UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-QSB

 

x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2005

 

[   ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 000-25415

 

Twin Faces East Entertainment Corporation

(Exact name of small business issuer as specified in its charter)

 

| **Nevada**                                                     | **94-3326901**                       |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

 

**2857 Hartwick Pines Dr.**

**Henderson, Nevada 89052**

(Address of principal executive offices)

 

**(702) 617-8832**

(Issuer's telephone number)

 

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

 

The number of shares of Common Stock, $0.001 par value, outstanding on June 30, 2005, was 11,702,348 shares.

 

Transitional Small Business Disclosure Format (check one):

 

Yes____    No****   X      

 

----

 

 

**PART 1- FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

**Twin Faces East Entertainment Corporation**

**(a Development Stage Company)**

**Balance Sheet**

**(unaudited)**

 

|                                        | **June 30,**                                        |
|---------------------------------------------|-----------------------------------------------------|
| ** **                                  | **2005**                                            |
| **Assets**                                  |                                                |   |   |   |
|                                        |                                                |   |
| Current assets:                             |                                                |   |   |   |
|                                        | Cash and equivalents                                |   |   | $ | 110 |
|                                        |                                                | Total current assets |   |   |   | 110 |
|                                        |                                                |   |   |   |
|                                        |                                                |   | $ | 110 |
|                                        |                                                |   |   |   |
| **Liabilities and Stockholders' (Deficit)** |                                                |   |   |   |
|                                        |                                                |   |   |   |
| Current liabilities:                        |                                                |   |   |   |
|                                        | Accrued salaries and benefits                       |   |   | $ | 1,314,365 |
|                                        | Other accrued expenses                              |   |   |   | 1,813,492 |
|                                        | Short-term note payable                             |   |   |   | 66,356 |
|                                        | Stockholders' advances                              |   |   |   | 392,393 |
|                                        |                                                | Total current liabilities |   |   |   | 3,586,606 |
|                                        |                                                |   |   |   |
| Long-term debt                              |                                                |   |   | 485,900 |
|                                        |                                                |   |   |   |
|                                        |                                                |   |   | 4,072,506 |
|                                        |                                                |   |   |   |
| Stockholders' (deficit):                    |                                                |   |   |   |
|                                        | Preferred stock, $0.001 par value, 5,000,000 shares |   |   |   |   |
|                                        |                                                | authorized, no shares issued and outstanding |   |   |   | - |
|                                        | Common stock, $0.001 par value, 20,000,000 shares   |   |   |   |   |
|                                        |                                                | authorized, 11,702,348 shares issued and outstanding |   |   | 11,702 |
|                                        | Additional paid-in capital                          |   |   |   | 1,737,843 |
|                                        | (Deficit) accumulated during development stage      |   |   |   | (5,821,941) |
|                                        |                                                |   |   | (4,072,396) |
|                                        |                                                |   |   |   |
|                                        |                                                |   | $ | 110 |

 

 

 

The accompanying notes are an integral part of these financial statements.

 

1

  

----

 

**Twin Faces East Entertainment Corporation**

**(a Development Stage Company)**

**Statements of Operations**

**for the three and six months ended June 30, 2005 and 2004**

**and for the period December 5, 1997 (inception) to June 30, 2005**

**(unaudited)**

 

|                                           |  

 

**For the three months ended**

**June 30,** |  

 

