Our company's shift in focus has been motivated by opportunities management believes have arisen due to recent structural changes in the entertainment sector. The motion picture industry has entered an unusual phase in its history, where the confluence of two trends has created a unique investment opportunity. The first of these is a consumer technology trend - the introduction and mass penetration of DVD players in homes-that has led to a record surge in consumer purchases of movies for home viewing. The second trend is a cyclical market downturn which has driven media asset valuations to recent historic lows, particularly for films and film libraries. Taken together, these trends have resulted in an environment where valuable, cash-generating assets like production companies and home video distribution rights can be acquired at prices below their ultimate market value. We plan to exploit this situation by assembling a world class film production and DVD distribution company and management team centered around the classic Hollywood brand of RKO Pictures.

Rarely in Hollywood does the opportunity arise to inexpensively acquire a great branded company with underexploited assets. In the strong economic climate of the 1990s, huge premiums were paid by the major media conglomerates for such valuable assets as Miramax Films, New Line Cinema, Castle Rock, Artisan, and other independent companies with strong brand names.

But the capital markets have since entered a cyclical downturn with an accompanying decline in asset values, and it has become more of a buyers' market for such strong brands. And now one of the most important brands in motion picture history, RKO Pictures, has become available for acquisition. In the belief that RKO Pictures represents a rare opportunity to purchase and rebuild a unique company to its former great status, we have entered into negotiations to acquire 100% of the members' interest in RKO Pictures, and we are now seeking funding to carry out this acquisition. If we successfully complete our proposed acquisition, we intend to quickly build a niche-oriented DVD releasing and merchandising company focused on Hollywood's classic era. DVD sales have become Hollywood's cash cow, and we plan to capture a share of this rapidly growing market. Secondly, we intend to build a production and releasing operation from the strong foundation of RKO's library of unexploited remake/sequel rights and un-produ ced screenplays.

Just as record buyers embraced the CD-ROM format twenty years ago, movie viewers around the world have fallen in love with the DVD, purchasing some 344 million DVD units in the U.S. alone in 2001. Industry analysts estimate that U.S. DVD sales will exceed 633 million units in 2002, an 84 percent increase over 2001 levels. (Sources: Adams Media; MPAA). Amid this surge of consumer spending niche opportunities abound, and our company is positioned to profitably exploit them. Through its planned acquisition of the Trocadero Films 1,500 title public domain film library, and our pending acquisition of RKO Studios, our company will own the necessary brand, library, and film exploitation rights to establish itself as the leading "classic Hollywood" film company for DVD collectors. Using the RKO label as our marketing platform, we will serve the sophisticated film lover with DVDs of these and other classic films, and with "contemporary classics," that is, new films based on or inspired by classic older films.

Throughout its golden years RKO attracted an impressive list of top Hollywood talent. Orson Welles, John Ford, Cary Grant, Fred Astaire, Ginger Rogers, John Wayne, Lucille Ball, Robert Mitchum, Kirk Douglas, Jane Russell, Maureen O'Hara, Douglas Fairbanks, Jr., and Claudette Colbert are just a small representative group of the legends of Hollywood who helped to create some of the greatest films of all time for RKO. Films ranging from "Citizen Kane" to "The Hunchback of Notre Dame" are part of the volume of work associated with the RKO brand.

Now, at a time when consolidation has left Hollywood with few truly independent mini-major studios, the opportunity exists to acquire RKO Pictures and all of its assets, including its name, trademarks, sequel and remake rights, un-produced script rights and other substantial assets. RKO's brand name and its signature lightning bolt tower logo-which embody the enduring qualities of classic Hollywood-are ideally suited for launching a classic DVD releasing company. Moreover, RKO has retained rights to create new productions based on a substantial number of its original titles, over 800 films in all. RKO's assets also include some 800 un-produced screenplays which can provide the source material for new feature films and TV programs. RKO also has a vast archive of historic materials ranging from photographs and letters to original screenplays and interviews which can be exploited through publishing, documentary programs, and other media.

