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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

(Mark One)

[X]  Registration statement pursuant to Section 12(b) or 12(g) of the Securities
     Exchange Act of 1934

                                       or

[ ]  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the fiscal year ended_____________________

                                       or

[ ]  Transition Report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 [No fee required]

     For the transition period from___________________to__________________
     Commission file number__________________

                              Videoflicks.com Inc.
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             (Exact name of registrant as specified in its charter)

                           Province of Ontario, Canada
                           ---------------------------

                 (Jurisdiction of incorporation or organization)

                   106 Orenda Road, Brampton, Ontario L6W 3W6
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               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code        (905) 459-5471
                                                  ------------------------------

Securities registered or to be registered pursuant to Section 12(b) of the Act.



  Title of each class                Name of each exchange on which registered
                                  
        None
_____________________                _________________________________________
_____________________                _________________________________________



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

                           Common Shares, no par value
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                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

                                      None
- --------------------------------------------------------------------------------
                                (Title of Class)





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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common shares as of the close of the period covered by the annual
report - ____________ common shares outstanding.

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

Yes . No X .

Indicate by check mark which financial statement item the Registrant has elected
to follow.

Item 17 X . Item 18 .

Unless otherwise indicated, all references herein are expressed in U.S. dollars.


ITEM 1. DESCRIPTION OF BUSINESS

CORPORATE HISTORY

The Internet business of Videoflicks.com Inc. (the "Company") began operations
as a division of Videoflicks Canada Limited on September 1, 1995 with the
recording of it's first sales on the Internet. The Domain Name "Videoflicks.com"
was registered with InterNIC Registration Services in January of 1995.

Videoflicks Canada Limited is in the business of rental and sales of videotape
movies through its corporate owned stores and franchise stores. Videoflicks
Canada Limited began operations as a video movie rental store in 1981 and
expanded into 4 corporate owned stores with 43 franchise video rental stores
operating under the Videoflicks name in Canada in 1999.

The Internet division of Videoflicks Canada Limited initially consisted of 2
employees who developed software and procedures to offer videos for sale and
receive payment over the Internet. As sales began to increase more employees
were added to ship movie videos and correspond with customers and web site
visitors. Initially, the video movie orders were filled by the inventory of
Videoflicks Canada Limited and by ordering directly from the movie distributor
or movie studio. The product was shipped to Videoflicks Canada Limited, packaged
and shipped out to the customer. As the number of transaction of sales grew the
company began to fill some orders by drop shipment, where the order and payment
is taken through the company's web site, the video is then ordered from the
distributor and shipped directly from the distributor to the customer. This
method accounts for 8% of current shipments in 1999. With growth of the Internet
as a method of retail transactions Videoflicks.com Inc. currently employs 27
people.

In November of 1998 Videoflicks Canada Limited transferred the assets of its
Videoflicks.com Internet division to its wholly-owned private shell company
which it had incorporated on July 4, 1997, Videoflicks.com Limited, in
contemplation of amalgamating Videoflicks.com Limited with two arm's length
companies, Mantaur Petroleum Corporation, a public shell company which had no
operating business and no material assets or liabilities, and 1318780 Ontario
Limited, a private company which was formed to raise financing for the
amalgamated company and which otherwise had no business operations. Following
arm's length negotiations the amalgamating companies entered into
Pre-Amalgamation and Amalgamation Agreements


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reflecting their relative contributions to the amalgamated company, being the
Videoflicks.com Internet business of Videoflicks.com Limited, the public company
status of Mantaur Petroleum Corporation as a reporting issuer under the
Securities Act (Ontario) and the $1.2 million raised in 1318780 Ontario Limited.
The objective of the amalgamation was to create a new company having the
Videoflicks.com Internet business, $1.2 million in cash, and public company
status as a reporting issuer under the Securities Act (Ontario).

The Company, Videoflicks.com Inc.,was formed on March 23, 1999 by the
amalgamation of Mantaur Petroleum Corporation, 1318780 Ontario Limited and
Videoflicks.com Limited, on a reverse take-over basis, by means of Articles of
Amalgamation issued under the Business Corporations Act (Ontario). The legal
effect of the amalgamation was that upon the filing of the Articles of
Amalgamation each of the amalgamating companies ceased to exist as a distinct
legal entity but were combined into one new legal entity, Videoflicks.com Inc.
Under the Business Corporations Act (Ontario) the Articles of Amalgamation are
deemed to be the Articles of Incorporation of Videoflicks.com Inc. Upon
amalgamation the shares of each of the amalgamating companies were converted
into shares of the amalgamated company with the effect that all of the assets,
liabilities and contractual obligations of the amalgamating companies became the
assets, liabilities and contractual obligations of the amalgamated company,
Videoflicks.com Inc.

Upon amalgamation an aggregate of approximately 16,760,400 common shares and
4,180,200 Series A warrants of the Company were issued on the following basis as
set forth in the Amalgamation Agreement:

     a)every five issued and outstanding common shares of Mantaur Petroleum
Corporation were converted into one common share and one-half of one Series A
warrant of the Company;

     b) every one common share of Videoflicks.com Limited was converted into one
common share of the Company;

     c)every one common share of 1318780 Ontario Limited was converted into one
common share and one-half of one Series A warrant of the Company; and

     d) every one Class A share of Ontco was converted into one common share of
the Company,

     with the result that, upon amalgamation, approximately 5,960,400 common
shares and 2,980,200 Series A warrants of the Company were issued to
shareholders of Mantaur Petroleum Corporation, 8,000,000 common shares of the
Company were issued to the shareholder of Videoflicks.com Limited and 2,800,000
common shares and 1,200,000 Series A warrants of the Company were issued to
shareholders of 1318780 Ontario Limited. Each Series A warrant of the Company
entitled the holder to purchase, for the price of$0.75, one common share and one
Series B Warrant of the company on or before July 23, 1999, after which the
Series A warrants expired. Each Series B warrant of the Company entitles the
holder thereof to purchase one common share of the Company for $1.15 on or
before November 23, 1999, their expiry date.

Videoflicks.com Inc. currently has no officers or directors who were with
Mantaur Petroleum Corporation or 131870 Ontario Limited and has no contracts or
commitments with any former officers or directors of these companies. Michael
Kavanagh, director and President of the Company is a director of Videoflicks
Canada Limited and beneficially owns 50% of the stock of Videoflicks Canada
Limited, the other 50% being owned by his spouse Beverley Kavanagh. Michael
Kavanagh and his spouse, through their ownership of Videoflicks Canada Limited,
are beneficial owners of approximately 47.3% of the outstanding common shares of
the Company. The Company has entered into an agreements with Videoflicks Canada
Limited relating to the supply of inventory products for sale and a rental
agreement for office space. (These agreements are Exhibits 2.4 and 2.5 to this
Form)



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GENERAL

The Company is engaged in the business of selling movie videos on VHS videotape
and DVD ("Digital Video Disk") formats through its web site on the Internet
(www.videoflicks.com), utilizing software developed by the Company.

Videos may be searched for on the web site by title, category, or
actor/character. Reviews by professional critics as well as customer reviews are
provided to assist the customer. The web site also provides announcements of
forthcoming releases together with release dates. At the present time the
Company's web site has over 200,000 pages, listing more than 70,000 movies.
Sales to date include more than 23,000 different titles on videocassette and
digital video disc ("DVD") to over 60,000 customers in more than 30 countries.
The web site currently receives more than 1,000,000 visitors per month. The
database not only lists nearly all commercially available videos known to the
Company, but also those announced for forthcoming release, together with the
release date.

The Company offers search and browse features, e-mail services, web-based credit
card payment, direct shipping to customers, and customer profiled shopping
services where the customer determines the method of searching the video
database either by title, actor, category, or director. Customers determine if
they would like to be notified of the upcoming specials, new or re-leases of
videos in their interest categories either through e-mail, fax or mail and the
customer determines the method of payment and shipping of product. The Company
intends over time to expand its catalogue into other products, such as music and
video games. The Company has virtually unlimited "shelf space" and offers
customers a vast selection of videos accessible through a data search and
information retrieval page on the company's web site.

The Company strives to offer an online shopping experience that involves
discovery and fulfilment for its customers. The Company believes that the sale
of videos and other products and services over the web offers attractive
benefits to consumers, including, without limitation, enhanced selection,
convenience, ease-of-use, competitive pricing, depth of content and information
and personalization. Customers entering the Videoflicks.com web site can, in
addition to ordering videos and other products, purchase gift certificates,
conduct targeted searches, browse highlighted selections, video best sellers and
other features, search for videos by subject category, stars, directors, and the
like, read and post reviews, register for personalized services, participate in
promotions and check order status. The key features of the web site include
browsing, reviews and content, interaction with the online community (users
logged on to the Company's web site) through movie trivia and e-mail discussion
available on the web site, recommendations and personalization, and other unique
services, including the availability of multilingual videos.

The web site offers visitors a variety of highlighted subject areas and special
features arranged in a fashion intended to enhance video/movie search, selection
and discovery. In addition, the home page presents a variety of products and
information of topical or current-event interest. To enhance the shopping
experience and increase sales, the Company features a variety of videos on a
rotating basis throughout the site.

A significant feature of the web site is its interactive, searchable catalogue
of more than 70,000 titles, including most of the English language movies
commercially available on video, and a small number of CD's, videos, audiotapes
and other products. The Company provides a selection of search tools to find
videos and other products based on title, subject, star and director.




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Utilizing proprietary software, the Company has designed a fully scalable
systems architecture for the Internet shopping marketplace (i.e. the web server
and connection utilized by the Company's web site can be expanded to accommodate
increased web site "traffic"). It has integrated all aspects of retail
transaction processing, including order placement, secure payment verification,
inventory control, order fulfilment and vendor invoicing in one seamless and
automated process. The system's credit card encryption uses state of the art 128
bit technology. The system being used now by the Company to sell videos and
DVD's can be used to sell any other products that the Company chooses to sell.

The employment of this specialized information system by the Company allows its
customers to access an automated marketplace of video movies from the
inventories of a large number of manufacturers and distributors and provides
detailed product descriptions, product availability, delivery times, delivery
status and back- order information. All sales and payments are processed
electronically 24 hours a day, with limited employee involvement.

The Company does not maintain an inventory of videos but instead places its
customers' orders with a number of manufacturers and distributors who ship the
video products ordered directly to the Company's customers, thereby minimizing
the Company's handling, delivery and maintenance expenses. The Company also has
a Supply Agreement with its controlling shareholder, Videoflicks Canada Limited,
pursuant to which Videoflicks Canada Limited has agreed to supply videos to the
Company from its inventory at the wholesale catalogue price charged by
wholesalers on an arm's length basis on videos, plus shipping charges and
applicable taxes. A copy of this agreement is shown in exhibit 2.4.

The Company can capture information from orders received through its web site to
develop individual and overall customer profiles with which to focus its
marketing efforts by, for example, marketing specific movies or products or
offering personalized services to customers based on such profiles. The Company
has no current plans to resell this information to other parties.

Total sales and revenues during the past three fiscal years ending August 31,
1998 for the Videoflicks.com Internet division of Videoflicks Canada Limited
were earned almost entirely through the sales of video movies over the Internet
to unrelated customers. No significant sales or revenue was earned through the
Videoflicks.com Internet division of Videoflicks Canada Limited nor by the
Company through any other method of sales or product except for a small quantity
of recorded music in compact discs ("CDs")format. Historically, sales of videos
on VHS and DVD formats and sales of CDs have represented approximately 87%, 11%
and 2% respectively of total sales revenues. Total sales for the nine months
ending May 31 1999 are $1,240,000 and for fiscal year ending August 31, 1998
were $820,000, August 31 1997 $431,000 and August 31 1996 $71,000. Repeat
customers account for 20% to 25% of sales. The total loss for each of these
periods are, nine months ended May 31 1999 ($356,000), August 31, 1998
($113,000), August 31, 1997 ($69,000) and August 31, 1996 ($45,000). In each of
these periods the geographical breakdown of sales has remained constant with 75%
to the United States, and the balance of sales being less than 5% for any other
country.

BUSINESS PLAN

The Company's business strategy and plan of operations for both the remainder of
this fiscal year and for the first six months of the next year is to build
strong brand recognition, strengthen customer loyalty and increase customer
traffic to the Videoflicks.com web site, enhance supplier relationships,
maximize repeat purchasers and develop incremental revenue opportunities, such
as offering rental space for banner advertising on the site, while creating an
economic model that


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is superior to that of the capital and real estate intensive traditional
retailing business. Achieving increased profitability is dependent upon the
Company's continued growth through its ability to generate and sustain
substantially increased revenue levels. The objective of Company management is
to achieve growth in both revenues and profits in a fiscally responsible and
sustainable manner.

To continue this growth, the Company must maintain and increase its customer
base, implement and successfully execute its business and marketing strategy,
continue to develop and upgrade its technology and transaction-processing
systems, improve its web site, provide superior customer service and order
fulfilment, respond to competitive developments and attract, retain and motivate
talented personnel and management experienced in large and fast-growing
organizations.

The Company believes that success will depend on its ability to extend its brand
position, to provide its customers with outstanding value and a superior
shopping experience and the ability to achieve sufficient sales volume to
realize economies of scale. The company plans to grow the customer base through
advertising campaigns, creating marketing relationships with other Web based
retailers and information providers and expansion of the company's affiliate
program. Our customer service representatives are movie enthusiasts who can
offer superior service to customers looking for hard to find videos and can
answer inquiries about movies, actors etc. to help a client locate the movie of
their choice, through e-mail, Chat lines or voice. The company is also
implementing a rich text format of movie information to further enhance the
customer shopping experience. The Company believes that its emphasis on customer
service as well as management's experience in both Internet retail since 1995
and its 10 to 18 years of experience in storefront retail of videos to be the
Company's primary competitive advantages.

To date the business of the Company has operated with little or no advertising
support, relying upon word-of-mouth publicity. Notwithstanding the lack of
advertising support, sales generated by the Company's business for the nine
months ended May 31, 1999 increased 100% to $1,240,000 as compared to sales for
the nine months ended May 31, 1998. Repeat customers represent 20 to 25% of
orders. For each of the last 3 fiscal years approximately 75% of the Company's
sales were made to customers in the United States and of the remaining sales, no
more than 5% was concentrated in any one country. The Company intends to focus
on marketing and promotion to increase Videoflicks.com brand awareness. Although
sales are increasing, to date the company has not achieved profitability and has
sustained losses in each period. The Company expects to continue to incur net
losses for the next few years.

A pilot-program for advertising utilizing on-line media and print conducted in
fiscal 1998, suggested to management of Videoflicks Canada Inc. that
expenditures for advertising would result in an increase in the number of
visitors to its web site and correspondingly an increase in sales volumes.
Accordingly, management of the Company had committed $600,000 to an initial
advertising campaign, focussing on banner advertising, that is the placement of
the Company's advertisements on other web sites, which was to have commenced in
August, 1999. However management of the Company subsequently determined that the
initial advertising campaign would not be a sufficiently cost effective means of
generating new customers and therefore decided not to proceed with the proposed
campaign. Although advertising will continue to be a part of the Company's
business plan, management of the Company is also reviewing alternative means of
marketing including arrangements whereby the Company would have access to other
companies' customer bases on a sharing-of-revenue basis.




