ON LINE PRODUCTION SERVICES INC, 10KSB, 2000-12-13

ON LINE PRODUCTION SERVICES INC
10KSB, 2000-12-13
BUSINESS SERVICES, NEC

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-KSB

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

For the year ended August 31, 2000.

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

Commission File Number 000-27111

ONLINE PRODUCTION SERVICES, INC.
(Exact name of registrant as specified in its charter)

Nevada 91-1833963
(State of organization) (I.R.S. Employer
Identification No.)

SUITE 208 - 2323 BOUNDARY ROAD VANCOUVER BC CANADA V5M 4V8
(Address of principal executive offices)

Registrant's telephone number, including area code (604) 205-5107

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

None

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

TITLE OF EACH CLASS
Common Stock, $0.001 par value per share

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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Issuer's revenues for its most recent fiscal year. $820,000

The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the average of the high and low prices of the Common Stock
on the OTC Bulletin Board on August 31, 2000, was $2,406,660. For purposes of
this computation, all officers, directors, and 5% beneficial owners of the
registrant (as indicated in Item 12) are deemed to be affiliates. Such
determination should not be deemed an admission that such directors, officers,
or 5% beneficial owners are, in fact, affiliates of the registrant.

Number of shares of Common Stock, $0.001 Par Value, outstanding at August 31
2000, was 9,626,640.

Documents incorporated by reference: None

<PAGE>

TABLE OF CONTENTS - 2000 FORM 10-KSB REPORT

Page
Numbers
PART I

Item 1. Business 4

Item 2. Properties 11

Item 3. Legal Proceedings 11

Item 4. Submission of Matters to a Vote of Security Holders 11

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 12

Item 6 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12

Item 7. Financial Statements 18

Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 32

PART III

Item 9. Directors, Executive Officers, Promoters and
Control Persons 32

Item 10. Executive Compensation 32

Item 11. Security Ownership of Certain Beneficial Owners
and Management 33

Item 12. Certain Relationships and Related Transactions 33

Item 13. Exhibits and Reports on Form 8-K 33

Signatures 34

<PAGE>

PART I

Item 1. Business

FORWARD-LOOKING STATEMENTS

This report includes projections of future results and "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Stockholders and investors are cautioned that all forward-looking statements
involve risks and uncertainty, including, without limitation, the ability to
plan and execute our business, general market conditions, a general lack of
public interest in either our products or securities, federal or state laws or
regulations having adverse effects on small business enterprises, market
competition and pricing. Although we believe the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and, therefore, there can be no assurance that
the forward-looking statements in this Report will prove to be accurate.

Should any of these risks or uncertainties materialize, or should our underlying
assumptions prove incorrect, actual results may vary materially from those
described in this registration statement as anticipated, estimated or expected.

BUSINESS OPERATIONS

OnLine Production Services Inc. ("ONPS", a Nevada corporation), invests in,
represents, promotes, and delivers the products and services of its wholly owned
Canadian subsidiary, OnLine Film Services, Inc. ("OnLine"), which is an internet
based, e-commerce, business-to-business services provider of software and
computer systems solutions to entertainment industry professionals.

During the fiscal year ended August 31, 2000 we increased our previously
established principal business activity of providing our proprietary software
and services to Talent Agents and Casting Directors worldwide. As an integral
part of providing services to Talent Agents and Casting Directors we host
computerized / digital photographs and/or resumes and/or audio clips and / or
video clips ("Portfolios") for actors and models ("Performers") for a fee (see
also "Revenue Recognition Policy" and "advertise" Note 1(d) to the Financial
Statements).

We have provided our proprietary software and services free to Talent Agents and
Casting Directors as an incentive for them to use our database of Performers.
The fact that Talent Agents and Casting Directors use our software and systems
provides incentive for Performers to subscribe to and pay for our services.

Fees are now collected from Performers and deposited using internet e-commerce,
which improved our billing and collection processes in Fiscal 2000, compared to
prior periods. We have also developed other complementary electronic
capabilities in order to increase our direct service and contact with Performers
that will work hand-in-hand with our e-commerce capabilities to further improve
sales, billing and collections during Fiscal 2001.

<PAGE>

Performers' subscriptions to our services provide each of them with the exposure
of their Portfolios to casting directors who actively audition and hire
Performers for jobs in film, television, and commercials. To ensure exposure for
the performers, we provide Casting Directors and Talent Agents (Performer
representatives) with personalized access to the "Casting Workbook" database
that facilitates the hiring of the participating Performers. During Fiscal 2001
we will be implementing a program of personalized access for self-represented
performers that is tailored to their particular requirements in finding work and
/ or agency representation. Use of our software allows the performers'
Portfolios to be viewed, extracted, sorted, and manipulated by participating
talent agents and casting directors in a manner that increases the speed,
accuracy and ease with which they carry out their day-to-day business and
operating functions. Improvements to our software and systems are continuous,
adding more time saving features to ensure that entertainment professionals
continue to increase their use of our software and systems.

Our software and systems are developed and tested in Canada by our internal
personnel primarily in Vancouver and Toronto (the centers for the Canadian film,
television, and commercials industries). Prior to deployment in Los Angeles, we
tested and implemented our software in Canada between June 1995 and the spring
of 1999. Development and testing was done with the assistance of Canadian Talent
Agents and Casting Directors who continue to use the system to actively cast
roles in film and television and commercial productions. During that period
approximately 15,000 Canadian actors were entered into our databases and were
provided varying trial periods without charge.

In April 1999 approximately 8,000 of the original 15,000 actors on file were
still actively seeking work in the industry and in agreement with the Talent
Agents and Managers Association of Canada that portion of those 8,000 actors who
were represented by Canadian Talent Agents were billed the annual fee for the
service that we now provide them on a continuing basis.

We now estimate approximately 80% of all Canadian electronic script breakdowns
are cast by directors using our software and systems.

We began a marketing and promotion campaign in Los Angeles California starting
in the spring of 1999. We now provide professional, personalized, consultative
and supporting services to Casting Directors and Talent Agents in the Los
Angeles area. In addition, we have also made further professional contacts so
that our supporting informational services will be provided to other types of US
companies and entertainment professionals during Fiscal 2001, including, most
significantly, major US production studios.

We report statistical increases in key areas of our computerized
business-to-business transactions as follows:

<TABLE>
<CAPTION>
Year Ended
August 31, 1999 August 31, 2000 Increase
--------------- --------------- --------

<S> <C> <C> <C>
Film Projects Processed: 1,723 3,511 104%
Roles (Acting Jobs) Cast: 8,312 16,719 101%
Audition Suggestions Processed: 206,368 506,041 145%
</TABLE>

Our internet sites now receive more than 1.5 million hits per month made mostly
by talent agents and casting directors.

Contracted arrangements with niche market and community based companies like
Latin Heat magazine, Black Talent News, and XXI Century Model Search will
provide us with increased and paid Performer Portfolio hosting throughout Fiscal
2001.

During Fiscal 2000 we also continued to increase business relations with
industry professionals in other film production centers worldwide. We began or
continued negotiations with professional s in the Latin American, Australian and
Asian film, television and commercial industries thus providing us with
increased information that would ultimately establish the timing necessary to
deploy our software and systems in all of those demographic areas. Subsequent to
Fiscal 2000 we formed a subsidiary corporation that will see full deployment of
"The Casting Workbook" and services in Australia during Fiscal 2001.

<PAGE>

With respect to North America and in addition to increasing our business
activities with Talent Agents and Casting Directors in the Los Angeles market,
we also continued to deploy our software and systems in order to provide
services to talented performers throughout North America and worldwide who are
not presently represented by a Talent Agent (self-represented performers). Our
system now allows anyone, for a fee, to submit electronically their resume and
other information (e.g. photos and/or sound and / or video clips) to us using
access over the internet We began to collect fees from these performers using a
now commonly used method called e-commerce whereby credit card information is
collected and processed and money deposited to our bank account(s)
electronically. In December 1999 our systems infrastructure necessary to carry
out this process using the Canadian banking system was fully established and a
marketing and promotional campaign continues to be developed. We estimate that
many more people worldwide could subscribe to this new service than by actors
who are represented by Talent Agents. Both aspiring acting and modeling talent
are offered this service whereby individuals are given an opportunity to
advertise themselves in front of professional Talent Agents and Casting
Directors who use our software and services. Thus we are capable of providing
many more individuals (customers) a chance to be discovered by Talent Agents
and/or immediately obtain work from Casting Directors who are seeking that
particular talent.

During the period we also continued to design, develop and program software and
systems that provide increasing computer automation to Agents, Casting Directors
and other professionals in the film, television, commercials and modeling
industries as well as tie into their other existing systems (e.g. accounting
software of other suppliers). All of our present products and services are
planned for continuing and future marketing and deployment.

RISK FACTORS ASSOCIATED WITH THE COMPANY'S BUSINESS

Risks Associated Changing and Expanding Business.

The Company has experienced substantial changes in and expansion of the
Company's business and operations since it commenced operations, and expects to
continue to experience periods of change. The Company's past changes have
placed, and any future changes would place, significant demands on the Company's
administrative, operational, financial and other resources. The Company expects
operating expenses and staffing levels to increase in the future. In particular,
the Company intends to hire a number of additional skilled personnel, including
persons with experience in both the computer and film industries. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to attract, assimilate or retain additional highly qualified senior
managers and technical and production personnel in the future. The Company also
expects to expend resources with respect to future expansion of its technology,
accounting and internal management systems. This expansion will continue to
challenge the Company's ability to hire, train, motivate and manage its
personnel. If the Company's revenues do not increase in proportion to the
Company's operating expenses, the Company's management systems do not expand to
meet increasing demands, the Company fail to attract, assimilate and retain
qualified personnel, or the Company's management otherwise fails to manage the
Company's expansion effectively, there would be a material adverse effect on the
Company's business, financial condition and operating results. The
implementation of the Company's strategy for rapid growth in the use of the
Company's services may strain its ability to adequately expand technologically.
In addition, the Company relies on a number of third parties to process the
Company's transactions, including on-line and Internet service providers, all of
which will need to expand the scope of the operations they perform for the
Company. Any backlog or inability to use the Company's services caused by a
third party's inability to meet the Company's needs could have a material
adverse effect on the Company's business, financial condition and operating
results.

