pdos_10-q9302008v3.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008

¨ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER: 333-145871

11400 W. Olympic Blvd., 14th Floor, Los Angeles, CA 90064
(Address of principal executive offices) (Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

The number of shares of registrant’s common stock outstanding, as of December 3, 2008 was 250,278,035.

PLATINUM STUDIOS, INC.
INDEX

PART I: FINANCIAL INFORMATION
ITEM 1:	FINANCIAL STATEMENTS (Unaudited)
	Consolidated Balance Sheets
	Consolidated Statements of Operations
	Consolidated Statements of Cash Flows
	Notes to the 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
ITEM 4:	CONTROLS AND PROCEDURES

PART II: OTHER INFORMATION
Item 1	LEGAL PROCEEDINGS
ITEM 1A :	RISK FACTORS
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3	DEFAULTS UPON SENIOR SECURITIES
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5	OTHER INFORMATION
ITEM 6:	EXHIBITS
SIGNATURES

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLATINUM STUDIOS, INC
CONSOLIDATED BALANCE SHEETS
	September 30, 2008			December 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	8,827		$	4,445
Accounts receivable		36,450			44,695
Other receivable		-			20,000
Prepaid expenses		120,670			109,124
Inventory		-			59,528
Other current assets		881			-

Total current assets		166,828			237,792

Property and equipment, net		240,262			257,130
Purchased intangibles		2,387,124			-
Web sites		40,000			40,000
Character rights, net		159,783			228,261
Deposits and other		91,518			39,118
Total assets	$	3,085,515		$	802,301

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	1,120,169		$	663,848
Accrued expenses and other current liabilities		1,717,898			788,868
Bank overdraft		-			89,665
Deferred revenue		-			100,000
Short term notes payable		2,072,899			1,889,908
Due former Wowio partners, payable in common stock		1,400,000			-
Related party payable		193,079			193,079
Capital leases payable, current		58,729			73,282

Total current liabilities		6,562,774			3,798,650

Long term notes payable to shareholder		2,551,463			2,531,464
Accrued interest due to shareholder		99,368			60,479
Capital leases payable, non-current		67,823			106,395

Total liabilities		9,281,428			6,496,988
Common stock, $.0001 par value; 500,000,000 shares
authorized; 234,085,348 and 201,255,825 issued and
outstanding, respectively		23,409			20,126
Additional paid in capital		10,505,016			3,750,782
Accumulated deficit		(16,724,338	)		(9,465,595	)

Total shareholders' deficit		(6,195,913	)		(5,694,687	)
Total liabilities and shareholders' deficit	$	3,085,515		$	802,301

The accompanying footnotes are an integral part of these consolidated financial statements

PLATINUM STUDIOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2008			2007			2008			2007

Net revenue	$	167,983		$	98,117		$	724,250		$	1,774,917

Costs and expenses:
Cost of revenues (excluding depreciation expense)		106,866			96,509			310,704			211,122
Operating expenses		1,014,120			1,092,918			3,317,862			3,460,872
Research and development		109,851			234,823			468,078			692,677
Stock option expense		-			-			3,383,345			-
Depreciation and amortization		48,379			42,598			135,840			123,263

Total costs and expenses		1,279,216			1,466,848			7,615,829			4,487,934

Operating loss		(1,111,233	)		(1,368,731	)		(6,891,579	)		(2,713,017	)

Other income (expense):

Other income		-			-			181			-
Gain (loss) on disposition of assets		-			(24,000	)		100			(24,000	)
Gain (loss) on settlement of debt		(27,407	)		-			9,928			-
Interest expense		(100,192	)		(270,119	)		(293,161	)		(410,506	)
Bad debt expense		(9,210	)		-			(84,210	)		-
Total other income (expense):		(136,809	)		(294,119	)		(367,162	)		(434,506	)
Loss before provision for income taxes		(1,248,042	)		(1,662,850	)		(7,258,741	)		(3,147,523	)

Provision for income taxes		-			-			-			-
Net loss	$	(1,248,042	)	$	(1,662,850	)	$	(7,258,741	)	$	(3,147,523	)

Basic and diluted loss per share:
Net loss per share	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.02	)

Basic and diluted weighted average shares		231,566,279		201,255,825				224,926,056			181,863,525

The accompanying footnotes are an integral part of these consolidated financial statements

PLATINUM STUDIOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Nine Months Ended September 30,
		2008			2007
Cash flows from operating activities
Net loss	$	(7,258,741	)	$	(3,147,523	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation		28,556			54,785
Amortization		68,478			68,478
Equity instruments issued for services		4,227,494			-
Gain on settlement of debt		(9,928	)		-
Loss on disposal of website		-			24,000
Warrantes issued for debt conversion		-			232,206
Decrease (increase) in operating assets:
Accounts receivable		8,245			(10,546	)
Other receivable		20,000			-
Inventories		59,528			(56,222	)
Prepaid expenses and other current assets		(59,334	)		(97,552	)
Other assets		-			11,810
Increase (decrease) in operating liabilities:		-
Accounts payable		236,105			387,148
Accounts payable related party		-			(50,000	)
Bank overdraft		(89,665	)		-
Accrued expenses		1,081,906			(52,922	)
Accrued interest		111,902			79,901
Deferred revenue		(100,000	)		(750,000	)
Net cash flows used in operating activities		(1,675,454	)		(3,306,437	)