**For the six months ended June 30,** | **December 5, 1997**

**(inception) to**

**June 30,**

**2005** |
|------------------------------------------------|--------------------------------------------------------------|-------------------------------------------------------|------------------------------------------------------------------|
|                                           | **2005**                                                     | **2004**                                              | **2005**                                                         | **2004** |
| Pre-Operating Revenue                          |                                                         |                                                  |                                                             |   |   |
| Sales income                                   | $                 -                                          | $              -                                      | $                -                                               | $                - | $               878 |
|                                           |                                                         |                                                  |                                                             |   |   |
| Pre-Operating Expenses:                        |                                                         |                                                  |                                                             |   |   |
| Professional services                          | 11,010                                                       | 37,766                                                | 30,053                                                           | 55,766 | 1,432,107 |
| Salaries and benefits                          | 25,000                                                       | 133,750                                               | 50,000                                                           | 267,500 | 2,232,782 |
| Travel                                         | 19,160                                                       | 2,167                                                 | 30,591                                                           | 8,095 | 337,829 |
| Automobile                                     | 17,754                                                       | 16,146                                                | 27,197                                                           | 40,004 | 354,619 |
| Transportation                                 | -                                                            | -                                                     | -                                                                | - | 152,469 |
| Miscellaneous                                  | 797                                                          | 65                                                    | 827                                                              | 219 | 85,651 |
| Insurance                                      | 9,162                                                        | 13,911                                                | 24,568                                                           | 26,242 | 243,567 |
| Telephone                                      | 1,603                                                        | 3,452                                                 | 4,006                                                            | 6,572 | 94,376 |
| Office and postage                             | 12,442                                                       | 8,662                                                 | 24,126                                                           | 15,618 | 141,584 |
| Entertainment and meals                        | -                                                            | -                                                     | -                                                                | - | 152,413 |
| Pre-production costs                           | -                                                            | -                                                     | -                                                                | - | 97,797 |
| Advertising                                    | -                                                            | -                                                     | -                                                                | - | 1,823 |
| Depreciation and amortization                  | -                                                            | -                                                     | -                                                                | - | 1,103 |
|                                           | 96,928                                                       | 215,919                                               | 191,368                                                          | 420,016 | 5,328,120 |
|                                           |                                                         |                                                  |                                                             |   |   |
| Net pre-operating (loss)                       | (96,928)                                                     | (215,919)                                             | (191,368)                                                        | (420,016) | (5,327,242) |
|                                           |                                                         |                                                  |                                                             |   |   |
| Other income (expenses):                       |                                                         |                                                  |                                                             |   |   |
| Gain on forgiveness of debt                    | -                                                            | -                                                     | -                                                                | - | 98,870 |
| Loss on investment                             | -                                                            | -                                                     | -                                                                | - | (230,000) |
| Interest                                       | (17,313)                                                     | (17,313)                                              | (30,407)                                                         | (34,627) | (237,969) |
| Total other income (expense)                   | (17,313)                                                     | (17,313)                                              | (30,407)                                                         | (34,627) | (369,099) |
|                                           |                                                         |                                                  |                                                             |   |   |
| Net (loss) before provision for income taxes   | (114,241)                                                    | (233,232)                                             | (221,775)                                                        | (454,643) | (5,696,341) |
|                                           |                                                         |                                                  |                                                             |   |   |
| Provision for income taxes                     | -                                                            | -                                                     | -                                                                | - | - |
|                                           |                                                         |                                                  |                                                             |   |   |
| Net (loss) from continuing operations          | (114,241)                                                    | (233,232)                                             | (221,775)                                                        | (454,643) | (5,696,341) |
|                                           |                                                         |                                                  |                                                             |   |   |
| (Loss) from discontinued operations            | -                                                            | -                                                     | -                                                                | - | (125,600) |
|                                           |                                                         |                                                  |                                                             |   |   |
| Net (loss)                                     | $  (114,241)                                                 | $  (233,232)                                          | $ (221,775)                                                      | $   (454,643) | $   (5,821,941) |
|                                           |                                                         |                                                  |                                                             |   |   |
| Weighted average number of common shares       |                                                         |                                                  |                                                             |   |   |
| outstanding - basic and fully diluted          | 11,702,348                                                   | 9,717,348                                             | 11,066,271                                                       | 9,717,348 |   |
|                                           |                                                         |                                                  |                                                             |   |   |
| Net (loss) per share - basic and fully diluted | $        (0.01)                                              | $        (0.02)                                       | $       (0.02)                                                   | $         (0.05) |   |

 

The accompanying notes are an integral part of these financial statements.

 

2

 

----

 

**Twin Faces East Entertainment Corporation**

**(a Development Stage Company)**

**Statement of Cash Flows**

**for the six months ended June 30, 2005 and 2004**

**and for the period December 5, 1997 (inception) to June 30, 2005**

**(unaudited)**

 

|                                                                             | **For the six months ended**

**June 30,** | **December 5, 1997 (inception) to June 30, 2005** |
|----------------------------------------------------------------------------------|--------------------------------------------|---------------------------------------------------|
|                                                                             | **2005**                                   | **2004**                                          |
| **Cash flows from operating activities**                                         |                                       |                                              |   |
| Net (loss)                                                                       | $     (221,775)                            | $   (454,643)                                     | $  (5,821,941) |
| Loss on investment                                                               | -                                          | -                                                 | 230,000 |
| Adjustments to reconcile net (loss) to net cash

(used) by operating activities: |                                       |                                              |   |
| Depreciation and amortization expense                                            | -                                          | -                                                 | 1,103 |
| Prior period adjustment                                                          | -                                          | -                                                 | 30,025 |
| Shares issued for consulting services                                            | 18,500                                     | -                                                 | 510,707 |
| Shares issued for commission expense - related party                             | -                                          | -                                                 | 20,000 |
| Shares issued for employment enticement                                          | -                                          | -                                                 | 5,000 |
| Shares issued for debt enticement                                                | -                                          | -                                                 | 20,000 |
| Shares issued for salaries			- related party                                     | 375,000                                    | -                                                 | 375,000 |
| Shares issued for accrued expenses                                               | 75,000                                     | -                                                 | 75,000 |
| Changes in operating assets and liabilities:                                     |                                       |                                              |   |
| Increase (decrease) in accrued salaries and benefits                             | (319,600)                                  | 283,700                                           | 1,888,815 |
| Increase (decrease) in other accrued expenses                                    | 72,978                                     | 170,933                                           | 1,813,492 |
| Net cash (used) by operating activities                                          | 103                                        | (10)                                              | (882,824) |
|                                                                             |                                       |                                              |   |
| **Cash flows from investing activities**                                         |                                       |                                              |   |
| Purchase of equipment                                                            | -                                          | -                                                 | (1,103) |
| Investment in Magellan International, Inc.                                       | -                                          | -                                                 | (180,000) |
| Net cash (used) by investing activities                                          | -                                          | -                                                 | (181,103) |
|                                                                             |                                       |                                              |   |
| **Cash flows from financing activities**                                         |                                       |                                              |   |
| Short-term note payable                                                          | -                                          | -                                                 | 66,356 |
| Stockholders' advances                                                           | -                                          | -                                                 | 392,393 |
| Proceeds from long-term debt                                                     | -                                          | -                                                 | 485,900 |
| Issuance of common stock                                                         | -                                          | -                                                 | 119,388 |
| Net cash provided by financing activities                                        | -                                          | -                                                 | 1,064,037 |
|                                                                             |                                       |                                              |   |
| Net increase (decrease) in cash                                                  | 103                                        | (10)                                              | 110 |
| Cash and equivalents			- beginning                                               | 7                                          | 5                                                 | - |
| Cash and equivalents			- ending                                                  | $               110                        | $              (5)                                | $               110 |
|                                                                             |                                       |                                              |   |
| Supplemental disclosures:                                                        |                                       |                                              |   |
| Interest paid                                                                    | $                    -                     | $                 -                               | $                   - |
| Income taxes paid                                                                | $                    -                     | $                 -                               | $                   - |
|                                                                             |                                       |                                              |   |
| Non-cash transactions:                                                           |                                       |                                              |   |
| Shares issued for consulting services                                            | $          18,500                          | $                 -                               | $        513,832 |
| Number of shares issued for consulting services                                  | 185,000                                    | -                                                 | 2,789,889 |
| Shares issued for salaries - related party                                       | $        375,000                           | $                 -                               | $        674,450 |
| Number of shares issued for salaries - related party                             | 1,500,000                                  | -                                                 | 3,350,000 |
| 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 |