Risk of Error and of Systems Failure.

The Company's business is subject to various risks associated with systems
errors and malfunctions and employee errors. Heavy stress placed on the systems
during peak "breakdown" times could cause the Company's systems to operate at
unacceptably low speeds or systems could fail altogether.

The Company has experienced incidents of system failure in the past and
there can be no assurances that such incidents will not reoccur in the future.
If such system failure, or if access to the internet is disputed, it may
preclude the Company from conducting normal operation for an undetermined period
of time. The Company may also experience losses in connection with employee
errors. Although expenses incurred by the Company in connection with employee
errors have not been significant in the past, there can be no assurance that
these expenses will not increase in the future.

<PAGE>

Significant Fluctuations in Quarterly Operating Results.

The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including the
following: the timing of introductions or enhancements of services and products
by the Company or the Company's competitors; changes in pricing policies by the
Company or the Company's competitors; changes in strategy; the success of or
costs associated with acquisitions or other strategic relationships; changes in
key personnel; seasonal trends; changes in the level of operating expenses to
support projected growth; and general economic conditions. In addition, the
Company has experienced fluctuations in the average number of customer
transactions per day and expects that its rate of growth in customer
transactions at any given time is not necessarily indicative of future
transaction activity.

Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as any indication of future performance. It is likely
that the Company's future quarterly operating results from time to time will not
meet the expectations of securities analysts or investors, which may have an
adverse effect on the market price of the Company's Class A Common Stock.

Competition.

The Company's management is not aware of any other company in Canada that
has the same type of database and/or service to film and television
professionals as it is currently providing. There are several small companies
who offer various television and film services but they are without a direct
response element and accordingly do not, in the Company's view, present a
competitive risk to the Company's operations

There can be no assurance that the Company will be able to compete
effectively with current or future competitors or that the competitive pressures
faced by the Company will not have a material adverse effect on the Company's
business, financial condition and operating results.

Early Stage of Market Development; Dependence on the Internet.

As is typical for new and rapidly evolving industries, demand and market
acceptance for recently introduced services and products are subject to a high
level of uncertainty. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network backbone, or timely development of complementary
services and products, such as high speed modems and high speed
communication-lines. The Internet has experienced, and is expected to continue
to experience, significant growth in the number of users and amount of traffic.
There can be no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it by this continued growth. In addition,
the Internet could lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of Internet
activity or due to increased governmental regulation. Moreover, critical issues
concerning the commercial use of the Internet (including security, reliability,
cost, ease of use, accessibility and quality of service) remain unresolved and
may negatively affect the growth of Internet use or the attractiveness of
commerce and communication on the Internet. Because global commerce and on-line
exchange of information on the Internet and other similar open wide area
networks are new and evolving, there can be no assurance that the Internet will
prove to be a viable commercial marketplace. If critical issues concerning the
commercial use of the Internet are not favorably resolved, if the necessary
infrastructure is not developed, or if the Internet does not become a viable
commercial marketplace, the Company's retail business, financial condition and
operating results will be materially adversely affected. Adoption of on-line
commerce, particularly by those individuals that have historically relied upon
traditional means of commerce, will require a broad acceptance by such
individuals of new and substantially different methods of conducting business.

<PAGE>

Technical Changes.

The information and financial services and communications industries are
characterized by rapid technological change, changes in customer requirements,
frequent new service and product introductions and enhancements, and emerging
industry standards. The introduction of services or products embodying new
technologies and the emergence of new industry standards and practices can
render existing services or products obsolete and unmarketable. The Company's
future success shall depend, in part, on its ability to develop leading
technologies, enhance its existing services and products, develop new services
and products that address the increasingly sophisticated and varied needs of its
prospective customers, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
development of new services and products or enhanced versions of existing
services and products entails significant technical risks. There can be no
assurance that the Company will be successful in effectively using new
technologies, adapting its services and products to emerging industry standards,
developing, introducing and marketing service and product enhancements, or new
services and products, or that it will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of these
services and products, or that its new service and product enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable to develop and introduce new services and
products or enhancements of existing services and products in a timely manner in
response to changing market conditions or customer requirements, or if new
services and products do not achieve market acceptance, the Company's business,
financial condition and operating results will be materially adversely affected.

Proprietary Rights and Risk of Infringement.

The Company's success and ability to compete are dependent to a significant
degree on its proprietary technology and on the proprietary technology licensed
by it. The Company relies primarily on copyright, trade secret and trade-mark
law to protect its technology and the technology licensed by it from third
parties. Notwithstanding the precautions taken by the Company, it may be
possible for a third party to copy or otherwise obtain and use the Company's
software or other proprietary information without authorization or to develop
similar software independently. Policing unauthorized use of the Company's
technology is difficult, particularly because the global nature of the Internet
makes it difficult to control the ultimate destination or security of software
or other data transmitted.

The laws of other countries may afford the Company little or no effective
protection of its intellectual property. There can be no assurance that the
steps taken by the Company will prevent misappropriation of its technology or
that agreements entered into for that purpose would be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversions of resources,
either of which could have a material adverse effect on the Company's business,
financial condition and operating results.

The Company may in the future receive notices of claims of infringement of
other parties' proprietary rights. There can be no assurance that claims for
infringement or invalidity (or claims for indemnification resulting from
infringement claims) will not be asserted or prosecuted against the Company. Any
such claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert the Company's management's attention and resources or
require the Company to enter into royalty or licensing agreements. There can be
no assurance that such licenses would be available on reasonable terms, if at
all, and the assertion or prosecution of any such claims could have a material
adverse effect on the Company's business, financial condition and operating
results.

<PAGE>

Future Capital Needs; Uncertainty of Additional Financing.

The Company would need to raise additional funds in order to support
expansion, develop new or enhanced services and products, respond to competitive
pressures, acquire complementary businesses or technologies or take advantage of
unanticipated opportunities. The Company's future liquidity and capital
requirements will depend upon numerous factors, including the costs and timing
of expansion of research and development efforts and the success of such
efforts, the success of the Company's existing and new service offerings and
competing technological and market developments.

The Company may be required to raise additional funds through public or
private financing, strategic relationships or other arrangements. There can be
no assurance that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. Furthermore, any additional equity
financing may be dilutive to shareholders, and debt financing, if available, may
involve restrictive covenants. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the Company's
shareholders will be reduced, shareholders may experience additional dilution in
net book value per share, or such equity securities may have rights, preferences
or privileges senior to those of the holders of the Common Stock. If adequate
funds are not available on acceptable terms, the Company may be unable to
develop or enhance its services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, financial condition and
operating results.

Risks Associated with Acquisitions and Strategic Relationships.

The Company may make acquisitions of other companies or technologies in the
future, or may enter into strategic relationships, and the Company regularly
evaluate such opportunities. Acquisitions and the implementation of strategic
relationships entail numerous risks, including difficulties in the assimilation
of acquired operations and products, diversion of management's attention from
other business concerns, amortization of acquired intangible assets and
potential loss of key employees of acquired companies. No assurance can be given
that the Company will be able to integrate successfully any operations,
personnel, services or products that might be acquired in the future, and the
Company's failure to do so could have a material adverse effect on business,
financial condition and operating results.

The Company has established a number of relationships with on-line and
Internet service providers and software, information and financial service
providers. The Company will continue to seek out similar strategic opportunities
in the future. Examples of the Company's strategic relationships include its
relationships with Columbus. There can be no assurance that any such
relationships will be maintained, that if such relationships are maintained,
they will be successful or profitable, or that the Company will develop any new
such relationships. Further, the Company's success in any of its strategic
relationships is dependent on the reputation of its strategic partners. Should
any of the Company's strategic partners experience damage to their reputation,
the Company may be materially adversely affected.

Limited Operating History. The Company has not achieved profitability and
there is no guarantee that the Company will be able to achieve profitability in
the future. The Company has never paid a dividend on the Company's Class A
Common Stock and does not expect to do so in the foreseeable future.

Potential Future 144 Sales.

Rule 144 provides, in essence, that a person holding restricted securities
for a period of one year may sell those securities in unsolicited brokerage
transactions or in transactions with a market maker, in an amount equal to one
percent of the Company's outstanding Class A Common Stock every three months.
Additionally, Rule 144 requires that an issuer of securities make available
adequate current public information with respect to the issuer. Such information
is deemed available if the issuer satisfies the reporting requirements of
Sections 13 or 15(d) of the Exchange Act and of Rule 15c2-11 thereunder. Rule
144 also permits, under certain circumstances, the sale of shares by a person
who is not an affiliate of the Company and who has satisfied a two year holding
period without any quantity limitation and whether or not there is adequate
current public information available. Investors should be aware that sales under
Rule 144, or pursuant to a registration statement filed under the Act, may have
a depressive effect on the market price of the Company's Class A Common Stock in
any market that may develop for such shares.

<PAGE>

Limited Market For the Company's Class A Common Stock.

There is only a limited trading market for the Company's Class A Common
Stock on the National Association of Securities Dealers, Inc. ("NASD")
over-the-counter Bulletin Board (the "OTCBB"), which may limit the marketability
and liquidity of the shares of the Class A Common Stock.

Penny Stock Rules.

