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Internetstudios Com Inc – ‘10QSB’ for 9/30/05

On:  Friday, 12/23/05, at 3:45pm ET   ·   For:  9/30/05   ·   Accession #:  1085037-5-1888   ·   File #:  0-27363

Previous ‘10QSB’:  ‘10QSB’ on 9/22/05 for 6/30/05   ·   Latest ‘10QSB’:  This Filing

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

12/23/05  Internetstudios Com Inc           10QSB       9/30/05    4:272K                                   Clark Wilson/FA

Quarterly Report — Small Business   —   Form 10-QSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10QSB       Quarterly Report -- Small Business                  HTML    181K 
 2: EX-10       10.18 Promissory Note                               HTML     15K 
 3: EX-31       31.1 Section 302 Certification                      HTML     10K 
 4: EX-32       32.1 Section 906 Certification                      HTML      7K 


10QSB   —   Quarterly Report — Small Business


This is an HTML Document rendered as filed.  [ Alternative Formats ]



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended  September 30, 2005

[

] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to __________

Commission file number  000-27387

INTERNETSTUDIOS.COM, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada

 

134009696

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

322 East 50th Street, New York, NY 10022

(Address of principal executive offices)

 

(212) 489-0645

(Issuer’s telephone number)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  14,581,967 common shares issued and outstanding as of December 19, 2005

Transitional Small Business Disclosure Format (Check one):  

Yes [

]  

No x

Check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). .  Yes o  No x

Transitional Small Business Disclosure Format (Check one):

Yes [

]

No o

 

 



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PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

The accompanying unaudited interim financial statements of Internetstudios.com Inc. at September 30, 2005 and December 31, 2004, and the statements of operations for the three and nine months ended September 30, 2005 and 2004, and the cash flows for the three and nine months ended September 30, 2005 and 2004, have been prepared by our management and they include all information and notes to the financial statements necessary for a complete presentation of the financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

 

 



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INTERNETSTUDIOS.COM, INC.

 

(A Development Stage Company)

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2005

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS

 

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

3

 



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INTERNETSTUDIOS.COM, INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

 


 

The accompanying notes are an integral part of these interim consolidated financial statements

 

4

 



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INTERNETSTUDIOS.COM, INC.

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 


 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

5

 



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INTERNETSTUDIOS.COM, INC.

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


 

SUPPLEMENTAL CASH FLOW INFORMATION (Note 11)

 

The accompanying notes are an integral part of these interim consolidated financial statements

 



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INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS

The Company was incorporated on April 14, 1998 in the State of Nevada as The Enterprise, Inc. Effective December 14, 1998, the Company changed its name to eHealth.com, Inc., and on September 20, 1999 changed its name to InternetStudios.com, Inc. The Company is an emerging entertainment media company. Its business model has evolved to incorporate innovative structures and technology to address the marketing, sales and releasing of filmed entertainment. The current business direction includes the acquisition of existing libraries of motion pictures and television programming which will be marketed and sold internationally. Through a wholly-owned subsidiary, we acquire the distribution and marketing rights to independent film products from around the world and we market and distribute these products, including theatrical motion pictures, television programs, home video products, and digitally-delivered entertainment and media. Currently, our catalogue consists of films from Japan, Thailand, India, the Czech Republic, the United Kingdom and the United States, with a focus on “world cinema”. During the current quarter, management re-evaluated its business plan and made a decision to re-introduce to the filmed entertainment industry an internet portal it had developed in 1999-2002. The technology provides transactional and digital rights management tools to owners of filmed entertainment allowing the filmed entertainment community worldwide to maximize profit opportunities from the licensing of filmed entertainment through traditional distribution channels, together with complementary technology to track such transactions

 

Going concern

These consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has a working capital deficiency of $1,568,874 at September 30, 2005 (December 31, 2004 - $1,269,448) and has incurred losses since inception of $70,058,280, and further losses are anticipated in the development of its business and there can be no assurance that the Company will be able to achieve or maintain profitability. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.

 

The Company's continued operations are dependent on the successful implementation of its business plan, its ability to obtain additional financing as needed, continued support from creditors, settling its outstanding debts and ultimately attaining profitable operations. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

 

There can be no assurance that capital will be available as necessary to meet the Company’s working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company. The issuances of additional equity securities by the Company may result in a significant dilution in the equity interests of its current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company's liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected.

During 2004 the Company completed an agreement to acquire the Trocadero film library. (Note 4) Management is currently seeking funding sources to implement the Company's plan for production and distribution of DVDs (digital video discs) to be derived from the Trocadero library. Our plan is also to seek funds to update the Company’s previously developed technology that will provide transactional and digital rights management tools to owners of filmed entertainment allowing the filmed entertainment community worldwide to maximize profit opportunities from the licensing of filmed entertainment through traditional distribution channels, together with complementary technology to track such transactions. The technology which is still under development is expected to provide solutions for the content owner to optimize and digitally distribute filmed entertainment directly to the consumer through the InternetStudios platform. The updated technology when complete will be used to manage and license the Company’s Trocadero film library as well as filmed entertainment owned by other rights holders. The development of the technology is dependent on the ability of the Company to raise sufficient funds to bring the technology to a commercial version.

Montecristo Entertainment LLC was formed in December 2004 and is responsible for the sales, marketing and distribution of the Trocadero Library content, as well as the sales, marketing and distribution other acquired film content through outside sources

 

 



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INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB of Regulation S-B. They may not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements for the period ended December 31, 2004. The interim unaudited financial statements should be read in conjunction with those financial statements. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

 

Comparative figures

Certain of the comparative figures have been reclassified to conform to the current year’s presentation.

Principles of consolidation

The financial statements include the accounts of the Company and its three 100% owned subsidiaries: Montecristo Entertainment, LLC, formerly International Media Acquisition Group LLC (“IMAG”); Online FilmandTVSales.com, Inc. (inactive); and InternetStudios UK Limited (inactive). All intercompany accounts and balances have been eliminated in consolidation.

Use of estimates and assumptions

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

Cash and cash equivalents

The Company considers all liquid investments with an original maturity of three months or less to be cash equivalents.

 

Financial Instruments

In accordance with the requirements of SFAS No. 107, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities including cash and cash equivalents, notes and accounts receivable, notes and accounts payable and accrued liabilities, advances due to related parties, and loans payable, approximate carrying value due to the immediate or short-term maturity of these financial instruments.

 

Foreign currency translation

The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations. Translation adjustments were immaterial for all periods presented.

 

Revenue recognition

The Company recognizes revenue in accordance with Statement of Accounting Position 00-2 “Accounting by Producers or Distributors of Films”. Revenue is recognized from a sale or licensing arrangement of a film when:

 

persuasive evidence of a sale or licensing arrangement with a customer exists;

 

 

the film is complete and, in accordance with the terms of the arrangement;

 

 

the film has been delivered or is available for immediate and unconditional delivery;

 

 

the license period of the arrangement has begun and the customer begins the exploitation, exhibition or sale; and

 

the arrangement fee is fixed or determinable; and collection of the fee is reasonable assured.

 

For agency fees earned on the distribution of films, the Company recognizes revenue on a net basis, in accordance with EITF 99-19.

 

 



- 9 -

 

 

INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

Revenue from all other sources is recognized when the amount is fixed or determinable, delivery has occurred or initial services have been performed, and collection is reasonably assured.

 

Any amounts received in advance of the goods being delivered or services being performed are recorded as deferred revenue.

Net loss per common share

Basic loss per share includes no dilution and is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution of securities that could share in the earnings of the Company. Fully diluted loss per share has not been presented as the effects of convertible securities and stock options have been excluded as they are anti-dilutive.

