - JOINT VENTURE

     The Company, through OnlineFilmSales, entered into a joint venture
     relationship with MediaChase Ltd. ("MediaChase") in March 2000. The joint
     venture, operated through ReporterTV.com, LLC, a Delaware limited liability
     company whose sole members are MediaChase and OnlineFilmSales, focuses on
     providing five segments of a business entertainment news magazine updated
     and broadcast daily over the Internet in television broadcast news format.
     Pursuant to a Consulting Agreement entered into between MediaChase and
     OnlineFilmSales, MediaChase has also been engaged by OnlineFilmSales to
     provide certain services at cost in connection with the design and
     development of the OnlineFilmSales.com and Internetstudios.com websites.

     To fund the development of ReporterTV, the Company advanced $2,025,000 in
     the form of a loan to MediaChase. As a part of the Asset Contribution, the
     Company contributed to OnlineFilmSales, all of its rights as payee under
     the MediaChase Note. In connection with the consummation of its joint
     venture with MediaChase, OnlineFilmSales contributed all of its rights as
     payee under the MediaChase Note to ReporterTV and MediaChase assigned all
     of its obligations as payor under the MediaChase Note to ReporterTV and as
     a result the MediaChase Note has been cancelled. In consideration of the
     cancellation of the MediaChase Note and the issuance by OnlineFilmSales to
     MediaChase of Class B membership interests convertible into 250,000 shares
     of the Company's common stock, MediaChase (i) entered into the consulting
     agreements with OnlineFilmSales (ii) contributed certain assets to
     ReporterTV and (iii) contributed to OnlineFilmSales a 75% membership
     interest in ReporterTV. In August 2000, MediaChase converted its Class B
     membership interest in OnlineFilmSales to 250,000 shares of the Company's
     common stock. The fair value of these shares has been recorded as website
     development costs on the accompanying balance sheet.


NOTE 7 - LOANS RECEIVABLE

     During 2000, the Company loaned a total of approximately $761,000,
     including accrued interest of approximately $16,400, to a film production
     company. Advances under the loan agreement are collateralized by all of the
     assets of the production company, bear interest at the prime rate plus 3%
     and are due on demand. Collectibility of these amounts is dependent on the
     success of the film projects financed.


                                    F-15
<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999

NOTE 8- RELATED PARTY TRANSACTIONS

     The Company has entered into formal employment or management contracts
     with four officers of the Company or with consulting firms owned by
     those officers. The contracts provide for a combined base salary of
     $722,000 per annum for terms ranging from two to three years and
     granting of stock options providing the right to acquire a total of
     575,000 shares of common stock at a price of $5 per share to be vested
     over the term of the contracts. In addition, during the year ended
     December 31, 2000 the Company paid $50,000 bonuses to three of the four
     officers. The contracts include a severance provision of 150% of base
     salary which totals $1,083,000 for these four officers.

     During 2000, the Company loaned a total of approximately $535,000,
     including accrued interest of approximately $12,000, to a film production
     company owned and managed by an executive officer of the Company. Advances
     under the loan agreement are collateralized by all of the assets of the
     related company, bear interest at the prime rate plus 3% and are due on
     demand. Collectibility of these amounts is dependent on the success of the
     film projects financed. Additionally, the Company has guaranteed loans to
     this entity from a bank totaling up to $200,000 and has deposited $435,000
     in a commercial bank as collateral for the bank's issuance of three letters
     of credit and a commercial loan to the related party.

     In connection with a private placement of the company's common stock, the
     company paid cash of $270,000 and 27,000 shares of common stock valued at
     $384,750 to a financial services firm owned by a relative of an executive
     officer and director of the company.