Under Rule 15g-9 of the Exchange Act, a broker or dealer may not sell a
"penny stock" to, or effect the purchase of a penny stock by, any person unless:

(a) such sale or purchase is exempt from Rule 15g-9;

(b) prior to the transaction the broker or dealer has (1) approved the
person's account for transactions in penny stocks in accordance with
Rule 15g-9, and (2) received from the person a written agreement to
the transaction setting forth the identity and quantity of the penny
stock to be purchased; and

The United States Securities and Exchange Commission (the "Commission") has
adopted regulations that generally define a penny stock to be any equity
security other than a security excluded from such definition by Rule 3a51-1.
Such exemptions include, but are not limited to (1) an equity security issued by
an issuer that has (i) net tangible assets of at least $2,000,000, if such
issuer has been in continuous operations for at least three years, (ii) net
tangible assets of at least $5,000,000, if such issuer has been in continuous
operation for less than three years, or (iii) average revenue of at least
$6,000,000 for the preceding three years; (2) except for purposes of Section
7(b) of the Exchange Act and Rule 419, any security that has a price of $5.00 or
more; and (3) a security that is authorized or approved for authorization upon
notice of issuance for quotation on the NASDAQ Stock Market, Inc.'s Automated
Quotation System.

Currently shares of the Company's Class A Common Stock will be subject to
the regulations on penny stocks; consequently, the market liquidity for the
Company's Class A Common Stock may be adversely affected by such regulations
limiting the ability of broker/dealers to sell the Company's Class A Common
Stock and the ability of shareholders to sell their securities in the secondary
market.

Moreover, the Company's shares may only be sold or transferred by its
stockholders in those jurisdictions in which an exemption for such "secondary
trading" exists or in which the shares may have been registered.

Adequate Labor and Dependence Upon Key Personnel; No Employment Agreements.

The Company will depend upon recruiting and maintaining qualified personnel
to staff the Company's operations. The Company believes that such personnel are
currently available at reasonable salaries and wages. There can be no assurance,
however, that such personnel will always be available in the future. Loss of the
services of any of this management team and key employees could have a material
adverse effect on the Company's operations.

<PAGE>

Conflicts of Interest.

From time to time certain of the Company's directors and executive officers
may serve as directors or executive officers of other companies and, to the
extent that such other companies may participate in the industries in which the
Company may participate, such directors and officers may have a conflict of
interest. In addition, the Company's dependence on directors and officers who
devote time to other business interests may create conflicts of interest, i.e.
that the fiduciary obligations of an individual to the other company conflict
with the individual fiduciary obligations of the Company and visa versa.
Directors and officers must exercise their judgment to resolve all conflicts of
interest in a manner consistent with their fiduciary duties to the Company. In
the event that such a conflict of interest arises at a meeting of the directors
of the Company, a director who has such a conflict will abstain from voting for
or against the approval of such a participation or such terms. In appropriate
cases, the Company will establish a special committee of independent directors
to review a matter in which several directors, or management, may have a
conflict. The Company is not aware of the existence of any conflict of interest
as described herein.

Item 2. Properties

Vancouver

The Company owns a 1,400 square foot commercial condominium unit (No. 208)
at 2323 Boundary Road, Vancouver, British Columbia which presently serves as the
Company's corporate headquarters. The Company purchased the unit on May 22, 1996
for $101,963. The Company has a $75,300 balance on an initial $79,148 mortgage
on the property. The Company's payments are $632 per month.

On July 1, 1999 we expanded the Company's corporate headquarters by leasing
the adjacent unit No. 207 at 2323 Boundary Road, Vancouver, British Columbia, on
the basis of a 6 month renewable term. The premises are approximately 1,300
square feet. The rent is $805 per month.

Toronto

As of March 1, 1999 the Company also lease approximately 677 square foot
office at #1303 of 2 Carlton Street, Toronto, Ontario. The Company's rent is
$663 per month. The term is for two years.

Los Angeles

As of April 1, 2000 the Company rented a 1,200 square foot office at #410
11040 Santa Monica Blvd, LA CA 90025. The Company's rent is $3,677. The term is
for five years.

Item 3. Legal Proceedings

None

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

None

<PAGE>

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters

The Company's shares are traded on the NAS OTCBB under the stock symbol ONPS.
The high and low interdealer prices for the calendar quarters for each quarter
of the previous two fiscal years are as follows:

Fiscal Year Ending August 31, 1999

Quarter Date High Low
------- ---- ---- ---

1st November 30, 1998 n/a n/a

2nd February 28,1999 n/a n/a

3rd May 31, 1999 $5.00 $1.00

4th August 31, 1999 $3.28 $0.68

Fiscal Year Ending August 31, 2000

Quarter Date High Low
------- ---- ---- ---

1st November 30, 1999 $1.00 $0.33

2nd February 29, 2000 $0.95 $0.30

3rd May 31, 2000 $0.68 $0.26

4th August 31, 2000 $0.50 $0.25

During our Fiscal Year 2000 we negotiated and caused a retraction and
cancellation of 1,000,000 warrants that previously granted the holder (ACC Axis,
an outside consulting firm) the right to purchase up to 1,000,000 shares of
common stock at $.50 per share.

In addition, we negotiated and caused a retraction and cancellation of 853,974
common shares of the company which were previously held by a major shareholder
of Earth Industries, Inc., a Texas corporation that did not survive upon merging
with the Company under a plan of reorganization completed on March 4, 1999.

The result of the above warrant and stock negotions, retractions and
cancellations is set out in Note 11 to the Audited Financial Statements included
herein.

There were no sales of stock during the reported fiscal year.

The Registrant has not paid or allocated any dividends to date and has no
current plans to do so.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

FORWARD-LOOKING STATEMENTS

<PAGE>

FINANCIAL CONDITION, RESULTS AND PLAN

GENERAL

OnLine Production Services Inc. ("ONPS", a Nevada corporation), invests in,
represents, promotes, and delivers the products and services of its wholly owned
Canadian subsidiary, OnLine Film Services, Inc. ("OnLine"), which is an internet
based, e-commerce, business to business services provider of software and
computer systems solutions to entertainment industry professionals.

An historical overview and discussion of operations is set-out above in Part I,
Item 1 Business.

REVENUES

Agent Represented Performer Memberships:

Revenues from performer memberships during the first quarter of Fiscal 2000
($49,000 US) were received in Canadian Dollars from Canadian actors only. Most
of those performers are represented by Canadian Talent Agents. This represented
a 33% increase from that market group over the same period in Fiscal 1999.

Many free trial periods, set up in the prior fiscal year, for actors and models
who are represented by Agents expired during the second quarter of Fiscal 2000,
resulting in a substantial increase in Performers billings, and mostly in the
Los Angeles area (a greater than 1,500% overall increase compared to the prior
period). However, collection of those fees from US performers continued as at
August 31, 2000.

During the third and fourth quarters we granted payment extensions (without
affecting service start dates) to actors and models represented by Agents in the
United States. This was a gesture of goodwill toward actors affected by the US
actor strike, and as a part of a competitive strategy. Approximately $300,000 US
Dollars of reported accounts receivable were affected.

Our historical experience indicates that our ability to collect these accounts
is high due to the importance of our service to the Performers by way of their
increased job audition opportunities. The professional industry in Los Angeles
is implementing our software and systems with approximately the same increasing
rate as that which we experienced in Canada.

We expect a more rapid rate of Los Angeles acceptance, revenue and collections
than we experienced in Canada because, during the fourth quarter and in
readiness of actor strike resolution, we concentrated on developing and
launching an improved program of technical service and revenue collection.

Our collection of accounts continue with the help of our new electronic customer
relations and direct contact processes deployed subsequent to the currently
reported fiscal year end and after the actors' strike was resolved (October
2000). These technical improvements have also enriched our relations with
casting directors, including those employed inside major studios. We are now
experiencing increases in the number of script breakdowns that we process from
the United States. Those script breakdowns represent job opportunities to
performers and further motivate Talent Agents and their performer rosters to
sign onto our system and pay our fees. We expect that these processes will
dramatically decrease the amount of accounts receivable that we carry in the
future because new accounts will be collected immediately and renewal accounts
will be collected as they become due.

<PAGE>

Self-Represented Performer Memberships (Retail Markets):

Only nominal revenues have yet to be received from that group of North American
customers who are not represented by Talent / Model Agents. Full operation of
our e-commerce based fee collection capabilities had been deployed during the
year and we planned to initiate a marketing campaign that was dependent on the
development and allocation of sufficient funding for what we considered
essentially a retail market. We considered that market, in traditional terms, to
require print and broadcast advertising in order to accomplish adequate sales
volumes. An agreement was negotiated and then abandoned, without litigation,
during Fiscal 2000, for the supply of infomercials directed at the
self-represented market sector. This abandonment occurred due, in part, to a
lack of confirmation of value. By analyzing the approaches made by our
competitors we realized that traditional retail print and broadcast advertising
was to involve unjustifiably high cash expenditure requirements compared to
resulting sales increases (and less profitable) when compared to our traditional
services to the professional industry. During the fourth quarter of Fiscal 2000
we began to program new in-house electronic advertising facilities, now named
"E-pitch" for our branding purposes. Our traditional approach, enhanced by those
new facilities, now justifies our increasing entry into this market demographic.
Subsequent to the currently reported Fiscal Year end, we completed and we have
deployed an electronic advertising approach. Electronically we are advertising
our services to all casting directors and all represented and self-represented
performers and their agents. The industry throughout North America is
dramatically acknowledging our new technical capabilities that link all of our
traditional services with this new electronic advertising methodology. We now
make these electronic advertising and thus job finding capabilities available to
any individual or Agent where the appropriate performer membership fees have
been paid.

These new technical services are extremely competitive and acceptance in the
market has been more dramatic than any we have previously experienced.

Our new technical service has also been integrated with our billing and
collection services, incorporating e-commerce, thus increasing our expectation
of cash receipts in the near term.