Cash flows from investing activities
Investment in property and equipment		(4,618	)		(21,554	)
Purchase of intellectual property		(2,500	)		-
Net cash flows used in investing activities		(7,118	)		(21,554	)
Cash flows from financing activities
Proceeds from non-related loans		462,016			150,000
Proceeds from related party loans		180,794			724,500
Payments on related party loans		(181,294	)		(200,050	)
Payments on non-related party loans		(146,879	)		-
Payments on capital leases		(60,195	)		(47,431	)
Issuance of common stock, net of offering costs		1,432,512			2,376,607

Net cash flows provided by financing activities		1,686,954			3,003,626

Net increase/(decrease) in cash		4,382			(324,365	)
Cash, at beginning of year		4,445			331,435

Cash, at end of period	$	8,827		$	7,070
Supplemental disclosure of cash flow information:
Cash paid for interest	$	153,386		$	91,385
Non-cash financing activities related to the conversion of debt	$	255,872		$	-
Cash paid for income taxes	$	-		$	-

The accompanying footnotes are an integral part of these consolidated financial statements

PLATINUM STUDIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(UNAUDITED)

Nature of operations – The Company controls a library consisting of more than 5,600 characters and is engaged principally as a comics-based entertainment company adapting characters and storylines for production in film, television, publishing and all other media.

Platinum Studios, LLC was formed and operated as a California limited liability company from its inception on November 20, 1996 through September 14, 2006. On September 15, 2006, Platinum Studios, LLC filed with the State of California to convert Platinum Studios, LLC into Platinum Studios, Inc., (“the Company”, “Platinum”) a California corporation.

This change to the Company structure was made in preparation of a private placement memorandum and common stock offering in October, 2006 (Note 13).

The accompanying unaudited financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X, promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and disclosures required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the fiscal year. The financial statements should be read in conjunction with the Company’s December 31, 2007 financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K (the “Annual Report”). All terms used but not defined elsewhere herein have the meanings ascribed to them in the Annual Report.

The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

favorable to the Company or at all. These items raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects related to recovery and classification of assets, or the amounts and classifications of liabilities that might result from the outcome of this uncertainty.

Reclassifications – Certain prior year amounts have been reclassified in order to conform to the current year’s presentation.

Revenue recognition - Revenue from the licensing of characters and storylines (“the properties”) owned by the Company are recognized in accordance with guidance provided in Securities and Exchange Commission Staff Accounting Bulletin No. 104 “Revenue Recognition” (an amendment of Staff Accounting Bulletin No. 101 “Revenue Recognition”) (“SAB 104”). Under the SAB 104 guidelines, revenue is recognized when the earnings process is complete. This is considered to have occurred when persuasive evidence of an agreement between the customer and the Company exists, when the properties are made available to the licensee and the Company has satisfied its obligations under the agreement, when the fee is fixed or determinable and when collection is reasonably assured.

The Company derives its licensing revenue primarily from options to purchase rights, the purchase of rights to properties and first look deals. For option agreements and first look deals that contain non-refundable payment obligations to us, we recognize such non-refundable payments as revenue at the inception of the agreement and receipt of payment, prior to the collection of any additional amounts due, provided all the criteria for revenue recognition under SAB 104 have been met. First look deals that have contingent components are deferred and recognized at the later of the expiration of the first look period or in accordance with the terms of the first look contract.

For licenses requiring material continuing involvement or performance based obligations, by the Company, the revenue is recognized as and when such obligations are fulfilled.

The Company records as deferred revenue any licensing fees collected in advance of obligations being fulfilled or if a licensee is not sufficiently creditworthy, the Company will record deferred revenue until payments are received.

License agreements typically include reversion rights which allow the Company to repurchase property rights which have not been used by the studio (the buyer) in production within a specified period of time as defined in the purchase agreement. The cost to repurchase the rights is generally based on the costs incurred by the studio to further develop the characters and story lines.

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and cash equivalents – The Company considers all highly liquid investment securities with an original maturity date of three months or less to be cash equivalents.

Accounts receivable – Trade receivables are carried at original invoice amount. The company does not regularly issue credit to its customers. The Company performs ongoing reviews of its receivables for collectability. Trade receivables are written off when deemed uncollectable. Recoveries of trade receivables previously written off are recorded as income when received. No trade receivables were written off for the nine months ended September 30, 2008 and 2007. The Company’s allowance for doubtful accounts was $9,210 as of September 30, 2008 and $0 as of December 31, 2007.

Other receivable – Other receivables are related to the sublease of unused office space at the Company’s headquarters. Other receivables are carried at original invoice amount. Other receivables are written off when deemed uncollectable. Recoveries of other receivables previously written off are recorded as income when received. Other receivables of $75,000 were written off against the allowance for other receivables for the nine months ended September 30, 2008 and $0 for 2007. The Company’s allowance for doubtful accounts for other receivables was $0 as of September 30, 2008 and December 31, 2007.

Concentrations of risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of uninsured cash balances. The Company maintains its cash balances with what management believes to be a high credit quality financial institution. At times, balances within the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation (FDIC) limit of $100,000.