NOTE 9 - STOCKHOLDERS' EQUITY

     In December 1999, the Company's Board of Directors approved a U.S. Stock
     Incentive Plan for a maximum of 1,000,000 shares of common stock and a
     non-U.S. Stock Incentive Plan for a maximum of 500,000 shares of common
     stock (collectively "the Plans"), under which it is authorized to issue
     nonqualified and incentive stock options to key employees and
     consultants. The options have a term not to exceed 10 years and vest
     over a period of two to three years. At that time, the Board also
     approved grants of options for 1,012,500 shares. The plan was approved by
     the Company's shareholders in January, 2000. In accordance with the
     provisions of FASB Interpretation 44, the measurement date for
     determining the compensation related to these options was January 18,
     2000.

     Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
     STOCK BASED COMPENSATION, encourages, but does not require companies to
     record compensation cost for stock-based employee compensation plans at
     fair value. The Company has chosen to continue to account for
     stock-based compensation using the intrinsic value method prescribed in
     previously issued standards. Accordingly, compensation cost for employee
     stock options is measured as the

                                    F-16
<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999




NOTE 9 - STOCKHOLDERS' EQUITY - Continued

     excess, if any, of the fair market value of the Company's stock at the date
     of grant over the amount an employee must pay to acquire the stock.
     Compensation cost or deferred compensation for stock options issued to
     employees has been recognized for the year ended December 31, 2000 to the
     extent market value of the stock at the grant date exceeded the option
     price.

     As discussed above, the stock options approved by the Company's Board of
     Directors were not approved by the Company's shareholders until January,
     2000. Therefore, for financial reporting purposes, there were no stock
     options outstanding as of December 31, 1999. The following table
     summarizes information about stock option transactions for the year ended
     December 31, 2000:

<TABLE>
<CAPTION>
                                                                                    Weighted average
                                                                      Shares         exercise price
                                                                  --------------- ---------------------
            <S>                                                 <C>              <C>
               Options outstanding
               December 31, 1999                                             -          $   -

               Granted                                               1,097,500           5.41
               Exercised                                               (66,044)          0.00
               Canceled                                               (353,778)          5.08
                                                                  ---------------
               Options outstanding
               December 31, 2000                                       677,678          $5.61
                                                                  ===============
               Options exercisable                                     285,873          $5.44
                                                                  ===============

</TABLE>

     The ranges of exercise prices of options outstanding at December 31,
     2000 are $5.00 and $10.00 to $11.00 per share. There were 597,678 options
     outstanding with an exercise price of $5.00 per share which have a
     weighted average remaining contractual life of 4 years. 261,428 of these
     are exercisable at December 31, 2000. There were 80,000 options
     outstanding with exercise prices from $10.00 to $11.00 per share which
     also have a weighted average remaining contractual life of 4 years,
     24,444 of which are exercisable.

     The fair value of employee stock options at the date of grant was estimated
     using the Black-Scholes model with the following weighted average
     assumptions:

<TABLE>
<CAPTION>

         <S>                                                <C>
           Expected life (years)                                  5 years
           Risk-free interest rate                                 5.66%
           Expected volatility                                     121%
           Expected dividend yield                                  --

</TABLE>


                                    F-17
<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999


NOTE 9 - STOCKHOLDERS' EQUITY - Continued

     The weighted average fair value of options granted during the years ended
     December 31, 2000 and 1999 is $11,305,000 and $0 respectively.

     Had compensation cost for options issued to employees under the Plan been
     determined based on the fair value of the options at the grant dates based
     on the above method, the Company's net loss for the years ended December
     31, 2000 and 1999 would have been:

<TABLE>
<CAPTION>

                                                                 2000                   1999
                                                          --------------------   -------------------
     <S>                                                  <C>                    <C>
        As reported                                       $    (36,205,668)      $   (2,730,811)

        Pro forma                                         $    (37,926,325)      $   (2,730,811)
</TABLE>


NOTE 10 - INCOME TAXES

     Income taxes are provided pursuant to SFAS No. 109, Accounting for Income
     Taxes. The statement requires the use of an asset and liability approach
     for financial reporting for income taxes. If it is more likely than not
     that some portion or all of a deferred tax asset will not be realized, a
     valuation allowance is recognized. Accordingly, as the realization and use
     of the net operating loss carryforward is not probable at December 31, 2000
     or 1999, the tax benefit of the loss carryforward has been offset by a
     valuation allowance of the same amount.