RKO Pictures is clearly distinguished from the dozens of independent production companies dotting the Hollywood landscape, who have no provenance or library depth or brand recognition. The ability to utilize RKO's vast library of stories and titles without paying huge sums for these scripts and underlying rights will create a distinct advantage over other independent production and distribution companies. Moreover, through aggressive and measured use of the RKO name, a branded distribution platform can be created. The time is particularly ripe for this approach given the rapid rise of the DVD platform. Additionally, an RKO-branded block of time on television, which would contain original films from the RKO library as well as original productions based upon the RKO remake and sequel rights, would likely draw meaningful viewership. Further extension of the RKO brand into licensed consumer products is an additional opportunity to be pursued.

Our company is uniquely positioned to capitalize on RKO's assets and leverage RKO into a major media company. By taking advantage of the industry knowledge and relationships of our management team, our core marketing, tracking and licensing technology, and our currency as a public entity, we hope to build RKO into a diversified entertainment company.

We are seeking the necessary financing to close the RKO Pictures acquisition. Successful execution of our business plan will profitably position our company as a leading purveyor of classic films, memorabilia and merchandise that celebrate the very best that Hollywood has to offer.

If we are successful in completing the Trocadero Library and RKO Pictures transactions, we will derive our revenues from the worldwide exploitation of our filmed entertainment properties across multiple media and distribution channels, both directly as a producer and distributor of those properties, and also indirectly through royalty and license arrangements with third-parties who may pay for the right to exploit our brands and properties.

We expect to receive revenue from all of the following sources:

• Rental fees from primary theatrical and non-theatrical exhibition of our films
• Wholesale revenue from the sale of physical copies of our film and television programs on DVD, videocassette, and other home video media
• Revenue-sharing payments from the rental of our films and television programs via pay-per-view, video on demand and home video rental arrangements
• License fees from the exhibition of our films and television programs via pay cable, basic cable, network television broadcasting and television syndication
• Cash advances, license fees and royalty or profit-sharing payments from third parties who acquire from our company the right to exploit the literary and re-make rights to our screenplays and film properties
• Royalty payments from merchandising of consumer products bearing the logos, brands, and other forms of intellectual property from our company's films, television programs and archives
• Royalties and license payments from exploitation of soundtrack and music publishing rights for music from our company's films, television programs and archives
• Catalogue and direct marketing sales of home video products

The digital video disc format for movies has experienced unprecedented popularity and has driven a global swell of consumer demand for movies on disk, both for new releases and for older catalogue titles. Domestic digital video disc revenues reached $8.4 billion in 2002.

We intend to capitalize on this opportunity by providing mainstream-friendly entertainment with worldwide commercial appeal in a low-risk, cost-efficient manner. We plan to exploit our own films in digital video disc format featuring special features and to acquire high quality assets that will be exploitable from a video and ancillary media perspective.

As part of this plan, we intend to distribute or sell directly to mass merchandisers, such as Wal-Mart Stores Inc., Costco Wholesale Corporation, Target Corporation and Best Buy Co. Inc., and others who buy large volumes of digital video disc's to sell directly to the consumer in international markets.

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.

The sale and distribution of filmed entertainment is a highly competitive business. 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. 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.

We believe that the principal competitive factors in our market are:

• filmed entertainment rights industry connections;
• brand recognition;
• quality of assets; and
• quality of filmed entertainment product.

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.

As of April 8, 2004, we employed six people, four in the area of corporate administration and two in sales and marketing. We also have two 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.

We are an early stage company and have not earned any significant revenues, which makes it difficult to evaluate whether we will operate profitably. Investors must consider the risks and difficulties frequently encountered by early stage companies. Such risks include:

• competition;
• whether we can compete successfully with others pursuing the same line of business;
• whether we can anticipate and adapt to a developing market;
• whether we can effectively manage rapidly expanding operations should our operations rapidly expand;
• the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure;
• whether we can provide acceptable customer service;
• whether we can respond to competitive developments;
• the possibility of unforeseen price competition for our services, or reductions in market prices for digital video disc sales ; and
• our dependence upon key personnel.