During the three and nine months ended September 30, 2008 and 2007, the Company had customer revenues representing a concentration of the Company’s total revenues. For the three months ended September 30, 2008, two customers represented approximately 56% and 14% of total revenues. For the nine months ended September 30, 2008, five customers represented approximately 34%, 27%, 11%, 10% and 4% of total revenues. For the three months ended September 30, 2007, one customer represented approximately 90% of total revenues. For the nine months ended September 30, 2007, four customers represented approximately 56%, 25%, 8% and 5% of total revenues.

Depreciation - Depreciation is computed on the straight-line method over the following estimated useful lives:

Character development costs - Character development costs consist primarily of costs to acquire properties from the creator, development of the property using internal or independent writers and artists, and the registration of a property for a trademark or copyright. These costs are capitalized in the year incurred if the Company has executed a contract or is negotiating a revenue generating opportunity for the property. If the property derives a revenue stream that is estimable, the capitalized costs associated with the property are expensed as revenue is recognized.

If the Company determines there is no determinable market for a property, it is deemed impaired and is written off.

Purchased intangible assets and long-lived assets – Intangible assets are capitalized at acquisition costs and intangible assets with definite lives are amortized on the straight-line basis. The Company periodically reviews the carrying amounts of intangible assets and property in conformance with the Statement of Financial Accounting Standards No. 144,

Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). Under SFAS 144, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, the impairment charge to be recognized is measured by the excess of the carrying amount over the fair value of the asset.

Advertising costs - Advertising costs are expensed the later of when incurred or when the advertisement is first run. For the three and nine months ended September 30, 2008 advertising expenses were $18,383 and $65,893, respectively. For the three and nine months ended September 30, 2007 advertising expenses were $13,077 and $83,414, respectively.

Research and development - Research and development costs, primarily character development costs and design not associated with an identifiable revenue opportunity, are charged to operations as incurred. For the three and nine months ended September 30, 2008 research and development expenses were $109,930 and $468,078, respectively. For the three and nine months ended September 30, 2007 research and development expenses were $222,360 and $692,677, respectively.

Income taxes – From inception thru September 14, 2006 the Company operated as a limited liability company and elected to be taxed similar to a partnership. Accordingly, each member was responsible for reporting its respective share of the Company’s net income or loss for Federal and California income tax purposes and the Company did not pay Federal income tax. From September 15, 2006 forward the Company has accounted for income taxes using the liability method, whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company was subject to an annual minimum tax of $800 and a fee based on gross receipts in California from inception through September 14, 2006.

Net income/(loss) per share – In accordance with SFAS No. 128 “Earnings Per Share”, basic income per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the periods, excluding shares subject to repurchase or forfeiture. Diluted income per share increases the shares outstanding for the assumption of the vesting of restricted stock and the exercise of dilutive stock options and warrants, using the treasure stock method, unless the effect is anti-dilutive.

Inventory is stated at the lower of cost (computed on a first-in, first-out basis) or market. The inventory consists of finished goods purchase for resale.

For the nine months ended September 30, 2008 The Company recorded an inventory impairment of $54,823. For the year ended December 31, 2007 the Company recorded no inventory impairment or inventory reserve expense.

Property and equipment are recorded at cost. The cost of repairs and maintenance are expensed when incurred, while expenditures refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Upon asset retirement or disposal, any resulting gain or loss is included in the results of operations.

Character rights are recorded at cost. On June 12, 2008, the Company received a valuation of its intellectual property which consists of a library of comic characters. The valuation provides that the fair market value exceeds the Company’s cost.

	September 30,
	2008		December 31,
Short-term debt	(Unaudited)		2007

Loan payable to member - uncollateralized;
payable in monthly installments of interest only at
variable interest rates. At September 30, 2008 and
December 31, 2007 , the interest rates were 4.90%
and 7.15%, respectively. Due upon demand
	$	749,874	$	740,011
Loan payable to 3rd party - uncollateralized;
payable in annual installments of interest only at
6%. Due upon demand		18,465		17,676
Loan payable to member - uncollateralized;
payable in monthly installments of interest only at
5%. Due upon demand.		106,586		160,964
Loan payable to member - uncollateralized;
payable in monthly installments of principal and
interest at varying rates. At September 30, 2008
and December 31, 2007, the interest rates were
27.17% and 3.99%, respectively. Due upon
demand.		157,446		136,487
Loan payable to member - uncollateralized; interest
only at 5%. Due upon demand.		1,422		10,000

Loan payable to shareholder. Paid during 2008.		-		510
Loan payable to shareholder. Paid during 2008.		-		213,315
Loan payable to shareholder. Paid during 2008.		-		27,573

Loan payable to shareholder. Paid during 2008.		-		110,290
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due upon demand.		112,674		106,658
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due March, 2009		28,949		26,697

	September 30,
	2008	December 31,
Short-term debt	(Unaudited)	2007
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due upon demand.	28,925	26,673
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due upon demand.	58,664	54,149
Loan payable to shareholder. Paid during 2008.	-	16,033
Loan payable to shareholder. Paid during 2008.	-	109,195
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due upon demand.	29,007	26,755
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due October, 2008	115,929	106,922
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due October, 2008	116,440	-
Bank line of credit - uncollateralized; payable in
monthly installments of interest only at 7.5%.
	50,938	-
Loan payable to shareholder - uncollateralized;
Lump sum payable upon demand.
	60,000	-
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
5%. Due upon demand.	25,408	-