Stock based compensation

In December 2002, the Financial Accounting Standards Board issued Financial Accounting Standard No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No. 148”), an amendment of Financial Accounting Standard No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”). The purpose of SFAS No. 148 is to: (1) provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation, (2) amend the disclosure provisions to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation, and (3) to require disclosure of those effects in interim financial information. The disclosure provisions of SFAS No. 148 were effective for the Company for the year ended December 31, 2004.

The Company has elected to account for stock options granted to employees and officers using the intrinsic value based method in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, (“APB No. 25”) and comply with the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148 as described above. Under APB No. 25, compensation expense is recognized based on the difference, if any, on the date of grant between the estimated fair value of the Company’s stock and the amount an employee must pay to acquire the stock. Compensation expense is recognized immediately for past services and pro-rata for future services over the option-vesting period. In addition, with respect to stock options granted to employees, the Company provides pro-forma information as required by SFAS No. 123 showing the results of applying the fair value method using the Black-Scholes option pricing model.

 

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.

 

The Company has also adopted the provisions of the Financial Accounting Standards Board Interpretation No.44, Accounting for Certain Transactions Involving Stock Compensation – An Interpretation of APB Opinion No. 25 (“FIN 44”), which provides guidance as to certain applications of APB 25. FIN 44 is generally effective July 1, 2000 with the exception of certain events occurring after December 15, 1998.

Income taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. As at September 30, 2005 the Company had net operating loss carry forwards; however, due to the uncertainty of realization the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carry forwards.

 

 



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INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

 

NOTE 3 – RKO PICTURES, LLC

 

By Agreement dated May 8, 2003, as amended on June 6, 2003, IMAG entered into a Letter of Intent to acquire 100% of the membership interests of RKO Pictures, LLC (RKO). Pursuant to the terms of the RKO Letter of Intent, the Company has agreed to acquire 100% of the membership interests of RKO Pictures, LLC in consideration for $5.5 million in cash. In addition to the purchase price, the Company is required to have a working capital reserve of $4.5 million. A warrant was also to be issued to the members of RKO Pictures, LLC entitling them to acquire up to five (5%) percent of the Company's fully diluted share capital post-acquisition. The completion of this acquisition is subject to ongoing due diligence, completion of the required financing and the execution of a definitive purchase agreement. As of December 31, 2003, the Company had paid a deposit of $687,500 to RKO Pictures, LLC.

 

The deposits of $687,500 were secured by Promissory Notes, which bear interest at the California Federal Bank prime rate and are as follows:

- Promissory Note dated May 14, 2003 in the amount of $125,000, repayable by May 14, 2004;

- Promissory Note dated June 16, 2003 in the amount of $250,000, repayable by June 16, 2004;

- Promissory Note dated July 7, 2003 in the amount of $250,000, repayable by July 7, 2004;

- Promissory Note dated August 7, 2003 in the amount of $62,500, repayable by August 7, 2004.

Closing of the RKO acquisition was scheduled for September 2, 2003 and final documentation was executed between the Company, IMAG and RKO in anticipation of such closing. However, the Letter of Intent expired according to its terms because the financing for this transaction did not close.

 

On July 2, 2004, RKO, IMAG, and the Company executed a Mutual Release Agreement under the terms of which the parties agreed to refrain from taking any legal action with respect to the negotiations respecting the acquisition of RKO by the Company and IMAG. On July 2, 2004, RKO repaid the promissory note dated May 14, 2003 (in the amount of $125,000 plus $6,047 accrued interest) and the promissory note dated June 6, 2003 (in the amount of $250,000 plus $10,684 accrued interest). On July 9, 2004, RKO repaid the promissory note dated July 7, 2003 (in the amount of $250,000 plus $10,000 accrued interest) and on August 6, 2004, RKO repaid the Promissory Note dated August 8, 2003, (in the amount of $62,500 plus $2,500 accrued interest).

 

As of September 30, 2005, RKO is no longer indebted to the Company and negotiations to acquire RKO under the terms of the RKO Letter of Intent have ceased. As a term of the Mutual Release Agreement, the parties have agreed to continue to negotiate a licensing arrangement whereby the Company would create and distribute its DVD (digital video disc) products under the RKO brand name: however, the negotiations have ceased.

NOTE 4 – DEPOSIT ON ACQUISITION

 

On February 13, 2003, as amended on July 30, 2003, January 19, 2004, and April 27, 2004, the Company entered into a Letter of Intent with Dominique Bigle ("Bigle") to acquire Bigle's library of over 1,500 motion pictures (the "Trocadero Library"). In consideration for acquiring the Trocadero Library, the Company agreed to issue to Bigle one million (1,000,000) shares of its common stock and to pay $140,000 to Bigle. As of December 31, 2004, the Company had paid a deposit of $140,000 to Bigle and issued the 1,000,000 shares which were valued at $700,000.

 

On April 27, 2004, the Company entered into an Amending Agreement whereby the Company agreed that it would register for resale by June 27, 2004 the shares issued to Bigle and that Bigle would provide services under an interim Consulting Agreement. Pursuant to the Consulting Agreement, the Company agreed to pay Bigle $150,000 for a 12 month term ending December 2005 in consideration of Bigle assisting with the acquisition of RKO Pictures. The Company terminated the Consulting Agreement in March 2005.

 

 



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INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

NOTE 4 – DEPOSIT ON ACQUISITION (continued)

 

The Company has paid for full consideration of the library which has been acknowledged by the seller. Although there has not been a formal closing and transfer of the library materials, the Company will take delivery of masters on an “as needed” basis in conjunction with orders for specific film titles. In August 2005, Bigle asserted the acquisition was not completed and was terminated and returned our share certificate number 337, representing the 1,000,000 common shares that we issued to him in February, 2004, receipt of which he had acknowledged when he signed the amending agreement of April 27, 2004. The Company believes that Bigle’s position is inconsistent with the clear language of the agreements pursuant to which we acquired the Trocadero library from him. We have informed Mr. Bigle that we believe that his assertions are without merit and that we will initiate appropriate legal action against him if he persists in disputing our ownership of the Trocadero library. Nonetheless, due to the uncertainty of realization of the carrying value of this investment the Company has recognized an impairment charge of $700,000 during the current quarter, representing the original value of the shares issued in the acquisition.

NOTE 5 – LOANS PAYABLE

 

Loan

On May 17, 2005, the Company received a loan of $50,000 that was secured by a promissory note; guaranteed by an officer of the Company and bore interest of 10% per annum. As of September 30, 2005, the balance owing was $50,000 plus $1,262 in accrued interest. The note was due and payable with accrued interest on September 30, 2005 thereon. (Note 11(d))

 

Convertible Loan

On July 14, 2003, the Company received $300,000 by way of a convertible loan bearing interest at 12% per annum, compounded monthly, due the earlier of July 14, 2004, or seven days after the close of a proposed financing. The loan was convertible into common stock at the lesser of $1.00 or a 15% discount to the five day average trading price before the date of conversion and was secured by the July 7, 2003 RKO promissory note in the amount of $250,000 held against the acquisition deposits as described in Note 3. A lender's bonus of 300,000 common shares was paid on this transaction. The shares had a fair market value of $300,000 and this amount was recorded as a deferred finance fee and has been amortized over the life of the loan. By an agreement dated July 19, 2004, the lender agreed to accept repayment of $250,000 (paid) of the principal of the loan, and to extend the repayment of the $50,000 balance and any accrued interest to December 31, 2004. As of April 28, 2005 the balance owing was $86,000 plus $6,708 in interest.

On April 28, 2005 a “Notice of Conversion” was issued for 472,758 shares of common stock as payment for the principal and interest owing on this debt. (Note 7).

