UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

FORM10-QSB

 

[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OFTHE SECURITIES EXCHANGE ACT OF 1934

 

[] TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

 

Forthe quarterly period ended: June 30, 2004

 

Commissionfile number 000-25415

 

TwinFaces East Entertainment Corporation

(Exactname of small business issuer as specified in its charter)

 

| **Nevada**  
 **94-3326901**
(State      or other jurisdiction of   
 (I.R.S.      Employer
incorporation      or organization)   
 Identification      Number)
 

**94      Arthur Hills Court**
**Henderson,      Nevada**  
 **89074**
(Address      of Principal Executive Offices)   
 (Zip      Code)
 

(702)617-8832

(Issuer'stelephone number, including area code)

 

Checkmark whether the issuer (1) filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the last 12 months (orfor 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 ____

 

Thenumber of shares of Common Stock, $0.001 par value, outstanding on June 30,2004, was 9,717,348 shares.

 

TransitionalSmall Business Disclosure Format (check one):

 

Yes____ No   X    

 

 
**PART1 - FINANCIAL INFORMATION**
 

**Item1. Financial Statements.**

 
**TwinFaces East Entertainment Corporation

(aDevelopment Stage Company)

BalanceSheet**
 **March      31, 2004

(Unaudited)**December      31, 2003

(Audited)**Assets
Current      assets:
          Cash and equivalents
$                                 -
$                                5
               Total current assets
-
5
Fixed      assets, net
-
Other      non-current assets
230,000
230,000
$                     230,000
$                     230,005**Liabilities      and Stockholders' Equity
Current      liabilities:
          Cash deficit
$                                5
$                                -
          Accrued salaries and benefits
1,578,565
1,294,866
          Other accrued expenses
1,591,180
1,420,247
          Short-term note payable
73,000
73,000
          Stockholders' advances
458,749
458,749
          Total current liabilities
3,701,498
3,246,862
               Long-term debt
465,900
465,900
4,167,398
3,712,762
Stockholders'      equity:
          Preferred stock, $.001 par value, authorized 5,000,000 shares no shares      issued and outstanding
 

-
 

-
          Common stock, $.001 par value, authorized 20,000,000 shares; 9,717,348      issued and outstanding at 6/30/04 and 12/31/03
 

9,717
 

9,717
          Additional paid-in capital
1,271,328
1,271,328
          (Deficit) accumulated during development stage
(5,218,444)
(4,793,827)
(3,937,399)
(3,482,756)
$                     230,000
$                     230,005
Theaccompanying notes are an integral part of these financial statements.

 

2

 
**TwinFaces East Entertainment Corporation

(aDevelopment Stage Company)

Statementsof Operations

forthe three months and six months ended June 30, 2004 and 2003

andfor the period December 5, 1997 (inception) to June 30, 2004**
 
**For the three months ended June 30,**
 

**For the six months ended June 30,**
**December 5, 1997 (inception) to June 30,****2004****2003****2004****2003****2004**
Pre-Operating      Revenue
Interest      Income
$                     -
$                       -
$                         -
$                         -
$                      878
Pre-Operating      Expenses:
          Professional services
37,766
344,420
55,766
369,945
1,373,374
          Salaries and benefits
133,750
133,750
267,500
267,500
2,162,684
          General and administrative
44,402
77,647
96,749
133,932
1,394,032
          Depreciation and amortization
-
-
-
-
1,103
215,918
555,817
420,015
771,377
4,951,193
Net      pre-operating (loss)
(215,918)
(555,817)
(420,015)
(771,377)
(4,950,315)
Other      income (expenses):
          Interest
(17,314)
(17,314)
(34,627)
(34,437)
(172,555)
Net      (loss) before discontinued operations
(233,232)
(573,131)
(454,643)
(805,814)
(5,122,870)
(Loss)      from discontinued operations
-
-
-
-
(125,600)
Net      (loss)
$      (233,232)
$        (573,131)
$          (454,643)
$          (805,814)
$         (5,248,470)
Weighted      average number of
common      shares outstanding - basic and fully diluted
 

9,717,348
 

8,831,515
 

9,717,348
 

9,052,348
Net      (loss) per share before discontinued operations
 

$            (0.02)
 

$              (0.06)
 

$                (0.05)
 

$                (0.09)
Net      (loss) per share from discontinued operations
 

0.00
0.00
 

0.00
 

0.00
Net      (loss) per share - basic and fully diluted
$            (0.02)
$               (0.06)
$                (0.05)
$                (0.09)
 

Theaccompanying notes are an integral part of these financial statements.