Contracted Software Programming Revenues:

We are not, on an ongoing basis, in the business of supplying contracted
software programming services wherein persons other than ourselves would own the
software program. However, prior to Fiscal 2000, we had entered into contracts
with Columbus Entertainment, Inc. ("Columbus") providing for cross-promotional
activities as well as granting us a right to use certain of their entertainment
industry software as it applies to accounting for commercials production
projects. As a non-recurring circumstance, and as a gesture of collaboration, we
performed, for Columbus, contracted software programming in order to web enable
certain of their business functions. We billed Columbus $114,900 during the
second quarter and collected $60,000 by fiscal year end. New and previous owners
(Fiscal 2000) of Columbus have not responded to our demand for payment of the
balance of our contracted programming services. We are considering alternative
actions as may be advisable in light of all contracted arrangements that are in
place, including rights to intellectual property. We have not currently
proceeded to litigation, and due to the long outstanding nature of their
indebtedness we have allowed for their remaining amount due to us as an
allowance for doubtful accounts with offsetting bad debt recognition in the
amount of $54,900.

We do not expect contracted software programming to contribute to revenue during
the course of Fiscal 2001.

Development of New Revenue Sources from Agencies:

During Fiscal 2000 we entered into an agreement whereby a large US Talent /
Literary Agency supplied a description of certain business requirements, and we
have performed for our mutual benefit the required software programming, in
order to accomplish new automated data and reporting capabilities to handle
extended day-to-day business functions of Talent and Literary Agents. The
computer automation of a wide range of Agents' requirements is beyond that
currently supplied by any of our competitors. Our new software also provides
links into existing, widely distributed accounting software programming with the
cooperation of the copyright owner of that software. This new software
programming is useful industry-wide. Testing of our new software is ongoing
subsequent to Fiscal 2000 on-site at the Agency with whom we have the agreement.
We are confident that successful implementation will be achieved. Further
arrangement for industry-wide distribution, and resulting revenue from Agents is
estimated to begin in the first half of Fiscal 2001. Receipts of revenue, direct
from Agents, is previously untapped by us.

<PAGE>

International Licensing / Joint Ventures / Territory Sales:

We have not pursued, during the current period, and we have no intention of
pursuing in the future, the sale of territory rights as in prior periods.
However, revenue rights in many territories were never sold including the Los
Angeles district and all territories outside of North America.

Instead of selling territory rights we will continue to pursue international
licensing and/or joint venture agreements in Latin America, the United Kingdom,
Europe and Asia during the next fiscal year. Subsequent to our Fiscal 2000 Year
End we completed detailed negotiations in order to form a subsidiary corporation
for the deployment of our software and services in Australia. We are confident
that cash advances to us will be received by December 31, 2001. We expect that
the Australian market, estimated by us to be equal to 50 % of our current
Canadian customer base, and our related 51 % joint venture receipts, will
provide us with revenues sufficient to break even in Australia during the course
of Fiscal 2001.

Niche Market and Community Based Revenues:

Contracted arrangements with niche market companies and performer communities
like Latin Heat magazine, Black Talent News, and XXI Century Model Search,
increasingly provided us with Performer Portfolios to be hosted during Fiscal
2000. The number of these types of community level service arrangements will be
increased in Fiscal 2001 and they will be pursued as immediate cash receipts
arrangements.

COST OF SALES AND GROSS MARGIN

Of our reported Cost of Sales for the fiscal year, $475,000 relates to sales
guarantee amounts which are paid directly from interest we earned on
collateralized long-term investments, in respect of CastingWorkbook exclusivity
payments and Mailcard distribution payments relating our sale of territory
rights in prior periods (See note 13 to the financial statements).

The remaining cost of goods sold, ($580,000), was incurred to continue the
direct activities of programming competitive improvements to our software and
systems for continuing use by Casting Directors, Performers, and their Agents as
well as other industry professionals. Included was the purchase of software
($40,000) from a small software developer, which software was reprogrammed and
incorporated into our suite of services. Costs were incurred also to maintain
the computer and communications equipment / infrastructure that is necessary to
deploy that software. Software and systems programming costs are expected to
continue into the future in order to maintain a competitive technology position.
However, the availability of communications infrastructure is a competitive
environment and we seek opportunities to decrease our costs of that
infrastructure component.

During the comparative period (Fiscal Year 1999) we received non-recurring
revenue from the sale of certain Territory Rights (see Notes 10 and 13 to the
Financial Statements). When this non-recurring revenue is factored out of both
reported Fiscal Years, our gross margin on Fees Realized from Performers shows a
favorable improvement (Fiscal 2000 a positive gross margin of 16% versus Fiscal
1999 with a gross loss margin of 155%). This improvement was and continues to be
expected as a consequence of greater utilization of our currently underutilized
capacity.

Other costs of goods sold were non-recurring start-up costs in respect of
specific Talent Agents and Casting Directors in the Los Angeles area who were
included onto our network during the period. That portion of our cost of goods
sold that is specific to the provision of service to certain Casting Directors
and Talent Agents includes direct subcontracts some equipment and communications
connections between those industry professionals and our systems and these items
will not be incurred as a Cost of Goods Sold in the future. We have no plan to
provide, at our own cost, for any further equipping of Talent Agents or Casting
Directors.

The sunk costs of our previous improvements to software programming may now be
spread over a larger customer base in the future thus providing an expectation
of a more effective use of cost of goods sold and increasing gross margin.

<PAGE>

OPERATING EXPENSES

Operating Expenses increased by 62% in the current year when comparing Fiscal
2000 to Fiscal 1999 due primarily to the continuing establishment of both
corporate and market operations in the Los Angeles area from which revenue
realization is expected to increase during Fiscal 2001.

Our Canadian head office operations accounted for 16% of the 62% increase in
operating expenses due to general economic conditions in British Columbia Canada
as well as some improved working conditions in Canadian rental office space.

Our Canadian head office operations included the payment of $152,474 to
executive management who are also officers, directors, and major shareholders of
ONPS.

The continuing establishment of Los Angeles operations has contributed 16% of
62% increase in operating costs. These costs relate primarily to increased rent
and staffing costs, as well as professional fees such as legal and audit costs.

We expended $63,000 in direct promotion of our services to industry
professionals in the Los Angeles area. Fiscal 2001 will include the
implementation of marketing strategies that reduce these direct promotional
expenses as a ratio of total business carried out in the Los Angeles area,
focusing attention directly on the actor and model customer base and thus on
advertising and web marketing techniques that have a more direct relationship to
the realization of revenues.

The remaining 30% of the 62% increase in operating costs during the current year
is the result of $218,000 in bad debts, resulting from allowances for
uncollectable amounts. $163,100 results from the US actors strike which occurred
during the current fiscal year, while the remaining $54,900 relates to the
amount receivable from Columbus as discussed earlier.

OTHER INCOME

Other sources of income earned during the year consist of interest earned on
long-term investments that are collateral to secure contingent future revenues
that may be realized under terms of agreements entered into in prior fiscal
periods (see Financial Statements - Notes 5 and 10). We also received a
non-refundable government grant of $11,000 during the current year.

LIQUIDITY FROM CAPITAL RESERVES

Long-term investments are held as collateral security under agreements (see
Financial Statements Notes 5 and 10) and are not money available for use in
current operations, nor are they expected to be available during the course of
Fiscal 2001.

<PAGE>

CASH FLOW AND WORKING CAPITAL

Accounts Payable and Accruals reported as at August 31, 2000 ($296,000) includes
$119,000 of accrued distribution and exclusivity payments under the Territory
Sales agreements referred to above. The $119,000 would subsequently be paid from
interest portions of long-term investments that will come due approximately
December 10, 2000 to December 31, 2000.

Reported cash and cash equivalents of ($21,000) is not sufficient to meet
current demands on cash represented by $296,000 of Accounts Payable and Accruals
(a $317,000 deficiency).

We financed our fourth quarter of operations by way of revenue receipt (e.g.
part collection of the $510,000 of accounts receivable on third quarter filing)
and new revenue generation, as well as an unsecured loan of a major shareholder
of ONPS ($249,000). Certain of our major shareholders are committed to providing
continuing deposits to ONPS, as a part of meeting our cash flow needs from time
to time.

We require an increase in revenue realization as well as investment inflows in
order to provide for working capital requirements during Fiscal 2001.

Prior to and subsequent to the date of this filing, and in regard to further
investment in OnLine (excluding international license and other agreements set
out above and discussed as sources of revenue), ONPS has entertained proposals
from a number of individuals and companies that vary in their collaborative
intentions, impact on OnLine's business operations and having differing
financial benefits.

Proposals involving the further issuance of ONPS shares have been received by
management and not proceeded upon due to their dilution affects on current
investors and our preference to provide for the investment contributions by
means of value added reorganization arrangements. However, we are prepared to
cover cash flow requirements by way of accepting proposals involving the further
issuance of treasury stock if circumstances necessitate.

We considered OnLine's competitors as a possible source of collaborative
investment opportunities. We acknowledge a company to be in the same or similar
field of operation if it has an appropriate combination of technical ability,
business approach, financial management, and financial strength that would be
complementary to OnLine or add value for ONPS investors. The best competitor
candidate was selected based primarily on the appearance of financial strength.
After lengthy due diligence, negotiations were discontinued. ONPS concluded that
competitive retail marketing approaches currently involve unjustifiably high
cash expenditure requirements with lower sales and thus less potential profit
when compared to OnLine's current services to industry approach. A competitor
that offers a reasonable basis for investment collaboration has not been
identified.

ONPS has, subsequent to its fiscal 2000 year end, concentrated on developing
reorganization structures that affectively bring in both finance and expanded
business operations in order to accomplish value added for its current customer
base and investors.

A proposal has been provided an exclusive by us to proceed through negotiations
up to February 28, 2001. The proposal involves expansion that is; a
collaboration with complementary industry leaders in other entertainment based
operations, an inclusion of our "Casting Workbook" and related industry software
into a broader field of use, and commitment of $1,000,000 annual operating
finance to our wholly owned subsidiary, OnLine. Related to our granting of this
exclusive negotiation, up to $300,000 would be received by us during the
negotiations until closing. We are confident that the reorganization represented
by this proposal can be completed and all terms negotiated.