		September 30,
		2008		December 31,
Short-term debt		(Unaudited)		2007
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due January, 2009.		10,276		-
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due upon demand.		92,230		-
Loan payable to shareholder - uncollateralized;
payable in monthly installments of interest only at
12%. Due upon demand.		309,666		-


Total short-term debt	$	2,072,899	$	1,889,908

Long-term debt


Loan payable to member - uncollateralized;
payable in monthly installments of interest only at
variable interest rates. At September 30, 2008 and
December 31, 2007, the interest rates were 5.090%
and 7.487%, respectively. Monthly payments of
principal and interest begin on July 1, 2009; final
payment due June 1, 2034.		1,293,988		1,293,989

Loan payable to member - uncollateralized;
principal includes interest accrued at variable
interest rates. At September 30, 2008 and
December 31, 2007 the interest rate was 5.0%. The
loans are due June 30, 2010.		1,257,475		1,237,475



Total long-term debt	$	2,551,463	$	2,531,464

Total short-term and long-term debt	$	4,624,362	$	4,421,372

The Company has entered into operating leases having expiration dates through 2011 for real estate and various equipment needs, including office facilities, computers, office equipment and a vehicle.

On July 10, 2006, the Company entered into an operating agreement for the lease of real property located in Los Angeles, California. The agreement has a five year term, commencing September 1, 2006 and ending August 31, 2011.

The Company has various non-cancelable leases for computers, software, and furniture, at a cost of $273,150 at September 30, 2008 and December 31, 2007. The capital leases are secured by the assets which cannot be freely sold until the maturity date of the lease. Accumulated amortization for equipment under capital lease totaled $125,790 and $81,454 at September 30, 2008 and December 31, 2007, respectively.

On September 9, 2008, Wells Fargo Equipment Finance, Inc. ("Wells") filed suit against the Company in the California Superior Court, County of Los Angeles (Case No. SC099681). The lawsuit alleges that the Company has failed to repay certain debts owed to Wells in a total amount of $61,286. On September 16, 2008, Wells filed an application for a Writ of Attachment in which Wells requested the attachment of the corporate assets of the Company. If Wells prevails in its lawsuit, there is a possibility that it may take possession of some of the assets of the Company and sell them. Such a sale may be at a discount to its current value and would diminish the assets of the Company. The Company intends to vigorously defend itself against these allegations.

During 2004, the Company entered into an agreement with Top Cow Productions, Inc. to acquire certain rights in and to certain comic books, related characters, storylines and intellectual property (the properties). The current agreement period expires on June 30, 2010. The Company has the right to extend the agreement for an additional twelve month period for an additional $350,000 and has pre-paid $75,000 toward this extended period. If the Company enters into production on a particular property, additional fees based on a percentage of the adjusted gross revenue resulting from the production, as defined in the agreement, will be due to the owner. The agreement is collateralized by a security interest in and to all rights licensed or granted to the Company under this agreement including the right to receive revenue. The current agreement period cost of $350,000 is included in Other Assets on the balance sheet and is being amortized on a straight-line basis beginning in 2006 when the rights became available for exploitation.

On July 15, 2008, Platinum Studios, Inc. purchased Wowio, LLC an on-line distributor of e-books. Under the terms of the Agreement the Company acquired from the Members of Wowio, LLC 100% of the membership interests of WOWIO for a total purchase price of $2,240,000 payable in shares of common stock of the Company. Under the terms of the Agreement, the number of shares of Common Stock issued on a particular payment date will be calculated by dividing one third of the purchase price by the average closing trading price of a share of the Common Stock for the five trading days immediately prior to such payment date, with a minimum price of $0.15 per share. On July 16, 2008, 7,000,000 shares were issued to the former members of Wowio, LLC representing one third of the total purchase price. As of September 30, 2008 two thirds of the purchase price was due the former members of Wowio, LLC. One-third of the shares will be issued on the three-month anniversary of the closing date and one-third of the shares will be issued on the twelve month anniversary of the closing date.

Wowio, LLC, is a leading online source for downloading digital books and comics. This acquisition is intended to continue the expansion of Platinum Studios’ global digital media distribution strategy. The Company believes the acquisition of Wowio, LLC is a major cornerstone of a global digital publishing distribution initiative, and that Platinum will be able to enhance and expand Wowio, LLC’s business while bringing a true global distribution outlet to all publishing partners, including Platinum Studios’ Comics.

The total basis of Wowio, LLC’s contributed assets and liabilities as of the closing date of the purchase was allocated to the estimated fair value of assets acquired and liabilities assumed as set forth in the following table:

Pro Forma Condensed Consolidated Statement of Operations

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2008			2007			2008			2007
Net revenue	$	167,983		$	98,117		$	747,903		$	1,924,917
Total costs and expenses		1,279,216			2,013,384			8,856,090			5,645,878
Operating loss		(1,111,233	)		(1,915,267	)		(8,108,187	)		(3,720,961	)
Loss before provision for income taxes		(1,248,042	)		(2,208,583	)		(8,475,349	)		(4,151,999	)
Net loss	$	(1,248,042	)	$	(2,208,583	)	$	(8,475,349	)	$	(4,151,999	)
Basic and diluted loss per share	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.02	)

The Company has an exclusive option to enter licensing/acquisition of rights agreements for individual characters, subject to existing third party rights, within the RIP Awesome Library of RIP Media, Inc., a related entity in which Scott Rosenberg is a majority shareholder. The Company did not exercise this right during the years ended December 31, 2007 and 2006. Scott Mitchell Rosenberg also provides production consulting services to the Company’s customers (production companies) through Scott Mitchell Rosenberg Productions (another related entity) wholly owned by Scott Mitchell Rosenberg. At the time the Company enters into a purchase agreement with a production company, a separate contract may be entered into between the related entity and the production company. In addition, consulting services regarding development of characters and storylines may also be provided to the Company by this related entity. Revenue would be paid directly to the related entity by the production company.

