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 InternetS tudios 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.

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.

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. We are also in the process of acquiring existing libraries of motion pictures and television programming, which will be marketed and sold using traditional marketing methods and our online platform. We anticipate that this will yield multiple revenue streams including:

In addition, we are actively seeking to acquire additional entertainment assets including the right to remake previously released motion pictures.

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. We were chosen exclusively by DISCOP to create and develop the look of the site called Discop+. During the year, Key3Media, DISCOP's parent company, went bankrupt and accordingly we will not be proceeding forward with DISCOP.

On February 13, 2003, we entered into a Letter of Intent with Dominque Bigle to acquire Bigle's library of over 1,500 motion pictures. In consideration for acquiring the library of motion pictures, we agreed to issue to Bigle one million (1,000,000) common shares of our capital stock and to pay him $300,000. As of March 14, 2003, we have paid $50,000 to Bigle as a deposit towards the acquisition. We expect to complete this acquisition on or before May 1, 2003.

Once this acquisition is complete, we intend to exploit the library of motion pictures by selling those pictures on digital video disc and on video on demand and we will market the products through the internet using our proprietary technology platform as well as traditional marketing means. We anticipate that Bigle will be engaged by us and will be responsible for the exploitation of and maximization of revenues from this library of motion pictures.

We also intend to continue to explore other available business opportunities whereby we can add to our library of filmed entertainment assets and build a niche-oriented digital video disc releasing and merchandising company.

Following a decade of mergers and restructuring, the entertainment industry now comprises seven major film distributors/studios: Sony Pictures, Paramount, Twentieth Century Fox, Warner Brothers, The Walt Disney Company, MGM/UA and Universal. Today, the major studios are multi-national, multi-media, and mass marketing communication complexes with wholly-owned distribution operations throughout the world. In addition to these major seven, there are numerous independent production and distribution companies.

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.

The proliferation of distribution platforms, including digital video disc, video on demand and digital cable is rapidly expanding the global market for filmed entertainment. Just as record buyers embraced the compact disc format years ago, movie viewers have taken to the digital video disc. We expect that digital video disc sales will increase significantly in the next couple of years.

One of the other trends expected to dominate the next decade is the continuation of the focus on remakes and sequels of old motion pictures. In the 1990's, Hollywood produced over 100 remakes of old motion pictures. We believe that there are significant market opportunities to create efficiencies in the market through technology and innovative systems to address the marketing and sales of filmed entertainment globally.

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.

We compete with the major studios, numerous independent motion picture and television companies. In addition, our filmed entertainment library competes for audience acceptance with those of other companies. The success of any of our products is dependent not only on the quality and acceptance of a particular motion picture or television program but also on the quality and acceptance of other competing filmed entertainment released into the marketplace at or near the same time.

To date, no substantial barriers to entry into the online business to business marketplace for filmed entertainment industry exist. Increased competition from new entrants 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 ma y result in reduced operating margins, loss of market share and a diminished brand franchise.

Our 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.

All production equipment is co-located at the NetNations Data Center in Vancouver, British Columbia, Canada and is monitored 24 hours a day by the NetNations Operations Center. NetNations also provides secondary support to the production environment.

We 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. We may not be successful in its ongoing efforts to upgrade its systems, or if it does successfully upgrade its systems, we may not do so on time and within budget.

We regard the protection of our copyrights, service marks, trademarks, trade dress and trade secrets as critical to our success. We rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We maintain confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with parties with which we conduct business to limit access to and disclosure of our proprietary information. Any contractual arrangements and the other steps taken by us to protect our intellectual property may not prevent misappropriation of our technology or deter independent third-party development of similar technologies.

InternetStudios became a registered mark with the United States Trademark and Patent Office's Supplemental Registry effective April 2, 2002. In addition, we have registered the following domain names: internetstudios.com, onlinefilmsales.com, oftvs.com, ismedia.biz and ismedia.us.

As of March 24, 2003, we employed six people, four in the area of corporate administration and two in sales and marketing. We also have four independent contractors providing management consulting services and capital raising services. We are not subject to any collective bargaining agreements and we consider relations with our employees to be excellent.

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. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Such estimates, projections or other "forward-looking statements" involve various risks and uncertainties as outlined below. We caution readers of this annual report 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". In evaluating us, our business and any investment in our business, readers should carefully consider the following factors.

To December 31, 2002, 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 acquire additional filmed entertainment assets, to utilize our website and to generate significant operating revenues will depend on our ability to successfully develop and maintain a brand name for our products and to attract new and maintain old users of our services.

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. Our management intends to raise debt and equity capital as needed on a private placement basis to finance the operating and capital requirements. In addition, our management expects cash flow from operations to increase over the next year. These factors raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph to our independent auditors' report on the December 31, 2002 audited financial statements. Our future 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 mann er, our business, results of operations, financial condition and prospects would be materially adversely affected.