 

 

3

  

----

 

| 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           |
| Shares issued for accrued expenses                        | $         75,000      | $                 - | $          75,000 |
| Number of shares issued for accrued expenses              | 300,000               | -                   | 300,000           |

 

The accompanying notes are an integral part of these financial statements.

 

4

 

----

 

**Twin Faces East Entertainment Corporation**

**(a Development Stage Company)**

**Notes to Unaudited Financial Statements**

 

**Note 1- Basis of presentation**

 

The unaudited interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.  It is suggested that these unaudited interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2004 and notes thereto included in the Company's 10-KSB annual report.  The Company follows the same accounting policies in the preparation of interim reports.

 

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

 

**Note 2- Going concern**

 

The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, the Company has not commenced its planned principal operations.  Without realization of additional capital, it would be unlikely for the Company to continue as a going concern.  

 

The Company has been in the development stage since its inception.  As noted above, the Company is in the development stage and, accordingly, has not yet generated revenues from operations. Since its inception, the Company has been engaged substantially in financing activities and developing its product line, setting up its e-commerce website, 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, 2005 of ($5,821,941). Capital advances from stockholders are the Company's only current source of funds.  As such, the Company's continued existence is dependent upon obtaining sufficient investor interest and financing in order to commence development of its entertainment industry business, and achieving future profitable operations.  The accompanying financial statements do not includeany adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.

 

**Note 3- Accrued salaries and benefits**

 

During the six months ended June 30, 2005, the Company reduced $375,000 in accrued salaries and benefits through the issuance of a total of 1,500,000 shares of its $0.001 par value common stock to officers of the Company.  Also, the Company recorded $50,000 and $267,500 in salaries and benefits expense for the six months ended June 30, 2005 and 2004, respectively.

 

As of June 30, 2005 and 2004, the Company and accrued salaries and benefits totaling $1,314,365 and $1,578,565, respectively, due to officers of the Company.

 

 

5

 

----

 

**Twin Faces East Entertainment Corporation**

**(a Development Stage Company)**

**Notes to Unaudited Financial Statements**

 

**Note 4- Accrued expenses**

 

During the six months ended June 30, 2005, the Company reduced $75,000 in accrued expenses through the issuance of 300,000 shares of its $0.001 par value common stock to officers of the Company.

 

As of June 30, 2005 and 2004, the Company had accrued expenses totaling $1,813,492 and $1,591,180, respectively.

 

**Note 5- Notes payable**

 

On October 21, 2001, the Company's Board of Directors accepted three separate loan agreements at $110,000 each funded in October 2001, November 2001, and April 2002.  Each loan bears interest at 20%, and is payable in either cash of $132,000 or $154,000 worth of the Company's $0.001 par value restricted common stock on an annual basis.  Additional consideration includes 333,333 shares per note of the Company's $0.001 par value common stock bearing the Rule 144 restriction.  

 

The Company has recorded $30,407 and $34,627 in interest expense for the six months ended June 30, 2005 and 2004, respectively.

 

**Note 6- Stockholder advances**

 

The advances are non-interest bearing and are expected to be repaid with anticipated new funds from further equity offerings.  As of June 30, 2005 and 2004, the balance owed is $392,393 and $458,749, respectively.

 

**Note 7- Stockholders' (deficit)**

 

The Company is authorized to issue 20,000,000 shares of its $0.001 par value common stock and 5,000,000 shares of its $0.001 par value preferred stock.

 

On February 28, 2005, the Company issued 1,500,000 shares of its $0.001 par value common stock to officers of the Company for reduction of accrued salaries and benefits totaling $375,000.

 

On February 28, 2005, the Company issued 300,000 shares of its $0.001 par value common stock to an officer of the Company for reduction of accrued expenses totaling $75,000.

 

On February 28, 2005, the Company issued 185,000 shares of its $0.001 par value common stock to individuals for consulting services valued at $18,500.

 

As of June 30, 2005, there have been no additional equity transactions.

 

 

6

----

 

**Twin Faces East Entertainment Corporation**

**(a Development Stage Company)**

**Notes to Unaudited Financial Statements**

 

**Note 8- Stock options**

 

The Company has reserved for issuance an aggregate of 500,000 shares of common stock for issuance under its 1998 Stock Option Plan and Non-Employee Directors' Plan (the “Directors' Plan”).  On January 1 , 2000, the Company's Board of Directors adopted the 2000 Stock Option Plan which provides for issuance of an additional 600,000 shares of common stock on similar terms to its 1998 Stock Option Plan (collectively referred to as the “Stock Option Plans”), as described below.  Generally, all options terminate ninety days after a change in control of the Company.