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Web site development and operating infrastructure development will also be a
priority. Company management believes that the development of a high volume of
traffic on its web site will be a key element of its success. Therefore, the
satisfactory performance, reliability and availability of the web site,
transaction-processing systems and network infrastructure are critical to the
Company's reputation, and its ability to attract and retain customers and
maintain customer service levels. In this regard, during fiscal 1999 the Company
hired additional programmers to develop its web site and additional staff to
fulfill orders and ensure timely product shipments. The Company's web site
development group has increased the efficiency of the data and systems
management, thereby streamlining the order- processing system. The Company plans
to continue to implement technology-driven enhancements to its web site to
provide increasingly valuable personal service programs, make the user-interface
as intuitive, engaging and fast as possible and continuously improve the
efficiency of its order fulfilment activities. To meet the demands of
anticipated future growth in traffic on the Company's web site the Company
intends to expand and upgrade its network infrastructure by adding another T1
transmission line (a 40 megabyte Internet connection line)or similar expansion
which will be required if the average number of users per day increases to
1,000,000 from the present rate of approximately 33,000. The web server and
connection used by the web site are fully-scalable and can be expanded as the
number of visitors to the Company's web site increases.

Upon amalgamation the Company succeeded to all of the assets and liabilities of
each of the amalgamating companies which ceased to exist as distinct entities
but merged to form the Company. Included in the assets to which the Company
succeeded was the $1.2 million which one of the amalgamating companies, 1318780
Ontario Limited, had raised for the purpose of funding the Company through the
amalgamation. The Company obtained additional funding through the exercise of
warrants which it issued pursuant to the amalgamation. In this regard, as of the
close of business on July 23, 1999, an aggregate of 1,047,670 Series "A"
Warrants had been exercised from which the Company realized aggregate gross
proceeds of $785,752.50 and an aggregate of 1,047,670 Series "B" Warrants were
issued, of which 11 were exercised, yielding aggregate gross proceeds of $12.65
to the Company. If all of the remaining 1,047,659 Series "B" Warrants are
exercised, the Company will realize additional gross proceeds of $1,204,807.80.
The Series B warrants expire on November 23, 1999. The Company also has
outstanding and contingent stock options exercisable to purchase up to 2,240,000
Company common shares at $0.50 per share which can bring in an additional
$1,120,000. The Company intends to allocate approximately 70%-75% of the funds
obtained during the current fiscal year from the amalgamation and through the
exercise of its Warrants and stock options principally for marketing to increase
the Company's sales and the remaining 25%-30% for hardware and software
improvements to the Company's web site and for general working capital purposes.

Planned expansion, growth through advertising, and upgrades to the Company's web
site will require an additional estimated $5,000,000 over the next 12 months. A
portion of these funds may or may not be raised through the exercising of the
Series "B" Warrants and exercising of stock options. The Company will likely
need to raise additional equity or debt financing.

The Company views its producers and distributors as customers and seeks to
utilize the substantial structural advantages inherent in its business plan to
build strong relationships with them. In addition, the demographic and
purchasing data accumulated by the Company will enable it to target video
studios for particular product offerings to the company's customers. Through
targeted marketing and virtually unlimited shelf space the Company intends to
offer suppliers enhanced promotional opportunities for new products, new video
titles and second and third tier titles.




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The Company intends to leverage its brand, on-line commerce experience,
operating infrastructure and customer base to broaden its presence and develop
additional revenue opportunities. Management of the Company believes that it can
further its growth opportunities through revenue sharing programs with companies
that send customers to the company for video purchases, and advertising sharing
programs where the company offers advertising space on the web site for equal
space on other web sites or with Internet Service Providers. Videoflicks.com
will also look to other International video retail companies and distributors to
service customers that require video and DVD in a format other than that
available in North America. In return the company can fulfill their requirements
for their North American customers. The Company will also consider developing
incremental revenue opportunities through affiliated or related sites, related
product areas and acquisition of complementary businesses, products or
technologies. The Company will also consider exploiting opportunities presented
by its customer demographic and substantial web site traffic to sell
advertising.

Commitment to research and development is an important policy of the Company as
management of the Company realizes that to stay competitive the Company must be
on the leading edge of computer hardware and software development of the web for
retail transactions and information technology. The Company has expended $69,000
in fiscal year ended August 31, 1999 for research and development, $39,000 for
August 31, 1997, and $8,000 in fiscal year ended August 31, 1996. For the none
months ended May 31, 1999 this expenditure has grown to $102,000 and is expected
to increase further in the future as the Company develops new applications and
procedures.

COMPETITIVE ENVIRONMENT

The online commerce market, particularly over the World Wide Web, is new,
rapidly evolving and intensely competitive. In addition, the retail video
industry is intensely competitive. The company's current or potential
competitors include (i) various online video sellers such as vendors of other
information-based products such as CDs and books, including entrants into narrow
specialty niches, (ii) a number of indirect competitors that specialize in
online commerce, through which retailers other than the Company may offer
products and (iii) publishers, distributors and retail vendors of videos, music
and books, including Amazon.com, Blockbuster Video, Reel.com and other large
specialty videosellers and integrated media corporations. These characteristics
of the Industry may have a material impact on the future financial performance
of the company. See "Risk Factors Affecting the Company" for further discussion
of competition.

INTELLECTUAL PROPERTY

A trademark registration application was filed with the U.S. Patent and
Trademark Office in January 1999 for the mark "Videoflicks.com". All rights in
respect of the trademark application were acquired by the Company upon
amalgamation. The mark Videoflicks.com was first used in 1995, in connection
with the business of the Company, by Videoflicks Canada Limited from which all
rights in the mark were acquired by Videoflicks.com Limited and subsequently by
the Company upon amalgamation.

HUMAN RESOURCES

On August 10, 1999, the Company had 25 full-time employees and 2 part-time
employees. As the Company encourages share ownership, it has established an
option plan (see "Item 12. - Compensation - Stock Option Plan") to attract,
motivate and retain key employees and consultants. The Company's employees are


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not governed by a collective bargaining agreement. The Company believes that its
employee relations are good.

RISK FACTORS AFFECTING THE COMPANY

The business of the Company entails significant risks, and an investment in the
securities of the Company should be considered highly speculative. An investment
in the securities of the Company should only be undertaken by persons who have
sufficient financial resources to enable them to assume such risks. The
following is a general description of all material risks which can adversely
affect the business and in turn the financial results which can affect the value
of an investment in common stock.

The company has a limited operating history in an industry that is new and
quickly evolving with changing markets. With the company being in the
development stage with no long term operating history or history of
profitability an investor should consider the risks and difficulties early stage
companies will encounter in the new and rapidly changing market of online
commerce.

     COMPETITION

THE MARKET FOR VIDEO SALES OVER THE INTERNET IS NEW, RAPIDLY EVOLVING AND
INTENSELY COMPETITIVE. THE COMPANY MAY NOT BE ABLE TO SUCCEED AGAINST
COMPETITORS WHICH HAVE LARGER CUSTOMER BASES, GREATER BRAND RECOGNITION AND
SIGNIFICANTLY GREATER FINANCIAL, MARKETING, TECHNICAL AND OTHER RESOURCES THAN
THE COMPANY.

The market for video sales over the Internet is new, rapidly evolving and
intensely competitive, and the Company expects competition to intensify further
in the future. Barriers to entry are relatively low, and current and new
competitors can launch new sites at relatively low cost using commercially
available software.

The Company potentially faces competition from other large online communities
and services that have expertise in developing online commerce and in
facilitating online video sales interaction. Other large companies with strong
brand recognition and experience in online commerce, such as large media
companies may also seek to compete in the online video sales market. Competitive
pressures created by any one of these companies, or by the Company's competitors
collectively, could have a material adverse effect on the Company's business,
results of operations and financial condition.

The Company believes that the principal competitive factors in its market are
volume and selection of videos, population of buyers, customer service,
reliability of delivery, brand recognition, web site convenience and
accessibility, price, quality of search tools and system reliability.

Many of the Company's current and potential competitors have larger customer
bases, greater brand recognition and significantly greater financial, marketing,
technical and other resources than the Company. In addition, other online video
sales companies may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies as use of the and other online services increases. Therefore, some of
the Company's competitors with other revenue sources may be able to devote
greater resources to marketing and promotional campaigns, adopt more aggressive
pricing policies, obtain more favourable terms from manufacturers and
distributors and devote substantially more resources to web site and systems
development than the Company or may try to attract traffic by offering videos at
a lower price.




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The Company expects that competition in the online commerce market will
intensify in the future. For example, as various market segments obtain large,
loyal customer bases, participants in those segments may seek to leverage their
market power to the detriment of participants in other market segments. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on online retailers, including the Company.
For example, "shopping agent" technologies will permit customers to quickly
compare the Company's prices with those of its competitors.

Increased competition may result in reduced operating margins, loss of market
share and diminished value in the Company's brand. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors.

Companies that control access to transactions through network access or web
browsers could promote the Company's competitors or charge the Company
substantial fees for inclusion. New technologies and the expansion of existing
technologies may increase the competitive pressures on the Company by enabling
the Company's competitors to offer a lower-cost service. Web-based applications
that direct Internet traffic to web sites may channel users to trading services
that compete with the Company. In addition, any and all of these events could
have a material adverse effect on the Company's business, results of operations,
prospects and financial condition.

As a strategic response to these changes in the competitive environment, the
Company may make pricing decisions to decrease present margins on new release
product to remain competitive. However the Company believes that being the low
cost leader is not a sustainable position in the market. The Company believes
that its superior service, knowledgeable staff and relationships with suppliers
to provide hard to find product as well as current product releases with
reasonable prices over the long term is sustainable. The Company intends to
continue to develop new systems and procedures to remain on the leading edge of
the retail marketplace for movie video product and be current on changes in the
industry. The Company will utilize its experience of many years in the video
industry to build strong relationships with suppliers, distributors and
manufacturers to drive costs down in the delivery of product to the customer.
The Company will also match price on specific titles being promoted by the
competition to maintain and attract customers. There is no assurance that these
responses of price change, relationship building, systems development and
marketing will have a positive competitive effect. They may have a material
adverse effect on the company's business results of operations, prospects and
financial condition.

     RISKS ASSOCIATED WITH BRAND DEVELOPMENT

IF THE COMPANY FAILS TO PROMOTE AND MAINTAIN ITS BRAND OR INCURS SUBSTANTIAL
EXPENSES IN AN ATTEMPT TO PROMOTE AND MAINTAIN ITS BRAND OR IF THE COMPANY'S
EXISTING OR FUTURE STRATEGIC RELATIONSHIPS FAIL TO PROMOTE THE COMPANY'S BRAND
OR INCREASE BRAND AWARENESS, THE COMPANY'S BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION WOULD BE MATERIALLY ADVERSELY AFFECTED.

The Company believes that its historical growth has been largely attributable to
word-of-mouth advertising. Despite this historical organic growth, the Company
believes that continuing to strengthen its brand is critical to achieving
widespread acceptance of Videoflicks.com, particularly in light of the
competitive nature of the Company's market. Promoting and positioning its brand
will depend largely on the success of the Company's marketing efforts and the



   11


                                      -11-

ability of the Company to provide high quality services. In order to promote its
brand, the Company will need to increase its marketing budget and otherwise
increase its financial commitment to creating and maintaining brand loyalty
among users. There can be no assurance that brand promotion activities will
yield increased revenues or that any such revenues would offset the expenses
incurred by the Company in building its brand. Further, there can be no
assurance that any new users attracted to Videoflicks.com will conduct
transactions at Videoflicks.com on a regular basis.

     RAPID TECHNOLOGICAL CHANGE

THE MARKET IN WHICH THE COMPANY COMPETES IS CHARACTERIZED BY RAPIDLY CHANGING
TECHNOLOGY AND EVOLVING INDUSTRY STANDARDS. THE FAILURE OF THE COMPANY TO ADAPT
TO SUCH CHANGES WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS,
RESULTS OF OPERATIONS, PROSPECTS AND FINANCIAL CONDITION.

The Company's future success will depend, in part, on its ability to adapt to
rapidly changing technologies, to adapt its services to evolving industry
standards and to continually improve the performance, features and reliability
of its service in response to competitive service and product offerings and
evolving demands of the marketplace.

There is the potential for emerging technologies to replace the need, or demand
for consumers to physically own video movies, such as digital cable and
on-demand movie rental. These technologies can reduce the market for movie
videocassettes and DVD. The widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures by the Company to modify or adapt its services or
infrastructure, failing which could result in material adverse effects on the
Company's business, results of operations, financial condition and continued
viability.

     WEB SITE CAPACITY

ANY INABILITY OF THE COMPANY'S WEB SITE TO ACCOMMODATE INCREASES IN WEB SITE
TRAFFIC COULD HAVE A MATERIAL ADVERSE IMPACT ON FUTURE RESULTS.

There is a risk that current usage amounts could increase beyond the current
capacity of the Company's hardware and software limits. The proprietary software
has been developed to be fully scaleable to accommodate up to 50 times the
current number of users on existing hardware. Current usage is at 20% of the
capacity on existing hardware. The company also has a backup system capable of
running if the primary server system becomes overused. The system has been
tested to run at 80% of capacity. However, if changes to technology that are
implemented by the company change the configuration of the hardware and software
the capacity levels for users may change.

     RISKS RELATED TO CONSUMER TRENDS

ANY DECLINE IN DEMAND FOR THE GOODS OFFERED THROUGH THE COMPANY'S SERVICE AS A
RESULT OF CHANGES IN CONSUMER TRENDS COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY'S BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

The Company derives substantially all of its revenues from selling video movies.
The Company's future revenues will depend upon continued demand for the types of
goods that are offered by the Company. Changes in consumer preferences may also


   12


                                      -12-

cause significant fluctuations in the Company's operating results from one
quarter to the next.

There is a risk that any new or complementary services, products or transaction
formats introduced by the Company or any expansion of the breadth and depth of
services offered by the Company to address such trends may not be accepted by
the consumer. The lack of market acceptance of such services or the Company's
inability to generate satisfactory revenues from such expanded services to
offset their cost could have a material adverse effect on the Company's
business, results of operations, prospects and financial conditions. There can
be no assurance that the Company would be able to expand its operations to offer
such new technologies in a cost-effective or timely manner or that any such
efforts would maintain or increase overall market acceptance. Furthermore, any
new business or service launched by the Company that is not favorably received
by consumers or wholesalers could damage the Company's reputation and diminish
the value of its brand name. Expansion of the Company's operations in this
manner would also require significant additional expenses and development,
operations and other resources and would strain the Company's management,
financial and operational resources.

