Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

¨	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

PLATINUM STUDIOS, INC.

(Name of registrant in its charter)

CALIFORNIA

(State or other jurisdiction of
incorporation or organization)

20-5611551

(I.R.S. Employer
Identification No.)

2029 S. Westgate Ave., Los Angeles, CA 90025

(Address of principal executive offices) (Zip Code)

Issuer’s telephone Number: (310) 807-8100

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 o

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.

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares of registrant’s common stock outstanding, as May 6, 2011 was 321,686,279.

PLATINUM STUDIOS, INC.

INDEX

PART I: FINANCIAL INFORMATION

ITEM 1:	CONDENSED FINANCIAL STATEMENTS (Unaudited)

	Condensed Consolidated Balance Sheets	F-1

	Condensed Consolidated Statements of Operations	F-3

	Condensed Consolidated Statement of Shareholders’ Deficit	F-4

	Condensed Consolidated Statements of Cash Flows	F-5

	Notes to the Condensed Consolidated Financial Statements	F-6

ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3

ITEM 3 :	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	8

ITEM 4:	CONTROLS AND PROCEDURES	8

PART II: OTHER INFORMATION

Item 1	LEGAL PROCEEDINGS	9

ITEM 1A :	RISK FACTORS	10

ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	10

ITEM 3	DEFAULTS UPON SENIOR SECURITIES	11

ITEM 4	REMOVED AND RESERVED	11

ITEM 5	OTHER INFORMATION	11

ITEM 6:	EXHIBITS	11

SIGNATURES		12

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLATINUM STUDIOS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2011		December 31, 2010
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	10,462	$	76,275
Prepaid expenses		106,301		100,940
Other current assets		870,566		438,799
Total current assets		987,329		616,014
Property and equipment, net		74,302		76,631
Investment in film library, net		8,949,207		9,449,207
Assets held for sale		12,000		12,000
Deposits and other		321,160		321,160
Total assets	$	10,343,998	$	10,475,012

(Continued)

F-1

PLATINUM STUDIOS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

	March 31, 2011			December 31, 2010
	(Unaudited)

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Accounts payable	$	1,290,513		$	1,195,673
Accrued expenses and other current liabilities		1,305,086			1,278,092
Deferred revenue		4,027,863			3,973,738
Short term notes payable		11,074,227			10,960,274
Related party payable		451,250			347,500
Related party notes payable, net of debt discount		2,923,470			1,279,018
Derivative liability		6,305,320			7,763,968
Accrued interest - related party notes payable		252,270			189,770
Capital leases payable		5,893			11,627
Total current liabilities		27,635,892			26,999,660

Commitments and contingencies

Shareholders' Deficit:
Common stock, $.0001 par value; 500,000,000 shares authorized; 317,799,535 and 310,345,811 issued and outstanding, respectively		31,780			31,035
Additional paid in capital		17,936,894			17,478,740
Accumulated deficit		(35,260,568	)		(34,034,423	)
Total shareholders' deficit		(17,291,894	)		(16,524,648	)
Total liabilities and shareholders' deficit	$	10,343,998		$	10,475,012

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

F-2

PLATINUM STUDIOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2011			2010
Net revenue	$	525,782		$	32,683

Costs and expenses:
Cost of revenues		522,436			1,083
Operating expenses		624,778			687,509
Development costs		115,646			64,233
Total costs and expenses		1,262,860			752,825
Operating loss		(737,078	)		(720,142	)
Other income (expense):
Loss on settlement of debt		(86,126	)		-
Gain on valuation of derivative liability		1,458,648			290,000
Interest expense		(1,861,589	)		(577,587	)
Total other income (expense):		(489,067	)		(287,587	)
Net loss	$	(1,226,145	)	$	(1,007,729	)

Net loss per share	$	(0.00	)	$	(0.00	)
Basic and diluted weighted average shares		311,658,631			271,255,629

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

F-3

PLATINUM STUDIOS, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT

(UNAUDITED)

Three Months Ended March 31, 2011

	Common Stock Shares			Common Stock Amount			Additional Paid-In Capital		Accumulated Deficit			Total
Balance at December 31, 2010		310,345,811		$	31,035		$	17,478,740	$	(34,034,423	)	$	(16,524,648	)

Shares returned		(337,000	)		(34	)		34		-			-
Common stock issued for services from $0.05 to $0.07 per share		3,405,911			340			210,426		-			210,766
Common stock issued for conversion of debt and accounts payable		2,877,265			288			173,761		-			174,049
Shares issued related to equity credit line		1,507,548			151			73,933		-			74,084
Net Loss		-			-			-		(1,226,145	)		(1,226,145	)
Balance at March 31, 2011		317,799,535		$	31,780		$	17,936,894	$	(35,260,568	)	$	(17,291,894	)

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

F-4

PLATINUM STUDIOS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2011			2010
Cash flows from operating activities
Net loss	$	(1,226,145	)	$	(1,007,729	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		8,455			20,486
Amortization		500,000			22,826
Fair value of stock issued for services		185,440			53,223
Amortization of debt discount		1,644,452			465,200
Loss on settlement of debt		86,126			-
Gain valuation of derivative liability		(1,458,648	)		(290,000	)
Decrease (increase) in operating assets:
Restricted cash		-			(585,946	)
Accounts receivable		-			(3,316	)
Investment in film library		-			(441,605	)
Prepaid expenses and other current assets		(437,128	)		724,397
Increase (decrease) in operating liabilities:
Accounts payable		123,090			216,702
Related party payables		3,750			-
Accrued expenses		46,192			219,241
Accrued interest		62,500			75,015
Interest accrued on short-term notes payable		98,129			-
Deferred revenue		54,125			156,003
Net cash flows used in operating activities		(309,662	)		(375,503	)