As of May 1, 2006, the Company issued a five percent (5.0%) ownership interest in Platinum Studios, LLC to Brian Altounian in consideration of a capital contribution in the amount of $500,000.

On September 14, 2006, Scott Mitchell Rosenberg converted $5,731,057 in outstanding principal and interest as a capital contribution in Platinum Studios, LLC in fulfillment of commitments made to the Company prior to the issuance to Brian Altounian.

Platinum Studios LLC filed Articles of Incorporation with the Secretary of the State of California on September 15, 2006, by which Platinum Studios, LLC converted from a California limited liability company into Platinum Studios, Inc., a California corporation. On September 15, 2006, 135,000,000 common shares were issued for conversion of LLC interests as all members of the limited liability company became shareholders of the corporation, maintaining their same percentage ownership, with no additional contribution required by any of the members to the corporation.

A Private Placement Memorandum was issued on October 12, 2006, offering up to 50,000,000 shares of common stock, $0.0001 par value per share, for sale to Accredited Investors (as defined in the memorandum), at a price of $0.10 per share on a “best efforts” basis, for a total offering price to investors of $5,000,000. The proceeds of the offering are expected to be used for property acquisitions, marketing and general and administrative expenses. The offering was closed on April 30, 2007 with the Company having sold 49,047,250 shares resulting in proceeds of $4,904,725 and net proceeds of $4,682,207 after related costs.

On July 1, 2007, the Board of Directors approved the cancellation/conversion of $1,720,857 in debt due to Scott Mitchell Rosenberg consisting of $1,625,000 in principal

and $95,857 of accrued interest through conversion of the debt into 17,208,575 shares of common stock of the Company valued at $0.10 per share. In addition, Mr. Rosenberg received a warrant to purchase 2,437,500 additional shares of common stock for his agreement to accept this offer from the Company rather than demanding repayment of the debt amount. As an incentive to convert the outstanding debt obligation, warrants were issued to the debt-holder, Charlotte Rosenberg. Based on the Black-Scholes method of valuation, $195,507 of interest expense was recorded as the fair value of the warrants issued as part of this debt conversion.

Effective July 12, 2007, the Company obtained board approval of an incentive plan under which equity incentives would be granted to officers, employees, non-employee directors and consultants of the Company. The board further resolved for 45,000,000 shares of the Company’s common stock, $0.0001 par value, be reserved for issuance in accordance with the requirements of this plan. As of September 30, 2008, the Company granted stock options to purchase up to an aggregate of 37,172,296 shares of its common stock to employees and consultants and granted 7,950,000 shares of restricted common stock to employees and consultants.

Of the restricted stock issued, the following were issued to executive officers:

The Company has an Employee Stock Option Plan. Under this Plan, the Board of Directors may issue incentive and non-qualified stock options to employees of the Company. Options granted under this Plan, options are granted at the fair market value at the date of grant, and vest in accordance with a vesting schedule determined by the Company’s Board of Directors, usually immediately or over a three-year period with one-third vested on the grant date and in three equal annual installments vesting on each anniversary date thereafter. As of September 30, 2008, 7,827,704 shares were available for future grants under the Employee Stock Option Plan. The Company settles stock option exercises with newly issued common shares. The following is a summary of stock option activity (in thousands, except per share data):

The following table summarizes information about stock options as of September 30, 2008 (in thousands, except per share data):

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Average

Remaining

Aggregate

Average

Remaining

Aggregate

Exercise

Contract

Intrinsic

Exercise

Contract

Intrinsic

Range of Exercise Prices

Shares

Price

Life

Value

Shares

Price

Life

Value

0.0-$0.10

24,392

0.10

2.5

882

20,075

0.10

2.5

788

Total unrecognized compensation costs related to non-vested awards was approximately $264,505 as of September 30, 2008. These non-vested awards are expected to be exercised over the weighted average period of 2.5 years.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s average stock price of $0.14 during the nine months ended September 30, 2008, which would have been received by the option holders had all option holders exercised their options as of that date. Based on the average stock price during the nine months ended September 30, 2008, there were 20,075,417 of in-the-money options exercisable as of September 30, 2008.

23,294,342 options were granted, 20,075,417 shares vested and 1,333,500 shares were forfeited during the nine months ended September 30, 2008.

As discussed in Note 4 regarding income taxes, the Company operated as a Limited Liability Company taxed as a partnership prior to September 15, 2006. As of September 15, 2006, the Company is taxed as a corporation. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in the tax laws and rates on the date of enactment.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2006.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. Included in the balance at September 30, 2008 and December 31, 2007, are no tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

The Company has not filed a tax return for the years ended December 31, 2007 and 2006.