     LACK OF WRITTEN CONTRACTS WITH DISTRIBUTORS AND MANUFACTURERS

THE COMPANY HAS NO WRITTEN AGREEMENTS WITH MANUFACTURERS AND DISTRIBUTORS OF
VIDEOS WITH WHOM THE COMPANY PLACES ITS CUSTOMERS' ORDERS.

Except for the Supply Agreement with Videoflicks Canada Limited, the Company has
no written agreements with manufacturers and distributors of videos with whom
the Company places its customers' orders but relies on its established
relationships and industry practices. If such manufacturers and distributors of
videos should stop shipping videos ordered by the Company or unilaterally and
adversely change the terms and conditions of the present arrangements and the
Company was unable to, in a timely fashion, secure an alternative supplier of
videos, or if an alternative supplier of videos was secured but on terms less
favorable, then this could have a significant adverse effect on the financial
performance of the Company and thereafter the continued viability of the Company
and the Company may have no recourse as against such manufacturers and
distributors. Notwithstanding the foregoing Company management believes that,
because of the number of available suppliers of videos, the aforementioned risks
are nominal and that the Company would be able to quickly replace any supply of
product provided by any individual manufacturer or distributor and on favorable
terms.

     ONLINE COMMERCE SECURITY RISKS

SECURITY BREACHES COULD AFFECT THE SECURE TRANSMISSION OF CONFIDENTIAL
INFORMATION, INCLUDING CUSTOMER CREDIT CARD NUMBERS AND EXPOSE THE COMPANY TO
LIABILITY.

A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. Currently, a
significant number of the Company's customers authorize direct billing of their
credit card accounts directly for all videos purchased. The use of credit cards
account for 96% of all transactions. The balance of sales are paid for by check
or money order. The Company relies on encryption and authentication technology
licensed from third parties to provide the security and authentication
technology to effect secure transmission of confidential information, including
customer credit card numbers. There can be no assurance that advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments will not result in a compromise or breach of the
technology used by the Company to protect customer transaction data. If any such
compromise of the Company's security were to occur, it could have a material
adverse effect on the


   13


                                      -13-

Company's reputation and, therefore, on its business, results of operations,
prospects and financial condition.

To the extent that activities of the Company involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could damage the Company's reputation and expose the Company to a risk
of loss or litigation and possible liability. A party who is able to circumvent
the Company's security measures could misappropriate proprietary information or
cause interruptions in the Company's operations. The Company may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of transactions conducted on the Internet and other online services and
the privacy of users may also inhibit the growth of the Internet and other
online services generally, and the web in particular, especially as a means of
conducting commercial transactions. The Company's insurance policies carry a
$2,000,000 coverage limits, which may not be adequate to reimburse the Company
for losses caused by security breaches. There can be no assurance that the
Company's security measures will prevent security breaches or that failure to
prevent such security breaches will not have a material adverse effect on the
Company's business, results of operations and financial condition.

     RISKS ASSOCIATED WITH ACQUISITIONS

THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO IDENTIFY, NEGOTIATE
OR FINANCE FUTURE ACQUISITIONS SUCCESSFULLY, OR TO INTEGRATE SUCH ACQUISITIONS
WITH ITS CURRENT BUSINESS.

If appropriate opportunities present themselves, the Company intends to acquire
businesses, technologies, services or products that the Company believes will
promote the growth required under the business plan. The process of integrating
an acquired business, technology, service or product into the Company may result
in unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of the Company's business. Moreover, there can be no assurance that the
anticipated benefits of any acquisition, will be realized. Future acquisitions
could result in potentially dilutive issuances of equity securities, the
incurrence of debt, contingent liabilities and/or amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
the Company's business, results of operations, prospects and financial
condition.

     DEPENDENCE ON THE WEB INFRASTRUCTURE

THERE CAN BE NO ASSURANCE THAT THE INFRASTRUCTURE OR COMPLEMENTARY PRODUCTS OR
SERVICES NECESSARY TO MAKE THE WEB A VIABLE COMMERCIAL MARKETPLACE FOR THE LONG
TERM WILL BE DEVELOPED OR THAT IF THEY ARE DEVELOPED, THAT THE WEB WILL BECOME A
VIABLE COMMERCIAL MARKETPLACE FOR SERVICES SUCH AS THOSE OFFERED BY THE COMPANY.

The success of the Company's service will depend in large part upon the
development and maintenance of the web infrastructure, such as a reliable
network backbone with the necessary speed, data capacity and security, or timely
development of complementary products such as high-speed modems, for providing
reliable web access and services. This service is provided by third parties to
the company. Because global commerce and the online exchange of information is
new and evolving, it is difficult to predict with any assurance whether the web
will prove to be a viable commercial marketplace in the long term. The web has
experienced, and is expected to continue to experience, significant growth in
the numbers of users and amount of traffic. To the extent that the web continues
to experience increased numbers of users, frequency of use or increased
bandwidth


   14


                                      -14-

requirements of users, there can be no assurance that the web infrastructure
will continue to be able to support the demands placed on it by this continued
growth or that the performance or reliability of the web will not be adversely
affected.

There is the risk of outages and delays in which could adversely affect the
level of web usage and also the level of traffic. This could have a significant
negative impact on the Company's sales. In addition, the web could lose its
viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of activity or due to increased
governmental regulation. The web has experienced a variety of outages and other
delays as a result of damage to portions of its infrastructure, and could face
such outages and delays in future, including outages and delays resulting from
the inability of certain computers or software to distinguish dates in the 21st
century from dates in the 20th century. See "--Year 2000 Implications".

There can be no assurance that the infrastructure or complementary products or
services necessary to make the web a viable commercial marketplace for the long
term will be developed or that if they are developed, that the web will become a
viable commercial marketplace for services such as those offered by the Company.
If the necessary infrastructure, standard or protocols or complementary
products, services or facilities are not developed, or if the web does not
become a viable commercial marketplace, the Company's business, results of
operations, prospects and financial condition will be materially and adversely
affected. Even if the infrastructure, standards or protocols or complementary
products, services or facilities are developed and the web becomes a viable
commercial marketplace in the long term, the Company might be required to incur
substantial expenditures in order to adapt its service to changing web
technologies, which could have a material adverse effect on the Company's
business, results of operations, prospects and financial condition.

     RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH THE COMPANY'S
     SERVICE

THERE IS THE RISK THAT CLAIMS COULD BE MADE AGAINST THE COMPANY UNDER BOTH
UNITED STATES AND FOREIGN LAW FOR DEFAMATION, LIBEL, INVASION OF PRIVACY,
NEGLIGENCE, COPYRIGHT OR TRADEMARK INFRINGEMENT, OR OTHER THEORIES BASED ON THE
NATURE AND CONTENT OF THE MATERIALS DISSEMINATED THROUGH THE COMPANY'S SERVICE
OR THIRD PARTY ON LINE SERVICE PROVIDERS.

The law relating to the liability of online services companies for information
carried on or disseminated through their services is currently unsettled.
Several private lawsuits seeking to impose such liability upon other online
services companies are currently pending. Certain countries and jurisdictions
limit or prohibit the sales of certain videos and other products which the
Company sells.

There is the risk that proposed legislation that imposes liability for or
prohibits the transmission over the Internet of certain types of information can
affect the company's web content. The Company's service features a Movie Review
Publication section for each video it sells, which includes information from
users regarding their thoughts about that movie. Although all such feedback is
generated by users and not by the Company, it is possible that a claim of
defamation or other injury could be made against the Company for content posted
in the Movie Review Pages. The imposition upon the Company and other online
services providers of potential liability for information carried on or
disseminated through their services could require the Company to implement
measures to reduce its exposure to such liability, which may require the Company
to expend substantial resources and/or to discontinue certain service offerings.




   15


                                      -15-

There is risk that the increased attention focussed upon liability issues as a
result of these lawsuits and legislative proposals could impact the growth of
Internet use. While the Company carries liability insurance in the amount of
$2,000,000, it may not be adequate to fully compensate the Company in the event
the Company becomes liable for information carried on or disseminated through
its service. Any costs not covered by insurance incurred as a result of such
liability or asserted liability could have a material adverse effect on the
Company's business, results of operations and financial condition.

     GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES

THERE IS A RISK THAT THE COMPANY MAY NOT BE IN FULL COMPLIANCE WITH CANADIAN AND
UNITED STATES LAWS AND REGULATIONS OR THOSE OF OTHER JURISDICTIONS.

The Company believes that it is currently in material compliance with Canadian
and United States laws and regulations applicable to access to and commerce on
the Internet, including regulations applicable to businesses generally. However,
due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Although sections of the Communications Decency Act of
1996 (the "CDA") that, among other things, proposed to impose criminal penalties
on anyone distributing "indecent" material to minors over the Internet, were
held to be unconstitutional by the U.S. Supreme Court, there can be no assurance
that similar laws will not be proposed and adopted. Certain members of the U.S.
Congress have recently discussed proposing legislation that would regulate the
distribution of "indecent" material over the Internet in a manner that they
believe would withstand challenge on constitutional grounds. The nature of such
similar legislation and the manner in which it may be interpreted and enforced
cannot be fully determined and, therefore, legislation similar to the CDA could
subject the Company and/or its customers to potential liability, which in turn
could have an adverse effect on the Company's business, results of operations,
prospects and financial condition. The adoption of any such laws or regulations
might also decrease the rate of growth of Internet use, which in turn could
decrease the demand for the Company's service or increase the cost of doing
business or in some other manner have a material adverse effect on the Company's
business, results of operations and financial condition. In addition,
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy is uncertain. The vast majority of such laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the and related
technologies. The Company does not believe that such regulations, which were
adopted prior to the advent of the Internet, govern the operations of the
Company's business nor have any claims been filed by any state implying that the
Company is subject to such legislation. There can be no assurance, however, that
a state, province or other jurisdiction will not attempt to impose these
regulations upon the Company in the future or that such imposition will not have
a material adverse effect on the Company's business, results of operations,
prospects and financial condition.

Several states and provinces have also proposed legislation that would limit the
uses of personal user information gathered online or require online services to
establish privacy policies. The Company is not collecting data on customers or
visitors for later resale. The United States Federal Trade Commission has also
initiated action against at least one online service regarding the manner in


   16


                                      -16-

which personal information is collected from users and provided to third
parties. Changes to existing laws or the passage of new laws intended to address
these issues, including some recently proposed changes, could create uncertainty
in the marketplace that could reduce demand for the services of the Company or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs, or could in some other manner have a material adverse
effect on the Company's business, results of operations, prospects and financial
condition. Because the Company's services are accessible worldwide, and the
Company sells videos to users worldwide, there is a risk that other
jurisdictions may claim that the Company is required to qualify to do business
as a foreign corporation in a particular state or foreign country. The Company
is qualified to do business in Canada, and failure by the Company to qualify as
a foreign corporation in a jurisdiction where it is required to do so could
subject the Company to taxes and penalties for the failure to qualify and could
result in the inability of the Company to enforce contracts in such
jurisdictions. Any such new legislation or regulation, or the application of
laws or regulations from jurisdictions whose laws do not currently apply to the
Company's business, could have a material adverse effect on the Company's
business, results of operations, prospects and financial condition.

     SALES AND OTHER TAXES

THERE IS THE RISK THAT SOME JURISDICTION WILL IMPOSE SALES TAX COLLECTIONS OR
OTHER TAX OBLIGATIONS ON THE COMPANY.

The Company does not collect sales or other similar taxes in respect of goods
sold. However, one or more states, provinces or other jurisdictions may seek to
impose sales tax collection obligations on out-of-state or foreign companies
such as the Company which engage in or facilitate online commerce, and a number
of proposals have been made at the state and local level that would impose
additional taxes on the sale of goods and services through the Internet. Such
proposals, if adopted, could substantially impair the growth of electronic
commerce, and could adversely affect the Company's opportunity to derive
financial benefit from such activities. Moreover, a successful assertion by one
or more states or provinces or any foreign country that the Company should
collect sales or other taxes on the sale of videos on its system could have a
material adverse effect on the Company's business, results of operations,
prospects and financial condition.

Legislation limiting the ability of the states and provinces to impose taxes on
Internet-based transactions has been proposed in the U.S. Congress. There can be
no assurance that this legislation will ultimately be enacted into law or that
the final version of this legislation will not contain a limited time period in
which such tax moratorium will apply. In the event that the tax moratorium is
imposed for a limited time period, there can be no assurance that the
legislation will be renewed at the end of such period. Failure to enact or renew
this legislation could allow various states or provinces to impose taxes on
Internet- based commerce and the imposition of such taxes could have a material
adverse affect on the Company's business, results of operations, prospects and
financial condition.

     RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

THE COMPANY MAY BE UNABLE TO GENERATE REVENUES FROM FOREIGN OPERATIONS AND
EXPAND ITS INTERNATIONAL PRESENCE.

The risks inherent in doing business on an international basis include meeting
regulatory requirements, legal uncertainty regarding liability, tariffs, and
other trade barriers, difficulties in staffing and managing foreign operations


   17


                                      -17-

and potentially adverse tax consequences. These conditions could adversely
affect the success of the Company's international operations. A component of the
Company's business plan is to expand internationally. Approximately 75% of the
Company's current sales are made to residents of the United States and Company
management believes that the sales of its principal competitors are also
concentrated in the increasingly competitive U.S. market. Expansion in the
international markets will require management attention and resources. The
Company has limited experience in establishing its service in new local markets,
and the Company believes that many of its competitors are also undertaking
expansion into foreign markets. There can be no assurance that the Company will
be successful in expanding into international markets. There can be no assurance
that one or more of the factors discussed above will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, results of operations, prospects and financial
condition.

     PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS

THE COMPANY'S RELIANCE ON TRADEMARK REGISTRATION, CONTRACTUAL ARRANGEMENTS OR
APPLICABLE LAWS WILL PROVE INSUFFICIENT TO PREVENT MISAPPROPRIATION OF THE
COMPANY'S TECHNOLOGY OR TO DETER INDEPENDENT THIRD-PARTY DEVELOPMENT OF SIMILAR
TECHNOLOGIES.

The Company regards the protection of its trademark copyright, service marks,
trade dress and trade secrets as critical to its future success and relies on a
combination of trademark registration and copyright, trademark, service mark and
trade secret laws and contractual restrictions to establish and protect its
proprietary rights in products and services. The Company has entered into
confidentiality and invention assignment agreements with its employees and
contractors, and non-disclosure agreements with parties with which it conducts
business in order to limit access to and disclosure of its proprietary
information. The Company pursues the registration of its trademarks and service
marks in the U.S. and internationally. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which the Company's services are made available online. The Company expects that
it may license in the future certain of its proprietary rights, such as
trademarks or copyrighted material, to third parties. While the Company attempts
to ensure that the quality of the Videoflicks.com brand is maintained by such
licensees, there can be no assurance that such licensees will not take actions
that might materially adversely affect the value of the Company's proprietary
rights or reputation, which could have a material adverse effect on the
Company's business, results of operations, prospects and financial condition.