     As of December 31, 2000, the Company had approximately $28,736,000 and
     $14,368,000 of federal and state operating loss carryforwards,
     respectively, available to reduce future federal and state tax liability
     through the year 2020 for federal purposes and 2005 for state purposes.

     The composition of deferred tax assets at December 31, are as follows:

<TABLE>
<CAPTION>


                                                                       2000                  1999
                                                                 ------------------    -----------------
           <S>                                                 <C>                   <C>
             Total deferred tax assets - net operating               $11,207,000          $ 714,000
               loss carryforwards

             Total valuation allowance                               (11,207,000)          (714,000)
                                                                 ------------------    -----------------
             Total deferred tax assets                               $         -          $       -
                                                                 ==================    =================

</TABLE>

                                    F-18

<PAGE>

                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999


NOTE 10 - INCOME TAXES - Continued

     The difference between the expected statutory rate of 34% and the actual
     effective tax rate of zero is due to the nondeductibility of goodwill
     amortization and the valuation allowance for the deferred asset related to
     the net operating loss carryforwards.


NOTE 11- FAIR VALUE OF FINANCIAL INSTRUMENTS


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

NOTE 12- COMMITMENTS AND CONTINGENCIES


     LEASE COMMITMENTS

     The Company leases office space under various operating leases which expire
     at various times through August 31, 2006. Future minimum rental commitment
     amounts are as follows:


<TABLE>
<CAPTION>

          <S>                                      <C>
            2001                                      $   458,000
            2002                                          428,000
            2003                                           94,000
            2004                                           94,000
            2005                                           94,000
            Thereafter                                     70,000
                                                   -----------------
                                                       $1,238,000
                                                   =================
</TABLE>

     Rent expense for the years ended December 31, 2000 and 1999 was
     approximately $333,000 and $22,000, respectively. There was no rent expense
     incurred for the period from inception (April 14, 1998) to December 31,
     1998.


                                    F-19
<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999


NOTE 12- COMMITMENTS AND CONTINGENCIES - Continued

     SUNDANCE ONLINE RESOURCE CENTER

     In December 2000, InternetStudios entered a one-year sponsorship agreement
     with The Sundance Institute, a not-for-profit arts organization, to
     co-produce the Sundance Online Resource Center (SORC) for the 2001 Sundance
     Film Festival. The SORC will showcase web sites for each film in the
     Sundance Film Festival as well as provide expended information on the
     filmmakers, panel participants, and official activities at the Festival.
     InternetStudios is responsible for the SORC's website design, technical
     functionality, and Internet promotion and marketing. The site can be viewed
     at www.sundanceonlineresourcecenter.org.

     CONCENTRATION OF CREDIT RISK

     The Company invests its cash and certificates of deposit primarily in
     deposits with major banks. Certain deposits, at times, are in excess of
     federally insured limits. Also, the Company maintained balances in foreign
     banks totaling $320,985 and $584,963 at December 31, 2000 and 1999,
     respectively. The Company has not incurred losses related to its cash.

     LETTERS OF CREDIT

     The Company is contingently liable to a bank under three standby letters of
     credit totaling $360,000. Cash for the same amount is being held by the
     bank as collateral for these letters of credit and is shown as restricted
     cash on the accompanying balance sheet as of December 31, 2000.
     Additionally, there are term deposits totaling $75,000 being held as
     collateral by the bank to secure amounts loaned to the related party film
     production company discussed in Note 8.



