Notes to Financial Statements

Note 1 Organization
The company was incorporated on March 19, 1997, under laws of the state of California. The Company is engaged in the development, production and distribution of motion pictures.

Note 2 Method of Accounting
Assets, liabilities, revenues and expenses are recorded under the accrual method of accounting for both financial statements and income tax purposes.

Note 3 Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Note 4 Film Library and Projects under Development
Film Library and projects in progress are stated at the lower of amortized cost or market. Upon completion, cost are amortized on an individual production basis in the proportion of current gross revenues divided by the Management's estimate of total gross revenues with such estimates being reviewed at least quarterly pursuant to FASB 53.

Note 5 Income Taxes
Income taxes are accounted for in accordance with Statement of Financial Accounting Standards SFAS No. 109 "Accounting for Income Taxes". The Statement employs an asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS No. 109, the effect on deferred income taxes of a change in tax rates is recognized income in the period that includes the enactment date.

Note 6 Development Stage Company
Since the inception, the Company has been primarily involved in raising capital, commencing production schedules for various projects under progress, and acquiring services in the field of legal, financial, and entertainment to promote the company and develop it's future infrastructure.

The Company has devoted substantially all of its efforts toward establishing the entity, by developing various projects and operating the day to day activities. The Company has not generated any significant revenues since its inception. Upon development, release and distribution of motion pictures, more steady revenue can be expected. Theses financial statements comply with the reporting requirements under SFAS No. 7 for Development Stage Companies

NEO MODERN ENTERTAINMENT, CORP.
(A Development Stage Company)

Notes to Financial Statements

Note 7 Film Library and Projects in Progress
On May 1, 1997 the Company acquired the rights, interests, and titles to certain feature motion pictures and projects in progress from Filmart, Inc., Rafael Zelinsky and related companies subject to the related liabilities. The Company incurred additional costs for Projects in Progress, which were capitalized pursuant to FASB 53. As of March 31, 2000 the cost for the completed film "Fun" amounted $465,248 less accumulated amortization of $362,748 and the cost of the film in progress "Bohemia" is $341,726 with an estimated cost to complete of $200,000 ($100,000 for the completion of principal photography and $100,000 for post production).

Note 8 Organization Cost
Organization cost is amortized ratably over a 60 months period.

Note 9 Accounts Payable
Account payable includes project development costs, which consists of expenses incurred but not paid. The accounts payable includes liabilities and obligation acquired as part of the agreement with Filmart, Inc., as explained in Note 7, in addition to the Company's current payables.

                                             3/31/2000         12/31/1999
                                             ---------         ----------

Rafael Zelinsky & Filmart Inc.
 including interest @ prime plus one          $179,468          168,468
Deluxe Lab (NOTE 13)                            90,000           90,000
Other plus interest @
   prime plus one                               37,163           36,163
                                            ----------       ----------

Total                                         $306,631         $294,631
                                            ==========       ==========

Note 11 Capital Stock
Due to limited cash resources, the Company engaged various individuals or entities to provide legal, financial, creative, script writing and administrative services by issuing common stock.

Note 12 Compensation
On October 31, 1999 the Board of Directors ratified an employment contract to the President/CEO for a term of seven years starting from March 21, 1997 calling for the issuance of 18,088,182 in stock options at par value exercisable 4,575,000 shares by March 21, (which were exercised), the balance exercisable every 90 days incrementally through March 21, 2004. The contract also calls for compensation starting March 21, 1997, of $2,000 per month increasing by 25% each year for seven years to be paid plus 10% simple interest when funds are available in excess of operating needs as approved by the Board of Directors. No salary has been paid to date.

In addition the other 2 members of Board of Directors will receive 8000 shares per month until November 2000.

Note 13 Commitment & Contingencies
The company owes Deluxe Lab $90,000 colateralized by the U.S. video rights of the movie "Fun". They will be paid from the income from sales. Compensation owed to the President/CEO due to date is $91,500 plus interest. This will be paid by Board approval (see Note 12).