This Form 10-K is the subject of a Form 12b-25

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

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

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ]to[ ]

Commission file number

|INTERNETSTUDIOS.COM, INC.(Exact name of Registrant as specified in its charter)    
|-----------------------------------------------------------------------------------
|Nevada(State or other jurisdiction of incorporation or organization)               
|1351 4th Street, Suite 227
Santa Monica, CA(Address of principal executive offices)

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

|Title of each class
Nil |  | Name of each exchange on which registered
Nil
|----------------------- |  | ---------------------------------------------

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

|Common Shares, $0.0001 par value(Title of class)
|------------------------------------------------



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

Yes  [X]     No [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) contained herein, and no disclosure will be contained, to the best of the 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. [ ]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days prior to the date of filing.

4,195,495 common shares @ $0.30(1) = $1,258,648.50(1) Average of bid and ask closing prices on July 25, 2002.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes [ ]     No [ ]

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date.

4,308,605 common shares issued and outstanding as of July 25, 2002

DOCUMENTS INCORPORATED BY REFERENCE

None.



PART I

Item 1. Description of Business.

This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to CDN$ refer to Canadian dollars.

As used in this annual report, the terms "we", "us", "our", and "InternetStudios" mean InternetStudios.com, Inc. and our wholly-owned subsidiaries, unless otherwise indicated.

Business Development - General

InternetStudios.com, Inc. was incorporated in Nevada on April 14, 1998 under the name The Enterprise, Inc. For a period of time prior to December 14, 1998, we were engaged in the word processing business. We changed our name to eHealth.com, Inc. in anticipation of acquiring a license to software technology for the health industry, which acquisition was never consummated. Effective September 21, 1999, we changed our name to InternetStudios.com, Inc. Since that date, InternetStudios has been in the business of providing web-based solutions for the entertainment industry. We own a proprietary online platform and database to transact film and television rights. With this technology, we have focused on the development and marketing of our website at www.onlinefilmandtvsales.com.

|Subsidiaries                             | Jurisdiction of Incorporation | Date of Incorporation | Percentage of Securities Owned  
|---------------------------------------- | ----------------------------- | --------------------- | --------------------------------
|OnlineFilmSales.com, LLC(1)              | Delaware                      | March 8, 2000         | 100% by InternetStudios         
|ReporterTV.com, LLC(2)                   | Delaware                      | March 8, 2000         | 75% by OnlineFilmSales.
com, LLC
|StudioBuzz.com, LLC(3)                   | Delaware                      | March 17, 2000        | 50% by OnlineFilmSales.
com, LLC
|OnlineFilmandTVSales.com, Inc. (4)       | California                    | April 12, 2000        | 100% by InternetStudios         
|InternetStudios UK Limited(5)            | United Kingdom                | February 21, 2000     | 100% by InternetStudios         
|InternetStudios Entertainment Finance(6) | British Columbia              | June 29, 2000         | 100% by InternetStudios         

(1) We conduct our business through our wholly owned subsidiary, OnlineFilmSales.com, LLC. This entity owns 100% of the membership interests of Online Films, LLC, a private Delaware limited liability company which originated our business of compiling an online database of filmed entertainment and facilitating a digital marketplace targeted at the entertainment industry. Online Films, LLC is currently inactive.

(2) ReporterTV.com, LLC is a Delaware Limited Liability Company. OnlineFilmSales.com, LLC holds 75% of the economic interest in this company and has a 100% voting interest. ReporterTV.com, LLC is currently inactive and OnlineFilmSales.com, LLC is in the process of winding up its operations.

(3) StudioBuzz.com, LLC is a Delaware Limited Liability Company. OnlineFilmSales.com, LLC holds 50% of the economic interest in this company and has a 100% voting interest. StudioBuzz.com, LLC is an inactive company and OnlineFilmSales.com, LLC is in the process of winding up its operations.

(4) OnlineFilmandTVSales is a California Corporation. Pursuant to an Agreement and Plan of Merger dated May 5, 2000, by and among InternetStudios, OnlineTVSales.com Inc., TAMNW Inc. and itstv.com, we acquired all the capital stock of itstv.com. Itstv.com was a web-based resource for television programming. On November 16, 2000, OnlineTVSales.com, Inc. changed its name to OnlineFilmandTVSales.com, Inc. Its operations were merged with those of OnlineFilmSales such that the digital online market place became available at www.onlinefilmandtvsales.com and/or www.oftvs.com. As OnlineFilmandTVSales.com, Inc. is an inactive company, InternetStudios is in the process of winding it up.

(5) On February 21, 2000, InternetStudios formed InternetStudios.com UK Limited, a private limited liability company incorporated in England. InternetStudios.com UK amended its name to InternetStudios UK Limited on September 25, 2000, has no employees and does not carry on business. InternetStudios has filed to have this company wound up.

(6) On June 29, 2000, InternetStudios formed InternetStudios Entertainment Finance ("IEF") to provide interim financing for the production of filmed entertainment projects with budgets between $2 million and $8 million. The operations of IEF have been significantly curtailed as a result of a lack of available financing.

ONLINEFILMSALES.COM, LLC

OnlineFilmSales.com, LLC is a manager-managed limited liability company formed in Delaware. 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, 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.

Effective March 28, 2000, substantially all of InternetStudios' assets were contributed (the "Asset Contribution") to OnlineFilmSales. Included in the Asset Contribution were (i) InternetStudios' 91.847% membership interest in Online Films, LLC so that Online Films, LLC 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 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 InternetStudiosUK Limited, 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.

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

The holders of Class B membership interests in OnlineFilmSales were entitled to convert their interests into shares of InternetStudios' common stock at any time. Steve Fredericks converted 39.15% of his Class B Membership Interest into 7,829 shares of InternetStudios' common stock on March 30, 2001 and Heidi Lester's Class B Membership Interest was converted into 30,000 shares of InternetStudios' common stock on May 29, 2001.

REPORTERTV.COM, LLC

InternetStudios, through OnlineFilmSales, entered into a joint venture with MediaChase Ltd., a Los Angeles based software company, on March 28, 2000 to form ReporterTV.com, LLC.

To fund the development of ReporterTV, InternetStudios advanced $2,025,000 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. 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 12,500 shares of InternetStudios' common stock, MediaChase (i) entered into a Consulting Agreement with each of OnlineFilmSales and StudioBuzz.com, LLC, (ii) contributed certain assets to ReporterTV and StudioBuzz.com, LLC, and (iii) contributed to OnlineFilmSales (a) a 75% membership interest in ReporterTV and (b) a 100% voting interest and 50% economic interest in StudioBuzz.com, LLC. Pursuant to the terms

Pursuant to the terms of the RTV Agreement, OnlineFilmSales is not obligated to fund ReporterTV for amounts over and above a defined contribution cap of $1,650,000, which contribution was provided by OnlineFilmSales. Additionally, pursuant to the terms of the RTV Agreement, OnlineFilmSales has no ongoing financial obligation to ReporterTV and is entitled to look to MediaChase to provide financing for the company. As no financial resources were made available to fund the ongoing operations of the company, ReporterTV's activities ceased during fiscal year 2001, and the company has not been operational since May 15, 2001.

BUSINESS STRATEGY

Through our online platform, www.oftvs.com, we provide an enterprise solution complete with transactional capabilities for the licensing of filmed entertainment, complementary technology to track such transactions, and relevant and timely industry data and information. This yields multiple revenue streams including:

- Hosting fees for maintaining audiovisual and ancillary marketing materials on our website;

- Customization and Licensing fees for adapting the online platform to create user specific interfaces and applications;

- Transactional fees for any product sold using our technology;

- Marketing fees for email campaigns, marketing campaigns, and co-marketing ventures for filmed entertainment product; and

- Sales revenue from content owned or brokered by InternetStudios.

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;

- variety of value-added services;

- ease of use, site content;

- user and advertiser fulfillment;

- reliability;

- quality of search tools;

- customer service; and

- technical expertise.

Historically, key competitors have included: FilmFinders.com, Reeplay.com, FilmBazzaar.com, ScreenExchange.com, ShowBizData.com, Tivix.com, Hollywood Software Inc., and Jaguar Consulting. The operational status of these companies is unknown. However, 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. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise.

TECHNOLOGY

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 small to large companies. Our platform creates value for our customers by saving costs and increasing sales of filmed entertainment.

Through December 31, 2001, InternetStudios expended approximately $16,281 on its rights platform and transaction system and website development. 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.

All production equipment is co-located at the NetNations Data Center in Vancouver, BC and is monitored 24 hours a day by the NetNations Operations Center. Secondary support to the production environment is provided by contracted solutions providers that work in-house at our Vancouver office.

InternetStudios applies industry standards and best practices by using Microsoft's scalable Distributed Network Architecture with built in redundancy and fail over capabilities. The system platforms/environments are Microsoft Windows 2000 / NT based. All database applications are written / designed in MS SQL*Server 7.0. InternetStudios also uses various Microsoft development tools/ software packages. In addition, it uses a number of other programs from vendors such as Macromedia & Adobe.

InternetStudios uses Tape Library backup systems in the operational development environment as well as in the production environment. We are currently employing a combined full/incremental backup scheme to ensure reliable and timely backup and recovery.

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

InternetStudios will continually look to expand and stabilize the performance of its web servers, optimize the performance of its network servers and ensure the stable performance of its entire network. InternetStudios may not be successful in its ongoing efforts to upgrade its systems, or if it does successfully upgrade its systems, InternetStudios may not do so on time and within budget.

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 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

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:

- 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

In March 2002, we entered into a marketing partnership with DISCOP to develop an enterprise version of our OnlineFilmandTVSales platform. DISCOP is managed by Key3Media East, a division of the Key3Media Group, Inc. InternetStudios was chosen exclusively by DISCOP to create and develop the look of the site called Discop+.

