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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 000-27363
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INTERNETSTUDIOS.COM, INC.
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(Exact name of registrant as specified in its charter)
Nevada 134009696
- -------------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1351 4th Street, Suite 227
Santa Monica, California 90401
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(Address of principal executive offices, including zip code)
Issuer's telephone number, including area code: (310) 394-4025
Not applicable
- --------------------------------------------------------------------------------
(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 [ ]
As of March 31, 2000, the issuer had 14,700,000 shares of Common Stock issued
and outstanding.
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INTERNETSTUDIOS.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - March 31, 2000 and
December 31, 1999
Consolidated Statements of Operation (Unaudited) - Three
Months Ended March 31, 2000 and 1999 and Inception to
December 31, 1999
Consolidated Statements of Stockholders' Equity (Unaudited)
Consolidated Statements of Cash Flows (Unaudited) - For the
Period Ended March 31, 2000
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
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INTERNETSTUDIOS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 1,595, 051 $ 661,124
Taxes recoverable 31,254 17,963
Due from related party 136,691 137,940
Prepaids and deposits 759,671 506,245
----------------------- ------------------------
2,522,667 1,323,272
----------------------- ------------------------
GOODWILL 14,463,091 11,454,123
LOANS RECEIVABLE -- 1,306,849
FURNITURE AND EQUIPMENT, NET OF DEPRECIATION 316,694 66,441
INCORPORATION COSTS 1,000 1,000
----------------------- ------------------------
14,780,785 12,828,413
----------------------- ------------------------
$ 17,303,452 $14,151,685
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 606,622 $ 531,453
Notes Payable 1,000,000 --
----------------------- ------------------------
1,606,622 531,453
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 437,507 --
STOCKHOLDER'S EQUITY
Common Stock $.0001 par value, 100,000,000 shares authorized
2000 - 14,700,000, 1999 - 13,312,500 issued and outstanding 7,780 7,736
Additional paid-in capital 21,610,427 16,359,444
Retained Earnings (6,358,884) (2,746,948)
----------------------- ------------------------
15,259,323 13,620,232
----------------------- ------------------------
$ 17,303,452 $14,151,685
======================= ========================
</TABLE>
3
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INTERNETSTUDIOS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED INCEPTION TO
MARCH 31, MARCH 31, DECEMBER 31,
2000 1999 1999
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<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
OPERATING EXPENSES
Advertising and Marketing 515,214 -- 126,476
Amortization of goodwill 690,400 -- 603,598
Depreciation 6,091 -- 9,210
Consulting fees 530,632 20,000 660,969
Management fees 154,762 3,200 195,200
Office and general 171,610 18,056 134,241
Professional fees 254,189 -- 225,282
Travel and accommodation 182,195 5,889 135,586
Wages and benefits 408,587 -- 23,443
Website development costs 691,051 -- 632,943
-------------------- --------------------- ---------------------
OPERATING LOSS (3,604,731) (47,145) (2,746,948)
OTHER INCOME (LOSS) (7,205) -- --
-------------------- --------------------- ---------------------
NET LOSS FOR THE PERIOD $ (3,611,936) $ (47,145) $ (2,746,948)
==================== ===================== =====================
BASIC NET LOSS PER SHARE $ (0.27) $ (0.01) $ (0.48)
-------------------- --------------------- ---------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,564,835 7,117,200 5,675,950
==================== ===================== =====================
</TABLE>
4
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INTERNETSTUDIOS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
NUMBER OF PAID IN DEFICIT
SHARES AMOUNT CAPITAL STAGE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK ISSUED FOR CASH 7,117,200 $ 7,117 $ 31,183 $ --
NET LOSS FOR THE PERIOD -- -- -- (16,137)
--------------- -------------- -------------- ----------------
BALANCE, DECEMBER 31, 1998 7,117,200 7,117 31,183 (16,137)
SHARE SPLIT ON A 3 FOR 1 BASIS 14,234,400 -- -- --