 

3
** 

TwinFaces East Entertainment Corporation

(aDevelopment Stage Company)

Statementof Cash Flows

forthe six months ended June 30, 2004**
**andfor the period December 5, 1997 (inception) to June 30, 2004**

 

**For the six months ended June 30,**
**December 5, 1997 (inception) to June 30,****2004****2003****2004****Cash      flows from operating activities
Net      (loss)
$              (454,643)
$              (805,814)
$           (5,248,470)
          Depreciation
-
-
1,103
          Prior period adjustment
-
-
30,025
          Shares issued for consulting services
-
119,450
492,207
          Shares issued for commission expense - related party
-
-
20,000
          Shares issued for employment enticement
-
-
5,000
          Shares issued for debt enticement
-
-
20,000
Adjustments      to reconcile net (loss) to net cash
          (used) by operating activities:
          Increase in accrued salaries and benefits
283,700
326,100
2,153,015
          Increase in other accrued expenses
170,933
360,204
1,591,180
Net      cash (used) by operating activities
(10)
(60)
(935,940)**Cash      flows from investing activities
          Purchase of equipment
-
-
(1,102)
          Investment in Magellan International, Inc.
-
-
(180,000)
          Short-term note payable
-
-
73,000
          Proceeds from long-term debt
-
-
465,900
          Payments on long-term debt
-
-
-
          Net cash provided by investing activities
-
-
357,798**Cash      flows from financing activities
          Stockholders' advances
-
-
458,749
          Issuance of common stock
-
-
119,388
Net      cash provided by financing activities
-
-
578,137
Net      increase (decrease) in cash
(10)
(60)
(5)
Cash      and equivalents - beginning
5
65
-
Cash      and equivalents - ending
$                         (5)
$                            5
$                         (5)
Supplemental      disclosures:
          Interest paid
$                            -
$                            -
$                            -
          Income taxes paid
$                            -
$                            -
$                            -
          Non-cash transactions:
               Shares issued for consulting services
$                            -
$                            -
$                495,332
               Number of shares issued for consulting services
-
-
2,604,889
               Shares issued for salaries - related party
$                            -
$                            -
$                299,450
               Number of shares issued for salaries - related party
-
-
1,850,000
               Shares issued to invest in Pangaea Education Systems, Inc.
$                            -
$                            -
$                    1,500
               Number of shares issued to invest in Pangaea Education Systems, Inc.
-
-
1,500,000
               Shares issued for employment enticement
$                            -
$                            -
$                    5,000
               Number of shares issued for employment enticement
-
-
50,000
               Shares issued for debt enticement
$                            -
$                            -
$                  20,000
               Number of shares issued for debt enticement
-
-
333,333
               Number of shares issued for contractual payment to acquire Magellan
$                            -
$                            -
$                  50,000
               Shares issued for contractual payment to acquire Magellan
-
-
500,000
               Shares issued for commission expense
$                            -
$                            -
$                  20,000
               Number of shares issued for commission expense
-
-
200,000
 

Theaccompanying notes are an integral part of these financial statements.

 

4
**TWIN      FACES EAST ENTERTAINMENT CORPORATION

(a      development stage company)

NOTES      TO UNAUDITED FINANCIAL STATEMENTS****Note1 - Basis of Presentation**
 

Thecondensed interim financial statements included herein, presented in accordancewith United States generally accepted accounting principles and stated in USdollars, have been prepared by the Company, without audit, pursuant to the rulesand regulations of the Securities and Exchange Commission. Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations, although the Company believesthat the disclosures are adequate to make the information presented notmisleading.

 

Thesestatements reflect all adjustments, consisting of normal recurring adjustments,which in the opinion of management, are necessary for fair presentation of theinformation contained therein. It is suggested that these condensed interimfinancial statements be read in conjunction with the financial statements of theCompany for the year ended December 31, 2003 and notes thereto included in theCompany's 10-KSB annual report. The Company follows the same accountingpolicies in the preparation of interim reports.

 

Resultsof operation for the interim period are not indicative of annual results.

