<PAGE>
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 June 30, 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
INTERNETSTUDIOS.COM, INC.
--------------------------------------------------------------------------------
(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
--------------------------------------------------------------------------------
(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 June 30, 2000, the issuer had 15,342,000 shares of Common Stock issued and
outstanding.
<PAGE>
INTERNETSTUDIOS.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Cash Flows (Unaudited) - For the Period
Ended June 30, 2000
Consolidated Statements of Stockholders' Equity (Unaudited)
Consolidated Statements of Operation (Unaudited) - Three Months
Ended June 30, 2000 and 1999 and Inception to December 31, 1999
Consolidated Balance Sheets (Unaudited) - June 30, 2000 and December
31, 1999
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
<PAGE>
INTERNETSTUDIOS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION TO
JUNE 30, JUNE 30, DECEMBER 31,
2000 1999 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $(9,637,392) $(31,008) $(2,746,948)
Adjustments to reconcile net loss to net cash from
operating activities:
Amortization of goodwill 1,420,800 -- 603,598
Depreciation 42,569 -- 9,210
Changes in assets and liabilities
Prepaids and deposits (209,954) -- --
Accounts payable and accrued expenses (115,105) 983 --
Accounts receivable 2,925 -- --
Other (63,374) -- (616,068)
-------------- --------------- ------------------
CASH USED IN OPERATING ACTIVITIES (8,139,623) (30,025) (2,750,208)
-------------- --------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of furniture and equipment (571,378) -- (61,401)
Acquisition of subsidiary (232,274) -- --
Incorporation costs -- (1,000)
Interest Income 55,816 -- --
Cash acquired on acquisition of subsidiary 306,628 -- 363,759
-------------- --------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES (441,208) -- 301,358
-------------- --------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans receivable (733,365) 20,000 (1,291,635)
Issuance of notes payable -- -- --
Advances to related party -- -- (136,691)
Net proceeds on sale of Common Stock 17,550,000 -- 4,538,300
-------------- --------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES 16,816,635 20,000 3,109,974
-------------- --------------- ------------------
INCREASE IN CASH AND CASH EQUIVALENTS 8,235,804 (10,025) 661,124
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 661,124 10,025 --
-------------- --------------- ------------------
CASH AND EQUIVALENTS, END OF PERIOD $8,896,928 $ -- $661,124
============== =============== ==================
</TABLE>
3
<PAGE>
INTERNETSTUDIOS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
NUMBER OF PAID IN DEFICIT
SHARES AMOUNT CAPITAL STAGE TOTAL
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK ISSUED FOR CASH 7,117,200 $ 7,117 $ 31,183 $ -- $ 38,300
NET LOSS FOR THE PERIOD -- -- -- (16,137) (16,137)
-------------- -------------- -------------- ---------------- -------------
BALANCE, DECEMBER 31, 1998 7,117,200 7,117 31,183 (16,137) 22,163
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 -- 11,828,880
COMMON STOCK ISSUED FOR CASH PURSUANT TO
REGULATION S OFFERING 562,500 56 4,499,944 -- 4,500,000
NET LOSS FOR THE PERIOD -- -- -- (2,730,811) (2,730,811)
-------------- -------------- -------------- ---------------- -------------
BALANCE, DECEMBER 31, 1999 13,312,500 $ 7,736 $ 16,359,444 $ (2,746,948) $13,620,232
COMMON STOCK ISSUED FOR CASH PURSUANT TO
REGULATION S OFFERING 437,500 44 3,499,956 -- 3,500,000
CLASS B MEMBERSHIP ISSUED IN
ONLINEFILMSALES.COM LLC TO MANAGEMENT -- -- 1,751,027 -- 1,751,027
COMMON STOCK ISSUED
PURSUANT TO REGULATION D, RULE 506 OFFERING 1,445,000 145 14,049,695 -- 14,049,840
ADVISORY FEE 27,000 -- -- -- --
COMMON STOCK ISSUED FOR ACQUISITION OF ALL
CAPITAL STOCK OF ITSTV.COM 120,000 12 1,199,988 -- --
NET LOSS FOR THE PERIOD -- -- -- (9,637,392) (9,637,392)
-------------- -------------- -------------- ---------------- -------------
BALANCE, JUNE 30, 2000 15,342,000 $7,937 $ 36,860,122 $ (12,384,340) $ 24,483,707
============== ============== ============== ================ =============
</TABLE>
4
<PAGE>
INTERNETSTUDIOS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED INCEPTION TO
JUNE 30, MARCH 31, DECEMBER 31,
2000 1999 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 5,355 $ -- $ --
OPERATING EXPENSES
Advertising and Marketing 2,133,866 -- 126,476
Amortization of goodwill 1,420,800 -- 603,598
Depreciation 42,569 -- 9,210
Consulting fees 1,299,369 20,000 660,969
Management fees 320,030 3,200 195,200
Office and general 532,516 18,056 134,241
Professional fees 309,134 -- 225,282
Travel and accommodation 349,732 5,889 135,586
Wages and benefits 1,685,634 -- 23,443
Website development costs 1,604,912 -- 632,943
-------------------- --------------------- ---------------------
OPERATING LOSS (9,698,563) (47,145) (2,746,948)
OTHER INCOME (LOSS) 55,815 -- --
-------------------- --------------------- ---------------------
NET LOSS FOR THE PERIOD $ (9,637,392) $ (47,145) $ (2,746,948)
==================== ===================== =====================
BASIC NET LOSS PER SHARE $ (0.67) $ (0.01) $ (0.48)
-------------------- --------------------- ---------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,402,154 7,117,200 5,675,950
==================== ===================== =====================
</TABLE>
5
<PAGE>
INTERNETSTUDIOS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
FOR THE PERIODS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 8,896,928 $ 661,124
Taxes recoverable 34,330 17,963
Due from related party 137,941 137,941
Prepaids and deposits 296,291 506,245