SHARE CONSOLIDATION ON A 3 FOR 1 BASIS (14,234,400) -- -- --
COMMON STOCK ISSUED FOR ACQUISITION OF ONLINE
FILMS, LLC 5,632,800 563 11,828,317 --
COMMON STOCK ISSUED FOR CASH PURSUANT TO
REGULATION S OFFERING 562,500 56 4,499,944 --
NET LOSS FOR THE PERIOD -- -- -- (2,730,811)
--------------- -------------- -------------- ----------------
BALANCE, DECEMBER 31, 1999 13,312,500 $ 7,736 $ 16,359,444 $ (2,746,948)
COMMON STOCK ISSUED FOR CASH PURSUANT TO
REGULATION S OFFERING 437,500 44 3,499,956 --
CLASS B MEMBERSHIP ISSUED IN ONLINEFILMSALES.COM
LLC TO MANAGEMENT -- -- 1,751,027 --
SUBSCRIPTION FOR COMMON STOCK ISSUED PURSUANT TO
REGULATION D, RULE 506 OFFERING 950,000 95 949,905 --
SUBSCRIPTION RECEIVABLE FOR COMMON STOCK ISSUED
PURSUANT TO REGULATION D, RULE 506 OFFERING -- (95) (949,905) --
NET LOSS FOR THE PERIOD -- -- -- (3,611,936)
--------------- -------------- -------------- ----------------
BALANCE, MARCH 31, 2000 14,700,000 $ 7,780 $ 21,610,427 $ (6,358,884)
=============== ============== ============== ================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
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<S> <C>
COMMON STOCK ISSUED FOR CASH $ 38,300
NET LOSS FOR THE PERIOD (16,137)
----------------
BALANCE, DECEMBER 31, 1998 22,163
SHARE SPLIT ON A 3 FOR 1 BASIS --
SHARE CONSOLIDATION ON A 3 FOR 1 BASIS --
COMMON STOCK ISSUED FOR ACQUISITION OF ONLINE
FILMS, LLC 11,828,880
COMMON STOCK ISSUED FOR CASH PURSUANT TO
REGULATION S OFFERING 4,500,000
NET LOSS FOR THE PERIOD (2,730,811)
----------------
BALANCE, DECEMBER 31, 1999 $13,620,232
COMMON STOCK ISSUED FOR CASH PURSUANT TO
REGULATION S OFFERING 3,500,000
CLASS B MEMBERSHIP ISSUED IN ONLINEFILMSALES.COM
LLC TO MANAGEMENT 1,751,027
SUBSCRIPTION FOR COMMON STOCK ISSUED PURSUANT TO
REGULATION D, RULE 506 OFFERING 950,000
SUBSCRIPTION RECEIVABLE FOR COMMON STOCK ISSUED
PURSUANT TO REGULATION D, RULE 506 OFFERING (950,000)
NET LOSS FOR THE PERIOD (3,611,936)
----------------
BALANCE, MARCH 31, 2000 $ 15,259,323
================
</TABLE>
5
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INTERNETSTUDIOS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD ENDING MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION TO
MARCH 31, MARCH 31, DECEMBER 31,
2000 1999 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (3,611,936) $(31,008) $(2,746,948)
Adjustments to reconcile net loss to net cash from operating
activities:
Amortization of goodwill 690,400 -- 603,598
Depreciation 6,091 -- 9,210
Changes in assets and liabilities
Prepaids and deposits (238,423) 983 --
Accounts payable and accrued expenses 75,169 -- --
Other (12,041) -- (616,068)
---------------- --------------- ------------------
CASH USED IN OPERATING ACTIVITIES (3,090,740) (30,025) (2,750,208)
---------------- --------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of furniture and equipment (48,596) -- (61,401)
Incorporation costs -- -- (1,000)
Cash acquired on acquisition of subsidiary 306,628 -- 363,759
---------------- --------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES 258,032 -- 301,358
---------------- --------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans receivable (733,365) 20,000 (1,291,635)
Issuance of notes payable 1,000,000 -- --
Advances to related party -- -- (136,691)
Net proceeds on sale of Common Stock 3,500,000 -- 4,538,300
---------------- --------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES 3,766,635 20,000 3,109,974
---------------- --------------- ------------------
INCREASE IN CASH AND CASH EQUIVALENTS 933,927 (10,025) 661,124
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 661,124 10,025 --
---------------- --------------- ------------------
CASH AND EQUIVALENTS, END OF PERIOD $1,595,051 $ -- $661,124
================ =============== ==================
</TABLE>
<PAGE>
INTERNETSTUDIOS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - PRINCIPALS OF CONSOLIDATION
- -------------------------------------------------
InternetStudios.com (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 to
InternetStudios.com, Inc. Effective September 30, 1999, the Company acquired a
91.847% interest in Online Films, LLC ("Online Films"), a private Delaware
company developing a business of compiling an online database of filmed
entertainment and facilitating a digital marketplace targeted at the
entertainment industry. On February 21, 2000, the Company formed
InternetStudios.com UK Limited, a private limited company incorporated in
England and a wholly owned subsidiary of the Company.