Minimum state tax payments have accrued in states for which the company has operated since 2006. Upon filing all amounts paid will be subject to penalties and interest according to the state tax jurisdiction. The statue of limitations remains open on all years from 2006 going forward. The statute will not begin to run until the Company files the tax return. Once the returns have been filed the IRS will have three years to examine and adjust the amounts reported.

The Company operates at a loss and will only be liable for minimum state tax payments once a return is filed. No unrecognized liability will be added to The Company’s balance sheet for the un-filed returns as the amounts reported are an immaterial amount.

The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

Deferred tax assets and liabilities are adjusted for the effects of changes in the tax laws and rates on the date of enactment.

On September 19, 2008 the employees of the Company agreed to accept minimum wage cash compensation until further notice to reduce the company’s payroll obligations. Each employee will also be receiving a bonus commensurate with their position in the Company, in common stock, for accepting this payroll reduction. This arrangement will be reviewed on a bi-weekly basis by the Company’s management.

On October 15, 2008, the Company issued 7,000,000 shares to the former members of Wowio, LLC in accordance with the Wowio, LLC purchase agreement. These shares were valued at $350,000.

On November 13, 2008 the Company announced that they will develop a live action television series based on the Comic Book Challenge® winner "Hero By Night" with IM Global a worldwide financing, sales and distribution outfit for big-budget genre movies and specialty films.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Some of the information in this prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they:

           ·discuss our future expectations;
           ·contain projections of our future results of operations or of our financial condition; and
           ·state other "forward-looking" information.

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."

We are a comics-based entertainment company. We own the rights to a library of over 5,600 of comic book characters, which we adapt and produce for film, television and all other media. Our library contains characters in a full range of genre and styles. With deals in place with film studios and media players, our management believes we are positioned to become a leader in the creation of new content across all media.

We are focused on adding titles and expanding our library with the primary goal of creating new franchise properties and characters. In addition to in-house development and further acquisitions, we are developing content with professionals outside the realm of comic books. We have teamed up with screenwriters, producers, directors, movie stars, and novelists to develop entertainment content and potential new franchise properties. We believe our core brand offers a broader range of storylines and genres than the traditional superhero-centric genre. Management believes this approach is maintained with Hollywood in mind, as the storylines offer the film industry fresh, high-concept brandable content as a complimentary alternative to traditional super hero storylines.

Over the next several years, we are working to become the leading independent comic book commercialization producer for the entertainment industry across all platforms including film, television, direct-to-home, publishing, and digital media, creating merchandising vehicles through all retail product lines. Our management believes this will allow us to maximize the potential and value of our owned content creator relationships and acquisitions, story development and character/franchise brand-building capabilities while keeping required capital investment relatively low.

We derive revenues from a number of sources in each of the following areas: Print Publishing, Digital Publishing, Filmed Entertainment, and Merchandise/Licensing.

Set forth below is a discussion of the financial condition and results of operations of Platinum Studios, Inc. (the “Company”, “we”, “us,” and “our”) for the three and nine months ended September 30, 2008 and 2007. The following discussion should be read in conjunction with the information set forth in the consolidated financial statements and the related notes thereto appearing elsewhere in this report.

RESULTS OF OPERATIONS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007

Net revenue for the three and nine months ended September 30, 2008 was $167,983 and $724,250, respectively compared to $98,117 and $1,774,917 for the three and nine months ended September 30, 2007, respectively. Currently the Company derives most of its revenue from options to purchase rights, the purchase of rights to properties and first look deals. This type of revenue can vary significantly between quarters and years. The revenues for the three months ended September 30, 2008 represented $126,018 in purchased rights revenue from two customers compared to $98,117 in comic book sales for the same three month period in 2007. The revenues for the nine months ended September 30, 2008 represented $530,859 in purchased rights revenue from four customers compared to $1,450,000 in purchased rights revenue from two customers for the same nine month period in 2007.

For the three and nine months ended September 30, 2008 cost of revenues were $106,866 and $310,704, respectively, compared to $96,509 and $211,122 for the three and nine months ended September 30, 2007. The increase is primarily due royalty fees paid in the third quarter of 2008 and the write down of impaired inventory in the second quarter of 2008 combined with higher printing costs per unit for comic books.

Operating expenses decreased $78,798 or 7% for the three months ended September 30, 2008 to $1,014,120, as compared to $1,092,918 for the three months ended September 30, 2007. The decrease was primarily due to decreased payroll and contractor costs partially offset by additional overhead costs due to the addition of Wowio, LLC. Operating expenses decreased $143,010 or 4% for the nine months ended September 30, 2008 to $3,317,862, as compared to $3,460,872 for the nine months ended September 30, 2007.The decrease was due to decreases in advertising costs and accounting fees, partially offset by increases in payroll, contractor costs and additional overhead costs due to the addition of Wowio, LLC.

Research and development costs decreased $112,430 or 50% for the three months ended September 30, 2008 to $109,930 as compared to $222,360 for the three months ended September 30, 2007. The decrease was primarily due to decreased artwork expense, salary expense and consulting fees. Research and development costs decreased $496,610 or 69% for the nine months ended September 30, 2008 to $222,360 as compared to $692,677 for the nine months ended September 30, 2007. The decrease was primarily due to decreased artwork expense, consulting fees and legal fees.