Cash flows from investing activities
Purchases of property and equipment		(6,126	)		-
Net cash flows used in investing activities		(6,126	)		-

Cash flows from financing activities
Proceeds from short-term notes payable		203,000			807,680
Proceeds from related party notes payable		100,000			-
Payments on short-term notes payable		(121,374	)		(653,296	)
Payments on related party notes payable		-			(73,266	)
Payments on capital leases		(5,734	)		(5,145	)
Issuance of common stock, net of offering costs		74,083			153,849
Net cash flows provided by financing activities		249,975			229,822

Net decrease in cash		(65,813	)		(145,681	)
Cash, at beginning of year		76,275			152,067
Cash, at end of period	$	10,462		$	6,386

		Three Months Ended March 31,
	2011			2010
Supplemental disclosure of cash flow information:

Cash paid for interest	$	36,787		$	5,031
Non cash investing and financing activities:
Stock issued as payments of notes payable, accounts payable and accrued interest	$	113,250		$	-

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

F-5

PLATINUM STUDIOS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010

(UNAUDITED)

(1)	Description of business

Nature of operations – The Company controls a library consisting of more than 5,000 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.

On December 10, 2008, the Company purchased Long Distance Films, Inc. to facilitate the financing and production of the film currently titled “Dead of Night”. The Company’s license to the underlying rights of the “Dead of Nights” characters was due to expire unless principal photography commenced on a feature film by a certain date. The Company had previously licensed these rights to Long Distance Films, Inc. The Company then purchased Long Distance Films, Inc., with its production subsidiary, Dead of Night Productions, LLC in order to expedite and finalize the financing of the film with Standard Chartered Bank and Omnilab Pty, Ltd., holding debt of $9,785,488 and $485,000, respectively, as of March 31, 2011. Long Distance Films, Inc.’s only assets are investments in its subsidiaries related to the film production of “Dead of Night” and has no liabilities or equity other than 100 shares of common stock wholly owned by Platinum Studios, Inc. Long Distance Films, Inc was created for the sole purpose of producing “Dead of Night.” At the time of the acquisition, Long Distance Films, Inc. had no assets or liabilities and no consideration was paid by the Company for the acquisition and no value was assigned to the transaction, which would be eliminated in consolidation.

(2)	Basis of financial statement presentation and consolidation

The accompanying unaudited condensed consolidated 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. The consolidated financial statements include the financial condition and results of operations of its wholly-owned subsidiaries, Long Distance Films, Inc., Platinum Studios Productions, Inc. and Platinum Studios Entertainment, Inc. Intercompany balances and transactions have been eliminated in consolidation. 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 condensed consolidated financial statements should be read in conjunction with the Company’s December 31, 2010 condensed consolidated 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.

F-6

The balance sheet at December 31, 2010 has been derived from the audited consolidated 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.

(3)	Going concern

During the three months ended March 31, 2011, the Company had a net loss of $1,226,145 and utilized cash in operations of $309,662. At March 31, 2011, the Company had a working capital deficit of $20,343,243 (excluding its derivative liability) and a shareholders’ deficiency of $17,291,894. The Company is also delinquent in payment of $120,026 for payroll taxes as of March 31, 2011 and in default of certain of its short term notes payable. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty. The Company intends to raise funds to finance operations until the Company achieves profitable operations. The Company’s capital requirements for the next 12 months will continue to be significant. If adequate funds are not available to satisfy either medium or long-term capital requirements, the Company’s operations and liquidity could be materially adversely affected and the Company could be forced to cut back its operations. Subsequent to March 31, 2011, the Company raised $50,000 through the issuance of convertible notes payable and borrowed $128,000 from entities in which Scott Rosenberg, the Company’s CEO and Chairman, holds an economic interest. (see Note 13)

(4)	Summary of significant accounting policies

Revenue recognition - Revenue from the licensing of characters and storylines (“the properties”) owned by the Company are recognized in accordance with guidance of the Financial Accounting Standards Board (“FASB”) where 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.

F-7

The Company derives its licensing revenue primarily from the sale of options to purchase rights, the purchase of rights to properties and first look deals. For options that contain non-refundable minimum payment obligations, revenue is recognized ratably over the option period, provided all the criteria for revenue recognition have been met. Option fees that are applicable to the purchase price are deferred and recognized as revenue at the later of the expiration of the option period or in accordance with the terms of the purchase agreement. Revenue received under first look deals is recognized ratably over the first look period, which varies by contract provided all the criteria for revenue recognition under Staff Accounting Bulletin 104 have been met.

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.

The Company recognizes revenue from television and film productions pursuant to FASB ASC Topic 926, Entertainment-Films. The following conditions must be met in order to recognize revenue under Topic 926: (i) persuasive evidence of a sale or licensing arrangement exists; (ii) the program is complete and has been delivered or is available for immediate and unconditional delivery; (iii) the license period of the arrangement has begun and the customer can begin its exploitation, exhibition or sale; (iv) the arrangement fee is fixed or determinable; and (v) collection of the arrangement fee is reasonably assured. Advance payments received from buyers or licensees are included in the condensed consolidated financial statements as a component of deferred revenue.