 

Stock Option Plans

The Stock Option Plans provide for the issuance of both qualified (incentive) and non-qualified stock options to employees, officers, directors, consultants and independent contractors of the Company.  Qualified stock options may be granted at an exercise price equal to the fair market value per share of the Company's common stock on the date of grant.  Non-qualified stock options may be granted at an exercise price not less than eighty-five percent of the fair market value per share of the Company's common stock on the date of grant.  Each option granted will be exercisable for a term not more than ten years after the date of grant, and may be fully vested at the date of grant.

 

Directors' Plan

Each non-employee director will receive an option to purchase 50,000 shares of common stock.  The options of non-employee directors will be exercisable according to the Stock Option Plans, except that options granted under the Directors' Plan may not be exercised more than five years after the date of grant.

 

|                                                                     |   | Six months ended

June 30, 2005                        |                            | Six months ended

June 30, 2004 |
|--------------------------------------------------------------------------|--------|--------------------------------------------------------|---------------------------------|---------------------------------|
|                                                                     |   |  

Shares                                         | Weighted Average Exercise Price |                            |  

Shares | Weighted Average Exercise Price |
|  

Outstanding at beginning of period                               |   |  

 

 

500,000                        |  

 

 

$0.65   |                            |  

 

 

500,000 |  

 

 

$0.65 |
| Granted                                                                  |   | --                                                     | --                              |                            | -- | -- |
| Exercised                                                                |   | --                                                     | --                              |                            | -- | -- |
| Lapsed or

cancelled                                                     |   |  

--                                             |  

--                      |                            |  

-- |  

-- |
| Outstanding at end of period                                             |   |  

500,000                                        |  

$0.65                   |                            |  

500,000 |  

$0.65 |
| Options exercisable at end of period                                     |   |  

 

500,000                                |                            |                            |  

 

500,000 |   |
|  

Options available for future grant                               |   |  

 

 

600,000                        |                            |                            |  

 

 

600,000 |   |
| Weighted average minimum fair value of options granted during the period |   |  

 

 

 

 

 

$0.517 |                            |                            |  

 

 

 

 

 

$0.517 |   |

 

 

7

 

----

 

**Twin Faces East Entertainment Corporation**

**(a Development Stage Company)**

**Notes to Unaudited Financial Statements**

 

**Note 8- Stock options (continued)**

The Company accounts for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, under which no compensation cost for stock options is recognized for stock options awards granted at or above fair market value.  Had compensation expense for the Company's Stock Option Plan been determined based upon fair values at the grant dates for awards under those plans in accordance with Statement of Financial Accounting Standards No. 123 (“SFAS 123”) “Accounting for Stock-Based Compensation”, the Company's net loss available to common stockholders would have been increased to the pro forma amounts indicated below.  Additional stock option awards are anticipated in future years.

 

|                                        |   | Six months ended

June 30, 2005 |   | Six months ended

June 30, 2004 |
|---------------------------------------------|--------|---------------------------------|--------|---------------------------------|
| Net loss available

To common stockholders: |   |                            |   |                            |
|  

As reported                         |   |  

$(221,775)              |   |  

$(454,643)              |
|  

Pro Forma                           |   |  

$(221,775)              |   |  

$(454,643)              |

 

The weighted average minimum fair value of options granted during the three years in the period ended March 31, 2005, estimated on the date of grant were determined using the Black-Scholes option-pricing model and the following assumptions: dividend yield of 0%, expected volatility of 109%, risk-free interest rate range of 5.81% to 6.09% depending on the grant date, and an expected life of five years.

 

The following table presents summarized information about stock options outstanding as of June 30, 2005.

 

|                                            |   |  

Options Outstanding                           |                                                |  

Options Exercisable                             |
|-------------------------------------------------|--------|-------------------------------------------------------|-----------------------------------------------------|---------------------------------------------------------|
|  

 

 

 

Exercise Prices |   |  

 

 

Number Outstanding at 6/30/05 |  

Weighted Average Remaining Contractual Life |  

 

 

Weighted Average Exercise Price |   |  

 

 

Number Outstanding at 6/30/05 |  

 

Weighted Average Exercise Price |
|                                            |   |                                                  |                                                |                                                    |   |   |   |
| $0.25                                           |   | 300,000                                               | 1.25 years                                          | $0.25                                                   |   | 300,000 | $0.25 |
|                                            |   |                                                  |                                                |                                                    |   |   |   |
| $1.00                                           |   | 200,000                                               | 1.60 years                                          | $1.25                                                   |   | 200,000 | $1.25 |

 

**Note 9- Commitments and contingencies**

 

The Company has entered into employment contracts with certain officers.  The contracts are for a period of five years each.  In consideration, the officers have agreed that they would not directly or indirectly compete against the Company for a period of one year following termination of employment.

 

 

8

 

----

 

**Twin Faces East Entertainment Corporation**

**(a Development Stage Company)**

**Notes to Unaudited Financial Statements**

 

**Note 9- Commitments and contingencies (continued)**

 

During the six months ended June 30, 2005, the Company estimated federal and state payroll taxes of $35,216 related to stock issuances to officers.  The Company did not record the accrual of payroll taxes.