                                    F-20
<PAGE>

                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999


NOTE 13 - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

     During the fourth quarter of the year ended December 31, 2000, the Company
     recorded significant adjustments related to the following:

<TABLE>
<CAPTION>

<S>                                                                            <C>
           Capitalize goodwill related to various acquisition transactions
               during the year involving common stock and common stock
               equivalents                                                       $14,515,000

           Record additional website development costs related to granting
               of common stock for services                                        4,750,000

           Capitalize website development costs in accordance with EITF 00-2
                                                                                     656,000

           Compensation costs related to common stock grants to employees          8,442,000

           Compensation costs related to stock option grants,
               less deferred compensation of $2,537,000                            2,483,000

           Additional amortization relating to capitalized goodwill and
               website development costs                                           5,191,000
</TABLE>


     These significant fourth quarter adjustments relate to various periods
     within the Company's year ended December 31, 2000. Where necessary, the
     Company intends to restate and amend its Forms 10-Q filed with the
     Securities and Exchange Commission during 2000 to reflect the effect of
     these adjustments on prior quarters.

NOTE 14 - LITIGATION

     The Company has been named as a defendant in a lawsuit claiming damages of
     a minimum of $2,000,000 for breach of contract regarding the conditional
     sale of certain distribution rights related to fourteen motion pictures and
     another lawsuit alleging, among other things, breach of contract and
     wrongful termination. Both lawsuits are in the discovery stage and the
     Company, after consulting with legal counsel, cannot make a determination
     regarding potential exposure from either of these claims. Additionally, the
     Company is subject, in the normal course of business, to various claims
     from time to time which may or may not be litigated.


                                    F-21
<PAGE>


                            InternetStudios.Com, Inc.
                        (a development stage enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2000 and 1999

NOTE 14 - LITIGATION - Continued

     In connection with the first lawsuit described above, the plaintiff has
     filed for a writ of attachment. A hearing is scheduled for April 19, 2001
     to determine whether the writ of attachment will be upheld.


NOTE 15- UNAUDITED QUARTERLY INFORMATION

     The following unaudited information presents the Company's results of
     operations for the years ended December 31:

<TABLE>
<CAPTION>


                                                               Quarter ended in 2000
                               -------------    -------------    ---------------    ----------------    --------------
                                March 31,         June 30,       September 30,       December 31,
                                   2000             2000              2000               2000               Total
                               -------------    -------------    ---------------    ----------------    --------------
<S>                          <C>               <C>              <C>                <C>                 <C>
        Revenues               $           -    $      5,355     $       64,530     $         67,851    $     137,736

        Operating expenses       (15,361,152)     (9,166,392)        (9,385,406)          (3,214,217)     (37,127,168)

        Other income, net             (7,204)         63,019            128,237              599,711          783,764
                               -------------    -------------    ---------------    ----------------    --------------

        Net loss               $ (15,368,356)   $ (9,098,018)    $   (9,192,639)    $     (2,546,655)   $ (36,205,668)
                               =============    =============    ===============    ================    ==============

        Loss per share         $       (1.14)   $       (.60)    $         (.59)    $           (.16)   $       (2.25)
                               =============    =============    ===============    ================    ==============


                                                               Quarter ended in 1999
                               -------------    -------------    ---------------    ----------------    -------------
                                March 31,         June 30,       September 30,       December 31,
                                   1999             1999              1999               1999              Total
                               -------------    -------------    ---------------    ----------------    -------------

        Revenues               $          -     $          -     $            -      $            -     $          -

        Operating expenses                -                -            (47,145)         (2,683,666)      (2,730,811)

        Other income, net                 -                -                  -                   -                -
                               -------------    -------------    ---------------    ----------------    -------------

        Net loss               $          -     $          -     $      (47,145)    $    (2,683,666)    $ (2,730,811)
                               =============    =============    ===============    ================    =============

        Loss per share         $          -     $          -     $         (.01)    $          (.20)    $      (0.32)
                               =============    =============    ===============    ================    =============

</TABLE>

                                    F-22