(Mark One)

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

For the transition period from [ ]to[ ]

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

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

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.

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 [ ]

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

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.

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.

(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 InternetStu dios 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.

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:

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:

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 resu lt 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.

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:

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:

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.

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 an d 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 p enny 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 s tock 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.

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.

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.

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.

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

FISCAL YEAR ENDED DECEMBER 31, 2001⁽¹⁾