 

On September 30, 2004, the Company entered into a “Writer Development Agreement” with an individual whereby the individual will perform writing services specific to a single project in exchange for $2,500 upon receipt of funding equal to or greater than $2,000,000 from the sale of the project and a one-time stock issuance of 10,000 shares of the Company's $.001 par value common stock.  During the six months ended June 30, 2005, the Company issued the 10,000 shares.

 

On October 15, 2004, the Company entered into a distribution agreement with Lights Up Ministries, Inc. a Connecticut not for profit corporation to distribute its “Sunday in Manhattan” musical. Per the agreement, the Company will pay the producer 20% of collections after all distribution costs. The terms of the agreement commence on the date of signing and shall continue in perpetuity.

 

On November 10, 2004, the Company entered into a consulting agreement with an individual to provide consulting services valued at $100,000, related to the promotion and sale of productions produced by the Company. Per the Agreement, the Company has also agreed to issue to the individual 175,000 shares of its $.001 par value restricted stock no later than January 10, 2005. The agreement is valid from the date of signing until the termination date of May 31, 2005.  During the six months ended June 30, 2005, the Company issued the 175,000 shares.

 

**Note 10**-**Related party transactions**

 

The Company does not lease or rent any property.  Physical facilities are provided at minimal charge by a director.  Such costs are immaterial to the financial statements and, accordingly, have not been reflected therein.  The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities.  If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests.  The Company has not formulated a policy for the resolution of such conflicts. 

 

9

 

----

 

FORWARD-LOOKING STATEMENTS

 

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

 

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words.  These forward-looking statements present our estimates and assumptions only as of the date of this report.  Except for 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 our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.  The factors impacting these risks and uncertainties include, but are 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; and       |
| **•** | operational inefficiencies in distribution or other systems.    |

 

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Factors That May Affect Our Plan of Operation” in this document.

 

**Item 2. Plan of Operation**

 

**Overview**

 

Twin Faces was incorporated on December 5, 1997 under the laws of the State of Delaware and reincorporated under the laws of the State of Nevada on June 17, 1998.  We are in the development stage as a producer and developer of entertainment properties.  Our products include documentary film footage of Dr. Albert Einstein and feature film and television scripts.  A summary of our properties is as follows:

 

 

10

 

----

 

*Einstein Properties*

 

The Einstein Properties are the result of Dr. Smolanoff's acquisition of the films from Peter A. Buckey.  Peter A. Buckey, the son of one of Albert Einstein's oldest and closest friends, provides a rare insight into Albert Einstein's private life, opinions, and foibles that are now folded into unique and rare videos. We own original 16mm film footage of rare moments such as the family vacation when Einstein wrote that fateful letter to Franklin D. Roosevelt that led to the Manhattan Project. Peter was Einstein's driver, and companion initiating extensive dialogue, keeping copious notes, and storing and recording priceless memories.

 

*“Pages From A Rabbit Journal”TM*

 

“Pages From A Rabbit Journal”(, a children's book and future film script was created by Dr. Smolanoff, our Chairman. The story is of The Rabbit Family's adventures in their travels through the forest with many character developments along the path of their journey. The story has been turned into a series of twenty-two minute animated video episodes, each a cliff-hanger and with a positive children's message.

 

*“The Town That Arrested Santa Claus”TM*

 

“The Town That Arrested Santa Claus”(.  A fully illustrated children's story with a merry cast of Christmas characters in the newly discovered village of Forgottenville. Children of all ages will delight in this unique classic tale, rich with the true meaning and tradition of Christmas. Santa and Forgottenville's citizens are almost tricked by Dr. S. Neak, until a young child comes to Santa's rescue. This is anticipated to become a Christmas classic and will be available in book, CD and may become a television animated special.

 

*“Hidden Treasures of the World”TM*

 

This is a series of one hour, made for television specials, showcasing specific geographic locations in the world where billion dollar plus treasure discoveries were made. The first documentary “St. Lavra” from Kiev Russia is complete and ready for distribution.

 

*“A Real Man”*

 

 “A Real Man” is a story of a band of African American brothers, growing up in the ghetto with hard choices to be made.  The lead character needs to decide the future of his unborn child with his girlfriend- giving up the ways of the street or to let them both (mother & child) go and allow them to grow up as he did- fatherless.  This script was written by Johnnie King, Director of Film Development of the Company. This project has been reviewed with various outside funding sources and is a project in negotiation process with the Company.  Actual production will not commence until we have sufficient capital for production and marketing. 

 

*“Sunday In Manhattan”*

 

“Sunday in Manhattan” is a DVD version of the Broadway Play by the same name.  It is a new and original live action, feature length, sound and talking motion Product in color, recorded originally in the English language, telling a complete and continuous story of Billy Sunday the “baseball evangelist”, with all necessary dialogue, music, lyrics and sound effects.  

 

*“The Call of the Wild”*

 

 “The Call of the Wild” is a 13 episode made for TV series of certain chapters from the famous book written by Jack London of the same name.  It is the stories of the early settlers in the Alaska and Canadian 

 

11

 

----

 

wilderness and their struggles with nature and the elements.  We have had negotiation discussions with the owners of the series who are looking for funding to advance the series to 26 weeks for a full TV season and sell or license the production.  Given the cost of the development, we see this as a second tier project looking for outside financing and we do not consider it likely in our production development schedule in the foreseeable future.