     AVAILABILITY OF THIRD PARTY TECHNOLOGIES

THIRD-PARTY TECHNOLOGIES UTILIZED BY THE COMPANY MAY CEASE TO BE AVAILABLE TO
THE COMPANY AND OR CEASE TO BE AVAILABLE ON COMMERCIALLY REASONABLE TERMS.

The Company relies on certain technologies that it has purchased from third
parties under shrink-wrap licence agreements, such as Microsoft and O'Rilieys
Web Site, the suppliers of key database technology, the operating system and
specific hardware components from which the systems for operating the Company's
web site have been developed. The loss of such technologies could require the
Company, in the course of upgrading or changing their systems, to obtain
substitute technologies of lower quality or performance standards or at greater
cost, which could materially adversely affect the Company's business, results of
operations, prospects and financial condition.

     INFRINGEMENT CLAIMS



   18


                                      -18-

THIRD PARTIES MAY CLAIM INFRINGEMENT BY THE COMPANY WITH RESPECT TO PAST,
CURRENT OR FUTURE TECHNOLOGIES.

The Company expects that participants in its markets will be increasingly
subject to infringement claims as the number of services and competitors in the
Company's industry segment grows. Any such claim, whether meritorious or not,
could be time-consuming, result in costly litigation, cause service upgrade
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements might not be available on terms acceptable
to the Company or at all. As a result, any such claim could have a material
adverse effect upon the Company's business, results of operations, prospects and
financial condition. To date, the Company is not aware of, nor has it been
notified that its technologies infringe the proprietary rights of third parties.

     YEAR 2000 IMPLICATIONS

THE COMPANY MAY BE EXPOSED TO YEAR 2000 COMPUTER  RISKS.

Installed computer systems and software products run the risk of not being year
2000 compatible. These systems are coded to accept only two-digit entries in the
date code field and cannot reliably distinguish dates beginning on January 1,
2000 from dates prior to the year 2000. Many companies' software and computer
systems may need to be upgraded or replaced in order to correctly process dates
beginning in 2000 and to comply with the "Year 2000" requirements.

All of the Company's hardware and software systems used in connection with its
web site, data systems and order processing systems have been purchased during
the past three years and have all been certified by the manufacturers and
developers of same to be Year 2000 compliant. Testing by the Company of such
systems has confirmed that they are Year 2000 compliant. Consequently, the
Company does not believe that it presently has a material Year 2000 compliance
problem and accordingly does not presently anticipate having to incur any
material expenses in connection therewith.

The Company's business plan includes potential expansion through the acquisition
of businesses, technologies, products and services from other businesses. As the
Company continues to expand in this manner throughout calendar 1999, Year 2000
issues could result causing the Company to have to commit resources to address
same.

There is a risk that the Company's various vendors, utility companies,
telecommunications service companies, delivery service companies and other
service providers who are outside its control may not be year 2000 compliant.
There is no assurance that such companies will not suffer a Year 2000 business
disruption which could harm the Company's business and financial condition.
Furthermore, if third-party equipment or software the Company uses in its
business fails to operate properly with regard to the Year 2000, it may need to
incur significant unanticipated expenses to remedy any such problems. Management
of the Company believes that if in fact it does encounter any Year 2000
problems, it will be able to quickly remedy same through the purchase
off-the-shelf systems or by switching to other Year 2000 compliant subscribers.

The Company's failure to resolve any Year 2000 issues which may arise with
respect to its products and services could damage its business and revenues and
result in liability on its part for such failure. The Company's business and its


   19


                                      -19-

prospects may be permanently affected by either the liability it incurs to third
parties or the negative impact on its business reputation.

     LACK OF MARKET FOR COMPANY'S SHARES

THERE IS NO ASSURANCE THAT A LIQUID MARKET WILL BE DEVELOPED OR BE SUSTAINED IN
THE UNITED STATES FOR THE COMMON SHARES OF THE COMPANY

Although the common shares of the Company trade on the over the counter market
in Toronto, Ontario (see "Item 5. Nature of Trading Market"), there is no
trading market at present in the United States for the common shares of the
Company and there is no assurance that a liquid market for the common shares of
the Company in the United States will be developed or be sustained. The lack of
a liquid market in the United States for the common shares of the Company could
have a negative impact on the ability of investors to buy and sell the common
shares of the Company and on the value of the shares.

     POSSIBLE VOLATILITY OF SHARE PRICE

THE TRADING PRICE OF THE COMMON SHARES IS LIKELY TO BE HIGHLY VOLATILE AND COULD
BE SUBJECT TO WIDE FLUCTUATIONS

The trading price of the common shares is likely to be highly volatile and could
be subject to wide fluctuations in response to factors such as actual or
anticipated variations in the Company's quarterly operating results,
announcements of technological innovations, or new services by the Company or
its competitors, changes in financial estimates by securities analysts,
conditions or trends in the Internet and online commerce industries, changes in
the market valuations of other Internet or online service companies,
announcements by the Company or its competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments, additions or
departures of key personnel, sales of common shares or other securities of the
Company in the open market and other events or factors, many of which are beyond
the Company's control. Further, the stock markets in general, and the NASDAQ
National Market and the market for Internet-related and technology companies in
particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many technology companies' stocks are at or
near historical highs and reflect valuations substantially above historical
levels. There can be no assurance that these trading prices and valuations will
be sustained. These broad market and industry factors may materially and
adversely affect the market price of the common shares regardless of the
Company's operating performance. Market fluctuations, as well as general
political and economic conditions such as recession or interest rate or currency
rate fluctuations, may also adversely affect the market price of the common
shares. In the past, following periods of volatility in the market price of a
company's securities, securities class-action litigation has often been
instituted against such company. Such litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on the Company's business, results of
operations, prospects and financial condition.

     LIQUIDITY AND CAPITAL NEEDS

THE COMPANY MAY NOT BE ABLE TO ACQUIRE THE FUNDS NEEDED TO IMPLEMENT AND
COMPLETE THE BUSINESS PLAN.

Planned expansion, growth through advertising, and upgrades to the Company's web
site will require an additional estimated $5,000,000 over the next 12 months. A
portion of these funds may or may not be raised through the exercising of the


   20


                                      -20-

Series "B" Warrants and exercising of stock options. The Company will likely
need to raise additional equity or debt financing. There can be no assurance
that additional funding will be available or, if available, that it will be
available on acceptable terms. The inability of the Company to obtain additional
funding could have a material adverse impact on the business, financial
condition and future prospects of the Company. There can be no assurance that
the Company will be able to raise additional capital if its capital resources
are exhausted.

     CONTROL OF SHARES

MICHAEL KAVANAGH AND HIS ASSOCIATES EXERCISE EFFECTIVE VOTING CONTROL.

Michael Kavanagh, President, CEO and a director of the Company and his spouse
together beneficially own approximately 47% of the outstanding common shares of
the Company. Accordingly, Mr. Kavanagh and his spouse will be able to influence
the election of the Company's Board of Directors and the outcome of corporate
actions requiring shareholder approval. This level of ownership by such persons
may have the effect of delaying, deterring, or preventing a change of control of
the Company's Board of Directors and management.

     SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

Some of the statements contained in or incorporated by reference in this
registration statement discuss the Company's plans and strategies for our
business or state other forward-looking statements. The words "anticipate",
"believe", "estimate", "expect", "plan", "intent", "should", "seek", "will" and
similar expressions are intended to identify these forward-looking statements,
but are not the exclusive means of identifying them. These forward-looking
statements reflect the current views of Company management; however, various
risks, uncertainties and contingencies could cause the Company's actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements, including the following:

     -    the success or failure of the Company's efforts to implement its
          business strategy;

     -    the other factors discussed under the heading "Risk Factors" and
          elsewhere in this memorandum.

For a discussion of important risks of an investment in the Company's
securities, including factors that could cause actual results to differ
materially from results referred to in the forward-looking statements, see "Risk
Factors". You should carefully consider the information set forth under the
caption "Risk Factors". In light of these risks, no certainties and assumptions,
the forward- looking events discussed in this registration statement might not
occur.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's principal facility, which is sub-leased from Videoflicks Canada
Limited, is located at 1654 Avenue Road, Toronto, Ontario. The sub-lease expires
on July 30, 2000. The sub-lease covers approximately 1,300 square feet and, if
required, can be expanded to 2,500 square feet at this location. The Company
pays a proportionate amount of the lease obligations of Videoflicks Canada
Limited based on the amount of space covered by the sub-lease relative to the
total floor space leased by Videoflicks Canada Limited. Management believes that
they will outgrow this capacity in the near future and are looking at
alternative locations to meet the needs of anticipated future growth.

ITEM 3. LEGAL PROCEEDINGS



   21


                                      -21-

There are no legal proceedings of a material nature pending or known to be
contemplated against the Company by any party, including any governmental
authorities.

ITEM 4. CONTROL OF REGISTRANT

(a)  At August 10, 1999, there were 17,808,954 shares outstanding with an
     authorized capital of an unlimited number of shares. To the best of
     Management's knowledge, the only person beneficially owning 10% or more of
     the Company's outstanding shares as of August 10, 1999 was Videoflicks
     Canada Limited which owned 8,000,000 common shares of the Company,
     comprising approximately 44.9% of the outstanding common shares of the
     Company. All of the shares of Videoflicks Canada Limited are beneficially
     owned by Michael Kavanagh and his spouse, as to 50% each through their
     respective holding companies. As a result, Mr. Kavanagh and his spouse,
     through their ownership of Videoflicks Canada Limited, also have beneficial
     ownership of the shares owned by Videoflicks Canada Limited and have
     effective voting control with respect to all matters requiring shareholder
     approval except for those matters which pursuant to the Business
     Corporations Act (Ontario) require approval by special resolution of
     shareholders (i.e. a resolution passed by at least two thirds of the votes
     cast at a special meeting of shareholders called for the purpose of
     considering the resolution).

(b)  The following table lists each person who as at August 10, 1999 is known to
     the Registrant to be the owner of more than 10% of the Registrant's
     outstanding common shares, the only class of voting securities of the
     Registrant, and the total amount of common shares owned by the directors
     and officers of the Registrant as a group:



Identity of
Person or Group                    Amount Owned           Percent of Class
- ---------------                    ------------           ----------------
                                                         
Michael Kavanagh                   8,800,000(1)                47.3%
106 Orenda Road
Brampton, Ontario L6W 3W6

Videoflicks Canada Limited         8,000,000                   44.9%
106 Orenda Road
Brampton, Ontario  L6W 3W6

All directors and others as a      8,800,000(2)                47.3%
group


    (1)   Consists of the 8,000,000 common shares owned by Videoflicks Canada
          Limited, of which Mr. Kavanagh and his spouse each own 50% of the
          outstanding capital stock, together with the presently exercisable
          options to purchase 800,000 common shares held by Mr. Kavanagh.

    (2)   Consists of 8,000,000 common shares owned by Videoflicks Canada
          Limited, of which Mr. Kavanagh and his spouse each beneficially own
          50% of the outstanding capital stock, together with the presently
          exercisable options to purchase 800,000 common shares held by Mr.
          Kavanagh. Options held by the other directors and officers are subject
          to vesting requirements none of which are exercisable prior to March,
          2000. See "Item 12. Options to Purchase Securities from Registrant or
          Subsidiaries - Stock Option Plan".

               At August 10, 1999, officers and directors, as a group, owned no
               shares of the Company other than the 8,000,000 common shares of


   22


                                      -22-

               the Company owned by Videoflicks Canada Inc., all of the shares
               of which are beneficially owned by Michael Kavanagh and his
               spouse, as to 50% each through their respective holding
               companies.

     c)   There are no arrangements, known to the Company, the operation of
          which may at a subsequent date result in a change in control of the
          Company.

ITEM 5. NATURE OF TRADING MARKET

The Company's shares commenced trading over-the-counter on The Canadian Dealing
Network Inc., Toronto, Ontario on April 26, 1999. The following is a summary of
trading in the common shares of the Company on The Canadian Dealing Network
Inc.(stated in U.S. dollars):



                              High                Low
                              ----                ---
                                        
Third Quarter (1)            $1.80               $0.90
Fourth Quarter(2)            $0.95               $0.37



    (1)   For quarter ending May 31, 1999, from commencement of trading on April
          26,1999.

    (2)   For quarter ending August 31, 1999, for trades up to and including
          August 10,1999.

The closing sales price of the shares as quoted on The Canadian Dealing Network
Inc. on August 10, 1999 was $0.48 per share.

Although the Company intends to apply to have its common shares quoted on the
NASD (National Association of Securities Dealers) Bulletin Board, there is no
trading market at present in the United States for the common shares of the
Company (see "Item 1, Business of the Company - Risk Factors Affecting the
Company - Lack of Market for Company's Shares").

At August 10, 1999, the Company had 2,961 shareholders of record. At August
10,1999, there were 2,143 United States shareholders of record, holding
2,700,436 shares, which represented approximately 15.2% of the outstanding
shares.

ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

     a)   There are no laws or governmental decrees or regulations in Canada
          that restrict the export or import of capital, or affect the
          remittance of dividends, interest or other payments to holders of the
          Company's securities who are not residents of Canada, other than
          withholding tax requirements. Reference is made to "Item 7. Taxation".

     b)   There are no limitations imposed by the laws of Canada, the laws of
          Ontario or by the charter or other governing documents of the Company
          on the right of a non-resident to hold or vote common shares of the
          Company, other than as provided in the Investment Canada Act (the
          "Investment Act"). The following summarizes the principal features of
          the Investment Act for a non-resident who proposes to acquire common
          shares. The summary is of a general nature only and is not intended to
          be nor is it, a substitute of independent advice from an investor's
          own advisor. The summary does not anticipate statutory or regulatory
          amendments:




   23


                                      -23-

The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture that is not a "Canadian" as defined in the Investment Act (a
"non-Canadian"), unless after review, the minister responsible for the
Investment Act (the "Minister") is satisfied that the investment is likely to be
of a net benefit to Canada. Under the Investment Act, a United States citizen
qualifies as a "World Trade Organization Investor." Subject to the restrictions
noted below, an investment in a Canadian business by a World Trade Organization
Investor would be reviewable under the Investment Act only if it is an
investment to acquire control of such Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is not less
than a specified amount, which for 1999 is $184 million. An investment in the
shares of a Canadian business by a non-Canadian other than a "World Trade
Organization Investor" when the Company is not controlled by a World Trade
Organization Investor, would be reviewable under the Investment Act if it is an
investment to acquire control of the Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is CDN$5
million or more, or if an order for review is made by the federal cabinet on the
grounds that the investment relates to Canada's cultural heritage or national
identity.