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 the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts, analysis of impairments of recorded intangibles and investments in film library, accruals for potential liabilities, and assumptions made in valuing stock instruments issued for services and in valuing derivative liabilities.

F-8

Concentrations of risk - During the three months and ended March 31, 2011 and 2010, the Company had customer revenues representing a concentration of the Company’s total revenues. For the three months ended March 31, 2011, one customer represented approximately 95% of total revenues. For the three months ended March 31, 2010, three customers represented approximately 38%, 26% and 15% of total revenues.

Derivative Instruments – The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. For stock-based derivative financial instruments, the Company uses both the Binomial and Weighted Average Black Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Fair Value of Financial Instruments – Fair value measurements are determined by the Company's adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption of the authoritative guidance did not have a material impact on the Company's fair value measurements. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company's assumptions.

The Company is required to use observable market data if such data is available without undue cost and effort.

F-9

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2011 and December 31, 2010:

	March 31, 2011 (unaudited)
	Level 1		Level 2		Level 3		Total
Fair value of convertible note conversion feature	$	-	$	-	$	1,702,724	$	1,702,724
Fair value of warrants		-		-		4,602,596		4,602,596
	$	-	$	-	$	6,305,320	$	6,305,320

	December 31, 2010
	Level 1		Level 2		Level 3		Total
Fair value of convertible note conversion feature	$	-	$	-	$	2,017,663	$	2,017,663
Fair value of warrants		-		-		5,746,305		5,746,305
	$	-	$	-	$	7,763,968	$	7,763,968

See Notes 7 and 8 for more information on these financial instruments.

Development costs - Development costs, primarily character development costs and design not associated with an identifiable revenue opportunity, are charged to operations as incurred. For the years ended March 31, 2011 and 2010, development costs were $115,646 and $64,233, respectively.

Net loss 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 treasury stock method, unless the effect is anti-dilutive. Since the Company incurred net losses for the three months ended March 31, 2011 and 2010, any increase in the denominator would be anti-dilutive and therefore, the denominator is the same for basic and diluted weighted average shares.

F-10

The potentially dilutive securities consisted of the following as of March 31, 2011 and 2010:

	March 31, 2011		March 31, 2010

Warrants		113,153,409		41,958,600
Options		14,865,000		18,985,000
Convertible Notes		94,221,274		85,526,316
		222,239,683		146,469,916

The Company presently does not have enough authorized shares to effect the conversion of the above listed potentially dilutive securities. The Company plans to increase the number of authorized shares.

Recently issued accounting pronouncements

Recently issued accounting pronouncements issued by The FASB (including Emerging Issues Task Force), the AICPA and the Securities Exchange Commission (the “SEC”) have either been implemented or are not significant to the Company.

(5)	Investment in Film Library

As of March 31, 2011 and December 31, 2010, all of the investment in film library of $8,949,207 and $9,449,207, respectively, is related to the “Dead of Night” production, a completed film and is net of amortization of $500,000 and $0, respectively. The film was released theatrically in Italy on March 16, 2011 and in the US on April 29, 2011. During the three months ended March 31, 2011, the Company recognized $500,000 of revenue upon the release of the film in one of the territories, and recognized a corresponding charge to cost of sales for the same amount. The balance of the remaining ultimate revenues are in foreign territories where the film has been made available and the exploitation period begins upon US theatrical release and therefore, the remaining unamortized cost of $8,949,207 should be principally amortized during 2011.

F-11

(6)	Short-term notes payable

Short-term notes payable consists of the following as of:

	March 31, 2011		December 31, 2010
	(Unaudited)
Loans payable to various parties, including minority shareholders, unsecured, interest at 12% per annum, due on demand	$	453,407	$	482,085

Convertible note payable to a minority shareholder, unsecured, interest at 12% per annum, due on December 31, 2011. Note is convertible into Company's Common Stock at $0.048 per share.	$	119,658	$	161,023

Bank term loan, unsecured, interest at 7.5% per annum, payable in monthly installments of principal and interest		27,674		32,288

Standard Chartered Bank note payable of $13,365,000 loan secured by all rights in the sales agency agreement and the distribution agreement in connection with the film "Dead of Night". Interest rate of Libor plus 2% per annum. $4,850,000 is guaranteed by Omnilab Pty Ltd. The note was due April 1, 2011 and the Company is currently in default		9,785,488		9,799,878

Note payable to Omnilab Pty Ltd - 10% funded of gap investment of $4,850,000 for production "Dead of Night," to be recovered from gross receipts in North America. Interest rate of 4.09% per annum. The note was due April 1, 2011 and the Company is currently in default.		485,000		485,000

Convertible notes payable, unsecured, interest at 8% per annum, due from October 12, 2011 to November 28, 2011. Note is convertible into the Company's stock at 61% of the average of the lowest three trading days during the ten day trading period prior to conversion.		153,000		-

Convertible note payable, unsecured, interest at 9.875% (semi-annually), due on September 17, 2011. Note is convertible into the Company's stock at lessor of 75% of the average of the last five trading days prior to conversion or closing price on the day prior to conversion, not to exceed $0.05.		50,000		-

Total	$	11,074,227	$	10,960,274

F-12

(7)	Related Party Notes Payable

Related party notes payable consist of the following as of:

	March 31, 2011			December 31, 2010
	(Unaudited)
May 6, 2009 secured convertible notes payable	$	2,400,000		$	2,400,000
June 3, 2009 secured convertible notes payable		1,350,000			1,350,000

Related party notes payable		3,750,000			3,750,000
Less valuation discount		(826,530	)		(2,470,982	)
Total short-term notes payable	$	2,923,470		$	1,279,018

On October 22, 2010, the Company entered into a series of agreements with its CEO, Chairman, and a major shareholder to extend the due date of certain existing loans made by the CEO. Pursuant to the terms of the agreements, the new due date for the secured convertible notes payable totaling $2,400,000 was extended to May 6, 2011 and the new due date for the secured convertible notes payable totaling $1,350,000 was extended to June 3, 2011. The interest rate under these loans was increased from 8% to 10%, effective upon the original due date of May 6, 2010 and June 3, 2010, respectively.