 

***Music Duplication and Distribution Agreement***

 

On October 20, 2003, we entered into a Music Duplication and Distribution Agreement with Pro Image, Inc. (“PI”) a New York corporation, relating to the duplication and distribution of a music, narrated CD titled “The Town That Arrested Santa Claus” (“Santa”), written by Michael Smolanoff, President of the Company, and owned by the Company. PI agreed to duplicate and place into distribution a CD of Santa and provide all services and personnel necessary and appropriate to render such duplication services; and all materials required for the scheduled duplication and delivery of the completed CD. PI agreed to provide the following services related to the program:

 

| A. | CD cover and script and/or lyrics as provided by us |  
B.

Packaging, marketing and sales in English (only)

 
C.

Best efforts distributing through associates and contacts in USA (only)

 

The term of the agreement commenced on October 20, 2003 and will continue for a period of five years.

We agreed to split Adjusted Gross Income equally (50/50) with PI.  As of June 30, 2005, we have not received any income from this agreement.

 

***Writer Development Agreement***

 

On September 20, 2004, we entered into a Writer Development Agreement with Damian Lanfranchi, wherein Mr. Lanfranchi agreed to perform writing services for our proposed Einstein Project.  Conditioned upon Mr. Lanfranchi's full performance, we agreed to compensate Mr. Lanfranchi with a one-time advance against royalty payments of $2,500 upon receipt of funding equal to or greater than $2 million from any source, a one-time stock issuance of 10,000 shares of our common stock and royalty payments of 5% of the net profits received if a motion picture is made and sold, and/or a DVD/video released, and/or a book is published based on Mr. Lanfranchi's work.  Royalty fees will be paid at the end of each quarter after receipt of monies and offset against the advance of $2,500.  On March 3, 2005, we issued the 10,000 shares to Mr. Lanfranchi.

 

***Distribution Agreement- Sunday In Manhattan***

 

On October 15, 2004, we entered into a Distribution Agreement with Lights Up Ministries Inc., a Connecticut not for profit Corporation, (“Producer”) with reference to the live musical production presently entitled “Sunday in Manhattan” (the “Product”) and available on DVD.  As the Distributor, we have the right to edit the Product in order to meet market specifications and requirements such as censorship and broadcast standards in countries within the Territory (consists of universe including, without limitation, all territories, commonwealths and possessions, and ships and airlines flying the flag or any country included therein).  Additionally, we have the exclusive right to distribute, exhibit, exploit, market, televise, advertise, publicize, distribute trailers and promotional materials, enter into commercial tie-ups and merchandising agreements, use,change, and translate into any language, create foreign versions, change titles, authorize exhibition, use of trademarks and names and logos, make copies in any form of media or medium, broadcast and telecast including internet sales, extract promotional segments for viewing, use of voices and music, to use talent and writers names and likenesses, to add credits, and to allow commercial broadcasts to sell advertising and inset other announcements.  The term of the agreement commenced on October 15, 2004 and will continue in 

 

12

 

 

perpetuity.  We will be entitled to collect all monies payable in connection with the Rights under any sub-distribution agreement whenever such monies are payable.  All gross revenues will be disbursed as follows: 1) As Distributor, we will deduct and retain from any collections an amount equal to all out-of-pocket distribution expenses incurred in connection with the Product; 2) the Producer will earn as Producer's fee a percentage of all monies payable in connection with our exercise of the rights granted in the agreement, in the percentage amount equal to 20% of the remaining amount after our deductions for out-of-pocket distribution expenses; and 3) all collections remaining after the deductions set forth above shall be payable to us.  As of June 30, 2005, we have not generated any revenues from this property.

 

We have yet to generate revenues from operating activities and there is a substantial going concern issue as to whether we will ever be able to produce and market our films and generate sufficient, if any, revenues to satisfy our working capital requirements.  Since inception we have been dependent on the sale of our equity securities and loans from affiliates to satisfy our working capital requirements.  We continue to have a working capital deficiency that raises substantial concern regarding our ability to continue as a going concern.

 

**Plan of Operation**

 

During the next twelve months we plan to focus our efforts on our development and production of our properties described above.  

 

We have finished “The Town That Arrested Santa Claus”, a fully illustrated children's story book narrative in animation, with the assistance of Pro Image, Inc.  We are working to have this fully illustrated children's story in distribution for Christmas 2005.  Additionally, we are currently working on our Einstein documentary with several distributors and hope to have a release in the fourth quarter of 2005. 

 

***Satisfaction of our cash obligations for the next 12 months.***Our plan of operation has been stalled by our lack of cash. Under our current plan of operation we will be required to generate at least $800,000 (minimal cash requirement) to continue in operation for the next 12 months. We have entered into an investment agreement and promissory note with Johnnie King, Director of Film Development of the Company, for the investment of $8,000,000 in combination of preferred stock and debt.  We have also entered into an investment agreement with Michael Smolanoff, President of the Company, wherein he agreed to make a $4,000,000 equity investment in the Company upon settlement of a lawsuit in his favor.  We are anticipating receipt of the funds by the end of September 2005.  If and when we receive the funds we will file a Form 8-K.

 

**Going Concern**

 

The consolidated financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern.  The Company's cash position may be inadequate to pay all of the costs associated with production and marketing.  Management intends to use borrowings and security sales to mitigate the effects of its cash position, however no assurance can be given that debt or equity financing, if and when required will be available.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue existence. 