The acquisition by a World Trade Organization Investor of control of a Canadian
business in any of the following sectors is also subject to review if the value
of the assets of the Canadian business exceeds CDN$5 million (as shown on its
financial statements): uranium, financial services (except insurance),
transportation services and cultural businesses, which include broadcast media
(publication, distribution or sale of books, magazines, periodicals, newspapers,
music, film and video products and the exhibition of film and video products),
television and radio services. As the Company's business falls under the
aforementioned broadcast media sub-category, the acquisition of control of the
Company, in excess of the CDN$5million threshold, by a World Trade Organization
Investor would be subject to such review.

A non-Canadian would acquire control of the Company for purposes of the
Investment Act if the non- Canadian acquired a majority of the common shares.
The acquisition of less than a majority but one-third or more of the common
shares would be presumed to be an acquisition of control of the Company unless
it could be established that, on acquisition, the Company was not controlled in
fact by the acquirer through the ownership of common shares. Notwithstanding the
review provisions, any transaction involving the acquisition of control of a
Canadian business or the establishment of a new business in Canada by a
non-Canadian is a notifiable transaction and must be reported to Industry Canada
by the non- Canadian making the investment either before or within thirty (30)
days after the investment.

Certain transactions relating to common shares are exempt from the Investment
Act, including:

     a)   an acquisition of common shares by a person in the ordinary course of
          that person's business as a trader or dealer in securities;

     b)   an acquisition of control of the Company in connection with the
          realization of security granted for a loan or other financial
          assistance and not for a purpose related to the provisions of the
          Investment Act; and

     c)   an acquisition of control of the Company by reason of an amalgamation,
          merger, consolidation or corporate reorganization, following which the
          ultimate direct or indirect control in fact of the Company, through
          the ownership of common shares, remained unchanged.




   24


                                      -24-

     COMPETITION ACT REVIEW

Investments giving rise to the acquisition or establishment, directly or
indirectly, by one or more persons of control over, or a significant interest in
the whole or part of a business of a competitor, supplier, customer or other
person are subject to substantive review by Canada's Competition Law Authority,
the Director of Investigation and Research (the "Director"). If or when the
Director concludes that a merger, whether by purchase or lease of shares or
assets, by amalgamation or by combination, or otherwise, prevents or lessens, or
is likely to prevent or lessen competition substantially, he may apply as may be
necessary to eliminate the substantial lessening or prevention of competition.
Such substantive merger review power applies to all mergers, whether or not they
meet limits for pre- notification under the Competition Act.

In addition to substantive merger review, the Competition Act provides for a
pre- notification regime respecting mergers of certain size. The regime applies
in respect of share acquisitions, asset acquisitions, amalgamations and
combinations, for ease of reference. This filing refers specifically to share
acquisition, although the pre-notification regime applies, with the appropriate
modification, to other types of acquisition of control as well.

In order for a share acquisition transaction to be pre-notifiable, the parties
to the transaction (being the person or persons who proposed to acquire shares,
and the Corporation the shares of which are to be acquired), together with their
affiliates (being all firms with a 50% or more voting shares linkage up and down
the chain) must have:

        (i)     aggregate gross assets in Canada that exceed $400,000,000 in
                value, as shown on their audited financial statements for the
                most recently completed fiscal year (which must be within the
                last fifteen (15) months); or

        (ii)    aggregate gross revenue from sales in, from or into Canada that
                exceed $400,000,000 for the most recently completed fiscal year
                shown on the said financial statements; and

        (iii)   the party being acquired or corporations controlled by that
                party must have gross assets in Canada, or gross revenues from
                sales in or from Canada, exceeding $35,000,000 as shown on the
                said financial statements. Acquisition of shares carrying up to
                20% of the votes of a publicly traded corporation, or 35% of the
                votes in a private corporation will not be subject to
                pre-notification, regardless of the above thresholds. However,
                exceeding the 20% or the 35% threshold, and again exceeding the
                50% threshold, gives rise to an obligation of notification if
                the size threshold is met.

If a transaction is pre-notifiable, a filing must be made with the Director
containing the prescribed information with respect to the parties, and a waiting
period, (either seven or twenty-one days, depending on whether a long or short
form filing is chosen) must expire prior to closing.

As an alternative to pre-notification, the Director may grant an Advance Ruling
Certificate which exempts the transaction from pre-notification. Advance Ruling
Certificates are granted where the Director concludes, based on the information


   25


                                      -25-

provided to him, that he would not have sufficient grounds on which to apply to
the Competition Tribunal to challenge the Merger.

ITEM 7. TAXATION

The following summary describes the principal Canadian federal income tax
considerations generally applicable to a holder of the Company's shares who, for
purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and the Canada-
United States Income Tax Convention, 1980 (the "Convention") and at all relevant
times is resident in the United States and not resident in Canada, deals at
arm's length with the Company, holds the Company's shares as capital property,
and does not use or hold and is not deemed to use or hold the Company's shares
in or in the course of carrying on business in Canada (a "United States
Holder").

This following summary is based upon the current provisions of the Canadian Tax
Act, the regulations there under, all specific proposals to amend the Canadian
Tax Act and the regulations announced by the Minister of Finance (Canada) prior
to the date hereof and the Company's understanding of the published
administrative practices of Revenue Canada, Customs, Excise and Taxation. This
summary does not take into account or anticipate any other changes in the
governing law, whether by judicial, governmental or legislative decision or
action, nor does it take into account the tax legislation or considerations of
any province, territory or non-Canadian (including U.S.) jurisdiction, which
legislation or considerations may differ significantly from those described
herein.

This summary is of a general nature only and is not intended to be, and should
not be interpreted as, legal or tax advice to any prospective purchaser or
holder of the Company's shares and no representation with respect to the
Canadian federal income tax consequences to any such prospective purchaser is
made. Accordingly, prospective purchasers of the Company's shares should consult
with their own tax advisors with respect to their individual circumstances.

DIVIDENDS ON THE COMPANY'S SHARES

Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, pursuant to the Convention, the withholding tax rate on the gross
amount of dividends paid to residents of the United States is reduced to 15% or,
in the case of a U.S. corporation which owns at least 10% of the voting stock of
the Canadian corporation paying the dividends, to 5% of the gross amount of such
dividends.

Pursuant to the Convention, certain tax-exempt entities resident in the United
States may be exempt from Canadian withholding taxes, including any withholding
taxes levied in respect of dividends received on the Company's shares.

DISPOSITION OF THE COMPANY'S SHARES

In general, a United States shareholder will not be subject to Canadian income
tax on capital gains arising on the disposition of the Company's shares, unless
such shares are "taxable Canadian property" within the meaning of the Canadian
Tax Act and no relief is afforded under any applicable tax treaty. The shares of
the Company would be taxable Canadian property of a non-resident if at any time
during the five year period immediately preceding a disposition by the non-


   26
                                      -26-

resident of such shares, not less than 25% of the issued shares of any class or
series of all classes of shares of the Company belonged to the non-resident, to
persons with whom the non-resident did not deal at arm's length, or to the
non-resident and persons with whom the non-resident did not deal at arm's length
for purposes of the Canadian Tax Act. For this purpose, issued shares includes
options to acquire such shares (including conversion rights) held by such
persons. Under the Convention, a capital gain realized by a resident of the
United States will not be subject to Canadian tax unless the value of the shares
of the Company is derived principally from real estate (as defined in the
Convention) situated in Canada.



ITEM 8. SELECTED FINANCIAL DATA

The following selected financial data has been extracted from the financial
statements dated June 15, 1999 for the years ended August 31, 1998, 1997 and
1996 and for the periods ended May 31, 1999 and 1998. This financial data
reflects the carved-out operations of the business of Videoflicks Canada Limited
on a continuity of interest basis. The selected financial data is presented for
the life of the Videoflicks.com Internet business which began operations on
September 1, 1995 as a division of Videoflicks Canada Limited.

                              VIDEOFLICKS.COM INC.
                             SELECTED FINANCIAL DATA
                      (EXPRESSED IN UNITED STATES DOLLARS)



                                MAY 31               MAY 31
                                 1999                 1998             AUGUST 31           AUGUST 31           AUGUST 31
                               9 MONTHS             9 MONTHS             1998                1997                1996
                              (UNAUDITED)          (UNAUDITED)         12 MONTHS           12 MONTHS           12 MONTHS
                              -----------          -----------         ----------          ---------          -----------
                                                                                               
Net Operating                 $ 1,240,000            $621,000            $820,000            $431,000             $71,000
Revenues

Operating Loss                $   356,000            $ 87,000            $113,000            $ 69,000             $45,000

Loss Per Share                $     0.021            $  0.005            $  0.007            $  0.004             $ 0.003

Total Assets                  $ 1,478,000            $ 12,000            $ 12,000            $ 18,000             $27,000

Long Term                     $         0            $      0            $      0            $      0             $     0
Obligations

Redeemable Preferred          $         0            $      0            $      0            $      0             $     0
Stock

Cash Dividends                $         0            $      0            $      0            $      0             $     0
Declared
Per Common Share

EXCHANGE RATES
(CDN$ TO US$)

Period End                         0.6784              0.6866              0.6396              0.7203              0.7314

Average                            0.6602              0.7042              0.6949              0.7310              0.7335

Low                                0.6379              0.6809              0.6311              0.7130              0.7212

High                               0.6922              0.7307              0.7307              0.7540              0.7535

EXCHANGE RATE @
JULY 21, 1999 -
 .6673




   27


                                      -27-

The above selected financial data has been prepared in accordance with generally
accepted accounting principles in Canada which conform in all material respects
with accounting principles generally accepted in the United States. In the
preparation of the above selected financial data there were no material issues
requiring reconciliation of Canadian with United States generally accepted
accounting principles.

ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included herein (see "Item 17. Financial
Statements"). The financial statements have been prepared in accordance with
generally accepted accounting principles in Canada which conform in all material
respects with accounting principles generally accepted in the United States. In
addition to historical information, the following discussion and analysis
includes forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those expressed in the
forward-looking statements as a result of certain factors, including those
described in "Risk Factors" and elsewhere herein.

OVERVIEW

The Company sells movies on VHS videotape and DVD formats through its Internet
web site at www.videoflicks.com. The Company is in its early stages as a public
company, having been formed as a public company under Ontario securities
legislation by amalgamation in March, 1999. The Company is not public in the
United States. Prior thereto the business of the Company was, since 1995,
operated as a division of Videoflicks Canada Limited, a private company which,
as its principal business, owned , operated and franchised video retail outlets.
Management of Videoflicks Canada Limited, recognizing the potential of the
Internet as a retail medium, determined that it was essential to the success of
its Internet business that it have access to the public financial markets to
raise the necessary funds for advertising and web site development. Effective
November 30, 1998 Videoflicks Canada Limited completed a 'spin-out' of its
Internet business, transferring it to its wholly-owned subsidiary,
Videoflicks.com Limited which, in March, 1999 amalgamated with two other
companies to form the Company. As a consequence of the amalgamation in March
1999, the Company obtained $1,200,000 which had been raised by 1318780 Ontario
Limited, one of the amalgamating companies, in contemplation of the
amalgamation.

The historical financial statements presented herein for the fiscal years ended
August 31, 1998, 1997, and 1996 reflect the carved-out operations of the
Internet business of Videoflicks Canada Limited on a continuity of interest
basis. The financial results of the individual companies which amalgamated to
form the Company are not presented or commented on as they do not reflect the
business activity the Company is currently involved.

RESULTS OF OPERATIONS




   28


                                      -28-

Net sales were $820,000 for the fiscal year ended August 31,1998 compared to
$431,000 for the year ended August 31,1997 and $71,000 for the year ended August
31,1996. Sales have increased dramatically year over year. For the nine months
ended May 31,1999 sales have risen to $1,240,000 compared to $621,000 for the
same period ended May 31,1998.

Sales are recognized when products are shipped to customers and are net of any
allowances for returns. Sales figures include sale of products and shipping
revenue. For the periods 1995 through 1999 the average selling price of the
products has remained consistent. In 1999 a decision was made to reduce the
shipping charges to customers to a level that competitive companies were
charging. Sales increased 100% for the nine months ending May 31,1999 in
comparison to the same period ending 1998. This sales growth has been achieved
without the aid of advertising and is achieved due to competitive product
pricing, high customer service and prompt delivery meeting customers' needs.
Repeat customers represent 20% to 25% of orders.

The net loss for the period ended May 31, 1999 of $356,000 was comprised mostly
of the $221,000 charge for investor relations. The balance of $135,000 loss is
made up of increased costs of order processing, systems upgrades and preparing
for expansion in the near future.

The Company includes in cost of sales all products purchased and shipped to
customers, discounts from credit card purchases and costs of shipping.

Cost of sales for the year ended August 31,1998 were $553,000 compared to
$290,000 for the year ended August 31,1997 and $54,000 for the year ended August
31,1996. Cost of sales for the nine month period ending May 31,1999 were
$893,000. Gross profit has remained constant for the years ending August 31,1998
and August 31,1997 at 33% which is up from the 24% that was represented in the
year ended August 31,1996.

The lower margin in 1996 reflects the beginning of the business and management
determining the margins which they want to achieve in the operation. The
decrease in the gross profit for the nine-month period ended May 31, 1999 was
due to management's decision to reduce shipping charges to competitor's rate, as
mentioned above, and to the implementation of partial shipments which increased
the shipping costs with no increase in revenues. This change has reduced the
margin on the gross profit figures in 1999.

The Company made significant investments in assets of computer hardware and
software in the nine months ending May 31,1999 to upgrade the web site and
increase capacity for the future. Capital expenditures in Year ended August
31,1998 and 1997 are recorded at book value. The Company believes that the
continued development of its software and systems to allow the consumer to
purchase product more easily, to increase their selection of product and to make
the shopping experience more personalized and enjoyable will increase its sales
and customer base over the coming periods.

The increased prepaid expenses account includes retainers paid to an advertising
company and to an investor relations company. These prepaid items will be
expensed prior to the end of calendar 1999. They are cash deposits made to the
suppliers for services that are to be provided at a later date. As such they are
recorded as prepaid items.

Advertising expenses include all marketing and advertising expenses. The Company
incurred no significant advertising expenses for the periods covered by the
financial statements herein. The figures shown in 1998 reflect an initial
on-line



   29


                                      -29-

media buy and print purchase to see if advertising has an effect on the number
of visitors to the site and an increase in sales. The results indicated there is
an increase that has led management to commit $600,000 of the funds raised in
March of 1999 for an initial advertising campaign to begin in August of 1999.

The investor relations expenses, incurred shortly after the Company's shares
became publicly traded, relate to advertising the Company to the investment
community to increase the awareness of the stock. Management believes these
costs should be expensed when they are incurred instead of amortizing them over
a period of time, as the residual factor of the value after the advertising
cannot be determined.