Discop+ will provide broadcasters, distributors and buyers of television content with an online marketplace in which to preview, select, and acquire television programming in a secure environment. The target markets to be served by the DISCOP+ solution are estimated to be worth between US$300 and US$500 million per year.

RISK FACTORS

Much of the information included in this annual report includes or is based upon estimates, projections or other "forward looking statements". Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other "forward looking statements" involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward looking statements".

WE ARE aN EARLY Stage Company AND HAVE NOT EARNED ANY SIGNIFICANT REVENUES SINCE THE IMPLEMENTATION OF OUR WEBSITE Which Makes IT DIFFICULT TO EVALUATE WHETHER WE WILL OPERATE PROFITABLY.

We are an early stage company which is primarily involved in providing transactional capabilities for the licensing of filmed entertainment, complementary technology for tracking such transactions and industry data and information. We are involved in a relatively new business, having launched our website on May 10, 2002, and as a result, we do not have a historical record of sales and revenues nor an established business track record from the operation of our business.

To December 31, 2001, we have incurred regular operating losses and have no significant source of revenue. Unanticipated problems, expenses and delays are frequently encountered in ramping up sales and launching new businesses. Our ability to successfully develop our website and to generate significant operating revenues will depend on our ability to successfully develop and maintain a brand name for our website and to attract new and maintain old users of our website.

Given our limited operating history, operating losses and other factors set out above, there can be no assurance that we will be able to achieve our goals and develop a sufficiently large user base of our website to be profitable. Management intends to raise debt and equity capital as needed on a private placement basis to finance the operating and capital requirements of our company. In addition, management expects cash flow from operations to increase over the next year. It is management's intention to continue to finance planned capital expansion and continued development in the e-marketplace and Internet website business. These factors raise substantial doubt about our company's ability to continue as a going concern as described in an explanatory paragraph to our independent auditors' report on the December 31, 2001 audited financial statements. The future of our company will depend upon our ability to obtain adequate financing and continuing support from stockholders and creditors and to achieve and maintain profitable operations. To the extent that we cannot achieve our plans and generate revenues which exceed expenses on a consistent basis and in a timely manner, our business, results of operations, financial condition and prospects would be materially adversely affected.

we expect to experience significant and rapid growth in the scope and complexity of our business as we proceed with the development OF OUR WEBSITE. if we are unable to hire staff to manage our operations, Our Growth Could Harm Our Future Business Results and may strain our managerial and operational resources.

As we proceed with the development of our website and services associated with our website, we expect to experience significant and rapid growth in the scope and complexity of our business. We will need to add staff to market our website, manage operations, handle marketing efforts and perform finance and accounting functions. We will be required to hire a broad range of additional personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.

WE MUST DEVELOP A MARKETING PROGRAM TO GENERATE ANY SIGNIFICANT REVENUES

We will be required to develop a marketing campaign that will effectively demonstrate the advantages of our website and services. We may also elect to enter into agreements or relationships with third parties regarding the promotion or marketing of our website and services. There can be no assurance that we will be able to establish adequate marketing capabilities, that we will be able to enter into marketing agreements or relationships with third parties on financially acceptable terms or that any third parties with whom we enter into such arrangements will be successful in marketing and promoting our website and services.

OUR SUCCESS IS DEPENDENT UPON THE ACCEPTANCE OF OUR COMPANY, OUR WEBSITE AND OUR BUSINESSES

Our success is dependent upon achieving significant market acceptance of our company and our website and services. We cannot guarantee that users will accept our website, or even the Internet, as a replacement for traditional sources of film and television rights transactions. Market acceptance of our website depends upon continued growth in the use of the Internet generally and, in particular, as a source of film and television rights transactions. The Internet may not prove to be a viable channel for these services. Failure to achieve and maintain market acceptance of our website would seriously harm our business.

Acceptance of our website depends on the success of our advertising, promotional and marketing efforts and the ability to continue to provide high-quality information and services to our users of our website. To date, we have not spent a considerable amount on marketing and promotional efforts. To increase awareness of our website, we expect to spend a significant amount on promotion, marketing and advertising in the future. If these expenses fail to develop an awareness of our website, these expenses may never be recovered and we may never be able to generate any significant future revenues. In addition, even if awareness of our website increases, we may not be able to increase or maintain the number of users of our website.

OUR CONTINUED OPERATIONS DEPEND ON TECHNOLOGY AND COMPUTER SYSTEMS

The markets in which we compete are characterized by rapidly changing technology, evolving technological standards in the industry, frequent new websites, services and products and changing consumer demands. Our future success will depend on our ability to adapt to these changes and to continuously improve the performance, features and reliability of our service in response to competitive services and the evolving demands of the marketplace, which we may not be able to do. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require us to incur substantial expenditures to modify or adapt our services or infrastructure, which might impact our ability to become or remain profitable.

Our website utilizes sophisticated and specialized network and computer technology. We anticipate that it will be necessary to continue to invest in and develop new and enhanced technology on a timely basis to maintain our competitiveness. Significant capital expenditures may be required to keep our technology up to date. Investments in technology and future investments in upgrades and enhancements to software for such technology may not necessarily maintain our competitiveness. Our business is highly dependent upon our computer and software systems, and the temporary or permanent loss of such equipment or systems, through casualty, operating malfunction or otherwise, could have a material adverse effect upon us.

The Loss of any of OUR KEY MANAGEMENT PERSONNEL Would Have an Adverse Impact on OUR Future Development and could impair our ability to succeed.

Our performance is substantially dependent on the expertise of key management personnel, and our ability to continue to hire and retain such personnel. It may be difficult to find sufficiently qualified individuals to replace key management personnel if we were to lose any one or more of them. Accordingly, the loss of any of our key management personnel could have a material adverse effect on our business, development, financial condition, and operating results.

We do not maintain "key person" life insurance on any of our directors or senior executive officers.

SINCE OUR SHARES ARE thinly traded and trading on the QUOTATION SERVICE OPERATED BY THE PINK SHEETS LLC may be sporadic because it is not an exchange, STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.

Our common stock is quoted on the quotation service operated by the Pink Sheets LLC and is thinly traded. In the past, our trading price has fluctuated widely, depending on many factors that may have little to do with our operations or business prospects. In addition, the Pink Sheets LLC are not an exchange and, because trading of the securities on the Pink Sheets LLC is often more sporadic than the trading of securities listed on an exchange or the Nasdaq Stock Market, Inc., you may have difficulty reselling any of our common shares.

Trading of Our Stock May Be Restricted by the SEC's Penny Stock Regulations Which May Limit a Stockholder's Ability to Buy and Sell our Stock.

The U.S. Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors." The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

WE DO NOT EXPECT TO DECLARE OR PAY ANY DIVIDENDS.

We have not declared or paid any dividends on our common stock since our inception and we do not anticipate paying any such dividends for the foreseeable future.

Item 2. Description of Property.

Pursuant to a three year lease commencing on November 1, 1999, InternetStudios leases offices for its executive offices at 1351 4th Street, Suite 227, Santa Monica, California at a base rent of $8,000 (CDN$12,281) per month. We are currently in negotiation with the landlord to terminate this lease. After this lease is terminated, we intend to relocate our executive offices to more suitable premises in Los Angeles.

InternetStudios also leases office space at 1040 Hamilton Street, Vancouver, British Columbia pursuant to a three-year lease entered into on March 1, 2000. The monthly rental is $2,749 (CDN$4,218) for the period commencing March 1, 2000 and ending February 28, 2001 and $2,838 (CDN$4,354) for the period commencing March 1, 2001 and ending February 28, 2003, plus all operating costs.

From March 28, 2000 to November 30, 2001 InternetStudios leased an office at 1400 Cahuenga Boulevard in Hollywood, California at a rental rate of $17,500 per month. Effective November 30, 2001, this lease was terminated.

Beginning September 1, 2000, InternetStudios UK Limited leased office space at 6/7 D'Arblay Street, London, England. The initial rent was $76,960 ($52,500 British pounds) per year and the lease was for a term of six (6) years ending on August 31, 2006. As InternetStudios UK Limited is inactive and is in the process of being wound up, we are currently in negotiation with the landlord to terminate the lease.

Item 3. Legal Proceedings.

Other than set out below, we know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

On or about September 1, 2000, Steven J. Fredericks, our former acting President and Chief Financial Officer, brought an action in the Los Angeles Superior Court against our company and certain of our senior management alleging that he was wrongfully discharged from his employment with InternetStudios. As of December 31, 2001, this matter was unresolved. However, the matter was referred to our insurance carrier who participated in settling the matter in April 2002 for $70,000. The insurance carrier agreed to pay $60,000 of the settlement amount as well as cover all attorney and legal fees incurred by InternetStudios. We agreed to pay the remaining $10,000 of which $5000 has been paid as of July 25, 2002.

August Entertainment, Inc. brought an action against our company on September 7, 2000, in Los Angeles County Superior Court for breach of contract arising from an alleged contract for distribution of films. This matter was settled in December 2001. Pursuant to the terms of the settlement, we agreed to pay August Entertainment $70,000, of which $45,000 has been paid as of July 25, 2002.

Two former employees of OnlineFilmSales.com, LLC filed claims with the Labor Commissioner in the State of California. The first made a claim against InternetStudios with the Labor Commissioner's office on April 25, 2001 even though she was never directly employed by InternetStudios. The former employee alleged non-payment of wages plus interest and penalties. On July 10, 2001, she received an "Order, Decision or Award" (sic) from the Labor Commissioner against InternetStudios in the amount of $11,328.09. As of July 25, 2002, no payments have been made to this employee.