Given our limited operating history, operating losses and other factors set out in this document, there can be no assurance that we will be able to achieve our goals and be profitable. In the event that we do not successfully address these risks, our business, prospects, financial condition and results of operations will be materially and adversely affected.

We may incur net losses for the foreseeable future. The extent of these losses, if any, will depend, in part, on the amount and rates of growth in our net revenue from digital video disc sales, filmed entertainment distribution and related activities. As a result of our early stage of development, we believe that period-to-period comparisons of our operating results are not meaningful and that our operating results for any period should not be relied upon as an indication of future performance. To the extent that (a) net revenue does not grow at anticipated rates, (b) increases in our operating expenses precede or are not subsequently followed by commensurate increases in net revenue or (c) we are unable to adjust operating expense levels accordingly, our business, prospects, financial condition and results of operations will be materially and adversely affected. There can be no assurance that our operating losses will not increase in the future or that we will ever achieve or sustain profitability.

Our future operating results are unpredictable

As a result of our lack of operating history, we cannot forecast accurately our revenues, operating expenses and operating results. Accordingly, we may be unable to adjust our expenditures in a timely manner to compensate for any unexpected revenue shortfall. We may also be unable to increase our spending and expand our operations in a timely manner to compensate for any unexpected revenue shortfall.

Our annual and quarterly operating results may fluctuate significantly as a result of numerous factors, many of which are outside of our control. These factors include, but are not limited to:

• fluctuating demand for filmed entertainment;
• the amount and timing of capital expenditures and other costs relating to the expansion of our operations;
• whether we can acquire filmed entertainment product in a timely and effective manner;
• whether we can attract new personnel in a timely and effective manner and to retain existing personnel;
• competition;
• costs relating to future acquisitions;
• seasonality;
• general economic conditions and economic conditions specific to the filmed entertainment rights industry, the Internet or all or a portion of the technology market.

Due to the foregoing factors, we believe that quarter-to-quarter comparisons of our operating results are not an accurate indication of our future performance. It is likely that our operating results for any period may fail to meet or exceed the expectations of our investors. In that event, the value of our common stock would likely be materially adversely affected.

If we raise the financing necessary to complete the RKO and Trocadero transactions, we believe that we will be able to meet our anticipated cash needs for working capital, capital expenditures and normal business expansion for the next 24 months. If we do not manage to raise the full amount necessary, or if our business model should prove to be based on assumptions that prove to have been incorrect, our financial resources may not be sufficient to satisfy our capital requirements for this period. If this occurs, we will probably need to raise additional funds in order to achieve the goals we set for ourselves in our business plan. If our financial resources are insufficient we will require additional financing in order to execute our plans for expansion. If we raise additional funds through the issuance of equity, equity-related or debt securities, such securities may have rights, preferences or privileges senior to those of the rights of our common stock and our stockholders may experience additional dilution. We cannot be certain that additional financing will be available to us on favorable terms, when required, or that additional financing will be available to us at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund our expansion, promote our brand as we desire, take advantage of unanticipated acquisition opportunities, develop or enhance services or respond to competitive pressures.

Our future performance will depend in part upon our ability to complete our acquisition of RKO Pictures, or to integrate the operations of our company with those of RKO Pictures in order to leverage this relationship into sources of revenue. Acquisitions involve numerous risks and uncertainties, including, without limitation:

• material adverse effects on reported results of operations from acquisition-related charges and amortization of goodwill and purchased technology;
• inability to maintain customers or goodwill of a consolidated business;
• difficulties in the integration of operations, personnel, technologies, products and the information systems of the consolidated companies;
• diversion of management's attention from other business concerns;
• risks of entering geographic and business markets in which we have no or limited prior experience; and
• potential loss of key employees of consolidated organizations.

There can be no assurance that we will be able to consolidate our business with that of RKO Pictures, or that if we do, we will be able to integrate the merged or consolidated businesses or technology or otherwise successfully leverage the new businesses into additional user traffic for our web site, advertising agreements or sources of revenue. Such failures could have a material adverse effect on our business, prospects, financial condition and results of operations.