In exchange for these due date extensions, Company granted to the CEO:

(1)

Two additional sets of warrants to purchase the Company’s common stock. The first set allowing for the exercise of up to 40,000,000 warrants to purchase shares of the Company’s common stock, at an exercise price of $0.11 per share, and the second set allowing for the acquisition of up to $3,750,000 in stock, also at an exercise price of $0.11 per share. Both sets (“New Warrants”) vested immediately and will expire on October 22, 2020; and

(2)

As more fully described in the Intellectual Property Rights Assignment Agreement between the Company and Scott Rosenberg (included as an exhibit to the Company’s 8K filing, as amended, on December 28, 2010), 25% of gross revenues from those certain co-ownership rights assigned to Scott Rosenberg. A list of intellectual property that is excluded from this agreement is also in the exhibit to the 8K filing.

F-13

The Company considered authoritative guidance and determined that the debt modification represented a substantial debt modification. As such the proper accounting treatment for the conversion price was reevaluated. FASB guidance indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument (or embedded feature), regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the embedded conversion feature of the notes and the conversion feature of the warrants resulted in a derivative liability being recorded by the Company when the Notes were modified and the New Warrants were granted (see Note 8). The Company determined the fair value of the conversion feature of the Notes was $2,697,162 and the fair value of the New Warrants was $4,295,197 based on a binominal valuation model with the following assumptions: risk-free interest rate of 0.21% to 2.60%; dividend yield of 0%; volatility factor of 89.7%; and an expected life of 6 months to 10 years, resulting in total derivative at modification of $6,992,359. For financial statement purposes, $3,750,000 of this amount was allocated to debt discount (i.e. up to face amount of the Notes) and is being amortized over the term of the Notes. For the three months ended March 31, 2011, $1,644,452 of discount amortization is included in interest expense. At March 31, 2011, the unamortized balance of the discount is $826,530.

(8)	Derivative Liabilities

In June 2008, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. Under the authoritative guidance, effective January 1, 2009, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of the Company’s secured convertible related party notes payable (described in Note 7), and the related warrants, do not have fixed settlement provisions because their conversion and exercise prices, respectively, may be lowered if the Company issues securities at lower prices in the future. In accordance with the FASB authoritative guidance, the conversion feature of the Notes was separated from the host contract (i.e., the Notes) and recognized as a derivative instrument. Both the conversion feature of the Notes and the related warrants have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued using Binomial and Black-Scholes-Merton valuation techniques with the following assumptions:

	March 31,			December 31,
	2011			2010

Conversion Feature:
Risk-free interest rate		0.09	%		0.21	%
Expected volatility		62.2	%		91.5	%
Expected life (in months)	1 to 2			4 to 5
Expected dividend yield		0	%		0	%

Warrants:
Risk-free interest rate	2.9 to 3.5%			2.6 to 2.8%
Expected volatility		62.2	%	91 to 92%
Expected life (in years)	8 to 9.5			8.42 to 9.83
Expected dividend yield		0	%		0	%

Fair Value:
Conversion feature	$	1,702,724		$	2,017,663
Warrants		4,602,596			5,746,305
	$	6,305,320		$	7,763,968

F-14

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock. The expected life of the conversion feature of the notes was based on the term of the notes and the expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not paid dividends to common shareholders in the past and does not expect to pay dividends to common shareholders in the future.

As of March 31, 2011 and December 31, 2010, the fair value derivative liability was $6,305,320 and $7,763,968, respectively. For the three months ended March 31, 2011, the Company recorded a change in fair value of the derivative liabilities of $1,458,648.

(9)	Commitments and Contingencies

Commitments

Payroll Tax Penalties – As of March 31, 2011 and December 31, 2010, the Company’s liabilities include a payable to the Internal Revenue Service in the amount of $120,026 and $123,248, respectively, associated with payroll tax liabilities for the second, third and fourth quarters of 2008, along with associated penalties and interest for late payment. The Company has entered into an installment agreement with the Internal Revenue Service in the amount of $1,000 per month.

Contingencies

The Company’s legal proceedings are as follows:

Transcontinental Printing v. Platinum. On or about July 2, 2009, Transcontinental Printing, a New York corporation, filed suit against the Company in Superior Court, County of Los Angeles (Case No. SC103801) alleging that the Company failed to pay for certain goods and services provided by Transcontinental in the total amount of $106,593. The Company settled the suit agreeing to pay $92,000 plus interest at 10% per annum with a payment schedule of $2,000 per month for five months and then increasing to $10,000 per month until paid in full. The company has made all scheduled payments to date. As of December 31, 2010, the accounts payable of the Company included a balance of $27,318 for this settlement. As of March 31, 2011, the accounts payable of the Company include a balance of $18,256 for this settlement.