The second former employee filed his initial claim with the Labor Commissioner's office against InternetStudios and OnlineFilmSales.com, LLC on August 24, 2001 alleging non-payment of wages plus expenses, interest and penalties. On May 29, 2002, the former employee received an "Order, Decision or Award" (sic) from the Labor Commissioner against InternetStudios and OnlineFilmSales.com, LLC in the amount of $26,578.24. As of July 25, 2002, no payments have been made to this employee.

On or about September 5, 2001, Total Creative, Inc. filed a complaint in the Superior Court of Los Angeles against OnlineFilmandTVSales.com, Inc. for money allegedly due for work and services allegedly supplied by the claimant. On November 27, 2001, the claimant received a Default Money Judgement in the amount of $34,531.49. As of July 25, 2002, no payment has been made to Total Creative.

On November 5, 2001, we agreed to an Arbitration Award, from the American Arbitration Association, in favor of Sitrick and Company in the sum of $42,000 on the condition that the Award not be confirmed or entered as a judgement in California or any other jurisdiction until after February 5, 2002. We are currently in negotiation with Sitrick and Company to reach an amicable resolution of Sitrick's claim for money owed and there are no plans to have the Award entered as a judgement.

Certain former employees have indicated an intention to pursue alleged claims against the Company by taking legal action. To date no actions have been filed against InternetStudios. In the opinion of management, any actions that may arise from these claims are immaterial to us or are without significant merit. Although no assurance can be given as to the outcome of any potential lawsuit, we believe that the ultimate outcome of these matters will not have a material adverse effect on our financial position or results of operations and the Company intends to vigorously defend against any action.

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

No matters were submitted to a vote of the shareholders of InternetStudios during the quarter ended December 31, 2001.

Effective March 22, 2002, a majority of our shareholders voted to increase our authorized capital from five million (5,000,000) to one hundred million (100,000,000) shares of common stock with a par value of $0.0001.

PART II

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

On December 6, 2001, we effected a twenty (20) for one (1) reverse stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital decreased from 100,000,000 to 5,000,000 shares of common stock with a par value of $0.0001.

Effective March 22, 2002, a majority of our shareholders voted to increase our authorized capital from five million (5,000,000) to one hundred million (100,000,000) shares of common stock with a par value of $0.0001.

On August 17, 1998, our common stock began trading on the National Association of Securities Dealers Inc.'s Over-the-Counter Bulletin Board under the name "Enterprise Inc" and under the symbol "ETPS".. On April 7, 1999, the symbol was changed to "EHLC", and on September 23, 1999, the symbol was changed to "ISTS". Our common stock was removed from the OTCBB on September 27, 2001 and has been quoted on the quotation system operated by the Pink Sheets LLC since that date. On December 6, 2001, InternetStudios' common stock began trading under the symbol "ISTO". The following table reflects the high and low bid information for our common stock for each fiscal quarter during the fiscal years ended December 31, 2000 and 2001. The bid information was obtained from BigCharts.com and reflects interdealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

FISCAL YEAR ENDED DECEMBER 31, 2000

|                                 | High(1) | Low(1) 
|-------------------------------- | ------- | -------
|Quarter Ended March 31, 2000     | $448.00 | $108.00
|Quarter Ended June 30, 2000      | $380.00 | $260.00
|Quarter Ended September 30, 2000 | $260.00 | $140.00
|Quarter Ended December 31, 2000  | $140.00 | $92.00 

FISCAL YEAR ENDED DECEMBER 31, 2001(1)

|                                 | High(1) | Low(1)
|-------------------------------- | ------- | ------
|Quarter Ended March 31, 2001     | $92.00  | $35.60
|Quarter Ended June 30, 2001      | $48.00  | $14.00
|Quarter Ended September 30, 2001 | $16.00  | $0.80 
|Quarter Ended December 31, 2001  | $0.60   | $0.01 

(1)

On July 25, 2002, the closing price for the common stock as reported by the quotation service operated by the Pink Sheets LLC was $0.30.

As of July 25, 2002, there were approximately 58 holders of record of our common stock. As of such date, 4,308,605 common shares were issued and outstanding.

Dividends

We currently intend to retain any earnings for use in our business and we do not anticipate paying any cash dividends on our capital stock in the foreseeable future.

Recent Sales of Unregistered Securities

We did not issue any unregistered securities during the quarter ended December 31, 2001.

Item 6. Selected Financial Data

The selected consolidated financial data presented below for the four years ended December 31, 2001 is derived from our consolidated financial statements which were examined by our independent auditor. The information set forth below should be read in conjunction with our Consolidated Financial Statements (including related notes thereto) and "Management's Discussion and Analysis of Financial Condition and Results of Operations". The data is presented in United States dollars.







Selected Consolidated Financial Data(Stated in U.S. dollars)

Fiscal Year Ended December 31



|                                               | 2001         | 2000        | 1999        | 1998    
|---------------------------------------------- | ------------ | ----------- | ----------- | --------
|Revenue                                        | $82,555      | $137,736    | $ -         | $ -     
|Direct Costs                                   |              |             |             |         
|Selling, general and
administrative            | 4,997,848    | 20,629,094  | 2,730,811   | 16,137  
|Amortization                                   | 5,452,290    | 8,370,325   | -           | -       
|Loss on disposition of
furniture and equipment | 544,523      | -           | -           | -       
|Lawsuit settlements                            | 132,500      | -           | -           | -       
|Impairment provision for
goodwill              | 15,462,534   | -           | -           | -       
|Net income (loss)                              | (26,853,427) | (36,205,66) | (2,730,811) | (16,137)
|Net income (loss) per share                    | (32.72)      | (48.20)     | (6.40)      | (0.22)  
|Total assets                                   | 2,354,774    | 25,768,567  | 14,151,685  | 31,025  

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

This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors".

General

InternetStudios.com, Inc. was incorporated in the State of Nevada on April 14, 1998 under the name The Enterprise, Inc. For a period of time, prior to December 14, 1998, we were engaged in the word processing business. We changed our name to eHealth.com, Inc. in anticipation of acquiring a license to software technology for the health industry. This acquisition was not completed. Effective September 21, 1999 we changed our name to InternetStudios.com, Inc. Since that date, InternetStudios has been in the business of providing web-based solutions for the entertainment industry. We own a proprietary online platform and database to transact film and television rights. With this technology, we have focused on the development and marketing of our website at www.onlinefilmandtvsales.com which has complete transactional capabilities for the licensing of filmed entertainment.

Through our online platform, www.onlinefilmandtvsales.com, we provide an enterprise solution complete with transactional capabilities for the licensing of filmed entertainment, complementary technology to track such transactions, and relevant and timely industry data and information. This yields multiple revenue streams including:

- Hosting fees for maintaining audiovisual and ancillary marketing materials on the website;

- Customization and Licensing fees for adapting the online platform to create user specific interfaces and applications;

- Transactional fees for any product sold using our technology;

- Marketing fees for email campaigns, marketing campaigns, and co-marketing ventures for filmed entertainment product; and

- Sales revenue from content owned or brokered by InternetStudios.

We are still in our infancy as a viable commercial entity and consequently our focus over the past three years has been on the identification of market needs, development of our technology and product, www.onlinefilmandtvsales.com, and the branding of our company and product. We believe that we will generate increased revenue over the next three fiscal years due to the recent release of the upgraded onlinefilmandtvsales.com website. In addition, we plan to hire an experienced sales and marketing team to develop and enhance our sales and marketing program. These individuals will focus on increasing traffic and volume at the site. We expect that initial revenue growth will be reflected in the third and fourth quarters of 2002. We also anticipate a further increase in revenues in fiscal 2003 and 2004, which we expect will result from partnering arrangements with large corporate organizations. We anticipate that the expected growth in revenues may enable us to attract additional financing to allow us to add the needed resources to further support the growth of our operations. Despite our expectations, there are no assurances that our estimated revenue growth can be achieved. Should we be unable to achieve the anticipated revenue growth, our business and future success may be adversely affected.

RESULTS OF OPERATIONS

The discussion set forth below relating to results of operations pertains to the comparison of the fiscal year ended December 31, 2001 and the period from April 1998 (incorporation) to December 31, 2000.

REVENUES. InternetStudios has recognized revenues to date of $220,921, all of which are from operating revenues sources. We recognize revenue from our customers listing material on the OFTVS website as well as revenues from transactions consummated by buyers and sellers using the OFTVS system.

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 are currently classified as general and administrative expenses. 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 OnlineFilmandTVSales.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 $2,639,668 were capitalized under EITF 00-02 and $4,750,000 were recorded as a non-cash cost related to stock based compensation. At December 31, 2001 website development costs were $16,281, none of which were capitalized under EITF 00-02. 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 related to stock based compensation. At December 31, 2001 these costs were $4,852,157.

SUMMARY

Presently, we have no significant sources of revenue. We have incurred operating losses since inception. The continuation of our business is dependent upon the continuing financial support of our creditors and stockholders, obtaining further financing, successful and sufficient market acceptance of updated versions of our existing services and achieving a profitable level of operations. There are, however, no assurances we will be able to generate further funds required for our continued operations. Accordingly, our consolidated financial statements contain note disclosures describing the circumstances that lead there to be doubt over our ability to continue as a going concern. In their report on the consolidated financial statements, our independent auditors included an explanatory paragraph regarding our ability to continue as a going concern.

LIQUIDITY AND CAPITAL RESOURCES

From inception, InternetStudios has financed its operations entirely from private placements. On December 31, 2001, InternetStudios had no cash or cash equivalents. Since 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 $17,826,035 for the period from inception and ended December 31, 2000, and $18,182,843 for the period ended December 31, 2001.

As of March 29, 2000, 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.