--------------------- ------------------------
9,365,490 1,323,272
--------------------- ------------------------
GOODWILL 15,164,965 11,454,123
LOANS RECEIVABLE -- 1,306,849
ACCOUNTS RECEIVABLE 2,925 --
FURNITURE AND EQUIPMENT, NET OF DEPRECIATION 803,183 66,441
INCORPORATION COSTS 1,000 1,000
--------------------- ------------------------
15,972,073 12,828,413
--------------------- ------------------------
$ 25,337,563 $14,151,686
===================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 416,349 $ 531,453
Notes Payable -- --
--------------------- ------------------------
416,349 531,453
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 437,507 --
STOCKHOLDER'S EQUITY
Common Stock $.0001 par value, 100,000,000 shares
authorized 2000 - 15,342,000, 1999 - 13,312,500
issued and outstanding 7,937 7,736
Additional paid-in capital 36,860,112 16,359,444
Retained Earnings (12,384,340) (2,746,948)
--------------------- ------------------------
24,483,707 13,620,232
--------------------- ------------------------
$ 25,337,563 $14,151,686
===================== ========================
</TABLE>
6
<PAGE>
INTERNETSTUDIOS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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
<PAGE>
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 then 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 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
8
<PAGE>
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
--------------------------------------------------------------------------------
During the period, the Company received subscriptions for 495,000 shares at
$10.00 per share pursuant to Regulation S. The stock was issued on April 11,
2000.
Over the period from March 29, 2000 to April 11, 2000, the Company closed
subscriptions for a total of 1,445,000 shares of Common Stock priced at $10
per share representing gross proceeds of $14,450,000 (the "Private
Placement"). The Company paid a finder's fee of 4% of gross proceeds from the
Private Placement, payable 50% in cash and 50% in shares of Common Stock
valued at $10 per share to a private company controlled by a relative of an
officer and director of the Company. As part of this arrangement, the Company
issued 27,000 shares to such company.
The Company issued 120,000 shares pursuant to the itstv.com acquisition,
together with warrants to acquire an additional 112,500 shares.
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.
9
<PAGE>
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
<PAGE>
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 then 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.
Pursuant to an Agreement and Plan of Merger dated as of May 5, 2000, by and
among the Company, OnlineTVSales.com Inc., TAMNW Inc. and itstv.com, the
Company acquired all the capital stock of itstv.com for 120,000 shares of
common stock in the Company and warrants to acquire an additional 112,500
common shares, itstv.com now operates as OnlineTVSales.com, a 100% owned
subsidiary of the Company.
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
11
<PAGE>
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. In July, 2000, the
Company established InternetStudios Entertainment Finance Inc., a British
Columbia company, with a view to expanding into this area of operations.
RESULTS OF OPERATIONS
REVENUES. InternetStudios has not recognized any material revenues 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 six months ended June 30, 2000
totaled $2,133,866. InternetStudios' advertising and marketing expenses
consist mainly of advertising expenses, creative development, promotional
costs and commissions, and events. 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 $1,604,912 for the period January 1,
2000 to June 30, 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 June 30, 2000 were $4,496,416.
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 June 30, 2000 was $1,463,369.
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
12
<PAGE>
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.
Net cash used in operating activities was $8,139,623 for the period from
January 1, 2000 to June 30, 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 April 11, 2000, an additional 1,445,000 shares of Common Stock were
subscribed for at $10 per share by unrelated third party investors. This
offering was done pursuant to Regulation D. A finder's fee of 4% was 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 12 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 6
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
During the period, the Company received subscriptions for 495,000 shares at
$10.00 per share pursuant to Regulation S. The stock was issued on April 11,
2000.
Over the period from March 29, 2000 to April 11, 2000, the Company closed
subscriptions for a total of 1,445,000 shares of Common Stock priced at $10
per share representing gross proceeds of $14,450,000 (the "Private
Placement"). The Company paid a finder's fee of 4% of gross proceeds from the
Private Placement, payable 50% in cash and 50% in shares of Common Stock
valued at $10 per share to a private company controlled by a relative of an
officer and director of the Company. As part of this arrangement, the Company
issued 27,000 shares to such company.
The Company issued 120,000 shares pursuant to the itstv.com acquisition,
together with warrants to acquire an additional 112,500 shares.
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: August 11, 2000 By: /s/ HEIDI LESTER
---------------------------------------
Heidi Lester
Chief Executive Officer
(Duly authorized officer)
Date: August 11, 2000 By: /s/ ALEX MCKEAN
---------------------------------------
Alex McKean
Director of Finance
(Acting Principal financial officer)
16