The accompanying condensed consolidated financial statements include the
accounts of InternetStudios and its subsidiaries after elimination of all
significant intercompany accounts and transactions. Preparation of financial
statements in accordance with generally accepted accounting principals requires
the use of management estimates and assumptions. Actual results could differ
from those estimates.
The financial information included herein has been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principals have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures herein are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's latest
annual report on Form 10-K. The information furnished reflects all adjustments
(consisting only of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods. The results for this interim period are not necessarily indicative of
results to be expected for the full fiscal year, due to seasonal factors, among
others.
NOTE 2 - ASSET CONTRIBUTION TO ONLINEFILMSALES.COM, LLC
- -------------------------------------------------
Effective as of January 18, 2000, the stockholders of the Company approved by
written consent the contribution of substantially all of the Company's assets to
the capital of OnlineFilmSales.com, LLC, a newly formed Delaware limited
liability company ("OnlineFilmSales"). The Asset Contribution was consummated on
March 28, 2000. Included in the assets contributed to OnlineFilmSales were (i)
the Company's 91.847% membership interest in Online Films so that Online Films
became a subsidiary of OnlineFilmSales, and (ii) a Secured Promissory Note,
originally issued on November 12, 1999 (having a final principal balance of
($2,025,000), by MediaChase Ltd. Excluded from the assets contributed to
OnlineFilmSales were all trademarks, trade names, and domain names containing
"InternetStudios.com" or "InternetStudios" and all associated goodwill. As a
result of the Asset Contribution, the Company will
7
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conduct all operations through operating subsidiaries, of which there are
currently two, OnlineFilmSales and InternetStudios.com UK Limited.
In exchange for the assets, which OnlineFilmSales received in the Asset
Contribution, OnlineFilmSales issued a Class A membership interest, constituting
one hundred percent of the voting power of the Class A interest. The Company is
the sole holder of a Class A membership interest in OnlineFilmSales.
Concurrently with the Asset Contribution, two officers of the Company also made
contributions to OnlineFilmSales. Heidi Lester, the Chief Executive Officer,
contributed an 8.153% interest in Online Films in exchange for Class B
Membership Interests in OnlineFilmSales valued at $1,050,016 and Steve
Fredericks, the Acting President and Chief Financial Officer contributed to
OnlineFilmSales all of his right, title and interest in and to, certain
agreements with the Longevity-Southland Group for the development of a digital
production center and a related digital training program for artists and
producers in the People's Republic of China in exchange for Class B Membership
Interests in OnlineFilmSales valued at $700,011. As a result of the contribution
to OnlineFilmSales of Heidi Lester's membership interest in Online Films, Online
Films is now a wholly owned subsidiary.
The holders of Class B membership interests in OnlineFilmSales are entitled to
convert their interests into shares of Common Stock at any time. The Class B
membership interests will automatically be converted into the Company's Common
Stock upon the occurrence of certain transactions and in any event, on March 28,
2007. Each holder of a Class B membership interest will receive first priority
over holders of Class A membership interests upon distributions of cash by
OnlineFilmSales. Such first priority will be based upon the amount of all cash
which each holder of Class B membership interests would have received in the
form of dividends on and proceeds from redemptions of, that number of shares of
Common Stock into which such holder's Class B Membership Interest is
convertible, if such Class B member had held those shares during the period from
such member's admission as a Class B member of OnlineFilmSales to the date of
such distribution of cash by OnlineFilmSales. Heidi Lester's Class B Membership
Interest is convertible into 600,000 shares of Common Stock and Steve
Fredericks' Class B Membership Interest is convertible into 400,000 shares of
Common Stock.