Inventory of product for sale increased as the Company purchased hard to find
and specialized products for inventory for the nine month period ended May
31,1999. Prior to this period the company operated as a division of Videoflicks
Canada Limited, which held the inventory. The Company has entered into an
agreement with Videoflicks Canada Limited to purchase product for sale at prices
that are the same as those purchased from a third party vendor. This agreement
allows the Company to purchase product from a secure source without having to
set up terms with suppliers or maintain a sizeable inventory. The advances from
Videoflicks Canada Limited reflect the accounts payable owed to it for these
purchases.

Depreciation of capital assets has increased for the nine month period ended May
1999 over 1998 due to the increase in asset purchases.

Site operating expenses include all costs associated with maintaining the
Internet web server. These costs include rental of the T1 transmission line (40
megabyte per second data connection line), hardware maintenance and software
upgrade costs. The web server and connection are fully scalable; they can be
expanded if there is any increase in the number of visitors to the Company's
Internet web site. Future expansion of the web site to the point where visitors
increase from an average of approximately 33,000 users per day to 100,000 users
per day will require the additional installation of another T1 line or similar
expansion.

Wages increased significantly over each fiscal year from 1996, 1997 and 1998 as
a result of increased business activity. Due primarily to the increase in sales
volumes, additional staff were hired to fulfill orders and ship product in a
timely manner. Since this time, Company management has invested in streamlining
the order processing system by increasing efficiencies in data management and
systems management. As a result, management believes that future increases in
sales will not lead to corresponding increases in personnel to process orders
and that the average shipping costs per order will decrease. The increase in
wages also reflects the hiring of additional programmers for the nine months
ending May 1999 to enhance the web site and program better tracking of customers
products from ordering product through to the shipping stages.

Increased administration costs, which include all office wages and general
expenses needed to run the Company, also reflect the increased business
activity; however these are not expected to significantly increase in the near
future.

The Company's operating premises currently comprise a total of 1,300 square
feet. If required, the Company can expand to 2,500 square feet at this location.
This includes no space for warehousing. Management believes that they will
outgrow this capacity in the near future and are looking at alternative
locations to meet the needs of anticipated future growth.

LIQUIDITY AND CAPITAL RESOURCES




   30


                                      -30-

Supplementary to the $1,200,000 obtained by the Company in connection with the
amalgamation, an aggregate of 610,900 Series A Warrants of the Company were
exercised up to May 31, 1999 from which the Company realized aggregate gross
proceeds of $458,175 and subsequent to May 31, 1999 an additional 436,770 Series
A Warrants of the Company were exercised from which the Company realized
aggregate gross proceeds of $327,577.50; in total 1,047,670 Series A Warrants
were exercised up to July 23, 1999, the date of expiry of the Series A Warrants,
yielding aggregate gross proceeds of $785,752.50. Pursuant to the exercise of
the aforementioned Series A Warrants an aggregate of 1,047,670 Series B Warrants
were issued, of which 11 have been exercised, yielding aggregate gross proceeds
of $12.65 to the Company. Each Series B Warrant is exercisable to purchase one
common share of the Company at the price of $1.15 per share on or before
November 23, 1999. If all of the remaining 1,047,659 outstanding Series B
Warrants are exercised, the Company will realize additional gross proceeds of
$1,204,807.80. The Company also has outstanding and contingent stock options
exercisable to purchase up to 2,240,000 Company common shares at $0.50 per
share.

Net cash used in operating activities for the nine months ended May 31,1999 was
primarily due to the net loss of $356,000 as well as the purchase of $113,000 in
capital assets and $354,000 in prepaid expenses. In previous fiscal periods the
company financed all acquisitions as a division of Videoflicks Canada Limited.

The Company has short term or long term debt. Management believes cash on hand
of $944,000 together with cash flow from operations will be sufficient to fund
operations and planned capital expenditures for the short term, covering the
balance of the current fiscal year ending August 31,1999 and for the next six
months of the following year. In the long term the Company will need to raise
additional equity or debt financing to fund operations after this period to
cover working capital, operating losses and capital expenditures. There can be
no assurance that additional funding will be available or, if available, that it
will be available on acceptable terms. The inability of the Company to obtain
additional funding could have an adverse impact on the business, financial
condition and future prospects of the Company.

YEAR 2000

All of the Company's hardware and software systems used in connection with its
web site, data systems and order processing systems have been purchased during
the past three years and have all been certified by the manufacturers and
developers of same to be Year 2000 compliant. Testing by the Company of such
systems has confirmed that they are Year 2000 compliant. Consequently, the
Company does not believe that it presently has a material Year 2000 compliance
problem and accordingly does not presently anticipate having to incur any
material expenses in connection therewith.

The Company's business plan includes potential expansion through the acquisition
of businesses, technologies, products and services from other businesses. As the
Company continues to expand in this manner throughout calendar 1999, Year 2000
issues could result causing the Company to have to commit resources to address
same.

The Company also relies upon various vendors, utility companies,
telecommunications service companies, delivery service companies and other
service providers who are outside its control. There is no assurance that such
companies will not suffer a Year 2000 business disruption which could harm the
Company's business and financial condition. Furthermore, if third-party
equipment or software the Company uses in its business fails to operate properly
with


   31


                                      -31-

regard to the Year 2000, it may need to incur significant unanticipated expenses
to remedy any such problems.

Management of the Company believes that if it does encounter any Year 2000
problems, it will be able to quickly remedy same through the purchase off-the-
shelf systems or by switching to other Year 2000 compliant suppliers.

The Company's failure to resolve any Year 2000 issues which may arise with
respect to its products and services could damage its business and revenues and
result in liability on its part for such failure. The Company's business and its
prospects may be permanently affected by either the liability it incurs to third
parties or the negative impact on its business reputation.

ITEM 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company has not invested in any market risk sensitive items for trading
purposes or other than trading purposes.

The Company is exposed to market risk through foreign currency exchange rate
risk. The functional currency of sales is the same as the reporting currency,
$US, whereas the functional currency of cost of sales and expenses other than
investor relations is $Canadian. A decrease in the exchange rate differential
between $Canadian and $US would increase the cost of expenses relative to the
sales revenue and would decrease the operating income.

During the period from the beginning of Internet operations in September 1995 to
May 31, 1999, the exchange rates ($CDN to $US) have varied from a low of 0.6379
to a high of 0.7540 with a weighted average of 0.7079 as disclosed in Item 8, of
this Form 20-F.

Applying these exchange rates to the operations for the nine months ended May
31, 1999 would result in the following variations:



                                                PER                                             WEIGHTED
                                            FINANCIAL             LOW            HIGH           AVERAGE
                                           STATEMENTS          (0.6379)        (0.7540)         (0.7079)
                                          -----------       -----------      -----------       -----------
                                                                                   
Sales                                     $ 1,240,000       $ 1,240,000      $ 1,240,000       $ 1,240,000
Cost of sales                                 893,000           863,000        1,020,000           957,000
                                          -----------       -----------      -----------       -----------

Gross profit                                  347,000           377,000          220,000           283,000

Investor
relations                                     221,000           221,000          221,000           221,000

Other expenses                                482,000           466,000          550,000           517,000
                                          -----------       -----------      -----------       -----------
Operating loss                            $   356,000       $   310,000      $   551,000       $   455,000
                                          ===========       ===========      ===========       ===========
Loss per share                                  (0.02)            (0.02)           (0.03)            (0.03)
                                          ===========       ===========      ===========       ===========



ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT




   32


                                      -32-

The following table outlines the names and municipalities of residence of each
of the directors and officers of the Company and their principal occupations.
All persons have served in these capacities since March 23,1999. Each director
is expected to hold these positions until the next Annual General Meeting of
shareholders.



     Name and Municipality
        of Residence                        Office
     -------------------            -----------------------
                                 
     Michael P. Kavanagh            Director, President and
     Toronto, Ontario               Chief Executive Officer

     John Waddell                   Director, Vice-President
     Toronto, Ontario               Information Technology
     Robert Bray*                   Director, Secretary-Treasurer,
     Toronto, Ontario               Chief Financial Officer

     Allen Karp*                    Director
     Toronto, Ontario


Notes:

     1.   Denotes a member of the Audit Committee of the Board of Directors.

     2.   The Company does not have an executive committee of the Board of
          Directors.

DIRECTORS AND OFFICERS

Michael P. Kavanagh is the President and a director of Videoflicks Canada
Limited which he founded in 1981. Videoflicks Canada Limited presently has 35
video rental/sales stores of which 31 are franchised. Mr. Kavanagh is also Chief
Executive Officer of MSO Construction Co., a private company with 300 employees
and CDN$25 million in annual sales, and T.J. Pounder (Ontario) Ltd., a private
family manufacturing company. Mr. Kavanagh devotes 75% of his time to the
company.

John Waddell has been chief programmer in charge of information technology for
Videoflicks Canada Limited since 1983. Mr. Waddell has developed many
proprietary systems for tracking and processing sales and managing inventory and
is responsible for developing and maintaining the computerized data base and
hardware requirements for systems management. He functions as the chief
programmer for the Videoflicks.com web site. Mr. Waddell received his Masters of
Science degree from the University of Guelph, Ontario in 1973. Mr. Waddell
devotes 100% of his time to the Company.

Robert Bray is the chief financial officer of Videoflicks Canada Limited since
1989, during the course of which he has designed and implemented accounting
systems and related corporate structures. Mr. Bray holds an MBA degree from the
University of Toronto, an Honours BA in Economics from York University, and is a
Certified General Accountant. Mr. Bray devotes 60% of his time to the company.

Allen Karp, Q.C. is Chairman and Chief Executive Officer of Cineplex Odeon
Corporation, the Canadian subsidiary of Loews Cineplex Entertainment Corporation


   33


                                      -33-

and a Director of Loews Cineplex Entertainment Corporation. For the past eight
years, Mr. Karp has served as President and Chief Executive Officer of Cineplex
Odeon. Mr. Karp practised corporate law, ultimately as a senior partner with the
law firm of Goodman and Carr, Toronto, from 1966 until 1986, the year in which
he also received his appointment as Queen's Counsel. During his career as a
business lawyer, he became a Director and senior legal advisor to many Canadian
and U.S. corporations, both private and public. Mr. Karp is also the author of a
variety of legal articles and papers and lectured extensively in the fields of
taxation, corporate and commercial law and, his primary specialty, the field of
franchising and licensing. In addition to the Board of Cineplex Odeon
Corporation, Mr. Karp sits on the Boards of Loews Cineplex Entertainment
Corporation, Speedy Muffler King Inc., Alliance/Atlantis Communications Inc.,
Teknion Corporation. He is also involved in various community activities
including the Boards of Canadian Film Centre, for which he is Chair of the "Fast
Forward" Capital Campaign, the Toronto International Film Festival/Cinematheque
Ontario, for which he is Chairman, the Motion Picture Pioneers and the Council
for Canadian Unity. As well, Mr. Karp is a member of the Canadian Civil
Liberties Association. Mr. Karp is available for discussion of significant
events within the company and regularly attends board meetings.

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS

EMPLOYMENT CONTRACTS

The Company is party to Employment Agreements with each of Michael Kavanagh,
Chief Executive Officer, President and a director, John Waddell, Vice-President,
Information Technology and a director, and Robert Bray, Secretary-Treasurer,
Chief Financial Officer and director, pursuant to which, respectively:

     (a)  Michael Kavanagh is entitled to an annual salary of $1.00 and an
          annual bonus equal to 2% of annual revenues up to $10 million and 1%
          of annual revenues in excess of $10 million. In the event of a change
          of control of the Company he will receive a lump sum payment equal to
          three (3) times the amount of the last annual bonus paid, or will have
          his employment extended for a further three (3) year period on the
          same terms and conditions. If his employment is terminated without
          cause, at any time he will receive a lump sum payment equal to two (2)
          times the most recent annual bonus paid to him.

     (b)  John Waddell is entitled to an annual salary CDN$125,000 per annum and
          in the event that his employment is terminated without cause prior to
          the end of its one year term, or any renewal thereof, a lump sum
          payment equal to two (2) years' annual salary.

     (c)  Robert Bray is entitled to an annual salary of CDN$75,000 per annum
          and in he event that his employment is terminated without cause prior
          to the end of its one year term, or any renewal thereof, a lump sum
          payment equal to two (2) years' annual salary.

COMPENSATION OF DIRECTORS

The company has no pension, retirement or similar benefits for directors or
officers of the company. Total compensation paid to all board members and
officers for the fiscal year ended August 31,1999 was $75,400. Compensation
earned by John Waddell was $49,400, Robert Bray $26,000, Michael Kavanagh
received no earnings and Allen Karp received no earnings.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES




   34


                                      -34-

WARRANTS

Pursuant to the amalgamation forming the Company on March 23, 1999, the Company
issued an aggregate of 4,180,200 Series A Warrants. Each Series A Warrant was
exercisable on or before July 23, 1999 at the exercise price of $0.75 to acquire
one (1) common share and one (1) Series B Warrant of the Company. As of the date
hereof, 1,047,670 Series A Warrants and 11 Series B Warrants have been
exercised. As of August 10, 1999 there were 1,047,659 Series B Warrants issued
and outstanding. Each Series B Warrant is exercisable on or before November
23,1999 to acquire one (1) common share of the Company for $1.15 per share. None
of the Series A Warrants of the Company were, and none of the Series B Warrants
are, beneficially owned by directors or officers of the Company.

STOCK OPTION PLAN

The Company maintains a stock option plan pursuant to which the Board of
Directors of the Company may grant options exercisable to purchase up to a
maximum of 4,000,000 common shares of the Company to executive officers,
directors, employees and consultants of the Company in such numbers, for such
periods of time and at the exercise prices as the Board may approve and
according to the rules and regulations of any stock exchange or over-the-counter
market on which the common shares may be listed or quoted for trading from time
to time.

The following table sets out information relating to options to purchase common
shares granted by the Company under its stock option plan that are outstanding
as at the date hereof with the number of persons in each category shown in
parentheses:



                                Number of
                                 Common                  Exercise
                                 Shares                    Price                  Expiry
                                Optioned                 Per Share                 Date
                                --------                 ---------                 ----
                                                                     
Directors and                   1,600,000                  $0.50              March 23, 2004
Officers                          300,000                  $0.50              April 22, 2004
                                ---------
                                1,900,000

All Other Option                  140,000(1)               $0.50              April 22, 2004
Holders
                                ---------
Total                           2,040,000(1)(2)





1.   Options to acquire an additional 200,000 common shares at $0.50 per share
     on or before April 22, 2004 have been granted subject to compliance of such
     grant with applicable securities legislation.

2.   All Options vest as to one third thereof on each of the first, second and
     third anniversaries of their date of grant except for 800,000 Options
     granted to


   35


                                      -35-

Michael Kavanagh, Director, President and Chief Executive Officer, all of which
vest immediately.