Rustemagic v. Rosenberg & Platinum Studios. On or about June 30, 2009, Ervin Rustemagic filed suit against the Company and its President, Scott Rosenberg, in the California Superior Court for the County of Los Angeles (Case No. BC416936) alleging that the Company (and Mr. Rosenberg) breached an agreement with Mr. Rustemagic thereby causing damages totaling $125,000. According to the Complaint, Mr. Rustemagic was to receive 50% of producer fees paid in connection with the exploitation of certain comics-based properties. Rustemagic claims that he became entitled to such fees and was never paid. The matter was settled thru arbitration in April, 2011 with only minimal liability to the Company. Under the settlement agreement, the Company has guaranteed additional payments due by Scott Rosenberg in the amount of $77,000.

F-15

Harrison Kordestani v. Platinum. Harrison Kordestani was a principal of Arclight Films, with whom the Company had entered into a film slate agreement. One of the properties that had been subject to the slate agreement was “Dead of Night.” Arclight fired Mr. Kordestani and subsequently released Dead of Night from the slate agreement. In late January 2009, Mr. Krodestani had an attorney contact the Company as well as its new partners who were on the verge of closing the financing for the “Dead of Night.” Mr. Kordestani, through his counsel, claimed he was entitled to reimbursement for certain monies invested in the film while it had been subject to the Arclight slate agreement. Mr. Krodestani’s claim was wholly without merit and an attempt to force an unwarranted settlement because he knew we were about to close a deal. We responded immediately through outside counsel and asserted that he was engaging in extortion and the company would pursue him vigorously if he continued to try and interfere with our deal. The company has not heard anything further from Mr. Kordestani but will vigorously defend any suit that Mr. Kordestani attempts to bring. The Company has not reserved any payable for this proceeding.

Douglass Emmet v. Platinum Studios On August 20, 2009, Douglas Emmet 1995, LLC filed an Unlawful Detainer action against the Company with regard to the office space previously occupied by the Company. The suit was filed in the California Superior Court, County of Los Angeles, (Case No. SC104504) and alleged that the Company had failed to make certain lease payments to the Plaintiff and was, therefore, in default of its lease obligations. The Plaintiff prevailed on its claims at trial and, subsequently, on October 14, 2009 entered into a Forbearance Agreement with the Company pursuant to which Douglas Emmet agreed to forebear on moving forward with eviction until December 31, 2009, if the Company agreed to pay to Douglas Emmet 50% of three month’s rent, in advance, for the months of October, November and December 2009. As of January 1, 2010, the Company was required to pay to Douglas Emmet the sum of $466,752 to become current under the existing lease or face immediate eviction and judgment for that amount. Prior to January 1, 2010, Douglas Emmet agreed to a month-to-month situation where Platinum pays 50% of its rent at the beginning of the month and the landlord holds back on eviction and enforcement of judgment while they evaluated whether they will consider negotiating a new lease with the Company that would potentially demise some of the Company’s current office space back to the landlord as well as potentially forgive some of the past due rent. As of June 30, 2010, the Company has abandoned the leasehold and moved to new offices. In January, 2011, Douglas Emmett served the Company a new lawsuit to recover unpaid rent and damages. The Company has responded to the summons and requested a settlement conference. The accounts payable of the Company include a balance to Douglass Emmet sufficient to cover the liability, in managements’ assessment.

F-16

With exception to the litigation disclosed above, we are not currently a party to, nor is any of our property currently the subject of, any additional pending legal proceeding that will have a material adverse effect on our business, nor are any of our directors, officers or affiliates involved in any proceedings adverse to our business or which have a material interest adverse to our business.

(10)	Related party transactions

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 has an economic interest. 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 consideration for the Amendment of secured convertible notes payable to the CEO, the Company must pay to such CEO 25% of all gross revenues derived from Co-Owned intellectual property, including the merchandising revenue received from the film, “Cowboys and Aliens”. During the three months ended March 31, 2011, the Company incurred participation fees relating to this agreement of $3,750. As of March 31, 2011, the Company had unpaid fees relating to this agreement of $351,250.

In June 2010, the Company consummated a sale of its Drunkduck.com website to an affiliate of Brian Altounian, President and Chief Operating Officer of the Company. The sale includes all components of the website, all copyrights, trade secrets, trademarks, trade names and all material contracts related to the website’s operations with a cost basis of $40,000. The selling price totaled $1,000,000 which was comprised of $500,000 in cash to be paid in installments through October 28, 2010 and $500,000 in future royalties. For accounting purposes, the Company determined recognition of this sale on the installment method was appropriate since the collection of the purchase price could not be assured. The Company has received $350,000, or 70% of the cash proceeds with the balance past due as of March 31, 2011. The Company will also receive payments equal to 10% of Net Revenues generated from the website until the $500,000 in royalties is received. The Company retains partial ownership until the total selling price has been received.

As of March 31, 2011 and December 31, 2010, the Company had accrued payroll, included in Accrued expenses and other current liabilities, of $577,784 and $502,784, respectively, accrued interest, included in Accrued interest-related party notes payable, of $252,270 and $189,770, respectively, and accrued participation fees, included in Related party payable, of $351,250 and $347,500, respectively, due to Scott Rosenberg or entities in which he has an economic interest. Related party payable as of March 31, 2011 also includes a short term loan of $100,000 from an entity in which Scott Rosenberg has an economic interest.