 
**Note2 - Going concern**
 

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern, which contemplates the recoverability ofassets and the satisfaction of liabilities in the normal course of business. Asnoted above, the Company is in the development stage and, accordingly, has notyet generated revenues from operations. Since its inception, the Company hasbeen engaged substantially in financing activities and developing its productline, setting up its operations, and incurring substantial costs and expenses.As a result, the Company incurred accumulated net losses from December 5, 1997(inception) through the period ended June 30, 2004 of $5,248,470. In addition,the Company's development activities since inception have been financiallysustained through equity financing.

 

Theability of the Company to continue as a going concern is dependent upon itsability to raise additional capital from the sale of common stock and,ultimately, the achievement of significant operating revenues. The accompanyingfinancial statements do not include any adjustments that might be requiredshould the Company be unable to recover the value of its assets or satisfy itsliabilities.
** 

Note3 - Notes Payable**
 

TheCompany accrued $34,627 in interest expense during the period ended June 30,2004.

 
**Note4 - Related party

 **
TheCompany accrued a total of $283,700 in salaries and benefits owed to itsofficers and directors during the six months ended June 30, 2004.

 

TheCompany accrued a total of $170,933 in other expenses owed to its officers anddirectors during the six months ended June 30, 2004.

 

5
** **
FORWARD-LOOKINGSTATEMENTS

 

       This document contains "forward-looking statements" within the meaningof the Private Securities Litigation Reform Act of 1995. All statements otherthan statements of historical fact are "forward-looking statements"for purposes of federal and state securities laws, including, but not limitedto, any projections of earnings, revenue or other financial items; anystatements of the plans, strategies and objections of management for futureoperations; any statements concerning proposed new services or developments; anystatements regarding future economic conditions or performance; any statementsor belief; and any statements of assumptions underlying any of the foregoing.

 

       Forward-looking statements may include the words "may,""could," "will," "estimate," "intend,""continue," "believe," "expect" or"anticipate" or other similar words. These forward-looking statementspresent our estimates and assumptions only as of the date of this report. Exceptfor our ongoing securities laws, we do not intend, and undertake no obligation,to update any forward-looking statement.

 

       Although we believe that the expectations reflected in any of ourforward-looking statements are reasonable, actual results could differmaterially from those projected or assumed in any or our forward-lookingstatements. Our future financial condition and results of operations, as well asany forward-looking statements, are subject to change and inherent risks anduncertainties. The factors impacting these risks and uncertainties include, butare not limited to:
-  our    current lack of working capital;increased    competitive pressures from existing competitors and new entrants;increases    in interest rates or our cost of borrowing or a default under any material    debt agreements;deterioration    in general or regional economic conditions;adverse    state or federal legislation or regulation that increases the costs of    compliance, or adverse findings by a regulator with respect to existing    operations;loss    of customers or sales weakness;inability    to achieve future sales levels or other operating results;the    unavailability of funds for capital expenditures; andoperational    inefficiencies in distribution or other systems.
       For a detailed description of these and other factors that could cause actualresults to differ materially from those expressed in any forward-lookingstatement, please see "Factors That May Affect Our Plan of Operation"in this document and "Risk Factors" in our Annual Report on Form10-KSB for the year ended December 31, 2003.

 
**Item2. Plan of Operation**
 
**Overview*** *
       Twin Faces was incorporated on December 5, 1997 under the laws of the State ofDelaware and reincorporated under the laws of the State of Nevada on June 17,1998. We are in the development stage as an entertainment and film productioncompany.

 

       We have yet to generate revenues from operating activities and there is asubstantial going concern issue as to whether we will ever be able to produceand market our films and generate sufficient, if any, revenues to satisfy ourworking capital 

 

6

 

requirements.Since inception we have been dependent on the sale of our equity securities andloans from affiliates to satisfy our working capital requirements. We continueto have a working capital deficiency that raises substantial concern regardingour ability to continue as a going concern.

 
**Planof Operation

 **
       During the next twelve months we will continue to focus our efforts on ourdevelopment of four primary properties, including, "Pages From A RabbitJournal", "The Town That Arrested Santa Claus", and the"Einstein" property. We are also working on the production of a newfeature film, "A Real Man", written by Johnnie King; however actualproduction will not commence until we have sufficient capital for production andmarketing.

 
***Satisfactionof our cash obligations for the next 12 months.

 ***
       Our plan of operation has been stalled by our lack of cash. Under our currentplan of operation we will be required to raise at least $800,000 in equity ordebt financing (minimal cash requirement) to continue in operation for the next12 months.