In February 2001, we received loans from nine individual lenders in the aggregate principle amount of $199,158.66, pursuant to convertible note purchase agreements between our company and each of the lenders. Each loan was evidenced by a convertible grid promissory note that bears no interest and is repayable on demand. These loans were made with the agreement that if our company could not repay the loans from any future equity financings the loans would be convertible into share of our common stock at a price to be negotiated upon notice of conversion. These transactions were effected in accordance with Regulation S under the Securities Act of 1933, as amended.

On February 19, 2001, we received funding from an unrelated third party in the form of a secured loan in the amount of $425,000. This same unrelated third party loaned our company an additional $30,000 on April 20, 2001.

Throughout the third and fourth quarters of 2001, our management loaned funds to interim finance the corporate activities of InternetStudios. Additionally, one executive officer of our Company repaid $104,908 of monies loaned from the Company.

As shown in our financial statements, we have sustained substantial losses from operations since inception. As of the date of this annual report, we have utilized substantially all of our available funding. Our continuation as a going concern will depend on our ability to raise additional capital. No assurance can be given that we will be able to raise additional funds. In the absence of such funds, we will be required to cease operations.

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

Our management has taken steps to revise and reduce our operating requirements, which we believe will be sufficient to assure continued operations and implementation of our plans. These steps include expense reduction in staffing, marketing and consulting, as well as a significant decrease in operating costs as a result of completion of Web developments activities. We are also in the process of securing additional capital through equity transactions, which will be required in order to continue operations.

Given our limited operating history, operating losses and other factors set out above, there can be no assurance that we will be able to achieve our goals and develop a sufficiently large user base of our website to be profitable. Management intends to raise debt and equity capital as needed on a private placement basis to finance the operating and capital requirements of our company. In addition, management expects cash flow from operations to increase over the next year. It is management's intention to continue to finance planned capital expansion and continued development in the e-marketplace and Internet website business. These factors raise substantial doubt about our company's ability to continue as a going concern as described in an explanatory paragraph to our independent auditors' report on the December 31, 2001 audited financial statements. The future of our company will depend upon our ability to obtain adequate financing and continuing support from stockholders and creditors and to achieve and maintain profitable operations. To the extent that we cannot achieve our plans and generate revenues which exceed expenses on a consistent basis and in a timely manner, our business, results of operations, financial condition and prospects would be materially adversely affected.

In the event that our plans or assumptions change or prove inaccurate (due to delays in development, the inability to sign any significant sales agreements or generate revenues, unfavorable economic conditions, or other unforeseen circumstances), there can be no assurance that such additional financing would be available to us, or if available, that the terms of such additional financing will be acceptable to us.

Future Cash Requirements

We expect that the release of our revamped website services will lead to an increase in revenues in fiscal 2002. We expect that further development and marketing of the service combined with the planned introduction of new services in late 2002, will lead to increased revenues in 2003 and 2004. Although we expect to see an increase in revenues in 2002, we do not anticipate this to materialize until the third and fourth quarter of fiscal 2002. Consequently we required approximately $200,000 over the period ended July 25, 2002 to accomplish our goals. We estimate that approximately $375,000 is required to the end of fiscal 2002, $100,000 of which is required to hire sales and marketing persons and to implement our sales and marketing program. The balance of $275,000 will be required to support general corporate expenses, including expenses in connection with the engaging of both senior and intermediate management personnel and other general operating expenses. We intend to receive the balance of the cash requirements through private placements or by debt financing.

Plan of Operation

Our primary objective over the twelve months ending December 31, 2002 will be to implement an aggressive sales and marketing program in connection with the OnlineFilmandTVSales.com website service. We plan to achieve a critical mass of product listing for buyers and sellers to transact business using OFTVS technology as well as offer "private-label" enterprise solutions for larger industry players through the customization of the OFTVS platform.

Our strategy is to continue to enhance www.onlinefilmandtvsales.com's functionality through new feature development to meet the continually changing requirements of our customers. At the same time, we plan to complete development of an off-line filmed entertainment catalogue management system, which communicates with the OFTVS software. Additionally, we intend to assemble a major library of filmed content by expanding the number of copyrights and distribution rights that InternetStudios owns, represents or brokers, which will generate growth and annuity income.

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 website. 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 OnlineFilmandTVSales.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 2001 as we built brand awareness in the industry. However, this type of expense will be reduced in 2002-2003 as industry acceptance is achieved. In 2002, we intend 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, we intend 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: We will focus on localization, through a variety of methods. Instructing, responding to needs, and integrating with businesses in Latin America, Asia and Australia.

Teaching buyers how and why: OFTVS will conduct more one-on-one training, especially as we roll out functionality.

Signing & teaching sellers: To 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. We are actively enhancing our customer relation management systems.

More & richer Global Directory data/Calendar/TV: To 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. Our executives intend to provide sales and marketing expertise and the most comprehensive information and complete catalogue of film and TV product in the world.

EMPLOYEES

As of July 25, 2002, InternetStudios had 6 full time employees with 4 in the area of corporate administration and 2 in sales and marketing. We also have 7 independent contractors providing product development services, management consulting services and capital raising services. Over the 12 months ending December 31, 2002, we plan to expand our total number of permanent employees in these same departments as required.

PURCHASE OR SALE OF EQUIPMENT

We do not anticipate that we will spend any significant amount on equipment for our present or future operations over the twelve months ending December 31, 2002. However, we will continue to purchase computer hardware and software, as needed, for our ongoing operations.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities on 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 was effective for all fiscal quarters of fiscal years beginning after June 15, 2000.

Historically, our company has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, adoption of the new standards on January 1, 2001 did not affect our consolidated financial statements.

In June 2001, the Financial Accounting Standards Board ("FASB") finalized SFAS No. 141, Business Combinations,and SFAS No. 142, Goodwill and Other Intangible Assets.SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that we recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that we reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortise goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that we identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible asset, and cease Amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires us to complete a transitional goodwill impairment test six months from the date of adoption. We are also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively.

The implementation of these new standards is not expected to have a material effect on the our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We do not utilize derivative instruments to manage market related risks. We do not have any long-term debt instruments so our company is not subject to market related risks such as interest or foreign exchange on long-term debt. All of our operations are conducted in the United States and thus, we are not exposed to significant risk of currency loss due to fluctuations in the Canadian and U.S. exchange rates.

Item 8. Financial Statements and Supplementary Data.

Selected Quarterly Data

|Fiscal 2001                      | 1st Quarter
Fiscal 2001 | 2nd Quarter
Fiscal 2001 | 3rd Quarter
Fiscal 2001 | 4th Quarter
Fiscal 2001 | Fiscal 2001  
|-------------------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | -------------
|Revenues                         | $60,930                 | $-                      | $21,625                 | $-                      | $82,555      
|Net income (loss) for the period | $(5,739,800)            | $(18,732,613)           | $(779,712)              | $(1,601,302)            | $(26,853,427)
|Net income (loss) per share      | $(7.40)                 | $(23.60)                | $(1.00)                 | $(1.96)                 | $(32.72)     



|Fiscal 2000                      | 1st Quarter
Fiscal 2000 | 2nd Quarter
Fiscal 2000 | 3rd Quarter
Fiscal 2000 | 4th Quarter
Fiscal 2000 | Fiscal 2000  
|-------------------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | -------------
|Revenues                         | $-                      | $5,355                  | $64,530                 | $67,851                 | $137,736     
|Net income (loss) for the period | $(15,368,356)           | $(9,098,018)            | $(9,192,639)            | $(2,546,655)            | $(36,205,668)
|Net income (loss) per share      | $(22.80)                | $(12.00)                | $(11.80)                | $(3.20)                 | $(45.00)     

Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The following consolidated financial statements are filed as part of this annual report:

Independent Auditor's Report, dated May 31, 2002

Consolidated Balance Sheets as at December 31, 2001 and 2000

Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the period from April 14, 1998 (incorporation) to December 31, 2001

Consolidated Statements of Cash Flows for the year ended December 31, 2001 and for the period from April 14, 1998 (incorporation) to December 31, 2001

Summary of Significant Accounting Policies

Notes to the Consolidated Financial Statements











INTERNETSTUDIOS.COM, INC.

(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2001 AND 2000







AUDITORS' REPORT

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





LABONTE & CO.
CHARTERED ACCOUNTANTS

1205 - 1095 West Pender Street
Vancouver, B.C. Canada
V6E 2M6
Telephone (604) 682-2778
Facsimile (604) 689-2778
Email rjl@labonteco.com

|AUDITORS' REPORT
|----------------



To the Stockholders and Board of Directors of Internetstudios.com, Inc.

We have audited the consolidated balance sheet of Internetstudios.com, Inc. as at December 31, 2001 and the statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian and United States 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. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2001 and the results of its operations and its cash flows for the year then ended in accordance with United States generally accepted accounting principles.

The financial statements as at December 31, 2000 and for the year then ended were audited by other auditors who rendered an unqualified opinion in their report dated April 14, 2001.



/s/ Labonte & Co.
CHARTERED ACCOUNTANTS

Vancouver, B.C.
May 31, 2002



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 conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in Note 1. Our report to the stockholders and Board of Directors dated May 31, 2002 is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors' report when these are adequately disclosed in the financial statements.