 

Convertible Loan

On July 7, 2003 the Company received $150,000 by way of a convertible loan bearing interest at 10% per annum, compounded monthly, due June 25, 2004. The note was convertible into common stock at the lesser of $1.00 per share or a 15% discount to the five day average trading price before the date of conversion. In January 2004 this note was amended to be convertible into common stock at a price of $0.50 per share. The Company had the right to repay all of the principal and accrued interest outstanding under this Note at any time before June 25, 2004 at one-hundred and twenty-five (125%) of the face value of this Note, plus accrued interest to the date of repayment. As of September 30, 2005, the balance owing was $150,000 plus $39,802 in accrued interest (Note 11).

 

Convertible Loan

On June 20, 2003 the Company received $250,000 by way of a convertible loan bearing interest at 12% per annum, compounded monthly, due the earlier of June 20, 2004 or seven days after the close of a proposed financing. The loan was convertible into common stock at the lesser of $1.00 per share or a 15% discount to the five day average trading price before the date of conversion and was secured by the promissory notes issued by RKO dated May 14, 2003 and June 16, 2003 in the aggregate amount of $375,000 held against the acquisition deposits as described in Note 3. A lender's bonus of 350,000 common shares was recorded payable on this transaction. The shares had a fair market value of $297,500 and this amount was recorded as a deferred finance fee and has been amortized over the life of the loan. The Company issued 175,000 shares and has an obligation to issue an additional 175,000 common shares. This loan was repaid on July 5, 2004 and the security on the promissory notes was released.

 

 



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INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

NOTE 5 – LOANS PAYABLE (continued)

Convertible Loan

On July 28, 2003 the Company received $100,000 by way of a convertible loan bearing interest at 10% per annum, compounded monthly, due July 28, 2004. The loan was convertible into common stock at the lesser of $1.00 per share or a 15% discount to the five day average trading price before the date of conversion. The Company had the right to prepay all of the principal and accrued interest outstanding under this Note at any time before May 28, 2004 at one-hundred and twenty-five (125%) of the face value, plus accrued interest to the date of pre-payment. As of September 30, 2005, the balance owing was $100,000 plus $9,022 in accrued interest (Note 11). During the quarter ended March 31, 2005 the Company recorded an additional liability to issue 100,000 shares at a deemed fair value of $0.25 as a lender’s bonus of $25,000.

NOTE 6 – RELATED PARTY TRANSACTIONS

 

During the period, the Company’s sole director and chief executive officer advanced $41,970 to the Company and had management fees accrued in the amount of $112,550 leaving $180,640 owing as at September 30, 2005. This amount is non-interest bearing with no specified repayment terms.

 

During the period, the president of a subsidiary of the Company advanced $73,648 to the Company and had management fees accrued in the amount of $122,400 leaving $127,908 owing as at September 30, 2005. This amount is non-interest bearing with no specified repayment terms.

 

All related party transactions are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

 

NOTE 7 - CAPITAL STOCK

 

During August 2003 the Company issued 175,000 common shares at a price of $0.85 per share and has an obligation to issue a further 175,000 common shares valued at $148,750 to a lender for payment of a lender’s bonus (refer to Note 5). To date these shares have not been issued.

 

During October 2003 the Company agreed to issue 547,086 common shares at a price of $0.50 per share to a lender in settlement of a loan in the amount of $273,543. As of September 30, 2005 these shares had not been issued. During March 2005 the Company agreed to issue 1,092,000 common shares at a price of $0.25 per share in settlement of this debt. As of September 30, 2005, these shares have not been issued.

 

During January 2004, the Company completed a private placement of 200,000 units at a price of $.50 per unit for net proceeds of $100,000 with a lender who had previously loaned the Company $150,000 pursuant to a convertible loan agreement loan dated June 25, 2003 (refer to Note 5). Each unit consists of one common share and one third share purchase warrant. Three share purchase warrants entitle the holder to acquire an additional common share at a price of $1.00 per share for a period of two years. The estimated fair value of the warrants of $13,000 has been recorded as a separate component of stockholders’ equity. As part of this transaction, the Company agreed to amend the convertible loan so that it is now convertible into common stock at $0.50 per share (refer to Note 5).

 

During February 2004 the Company issued 1,000,000 common shares at a price of $0.70 per share to Dominique Bigle for payment on acquisition of the Trocadero Library. The Company also issued 20,000 common shares at a price of $0.70 per share to InCap Group, Inc for payment on a contract to provide financing services.

 

During March 2004 the Company issued 40,000 common shares at a price of $0.50 per share to InCap Group, Inc for payment on a contract to provide financing services.

 

During December 2004, the Company completed a private placement of 400,000 common shares at a price of $.25 per share for net proceeds of $100,000.

 

During January 2005, the Company completed a private placement of 300,000 common shares at a price of $.25 per share for net proceeds of $75,000.

 

 



- 13 -

 

 

INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

NOTE 7 - CAPITAL STOCK (continued)

 

During March, 2005, the Company issued 680,000 common shares at $0.25 per share upon conversion of a convertible promissory note dated April 1, 2003 made in the original principal amount of $100,000 and an additional $70,000 in consideration for finance fees (Note 5).

 

During March 2005, the Company issued 500,000 common shares at $0.25 per share to the acting president of the Company as a signing bonus. At December 31, 2004, the value of these shares was recorded in the amount of $125,000 as part of obligation to issue shares.

 

During May 2005, the Company issued 472,758 common shares at $0.1961 per share upon conversion of a convertible promissory note dated July 19, 2004 made in the original principal amount of $86,000 plus accrued interest of $6,708.

 

Stock options

Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in previously issued standards. Accordingly, compensation cost for employee stock options is measured as the excess, if any, of the fair market value of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost or deferred compensation for stock options issued to employees has been recognized to the extent market value of the stock at the grant date exceeded the option price.

 

The following table summarizes information about stock option transactions:

 

 

Number of options

Weighted
Average
Exercise Price

Weighted Average Remaining Contractual Life

 

 

 

 

December 31, 2003

13,300

$100.00

0.92 years

Granted

1,500,000

$0.50

 

Exercised

-

-

 

Expired

13,300

$100.00

 

December 31, 2004

1,500,000

$.50

6.52 years

Granted

-

-

 

Exercised

-

-

 

Expired

-

-

 

September 30, 2005

1,500,000

$.50

5.75 years

 

During the period ended September 30, 2004 the Company granted 1,500,000 non-qualified options to consultants under the Company’s Stock Option Plan allowing for the acquisition of a total of 1,500,000 shares of the Company’s common stock at a price of $0.50. The fair value of these options will be recorded as consulting fees of $300,000 upon vesting of the options. The fair value of these stock options was estimated using the Black-Scholes option pricing model assuming an expected life of seven years, a risk-free interest rate of 3% and an expected volatility of 98%. The options vest over a 30 month period. During the nine months ended September 30, 2005, 750,000 options vested and accordingly stock based compensation expense in the amount of $150,000 was recognized. As of September 30, 2005, all $300,000 of the expense has been recorded.

 

Warrants

As at September 30, 2005 the Company has 200,000 share purchase warrants outstanding; providing the right to acquire 200,000 common shares at a price of $1.00 per share to February 19, 2006. The estimated fair value of the warrants of $10,000 has been recorded as a separate component of stockholders' equity.

 

 



- 14 -

 

 

INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

NOTE 8 - INCOME TAXES

 

Income taxes are provided pursuant to SFAS No. 109, Accounting for Income Taxes. The statement requires the use of an asset and liability approach for financial reporting for income taxes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. Accordingly, as the realization and use of the net operating loss carry forward is not probable, the tax benefit of the loss carry forward has been offset by a valuation allowance of the same amount.