 
**InvestmentAgreement and Promissory Note**
 

       On June 20, 2003, we entered into an Investment Agreement with Johnnie King, ourDirector of Film Development. On September 29, 2003, we executed a newInvestment Agreement with Mr. King to extend the funding dates that wepreviously agreed on in the June 20th agreement. Pursuant to the terms of theagreement, Mr. King will make a direct $4,000,000 cash investment as purchase ofseries C preferred stock. Within 30 days of funding we will issue 1,000,000shares of series C preferred stock of the Company to Mr. King. The stock willcarry conversion rights to common on an annual basis the first week of thefunding month each year commencing the month of funding, for a period of 4 yearsaccording to the formula below.

 

       The preferred stock shall be converted to common stock in the Company on thedates following:

 

       One year from funding date, conversion of 250,000 shares preferred stock tocommon stock,

       Two years from funding date, conversion of 250,000 shares preferred stock tocommon stock,

       Three years from funding date, conversion of 250,000 shares preferred stock tocommon stock,

       Four years from funding date, conversion of 250,000 shares preferred stock tocommon stock.

 

       We will issue a 5% cash dividend on the principle amount of the unconvertedpreferred stock, payable in common stock as follows:

 

       One year from funding date, $200,000 of common stock,

       Two years from funding date, $120,000 of common stock,

       Three years from funding date, $100,000 of common stock,

       Four years from funding date, $50,000 of common stock.

 

       At our option the preferred stock shall be converted according to either of thefollowing:

 

       Option 1- Average prior 30 days closing price on current quoted exchangeor quotation service so the market value of the common issued is one millionfive hundred thousand dollars ($1,500,000). For example, if the funding date isDecember 31, 2003, and if the 30-day average quoted closing price is $1 pershare on December 31, 2004, Mr. King will receive 1,500,000 shares of commonstock for his 250,000 shares of preferred stock for a valuation conversion of 6common shares for each preferred share.

 

7

 

       Option 2- The stock may be converted at a conversion ratio of 2 commonshares for each preferred share. For example, if the funding date is December31, 2003, on December 31, 2004 we may convert the 250,000 shares of preferredstock to 500,000 shares of common stock in the Company.

 

       On June 20, 2003, we executed a Promissory Note with Johnnie King, our Directorof Film Development for the principal amount of $4,000,000. On September 29,2003, we executed a new Promissory Note to extend the funding dates under thenote. The funding date is on or before September 30, 2004 and the due date is onor before five years from the funding date. Pursuant to the note we promise topay to the order of Johnnie King the sum of $4,000,000 together with interestthereon at 10% per annum as prescribed below. The sum and interest shall be paidin the manner following:

 

       Interest due one year from funding date-

               Payable as $400,000 worth of 144 restricted stock or $400,000 cash

       Interest due two years from funding date-

               Payable as $400,000 worth of 144 restricted stock or $400,000 cash

       Interest due three years from funding date-

               Payable as $400,000 worth of 144 restricted stock or $400,000 cash

       Interest due four years from funding date-

               Payable as $400,000 worth of 144 restricted stock or $400,000 cash

 

       At the principal due date of the note, we agree to pay to Mr. King, at ouroption either $4,400,000 cash or $4,800,000 worth of 144 restricted stock.

 

       We may prepay the promissory note at any time, without penalty, by delivery ofthe principal amount in cash and appropriate pro-rata interest as prescribedabove.

 

       As of the date of this filing we have not yet received any funds from Mr. King.Upon receipt of funds we will file a Form 8-K.

 
**InvestmentAgreement/Preferred Stock Purchase**
 

       On November 11, 2003, we executed an Investment Agreement/Preferred StockPurchase with Michael Smolanoff, our President, wherein he agreed to make adirect cash investment into the Company as a result of proceeds from his pendingBronx County New York legal action ("lawsuit"). The first funding dateof the investment will be no later than 30 days after the first receipt of fundsfrom the lawsuit and the final funding date shall be no later than 30 days afterthe final payment from the lawsuit. The amount of the investment is the lesserof four million dollars ($4,000,000) or fifty percent (50%) of the total amountreceived from the lawsuit. Within 30 days of the first funding date, we willissue one million (1,000,000) shares of our Series C Preferred Stock to Dr.Smolanoff. The stock will carry conversion rights to common on an annual basisthe first week of the funding month each year commencing the month of funding,for a period of 4 years.