/s/ Labonte & Co.
CHARTERED ACCOUNTANTS

Vancouver, B.C.
May 31, 2002

INTERNETSTUDIOS.COM, INC.
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

|                                                                                                     | December 31,
2001 | December 31,
2000
|---------------------------------------------------------------------------------------------------- | ----------------- | -----------------
|                                                                                                     |                   |                  
|ASSETS                                                                                              
|                                                                                                     |                   |                  
|CURRENT ASSETS                                                                                       |                   |                  
|Cash and cash equivalents                                                                            | $ -               | $700,068         
|Restricted cash                                                                                      | -                 | 435,000          
|Taxes recoverable                                                                                    | 24,305            | 55,685           
|Accounts receivable                                                                                  | 969               | 57,318           
|Loans receivable from related party (Note 7)                                                         | 373,679           | 535,217          
|Prepaid expenses                                                                                     | -                 | 138,096          
|                                                                                                     | 398,953           | 1,921,384        
|WEBSITE DEVELOPMENT COSTS                                                                            | 2,639,668         | 2,779,668        
|FURNITURE AND EQUIPMENT                                                                              | -                 | 993,942          
|                                                                                                     | 2,639,668         | 3,773,610        
|Less - accumulated depreciation and amortization                                                     | (1,278,408)       | (786,762)        
|                                                                                                     | 1,361,260         | 2,986,848        
|                                                                                                     |                   |                  
|LOANS RECEIVABLE (Note 6)                                                                            | 594,561           | 759,065          
|DEPOSITS AND OTHER                                                                                   | -                 | 96,933           
|GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated
amortization of $8,194,621 in 2000 (Note 3) | -                 | 20,004,337       
|                                                                                                     |                   |                  
|                                                                                                     | $2,354,774        | $25,768,567      
|                                                                                                     |                   |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                
|                                                                                                     |                   |                  
|CURRENT LIABILITIES                                                                                  |                   |                  
|Bank overdraft                                                                                       | $4,428            | $ -              
|Accounts payable and accrued liabilities                                                             | 2,157,435         | 976,270          
|Loans payable                                                                                        | 632,153           | -                
|Due to related parties                                                                               | 10,000            | -                
|Deferred revenue                                                                                     | -                 | 148,626          
|                                                                                                     | 2,804,016         | 1,124,896        
|CONVERTIBLE LOANS(Note 8)                                                                            | 199,159           | -                
|                                                                                                     | 3,003,175         | 1,124,896        
|                                                                                                     |                   |                  
|STOCKHOLDERS' EQUITY (DEFICIT) (Note 9)                                                              |                   |                  
|Common stock, $.0001 par value, 5,000,000 shares authorized                                          |                   |                  
|820,742 shares issued and outstanding (2000 - 782,902 shares)                                        | 1,643             | 1,567            
|Additional paid-in capital                                                                           | 65,250,791        | 66,131,524       
|Deferred compensation                                                                                | (94,792)          | (2,536,804)      
|Deficit accumulated during the development stage                                                     | (65,806,043)      | (38,952,616)     
|                                                                                                     |                   |                  
|Total Stockholders' Equity (Deficit)                                                                 | (648,401)         | 24,643,671       
|                                                                                                     |                   |                  
|                                                                                                     | $2,354,774        | $25,768,567      

The accompanying notes are an integral part of these consolidated financial statements

INTERNETSTUDIOS.COM, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                               | Year ended
December 31,
2001 | Year ended
December 31,
2000 | April 14, 1998
(inception) to
December 31,
2001
|---------------------------------------------- | ---------------------------- | ---------------------------- | -----------------------------------------------
|                                               |                              |                              |                                                
|                                               |                              |                              |                                                
|REVENUE                                        | $82,555                      | $137,736                     | $220,291                                       
|                                               |                              |                              |                                                
|OPERATING EXPENSES                             |                              |                              |                                                
|General and administrative                     | 4,770,787                    | 20,629,094                   | 26,710,464                                     
|Sales and marketing                            | 222,061                      | 2,780,920                    | 3,129,457                                      
|Amortization of goodwill                       | 4,541,803                    | 7,592,773                    | 12,737,424                                     
|Amortization of website development costs      | 910,487                      | 445,698                      | 1,356,185                                      
|Website development costs                      | 16,281                       | 5,678,683                    | 6,327,907                                      
|                                               | 10,461,419                   | 37,127,168                   | 50,261,437                                     
|Loss from operations                           | (10,378,864)                 | (36,989,432)                 | (50,041,146)                                   
|Other income (expenses)                        |                              |                              |                                                
|Interest income, net of interest expense       | 37,049                       | 277,514                      | 240,465                                        
|Minority interest in loss of subsidiary        | -                            | 506,250                      | 506,250                                        
|Loss on impairment of loans receivable         | (309,832)                    | -                            | (309,832)                                      
|Loss on disposal of furniture and equipment    | (544,523)                    | -                            | (544,523)                                      
|Loss on impairment of goodwill                 | (15,462,534)                 | -                            | (15,462,534)                                   
|Loss on write off of website development costs | (62,223)                     | -                            | (62,223)                                       
|Loss on settlement of lawsuits                 | (132,500)                    | -                            | (132,500)                                      
|                                               |                              |                              |                                                
|NET LOSS FOR THE PERIOD                        | $(26,853,427)                | $(36,205,668)                | $(65,806,043)                                  

|                                                     |          |         
|---------------------------------------------------- | -------- | --------
|BASIC NET LOSS PER SHARE                             | $(32.72) | $(48.30)
|                                                     |          |         
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING | 820,731  | 749,645 







The accompanying notes are an integral part of these consolidated financial statements

INTERNETSTUDIOS.COM, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                         | Year Ended
December 31,
2001 | Year Ended
December 31,
2000 | April 14, 1998
(inception) to
December 31,
2001
|------------------------------------------------------------------------ | ---------------------------- | ---------------------------- | -----------------------------------------------
|                                                                         |                              |                              |                                                
|CASH FLOWS FROM OPERATING ACTIVITIES                                     | $ (26,853,427)               | $ (36,205,668)               | $ (65,806,043)                                 
|Net loss for the period                                                  |                              |                              |                                                
|Adjustments to reconcile net loss to net cash from operating activities: |                              |                              |                                                
|Non-cash expenses:                                                       |                              |                              |                                                
|Amortization and depreciation                                            | 5,586,469                    | 8,370,325                    | 14,509,602                                     
|Bad debts                                                                | 46,087                       | -                            | 46,087                                         
|Loss on disposal of furniture and equipment                              | 544,523                      | -                            | 544,523                                        
|Loss on impairment of goodwill                                           | 15,462,534                   | -                            | 15,462,534                                     
|Loss on write-off of website development costs                           | 62,223                       | -                            | 62,223                                         
|Loss on impairment of loans                                              | 309,832                      | -                            | 309,832                                        
|Compensation expense related to stock and stock options                  | 1,561,356                    | 10,925,152                   | 12,486,508                                     
|Minority interest in loss of subsidiary                                  | -                            | (506,250)                    | (506,250)                                      
|Stock based website development expense                                  | -                            | 3,185,882                    | 3,185,882                                      
|Changes in operating assets and liabilities:                             |                              |                              |                                                
|Restricted cash                                                          | 435,000                      | (435,000)                    | -                                              
|Accounts receivable                                                      | 10,262                       | (57,318)                     | (47,056)                                       
|Taxes recoverable                                                        | 31,380                       | (37,722)                     | (6,342)                                        
|Prepaid expenses                                                         | 138,096                      | 369,149                      | (117,685)                                      
|Deposits and other                                                       | 96,933                       | -                            | -                                              
|Accounts payable and accrued expenses                                    | 1,178,663                    | 444,817                      | 1,693,342                                      
|Deferred revenue                                                         | (148,625)                    | 148,625                      | -                                              
|                                                                         |                              |                              |                                                
|CASH USED IN OPERATING ACTIVITIES                                        | (1,538,694)                  | (13,798,008)                 | (18,182,843)                                   
|                                                                         |                              |                              |                                                
|CASH FLOWS FROM INVESTING ACTIVITIES                                     |                              |                              |                                                
|Acquisition of furniture and equipment for cash                          | (23,324)                     | (2,133,841)                  | (2,218,566)                                    
|Acquisition of ReporterTV.com, net of cash acquired                      | -                            | (1,531,192)                  | (1,532,192)                                    
|Incorporation costs                                                      | -                            | -                            | (1,000)                                        
|Acquisition of itsTV.com                                                 | -                            | (232,274)                    | (232,274)                                      
|Cash acquired on acquisition of Online Films, LLC                        | -                            | -                            | 363,759                                        
|Increase in deposits and other                                           | -                            | (96,933)                     | -                                              
|                                                                         |                              |                              |                                                
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                           | (23,324)                     | (3,994,240)                  | (3,620,273)                                    
|                                                                         |                              |                              |                                                
|CASH FLOWS FROM FINANCING ACTIVITIES                                     |                              |                              |                                                
|Bank overdraft                                                           | 4,428                        | -                            | 4,428                                          
|Loans receivable                                                         | 26,210                       | 150,507                      | (1,251,609)                                    
|Loans payable                                                            | 632,153                      | -                            | 632,153                                        
|Convertible loan payable                                                 | 199,159                      | -                            | 199,159                                        
|Net proceeds on sale of common stock                                     | -                            | 17,680,685                   | 22,218,985                                     
|                                                                         |                              |                              |                                                
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES                           | 861,950                      | 17,831,192                   | 21,803,116                                     
|                                                                         |                              |                              |                                                
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         | (700,068)                    | 38,944                       | -                                              
|                                                                         |                              |                              |                                                
|CASH AND EQUIVALENTS, BEGINNING OF PERIOD                                | 700,068                      | 661,124                      | -                                              
|                                                                         |                              |                              |                                                
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                 | $ -                          | $700,068                     | $ -                                            





The accompanying notes are an integral part of these consolidated financial statements