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     a) Upon amalgamation, the Company succeeded to the following agreements:

          1)   A Supply Agreement which was made between Videoflicks Canada
               Limited, a Company of which Michael Kavanagh and his spouse
               together beneficially own 100% of equity shares, and its
               wholly-owned subsidiary, Videoflicks.com Limited, under which
               Videoflicks Canada Limited agreed to sell videos to
               Videoflicks.com Limited at the wholesale catalogue price charged
               by arm's length wholesalers of videos, plus shipping and
               applicable taxes;

          2)   A Sub-Lease Agreement made between Videoflicks Canada Limited and
               Videoflicks.com Limited pursuant to which the Company sub-leases
               15% of the space leased by Videoflicks Canada Limited at 1654
               Avenue Road, Toronto, Ontario; and

          3)   Employment Agreements made between Videoflicks.com Limited and
               each of Michael Kavanagh, John Waddell and Robert Bray as
               described in more detail under "Employment Contracts" under Item
               11 hereof.

Subsequent to the amalgamation the Company entered into stock option agreements
with its directors and officers pursuant to which the Company granted options to
purchase up to 1,900,000 common shares of the Company at $0.50 per share, as
described under "Stock Option Plan" above.

     b)   None of the officers or directors of the Company or any of their
          associates are currently indebted to the Company or has been so
          indebted at any time in the last three years.

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED

The holders of the common shares ("Common Shares") of the Company shall be
entitled to vote at all meetings of shareholders except meetings at which only
holders of a specified class of shares are entitled to vote, and holders of
common shares shall be entitled to one vote for each Common Share held and,
subject to the rights, privileges, restrictions and conditions attaching to any
other class of shares of the Company, to receive the remaining property of the
Company upon the dissolution of the Company. Holders of the Common Shares shall
not have pre-emptive rights or any liability for further calls or assessments by
the Company. Holders of Common Shares have no right to receive dividends unless
same are declared by the board of directors to be payable in respect of the
Common Shares. The Common Shares are not redeemable by the Company.

ITEM 17. FINANCIAL STATEMENTS

Audited balance sheet as at August 31, 1998 and August 31, 1997 and the audited
statements of operations, deficit and cash flow for the years ended August
31,1998, August 31, 1997 and August 31, 1996, which are reported on by BDO
Dunwoody LLP. Also included are unaudited balance sheet and statements of
operations, deficit and cash flow for period ended May 31, 1999 and May 31, 1998
which have not been reported on by BDO Dunwoody LLP. The historical financial
statements for the years ended August 31, 1998, 1997 and 1996 reflects the
carved-out operations of the Internet business of Videoflicks Canada Limited on
a continuity of interest basis. The financial statements have been prepared by


   36


                                      -36-

management of the Company in accordance with generally accepted accounting
principles in Canada which are not materially different from generally accepted
accounting principles in the United States. In the preparation of the financial
statements there were no material issues requiring reconciliation of Canadian
with United States generally accepted accounting principles.

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

(1)  Financial Statements

Audited balance sheet as at August 31, 1998 and August 31, 1997 and the audited
statements of operations, deficit and cash flow for the years ended August
31,1998, August 31, 1997 and August 31, 1996, reported on by BDO Dunwoody LLP.
Also included are unaudited balance sheet and statements of operations, deficit
and cash flow for the periods ended May 31, 1999 and May 31, 1998 which have not
been reported on by BDO Dunwoody LLP. The historical financial statements for
the years ended August 31, 1998, 1997 and 1996 reflects the carved-out
operations of the business of Videoflicks Canada Limited on a continuity of
interest basis. The financial statements have been prepared by management of the
Company in accordance with generally accepted accounting principles in Canada
which are not materially different from generally accepted accounting principles
in the United States. In the preparation of the financial statements there were
no material issues requiring reconciliation of Canadian with United States
generally accepted accounting principles.

(2)  Exhibits

All the following Exhibits have been previously filed with the Securities and
Exchange Commission:

          1.   Articles of Amalgamation and By-laws

          2.   Material Agreements

               2.1  Employment Agreement with Michael Kavanagh
               2.2  Employment Agreement with Robert Bray
               2.3  Employment Agreement with John Waddell
               2.4  Supply Agreement with Videoflicks Canada Limited
               2.5  Sub-lease Agreement with Videoflicks Canada Limited
               2.6  Stock Option Agreement with Michael Kavanagh
               2.7  Stock Option Agreement with Robert Bray
               2.8  Stock Option Agreement with John Waddell
               2.9  Stock Option Agreement with Alan Karp


                                   SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                             VIDEOFLICKS.COM INC.




   37


                                      -37-


                                             By: /s/ MICHAEL KAVANAGH
                                                     -------------------------
                                                     Michael P. Kavanagh
                                                     President and Chief
                                                     Executive Officer


                                                     October 13, 1999







   38

                            VIDEOFLICKS.COM INC.
                            FINANCIAL STATEMENTS
                            FOR THE YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
                            AND FOR THE PERIODS ENDED MAY 31, 1999 AND 1998



   39


VIDEOFLICKS.COM INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
AND FOR THE PERIODS ENDED MAY 31, 1999 AND 1998



                                                                    CONTENTS
                                                                    --------
                                                                 
AUDITOR'S REPORT                                                           2

Financial Statements

  Balance Sheet                                                            3

  Statement of Deficit                                                     4

  Statements of Operations                                                 5

  Statements of Cash Flows                                                 6

  Summary of Significant Accounting Policies                           7 - 8

  Notes to Financial Statements                                      9 to 14




   40


                                                                AUDITOR'S REPORT



TO THE DIRECTORS OF
VIDEOFLICKS.COM INC.



We have audited the balance sheet of Videoflicks.com Inc. as at August 31, 1998
and August 31, 1997 and the statements of operations, deficit and cash flow for
the years ended August 31, 1998, August 31, 1997 and August 31, 1996. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at August 31, 1998 and August
31, 1997 and the results of its operations and its cash flows for the years
ended August 31, 1998, August 31, 1997 and August 31, 1996 in accordance with
Canadian generally accepted accounting principles.


BDO Dunwoody LLP
Chartered Accountants


Owen Sound, Ontario
June 15, 1999

                                                                               2

   41



                                                            VIDEOFLICKS.COM INC.
                                                                   BALANCE SHEET
                                            (EXPRESSED IN UNITED STATES DOLLARS)



                                                              MAY 31,             AUGUST 31,         August 31,
                                                                 1999                   1998               1997
                                                          (UNAUDITED)
                                                          -----------           ------------        -----------
                                                                                           
ASSETS

CURRENT
  Cash                                                   $    944,000           $          -        $         -
  Accounts receivable                                          35,000                      -                  -
  Inventory                                                    33,000                      -                  -
  Prepaid expenses and deposits                               354,000                      -                  -
                                                         ------------           ------------        -----------
                                                            1,366,000                      -                  -
CAPITAL ASSETS (Note 4)                                       112,000                 12,000             18,000
                                                         ------------           ------------        -----------
                                                         $  1,478,000           $     12,000        $    18,000
                                                         ============           ============        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT
  Accounts payable and accrued liabilities               $    136,000           $          -        $     6,000
  Due to related company (Note 5)                             220,000                      -                  -
                                                         ------------           ------------        -----------
                                                              356,000                      -              6,000
                                                         ------------           ------------        -----------
SHAREHOLDERS' EQUITY
  Share capital (Note 3)                                    1,471,000                      -                  -
  Net assets (deficit) (Page 4)                              (349,000)                12,000             12,000
                                                         ------------           ------------        -----------
                                                            1,122,000                 12,000             12,000
                                                         ------------           ------------        -----------
                                                         $  1,478,000           $     12,000        $    18,000
                                                         ============           ============        ===========


Approved by:

    /s/ Michael Kavanagh                Director
- ----------------------------------------

    /s/ Robert Bray                     Director
- ----------------------------------------

The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.


                                                                               3


   42



                                                            VIDEOFLICKS.COM INC.
                                                            STATEMENT OF DEFICIT
                                            (EXPRESSED IN UNITED STATES DOLLARS)



                                                            FOR THE NINE     FOR THE YEAR      For the year
                                                            MONTHS ENDED            ENDED             ended
                                                                 MAY 31,       AUGUST 31,        August 31,
                                                                    1999             1998              1997
                                                              (UNAUDITED)
                                                            ------------     ------------      ------------
                                                                                       
NET ASSETS, beginning of the period                           $   12,000       $   12,000        $   12,000

NET LOSS FOR THE PERIOD (Page 5)                                (356,000)        (113,000)          (69,000)

CAPITAL CONTRIBUTION TO INTERNET OPERATIONS
PRIOR TO ACQUISITION (Note 7)                                      7,000          113,000            69,000

RECLASSIFICATION OF NET ASSETS ACQUIRED OF
   INTERNET OPERATIONS TO SHARE CAPITAL                          (12,000)               -                 -
                                                              ----------       ----------        ----------
NET ASSETS (DEFICIT), end of the period                       $ (349,000)      $   12,000        $   12,000
                                                              ==========       ==========        ==========




The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.

                                                                               4

   43



                                                            VIDEOFLICKS.COM INC.
                                                         STATEMENT OF OPERATIONS
                                            (EXPRESSED IN UNITED STATES DOLLARS)




                                        MAY 1999       May 1998    AUGUST 1998   August 1997    August 1996
                                        9 MONTHS       9 months      12 MONTHS     12 months      12 months
FOR THE PERIODS ENDED                (UNAUDITED)    (Unaudited)
- ---------------------                -----------    -----------    -----------   -----------    -----------
                                                                                  
REVENUE                             $ 1,240,000     $  621,000     $  820,000     $  431,000     $   71,000

COST OF SALES                           893,000        419,000        553,000        290,000         54,000
                                    -----------     ----------     ----------     ----------     ----------
GROSS PROFIT                            347,000        202,000        267,000        141,000         17,000
                                    -----------     ----------     ----------     ----------     ----------

EXPENSES
    Advertising                           4,000         23,000         23,000              -              -
    Site operating                       51,000         71,000         88,000         26,000         15,000
    Wages and benefits                  231,000         86,000        124,000         89,000         10,000
    Information Technology
      Department wages                  102,000         52,000         69,000         39,000              -
    Rent                                 15,000         16,000         21,000         22,000         21,000
    Administration                       66,000         37,000         49,000         26,000          7,000
    Amortization on capital
      assets                             13,000          4,000          6,000          8,000          9,000
    Investor relations                  221,000              -              -              -              -
                                    -----------     ----------     ----------     ----------     ----------
                                        703,000        289,000        380,000        210,000         62,000
                                    -----------     ----------     ----------     ----------     ----------
OPERATING LOSS FOR PERIOD           $  (356,000)    $  (87,000)    $ (113,000)    $  (69,000)    $  (45,000)
                                    ===========     ==========     ==========     ==========     ==========
LOSS PER SHARE (NOTE 6)             $     (0.02)    $    (0.01)    $    (0.01)    $    (0.00)    $    (0.00)
                                    ===========     ==========     ==========     ==========     ==========



The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.


                                                                               5

   44



                                                            VIDEOFLICKS.COM INC.
                                                         STATEMENT OF CASH FLOWS
                                            (EXPRESSED IN UNITED STATES DOLLARS)



                                        MAY 1999       May 1998    AUGUST 1998    August 1997    August 1996
                                        9 MONTHS       9 months      12 MONTHS      12 months      12 months
FOR THE PERIODS ENDED                (UNAUDITED)    (Unaudited)
- ---------------------                -----------    -----------    -----------    -----------    -----------
                                                                                  
CASH PROVIDED BY (USED IN)

OPERATING ACTIVITIES
  Net loss for the period            $ (356,000)    $  (87,000)    $ (113,000)    $  (69,000)    $  (45,000)
    Amortization of capital
       assets                            13,000          4,000          6,000          8,000          9,000
    Accounts receivable                 (35,000)             -              -              -              -
    Inventory                           (33,000)             -              -              -              -
    Prepaid expenses                   (354,000)             -              -              -              -
    Accounts payable                    136,000         (4,000)        (6,000)        (8,000)        (9,000)
                                     ----------     ----------     ----------     ----------     ----------
                                       (629,000)       (87,000)      (113,000)       (69,000)       (45,000)
                                     ----------     ----------     ----------     ----------     ----------

INVESTING ACTIVITIES
    Purchase of capital assets         (113,000)             -              -              -              -
    Cash acquired upon
       amalgamation (note 2(b))       1,200,000              -              -              -              -
                                     ----------     ----------     ----------     ----------     ----------
                                      1,087,000              -              -              -              -
                                     ----------     ----------     ----------     ----------     ----------

FINANCING ACTIVITIES
    Advances (to) from Videoflicks
      Canada Limited                    220,000              -              -              -              -
    Proceeds from Series A
      warrants                          458,000              -              -              -              -
    Capital contribution to
     internet operations
     prior to acquisition (Note 7)        7,000         87,000        113,000         69,000         45,000
    Net issue costs                    (199,000)             -              -              -              -
                                     ----------     ----------     ----------     ----------     ----------
                                        486,000         87,000        113,000         69,000         45,000
                                     ----------     ----------     ----------     ----------     ----------

INCREASE IN CASH
   DURING THE PERIOD                    944,000              -              -              -              -

CASH, beginning of period                     -              -              -              -              -
                                     ----------     ----------     ----------     ----------     ----------
CASH, end of period                  $  944,000     $        -     $        -     $        -     $        -
                                     ==========     ==========     ==========     ==========     ==========




The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.


                                                                               6

   45

                                                            VIDEOFLICKS.COM INC.
                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                                            (EXPRESSED IN UNITED STATES DOLLARS)


AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)

NATURE OF BUSINESS            Videoflicks.com Inc. ("The Company") was
                              amalgamated under the laws of Ontario March 23,
                              1999. The company is engaged in the business of
                              selling pre-recorded video/movie cassettes through
                              an internet world wide site.


BASIS OF FINANCIAL STATEMENTS The financial statements are stated in
                              United States dollars "the reporting currency".
                              The transactions of the company have been recorded
                              during the period in Canadian dollars, "the
                              functional currency". The translation of Canadian
                              dollars into United States dollars have been made
                              at the period end exchange rate for balance sheet
                              items and the average exchange rate for the period
                              for revenues, expenses, gains and losses.
                              Translation adjustments for the periods presented
                              are not material.

                              These financial statements have been prepared by
                              management in accordance with generally accepted
                              accounting principles in Canada, which are not
                              materially different from generally accepted
                              accounting principles in the United States.


REVENUE RECOGNITION           Revenue on sale of product is recognized when the
                              order is shipped and payment has been confirmed.
                              Revenue on ancillary sources of income is
                              recognized when services are provided.


ACCOUNTING ESTIMATES          The preparation of financial statements in
                              conformity with generally accepted accounting
                              principles requires management to make estimates
                              and assumptions that affect the reported amounts
                              of assets and liabilities and disclosure of
                              contingent assets and liabilities at the date of
                              the financial statements and the reported amounts
                              of revenues and expenses during the reporting
                              period. Actual results could differ from those
                              estimated.


INVENTORY                     Inventory is stated at the lower of cost and net
                              realizable value.