In addition, we at ONPS are renewing our business presentations, and increasing
our contacts of potential financial partners, on the premise of accessing
further financing for our wholly owned subsidiary, OnLine, as may be warranted
by newly developed technology and thus value added operations. This is being
done subject to and still respecting the negotiations exclusivity arrangement
discussed above.

<PAGE>

Item 7. Financial Statements

Rains & Associates, LLC
Certified Public Accountants

Independent Auditor's Report

Board of Directors and Stockholders
Online Production Services, Inc.

We have audited the accompanying balance sheets of Online Production Services,
Inc. as of August 31, 2000 and 1999, and the related statements of income,
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Online Production Services,
Inc. as of August 31, 2000 and 1999, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.

Rains & Associates, LLC

December 13, 2000

<PAGE>

OnLine Production Services, Inc.
Consolidated Balance Sheet
August 31, 2000 and 1999

Amounts in 1,000's of Dollars US

<TABLE>
<CAPTION>
ASSETS
2000 1999
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ -- $ 514
Accounts Receivable - Note 3 250 64
Current Portion of Deferred Taxes - Note 6 -- 4
Accrued Interest - Note 5 119 39
Total Current Assets 369 621

Property, Plant and Equipment Net of Depreciation - Note 4 172 184

Other Assets
Net Investments - Note 5 22 35
Intangible Assets-Net of Amortization - Note 10(d)) 153 305
Other - Note 6 2 2
Total Other Assets 177 342
Total Assets $ 718 $ 1,147

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Bank Overdraft $ 21 $ --
Accounts Payable and Accrued Liabilities - Note 8 296 169
Bank Operating Loan - Note 7 64 30
Note Payable - Note 18 72 --
Management Fees Payable to Related Parties - Note 16 140 --
Current Portion of Mortgage Payable 1 1
Total Current Liabilities 593 200

Mortgage Payable - Note 9 75 75

Other Liabilities
Loan Payable - Shareholders - Note 19 249 --
Total Other Liabilities 249 --

Stockholders' Equity - Note 11
Capital Stock
Class A Common Stock, $0.001 par, 100,000,000 shares authorized,
9,626,640 issued 6 7
Preference Shares, 10,000,000 shares authorized
3,673,292 issued 2 2
Total Capital Stock 9 9
Additional Paid in Capital
Issued price in excess of par value - Class A 1,318 1,318
Issued price in excess of par value - Preference Shares 180 180
Total Paid In Capital 1,498 1,498
Accumulated Deficit (2,026) (943)
Accumulated Other Comprehensive Income 320 308
Total Stockholders' Equity (200) 872
Total Liabilities and Stockholders' Equity $ 718 $ 1,147
</TABLE>

See Accompanying Notes to Financial Statements

<PAGE>

OnLine Production Services, Inc.
Consolidated Statement of Loss and Accumulated Deficit
Years Ended August 31, 2000 and 1999

Amounts in 1,000's dollars US

<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Revenue
Sales $ 808 $ 229
Territory Sales -- 655
Other 11 74
Total Revenue $ 820 $ 958
Cost of Sales 1,055 920
Gross Profit (235) 38
General & Administrative Expenses 1,153 713
Depreciation/Amortization 189 195
Loss From Operations (1,577) (870)
Other Income/Expense
Interest Income -Notes 5 & 13 499 388
Loss on Asset Disposition (1) --
Loss Before Taxes (1,079) (482)
Deferred Taxes (5) 1
Net Loss Applicable to Common Stock $ (1,083) $ (481)

Weighted Average Shares - Common Stock 10,061 10,170

Loss Per Share of Common Stock $ (0.11) $ (0.05)

Statement of Accumulated Deficit
Balance - Beginning of Year $ (943) $ (462)
Net Loss for Year (1,083) (481)
Balance - End of Year $ (2,026) $ (943)
</TABLE>

See Accompanying Notes to Financial Statements

<PAGE>

OnLine Production Services, Inc.
Consolidated Statement of Cash Flows
Years Ended August 31, 2000 and 1999

Amounts in 1,000's of Dollars US

<TABLE>
<CAPTION>
2000 1999
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Cash Used In Operations:
Net Loss $(1,083) $(481)
Add (deduct) charges to items not involving cash:
Expense settled for shares -- 27
Prior Period Adjustment -- (10)
Loss on Asset Disposition 1 --
Amortization 189 195
Bond Discount Amortization Included In Interest Revenue (21) --
Deferred Taxes 5 (1)
$ (910) $(270)

Non-cash working capital items:
Accounts Receivable (267) (64)
Current Portion of Deferred Taxes 4 (1)
Accounts Payable & Accruals 127 82
$(1,046) $(253)

FINANCING ACTIVITIES

Change in Bank Operating Loan $ 34 $ 30
Related Party Loans 389 (17)
Capital Stock Issuances (1) 5
Additional Paid In Capital 0 654
Note Payable 72 (200)
Increase in Long Term Debt (0) 3
Reduction in Openning Long Term Debt -- (1)
$ 494 $ 474

INVESTING ACTIVITIES
Decrease (Increase) in Long Term Investments before discounts 34 (15)
Proceeds of Ppty, Plant & Equip Sales 3 16
Capital Asset Purchases (32) (77)
$ 5 $ (76)

Translation Adjustment $ 12 $ 318
Change In Cash $ (535) $ 463
Cash, start of year 514 51
Cash, end of year $ (21) $ 514

SCHEDULE OF NON-CASH INVESTING & FINANCING ACTIVITIES:

Accrued Wages Settled for Shares $ -- $ 27
Reduction in Debt to Columbus Software through share issuance -- 250
$ -- $ 277
</TABLE>

See Accompanying Notes to Financial Statements

<PAGE>

OnLine Production Services, Inc.
Consolidated Statement of
Changes in Equity
Year Ended August 31, 2000

Amounts in 1,000's dollars US

<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Retained Comprehensive
Total Income Earnings Income

<S> <C> <C> <C> <C>
Beginning Balance $ 872 $ (943) $ 308

Comprehensive Income
Net Income (Loss) (1,083) (1,083) (1,083) --
Prior period adjustment -- -- -- --
Other comprehesive income: -- --
Foreign currency translation adjustments 12 12 -- 12
Total Comprehensive Income (1,071) -- --
Common Stock Redemption (1) -- --
Preference Shares Issued -- -- --
Paid In Capital -- -- --
$ (200) $(2,026) $ 320
</TABLE>

See Accompanying Notes to Financial Statements

<PAGE>

OnLine Production Services, Inc.
Notes to the Consolidated Financial Statements
August 31, 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OnLine Production Services Inc. is a Nevada corporation, which invests in,
represents, promotes, and delivers the products and services of its wholly owned
Canadian subsidiary, OnLine Film Services, Inc. which is an internet based,
e-commerce, business to business services provider of software and computer
systems solutions to entertainment industry professionals.

(a) Foreign currency translation

All balances relating to On-Line Film Services Inc. (Canadian subsidiary) have
been converted to United States dollars using the current rate method of
currency conversion. The use of this method resulted in a cumulative translation
adjustment gain of $320 000 at the current balance sheet date and $308 000 gain
at the prior year balance sheet date.

(b) Investments

Investments are held to maturity investments and are recorded at their amortized
cost at the balance sheet date. These investments are strictly interest bearing
deposits in the form of savings bonds and guaranteed interest certificates at
the current and prior balance sheet dates. Investments are shown net of
collateral claims against these investments. (Note 5)

Subsidiaries are consolidated in these financial statements (Note 2).

Deferred corporate taxes arise due to temporary timing differences arising from
depreciation rates used for financial statement purposes and the depreciation
rates prescribed for taxation purposes. Deferred taxes are divided into a
current portion, which is expected to be utilized within one fiscal year and a
non-current portion, which is expected to be utilized in a future period in
excess of one fiscal year. (See note 6)

(d) Revenue Recognition Policy

Sales (excludes Mailcard and Casting Software rights) revenue is recognized when
realized. Realization occurs when the earning process is complete, or virtually
complete and revenue is evidenced by the existence of an exchange transaction
which provides significant certainty as to the ultimate collectibility of the
revenue amount. This policy applies to all fee and general revenue but does not
apply to the realization of Mailcard and Casting Software rights sales. There
were no Mailcard or Casting software rights sales in the current fiscal year.

Revenue relating to Casting Workbook fees is generated strictly from actors and
entertainers who wish to advertise on the system, at which time the fee (non
refundable) is invoiced for the next twelve month period. Once invoiced, the
invoiced amount is recorded as fee revenue.

The company also uses a digital watermarking system to protect its digitally
created images against unauthorized resale. In the event that an unauthorized
distribution of an image containing this watermark is found, the company may
charge a fee for the use of this image. In this scenario, collection of the fee
charged is very uncertain. As such, any revenue generated through charges for
unauthorized distribution of company images will be realized when collected. At
the balance sheet date, there has been no charges or collections relating to
unauthorized distribution of company images.

Mailcard and Casting Software rights revenue is recognized on the collection
method. The ultimate collection of agreed amounts relating to the Mailcard and
Casting Software rights is contingent on future sales of the software by the
company. This contingency creates a significant degree of uncertainty
surrounding the ultimate collection of this contingent revenue, which is based
on the service of selling the software over a ten year period. As such, revenue
is only recognized at such time as the funds are released to, the company. In
the current and prior year, none of these collateral funds have been released at
to the audit date. (See note 10 )

<PAGE>

(e) Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits with banks or
other high credit quality financial institutions and other highly liquid
investments which are immediately convertible into cash. Due to the short term
nature of these instruments, the carrying value approximates fair value.

(f) Accounting impairment for long lived assets

The company considers impairment of value to occur when the book value of fixed
assets is determined not to be recoverable. If this happens, the company has a
policy of reducing the carrying value of the long lived asset to the recoverable
amount and recording this reduction loss amount on the income statement in the
year in which the write down has occurred. There has been no impairment of any
long lived assets in the current or prior year.