INTERNETSTUDIO.COM, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE PERIOD APRIL 14, 1998 (INCEPTION) TO DECEMBER 31, 2001



|                                                                              | Number of
shares | Amount | Deferred
compensation | Additional
paid in capital | Deficit
accumulated
during the
development
stage | Total       
|----------------------------------------------------------------------------- | ---------------- | ------ | --------------------- | -------------------------- | ------------------------------------------------ | ------------
|                                                                              |                  |        |                       |                            |                                                  |             
|Common stock issued for cash                                                  | 7,117,200        | $712   | $ -                   | $37,558                    | $ -                                              | $38,300     
|Net loss for the period                                                       | -                | -      | -                     | -                          | (16,137)                                         | (16,137)    
|                                                                              |                  |        |                       |                            |                                                  |             
|Balance at December 31, 1998                                                  | 7,117,200        | 712    | -                     | 37,558                     | (16,137)                                         | 22,163      
|Common Stock issued for acquisition of Online
Films LLC                       | 5,632,800        | 563    | -                     | 11,828,317                 | -                                                | 11,828,880  
|Common Stock issued for cash pursuant to
Regulation S offering                | 562,500          | 56     | -                     | 4,499,944                  | -                                                | 4,500,00    
|Net loss for the year ended December 31, 1999                                 | -                | -      | -                     | -                          | (2,730,811)                                      | (2,730,811) 
|                                                                              |                  |        |                       |                            |                                                  |             
|Balance at December 31, 1999                                                  | 13,312,500       | 1,331  |                       | 16,365,849                 | (2,746,948)                                      | 13,620,232  
|Common Stock options granted for services, net
of cancellations               | -                | -      | (5,019,895)           | 5,019,895                  | -                                                | -           
|Amortization of deferred compensation                                         | -                |        | 2,483,091             |                            | -                                                | 2,483,091   
|Common Stock issued for cash pursuant to 
Regulation S offering               | 437,500          | 44     | -                     | 3,499,956                  | -                                                | 3,500,000   
|Exercise of employee stock options                                            | 66,044           | 7      | -                     | 842,054                    | -                                                | 842,061     
|Common stock issued for cash pursuant to
Regulation D offerings, net of costs | 1,445,000        | 145    | -                     | 14,180,685                 | -                                                | 14,180,830  
|Common stock issued for acquisition of
itstv.com                              | 120,000          | 12     | -                     | 1,859,988                  | -                                                | 1,860,000   
|Common stock warrants issued for acquisition
of itstv.com                     | -                | -      | -                     | 1,119,375                  | -                                                | 1,119,375   
|Common stock issued for services                                              | 27,000           | 3      | -                     | (3)                        | -                                                | -           
|Acquisition of minority interest in
OnlineFilmSales.com                       | -                | -      | -                     | 11,400,000                 | -                                                | 11,400,000  
|Common stock equity interest issued for
services                              | -                | -      | -                     | 7,600,000                  | -                                                | 7,600,000   
|Conversion of LLC membership                                                  | 250,000          | 25     | -                     | 4,243,725                  | -                                                | 4,243,750   
|Net loss for the year ended December 31, 2000                                 | -                | -      | -                     | -                          | (36,205,668)                                     | (36,205,668)
|                                                                              |                  |        |                       |                            |                                                  |             
|Balance at December 31, 2000                                                  | 15,658,044       | 1,567  | (2,536,804)           | 66,131,524                 | (38,952,616)                                     | 24,643,671  
|Conversion of Class B Membership                                              | 156,800          | 16     |                       | (16)                       | -                                                | -           
|Conversion of Class B Membership                                              | 600,000          | 60     |                       | (60)                       | -                                                | -           
|Amortization of deferred compensation                                         | -                | -      | 1,561,356             | -                          | -                                                | 1,561,356   
|Reversal of deferred compensation                                             | -                | -      | 880,656               | (880,657)                  | -                                                | (1)         
|20 to 1 Rollback                                                              | (15,594,102)     | -      | -                     | -                          | -                                                | -           
|Net loss for the year ended December 31, 2001                                 | -                | -      | -                     | -                          | (26,853,427)                                     | (26,853,427)
|                                                                              |                  |        |                       |                            |                                                  |             
|Balance at December 31, 2001                                                  | 820,742          | $1,643 | $(94,792)             | $ 65,250,791               | $(65,806,043)                                    | $(648,401)  





The accompanying notes are an integral part of these consolidated financial statements

INTERNETSTUDIO.COM, INC.
(A Development Stage Company)



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
|---------------------------------------------------------------------

NOTE 1 - DESCRIPTION OF BUSINESS

InternetStudios.com, Inc. owns four subsidiaries: OnlineFilmSales.com LLC, InternetStudios UK, Ltd., InternetStudios Entertainment Finance, Inc., and OnlineFilmandTVSales.com, Inc. (inactive); in turn, OnlineFilmsSales.com, LLC owns membership interests in two inactive limited liability companies, ReporterTV.com LLC and StudioBuzz.com LLC (collectively, "the Company") The Company is in the business of the management, marketing and delivery of digital filmed entertainment. 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.

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 December 31, 2001, the Company had a working capital deficiency of $2,405,063 and commencing in June 2001 significantly reduced the scope of operations due to the lack of operating capital.

In view of the matters described in the preceding paragraph, there is substantial doubt regarding the Company's ability to continue operations as a going concern. 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.

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 website development costs.



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. 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. During the second quarter of 2001 the Company disposed of substantially all its furniture and equipment and recorded a full impairment provision for all remaining furniture and equipment.

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 were not included in the calculation of weighted average number of shares because the effect would be anti-dilutive. The weighted average number of common shares outstanding for prior periods have been recalculated to take into effect the 20:1 roll-back as described in Note 9.

Website Development Costs

The Company adopted EITF 00-2 "Accounting for Web Site Development Costs" 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 $2,639,668 have been capitalized and are being amortized on the straight-line method over a period of 3 years.

Stock Based Compensation

The Company accounts for stock-based compensation in respect to stock options granted to employees and officers using the intrinsic value based method in accordance with APB 25. Stock options granted to non-employees are accounted for using the fair value method in accordance with SFAS No. 123. In addition, with respect to stock options granted to employees, the Company provides pro-forma information as required by SFAS No. 123 showing the results of applying the fair value method using the Black-Scholes option pricing model.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.

The Company has also adopted the provisions of the Financial Accounting Standards Board Interpretation No.44, Accounting for Certain Transactions Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN 44"), which provides guidance as to certain applications of APB 25. FIN 44 is generally effective July 1, 2000 with the exception of certain events occurring after December 15, 1998.

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.

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. Effective June 30, 2001 as a result of the significant reduction in the scope of operations due to the lack of capital the Company recorded a full impairment provision for the unamortized balance of goodwill in the amount of $15,462,534.

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.

Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

NOTE 4 - 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 in the amount 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 former officers of the Company also made contributions to OnlineFilmSales. Heidi Lester, the former Chief Executive Officer, contributed an 8.153% interest in Online Films in exchange for Class B Membership Interests in OnlineFilmSales and Steve Fredericks, the former Acting President and Chief Financial Officer contributed to OnlineFilmSales all of his right, title and interest in and to, certain agreements 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.

The holders of Class B membership interests in OnlineFilmSales are entitled to convert their interests into up to 1,000,000 pre-consolidation 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 member's admission as a Class B member of OnlineFilmSales to the date of such distribution of cash by OnlineFilmSales. Refer to Note 9.

NOTE 5 - REPORTERTV.COM, LLC

InternetStudios, through OnlineFilmSales, entered into a joint venture with MediaChase Ltd., a Los Angeles based software company, on March 28, 2000 to form ReporterTV.com, LLC.

To fund the development of ReporterTV, InternetStudios advanced $2,025,000 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. 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 pre-consolidation shares of InternetStudios' common stock, MediaChase (i) entered into a Consulting Agreement with each of OnlineFilmSales and StudioBuzz.com, LLC, (ii) contributed certain assets to ReporterTV and StudioBuzz.com, LLC, and (iii) contributed to OnlineFilmSales (a) a 75% membership interest in ReporterTV and (b) a 100% voting interest and 50% economic interest in StudioBuzz.com, LLC. Pursuant to the termsof the Limited Liability Agreement with ReporterTV ("RTV Agreement"), 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 payments did not occur.

Pursuant to the terms of the RTV Agreement, OnlineFilmSales is not obligated to fund ReporterTV for amounts over and above a defined contribution cap of $1,650,000, which contribution was provided by OnlineFilmSales. Additionally, pursuant to the terms of the RTV Agreement, OnlineFilmSales has no ongoing financial obligation to ReporterTV and is entitled to look to MediaChase to provide financing for the company. As no financial resources were made available to fund the ongoing operations of the company, ReporterTV's activities ceased during May, 2001.

NOTE 6 - LOANS RECEIVABLE

During 2000, the Company loaned a total of approximately $761,000 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. Collectability of these amounts is dependent on the success of the film projects financed. Subsequent to year end the Company assigned this loan to certain creditors in settlement of outstanding debts. Refer to Note 12.

NOTE 7- RELATED PARTY TRANSACTIONS

The Company entered into formal employment or management contracts with four officers of the Company or with consulting firms owned by those officers. Subsequent to June 30, 2001, two officers resigned. The remaining contracts provide for a combined base salary of $384,000 per annum for a three year term ending December 31, 2002 and granting of stock options providing the right to acquire a total of 350,000 pre-consolidation shares of common stock at a pre-consolidation price of $5 per share to be vested over the term of the contracts. The contracts include a severance provision of 150% of base salary which totals $576,000 for these two officers. At December 31, 2001, a total of $288,000 is owing under these contracts.

During 2000, the Company loaned a total of approximately $535,000 to an executive officer of the Company and a film production company owned and managed by this executive officer. Advances under the loan agreement are collateralized by all of the assets of the related company, bear interest at the prime rate plus 3% until March 31, 2001 and are due on demand. Collectability of these amounts is dependent on the success of the film projects financed. During the year ended December 31, 2001 interest and fees of $37,594 were accrued under this loan. Additionally, during the year ended December 31, 2001 the Company assumed loans to this entity from a bank totaling $215,588 and this officer repaid $104,908 of outstanding loans. Due to uncertainty of recovery the Company recorded an impairment provision of $309,832 leaving a balance outstanding at year end of $373,679 which was assigned to creditors subsequent to year end in settlement of outstanding debts of the Company.