 

       The preferred stock shall be converted to common stock in the Company on thefollowing dates:

 

       One year from first funding Date, conversion of 250,000 shares Preferred Stockto Common Stock,

       Two years from first funding date, conversion of 250,000 shares Preferred Stockto Common Stock,

       Three years from final funding date, conversion of 250,000 shares PreferredStock to Common Stock,

       Four years from final funding date, conversion of 250,000 shares Preferred Stockto Common Stock.

 

       At our option the stock shall be converted according to either of the following:

 

8

 

       Option 1- Average prior 30 days closing price on current quoted exchangeso that market value of the common issued is one million five hundred thousanddollars. For example, if funding date is December 31, 2003, and if the 30-dayaverage quoted closing price is $1 per share on December 31, 2004, Dr. Smolanoffwould receive 1,500,000 shares of common stock for his 250,000 shares ofPreferred stock for a valuation conversion of 6 Common shares for each Preferredshare.

 

       Option 2- The stock may be converted at a conversion ratio of 2 CommonShares for each Preferred share. For example, if funding date is December 31,2003, on December 31, 2004 we may convert the 250,000 shares of Preferred stockto 500,000 shares of Common stock.

 

       We also agreed to issue a 5% Cash Dividend on the principle amount of theunconverted Preferred Stock, payable in Common Stock as follows:

 

       One year from first funding date, cash dividend in common stock,

       Two years from first funding dated, cash dividend in common stock,

       Three years from final funding date, cash dividend in common stock,

       Four years from final funding date, cash dividend in common stock.

 

       As of the date of this filing we have not yet received any funds from Dr.Smolanoff. Upon receipt of funds we will file a Form 8-K.

 

       A critical component of our operating plan impacting our continued existence isthe ability to obtain additional capital through additional equity and/or debtfinancing. We do not anticipate enough positive internal operating cash flowuntil such time as we can generate substantial revenues from fees earned as aresult of our documentary films of Dr. Albert Einstein and feature film andtelevision scripts, which may take the next few years to fully realize. In theevent we cannot obtain the necessary capital to pursue our strategic plan, wemay have to cease or significantly curtail our operations. This would materiallyimpact our ability to continue operations.

 

       Our near term cash requirements are anticipated to be offset through the receiptof funds from private placement offerings and loans obtained through privatesources and persons affiliated with the Company. Since inception, we havefinanced cash flow requirements through debt financing and issuance of commonstock for cash and services. As we expand operational activities, we maycontinue to experience net negative cash flows from operations, pending receiptof servicing or licensing fees, and will be required to obtain additionalfinancing to fund operations through common stock offerings and bank borrowingsto the extent necessary to provide working capital.

 

       Over the next twelve months we believe that existing capital and anticipatedfunds from operations will not be sufficient to sustain operations and plannedexpansion. Consequently, we will be required to seek additional capital in thefuture to fund growth and expansion through additional equity or debt financingor credit facilities. No assurance can be made that such financing would beavailable, and if available it may take either the form of debt or equity. Ineither case, the financing could have a negative impact on our financialcondition and our Stockholders.

 

       We anticipate incurring operating losses over the next twelve months. Our lackof operating history makes predictions of future operating results difficult toascertain. Our prospects must be considered in light of the risks, expenses anddifficulties frequently encountered by companies in their early stage ofdevelopment. Such risks include, but are not limited to, an evolving andunpredictable business model and the management of growth. To address theserisks we must, among other things, obtain a customer base, implement andsuccessfully execute our business and marketing strategy, continue to developand upgrade technology and products, respond to competitive developments, andattract, retain and motivate qualified personnel. There can be no assurance thatwe will be successful in addressing such risks, and the failure to do so canhave a material adverse effect on our business prospects, financial conditionand results of operations.

 

9

 
**GoingConcern

 **
       The consolidated financial statements included in this filing have been preparedin conformity with generally accepted accounting principles that contemplate thecontinuance of the Company as a going concern. The Company's cash position maybe inadequate to pay all of the costs associated with production and marketing.Management intends to use borrowings and security sales to mitigate the effectsof its cash position, however no assurance can be given that debt or equityfinancing, if and when required will be available. The financial statements donot include any adjustments relating to the recoverability and classification ofrecorded assets and classification of liabilities that might be necessary shouldthe Company be unable to continue existence.