 

***Summary of any product research and development that we will perform for the term of our plan of operation.***We do not anticipate performing any significant product research and development under our plan of operation. 

 

 

13

 

 

***Expected purchase 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. 

 

***Significant changes in the number of employees.***In addition to our officers and directors we have 2 employees and have a consulting agreement with one individual. We are dependent upon Michael Smolanoff, President of the Company, Stan Teeple, VP and Secretary/Treasurer, Bruce Taffet, Director, and Johnny King, Director of Film Development.  None of the employees work full time but devote whatever time is necessary for them to assist in the operations of the Company.  Therefore, we will need to hire full time operational staff as our operations commence.  In the event we are successful in obtaining additional debt or equity, which will provide us with the cash to develop an entertainment product, then in that event we will be required to hire at least 2 additional full time staff members.  The consultant has worldwide connections and networking contacts indevelopment and project distribution in the family entertainment business and provides us consulting services for the development and distribution of our intellectual properties in particular for our projects “The Town That Arrested Santa”, and “Einstein, the Real Man”.   

 

**Liquidity and Capital Resources**

 

***Investment Agreement and Promissory Note***

 

On June 20, 2003, we entered into an Investment Agreement with Johnnie King, our Director of Film Development.  On September 29, 2003, we executed a new Investment Agreement with Mr. King to extend the funding dates that we previously agreed on in the June 20th agreement.  On November 16, 2004, we amended that agreement to extend the funding dates until September 29, 2005.  Pursuant to the terms of the agreement, Mr. King will make a direct $4,000,000 cash investment as purchase of series C preferred stock.  Within 30 days of funding we will issue 1,000,000 shares of our series C preferred stock to Mr. King.  The stock will carry conversion rights to common on an annual basis the first week of the funding month each year commencing the month of funding, for a period of 4 years according to the formula below.

 

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

 

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

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

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

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

 

We will issue a 5% cash dividend on the principle amount of the unconverted preferred 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 the following:

 

Option 1- Average prior 30 days closing price on current quoted exchange or quotation service so the market value of the common stock issued is one million five hundred thousand dollars ($1,500,000).  For example, if the funding date is September 29, 2005, and if the 30-day average quoted closing price is $1 per 

 

14

 

 

share on September 29, 2006, Mr. King will receive 1,500,000 shares of common stock for his 250,000 shares of preferred stock for a valuation conversion of 6 common shares for each preferred share.

 

Option 2- The stock may be converted at a conversion ratio of 2 common shares for each preferred share.  For example, if the funding date is September 29, 2005, on September 29, 2006 we may convert the 250,000 shares of preferred stock to 500,000 shares of common stock in the Company.

 

On June 20, 2003, we executed a Promissory Note with Johnnie King, our Director of 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 the note.  On November 16, 2004, we amended that agreement to extend the funding date until September 29, 2005 and the due date is on or before five years from the funding date.  Pursuant to the note we promise to pay to the order of Johnnie King the sum of $4,000,000 together with interest thereon at 10% per annum as prescribed below.  The sum and interest shall be paid in the following manner:

 

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 our option 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 of the principal amount in cash and appropriate pro-rata interest as prescribed above.

 

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.

 

***Investment Agreement/Preferred Stock Purchase***

 

On November 11, 2003, we executed an Investment Agreement/Preferred Stock Purchase with Michael Smolanoff, Ph.D., our President, wherein he agreed to make a direct cash investment into the Company as a result of proceeds from his pending Bronx County New York legal action (“lawsuit”).  The first funding date of the investment will be no later than 30 days after the first receipt of funds from the lawsuit and the final funding date shall be no later than 30 days after the final payment from the lawsuit.  The amount of the investment is the lesser of four million dollars ($4,000,000) or fifty percent (50%) of the total amount received from the lawsuit.  Within 30 days of the first funding date, we will issue 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 basis the first week of thefunding 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 the following dates:

 

One year from first funding date, conversion of 250,000 shares preferred stock to common stock,

Two years from first funding date, conversion of 250,000 shares preferred stock to common stock,

Three years from final funding date, conversion of 250,000 shares preferred stock to common stock,

 

15

 

 

Four years from final funding date, conversion of 250,000 shares preferred stock to common stock.

 

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

 

Option 1-        Average prior 30 days closing price on current quoted exchange so that market value of the common issued is one million five hundred thousand dollars.  For example, if funding date is September 29, 2005, and if the 30-day average quoted closing price is $1 per share on September 29, 2006, Dr. Smolanoff would receive 1,500,000 shares of common stock for his 250,000 shares of preferred stock for a valuation conversion of 6 common shares for each preferred share.

 

Option 2-        The stock may be converted at a conversion ratio of 2 common shares for each preferred share.  For example, if funding date is September 29, 2005, on September 29, 2006 we may convert the 250,000 shares of preferred stock to 500,000 shares of common stock.

 

We also agreed to issue a 5% cash dividend on the principle amount of the unconverted 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 is the ability to obtain additional capital through additional equity and/or debt financing. We do not anticipate enough positive internal operating cash flow until such time as we can generate substantial revenues from fees earned as a result of our documentary films of Dr. Albert Einstein and feature film and television scripts, which may take the next few years to fully realize.  In the event we cannot obtain the necessary capital to pursue our strategic plan, we may have to cease or significantly curtail our operations. This would materially impact our ability to continue operations.