Stock option expense for the three months ended September 30, 2008 was $7,262 compared to $0 for the same period in 2007. Stock option expense for the nine months ended September 30, 2008 was $3,390,607 compared to $0 for the same period in 2007. This expense was due to the granting of options

as part of the employee incentive plan. The majority of these options vested at the time of the grant, resulting in a significant non-cash expense for the first quarter of 2008. The Company does not anticipate additional expense of this magnitude in future quarters.

For the three and nine months ended September 30, 2008 depreciation and amortization was $48,379 and $135,840, respectively, compared to $42,598 and $123,263 for the three and nine months ended September 30, 2007.

As a result of the foregoing, the net loss decreased by $187,632 for the three months ended September 30, 2008 to $1,248,042 and increased by $4,111,218 for the nine months ended September 30, 2008 to $7,258,741 as compared to the same periods in 2007.

Net cash used in operations during the nine months ended September 30, 2008 was $1,675,454, primarily due to the net loss of the company.

Net cash used by investing activities was $7,118 for the nine months ended September 30, 2008.

Net cash provided by financing activities was $1,686,954 for the nine months ended September 30, 2008, primarily attributed to capital contributions in exchange for common stock.

At September 30, 2008 the Company had cash balances of $8,827. The Company will issue additional equity and may consider debt financing to fund future growth opportunities and support operations. Although the Company believes its unique intellectual content offers the opportunity for significantly improved operating results in future quarters, no assurance can be given that the Company will operate on a profitable basis in 2008, or ever, as such performance is subject to numerous variables and uncertainties, many of which are out of the Company’s control.

We conduct our operations in primary functional currencies: the United States dollar, the British pound and the Australian dollar. Historically, neither fluctuations in foreign exchange rates nor changes in foreign economic conditions have had a significant impact on our financial condition or results of operations. We currently do not hedge any of our foreign currency exposures and are therefore subject to the risk of exchange rate fluctuations. We invoice our international customers primarily in U.S. dollars, except in the United Kingdom and Australia, where we invoice our customers primarily in British pounds and Australian dollars, respectively. In the future we anticipate billing certain European customers in Euros, though we have not done so to date.

We are exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation and as our foreign currency consumer receipts are converted into U.S. dollars. Our exposure to foreign exchange rate fluctuations also arises from payables and receivables to and from our foreign subsidiaries, vendors and customers. Foreign exchange rate fluctuations did not have a material impact on our financial results in the nine months ended September 30, 2008 or in the years ended December 31, 2007, 2006 and 2005.

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. We place our cash and cash equivalents with high credit quality institutions to limit credit exposure. We believe no significant concentration of credit risk exists with respect to these investments.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the wide variety of customers who are dispersed across many geographic regions.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred significant losses which have resulted in an accumulated deficit of $16,724,338 as of September 30, 2008. The Company plans to seek additional financing in order to execute its business plan, but there is no assurance the Company will be able to obtain such financing on terms favorable to the Company or at all. These items raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects related to recovery and classification of assets, or the amounts and classifications of liabilities that might result from the outcome of this uncertainty.

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

REVENUE RECOGNITION. Revenue from the licensing of characters and storylines (“the properties”) owned by the Company are recognized in accordance with guidance provided in Securities and Exchange Commission Staff Accounting Bulletin No. 104 “Revenue Recognition” (an amendment of Staff Accounting Bulletin No. 101 “Revenue Recognition”) (“SAB 104”). Under the SAB 104 guidelines, revenue is recognized when the earnings process is complete. This is considered to have occurred when persuasive evidence of an agreement between the customer and the Company exists, when the properties are made available to the licensee and the Company has satisfied its obligations under the agreement, when the fee is fixed or determinable and when collection is reasonably assured. The Company derives its licensing revenue primarily from options to purchase rights, the purchase of rights to properties and first look deals. For option agreements and first look deals that contain non-refundable payment obligations to us, we recognize such non-refundable payments as revenue at the inception of the agreement and receipt of payment, prior to the collection of any additional amounts due, provided all the criteria for revenue recognition under SAB 104 have been met. First look deals that have contingent components are deferred and recognized at the later of the expiration of the first look period or in accordance with the terms of the first look contract. For licenses requiring material continuing involvement or performance based obligations, by the Company, the revenue is recognized as and when such obligations are fulfilled. The Company records as deferred revenue any licensing fees collected in advance of obligations being fulfilled or if a licensee is not sufficiently creditworthy, the Company will record deferred revenue until payments are received. License agreements typically include reversion rights which allow the Company to repurchase property rights which have not been used by the studio (the buyer) in production within a specified period of time as defined in the purchase agreement. The cost to repurchase the rights is generally based on the costs incurred by the studio to further develop the characters and story lines.

CHARACTER DEVELOPMENT COSTS. Character development costs consist primarily of costs to acquire properties from the creator, development of the property using internal or independent writers and artists, and the registration of a property for a trademark or copyright. These costs are capitalized in the year incurred if the Company has executed a contract or is negotiating a revenue generating opportunity for the property. If the property derives a revenue stream that is estimable, the capitalized costs associated with the property are expensed as revenue is recognized. If the Company determines there is no determinable market for a property, it is deemed impaired and is written off.