NOTE 3 - INVESTMENTS IN JOINT VENTURES
- -------------------------------------------------
The Company, through OnlineFilmSales, entered into two joint venture
relationships with MediaChase Ltd. ("MediaChase") on March 28, 2000. One
joint venture, operated through ReporterTV.com, LLC, a Delaware limited
liability company whose sole members are MediaChase and OnlineFilmSales, will
focus on providing five segments of a business entertainment news magazine
updated and broadcast daily over the Internet in television broadcast news
format. The other joint venture, operated through StudioBuzz.com, LLC, a
Delaware limited liability company whose sole members are also MediaChase and
OnlineFilmSales, will focus on creating a comprehensive database of
information relating to the entertainment industry.
To fund the development of ReporterTV while the parties negotiated definitive
agreements with respect to their two joint ventures, the Company advanced
$2,025,000 in the form of a loan as evidenced by the MediaChase Note. As a part
of the Asset Contribution, the Company contributed to OnlineFilmSales, all of
its rights as payee under the MediaChase Note. In connection with the
consummation of its two joint
8
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ventures with MediaChase, OnlineFilmSales contributed all of its rights as payee
under the MediaChase Note to ReporterTV and MediaChase assigned all of its
obligations as payor under the MediaChase Note to ReporterTV, and as a result
the MediaChase Note has been cancelled. In consideration of the cancellation of
the MediaChase Note and the issuance by OnlineFilmSales to MediaChase of Class B
membership interests convertible into 250,000 shares of the Company's Common
Stock valued at $437,507, MediaChase (i) entered into the two Consulting
Agreements with OnlineFilmSales and StudioBuzz, (ii) contributed certain assets
to ReporterTV and StudioBuzz, and (iii) contributed to OnlineFilmSales a 75%
membership interest in ReporterTV and a 100% voting interest and 50% economic
interest in StudioBuzz. Pursuant to the terms of the Limited Liability Agreement
to ReporterTV, MediaChase has a one-time right to repurchase all or any part of
a 25% membership interest in ReporterTV, upon the payment of certain sums to
ReporterTV on or before January 31, 2001. Both ventures are consolidated in
these financial statements.
NOTE 4 - CAPITAL STOCK
- -------------------------------------------------
On March 15, 2000 the Company received cash for 437,500 shares at $8.00 per
share for gross proceeds of $3,500,000 to complete its Regulation S financing
for $8,000,000.
The Company received subscriptions for 950,000 shares at $10.00 per share
pursuant to Rule 506 of Regulation D. The stock was issued on March 29, 2000.
The Company received subscriptions for 95,000 shares at $10.00 per share
pursuant to Regulation S. The stock was issued on April 11, 2000.
NOTE 5 - NOTES PAYABLE
- -------------------------------------------------
The Company obtained a note payable of US$1,000,000 from Pacific Capital
Markets, Inc. on March 13, 2000. This loan is unsecured, bears interest at 12%
per annum and is due on April 12, 2000. This has been paid in full.
NOTE 6 - SUBSEQUENT EVENTS
- -------------------------------------------------
The Company arranged a private placement offering of 2,000,000 shares of Common
Stock at a price of $10 per share for gross proceeds of $20,000,000 subject to a
minimum offering of $10,000,000 and a maximum offering of $30,000,000. The
Company has engaged a private company controlled by a relative of an officer and
director to assist in the private placement and has agreed to pay a finder's fee
of 4% of proceeds, payable 50% in cash and 50% in shares of Common Stock valued
at $10 per share. As of April 11, 2000, the Company has closed subscriptions for
1,445,000 shares of Common Stock priced at $10 per share representing gross
proceeds of $14,450,000.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
The Company was incorporated in the State of Nevada on April 14, 1998 as The
Enterprise, Inc. For a period of time prior to December 14, 1998, the Company
was engaged in the word processing business. On December 14, 1998, the Company
withdrew from the word processing business in anticipation of acquiring a
license to software technology for the health industry and on December 17, 1998;
the Company changed its name to eHealth.com, Inc. This acquisition was not
completed. On September 18, 1999, the stockholders of the Company approved a
name change to InternetStudios.com, Inc. in anticipation of acquiring and
developing an Internet business. The name change was effective September 21,
1999. Pursuant to an acquisition agreement, dated September 17, 1999, among the
Company, Mark Rutledge and Robert Maclean (together, the "Principals") and
Online Films, LLC, a Delaware limited liability company, the Principals agreed
to transfer on their behalves and on behalf of other beneficial owners, 91.847%
of the membership interest in Online Films so that Online Films became a
subsidiary of the Company. In consideration of the transfer of the Principals'
membership interests, the Principals and other beneficial owners of Online Films
received an aggregate of 5,632,800 shares of the Company's Common Stock. As a
result of the acquisition, the Company acquired a 91.847% ownership interest in
Online Films. As a result of the acquisition of Online Films, InternetStudios is
in the business of compiling an online database of filmed entertainment and
facilitating a digital market targeted at the entertainment industry.