If our management is unable to manage growth effectively, then our operations could be adversely affected. We will need to add staff to market our library and website, manage operations, 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 will be required to develop a marketing campaign that will effectively make buyers aware of our filmed entertainment library as well as 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 library and website 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 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.

Operating in the television and film distribution industry involves a substantial degree of risk. Each television program and motion picture is a unique piece of art that depends on unpredictable audience reaction to determine commercial success. There can be no assurance that our television programs and feature films will be favorably received and even if our products are initially successful, the popularity of any given program may diminish over time.

The sale and distribution of filmed entertainment is a highly competitive business. Many of our competitors are larger and better capitalized than us and have existing distribution channels. In addition, the number of films or television products released in any given period may create an oversupply of product in the market, and that may reduce our share of potential sales and make it more difficult for the films in our library to succeed.

Selling and distributing filmed entertainment around the world results in a percentage of our revenue coming from sources outside of North America. Consequently, our business is subject to certain risks inherent in international trade, many of which are beyond our control. These risks include:

These factors can adversely affect our business and result of operations.

Our common stock is quoted on the OTC Bulletin Board 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 OTC Bulletin Board is not an exchange and, because trading of the securities on the OTC Bulletin Board 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.

The SEC 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 broke r-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 t hese 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 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.

We sublease office space at 1601 Cloverfield Boulevard, 2nd Floor, South Tower, Santa Monica, California. These offices are rented on a month-to-month basis for $225 per month. This is where our principal execute offices are located.

We also lease office space at 1040 Hamilton Street, Vancouver, British Columbia on a month to month basis. This office is approximately 3,000 square feet in size. The monthly rental is $3,684 (CDN$5,500) which includes operating costs.

We believe that our existing facilities are adequate for our needs through at least the end of 2003. Should we require additional space at that time, or prior thereto, we believe that such space can be secured on commercially reasonable terms.

The leases on our previous offices in Santa Monica, California and London, England expired and we vacated our premises.

Other than set out below, we know of no material, active or pending legal proceedings against us, 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.

Three of our former employees have received judgments against us. One received a Stipulated Judgment against us in the amount of $10,000 from the Los Angeles County Superior Court on April 10, 2002. Two have received an Order, Decision or Award from the Labour Commissioner of California. The first was awarded against OnlineFilmSales.com, LLC in the amount of $11,328.09 on July 10, 2001; the second was awarded against InternetStudios and OnlineFilmSales.com, LLC in the amount of $26,578.24 on May 29, 2002. As of March 24, 2003, no payments have been made to any of these former employees.

August Entertainment, Inc. brought an action against us 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 $46,000 has been paid as of March 24, 2003.

On or about September 5, 2001, Total Creative, Inc. filed a complaint in Los Angeles County Superior Court 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 Judgment in the amount of $34,531.49. As of March 24, 2003, 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 judgment 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 judgment.

Certain former employees as well as potential creditors have indicated an intention to pursue alleged claims against us by taking legal action. To date no actions have been filed against us. In our management's opinion, any actions that may arise from these claims are immaterial to us or are without significant merit.

On November 15, 2002, the Hollywood Reporter Incorporated commenced a lawsuit in the Supreme Court of British Columbia (Vancouver Registry). Hollywood's claim is for debt arising for the failure to pay of advertising published in Hollywood's periodical. The amount of the claim is $8,843 plus costs and interest. We have filed a Statement of Defence and intend to defend this lawsuit.

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 we intend to vigorously defend against any action.

There were no matters submitted to a vote of our security holders either through solicitation of proxies or otherwise in the fourth quarter of the fiscal year ended December 31, 2002.

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. On December 6, 2001, our common stock began trading under the symbol "ISTO". On August 23, 2002, our common shares were reinstated for trading on the NASD OTC Bulletin Board. 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, 2001and 2002. 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.

On March 24, 2003, the closing price for the common stock as reported by the quotation service operated by the OTC Bulletin Board was $1.20.

As of March 24, 2003, there were approximately 89 holders of record of our common stock. As of such date, 10,234,205 common shares were issued and outstanding.

Our common shares are issued in registered form. Computershare Trust Company of Canada, 401 - 510 Burrard Street, Vancouver, British Columbia, Canada, V6C 3B9 (Telephone: 604.661.0271; Facsimile 604.685.3694 is the registrar and transfer agent for our common shares. We have no other exchangeable securities.

We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.

On December 16, 2002, we issued an aggregate of 188,100 common shares at a deemed price of $0.50 per share to a number of private investors. The transaction was private in nature, and the shares were issued in reliance upon Regulation S or Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

We adopted two stock option plans entitled the 1999 Non-U.S. Stock Option Plan and the 1999 U.S. Stock Option Plan. Both of these plans were approved by our shareholders on January 18, 2000.