 

NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 




Nine Months
Ended
September 30,
2005




Nine Months
Ended
September 30,
2004

Cash paid during period for:

 

 

Interest on debt instruments

$4,438

$-

Income taxes

$-

$-

 

NOTE 10 – CONTINGENCIES

Other than set out below, the Company knows of no material, active or pending legal proceedings, nor is the Company involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

On September 9, 2003 Oxford & Associates, A Division of Oxford Global Resources, Inc. filed a Writ of Summons and Statement of Claim in British Columbia Supreme Court under action number S034865. Oxford's claim against the Company is for debt arising for the failure to pay for software development services. Oxford claims US$107,121, plus court ordered interest. Although no assurance can be given as to the outcome of this lawsuit, we believe that the ultimate outcome of this matter will not have a material adverse effect on our financial position or results of operations. The Company filed a Statement of Defence on October 16, 2003 and intends to defend this lawsuit.

On September 29, 2003 a former employee filed a cross-complaint in case number SC 077372 in the Superior Court of the State of California, County of Los Angeles alleging that the Company, the Company’s Chief Executive Officer and former Chief Executive Officer, are all jointly and severally liable to pay approximately $115,616, plus interest, on account of certain credit card debt charged to the former employee’s account. The original action was initiated against the former employee by American Express Travel Related Services Company, Inc. (“American Express”). On March 6, 2004, American Express obtained a judgment against the former employee in the amount of $110,774. The parties agreed that the cross-defendants (the Company and current and former Chief Executive Officers) could satisfy this debt by payment of $45,000. On April 23, 2004, the former employee obtained a default judgment against the Company and the current and former Chief Executive Officers for indemnity in the amount of $115,616. This default judgment was set aside as to both the current and former Chief Executive Officers, but not as to the Company, which was not represented in the action. The Company is advised that American Express, a former employee and both the current and former Chief Executive Officers are in the process of negotiating a settlement between the parties. The Company accrued a loss in 2003 of $45,000 and accrued an additional loss provision in 2004 of $70,616 relating to this legal action.

 

 



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INTERNETSTUDIO.COM, INC.

(A Development Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2005 (Unaudited)

NOTE 10 – CONTINGENCIES (continued)

 

On March 23, 2005, we received written demand from attorneys representing the law firm of Kopple & Klinger, LLP in a debt collection action. These attorneys demanded that our company pay to them, on account of a debt allegedly owed by our company to Kopple & Klinger, the sum of $108,207 within ten days of the date of their letter or they would pursue legal action. We did not pay this amount and, on August 25, 2005, these attorneys filed an action in the Superior Court of California, County of Los Angeles, styled Kopple & Klinger, LLP vs. Internetstudios.com aka ISMedia.com, Inc. and/or IS Media and/or Internet Studios and Does 1 through 10, inclusive, Case No. BC 333391. In this action, the plaintiff alleges that the defendants, including the Company, are indebted to the plaintiff for the sum of $108,207, plus interest from September 22, 2003, and for an attorney’s fee. They allege that the Company owes this money pursuant to either an open account arrangement, a breach of an oral contract, or under the legal theory of quantum merit. Although the Company has not made any formal response to this complaint, a case management conference was scheduled by the plaintiff for September 13, 2005 which was not attended by the Company. At the time of requesting this case management conference, the plaintiff alleged that service has been perfected against all defendants and requested entry of a default judgment against the Company. (Note 11(a))

On May 28, 2004, a senior convertible note that we issued to Alan Kapilow in the amount of $100,000 matured. This note carries interest at 10% per annum. Mr. Kapilow has demanded payment of all principal and accrued interest and he has advised us on a number of occasions that if he does not receive payment, he will refer collection to his attorneys. On July 22, 2005, Mr. Kapilow’s attorney filed a lawsuit in the Superior Court for the State of California, County of Los Angeles, styled Alan Kapilow vs. Internet Studios.com Inc., Robert MacLean, an individual, and Does 1 through 25, inclusive, Case No. BC336967, alleging breach of contract and fraud. The plaintiff is requesting damages for our alleged breach of contract in the amount of $100,000 cash, plus interest, plus 25,000 shares of common stock in our company. In addition, the plaintiff is requesting that the court award him both punitive and exemplary damages for our alleged fraud in an amount to be determined by the court and for attorney’s fees in an amount to be determined by the court. A copy of the complaint in this action was received by our resident agent in Nevada on August 22, 2005. (Note 11(a))

Although no assurance can be given as to the outcome of any potential lawsuit, the Company believes that the ultimate outcome of these matters will not have a material adverse effect on the Company’s financial position or results of operations and it intends to vigorously defend against any action.

 

NOTE 11 – SUBSEQUENT EVENTS

 

Subsequent to September 30, 2005 the Company:

 

 

a)

entered into a verbal agreement with Kopple & Klinger to settle an amount owing on account of legal fees for $133,000 payable $13,000, December 31, 2005 with 12 subsequent monthly payments of $10,000. The arrangement is to be formalized in a stipulation agreement;.

 

 

b)

entered into a verbal settlement agreement Alan Kapilow to repay a loan payable plus accrued interest over 54 months beginning December 31, 2005. The arrangement is to be formalized in a stipulation agreement.

 

 

c)

borrowed $50,000 at 10% from an existing lender bearing interest at 10%, due March 31, 2006, and secured by a promissory note.and guarantee by an officer of the Company. A term of the promissory note was the amendment of an existing convertible note by reducing the conversion price of the note in the amount of $150,000 from $0.50 to $.025.

 

 

d)

entered into negotiations with a note holder to restructure the terms of a note for $50,000 that became due on September 30, 2005.

 

 



- 16 -

 

 

Item 2.  Management’s Discussion and Analysis or Plan of Operation.

FORWARD LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.

As used in this quarterly report, the terms “we”, “us”, “our”, and “InternetStudios.com” mean InternetStudios.com, Inc. and our wholly owned subsidiary, Montecristo Entertainment LLC, unless otherwise indicated.

Corporate Overview

You should read the following discussion of our financial condition and results of operations together with the consolidated unaudited financial statements and the notes to consolidated unaudited financial statements included elsewhere in this filing prepared in accordance with accounting principles generally accepted in the United States. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.

We were incorporated in the State of Nevada on April 14, 1998 under the name “The Enterprise, Inc.”. We changed our name to “eHealth.com, Inc.” in anticipation of acquiring a license to software technology for the health industry. We were not successful in acquiring this license. Effective September 21, 1999, we changed our name to “InternetStudios.com, Inc.”.

We currently have three subsidiaries. Only one of these is active - Montecristo Entertainment LLC, a Delaware limited liability company formed on May 12, 2003 under the name International Media Acquisition Group LLC. We operate our business through this subsidiary company. Our other two subsidiaries – Online FilmandTVSales.com, Inc., a California company, and InternetStudios UK Limited, a UK limited company - are inactive.

Through Montecristo, we acquire the distribution and marketing rights to independent film products from around the world and we market and distribute these products, including theatrical motion pictures, television programs, home video products, and digitally-delivered entertainment and media. Currently, our catalogue consists of films from Japan, Thailand, India, the Czech Republic, the United Kingdom and the United States, with a focus on “world cinema”.