Effective as of January 18, 2000, the stockholders of InternetStudios approved
by written consent the contribution of substantially all of InternetStudios'
assets (the "Asset Contribution") to the capital of OnlineFilmSales. The Asset
Contribution was consummated on March 28, 2000. Included in the assets
contributed to OnlineFilmSales were (i) InternetStudios' 91.847% membership
interest in Online Films so that Online Films became a subsidiary of
OnlineFilmSales, and (ii) a Secured Promissory Note, originally issued on
November 12, 1999 (as amended several times and having a final principal balance
of $2,025,000), by MediaChase in favor of InternetStudios (the "MediaChase
Note"). Excluded from the assets contributed to OnlineFilmSales were all
trademarks, trade names, and domain names containing "InternetStudios.com" or
"InternetStudios" and all associated goodwill, all of InternetStudios' Stock
Option Plans, all of InternetStudios' registrations with the Securities and
Exchange Commission and state securities authorities and all registrations and
listings with any securities exchanges, all contracts and agreements entered
into by InternetStudios with respect to any commercial or private financing or
the sale of InternetStudios' capital stock or other securities, InternetStudios'
equity interest in InternetStudios.com UK Limited, and InternetStudios' rights
under a Letter of Intent, dated March 15, 2000 with TAMNW, Inc. As a result of
the Asset Contribution, InternetStudios will conduct all operations through
operating subsidiaries, of which there are currently two, OnlineFilmSales and
InternetStudios.com UK Limited.
OnlineFilmSales is a manager-managed limited liability company. Except for
matters as to which the approval of the members is required by Delaware law, the
manager of OnlineFilmSales has full, complete and exclusive authority, power and
discretion to manage and control the business, property and affairs of
OnlineFilmSales. OnlineFilmSales initially has one manager, which is
InternetStudios. The manager of OnlineFilmSales is elected by the affirmative
vote or written consent of the holders of a majority of all voting interests of
Class A members of OnlineFilmSales.
10
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In exchange for the assets which OnlineFilmSales received in the Asset
Contribution, OnlineFilmSales issued to InternetStudios a Class A membership
interest, constituting one hundred percent of the voting power of the Class A
members of OnlineFilmSales. InternetStudios is the sole holder of a Class A
membership interest in OnlineFilmSales.
Concurrently with the Asset Contribution, two members of InternetStudios'
management also made contributions to OnlineFilmSales. Heidi Lester, the Chief
Executive Officer of InternetStudios, contributed to OnlineFilmSales, an 8.153%
interest in Online Films in exchange for Class B Membership Interests in
OnlineFilmSales and Steve Fredericks, the Acting President and Chief Financial
Officer of InternetStudios, contributed to OnlineFilmSales all of his right,
title and interest in and to, certain agreements with the Longevity-Southland
Group with respect to collaboration in future projects relating to the
development of a digital production center and a related digital training
program for artists and producers in the People's Republic of China in exchange
for Class B Membership Interests in OnlineFilmSales. As a result of the
contribution to OnlineFilmSales of Heidi Lester's membership interest in Online
Films, Online Films is now a wholly-owned subsidiary of InternetStudios.