(g) Reorganization and reverse acquisition

The company, in fiscal year 1999, completed a reorganization and reverse merger.
At the time of the merger, neither OnLine Production Services Inc., or its
predecessor Earth Industries Inc. , had any financial activity. With the
exception of the stock of Earth Industries, which had a book value of $0 at the
time of the merger, the only entity with activity was On-Line Film Services,
Inc., which became the operating subsidiary company as a result of the merger.

2. CONSOLIDATED FINANCIAL STATEMENTS

These financial statements show the consolidated results of operations for
OnLine Production Services Inc. and its wholly owned Canadian subsidiary On-Line
Film Services Inc.

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following
(in 1,000's of Dollars US)
August 31

2000 1999

Trade Accoutns Receivable 414 48
Other Accounts Receivable 56 18
470 66
Less: Allowance for Doubtful Accounts 219 2
Accounts Receivable, Net 250 64

The company's trade accounts primarily represent unsecured receivable which are
geographically disbursed throughout Canada and the United States. The increase
in trade accounts is primarily due to the launch at the end of the preceding
fiscal year of the Casting Workbook in the United States.

The company has reserved a substantial portion of the United States trade
accounts because of problems that the company has had collecting these accounts
due to the actors strike which lasted most of the current year. The strike ended
in October 2000 and the company has implemented methods to collect these
accounts. See Note 20.

4. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
Asset Accum. Depreciation
Description Amount Deprec. Net Method

<S> <C> <C> <C> <C>
Office Furn & Fixtures $ 20 $ 7 $ 13 20% Declining Balance
Computer Software 13 13 nil 100% Declining Balance
Computer Equipment 155 90 65 30% Declining Balance
Building 112 18 94 4% Declining Balance
$ 172
</TABLE>

<PAGE>

5. NET INVESTMENTS

Net investments includes three separate savings bonds held in trust as follows:

The first bond is a British Columbia Savings Bonds in a principal amount of
$2,910,606 with an unamortized bond premium of $1,019 to be amortized over the
remaining seven year period of the bonds. Accrued interest of $38,800 was unpaid
at the balance sheet date. These bonds earn interest at 6% per annum (effective
interest rate of 5.992%) paid semi-annually and are locked in to June 9, 2008.
The accrued interest amount is calculated based on 6% of the principal for an
accrual period of 82 days. The last interest payment date was June 10, 2000. The
next interest payment date is expected on or around December 9, 2000. These
bonds are held in trust by the Canadian Imperial Bank of Commerce for the
benefit of the Mailcard rights purchasers (not controlled by company) and serve
as registered collateral on the Mailcard contingent sales agreement dated
September 17 1997. The amount of the collateral claim registered against these
bonds is $2,910,606 which is locked in until June 9, 2008. All of the interest
earned on this bond during the current fiscal year ($175 000), included in
interest income line on the consolidated statement of loss and accumulated
deficit, was used to fund the minimum required Mailcard software purchase
guarantee for the year. Premium amortization of $146 relating to this bond is
included in Interest expense for the current year. (See notes 10 & 13).

The net investment relating to this collateralized bond included in investments
on the balance sheet is as follows:

Bond and related unamortized premium $ 2,911,625
Collateralized portion (write of setoff exists) (2,910,606)
Net included in investments $ 1,019

The second bond is a Manitoba Savings Bond (Previously a Canadian Imperial Bank
of Commerce weekly guaranteed interest certiificate) in a principal amount of
$2,655,978 with an unamortized year end discount of $131,170 to be amortized
over the remaining six years to bond maturity. Accrued interest of $33,764 was
unpaid at the balance sheet date. The bonds earn interest at 5.10% per annum
(effective interest rate 5.41%) paid semi-annually and are locked in until
December 1, 2006. The accrued interest amount is calculated at 5.10% of the
principal for an accrual period of 91 days. The last interest payment was on
June 1, 2000. The next interest payment is expected to be on or around December
1, 2000. These bonds are held in trust These bonds are held in trust by the
Canadian Imperial Bank of Commerce-Wood Gundy for the benefit of the Casting
Workbook rights purchasers (not controlled by company) and serve as registered
collateral relating to the Casting Workbook software contingent sale agreement
dated December 31, 1997. The amount of the collateral claim registered against
these bonds is $2,502,931 which is locked in until December 31, 2007. All of the
interest earned on this bond during the current fiscal year ($102,028) plus
interest earned on the prior GIC to the date of conversion ($26,342), included
in interest income line on the consolidated statement of loss and accumulated
deficit, was used to fund the required casting workbook exclusivity payments
relating to the Casting Workbook software purchase guarantee for the year.
Discount amortization of $22,000 relating to this bond is included in Interest
revenue for the current year. (See notes 10 & 13).

The net investment relating to this collateralized bond included in investments
on the balance sheet is as follows:

Bond and related unamortized discount $ 2,524,808
Collateralized portion (write of setoff exists) (2,502,931)
Net included in investments $ 21,877

The third bond is a British Columbia Savings Bond (Previously a Canadian
Imperial Bank of Commerce weekly guaranteed interest certiificate ) in a
principal amount of $2,938,371 with an unamortized year end premium of $5,500 to
be amortized over the remaining nine years to bond maturity. Accrued interest of
$45,812 was unpaid at the balance sheet date. The bonds earn interest at 6.25%
per annum (effective interest rate 6.24%) paid semi-annually and are locked in
until December 1, 2009. The accrued interest amount is calculated at 6.25% of
the principal for an accrual period of 91 days. The last interest payment was on
June 1, 2000. The next interest payment is expected to be on or around December
1, 2000. These bonds are held in trust by the Canadian Imperial Bank of
Commerce-Wood Gundy for the benefit of the Casting Workbook rights purchasers
(not controlled by company) and serve as registered collateral relating to the
Casting Workbook software contingent sale agreement dated December 31, 1998. The
amount of the collateral claim registered against these bonds is $2,944,483
which is locked in until December 31, 2008. All of the interest earned on this
bond during the current fiscal year ($138,328) plus interest earned on the prior
GIC to the date of conversion ($33,556), included in interest income line on the
consolidated statement of loss and accumulated deficit, was used to fund the
required casting workbook exclusivity payments relating to the Casting Workbook
software purchase guarantee for the year. Premium amortization of $611 relating
to this bond is included in Interest expense for the current year. (See notes 10
& 13).

<PAGE>

The net investment relating to this collateralized bond included in investments
on the balance sheet is as follows:

Bond and related unamortized discount $ 2,943,872
Collateralized portion (write of setoff exists) (2,944,483)
Net reduction in investments $ (611)

The accrued interest balance shown on the balance sheet relates to the above
investments as follows: ( in 1,000's of Dollars US)

2000 1999

Interest accrued on Mailcard security held in trust $ 39 $ 39
Interest accrued on Casting Workbook security held in trust $ 80 --
$119 $ 39

The above investments are considered to be held to maturity debt investments
where the principal will be fully recovered and applied against the contingent
revenue amounts specified above. The investments above are held in trust, with
the company having no control over the investments. As a right of setoff exists
between the Bond investments and the collateralized contingent revenue to the
same individuals who provided the funding for the bonds, these amounts have been
offset on the balance sheet to more clearly present the company's net investment
asset position.

In the current fiscal year, contingent revenue which is secured by investments
held in trust have been offset against the related investments used as security.
The investments are now in trust for the providers of the contingent revenue
funds, leaving the company with no likely future economic benefit or future cash
flow from these investments (all interest earned on the investments is paid
directly to the secured parties). As there is a right to setoff relating to the
contingent revenue and collateral investments held in trust, these amounts have
been offset, with the net amount included in investments on the balance sheet.
The prior period comparative figures have been restated to conform with current
year presentation. This reclassification has resulted in a reduction in the
prior year net investments by $8,358,019 and a removal of the prior year
contingent revenue balance, which was previously $8,358,019. This adjustment has
no impact on the statement of loss and deficit for the company in the current or
prior year.

6. DEFERRED TAXES - NON CURRENT

<TABLE>
<CAPTION>
2000 1999

<S> <C> <C>
Total deferred corporate taxes $ 9,058 $ 4,677
Allowance due to lack of realization certainty (9,058) --
Less: Current Portion -- (3,934)
Non current portion $ Nil $ 743 included in "Other Assets"
</TABLE>

In the current year, it has been determined that virtual certainty of realizing
any future deferred tax benefit is not supported based on historical results,
therefore an allowance for the potential of not realizing this future benefit
has been setup as shown above.

<PAGE>

7. BANK OPERATING LOAN

The company has available a $75,000 operating line of credit with the Royal Bank
in Vancouver, British Columbia. The operating line of credit bears interest at
the rate of Royal Bank prime plus 1.75% per annum., secured by a primary claim
to specified operating assets of the company, as well as personal guarantees by
two of the company directors. At the balance sheet date, the company has used
$64,000 of this available operating line of credit. (See Note 20)

8. ACCOUNTS PAYABLE & ACCRUED LIABILITIES

Included in accounts payable and accruals is accrued distribution and
exclusivity fees of $119,000 relating to the Mailcard and Casting Workbook
contractual agreements . The remaining amount relates to trade payables and
operating accruals (Note 13). The breakdown of accounts payable and accruals
shown on the balance sheet is as follows: (In 1,000's of dollars US)

2000 1999

Trade Payables $ 191 $ 114
Payroll Deductions 27 6
Net Sales Taxes Payable (Recoverable) (41) (25)
Distribution and exclusivity fees 119 74
$ 296 $ 169

9. MORTGAGE PAYABLE

Mortgage payable consists of the following:

Mortgage payable to Vancity Credit Union bearing interest at 8.75% per annum
with monthly payments of $632 (Renewal May 2001) Secured by real estate (office)
at 208-2323 Boundary Road, Vancouver, British Columbia. The balance at August
31, 2000 is $76,000. The company expensed $6 500 in interest relating to this
loan in the current year ($6 500 in prior year).