 

 



- 17 -

 

 

On January 19, 2004, we entered into a formal asset purchase agreement with Dominique Bigle to acquire the Trocadero library, a motion picture library consisting of over 1,500 motion pictures. As consideration, we agreed to issue to Mr. Bigle 1,000,000 shares of our common stock and to pay to him $250,000. On April 27, 2004, we amended this agreement to reduce the cash consideration from $250,000 to $140,000 and we agreed to hire Mr. Bigle pursuant to a written management agreement. In the April 27, 2004 amendment, Mr. Bigle acknowledged receipt of both the 1,000,000 shares and payment of $140,000 in cash. Effective February 1, 2005, we hired Mr. Bigle through his company, 24/7 Entertainment International Inc., to provide Mr. Bigle’s services to us for an annual consulting fee of $150,000. This consulting agreement contemplated that Mr. Bigle would facilitate the exploitation of the movies included in the Trocadero library, with a focus on marketing and distribution of television and home video products. We terminated this consulting agreement with Mr. Bigle by notice which was acknowledged by Mr. Bigle on April 25, 2005.

In August, 2005, we received correspondence from Mr. Bigle dated August 17, 2005, stating that the “deal” between our company and Mr. Bigle was not completed and was terminated and that the “overall transaction” never took place. Mr. Bigle enclosed with this correspondence the original of our share certificate number 337, representing the 1,000,000 common shares that we issued to him in February, 2004, receipt of which he had acknowledged when he signed the amending agreement of April 27, 2004 discussed in the immediately preceding paragraph. We believe that Mr. Bigle’s August 17, 2005 correspondence is inconsistent with the clear language of the agreements pursuant to which we acquired the Trocadero library from Mr. Bigle. We have informed Mr. Bigle that we believe that his assertions are without merit and that we will initiate appropriate legal action against him if he persists in disputing our ownership of the Trocadero library. We have not yet initiated any legal action. As a result of this course of events, we have recorded a charge for impairment for the period ended September 30, 2005, in the amount of $700,000.

We intend for MonteCristo to sell digital video discs (DVDs) of the classic titles from our Trocadero Library as they become available for distribution. We have not yet asked Mr. Bigle to deliver any of the titles included in the Trocadero library, as they are currently in storage under controlled conditions and would begin to deteriorate if delivered out of storage. We intend to have these films delivered to us as and when we need them, on a title by title basis, and to incur shipping and lab charges only as and when we receive a bona fide offer for each film.

On December 30, 2004, we signed a letter of intent with Michelle Taverna pursuant to which we agreed to appoint Mr. Taverna as president of Montecristo and a European company to be formed, and agreed to make him a director of our company as well as the European company to be formed. Mr. Taverna agreed to be responsible for all sales, marketing and distribution efforts of Montecristo and the European company. We agreed to pay to Mr. Taverna a salary in an amount to be determined (but in no event less than the salary we pay to our president and chief executive officer), and a signing bonus of 500,000 shares of our common stock. We also agreed to issue to Mr. Taverna share purchase options entitling him to purchase an additional 1,500,000 common shares of our company at an exercise price of $0.25. This letter of intent was subject to the negotiation and execution of a formal agreement; as at the date of filing of this quarterly report, we have not yet negotiated or executed such a formal agreement. On March 2, 2005, we issued 500,000 shares of our common stock to Mr. Taverna as contemplated by the letter of intent. Mr. Taverna has notified our company that he believes that we have not fully performed all of our obligations under the letter of intent, though he has not specified the obligations that he believes we have not performed, and he has notified us that he has reserved a right to seek enforcement of those provisions. We believe that we have performed, and that we continue to perform, all of our material obligations under this letter of intent. We have engaged in an informal discussion of the matter with Mr. Taverna but we have not yet resolved the matter. We hope to reach a resolution over the next few months but in the interim we believe that all parties to this letter of intent continue to perform their obligations.

During the period ended September 30, 2005, we re-evaluated our business plan and made a decision to re-introduce to the filmed entertainment industry an internet portal we had developed in 1999-2002. This portal provides transactional and digital rights management tools to owners of filmed entertainment that we believe will allow the filmed entertainment community worldwide to maximize profit opportunities from the licensing of filmed entertainment through traditional distribution channels, together with complementary technology to track such transactions. From 1999-2002, we incurred web site development expense of $6,300,000 and capitalized technology costs of $2,600,000 in connection with this portal. Recently, a former consultant to our company has enhanced the existing code to conform to

 



- 18 -

 

current software development standards. Our company and the consultant are negotiating an agreement whereby the updated system will be owned by us and the consultant will be retained to head up a research and development team to further develop the software and portal.

We are currently seeking funding to implement our revised business plan to produce and distribute DVDs (digital video discs) to be derived from the Trocadero library and the development of a beta testing version of the portal and related code for transacting the sale and purchase of film rights. The updated technology will be used to manage and license our Trocadero film library as well as filmed entertainment owned by other rights holders.

The portal technology is being designed to eventually provide solutions for the content owner to optimize and digitally distribute filmed entertainment directly to the consumer through the InternetStudios platform.

We continue to explore other available business opportunities whereby we can build our library of filmed entertainment assets and add to our DVD titles.

Results of Operations for the Nine months Ended September 30, 2005 and September 30, 2004

The discussion set forth below relating to results of operations pertains to the comparison of the nine months ended September 30, 2005 and 2004.

Revenues

We recognized $10,148 in revenue during the nine months ended September 30, 2005, as compared to $nil for the nine months ended September 30, 2004. Historically, we have recognized revenue from our internet-based activities. Revenues ceased in 2001 as we focused all of our resources on raising capital, reorganizing and streamlining operations and developing a self sustaining business model that would see us focus on more traditional film and television marketing efforts.

Sales and Marketing Expenses

For the nine months ended September 30, 2005 we had sales and marketing expenses of $86,552, as compared to $nil for the nine months ended September 30, 2004. This increase was due primarily to attendance at film festivals, general travel and entertainment costs.

General and Administrative Expenses

Our general and administrative expenses consist primarily of management fees, salaries and related costs for general and corporate functions, including finance, accounting, facilities and fees for legal and other professional services. Our general and administrative expenses for the nine months ended September 30, 2005 were $673,907, as compared to $296,552 for the nine months ended September 30, 2004. This increase in general and administrative expenses is primarily a result of management fees and related cost associated with our new operations carried out in Montecristo Entertainment LLC and to management fees accrued for our chief executive officer.

Loss on impairment of the Trocadero Library

Owing to the assertion by the vendor of the Trocadero library that our acquisition was not completed, we have recorded a charge for impairment in the amount of $700,000, which is the value ascribed to that portion of the purchase price for the Trocadero library that we paid in the form of our common shares.

Net Loss

Our net loss was $1,532,164 for the nine months ended September 30, 2005, and $648,414 for the nine months ended September 30, 2004. The primary reason for the increase in our net loss is due to the increase in our general

 



- 19 -

 

and administrative expenses and the charge for the impairment of the Trocadero film library. Our management believes that we will continue to experience losses from operations during the balance of the year ending December 31, 2005.

Summary

Presently, we have no significant sources of revenue. We have incurred operating losses since inception. The continuation of our business is dependent upon the continuing financial support of our creditors and stockholders, obtaining further financing, and our acquiring additional filmed entertainment assets. There are, however, no assurances we will be able to generate funds required for these transactions. Accordingly, our consolidated financial statements contain note disclosures describing the circumstances that lead to our auditors to question our ability to continue as a going concern.

Liquidity and Capital Resources

From inception, we have financed our operations entirely from private placements of equity and loans. As at September 30, 2005, we had a working capital deficiency of $1,568,604 compared to a cash deficiency of $1,269,448 at December 31, 2004. Since inception, we have had negative cash flows from operating activities in each fiscal and quarterly period to date. Net cash used in operating activities was $172,761 for the nine months ended September 30, 2005 as compared to $202,242 for the nine months ended September 30, 2004.

As shown in our financial statements, we have sustained substantial losses from operations since inception. As of the date of this quarterly report, we have utilized substantially all of our available funding and we have incurred losses since inception of $70,058,280. Our continuation as a going concern will depend on our ability to raise additional capital. No assurance can be given that we will be able to raise additional funds. In the absence of such funds, we will be required to cease operations.