NOTE 8 - CONVERTIBLE LOANS

During February 2001 the Company received loans in the aggregate principal amount of $199,159 pursuant to convertible note agreements. These loans are non-interest bearing and are repayable on demand. The convertible note agreement provides the lender the right to convert the outstanding loan into shares of common stock at a price approximating the market price of the Company's shares at the time of notice. Subsequent to year end these loans were converted into 3,487,873 shares of common stock. Refer to Note 12.

NOTE 9 - STOCKHOLDERS' EQUITY

The Company's authorized capital consists of 5,000,000 shares of common stock with a par value of $0.0001 per share. During December, 2001 the Company completed a 20:1 roll-back of outstanding common shares which reduced the number of outstanding shares from 16,414,844 shares to 820,742 shares. On March 22, 2002 the authorized capital was increased to 100,000,000 shares.

During 2001 the Company issued 756,580 pre-consolidation shares of common stock on conversion of Class B membership interests in OnlineFilmSales.com, LLC

In December 1999, the Company's Board of Directors approved a U.S. Stock Incentive Plan for a maximum of 1,000,000 pre-consolidation shares of common stock and a non-U.S. Stock Incentive Plan for a maximum of 500,000 pre-consolidation 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 pre-consolidation shares. The plan was approved by the Company's shareholders in January, 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 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 to the extent market value of the stock at the grant date exceeded the option price.

The following table summarizes information about stock option transactions for the year ended December 31, 2001.

|                    | Shares    | Weighted
Average
Exercise Price
|------------------- | --------- | -------------------------------
|Options outstanding |           |                                
|December 31, 2000   | 677,678   | $5.44                          
|Granted             | -         | -                              
|Exercised           | -         | -                              
|Expired             | (405,678) | $.5.44                         
|20:1 roll-back      | (258,700) | -                              
|                    |           |                                
|December 31, 2001   | 13,300    | $100.00                        
|                    |           |                                
|Options exercisable | 12,745    | $100.00                        

During the year the Company expensed $1,561,356 of previously deferred stock-based compensation relating to outstanding stock options which vested. In addition, the Company reversed $880,656 in deferred compensation related to stock options which expired prior to vesting.

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, the tax benefit of the loss carryforward has been offset by a valuation allowance of the same amount.

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 - SUBSEQUENT EVENTS

During February and March 2002 the Company issued a total of 3,487,873 shares of common stock on conversion of the outstanding convertible loans of $199,159.

Pursuant to settlement agreements executed in May 2002 the Company agreed to assign its outstanding loan receivables of $594,561 from a film production company and $323,679 due from a related party to certain creditors in satisfaction of outstanding debts of approximately $970,000 of which $420,000 is owing to two companies controlled by directors and officers of the Company.

During January 2002 the Directors approved a resolution to issue up to 5,520,000 shares of common stock to directors, officers and employees in settlement of outstanding obligations totaling $315,000.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

On October 9, 2001, Grant Thornton LLP resigned as independent accountants for InternetStudios. On October 9, 2001, InternetStudios' board of directors accepted the resignation of Grant Thornton LLP and approved the change of accountants from Grant Thornton LLP to Labonte & Co., Chartered Accountants.

During InternetStudios' most recent fiscal year, and any subsequent interim periods preceding the change in accountants, there were no disagreements with Grant Thornton LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope procedure. The report on the financial statements audited by Grant Thornton LLP for the last fiscal year contained a modifying paragraph with respect to InternetStudios' ability to continue as a going concern. Aside from this modification, the report on the financial statements audited by Grant Thornton LLP did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to any other uncertainty, audit scope or accounting principles.

InternetStudios has engaged the firm of Labonte & Co., Chartered Accountants as of October 9, 2001. Labonte & Co., Chartered Accountants was not consulted on any matter relating to accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on InternetStudios' financial statements.

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.

All directors of our company hold office until the next annual meeting of the shareholders or until their successors have been elected and qualified. The officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office. Executive directors 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 our shareholders.

As of July 25, 2002, our directors and executive officers, their ages, positions held, and duration as such, are as follows:



|Name           | Age | Position with
the Company                        | Date Position First Held
|-------------- | --- | ------------------------------------------------ | ------------------------
|Robert MacLean | 46  | Chairman of the Board and Director               | September, 1999         
|Mark Rutledge  | 42  | Vice Chairman, Treasurer, Secretary and Director | September, 1999         

Business Experience

The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee, indicating the principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

Robert MacLean, Chairman of the Board of Directors and Director

Mr. MacLean has been Chairman of the Board of Directors and a director 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 twelve 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, Vice Chairman of the Board of Directors, Secretary, Treasurer and Director

Mr. 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 those 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 and entertainment law. In addition, Mr. Rutledge produced a number of award winning medical documentaries.

Family Relationships

There are no family relationships between any director or executive officer.

None of our directors, executive officers, promoters or control persons have been involved in any of the following events during the past five years:

-	any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

-	any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

-	being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

-	being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

To our knowledge, based solely upon our review of copies of such reports or written representations from certain reporting persons that no Form 5 was required to be filed by those persons, we believe that for the year ended December 31, 2001, all filing requirements applicable to our officers, directors and greater than 10% beneficial shareholders and other persons subject to Section 16(a) of the Securities and Exchange Act of 1934 were complied with.

Item 11. Executive Compensation.

The following table summarizes the compensation of our Chairman of the Board and other officers and directors who received annual compensation in excess of $100,000 during the fiscal years ended December 31, 2001, 2000 and 1999. No other officers or directors received annual compensation in excess of $100,000 during the fiscal years ended December 31, 2001, 2000 and 1999.

|                                                                   |                | Annual Compensation      | Long Term
Compensation | Pay-
outs                  
|------------------------------------------------------------------ | -------------- | ------------------------ | ---------------------- | ---------------------------
|Name and Principal
Position                                        | Year           | Salary                   | Bonus                  | Other
Annual
Compen-
sation
|Robert MacLean (1)
Chairman of the Board and Director              | 2001
2000
1999 | $47,691
$192,000
$43,000 | $-
$50,000
$-          | $1,708
$7,200
$-           
|Mark Rutledge (2)
Vice Chairman, Treasurer,
Secretary and Director | 2001
2000
1999 | $40,000
$192,000
$43,000 | $-
$50,000
$-          | $1,200
$7,200
$-           
|Heidi Lester (3)
Former CEO                                        | 2001
2000
1999 | $46,704
$252,000
$63,000 | $-
$50,000
$-          | $-
$7,200
$-               
|Aline Perry (4)
Former President,
InternetStudios UK Limited       | 2001
2000
1999 | $28,240
$250,000
$-      | $-
$50,000
$-          | $-
$-
$-                   
|Robert Beattie (5)
Former President, IEF                           | 2001
2000
1999 | $45,133
$170,000
$-      | $-
$50,000
$-          | $-
$7,200
$-               

(1) Mr. MacLean signed a management agreement with the Company the details of which are set out below. This management agreement was terminated by agreement on January 5, 2002. In consideration of the termination of his management agreement, shares will be issued to Mr. MacLean.

(2) Mr. Rutledge signed a management agreement with the Company the details of which are set out below. This management agreement was terminated by agreement on January 5, 2002. In consideration of the termination of his management agreement, shares will be issued to Mr. Rutledge.

(3) Ms. Lester resigned from her position on August 19, 2001.

(4) Ms. Perry resigned from her position on May 15, 2001.

(5) Mr. Beattie resigned from his position on August 27, 2001.

(6) These totals reflect post consolidation amounts.

Stock Option Plan

In December, 1999, our board of directors approved a US Stock Incentive Plan for a maximum of 50,000 common shares and a Non-US Stock Incentive Plan for a maximum of 25,000 common shares, under which we are authorized to issue non-qualified 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. As at December 31, 2001, an aggregate of 13,125 options had been granted under the US Stock Incentive Plan and an aggregate of 20,759 options had been granted under the Non-US Stock Incentive Plan.

On December 6, 2001, we effected a 20 for 1 reverse split of our common stock. The numbers of options as stated above have been adjusted to reflect the reverse split.

All of the options that were granted, with the exception of the 13,300 issued to current senior executives, have expired under the terms of the Stock Incentive Plans.

Option/SAR Grants

We did not grant stock options to any of our executive officers during the year ended December 31, 2001.

VALUE OF THE OPTIONS GRANTED AS AT DECEMBER 31, 2001

|Name           | Shares
Acquired on
Exercise (#) | Value
Realized
($) | Number of Shares
of Common Stock
Underlying
Unexercised Options
at December 31, 2001
Exercisable/
Unexercisable | Value of
Unexercised
In-the-Money
Options at
December 31, 2001
Exercisable/
Unexercisable(1)
|-------------- | ------------------------------- | ------------------ | --------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------
|Robert MacLean | nil                             | nil                | 6,229 / 271                                                                                                     | nil / nil                                                                                   
|Mark Rutledge  | nil                             | nil                | 6,516 / 284                                                                                                     | nil / nil                                                                                   

(1)	The closing bid price on December 31, 2001 was $0.02 and accordingly the unexercised options as at December 31, 2001 had no value.

Directors' Compensation

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.

Employment Contracts

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 provisions of the Agreement include:

-	base salary of $142,000 per year;

-	certain 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; 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 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;

-	certain 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; 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 provisions of the Agreement include:

-	base salary of $192,000 per year;

-	certain 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. 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; and

-	accelerated vesting of his stock options.