Future principal payments are:

Fiscal Year Principal

2001 $ 744
2002 $ 812
2003 $ 885
2004 $ 966
2005 $ 1,065
Thereafter $ 71,528

10. CONTINGENCIES

(a) In the 1998 fiscal year, the company entered into a contingent sale
agreement for the sale of Mailcard software territory rights to unrelated third
parties. The company received and realized $523,000 in revenue as well as
$2,910,606 in funds which are secured by the purchasing party as collateral
against the purchasers portion of the projected minimum sales guaranteed by the
company over a ten year period (See note 5). If the 3.2 million minimum sales
units over the ten year period is met by the company, it shall receive the
collateral funds as income at a rate of approx. 97% of the gross sales amount
for the units sold in excess of 3.2 million units. Once all of the collateral
funds have been released and realized as income by the company, it will earn
100% of the Mailcard sales revenue less a perpetual fee of 3% - 5% of gross
revenue (depending on unit sale price) to the software rights purchasers. In the
event that the projected minimum sales over the ten year period is not met, the
company must make up this shortfall from the collateral funds and/or revenue
generated by the $2,910,606 held as collateral. To date, the company has not
made the minimum sales requirement and has funded the annual purchase guarantee
entirely from interest generated from collateral funds, this trend is expected
to continue until the end of the term.

The amount of future revenue relating to this contingency agreement is not
determinable until its ten year expiration date or until such time as the
minimum required sales level is met. As a result, revenue is realized on the
collection method, whereby deferred revenue is realized as income when funds are
released from collateral. At the balance sheet date, the cumulative minimum
sales has not yet been obtained, resulting in $2,910,606 included in unrealized
contingent revenue relating to this agreement at the balance sheet date. This
trend shows no current signs of improving. This unrealized revenue amount has
been offset against the collateral investment held in trust against this
contingent revenue unrealized (see note 5).

<PAGE>

The collateral funds are registered and are not accessible by the company until
such time as these funds (or portion thereof) are released by the secured
parties (None of these funds have been released to date). The term ending date
is December 28, 2007. The contingent (deferred) revenue amount above is secured
by a claim against the ten year BC Savings bonds held in trust for the company.

(b) In the 1998 fiscal year, the company also entered into a contingent sale
agreement for the Casting Workbook software territories rights to unrelated
third parties. The company received and realized $587,000 in revenue as well as
$2,503,000 in funds which are secured by the purchasing party as collateral
against the purchasers portion of minimum projected revenue of approximately
$5.895 million provided by the company over a ten year period (See note 5). If
the minimum casting revenue over the ten year period is met by the company, it
shall receive the collateral funds as income at a rate of approx. 97% of the
gross revenue amount for aggregate revenue generated in excess of the approx.
$5.895 million. Once all of the collateral funds have been released and realized
as income by the Company, the Company shall earn 100% of the Casting software
sales revenue less a perpetual fee of 3% to 5% of gross revenue (depending on
sales price) to the software rights purchasers. In the event that the projected
minimum revenue over the ten year period is not met, the company must make up
purchasers portion of these shortfall from the collateral funds held as
contingent revenue.

The amount of future revenue, should it occur, relating to this contingency
agreement is not determinable until its ten year expiration date or until such
time as the minimum required revenue level is met. As a result, revenue is
realized on the collection method, whereby deferred revenue is realized as
income when funds are released from collateral. At the balance sheet date, the
cumulative minimum has not yet been obtained, resulting in $2,503,000 remaining
in unrealized contingent revenue relating to this agreement at the balance sheet
date. To date, none of the funds held in trust have been released to the
company.

The collateral funds are registered funds held in trust and are not able to be
used by the company until such time as these funds (or portion thereof) are
released by the secured parties (none of these funds have been released to
date). The term ending date is December 31, 2007. These collateral funds are in
the form of Manitoba Saving Bonds held in trust. The amount of the secured
contingent revenue has been offset against its related investment collateral
asset on the balance sheet. (See note 5)

(c) In the 1999 fiscal year, the company also entered into a contingent sale
agreement for additional Casting Workbook software territories rights to
unrelated third parties. The company received and realized $655,000 in revenue
as well as $2,944,000 in funds which are secured by the purchasing party as
collateral against the purchaser's portion of the minimum projected revenue
amount of approximately $6.9 million provided by the company over a ten year
period (See note 5). If the minimum casting revenue over the ten year period is
met by the company, it shall receive the collateral funds as income at a rate of
approx. 97% of the gross revenue amount for aggregate revenue generated in
excess of the approx. $6.9 million. Once all of the collateral funds have been
released and realized as income by the Company, the Company shall earn 100% of
the Casting software sales revenue less a perpetual fee of 3% to 5% of gross
revenue (depending on sales price) to the software rights purchasers. In the
event that the projected minimum revenue over the ten year period is not met,
the company must make up the purchaser's portion of the shortfall from the
collateral funds held in trust as security against this contingent revenue.

The amount of future revenue, should it occur, relating to this contingency
agreement is not determinable until its ten year expiration date or until such
time as the minimum required revenue level is met. As a result, revenue is
realized on the collection method, whereby deferred revenue is realized as
income when funds are released from collateral. At the balance sheet date, the
cumulative minimum has not yet been obtained, resulting in $2,944,000 remaining
as unrealized contingent revenue relating to this agreement at the balance sheet
date. To date, none of the funds held in trust have been released to the
company.

<PAGE>

The collateral funds are registered funds held in trust and are not able to be
used by the company until such time as these funds (or portion thereof) are
released by the secured parties (None of these funds have been released to
date). The term ending date is December 31, 2008. These collateral funds are in
the form of British Columbia Savings Bonds. The amount of the contingent revenue
has been offset against its related investment asset on the balance sheet. (See
note 5).

(d) In the 1998 fiscal year, the company purchased the rights to software for
use in the production of commercials. The agreement gives the company the right
to the sale of commercial production service worldwide. The total purchase price
was $3,950,000 . The payment of the purchase price consists of two payments of
$100,000 (paid), the issuance of 250,000 common shares at a value of $1 per
share (issued) and the issuance of a note payable of $ 3,500,000. In the 1999
fiscal year, the company expended an additional $8,000 relating to this
agreement. The agreement was with Columbus Software Inc. The note payable is due
only if the company achieves specified sales objectives on or before August 31,
2008.

Due to the contingent nature of the note payable, the purchase price
attributable to the note amount of $3,500,000 is not presented in the financial
statements. Instead, the amount of the purchase price actually expended of $450
000 and the additional $8,000 cost is classified as an other asset and will be
amortized over the estimated useful life of three years. This resulted in a
charge for amortization of $152,667 in the current fiscal year, leaving $152,667
unamortized at the balance sheet date. The remaining purchase price of
$3,500,000 will be recognized dollar for dollar against revenues generated by
this service. The agreement also calls for a percentage of gross revenues to be
paid to Columbus Software, Inc., on revenues generated over and above the
purchase price. To date, there has been no revenue generated to the company
related to this purchase agreement.

11. STOCKHOLDERS' EQUITY

Statement of Changes in Stockholders' Equity (Including Accumulated Deficit
Statement)

<TABLE>
<CAPTION>
Class A Common Preference Shares Paid In
Shares Amount Shares Amount Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance 8/31/99 10,480,614 $ 7,041 3,673,292 2,439 $ 1,497,399 ($943,070)
Shares Cancelled (853,974) (396) 396
Comprehensive Income (1,070,775)
---------- -------- --------- -------- ----------- -----------
Balance 8/31/00 9,626,640 $ 6,645 3,673,292 $ 2,439 $ 1,497,795 ($2,013,845)
Current Year Currency Adjustment (12,000)
Accumulated Deficit 8/31/00 ($2,025,845)
</TABLE>

The preference shares above are non-voting, redeemable and retractable on or
before March 1, 2004. These shares are non-cumulative and do not have a fixed
dividend rate. These preferred shares earn dividends at the same rate as the
class A common shares when a dividend on the class A common shares is declared.
These shares may be converted to common shares at the discretion of either the
company or the shareholders at a conversion rate of one common share for each
preference share converted.

12. LEASE OBLIGATIONS

The company has the following estimated future lease obligations based on
current and projected lease agreements.

<TABLE>
<CAPTION>
DESCRIPTION 2001 2002 2003 2004 2005

<S> <C> <C> <C> <C> <C>
Computer & Office Equip 60,000 63,000 66,000 68,000 70,000
Vancouver Office Lease 10,000 10,500 11,000 11,500 12,000
Toronto Office Lease 11,000 11,500 12,000 12,500 13,000
LA Office Lease 59,000 60,000 61,000 62,000 63,000
TOTALS 140,000 145,000 150,000 154,000 158,000
</TABLE>

In the current year computer and office equipment leases totaled $59 000 (1999
$48 000). Aggregate office rent totaled $ 64,000 (1999 $24,000).

<PAGE>

13. OTHER CONTINGENT LIABILITIES

(a)The company is obligated purchase a minimum of approximately $175 000 per
calendar year of Mailcard software for purposes of distribution on behalf of the
software vendors. This obligation remains in effect until at least December 28,
2007, at which time, the agreement may be terminated or renewed, depending on
circumstances at that time. The company is also required to purchase an
additional 2 560 000 copies at an estimated price of approximately $4 per copy
of the Mailcard Software on or before December 28, 2007. Included in accounts
payable and accruals is an accrual of $39 000 representing the portion of the
obligation payable but not yet due or paid at the balance sheet date. This
amount was based on the interest accrued on the collateralized BC Savings Bonds
Investment (Note 5) which is to be paid directly to the collateralized party to
cover the guaranteed purchase amount. This amount is paid semi-annually on or
around June 10 and December 9 of each calendar year. For the fiscal year ended
August 31, 2000, the company has paid $136 000 from interest generated by the
collateral amount with $39,000 remaining to be paid at the balance sheet date,
to be paid from the interest accrued on the collateral bonds.