F-17

(11)	Common Stock

Common stock consists of $0.0001 par value, 500,000,000 shares authorized, 317,799,535 shares issued and outstanding as of March 31, 2011 and 310,345,811 shares issued and outstanding as of December 31, 2010.

During the three months ended March 31, 2011, 337,000 shares that were previously issued as a finder’s fee were returned to the Company.

During the three months ended March 31, 2011, the Company issued 3,405,911 shares of common stock for services with a total value of $210,767. The number of shares issued for the services was based upon the fair market value of the stock on the date of issuance, with the differences between the fair market value of the stock and the fair market value of the services, or $185,440, recognized as loss on extinguishment of debt, or $25,327.

During the three months ended March 31, 2011, the Company issued 2,877,265 shares of common stock for conversion of debt or payment of accounts payable with a total value of $174,049. The number of shares issued for the conversion of debt and payment of accounts payable was based upon the fair market value of the stock on the date of conversion or payment, with differences between the fair market value of the stock and the fair market value of the debt recognized, or $113,250, as loss on extinguishment of debt, or $60,799.

In January, 2011, the Company’s S-1 filing became effective with 41,000,000 shares available pursuant to the Dutchess Opportunity Fund agreement. Of such shares, (i) Dutchess has agreed to purchase 41,000,000 pursuant to the investment agreement dated January 12, 2010, between Dutchess and the Company, and (ii) NO shares were issued to Dutchess in consideration for the investment. Subject to the terms and conditions of such investment agreement, we have the right to put up to $5,000,000 in shares of our common stock to Dutchess. This arrangement is sometimes referred to as an Equity Line.

We will not receive any proceeds from the resale of these shares of common stock offered by Dutchess. We will, however, receive proceeds from the sale of shares to Dutchess pursuant to the Equity Line. When we put an amount of shares to Dutchess, the per share purchase price that Dutchess will pay to us in respect of such put will be determined in accordance with a formula set forth in the Investment Agreement. Generally, in respect of each put, Dutchess will pay us a per share purchase price equal to ninety-five percent (95%) of the daily volume weighted average price of our common stock during the five (5) consecutive trading day period beginning on the trading day immediately following the date of delivery of the applicable put notice.

F-18

Dutchess may sell the shares of common stock from time to time at the prevailing market price on the Over-the Counter (OTC) Bulletin Board, or on an exchange if our shares of common stock become listed for trading on such an exchange, or in negotiated transactions. Dutchess is an underwriter within the meaning of the Securities Act of 1933, as amended (the "Securities Act") in connection with the resale of our common stock under the Equity Line.

Pursuant to the agreement, the Company sold 1,507,548 shares of the Company’s common stock during January, February and March of 2011 to Dutchess Opportunity Fund for $84,083, resulting in net proceeds to the Company of $74,083 after costs.

(12)	Stock Options and Warrants

Stock Options

In 2007, the Company adopted the Platinum Studios, Inc. 2007 Incentive Plan (the “Plan”). The options under the plan shall be granted from time to time by the Board of Directors. Individuals eligible to receive options include employees of the Company, consultants to the Company and directors of the Company. The options shall have a fixed price, which will not be less than 100% of the fair market value per share on the grant date. The total number of options authorized is 45,000,000.

During the three months ended March 31, 2011, the Company issued no options to purchase the Company's common stock. The aggregate value of the options vesting, net of forfeitures, during the three months ended March 31, 2011 and March 31, 2010 was $0 and $44,073, respectively and has been reflected as compensation cost. As of March 31, 2011, the aggregate value of unvested options was $4,560, which will be amortized as compensation cost as the options vest, over 8 months. As of March 31, 2011, the intrinsic value of the options outstanding was $40,000 based upon the trading price of the common shares as of that date.

Additional information regarding options outstanding as of March 31, 2011 is as follows:

	Options Outstanding at March 31, 2011						Options Exercisable at March 31, 2011
Range of Exercise Price	Number of Shares Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number of Shares Exercisable		Weighted Average Exercise Price

$0.01 - $0.05		4,000,000		1.01	$	0.05		4,000,000	$	0.05
$0.06 - $0.10		10,865,000		3.57	$	0.10		10,715,000	$	0.10
		14,865,000						14,715,000

F-19

Stock Warrants

The following table summarizes the outstanding warrants to purchase Common Stock at March 31, 2011:

Number	Exercise Price		Expiration Dates
25,000,000	$	0.048	May 2019
14,062,500	$	0.038	June 2019
40,000,000	$	0.11	October 2020
34,090,909	$	0.11	October 2020
113,153,409

As of March 31, 2011, the intrinsic value of the warrants outstanding was $609,375 based upon the trading price of the common shares as of that date.

(13)	Subsequent events

Convertible Promissory Note and Subsequent Issuance of Common Stock for Conversion of Debt

In April, 2011, the Company executed a convertible promissory note in favor of Warchest Capital, Multi-Strategy Fund, LLC in the amount of $30,000 for cash consideration. The note is due October 8, 2011 with interest at 9.875%. The note is convertible to the Company’s common stock at a 30% discount of the lesser of the closing bid price for the date immediately preceding the date of conversion or the average of the last five days trading days closing volume weighed average price, not to exceed $0.05 per share. Pursuant to this agreement, the Company has instructed its transfer agent to reserve 1,714,286 shares for potential conversion.

The Company also entered into a debt settlement agreement with Warchest Capital Multi-Strategy Fund, LLC whereby the Company transferred $30,000 of it notes and accounts payable in exchange for issuance of 1,578,947 shares of the Company’s common stock at a price of $0.019.