During the last fiscal year our management reduced our operating requirements in an effort to assure our ability to continue our operations while we acquired the Trocadero library, negotiated with Mr. Taverna and Mr. Bigle and refined our business plan and its implementation. These steps included reductions in our staffing, marketing and consulting expenses. We are now in the process of securing additional capital through debt/equity transactions in order to implement our current business plan and continue our operations.

Given our limited operating history, operating losses and other factors set out above, there can be no assurance that we will be able to achieve our goals and develop a self sustaining business model. Management intends to raise debt and equity capital as needed on a private placement basis to finance the operating and capital requirements of our company. It is management’s intention to continue to modify our company’s business plan to focus on more traditional film and television marketing. These factors raise substantial doubt about our company’s ability to continue as a going concern as described in Note 1 to our financial statements. The future operations of our company will depend upon our ability to obtain adequate financing and continuing support from creditors. To the extent that we cannot timely achieve our financing and acquisition plans and generate revenues in amounts sufficient to support our operations on a consistent basis and in a timely manner, our business, results of operations, financial condition and prospects could be materially adversely affected.

Subsequent to September 30, 2005, we renegotiated the terms of two notes payable and borrowed an additional $50,000 from an existing lender. We are currently in negotiations to raise additional equity capital to carry out our plan of operations.

There can be no assurance that such additional financing will be available to us, or if available, that the terms of such additional financing will be acceptable to us.

Future Cash Requirements

During the next twelve months we intend to produce and distribute DVDs, to expand our planned DVD sales and marketing program, and to commercialize our updated internet portal that provides rights management services and

 



- 20 -

 

transactional abilities to the holders of filmed entertainment (see above). We plan to create a research and development department to maintain the competitiveness of our internet portal. Over the next 12 months, we believe that our sales, marketing, distribution, and research and development program will require approximately $1,250,000, including the cost to attend various film markets. Of this total, we believe that we can fund approximately $750,000 from operating revenue. We propose to fund the balance of approximately $540,000 from private placements of our equity securities.

Plan of Operations

Our primary objective over the twelve months ending September 30, 2006 will be to build a niche distribution platform to maximize revenues from filmed entertainment content in all formats through the building of a brand, the re-labelling of classic content from our Trocadero library titles and the brokering of filmed entertainment for other rights holders using our internet portal technology. We intend to focus on creating efficiencies through technology and innovative systems to address the marketing and sales of filmed entertainment globally.

Additionally, we intend to assemble a major library of filmed content by expanding the number of copyrights and distribution rights that we own, represent or broker, which will generate growth and annuity income.

Sales and Marketing

We intend to capitalize on the demand for DVDs and films on demand by providing mainstream entertainment with commercial appeal in a low-risk, cost-efficient manner. We plan to exploit any films that we acquire in DVD format from featuring special features and to acquire high quality assets that will be exploitable from a video and ancillary media perspective.

As part of this plan, we intend to promote our updated internet portal to the holders of filmed entertainment rights with a view to facilitating transactions for which we will charge a fee.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2004, the FASB issued EITF No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“EITF 03-1”). The objective of EITF 03-1 is to provide guidance for identifying impaired investments. EITD 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. In October 2004, the FASB delayed the recognition and measurement provisions of EITF 03-1 until implementation guidance is issued. The disclosure requirements are effective for annual periods ending after June 15, 2004, and remain in effect. Management believes that the adoption of EITF 03-1 will not have a material impact on our financial condition or results of operations.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs (“SFAS 151”). SFAS 151 requires issuers to treat idle facility expense, freight, handling costs, and wasted material (spoilage) as current-period charges regardless of whether such charges are considered abnormal. In addition, SFAS 151 requires the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 will be effective for all inventory costs incurred in fiscal years beginning after June 15, 2005. Management believes the adoption of this standard will not have a material impact on our financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (“SFAS 123(R)”), which requires the compensation cost related to share-based payments, such as stock options and employee stock purchase plans, be recognized in the financial statements based on the grant-date fair value of the award. SFAS 123(R) is effective for all interim periods beginning after December 15, 2005. Management is currently evaluating the impact of this standard on our financial condition and results of operations. See Note 2(i) for information related to the pro forma effects on our reported net loss and net loss per share of applying the fair value recognition provisions of the previous SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

 

 



- 21 -

 

 

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions (“SFAS 153”) SFAS 153 requires that exchanges of non-monetary assets are to be measured based on fair value and eliminates the exception for exchanges of non-monetary, similar productive assets, and adds an exemption for non-monetary exchanges that do not have commercial substance. SFAS 153 will be effective for fiscal periods beginning after June 15, 2005. Management does not believe that the adoption of this standard will have a material impact on our financial condition or results of operations.

RISK FACTORS

Much of the information included in this quarterly report includes or is based upon estimates, projections or other “forward-looking statements”. Such forward-looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Such estimates, projections or other “forward-looking statements” involve various risks and uncertainties as outlined below. We caution readers of this quarterly report that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward-looking statements”. In evaluating us, our business and any investment in our business, readers should carefully consider the following factors.

RISKS SPECIFIC TO OUR COMPANY

We are an early stage company and have not earned any significant revenues which makes it difficult to evaluate whether we will operate profitably.

To September 30, 2005, we have incurred regular operating losses and we have no significant source of revenue. Unanticipated problems, expenses and delays are frequently encountered in ramping up sales and launching new businesses. Our ability to successfully acquire additional filmed entertainment assets, to utilize our website and to generate significant operating revenues will depend on our ability to successfully develop and maintain a brand name for our products and to attract new and maintain old users of our services.

Given our limited operating history, operating losses and other factors set out above, there can be no assurance that we will be able to achieve our goals and develop a sufficiently large user base of our website to be profitable. Our management intends to raise debt and equity capital as needed on a private placement basis to finance the operating and capital requirements. In addition, our management expects cash flow from operations to increase over the next year. These factors raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph to our independent auditors’ report on the December 31, 2004 audited financial statements. Our future will depend upon our ability to obtain adequate financing and continuing support from stockholders and creditors and to achieve and maintain profitable operations. To the extent that we cannot achieve our plans and generate revenues, which exceed expenses on a consistent basis and in a timely manner, our business, results of operations, financial condition and prospects would be materially adversely affected.

We have a limited operating history.

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

- competition;

- whether we can compete successfully with others pursuing the same line of business;

 

 



- 22 -

 

 

- whether we can anticipate and adapt to a developing market;

- whether we can effectively manage rapidly expanding operations should our operations rapidly expand;

- the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure;

- whether we can provide acceptable customer service;

- whether we can respond to competitive developments;

- the possibility of unforeseen price competition for our services, or reductions in market prices for DVD sales ; and

- our dependence upon key personnel.

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

We may incur future losses.

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

Our future operating results are unpredictable.

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

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

- fluctuating demand for filmed entertainment;

- the amount and timing of capital expenditures and other costs relating to the expansion of our operations;

- whether we can acquire filmed entertainment product in a timely and effective manner;

- whether we can attract new personnel in a timely and effective manner and to retain existing personnel;

- competition;

- costs relating to future acquisitions;

 

 



- 23 -

 

 

- seasonality;

- general economic conditions and economic conditions specific to the filmed entertainment rights industry, the Internet or all or a portion of the technology market.

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

We may need significant additional funds, which we may not be able to obtain.