(b)The company is also obligated to pay minimum exclusivity fees, which is the
interest earned on the Manitoba and British Columbia Savings Bonds (Prevously
CIBC weekly GICs, which were converted to bonds during year) (note 5), per
calendar year for the right to provide management services related to the
Casting Workbook. This minimum obligations remains in effect until December 28,
2007 and 2008 (note 10), at which time, the agreements may be terminated or
renewed, depending on the circumstances at that time. Included in accounts
payable and accrued liabilities is an accrual of approximately $80,000, which is
the interest earned on the collateralized Manitoba and British Columbia Savings
Bonds (Note 5) relating to this agreement from June 1, 2000 to August 31, 2000,
which has not yet been paid to the Casting Workbook purchasers. For the fiscal
year ended August 31, 2000, the company has paid $220,000 from interest
generated by the collateral amount and has accrued an additional $80,000, as
discussed above, at the balance sheet date to be paid from interest accrued on
the collateral bonds.

In the event that sales are not sufficient to meet the minimum requirements in a
& b above, any shortfall will be covered by interest generated by the security
held in trust. See above.

14. INCOME TAXES

The company has approximate income tax losses in the Canadian subsidiary which
may in certain circumstances be applied against taxable income of the Canadian
subsidiary in future years to reduce taxes otherwise payable as follows:

Year of Expiry Amount of Loss

2002 10,000
2003 87,000
2004 138,000
2005 82,000
2006 120,000
2007 1,050,000

$1,487,000

The estimated net operating loss resulting from the operations of the American
parent company total approximately $33 000 ($180,000 in 1999) which may in
certain circumstances be applied against taxable income of the parent company in
future years. These loss carryforwards expire in 2020 and 2019 respectively.

15. DEVELOPMENT COSTS

Expenditures relating to Casting Workbook enhancements and refinements are
expensed in the period in which they are incurred. These costs consist primarily
OF personnel related costs for programming work to maintain and improve the
existing Casting Workbook software. These costs are not believed to have any
alternative future uses, as such they are expensed as incurred and included in
cost of sales as they relate to continuing subscription revenue.

Costs relating to development of Casting Workbook enhancements which are still
in development at the balance sheet date, are considered to be unfinished
enhancements to the Casting Workbook at the balance sheet date. As such, these
development costs (primarily personnel related) are expensed in the period in
which they are incurred. These enhancements are thought to be necessary to keep
the Casting Workbook software useful in the current market. As such, these costs
are included in cost of sales, as they relate to the continuing usefulness of
the Casting Workbook and the related subscription revenue earned through the use
of the Casting Workbook software.

<PAGE>

16. RELATED PARTY TRANSACTIONS

The company had the following related party transactions included in General &
Administrative Expenses on the Consolidated Statement of Loss and Accumulated
Deficit:

2000 1999

Management Fees: $ 152,474 $ 255,700

At the balance sheet date, the company has approximately $140,000 payable to
companies controlled by or related to directors of the company for services
provided relating to management contracts. During the current fiscal year
$12,474 of the $152,474 was paid out to the related parties, with the remainder
being payable as discussed above.

17. ACCUMULATED OTHER COMPREHENSIVE INCOME

Foreign Total Accumulated
Currency Other Comprehensive
Items Income

Beginning balance $ 308 $ 308
Current Period change 12 12
Ending balance $ 320 $ 320

18. NOTE PAYABLE

Payable to the Telus New Media and Broadcast Fund, located in British Columbia,
Canada, which assists in funding new media projects in British Columbia.
Principal amount of loan is $68,000. Loan bears interest at a rate of 6.75% per
annum and is secured by assets of the company subordinated to the Royal Bank's
claim relating to security for the operating line of credit (Note 7). At the
balance sheet date, the note total includes accrued interest of $4,000. The loan
principal was scheduled to be repaid as follows $34,000 on August 31, 2000
(unpaid at audit date), with the remaining $34,000 to be repaid at $3,400 per
month from September 2000 through June 2000 These payments have yet to be paid
at the audit date.

19. LOAN PAYABLE - SHAREHOLDER

These are funds advanced to the company throughout the year to help the company
meet its cash flow requirements. These funds are non interest bearing, with no
fixed terms of repayment. (See Note 20)

20. SUBSEQUENT EVENTS

Subsequent to the balance sheet date, the following events have taken place:

a) The company has received $150,000 relating to a proposed reorganization of
On-Line Film Services Inc. (Subsidiary) These funds are considered an advance on
the future reorganization of the subsidiary. Negotiations are scheduled to
continue until February 28, 2001. This re-organization relates to a
collaboration to use the Casting Workbook and related software on a larger scale
in the entertainment industry. It is also intended to provide the company with
increased annual working capital for operations At the balance sheet date, due
diligence and negotiations are still being completed.

b) The company has collected approximately $76,000 relating to August 31, 2000
year end accounts receivable up to November 30, 2000.

c) The company has received approximately $67,000 in loans from shareholders and
related parties.

d) At the audit date, the company has reduced it bank operating loan payable by
approximately $10,000 since the balance sheet date.

<PAGE>

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

The Company has not changed accountants and we have had no disagreements with
the findings of our accountants.

Item 9. Directors, Executive Officers, Promoters and Control Persons

The directors, executive officers, promoters and control persons of the
Company have not changed since the Company's plan of reorganization completed in
March 1999 as such were disclosed in the Company's registration documents, and
they are as follows:

AEROCK FOX

President & Chief Executive Officer, Director since March 1999

Since December 1994 Mr. Fox, who is 53 years old, has served as President
and director of Online. Prior thereto Mr. Fox founded and served (and continues
to serve) as president of Fox Productions Inc., a privately owned production
company. Mr. Fox's degrees in Education and Business at McGill University; he
also received Masters Degree in Psychology while majoring in Business and
Education at the University of British Columbia. Aerock Fox is married to Susan
Fox.

TERRY ROYCROFT

Vice President Investor & Corporate Relations, Director since March 1999

Since December 1994 Mr. Roycroft, who is 43 years old, has served as a Vice
President and director of Online. Prior thereto Mr. Roycroft founded and served
(and continues to serve) as president and director of Croft Entertainment Inc. a
privately held company.

SUSAN FOX

Vice President of Marketing & Sales since March 1999

Since December 1994, Mrs. Fox, who is 42 years old, has served as a Vice
President of Online. Prior thereto she served as an executive producer of Fox
Productions Inc. Mrs. Fox is Aerock Fox' wife. Mrs. Fox has four years of post
secondary education that includes Arts and Literature from Douglas College,
Business, Architectural design and Contract Law from BCIT and Fine Arts from
Langara College. Susan Fox is married to Aerock Fox.

Item 10. Executive Compensation

The only executive compensation paid during the fiscal year was made in cash and
cash deferred payments to the persons set out in Item 9 above and in the total
of $152,474 (See also Note 16 to the Audited Financial Statements included
herein).

<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial
ownership of the Class A Common Stock as of October 31, 1999, (1) each person
who is known by the Company to own beneficially more than five percent (5%) of
the Class A Common Stock; (2) each of the Company's directors and officers; and
(3) all of the Company's directors and officers as a group.

================================================================================
NAME AND ADDRESS OF BENEFICIAL OWNER NO. OF

VOTING

SHARES BENEFICIALLY %

OWNED
--------------------------------------------------------------------------------
Aerock Fox (President & Director)

2390 W. Queens Ave.

Vancouver, BC Canada V6V 2Y6 2,488,316 (1)(3) 26%
--------------------------------------------------------------------------------
Terry Roycroft (Secretary-Treasurer & Director)

5120 Bessborough Drive

Burmaby BC Canada V5B 4N9 1,834,976 (2)(4) 19%
--------------------------------------------------------------------------------
Susan Fox

2390 W. Queens Ave.

Vancouver, BC Canada V6V 2Y6 2,488,316 (3)(1) 26%
--------------------------------------------------------------------------------
Sharon Fox

5120 Bessborough Drive

Burmaby BC Canada V5B 4N9 1,834,976 (4)(2) 19%
--------------------------------------------------------------------------------
Kirt W. James

34861 Spinnaker

Dana point CA 92629 527,026 5%
--------------------------------------------------------------------------------

All Officers & Directors as a Group (2 persons) 4,323,292 45%

================================================================================

(1) The 2,488,316 shares of Class A Common Stock beneficially owned by Mr. Fox
consists of (i) 300,000 shares owned directly by his wife, Susan Fox, (ii)
1,967,516 shares of Class B Shares, owned directly by Mr. Fox, and (iii)
220,800 shares of Class B Shares owned by his wife, Susan Fox.

(2) The 1,834,976 shares of the Company's Class A Common Stock owned
beneficially by Mr. Roycroft consists of (i) 350,000 shares of Class A
Common Stock owned directly by Mr. Roycroft, (ii) 1,104,976 shares of Class
B Shares owned directly by Mr. Roycroft and (iii) 380,000 shares of Class B
Shares owned directly by his wife, Sharon Fox.

(3) The 2,488,316 shares of Class A Common Stock beneficially owned by Susan
Fox, Mr. Fox's wife, consist of (i) 300,000 shares of Class A Common Stock
owned directly by Mrs. Fox; (ii) 220,800 shares of Class B Shares owned
directly by Mrs. Fox; and (iii) 1,967,516 shares of Class B Shares owned
directly by Mrs. Fox's husband, Aerock Fox. Susan Fox and Sharon Fox are
not related.

(4) The 1,834,976 shares of Class A Common Stock beneficially owned by Sharon
Fox consist of (i) 350,000 shares owned directly by her husband Terry
Roycroft; (ii) 380,000 shares of Class B Shares owned directly by Mrs. Fox;
and (iii) 1,104,976 shares of Class B Shares owned directly by her husband,
Terry Roycroft. Susan Fox and Sharon Fox are not related.

Item 12. Certain Relationships and Related Transactions

None.

Item 13. Exhibits and Reports on Form 8-K

None.

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant,
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized. ONLINE PRODUCTION SERVICES, INC. Date: December 13, 2000

By: /s/ Aerock Fox, President