In April, 2011, the Company executed a convertible promissory note in favor of Barclay Lyons, LLC in the amount of $20,000 for cash consideration. The note is due October 8, 2011 with interest at 9.875%. The note is convertible into the Company’s common stock at a 30% discount of the lesser of the closing bid price for the date immediately preceding the date of conversion or the average of the last five days trading days closing volume weighted average price, not to exceed $0.05 per share. Pursuant to this agreement, the Company has instructed its transfer agent to reserve 1,142,914 shares for potential conversion.

The Company also entered into a debt settlement agreement with Barclay Lyons, LLC whereby the Company transferred $20,000 of its accounts payable in exchange for issuance of 1,052,632 shares of the Company’s common stock at a price of $0.019.

F-20

Common Stock Issued for Conversion of Debt

In April, 2011, the Company issued 912,056 shares of its common stock to settle accounts payable and accrued expenses totaling $45,000.

Common Stock Issued for Services

In April, 2011, the Company issued 343,108 shares of its common stock to a consultant as payment for services in the amount of $20,000.

Related Party Payable

In April and May, 2011, entities in which Scott Rosenberg holds an economic interest loaned the Company $128,000 for working capital purposes.

F-21

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

FORWARD-LOOKING STATEMENTS

Some of the information in this quarterly report 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."

GENERAL

We are a comics-based entertainment company. We own the rights to a library of over 5,000 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 complementary 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.

During 2009 and 2010, the Company produced a feature film entitled “Dylan Dog: Dead of Night” with release dates starting in the first quarter of 2011.

We derive revenues from a number of sources including: Print 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 months ended March 31, 2011 and 2010. The following discussion should be read in conjunction with the information set forth in the condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report.

RESULTS OF CONSOLIDATED OPERATIONS – THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2010

NET REVENUE (UNAUDITED)

Net revenue for the three months ended March 31, 2011 was $525,782 compared to $32,683 for the three months ended March 31, 2010. Currently the Company derives most of its revenue from film licensing, 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 March 31, 2011 represented $500,000 in film licensing revenue from one customer due to the release of “Dylan Dog: Dead of Night” in that customer’s territory. The balance of the $25,782 of revenues for the three months ended March 31, 2011 was a combination of rights fees and merchandising revenues.

The revenues for the three months ended March 31, 2010 represented $23,958 in option revenue from three customers, $4,819 in licensing revenues from one customer and $3,906 in on-line advertising revenues.

Cost of revenues

For the three months ended March 31, 2011 costs of revenue were $522,436 compared to $1,083 for the three months ended March 31, 2010. The increase is primarily due to amortization of film costs related to the “Dylan Dog: Dead of Night” film licensing revenues of $500,000 for the three months ended March 31, 2011.

Operating expenses

Operating expenses decreased $62,731 or 9% for the three months ended March 31, 2011 to $624,778 as compared to $687,509 for the three months ended March 31, 2010. These decreases were related to a decrease in rent of $61,000 as the company moved to smaller office space in June of 2010, a decrease in salaries and benefits of $53,000 as the Company reduced the number of employees, a decrease in commissions of $75,000 related to sales agent fees for “Dylan Dog: Dead of Night,” a decrease in legal fees of $80,000 and a decrease in stock option expense of $44,000. These decreases were offset by an increase in director’s compensation of $131,000 as stock was issued to directors and an increase in consulting fees and outside services of $106,000 as the Company turned to flexible consulting arrangements to manage key executive functions and other overhead increases of $13,000

Development costs

Development costs increased $51,413 or 80% for the three months ended March 31, 2011 to $115,646 as compared to $64,233 for the three months ended March 31, 2010. This increase was due to expenditures for outside artwork and writing fees required to develop the Company’s comic book characters.

Loss on settlement of debt

The company recorded a loss on settlement of debt of $86,126 for the three months ended March 31, 2011 as compared to $0 for the three months ended March 31, 2010. The loss was related to settling debt of the Company by issuance of its common stock at a discount.

Gain on derivative liability

The Company recorded a gain on derivative liability of $1,458,648 for the three months ended March 31, 2011. The derivative liability, recorded in connection with loans payable to the Company’s CEO is re-valued at each reporting date with changes in value being recognized as part of current earnings.

Interest expense

For the three months ended March 31, 2011, interest expense was $1,861,589 compared to $577,587 for the three months ended March 31, 2010. The increase is primarily related to amortization of debt discount recorded as interest expense in connection with loans payable to the Company’s CEO.

As a result of the foregoing, the Company had a net loss of $1,226,145 for the three months ended March 31, 2011 compared to a net loss of $1,007,729 for the same period in 2010. Approximately $1,284,000 of the decrease was related to an increase in interest expense including debt discount amortization and an increase in loss on settlement of debt of $86,000, offset by an increase in gain on derivative liability of approximately $1,168,000

LIQUIDITY AND CAPITAL RESOURCES (UNAUDITED)

On October 22, 2010, the Company entered into a series of agreements with its CEO, Chairman and major note holder, Scott M. Rosenberg to extend the due dates of certain existing loans made by Mr. Rosenberg to the Company. Pursuant to the terms of the agreements, the new due date for certain loans totaling $2,400,000 will be May 6, 2011 and the new due date for other loans totaling $1,350,000 will be June 3, 2011. The interest rate on all of these loans has been increased from 8% to 10%, effective upon the original due dates of May 6, 2010, and June 3, 2010, respectively.