If we raise the financing necessary to implement our DVD production and our sales, distribution and marketing plan, in the amount of approximately $1,500,000, we believe that we will be able to meet our anticipated cash needs for working capital, capital expenditures and normal business expansion for the next 24 months. If we do not manage to raise the full amount necessary, or if our business model should prove to be based on assumptions that prove to have been incorrect, our financial resources may not be sufficient to satisfy our capital requirements for this period. If this occurs, we will probably need to raise additional funds in order to achieve the goals we set for ourselves in our business plan. If our financial resources are insufficient we will require additional financing in order to execute our plans for expansion. If we raise additional funds through the issuance of equity, equity-related or debt securities, such securities may have rights, preferences or privileges senior to those of the rights of our common stock and our stockholders may experience additional dilution. We cannot be certain that additional financing will be available to us on favorable terms, when required, or that additional financing will be available to us at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund our expansion, promote our brand as we desire, take advantage of unanticipated acquisition opportunities, develop or enhance services or respond to competitive pressures.

We depend on our ability to attract key personnel.

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

Failure to manage future growth may adversely affect our business.

If our management is unable to manage growth effectively, then our operations could be adversely affected. We will need to add staff to market our new library and website, manage operations, and perform finance and accounting functions. We will be required to hire a broad range of additional personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.

Our management owns a significant percentage of our company and will be able to exercise control over our company.

Our management holds a significant voting block which can be used to elect directors and/or approve or block significant corporate transactions. Such share ownership may also have the effect of delaying or preventing a change in control of our company, impeding a merger, consolidation, takeover or other business combination involving our company or discouraging a potential acquirer from making a tender offer or otherwise attempting to

 



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obtain control of our company, thereby having a material adverse effect on the value of our company’s common stock. In addition, investors may have difficulty obtaining the necessary stockholder vote required for corporate actions contrary to the wishes of the management.

RISKS RELATED TO OUR INDUSTRY

Our markets are competitive.

The sale and distribution of filmed entertainment is a highly competitive business. The entertainment industry is currently comprised of seven major film distributors/studios: Sony Pictures, Paramount, Twentieth Century Fox, Warner Brothers, The Walt Disney Company, MGM/UA and Universal. Today, the major studios are multi-national, multi-media and mass marketing communication complexes with wholly-owned distribution operations throughout the world. In addition to these major seven, there are numerous independent production and distribution companies. Many of our competitors are larger and better capitalized than our company is and have existing distribution channels. In addition, the number of films or television products released in any given period may create an oversupply of product in the market, and that may reduce our share of potential sales and make it more difficult for the films in our library to succeed.

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

- filmed entertainment rights industry connections;

- brand recognition;

- quality of assets; and

- quality of filmed entertainment product.

Success depends on external factors in the film and television industry.

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

We face inherent international trade risks.

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

- changes in laws and policies affecting trade;

- changes to laws and policies related to investments and taxes;

- varying degrees of protection for intellectual property;

- instability of foreign economies and governments;

- cultural barriers; and

- currency risk.

 

 



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

We must develop a stronger marketing program to generate any significant revenues.

We will be required to develop a marketing campaign that will effectively make buyers aware of our catalogue of films and DVDs and filmed entertainment library. We may also elect to enter into agreements or relationships with third parties regarding the promotion or marketing of our DVDs and library. There can be no assurance that we will be able to establish adequate marketing capabilities that we will be able to enter into marketing agreements or relationships with third parties on financially acceptable terms or that any third parties with whom we enter into such arrangements will be successful in marketing and promoting our services.

Risks associated with brand development.

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

Risks associated with potential general economic downturn.

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

Our intellectual property may be subject to infringement claims.

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

Since our shares are thinly traded and trading on the Over-the-Counter Bulletin Board (OTCBB) may be sporadic because it is not an exchange, stockholders may have difficulty reselling their shares.

Our common stock is quoted on the OTC Bulletin Board and is thinly traded. In the past, our trading price has fluctuated widely, depending on many factors that may have little to do with our operations or business prospects. In addition, the OTC Bulletin Board is not an exchange and, because trading of the securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on an exchange or the Nasdaq Stock Market, Inc., you may have difficulty reselling any of our common shares.

 

 



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Trading of our stock may be restricted by the United States Securities and Exchange Commission’s (“SEC”) penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.

The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

Item 3.  Controls and Procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by the annual report, being September 30, 2005, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s president and chief executive officer. Based upon that evaluation, our company’s president and chief executive officer concluded that our company’s disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.

PART II  -  OTHER INFORMATION

Item 1.  Legal Proceedings.

Other than set out below, we know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

 



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On November 5, 2001, we stipulated to an Arbitration Award, from the American Arbitration Association, in favor of Sitrick and Company in the sum of $42,000 on the condition that the Award not be confirmed or entered as a judgment in California or any other jurisdiction until after February 5, 2002. To our knowledge, nothing further has occurred in connection with this Arbitration Award.

On November 15, 2002, The Hollywood Reporter Incorporated filed an action against our company in the Supreme Court of British Columbia. Hollywood’s claim against our company is for debt arising for the failure to pay for advertising copy published in Hollywood’s periodical. Hollywood claims $8,843.42, plus contractual and court ordered interest. We filed a Statement of Defence on December 20, 2002. There has been no further activity in this lawsuit and we intend to vigorously defend it.

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

On September 29, 2003, a former employee filed a cross-complaint in case number SC 077372 in the Superior Court of the State of California, County of Los Angeles alleging that our company, our chief executive officer and our former chief executive officer are all jointly and severally liable to pay approximately $115,616, plus interest, on account of certain credit card debt charged to the former employee’s account. The action was initiated against the former employee by American Express Travel Related Services Company, Inc. On March 6, 2004, American Express obtained a judgement against the former employee in the amount of $110,773.94. The parties agreed that the cross-defendants (our company and our current and former chief executive officers) could satisfy this debt by payment of $45,000. On April 23, 2004, the former employee obtained a default judgment against our company and our current and former chief executive officers for indemnity in the amount of $115,616.33. This default judgment was set aside as to both our current and former chief executive officers, but not as to our company, which was not represented in the action. We are advised that American Express Travel Related Services, our former employee and both our current and former chief executive officers are in the process of negotiating a settlement between the parties.

On March 23, 2005, we received written demand from attorneys representing the law firm of Kopple & Klinger, LLP in a debt collection action. These attorneys demanded that our company pay to them, on account of a debt allegedly owed by our company to Kopple & Klinger, the sum of $108,207.03 within ten days of the date of their letter or they would pursue legal action. We did not pay this amount and, on August 25, 2005, these attorneys filed an action in the Superior Court of California, County of Los Angeles, styled Kopple & Klinger, LLP vs. Internetstudios.com aka ISMedia.com, Inc. and/or IS Media and/or Internet Studios and Does 1 through 10, inclusive, Case No. BC 333391. In this action, the plaintiff alleges that the defendants, including our company, are indebted to the plaintiff for the sum of $108,207.03, plus interest from September 22, 2003, and for an attorneys fee. They allege that we owe this money pursuant to either an open account arrangement, a breach of an oral contract, or under the legal theory of quantum meruit. Although we have not made any formal response to this complaint, a case management conference was scheduled by the plaintiff for September 13, 2005. We did not attend. At the time of requesting this case management conference, the plaintiff alleged that service has been perfected against all defendants and requested entry of a default judgment against our company. Although we have recently made an informal offer to settle this action out of court, the plaintiff has not yet accepted our offer.