We depend on the continued services and performance of our senior management and other key personnel, including senior management at RKO Pictures. The loss or unavailability of any of these individuals for any significant period of time could have a material effect on our business, prospects, financial condition and results of operations. Our performance also depends on our ability to attract, hire, train, retain and motivate other highly-skilled technical, managerial, editorial, merchandising, marketing and customer service personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, integrate or retain sufficiently qualified personnel. The failure to attract, retain, and integrate such personnel could have a material adverse effect on our business, prospects, financial condition and results of operations.

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 new 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.

Our management holds a significant voting block which can be used to elect directors and/or approve or block significant corporate transactions. Such share ownership may also have the effect of delaying or preventing a change in control of our company, impeding a merger, consolidation, takeover or other business combination involving our company or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, thereby having a material adverse effect on the value of our company's common stock. In addition, investors may have difficulty obtaining the necessary stockholder vote required for corporate actions contrary to the wishes of the management.

The sale and distribution of filmed entertainment is a highly competitive business. The entertainment industry is currently comprised of 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. Many of our competitors are larger and better capitalized than our company is 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.

We believe that the principal competitive factors in our market are:

• filmed entertainment rights industry connections;
• brand recognition;
• quality of assets; and
• quality of filmed entertainment product.

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.

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:

• changes in laws and policies affecting trade;
• changes to laws and policies related to investments and taxes;
• varying degrees of protection for intellectual property;
• instability of foreign economies and governments;
• cultural barriers; and
• currency risk.

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

We will be required to develop a marketing campaign that will effectively make buyers aware of our catalog of DVD's and filmed entertainment library. We may also elect to enter into agreements or relationships with third parties regarding the promotion or marketing of our DVD's and library. 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 services.

We believe that establishing and maintaining an accepted brand of filmed entertainment product is critical to attracting buyers to our digital video disc sales and to expanding our commerce relationships. In order to attract and retain purchasers, advertisers and commerce partners, and to promote and maintain our brand in response to competitive pressures, we intend to increase substantially our financial commitment to creating and maintaining distinct brand loyalty among these groups. We expect our efforts to include advertising and marketing and traditional media advertising campaigns directed at the filmed entertainment rights industry. In addition, we may need to expend additional resources to build the brand. If we do not generate a corresponding increase in net revenue as a result of our branding efforts or otherwise fail to promote our brand successfully, or if we incur excessive expenses in an attempt to promote and maintain our brand, our business, prospects, financial condition and results o f operations, will be materially and adversely affected.

We have not implemented sophisticated managerial, operational and financial systems and controls. We are required to manage multiple relationships with various strategic partners, technology licensors, users, advertisers and other third parties. Our ability in this regard will be strained in the event of rapid growth of our company or in the number of third party relationships, and there can be no assurance that our systems, procedures or controls will be adequate to support our operations or that our management will be able to manage any growth effectively. To manage the expected growth of our operations and personnel, we will be required to significantly improve or replace existing managerial, financial and operational systems, procedures and controls, and to expand, train and manage our growing employee base. We also will be required to expand our finance, administrative and operations staff. Some key members of management have other professional obligations beyond their obligations to our company that may impact their ability to implement the necessary financial, administrative and operational systems necessary for our success. There can be no assurance that we will complete in a timely manner the improvements to our systems, procedures and controls necessary to support our future operations, that we will be able to hire, train, retain, motivate and manage required personnel or that we will be able to successfully identify, manage and exploit existing and potential market opportunities.

Our success may be affected significantly by changes in local, regional and national economic conditions. Factors such as inflation, labor and energy costs, the availability and cost of suitable technical employees, fluctuating interest and insurance rates, federal, state and local regulations and licensing requirements can all have a material adverse effect on our business, prospects, financial condition and results of operations.