In exchange for these due date extensions, the Company granted to Mr. Rosenberg:

(1) Two additional sets of warrants to purchase the Company’s common stock. The first set allowing for the exercise of up to 40,000,000 warrants to purchase shares of the Company’s common stock, at an exercise price of $0.11 per share, and the second set allowing for the acquisition of up to $3,750,000 in stock, by exercise of warrants at $0.11 per share. Both sets will expire on October 22, 2020; and

(2) As more fully described in the Intellectual Property Rights Assignment Agreement between the Company and Scott Rosenberg (included as an exhibit to the Company’s 8K filing, as amended, on December 28, 2010), 25% of gross revenues from those certain co-ownership rights assigned to Scott Rosenberg. A list of intellectual property that is excluded from this agreement is also in the exhibit to the 8K filing.

In December, 2008, the Company, thru its subsidiary, Long Distance Films, Inc., entered into a promissory note with Standard Charted Bank to fund the production of “Dead of Night” in the original amount of $13,365,000. The amount due on this note as of March 31, 2011 was $9,785,488. The loan is collateralized by all rights in the sales agency agreement and the distribution agreements in connection with the production. The interest rate is Libor plus 2% with the principal and all accrued interest due on April 1, 2011. The note is currently in default.

The company has unpaid liabilities due to the Internal Revenue Service for employee obligations, which is approximately $120,000. We have entered into payment plans to pay off these liabilities but there can be no guarantee that the Company will be able to continue making such payments. If the Company defaults on its payment plans, the governmental entities involved might exercise their collection powers, which may be abrupt and immediate, and could possibly levy upon existing accounts of the Company, with no notice or little advance warning.

Net cash flow used by operations during the three months ended March 31, 2011 was $309,662 as compared to $375,503 for the three months ended March 31, 2010. The decrease in cash flows from operations for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 was primarily due an increase in amortization of $477,174, an increase in fair value of stock issued for services of $132,217, an increase in amortization of debt discount of $1,179,252, an increase in gain on valuation of derivative liability of $1,168,648, a decrease in restricted cash of $585,946, a decrease in investment in film library of $441,605, an increase in prepaid expense and other current assets of $1,161,525, an increase in accrued expenses of $173,049, an increase in deferred revenue of $101,878 and an increase in net loss of $218,416.

Net cash used by investing activities was $6,126 for the three months ended March 31, 2011 for the purchase of office equipment.

Net cash provided in financing activities was $249,975 for the three months ended March 31, 2011 as compared to $229,822 for the three months ended March 31, 2010. The increase in cash provided by financing activities is attributed an increase in short-term notes payable of $604,680, an increase in related party loans of $100,000, a decrease in payments on short-term notes payable of $531,922, a decrease in payments on related party loans of $73,266 and a decrease in issuance of common stock of $79,766.

At March 31, 2011 the Company had cash balances of $10,462. 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 2011, or ever, as such performance is subject to numerous variables and uncertainties, many of which are out of the Company’s control.

GOING CONCERN

During the three months ended March 31, 2011, the Company had a net loss of $1,226,145 and a cash flow deficiency of $309,662. At March 31, 2011, the Company had a working capital deficit of $20,343,243 (excluding its derivative liability) and a shareholders’ deficiency of $17,291,894. The Company is also delinquent in payment of $120,026 for payroll taxes as of March 31, 2011 and in default of certain of its short term notes payable. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty. The Company intends to raise funds to finance operations until the Company achieves profitable operations. The Company’s capital requirements for the next 12 months will continue to be significant. If adequate funds are not available to satisfy either medium or long-term capital requirements, the Company’s operations and liquidity could be materially adversely affected and the Company could be forced to cut back its operations. Subsequent to March 31, 2011, the Company raised $50,000 through the issuance of convertible notes payable and borrowed $128,000 from entities in which Scott Rosenberg, the Company’s CEO and Chairman, holds an economic interest.

OFF-BALANCE SHEET ARRANGEMENTS

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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles. Critical accounting policies and estimates are those that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters of the susceptibility of such matters to change, and that may have an impact on financial condition or operating performance. For example, accounting for our investment in films requires us to estimate future revenue and expense amounts which, due to the inherent uncertainties involved in making such estimates, are likely to differ to some extent from actual results.

DERIVATIVE LIABILITY. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. For stock-based derivative financial instruments, the Company uses both the Binomial and Weighted Average Black Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

The derivative liabilities are re-valued at each reporting date with changes in value being recognized as part of current earnings. This revaluation for the three months ended March 31, 2011 resulted in a gain of $1,861,589. Any change in the significant assumptions could result in a different valuation that could affect the Company’s results of operations.

Recently issued accounting pronouncements

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

n/a

ITEM 4T. CONTROLS AND PROCEDURES

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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed on April 15, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2011, the Company issued 2,386,240 shares of our common stock for services with a value of $151,000.

The Company relied on 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.

During the three months ended March 31, 2011, the Company issued 3,896,936 shares of our common stock in exchange for debt with a value of $147,690.

The Company relied on an exemption from the registration requirements of the Act pursuant to Section 3 (a) (9).

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. REMOVED AND RESERVED

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

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

*	Filed herewith

SIGNATURES

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 May 23, 2011.

	Platinum Studios, Inc.

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

	By:	/s/ Lawrence K. White
		Lawrence K. White
		Interim Chief Financial Officer & Principal Financial and Accounting Officer