On May 28, 2004, a senior convertible note that we issued to Alan Kapilow in the amount of $100,000 matured. This note carries interest at 10% per annum. Mr. Kapilow has demanded payment of all principal and accrued interest and he has advised us on a number of occasions that if he does not receive payment, he will refer collection to his attorneys. On July 22, 2005, Mr. Kapilow’s attorney filed a lawsuit in the Superior Court for the State of California, County of Los Angeles, styled Alan Kapilow vs. Internet Studios.com Inc., Robert MaLean, an individual, and Does 1 through 25, inclusive, Case No. BC336967, alleging breach of contract and fraud. The plaintiff is requesting damages for our alleged breach of contract in the amount of $100,000 cash, plus interest, plus 25,000 shares of common stock in our company. In addition, the plaintiff is requesting that the court award him

 



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both punitive and exemplary damages for our alleged fraud in an amount to be determined by the court and for attorneys fees in an amount to be determined by the court. A copy of the complaint in this action was received by our resident agent in Nevada on August 22, 2005. We are currently negotiating a settlement of this action.

We can give no assurance as to the outcome of any lawsuit, pending, threatened or otherwise.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6.  Exhibits.

Exhibits Required by Item 601 of Regulation S-B

(3)Articles of Incorporation and By-laws

3.1           Articles of Incorporation (incorporated by reference from our Form 10/A Registration Statement filed February 10, 2000).

3.2

Bylaws (incorporated by reference from our Form 10/A Registration Statement filed February 10, 2000).

3.3           Amended Bylaws (incorporated by reference from our Form 10/A Registration Statement filed February 10, 2000).

3.4          Certificate of Amendment to Articles of Incorporation, dated December 17, 1998 (incorporated by reference from our Form 10/A Registration Statement filed February 10, 2000).

3.5          Certificate of Amendment to Articles of Incorporation, dated September 21, 1999 (incorporated by reference from our Form 10/A Registration Statement filed February 10, 2000).

(10)

Material Contracts

10.1        Letter of Intent dated February 13, 2003 between InternetStudios.com, Inc. and Dominique Bigle (incorporated by reference from our Annual Report on Form 10-K filed on April 1, 2003).

10.2         Addendum to Letter of Intent dated May 16, 2003 between InternetStudios.com, Inc. and Dominique Bigle (incorporated by reference from our Quarterly Report on Form 10-Q filed on May 20, 2003).

10.3        Convertible Note dated May 28, 2003 between InternetStudios.com, Inc. and Alan Kapilow (incorporated by reference from our Quarterly Report on Form 10-Q filed on August 14, 2003).

10.4        Convertible Note dated June 25, 2003 between InternetStudios.com, Inc. and Martial Chaillet (incorporated by reference from our Quarterly Report on Form 10-Q filed on August 14, 2003).

 

 



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10.5         Asset Purchase Agreement dated July 30, 2003 between InternetStudios.com, Inc. and Dominique Bigle (incorporated by reference from our Quarterly Report on Form 10-Q filed on August 14, 2003).

10.6         Management Agreement dated July 30, 2003 between InternetStudios.com and Dominique Bigle (incorporated by reference from our Quarterly Report on Form 10-Q filed on August 14, 2003).

10.7         Form of Promissory Note with RKO Pictures, LLC. in the following amounts: $125,000 (May 14, 2004), $125,000 (June 16, 2004), $125,000 (July 7, 2004) and $62,500 (August 8, 2004) (incorporated by reference from our Quarterly Report on Form 10-Q filed on November 14, 2003).

10.8        Loan Agreement dated July 14, 2003 between InternetStudios.com and Proximity Capital, L.P. (incorporated by reference from our Quarterly Report on Form 10-Q filed on November 14, 2003).

10.9         Senior Convertible Note dated July 14, 2003 between InternetStudios.com, Inc. and Proximity Capital, L.P. (incorporated by reference from our Quarterly Report on Form 10-Q filed on November 14, 2003).

10.10       Form of Private Placement Subscription Agreement between Internetstudios.com, Inc and Dominique Bigle (incorporated by reference from our Annual Report Form 10-K filed on April 19, 2004).

10.11       Advisory Fee Payment and Subscription Agreement dated February 10, 2004 between Internetstudios.com, Inc. and InCap Group, Inc. (incorporated by reference from our Annual Report Form 10-K filed on April 19, 2004).

10.12       Advisory Fee Payment and Subscription Agreement dated February 24, 2004 between Internetstudios.com, Inc. and InCap Group, Inc. (incorporated by reference from our Annual Report Form 10-K filed on April 19, 2004).

10.13       Amending Agreement, dated April 27, 2004, between InternetStudios.com, Inc. and Dominique Bigle (incorporated by reference from our Quarterly Report on Form 10-QSB filed on May 25, 2004).

10.14      Letter of Intent dated October 4, 2004 between InternetStudios.com, Inc., Airwaves Digital Group Ltd. and Airwave Sound Design Ltd. (incorporated by reference from our Quarterly Report on Form 10-QSB filed on November 29, 2004).

10.15       Form of Private Placement Subscription Agreement with each of Christopher Lanning and Livingston Investments LLC (incorporated by reference from our Annual Report on Form 10-KSB filed on May 19, 2005).

10.16      Letter Agreement dated December 30, 2004 between InternetStudios.com, Inc. and Michele Taverna (incorporated by reference from our Annual Report on Form 10-KSB filed on May 19, 2005).

10.17      Consulting Agreement dated February 1, 2005 between InternetStudios.com, Inc. and Dominique Bigle (incorporated by reference from our Annual Report on Form 10-KSB filed on May 19, 2005).

10.18       Promissory Note dated December 16, 2005 between InternetStudios.com, Inc. and Martial Chaillet with Personal Guarantee of Loan attached thereto.

(21)

Subsidiaries of the small business issuer

 

 

Montecristo Entertainment LLC (a Delaware company)

(31)

Rule 13a-14(a)/15d-14(a) Certifications

 

31.1

Section 302 Certification.

 

(32)

Section 1350 Certifications

 

32.1

Section 906 Certification.

 

 

 



 

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTERNETSTUDIOS.COM, INC.

 

By: /s/ Robert MacLean                                                 

Robert MacLean

CEO, President, Secretary, Treasurer & Director

(Principal Executive Officer,

Principal Financial Officer and Principal Accounting Officer)

 

Date: December 23, 2005

 

 

 

 

 


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10QSB’ Filing    Date    Other Filings
9/30/06
3/31/06NT 10-K
2/19/06
12/31/05NT 10-K
Filed on:12/23/05
12/19/05
12/16/05
12/15/05
For Period End:9/30/05NT 10-Q
9/13/05
8/25/05
8/22/05
8/17/05
7/22/05
6/15/05
5/19/0510KSB
5/17/05NT 10-Q
4/28/05
4/25/05
3/31/0510QSB,  NT 10-Q
3/23/05
3/2/05
2/1/05
12/31/0410KSB,  NT 10-K
12/30/04
11/29/0410QSB
10/4/04
9/30/0410QSB,  NT 10-Q
8/8/04
8/7/04
8/6/04
7/28/04
7/19/04
7/14/04
7/9/04
7/7/04
7/5/04
7/2/04
6/27/04
6/25/04
6/20/04
6/16/04
6/15/04
5/28/04
5/25/0410QSB
5/14/04
4/27/04
4/23/04
4/19/0410-K
3/6/04
2/24/04
2/10/04
1/19/04
12/31/0310-K,  NT 10-K
11/14/0310-Q
10/16/03
9/29/03
9/22/03
9/9/03
9/2/03
8/14/0310-Q
8/8/03
8/7/03
7/30/03
7/28/03
7/14/03
7/7/03
6/25/03
6/20/03
6/16/03
6/6/03
5/28/03
5/20/0310-Q
5/16/03NT 10-Q
5/14/03
5/12/03
5/8/03
4/1/0310-K,  NT 10-K
2/13/03
12/20/02
11/15/028-K
2/5/02
11/5/01
7/1/00
2/10/0010-12G/A
9/21/99
9/20/99
12/17/98
12/15/98
12/14/98
4/14/98
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