 
***Summaryof any product research and development that we will perform for the term of ourplan of operation.

 ***
       We do not anticipate performing any significant product research and developmentunder our plan of operation.

 
***Expectedpurchase or sale of plant and significant equipment.*
 **
       We do not anticipate the purchase or sale of any plant or significant equipment,as such items are not required by us at this time or in the next 12 months.

 
***Significantchanges in the number of employees.*
 **
       We have 5 employees. In the event we are successful in obtaining additional debtor equity, which will provide us with the cash to develop an entertainmentproduct, then in that event we will be required to hire additional full timestaff members for the company.

 
**Off-BalanceSheet Arrangements**
 

       We do not have any off-balance sheet arrangements that have or are reasonablylikely to have a current or future effect on our financial condition, changes infinancial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources that is material to investors.

 
**FACTORSTHAT MAY AFFECT OUR PLAN OF OPERATION**
 
***TwinFaces has historically lost money and losses may continue in the future, whichmay cause us to curtail operations.***
 

       Since our inception we have not been profitable and have lost money on both acash and non-cash basis. For the years ended December 31, 2003 and December 31,2002 we incurred net losses of $1,330,646 and $1,356,952 respectively. Ouraccumulated deficit at the end of June 30, 2004 was $(5,218,444). Future lossesare likely to occur, as we are dependent on spending money to pay for ouroperations. No assurances can be given that we will be successful in reaching ormaintaining profitable operations. Accordingly, we may experience liquidity andcash flow problems. If our losses continue, our ability to operate may beseverely impacted.

 

10

 
***TwinFaces will need to raise additional capital or debt funding to sustainoperations.***
 

       We will require additional capital to sustain operations and we may need accessto additional capital or additional debt financing to grow our sales. Inaddition, to the extent that we have a working capital deficit and cannot offsetthe deficit from profitable sales we may have to raise capital to repay thedeficit and provide more working capital to permit growth in revenues. We cannotbe assured that financing whether from external sources or related parties willbe available if needed or on favorable terms. Our inability to obtain adequatefinancing will result in the need to reduce the pace of business operations.

 

       We have been the subject of a going concern opinion for the years ended December31, 2003 and December 31, 2002 from our independent auditors, which means thatwe may not be able to continue operations unless we can become profitable orobtain additional funding.

 

       Our independent auditors have added an explanatory paragraph to their auditopinions issued in connection with our financial statements for the years endedDecember 31, 2003 and December 31, 2002, which states that the financialstatements raise substantial doubt as to our ability to continue as a goingconcern. Our ability to make operations profitable or obtain additional fundingwill determine our ability to continue as a going concern. Our financialstatements do not include any adjustments that might result from the outcome ofthis uncertainty. We expect to be able to continue operations for twelve monthswith the cash currently on hand, anticipated from our operations and from theinvestment agreement and promissory note with Johnnie King for an investment of$8,000,000 in combination of preferred stock and debt. Also, from an investmentagreement with Michael Smolanoff for an investment of $4,000,000 upon settlementof a lawsuit in his favor.

 
***Weare subject to a working capital deficit, which means that our current assets onDecember 31, 2003 and for the Quarter ended June 2004, were not sufficient tosatisfy our current liabilities and, therefore, our ability to continueoperations is at risk.***
 

       We had a working capital deficit for the year ended December 31, 2003 and forthe Quarter ended June 30, 2004, which means that our current liabilitiesexceeded our current assets on December 31, 2003 by $3,246,857 and by $3,701,498on June 30, 2004. Current assets are assets that are expected to be converted tocash within one year and, therefore, may be used to pay current liabilities asthey become due. Our working capital deficit means that our current assets onDecember 31, 2003, and on June 30, 2004 were not sufficient to satisfy all ofour current liabilities on those dates. If our ongoing operations do not beginto provide sufficient profitability to offset the working capital deficit, wemay have to raise capital or debt to fund the deficit or curtail futureoperations.