The holders of Class B membership interests in OnlineFilmSales are entitled to
convert their interests into shares of InternetStudios' Common Stock at any
time. The Class B membership interests will automatically be converted into
InternetStudios' Common Stock upon the occurrence of certain transactions and in
any event, on March 28, 2007. Each holder of a Class B membership interest will
receive first priority (ratably) over holders of Class A membership interests
upon distributions of cash by OnlineFilmSales. Such first priority will be based
upon the amount of all cash which each holder of Class B membership interests
would have received in the form of dividends on and proceeds from redemptions
of, that number of shares InternetStudios' Common Stock into which such holder's
Class B Membership Interest is convertible, if such Class B member had held
those shares during the period from such member's admission as a Class B member
of OnlineFilmSales to the date of such distribution of cash by OnlineFilmSales.
Heidi Lester's Class B Membership Interest is convertible into 600,000 shares of
InternetStudios' Common Stock and Steve Fredericks' Class B Membership Interest
is convertible into 400,000 shares of InternetStudios' Common Stock.
On February 21, 2000, InternetStudios formed InternetStudios.com UK Limited, a
private limited company incorporated in England and a wholly-owned subsidiary of
InternetStudios. (Hereinafter, reference to InternetStudios shall include its
subsidiaries Online Films, OnlineFilmSales and InternetStudios.com UK Limited
unless the context otherwise requires).
InternetStudios, through OnlineFilmSales, entered into two joint venture
relationships with MediaChase on March 28, 2000. One joint venture, operated
through ReporterTV.com, LLC, a Delaware limited liability company whose sole
members are MediaChase and OnlineFilmSales, will focus on providing five
segments of a business entertainment news magazine updated and broadcasted daily
over the Internet in television broadcast news format. The other joint venture,
operated through StudioBuzz.com, a Delaware limited liability company whose sole
members are also MediaChase and OnlineFilmSales, will focus on creating a
comprehensive database of information relating to the entertainment industry.
InternetStudios' long-term business plan contemplates facilitating the financing
of filmed entertainment via the OnlineFilmSales.com website in 2001.
InternetStudios intends to provide a forum for producers to pre-sell a portion
of filmed entertainment rights and use the proceeds of the sale to cover the
cost of producing and marketing filmed entertainment rights in the development
stage. InternetStudios will earn a financing fee from facilitating the financing
of the filmed entertainment. In addition, InternetStudios may also receive
profit participations upon the release and financial success of such filmed
entertainment. InternetStudios is currently exploring the feasibility of
providing such services.
11
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RESULTS OF OPERATIONS
REVENUES. InternetStudios has not recognized to date and does not expect to
recognize revenues until after the Internet services are fully launched. Once
launched, the three websites will offer various services. InternetStudios plans
to charge a variety of fees, including commission, subscription and advertising
fees, for such services.
COST OF REVENUES. InternetStudios currently has no cost of revenues because it
has not recognized any revenues to date. Once InternetStudios begins to charge
fees and subscriptions, as well as advertising charges, cost of revenues will
primarily consist of costs associated with marketing, customer service
activities, and server and network operations, and to a lesser extent, bank and
escrow processing charges on fees earned on transactions, Internet connection
charges, depreciation of server and network equipment and allocation of
overhead.
ADVERTISING AND MARKETING EXPENSES. Costs related to InternetStudios'
advertising and marketing efforts for the three months ended March 31, 2000
totaled $515,214. InternetStudios' advertising and marketing expenses consist
mainly of advertising expenses, creative development and promotional costs and
commissions, and compensation for advertising and marketing personnel. The
majority of these costs are directed to programs designed to build brand name
recognition, attract filmed entertainment companies and individuals to
InternetStudios' websites, and to attract motion pictures and television
programming for listing on the OnlineFilmSales.com web site.
WEBSITE DEVELOPMENT EXPENSES. InternetStudios' website development costs as of
December 31, 1999 were $632,943 and $691,051 for the period January 1, 2000 to
March 31, 2000. The website development expenses consist of compensation for
personnel involved in the development of InternetStudios' websites and systems,
and expenditures for consulting services, third-party software and other costs
related to development.