There can be no assurance that our business activities will not or have not infringed upon the proprietary rights of others, or that other parties will not assert infringement claims against us. From time to time, we may be subject to claims in the ordinary course of our business, including claims of alleged infringement of the trademarks, service marks and other intellectual property rights of third parties by us and the content generated by our members. Such claims and any resultant litigation, should it occur, might subject us to significant liability for damages and might result in invalidation of our proprietary rights and even if these claims are not meritorious, could be time consuming and expensive to defend and could result in the diversion of management time and attention, any of which might have a material adverse effect on our business, prospects, results of operations and financial condition.

To December 31, 2003, 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, 2003 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 manner, our business, res ults of operations, financial condition and prospects would be materially adversely affected.

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 broker-dealer also must p rovide 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 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 executive 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 2,000 square feet in size. The monthly rental is $1,500 (CDN$2,000) which includes operating costs.

We believe that our existing facilities are adequate for our needs through at least the end of 2004. Should we require additional space at that time, or prior thereto, we believe that such space can be secured on commercially reasonable terms.

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.

Two 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. The other received an Order, Decision or Award from the Labour Commissioner of California awarded against us and OnlineFilmSales.com, LLC in the amount of $26,578.24 on May 29, 2002. As of April 8, 2004, no payments have been made to either 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 the date of this report.

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.

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 off 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.

On September 9, 2003 Oxford & Associates, A Division of Oxford Global Resources, Inc. filed a Writ of Summons and Statement of Claim in British Columbia Supreme Court under action number S034865. Oxford's claim against us is for debt arising for the failure to pay for software development services. Oxford claims US$107,121.25, plus court ordered interest. Although no assurance can be given as to the outcome of this lawsuit, we believe that the ultimate outcome of this matter will not have a material adverse effect on our financial position or results of operations. We filed a Statement of Defence on October 16, 2003 and intend to defend this lawsuit.

On September 29, 2003 a former employee filed a cross-complaint in case number SC 077372 in the Superior Court of the State of California, County of Los Angeles alleging that our company is responsible for certain credit card debts. The action was brought against the former employee by American Express Travel Related Services Company, Inc. We have been advised that the action against the former employee has been settled and that the cross-complaint will be withdrawn.

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, 2003.

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, 2003 and 2002. The bid information was obtained from stockwatch.com and reflects interdealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

On April 8, 2004, the closing price for the common stock as reported by the quotation service operated by the OTC Bulletin Board was $0.55.

As of April 8, 2003, there were approximately 63 holders of record of our common stock. As of such date, 12,129,209 common shares were issued and outstanding.

Our common shares are issued in registered form. Computershare Trust Company of Canada, 510 Burrard Street, Vancouver, British Columbia, Canada, V6C 3B9 (Telephone: 604.661.9400; 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.

During October 2003, we agreed to issue 547,086 common shares at a deemed price of $0.50 per share to a lender in settlement of a loan in the amount of $273,543.

During January 2004, we completed a private placement of 200,000 units at a price of $.50 per unit for net proceeds of $100,000 with a lender who had previously entered into a convertible loan dated June 25, 2003. Each unit consists of one common share and one share purchase warrant. Three share purchase warrants entitle the holder to acquire an additional common share at a price of $1.00 for a period of two years. As part of this transaction, we agreed to amend the convertible loan so that it is now convertible into common stock at $0.50 per share. The shares were issued to one accredited investor relying on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.

During January 2004 we paid to Bigle an additional $15,000 and issued 1,000,000 common shares as a further deposit towards the purchase price of the Trocadero Library. As a result, Bigle has agreed to extend the closing date of this transaction. We continue to negotiate the final terms of the purchase agreement with respect to this transaction.

During January 2004, we entered into an agreement with Incap Group, Inc. whereby Incap Group, Inc. was engaged to act as agent and use its best efforts in connection with the private placement of one or more debt or equity-related securities to raise between $5,000,000 and $8,000,000. In consideration, Incap Group, Inc. was issued 40,000 common shares valued at $20,000 as a non-refundable retainer and will receive a placement fee on funds raised of 7.5% on the first $5,000,000 raised and 5.5% on the balance. The shares were issued relying on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.

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.