On June 12, 2008, the Company received a valuation of its intellectual property which consists of a library of comic characters. The valuation provides that the fair market value of a 100% equity interest in the intellectual property held and controlled by the Company under a going-concern premise is $150,038,000. The valuation was conducted by Sanli Pastore & Hill, Inc. (“SP&H”) at the request of the Company. In performing the valuation SP&H used the American Society of Appraisers definition of fair market value.

PURCHASED INTANGIBLE ASSETS AND LONG-LIVED ASSETS. Intangible assets are capitalized at acquisition costs and intangible assets with definite lives are amortized on the straight-line basis. The Company periodically reviews the carrying amounts of intangible assets and property in conformance with the Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). Under SFAS 144, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, the impairment charge to be recognized is measured by the excess of the carrying amount over the fair value of the asset.

ADVERTISING COSTS. Advertising costs are expensed the later of when incurred or when the advertisement is first run. For the three and nine months ended September 30, 2008 advertising expenses were $18,383 and $65,893, respectively. For the three and nine months ended September 30, 2007 advertising expenses were $13,077 and $83,414, respectively.

RESEARCH AND DEVELOPMENT. Research and development costs, primarily character development costs and design not associated with an identifiable revenue opportunity, are charged to operations as incurred. For the three and nine months ended September 30, 2008 research and development expenses were $109,930 and $468,078, respectively. For the three and nine months ended September 30, 2007 research and development expenses were $222,360 and $692,677, respectively.

INCOME TAXES. From inception thru September 14, 2006 the Company operated as a limited liability company and elected to be taxed similar to a partnership. Accordingly, each member was responsible for reporting its respective share of the Company’s net income or loss for Federal and California income tax purposes and the Company did not pay Federal income tax. From September 15, 2006 forward the Company has accounted for income taxes using the liability method, whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company was subject to an annual minimum tax of $800 and a fee based on gross receipts in California from inception through September 14, 2006.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed on September 30, 2008.

The Company has entered into Subscription Agreements with various accredited investors pursuant to which the investors subscribed to purchase a total of 7,507,772 shares of our common stock, resulting in proceeds to the company of $1,126,159.

The Company relied an exemption from the registration requirements of the Act for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated there under since, among other things, the transaction did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about us and their investment, the investors took the securities for investment and not resale, and we took appropriate measures to restrict the transfer of the securities.

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California, on December 4, 2008.




	Platinum Studios, Inc.


By:	/s/ Scott Mitchell Rosenberg
	Scott Mitchell Rosenberg
	Chief Executive Officer
	and Chairman of the Board


By:	/s/ Brian Altounian
	Brian Altounian
	President, Chief Operating Officer
	& Principal Financial and Accounting
	Officer

CALIFORNIA		20-5611551
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company x

	Fixed assets	Useful Lives

	Furniture and fixtures	7 years
	Computer equipment	5 years
	Office equipment	5 years
	Software	3 years
	Leasehold improvements	Shorter of lease term or useful economic life

		September 30, 2008
		(Unaudited)			December 31, 2007
Property and equipment, cost:
Office equipment	$	13,207		$	10,804
Furniture and fixtures		118,140			118,140
Computer equipment		244,739			151,220
Software		93,149			91,292
Leasehold improvements		20,557			20,557
		489,792			392,013
Less accumulated depreciation		(249,530	)		(134,883	)
Net property and equipment	$	240,262		$	257,130

Years Ending December 31,

2008	$	2,072,899
2009		18,975
2010		1,275,909
2011		19,907
2012		21,496
Thereafter		1,215,176

Total short-term and long-term debt obligations	$	4,624,362

	Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
	Act). Yes ¨ No x

Years Ending December 31,	Capital Leases
2008	$	20,897
2009		58,060
2010		37,947
2011		24,705
Thereafter		-
Total minimum obligations		141,609
Less amounts representing interest		15,057
Present value of net minimum obligations		126,552
Less current portion		58,729
Long-term portion	$	67,823

Cash	$	179,545
Equipment		38,807
Intangible assets		49,900
Liabilities assumed		(415,376	)
Purchased intangibles		2,387,124
Total consideration	$	2,240,000

	Warrants outstanding at September 30, 2008 are summarized as follows:
		Outstanding				Exercisable
			Weighted
			Average	Weighted			Weighted
	Range of	Number	Remaining	Average Exercise		Number	Average Exercise
	Exercise Prices	Outstanding	Contractual Life	Price		Exercisable	Price
	*Warrants*
$	0.10	2,896,100	3.34	$	0.10	2,896,100	$	0.10
$	0.10	2,896,100	3.34	$	0.10	2,896,100	$	0.10

	As of September 30, 2008, no warrants have been exercised.

	Nine months ended
	September 30, 2008
			Weighted
			Average
			Exercise
	Shares		Price
Outstanding—beginning of year	—	$	—
Granted at fair value	23,294		0.10
Exercised	330		.10
Canceled/forfeited	1,428		—
Outstanding—end of quarter	24,392		0.10
Options exercisable at quarter-end	20,075	$	0.10

31.1	*	Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the
		Exchange Act

31.2	*	Certification by Interim Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
		of the Exchange Act

32.1	*	Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the
		Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code

32.2	*	Certification by Interim Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
		of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code