Mr. MacLean and Mr. Rutledge have not been paid under the terms of their management agreements since April 2001. The Company and these individuals have agreed pursuant to an agreement dated January 5, 2002, to terminate the management agreements in consideration of the issuance of up to 3,840,000 shares.

There are three former executives who each had a management agreement with the Company.

Under an agreement entered into April 1,2000 Heidi Lester served as Chief Executive Officer for the Company from inception until her resignation on August 19, 2001. Her agreement with InternetStudios terminated upon her resignation on August 19, 2001.

InternetStudios UK Ltd. and InternetStudios entered into a service agreement with Aline Perry on February 1, 2000. This agreement was terminated upon Ms. Perry's resignation on May 15, 2001.

The Company and its subsidiary IEF entered into a management agreement with Robert Beattie on July 1, 2000. This agreement was terminated upon Mr. Beattie's resignation on August 27, 2001.

Report on Executive Compensation

Our compensation program for our executive officers is administered and reviewed by our 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 the performance of our company. The determination of discretionary bonuses is based on various factors, including implementation of our business plan, acquisition of assets, development of corporate opportunities and completion of financing.

Our 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 our long-term performance and return to our shareholders. We also believe that non-employee directors should have an equity interest in our company. In that regard, we adopted the 1999 Incentive Stock Option Plans.

Stock Performance Graph

The graph set forth below compares the cumulative total shareholder return on our common shares between December 31, 1998 and December 31, 2001 with the cumulative return of (i) the Russell 2000 index and (ii) Standard and Poors 500 index, over the same period. This graph assumes the investment of $100 on December 31, 1998 in our common shares, the Russell 2000 index and Standard and Poors 500 index, and assumes the reinvestment of dividends, if any.

The comparisons shown in the graph below are based upon historical data. We caution that the share price performance shown in the graph below is not indicative of, nor intended to forecast, the potential future performance of our common shares. Information used in the graph was obtained from Yahoo Financial, a source believed to be reliable, but we are not responsible for any errors or omissions in such information.



|                          | 12/31/98 | 12/31/99 | 12/31/00 | 12/31/01
|------------------------- | -------- | -------- | -------- | --------
|InternetStudios.com, Inc. | $100     | $596.33  | $435.77  | $1.83   
|Russell 2000              | $100     | $119.81  | $114.78  | $115.96 
|S&P 500                   | $100     | $119.52  | $107.40  | $93.39  

(1)	Our common shares commenced trading on the National Association of Securities Dealer Inc.'s Over-the-Counter Bulletin Board on September 17, 1998. Our common shares were removed from trading on the OTCBB on September 27, 2001 and have been trading on the Pink Sheets LLC since that date.





The following table sets forth, as at July 25, 2002, certain information with respect to the beneficial ownership of our common stock by each shareholder known by us to be the beneficial owner of more than five percent (5%) of our common stock, and by each of our current directors and executive officers. 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.



|Name and Address of Beneficial Owner                                      | Amount and Nature of
Beneficial Ownership(1) | Percentage
of Class(1)
|------------------------------------------------------------------------- | -------------------------------------------- | ----------------------
|Robert MacLean
207 - 1040 Hamilton Street
Vancouver, BC                   | 64,110(2)(4)                                 | 1.3%                  
|Mark Rutledge
207 - 1040 Hamilton Street
Vancouver, BC                    | 62,300(3)(4)                                 | 1.3%                  
|Geoffrey Last(5)
1245 Homer Street
Vancouver, BC V6B 2Y9                  | 398,614                                      | 9.25%                 
|Corvan Ltda.(5)
APDO 695-1007
Centro Colon
San Jose, Costa Rica           | 398,614                                      | 9.25%                 
|Jayeson Carmichael(5)
Suite 38088 King Edward Court
Vancouver, BC V5Z 4L2 | 398,614                                      | 9.25%                 
|Randy S. White(5)
3287 Highland Blvd.
North Vancouver, BC V7R 2X7         | 398,614                                      | 9.25%                 
|H. Jason Stockman(5)
Suite 621 - 1755 Robson Street
Vancouver, BC V6G 3B7 | 398,614                                      | 9.25%                 
|Larissa Sinkevitch(5)
27015- 1395 Marine Drive
West Vancouver, BC V7T 2X8 | 398,614                                      | 9.25%                 
|Stephan H. Atoui(5)
303 Wood Street
New Westminster, BC V3M 5K6           | 398,614                                      | 9.25%                 
|Heer Slatey Ltd.(5)
PO Box CB 13997
Nassau, Bahamas                       | 398,614                                      | 9.25%                 
|Cynthia Boire(5)
#1705 - 1188 Richards Street
Vancouver, BC V6B 3E6       | 298,961                                      | 6.9%                  
|Directors and Executive Officers as a Group                               | 126,410(6)                                   | 2.6%                  

(1)

(2)	Includes 6,500 options exercisable within sixty days.

(3)	Includes 6,800 options exercisable within sixty days.

(4)	Pursuant to an agreement dated January 5, 2002, we agreed to issue up to 4,040,000 shares in settlement of obligations to management.

(5)	Subject to an increase in our authorized capital, referred to in Item 4 of this annual report, upon the issuance of common shares to management of our company, pursuant to footnote number 4 above, the ownership percentage of these individuals will fall below 5%.

(6)	Includes options exercisable within sixty days.

Changes in Control

Other than as listed below, we are unaware of any contract or other arrangement, the operation of which may, at a subsequent date, result in a change in control of our company.

Item 13. Certain Relationships and Related Transactions.

Except as otherwise indicated below, we have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $60,000, and in which, to its knowledge, any of its directors, officers, five percent beneficial security holder, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest.

We entered into formal employment or management contracts with four of our officers or with consulting firms owned by those officers. Subsequent to June 30, 2001, two officers resigned. The remaining contracts provide for a combined base salary of $384,000 per annum for a three year term ending December 31, 2002 and granting of stock options providing the right to acquire a total of 350,000 shares of common stock at a pre-consolidation price of $5 per share to be vested over the term of the contracts. The contracts include a severance provision of 150% of base salary which totals $576,000 for these two officers. At December 31, 2001, a total of $288,000 is owing under these contracts. Pursuant to an agreement dated January 5, 2002, we agreed to issue up to 4,040,000 shares in settlement of obligations to management.

During 2000, we loaned a total of approximately $535,000 to one of our executive officers and a film production company owned and managed by this executive officer. Advances under the loan agreement are collateralized by all of the assets of the related company, bear interest at the prime rate plus 3% until March 31, 2001 and are due on demand. Collectability of these amounts is dependent on the success of the film projects financed. During the year ended December 31, 2001 interest and fees of $37,594 were accrued under this loan. Additionally, during the year ended December 31, 2001, we assumed loans to this entity from a bank totaling $215,588, and this officer repaid $104,908 of outstanding loans. Due to uncertainty of recovery, we recorded an impairment provision of $309,832 leaving a balance outstanding at year end of $373,679 which was assigned to creditors subsequent to year end in settlement of outstanding debts of our company.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

Reports of Form 8-K

On October 10, 2001 (amended October 23 and October 25, 2001), we filed a Form 8-K Current report with respect to our change in auditors. Please refer to Item 8 "Changes in and Disagreements with Accountants on Accounting and Financial Disclosure" for further details.

On December 6, 2001, we filed a Form 8-K Current Report with respect to the approval by our board of directors on October 19, 2001 of a twenty for one reverse stock split (the "Reverse Stock Split") of our authorized, issued and outstanding common stock. The Reverse Stock Split was effected with the Nevada Secretary of State on November 20, 2001. As a result, our authorized capital has decreased from 100,000,000 to 5,000,000 shares of common stock with a par value of $0.0001. The Reverse Stock Split took effect with the OTC Bulletin Board at the opening for trading on Thursday, December 6, 2001 under the new stock symbol ISTO.

Financial Statements

The following consolidated financial statements are filed as part of this annual report:

Independent Auditor's Report, dated May 31, 2002

Consolidated Balance Sheets as at December 31, 2001 and 2000

Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the period from April 14, 1998 (incorporation) to December 31, 2001

Consolidated Statements of Cash Flows for the year ended December 31, 2001 and for the period from April 14, 1998 (incorporation) to December 31, 2001

Summary of Significant Accounting Policies

Notes to the Consolidated Financial Statements

Exhibits

Exhibit Number and Exhibit Title

(3)	Articles of Incorporation and Bylaws

3.1	Articles of Incorporation (incorporated by reference from our Form 10/A Registration Statement, filed February 10, 2000)

3.2	Bylaws (incorporated by reference from our Form 10/A Registration Statement, filed February 10, 2000)

3.3	Amended Bylaws (incorporated by reference from our Form 10/A Registration Statement, filed February 10, 2000)

3.4	Certificate of Amendment to Articles of Incorporation, dated December 17, 1998 (incorporated by reference from our Form 10/A Registration Statement, filed February 10, 2000)

3.5	Certificate of Amendment to Articles of Incorporation, dated September 21, 1999 (incorporated by reference from our Form 10/A Registration Statement, filed February 10, 2000)

(10)	Material Contracts

10.1	Agreement with The Discop Organization dated March 11, 2002

(21)	Subsidiaries

OnlineFilmSales.com, LLC

ReporterTV.com, LLC

StudioBuzz.com, LLC

Online FilmandTVSales.com, Inc.

InternetStudiosUK Limited

InternetStudios Entertainment Finance



SIGNATURES

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

INTERNETSTUDIOS.COM, INC.

/s/ Robert MacLean
By: Robert MacLean, Chairman of the Board of Directors

Date: July 25, 2002

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

/s/ Robert MacLean
By: Robert MacLean, Chairman of the Board of Directors
Date: July 25, 2002

/s/ Mark Rutledge
By: Mark Rutledge, Vice Chairman of the Board of Directors
Date: July 25, 2002