 

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

 

Over the next twelve months we believe that existing capital and anticipated funds from operations will not be sufficient to sustain operations and planned expansion. Consequently, we will be required to seek additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities. No assurance can be made that such financing would be available, and if available it may take either the form of debt or equity. In either case, the financing could have a negative impact on our financial condition and our stockholders.

 

We anticipate incurring operating losses over the next twelve months.  Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of 

 

16

 

 

the risks, expenses and difficulties frequently encountered by companies in their early stage of development.  Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continue to develop and produce projects, respond to competitive developments, and attract, retain and motivate qualified personnel.  There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

 

**Off-Balance Sheet Arrangements**

 

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

 

**FACTORS THAT MAY AFFECT OUR PLAN OF OPERATION**

 

***Twin Faces has historically lost money and losses may continue in the future, which may cause us to curtail operations.***

 

Since our inception we have incurred a net loss of $5,821,941 and at June 30, 2005 we had a stockholder's deficit of $4,072,396.  Future losses are likely to occur, as we are dependent on spending money to pay for our operations. No assurances can be given that we will be successful in reaching or maintaining profitable operations.  Accordingly, we may experience liquidity and cash flow problems. If our losses continue, our ability to operate may be severely impacted.

 

***Twin Faces will need to raise additional capital or debt funding to sustain operations.***

 

We will require additional capital to sustain operations and we may need access to additional capital or additional debt financing to establish revenues.  In addition, to the extent that we have a working capital deficit and cannot offset the deficit from profitable sales we may have to raise capital to repay the deficit and provide more working capital to permit growth in revenues. We have substantially curtailed our operations in anticipation of receiving $8 million pursuant to an investment agreement and promissory note with Johnnie King, Director of Film Development.  We cannot be assured that financing whether from external sources or related parties will be available if needed or on favorable terms. Our inability to obtain adequate financing will result in the need to reduce the pace of business operations.  

 

Our independent auditors have added an explanatory paragraph to their audit opinions issued in connection with our financial statements for the years ended December 31, 2004 and December 31, 2003, which states that the financial statements raise substantial doubt as to our ability to continue as a going concern. Our ability to make operations profitable or obtain additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We expect to be able to continue operations for twelve months based on funds from our operations and from the investment agreement and promissory note with Johnnie King for an investment of $8,000,000 in combination of preferred stock and debt.  Also, from an investment agreement with Michael Smolanoff for an investment of up to $4,000,000upon settlement of a lawsuit in his favor.  If we do not receive the funds, as referred, we may not be able to continue operations for twelve months.

 

***We are subject to a working capital deficit, which means that our current assets on December 31, 2004 and June 30, 2005 were not sufficient to satisfy our current liabilities and, therefore, our ability to continue operations is at risk.***

 

17

 

 

We had a working capital deficit for the year ended December 31, 2004 and for the quarter ended June 30, 2005, which means that our current liabilities exceeded our current assets on December 31, 2004 by $3,833,221 and by $3,586,496 on June 30, 2005.  Current assets are assets that are expected to be converted to cash within one year and, therefore, may be used to pay current liabilities as they become due. Our working capital deficit means that our current assets on December 31, 2004 and on June 30, 2005 were not sufficient to satisfy all of our current liabilities on those dates.  If our ongoing operations do not begin to provide sufficient profitability to offset the working capital deficit, we may have to raise capital or debt to fund the deficit or curtail future operations.

 

***Our common stock is deemed to be a low priced “Penny Stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.***

 

Our common stock is deemed to be a "penny stock" as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934.  These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. 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); or

**•**

In 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.

 

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

 

***We could fail to attract or retain key personnel, which could be detrimental to our operations.***

 

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

 

**Item 3. Controls and Procedures.**

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods.  As of the end of the period covered by this Annual Report, Michael Smolanoff, our Chief Executive Officer, and Stanely L. Teeple, our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, Dr. Smolanoff and Mr. Teeple concluded that our disclosure 

 

18

 

 

controls and procedures are effective. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

**PART II- OTHER INFORMATION**

 

**Item 1.**

**Legal Proceedings.**

 

None.

 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

 

None.

 

**Item 3.**

**Defaults Upon Senior Securities.**

 

None.

 

**Item 4.**

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

 

None.

 

**Item 5.**

**Other Information.**

 

None.

 

**Item 6.**

**Exhibits.**

 

10.1

Music Duplication and Distribution Agreement *(Incorporated by reference to Exhibit 10(c)  to Form 10-KSB filed on May 21, 2004)*

10.2

Distribution Agreement			- Sunday in Manhattan *(Incorporated by reference to Exhibit 10.1 to Form 10-KSB filed on February 23, 2005)*

10.3

Writer Development Agreement with Damian Lafranchi *(Incorporated by reference to Exhibit 10.3 to Form 10-KSB filed on February 23, 2005)*

31.1*

Certification of Michael Smolanoff Pursuant to Section 302 of the Sarbanes-Oxley Act

31.2*

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

32.1*

Certification of Michael Smolanoff Pursuant to Section 906 of the Sarbanes-Oxley Act			

32.2*

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

* Filed herewith

 

 

 

 

 

 

 

19

 

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TWIN FACES EAST ENTERTAINMENT CORPORATION

(Registrant)

 

By: */s/Stanley L. Teeple*

 
 
Stanley L. Teeple, Chief Financial Officer

 
(On behalf of the registrant and as

 
 
principal financial officer)

 
 

Date: August 4, 2005

 

 

20

 

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