 
***Ourcommon stock is deemed to be "Penny Stock," which may make it moredifficult for investors to sell their shares due to suitability requirements.***
 

       Our common stock is deemed to be "penny stock" as that term is definedin Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Theserequirements may reduce the potential market for our common stock by reducingthe number of potential investors. This may make it more difficult for investorsin our common stock to sell shares to third parties or to otherwise dispose ofthem. This could cause our stock price to decline. Penny stocks are stock:
-  With    a price of less than $5.00 per share;That    are not traded on a "recognized" national exchange;Whose    prices are not quoted on the NASDAQ automated quotation system (NASDAQ    listed stock must still have a price of not less than $5.00 per share); orIn    issuers with net tangible assets less than $2.0 million (if the issuer has    been in continuous operation for at least three years) or $10.0 million (if    in continuous operation for less than three years), or with average revenues    of less than $6.0 million for the last three years.
11

 

       Broker/dealers dealing in penny stocks are required to provide potentialinvestors with a document disclosing the risks of penny stocks. Moreover,broker/dealers are required to determine whether an investment in a penny stockis a suitable investment for a prospective investor.

 
***Wecould fail to attract or retain key personnel, which could be detrimental to ouroperations.***
 

       Our success largely depends on the efforts and abilities of key executives,including Michael Smolanoff Ph.D., our Chief Executive Officer. The loss of theservices of Dr. Smolanoff could materially harm our business because of the costand time necessary to find a successor. Such a loss would also divert managementattention away from operational issues. We do not presently maintain key-manlife insurance policies on Dr. Smolanoff. We also have other key employees whomanage our operations and if we were to lose their services, senior managementwould be required to expend time and energy to replace and train theirreplacements. To the extent that we are smaller than our competitors and havefewer resources we may not be able to attract the sufficient number and qualityof staff.

 
***Ourlimited operating history makes it difficult to forecast our future results.***
 

         As  a result of our limited operating history, our historical financial and  operating information is of limited value in predicting our future operating  results. We may not accurately forecast customer behavior and recognize or  respond to emerging trends, changing preferences or competitive factors facing  us, and, therefore, we may fail to make accurate financial forecasts. Our  current and future expense levels are based largely on our investment plans  and estimates of future revenue. As a result, we may be unable to adjust our  spending in a timely manner to compensate for any unexpected revenue  shortfall, which could force us to curtail or cease our business operations.

 
**Item3. Controls and Procedures.

 **
       Weare a development stage company with no revenues during the period covered bythis quarterly report. Our board of directors had responsibility for ourinternal controls and procedures over our financial reporting.

 

       Wehave implemented and maintain disclosure controls and procedures which consistof: the control environment, risk assessment, control activities, informationand communication and monitoring. Our scope of internal control thereforeextends to policies, plans procedures, processes, systems, activities,initiatives, and endeavors required of a company with our limited transactions,revenues, expenses, and operations. These controls and procedures are designedto ensure that the information required to be disclosed in our Exchange Actreports is recorded, processed, summarized and reported within the time periodsspecified in the SEC's rules.

 

       Therehave been no significant changes (including corrective actions with regard tosignificant deficiencies or material weaknesses) in our internal controls or inother factors that could significantly affect the controls subsequent to thedate of the evaluation referenced below.

 

       Within90 days prior to the date of this report, we carried out an evaluation, underthe supervision of Michael Smolanoff, President of the Company, of theeffectiveness of the design and operation of the Company's disclosure controlsand procedures. Based on the foregoing, Dr. Smolanoff concluded that, given theCompany's limited operations, our disclosure controls and procedures wereeffective.

 

12

 
**PARTII - OTHER INFORMATION

 

Item1. Legal Proceedings.

 **
       None.

 
**Item2. Changes in Securities.

 **
       None.

 
**Item3. Defaults Upon Senior Securities.

 **
       None.
** 

Item4. Submission of Matters to a Vote of Security Holders.

 **
       None.

 
**Item5. Other Information.

 **
       None.

 
**Item6. Exhibits and Reports of Form 8-K.

 **
(a)Exhibits
 

31.1   

Certification of Michael Smolanoff Pursuant to Section 302 of the Sarbanes-OxleyAct

31.2   

Certification of Stanley L. Teeple Pursuant to Section 302 of the Sarbanes-OxleyAct

32.1   

Certification of Michael Smolanoff Pursuant to Section 906 of the Sarbanes-OxleyAct

32.2   

Certification of Stanley L. Teeple Pursuant to Section 906 of the Sarbanes-OxleyAct

 

(b)Form 8-K

 

       None
** 

SIGNATURES**
 

       Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

TWINFACES EAST ENTERTAINMENT CORPORATION

(Registrant)

 

By: /S/StanleyL. Teeple                            
**StanleyL. Teeple, Chief Financial Officer

(Onbehalf of the registrant and as

principalaccounting officer)

 

Date:August 19, 2004

 

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