GENERAL AND ADMINISTRATIVE EXPENSES. InternetStudios' general and administrative
expenses consist primarily of salaries and related costs for general and
corporate functions, including finance, accounting, facilities and fees for
legal and other professional services. InternetStudios' general and
administrative expenses, excluding website development costs, for the period
from January 1, 2000 to March 31, 2000 were $1,701,975.
DEPRECIATION AND THE AMORTIZATION OF GOODWILL. InternetStudios' depreciation and
goodwill expenses consist primarily of expenses related to fixed assets, the
acquisition of OnlineFilmSales and the equity interest in ReporterTV.com. The
total for the period ending March 31, 2000 was $696,491.
LIQUIDITY AND CAPITAL RESOURCES
From inception to September 17, 1999, InternetStudios had financed its
operations entirely from private placements. On September 17, 1999,
InternetStudios acquired 91.847% of the membership interest of Online Films. On
September 30, 1999 InternetStudios had $1,011,659 in cash and cash equivalents.
InternetStudios has had negative cash flows from operating activities in each
fiscal and quarterly period to date.
In October 1999 InternetStudios entered into a facility lease agreement for
InternetStudios' corporate headquarters with annual lease payments of $96,000
through November 2004.
12
<PAGE>
Net cash used in operating activities was $3,090,740 for the period from
January 1, 2000 to March 31, 2000.
Pursuant to the Financing Agreement, dated September 17, 1999, among
InternetStudios, Online Films and Pacific Capital Markets, Inc., Pacific Capital
arranged for the sale of 1,000,000 shares of InternetStudios' Common Stock at $8
per share to investors in offshore transactions. As of December 31, 1999, a
total of 562,500 shares of Common Stock were issued to five unrelated third
party, non-U.S. investors for a total offering price of $4,500,000. As of March
15, 2000, an additional 437,500 shares of Common Stock were issued to three
additional unrelated third party, non-U.S. investors for a total offering price
of $3,500,000. These offerings were done pursuant to Regulation S.
As of March 29, 2000, an additional 950,000 shares of Common Stock were
subscribed for at $10 per share by an unrelated third party, U.S.-based
investor. This offering was done pursuant to Regulation D. A finder's fee of 4%
will be paid pursuant to this offering.
InternetStudios believes that its current cash balances together with the net
proceeds of these financings will allow InternetStudios to fund its operations
for at least the next 18 months based upon the Company's estimated revenues.
However, should a shortfall in revenue projections occur, the Company's
management may seek to raise additional capital within the next 9 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. As InternetStudios does not currently engage in
derivative or hedging activities there will be no impact to InternetStudios'
results of operations, financial position or cash flow upon the adoption of this
standard.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," which establishes standards for certain
activities of mortgage banking enterprises. SFAS No. 134 is effective for fiscal
years beginning after December 15, 1998. The adoption of SFAS No. 134 will not
have an impact on InternetStudios' results of operations, financial position or
cash flow.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
As of March 15, 2000, the Company issued 437,500 shares of Common Stock for an
aggregate offering price of $3,500,000 to three unrelated third party, non-U.S.
investors pursuant to Regulation S.
As of March 29, 2000, the Company issued 950,000 shares of Common Stock for an
aggregate offering price of $950,000 to a U.S.-based investor pursuant to Rule
506 of Regulation D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INTERNETSTUDIOS.COM, INC.
--------------------------------------
(Registrant)
Date: May 12, 2000 By: /s/ HEIDI LESTER
------------------------------
Heidi Lester
Chief Executive Officer
(Duly authorized officer)
Date: May 12, 2000 By: /s/ STEVEN FREDERICKS
------------------------------
Steven Fredericks
President and Chief Financial Officer
(Principal financial officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM 10Q DATED
MARCH 31, 2000 AND IS QUALIFED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,595,051
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 522,667
<PP&E> 331,995
<DEPRECIATION> 15,301
<TOTAL-ASSETS> 17,303,452
<CURRENT-LIABILITIES> 1,606,622
<BONDS> 0
0
0
<COMMON> 7,780
<OTHER-SE> 15,251,543
<TOTAL-LIABILITY-AND-EQUITY> 17,303,452
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,604,731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,205
<INCOME-PRETAX> (3,611,936)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,611,936)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,611,936)
<EPS-BASIC> (.27)
<EPS-DILUTED> (.27)
</TABLE>