CAPITAL ASSETS                Management reviews long-lived assets for
                              impairment whenever events or changes in
                              circumstances indicate that the carrying amount of
                              an asset may not be recoverable, and, if deemed
                              impaired, measurement and recording of an
                              impairment loss is based on the fair value of the
                              asset.

                              Capital assets are recorded at cost less
                              accumulated amortization. Office equipment is
                              being amortized over three years on a straight
                              line basis.

                              Furniture and fixtures   -   20% declining balance
                              Computer equipment       -   30% declining balance
                              Computer software        -   30% declining balance





                                                                               7

   46



                                                            VIDEOFLICKS.COM INC.
                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                                            (EXPRESSED IN UNITED STATES DOLLARS)


AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)


INCOME TAXES                  The company accounts for income taxes under the
                              assets and liability method. Under the assets and
                              liability method, deferred income taxes are
                              recognized for the tax consequences of temporary
                              differences by applying enacted tax rates
                              applicable to future years to differences between
                              the financial statement carrying amounts and tax
                              bases of existing assets and liabilities.

FINANCIAL INSTRUMENTS         The carrying amounts of financial instruments of
                              the company approximate their fair value because
                              of their short maturity.




                                                                               8


   47

                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)

1.   UNAUDITED INFORMATION

     The financial statements include the unaudited balance sheet as of May 31,
     1999 and the related statements of operations, deficit and cash flows for
     the nine months ended May 31, 1998 and 1999. This unaudited information has
     been prepared by the Company on the same basis as the audited statements
     and, in management's opinion, reflect all adjustments (consisting only of
     normal recurring accruals) necessary for a fair presentation of the
     financial information, in accordance with Canadian generally accepted
     accounting principles, for the periods presented. Results for interim
     periods are not necessarily indicative of the results to be expected for
     the entire year.


2.   BUSINESS COMBINATIONS AND BASIS OF ACCOUNTING

     (a) INCORPORATION AND BUSINESS ACQUISITION

         Videoflicks.com Limited was incorporated under the laws of Ontario on
         July 4, 1997 and issued 100 common shares for $100.

         Effective November 30, 1998, Videoflicks.com Limited acquired from
         Videoflicks Canada Limited the business of selling pre-recorded
         video/movie cassettes through an internet world wide web site (the
         "Business") in exchange for 7,999,900 common shares. For purposes of
         the exchange the Business acquired was valued at $5,148,000, however,
         for accounting purposes the assets acquired are valued at their
         carrying values and goodwill as well as other intangible assets
         including the domain name "Videoflicks.com" of $5,136,000 is not
         recorded because the companies were under common control.

         The net assets acquired at carrying values as at November 30, 1998 were
         as follows:

                                                                          
         Computer equipment                                                         $     11,000
         Software                                                                          1,000
                                                                                    ------------

         Total consideration attributed to shares of Videoflicks.com Limited        $     12,000
                                                                                    ============



         The historical financial statements for the years ended August 31,
         1998, 1997 and 1996 reflect the carved-out operations of the internet
         business of Videoflicks Canada Limited on a continuity of interest
         basis. The internet business began operations September 1, 1995 as a
         division of Videoflicks Canada Limited and operated as such until
         November 30, 1998 when the internet business was acquired by
         Videoflicks.com Limited as described above.

     (b) AMALGAMATION AND REVERSE TAKE OVER

         Pursuant to an amalgamation agreement effective March 23, 1999,
         Videoflicks.com Limited was amalgamated with Mantaur Petroleum
         Corporation (Mantaur) and 1318780 Ontario Limited (Ontco). The
         Amalgamated Company continues under Videoflicks.com Inc.

         Upon amalgamation all issued common shares of Mantaur and Ontco were
         exchanged for units of Videoflicks.com Inc., each unit consisting of
         one common share and one-half Series A Share Purchase Warrant. The
         transaction results in the former shareholders of Videoflicks.com
         Limited owning 47.7% of Amalgamated Videoflicks.


                                                                               9
   48



                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)

AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)

2.   BUSINESS COMBINATIONS AND BASIS OF ACCOUNTING (CONTINUED)

         If all of the Series A warrants referred to in Note 3(iii) are
         exercised the former shareholders' holdings will be diluted to 38.2%.
         The former shareholders of Videoflicks.com Limited will still own the
         controlling block of shares and will have the majority representation
         on the Board of Directors of Amalgamated Videoflicks, therefore, the
         amalgamation has been treated for accounting purposes as an acquisition
         of Mantaur and Ontco by Videoflicks.com Limited (the acquirer for
         accounting purposes),referred to as a "reverse take-over". Application
         of "reverse take-over" accounting results in the following:

         (i)  Videoflicks.com Limited is deemed to be the acquirer for
              accounting purposes; its assets and liabilities are included in
              the balance sheet at their carrying values.

         (ii) The acquisition of Mantaur and Ontco is accounted for under the
              purchase method. The net assets acquired at fair value as at March
              23, 1999 were as follows:




                                                                        ONTCO            MANTAUR
                                                                 --------------      -----------
                                                                               
              Cash                                               $    1,200,000      $         -
              Capital assets                                                  -            6,000
                                                                 --------------      -----------
                                                                      1,200,000            6,000
              Less:  Liabilities assumed
                     Accounts payable                                         -           83,000
                                                                 --------------      -----------
              Total consideration attributed to shares
               of Amalgamated Videoflicks                        $    1,200,000      $   (77,000)
                                                                 ==============      ===========


              The deficit of Mantaur was recorded as a cost of issue


3.   SHARE CAPITAL

     (i)  AUTHORIZED
          Unlimited number of common shares

     (ii) ISSUED
                                                                          
          Videoflicks.com Limited
            Issued on incorporation                          $          100     $           -
            Shares issued upon purchase
            of "Business" (Note 2(a))                             7,999,900            12,000
          Mantaur Petroleum Corporation shareholders              5,960,462                 -
          1318780 Ontario shareholders                            2,400,000         1,200,000
          Advisory services fees                                    400,000           200,000
          Cost of issue                                                   -          (399,000)
                                                             --------------     -------------
                                                                 16,760,462         1,013,000
          Series A Warrants exercised                               610,900           458,000
                                                             --------------     -------------
                                                             $   17,371,362     $   1,471,000
                                                             ==============     =============




                                                                              10

   49



                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)


AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)

3.   SHARE CAPITAL (CONTINUED)

         Advisory service fees are share remuneration to an arm's-length
         investment dealer for assistance in raising $1,200,000 in Ontco. These
         have been included as a cost of issue.

         Prior to the amalgamation, Mantaur was at arms length with
         Videoflicks.com Limited and Videoflicks Canada Limited, Ontco was
         incorporated to raise capital for the amalgamated company and
         Videoflicks.com Limited was a 100% owned subsidiary of Videoflicks
         Canada Limited

         (iii) WARRANTS

               Videoflicks.com Inc. has the following warrants to issue common
               shares outstanding:



                                                               SERIES A              SERIES B
                                                               --------              --------
                                                                               
               Warrants issued on amalgamation                4,180,200                    -
               Warrants exercised during the period            (610,900)                   -
               Warrants issued during the period                      -              610,900
                                                              ---------              -------
               Unexercised warrants at May 31, 1999           3,569,300              610,900
                                                              =========              =======


               Series A Warrants are exercisable at $0.75 per warrant until four
               (4) months following the effective date of the amalgamation to
               purchase one Class B Unit; each Class B Unit consists of one
               Videoflicks.com Inc. common share and one Videoflicks.com Inc.
               Series B Warrant. Each Series B Warrant will enable the holder to
               subscribe for one Videoflicks.com Inc. common share at $1.15
               until eight (8) months following the effective date of the
               amalgamation.

               Subsequent to May 31, 1999 an additional 436,770 Series A
               Warrants were exercised. The remaining 3,132,530 Series A
               Warrants expired on July 23, 1999. A total of 1,047,670 Series B
               Warrants were issued and 11 were exercised by July 23, 1999.

         (iv)  STOCK OPTION PLAN

               Videoflicks.com Inc. has established a directors, officers,
               eligible employees and consultants stock option plan (the
               "Plan"). The maximum number of common shares that may be reserved
               for issuance under the Plan is limited to 4,000,000 common
               shares.

               Subsequent to the Amalgamation on March 23, 1999, options were
               granted to purchase 2,040,000 common shares at an exercise price
               of $0.50 per share expiring in March and April, 2004. All options
               vest as to one third thereof on each of the first, second and
               third anniversaries of their date of grant except for 800,000
               options granted to one director, all of which vest immediately.
               Options to acquire an additional 200,000 common shares at $0.50
               per share on or before April 22, 2004 have been granted subject
               to compliance of such grant with applicable securities
               legislation.





                                                                              11
   50



                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)


AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)

4.   CAPITAL ASSETS



                                                         MAY 1999                              AUGUST 1998
                                                        (UNAUDITED)
                                                        ACCUMULATED                            ACCUMULATED
                                          COST         AMORTIZATION             COST          AMORTIZATION
                                     -----------       ------------         -----------       ------------
                                                                                   
     Furniture and fixtures          $    18,000        $     5,000         $         -        $         -
     Computer equipment                  117,000             32,000              31,000             20,000
     Computer software                    17,000              3,000               2,000              1,000
                                     -----------        -----------         -----------        -----------
                                     $   152,000        $    40,000         $    33,000        $    21,000
                                     ===========        ===========         ===========        ===========
     Net book value                                     $   112,000                            $    12,000
                                                        ===========                            ===========


5.   RELATED PARTY TRANSACTIONS

     Amounts due to related parties are as follows:




                                              MAY 1999        AUGUST 1998        August 1997
                                             (UNAUDITED)
                                            -----------       -----------        -----------
                                                                        
     Videoflicks Canada Limited             $   220,000       $         -        $         -
                                            ===========       ===========        ===========


     The company has entered into the following transactions with a related
     party, Videoflicks Canada Limited. Videoflicks Canada Limited owns the
     controlling block of shares of the Company. These transactions are in the
     normal course of operations and are measured at the exchange value (the
     amount of consideration established and agreed to by related parties),
     which approximates the arm's-length equivalent value for sales of product.




                                        MAY 1999       May 1998    AUGUST 1998    August 1997    August 1996
                                        9 MONTHS       9 months      12 MONTHS      12 months      12 months
                                     (UNAUDITED)    (Unaudited)
                                     -----------    -----------    -----------    -----------    -----------
                                                                                   
     Cost of sales                   $   893,000     $  419,000     $  553,000     $  290,000     $   54,000
     Wages and benefits                  153,000         86,000        124,000         89,000         10,000
     Information Technology
       Department wages                   63,000         52,000         69,000         39,000              -
     Rent                                 15,000         16,000         21,000         22,000         21,000
     Administration                       81,000         37,000         49,000         26,000          7,000
                                     -----------     ----------     ----------     ----------     ----------
                                     $ 1,205,000     $  610,000     $  816,000     $  466,000     $   92,000
                                     ===========     ==========     ==========     ==========     ==========



     The company has entered into a supply agreement with Videoflicks Canada
     Limited under which Videoflicks Canada Limited has agreed to sell videos to
     Videoflicks.com Inc. at the wholesale catalogue price charged by
     arm's-length wholesalers of videos, plus shipping and applicable taxes.


                                                                              12


   51



                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)


AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)

5.   RELATED PARTY TRANSACTIONS (CONTINUED)

     Cost of sales and operating expenses do not include any mark-up from the
     costs of Videoflicks Canada Limited.

     Wages include a 15% mark-up on actual wages for payroll taxes and benefits.

     Rent reflects the actual cost of the space maintained specifically for the
     Internet Operations.

     Administration expense is recorded at 15% of other operating expenses for
     the period September 1, 1995 to March 23, 1999. This charge to Internet
     Operations reflects an allocation of overhead costs including management,
     administration, accounting services and office costs. Subsequent to March
     23, 1999, administrative costs were incurred directly by the company.

     All costs of operating the internet business have been included in the
     financial statements as a direct cost or charged through administration for
     management, administration, accounting services and office costs.

6.   LOSS PER SHARE

     Loss per share has been calculated based on the weighted average number of
     shares outstanding for each period. For the years ended August 31, 1998,
     1997 and 1996 and the period ending May 31, 1998, the weighted number is
     16,760,462 and represents the shares outstanding after the recapitalization
     of the operating company and the amalgamation (see note 2). For the period
     ended May 31, 1999 the weighted average number of shares is 16,829,822.

     The Company had losses for all the periods presented, therefore, the
     exercise of the warrants and employee stock options would have an
     antidilutive effect on loss per share.

7.   CAPITAL CONTRIBUTION TO INTERNET OPERATIONS PRIOR TO ACQUISITION

     The statements of operations represent the results of operations of the
     internet operations on a continuity of interest basis. All losses incurred
     prior to the acquisition on November 30, 1998 are losses of Videoflicks
     Canada Limited which operated the internet operations. The capital
     contributions, net of the losses, are presented as the assets of the
     internet division.



                                                                              13



   52



                                                            VIDEOFLICKS.COM INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                            (EXPRESSED IN UNITED STATES DOLLARS)


AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)

8.   INCOME TAXES

     The reconciliation of income taxes calculated at the effective rate of
     44.5% to the total tax provision as follows:



                                                                                         FOR THE 9
                                                                                       MONTHS ENDED
                                                                                       MAY 31, 1999
                                                                                       (UNAUDITED)
                                                                                       ------------
                                                                                   
     Income taxes (recovery) at statutory rates                                       $     155,000
     Adjustment to valuation adjustment                                                    (155,000)
                                                                                      -------------
                                                                                      $           -
                                                                                      =============

     Tax losses available to reduce taxable income of  future years                   $     155,000
     Less: Deferred tax assets valuation allowance                                         (155,000)
                                                                                      -------------
     Net tax assets                                                                   $           -
                                                                                      =============


     The Company has net operation loss carry-forwards to reduce taxable income
     of approximately $349,000 which expire during 2006.

9.   UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

     The Year 2000 Issue arises because many computerized systems use two digits
     rather than four to identify a year. Date-sensitive systems may recognize
     the year 2000 as 1900 or some other date, resulting in errors when
     information using year 2000 dates is processed. In addition, similar
     problems may arise in some systems which use certain dates in 1999 to
     represent something other than a date. The effects of the Year 2000 Issue
     may be experienced before, on, or after January 1, 2000.

     If the Year 2000 Issue is not addressed by the company and its major
     customers, suppliers and other third party business associates, the impact
     on the company's operations and financial reporting may range from minor
     errors to significant systems failure which could affect the company's
     ability to conduct normal business operations. It is not possible to be
     certain that all aspects of the Year 2000 Issue affecting the company,
     including those related to the efforts of customers, suppliers, or other
     third parties, will be fully resolved.

10.  SEGMENTED INFORMATION

     Approximately 75% of the Company's sales are to the United States with the
     remaining 25% having no more than 5% concentrated in any one country. The
     assets of the company are in Canada.


                                                                              14