UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q


(Mark
One)





x        
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010


 ̈     
TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


FOR THE
TRANSITION PERIOD FROM __________ TO __________


COMMISSION
FILE NUMBER: 333-145871





PLATINUM STUDIOS,
INC.


(Name of
registrant in its charter)





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





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


(Address
of principal executive offices) (Zip Code)





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





Indicate by check mark whether the
registrant (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YesxNo ̈




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





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





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




The
number of shares of registrant’s common stock outstanding, as October 31, 2010
was 307,902,966.







PLATINUM
STUDIOS, INC.


INDEX





PART
      I: FINANCIAL INFORMATIONITEM
      1:
                
                FINANCIAL
      STATEMENTS (Unaudited)Consolidated
      Balance Sheets
                
                F-1Consolidated
      Statements of Operations
                
                F-3Consolidated
      Statements of Cash Flows
                
                F-4Notes
      to the Consolidated Financial Statements
                
                3ITEM
      2:
                
                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                
                24ITEM
      3 :
                
                QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                
                32ITEM
      4:
                
                CONTROLS
      AND PROCEDURES
                
                33PART
      II: OTHER INFORMATIONItem
      1
                
                LEGAL
      PROCEEDINGS
                
                34ITEM 1A :
                
                RISK
      FACTORS
                
                35ITEM
      2
                
                UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                
                35ITEM
      3
                
                DEFAULTS
      UPON SENIOR SECURITIES
                
                36ITEM
      4
                
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                
                36ITEM
      5
                
                OTHER
      INFORMATION
                
                N/AITEM
      6:
                
                EXHIBITS
                
                36SIGNATURES
                
                36


2


PART I– FINANCIAL
INFORMATION




ITEM
1. FINANCIAL STATEMENTS





PLATINUM
STUDIOS, INC


CONSOLIDATED
BALANCE SHEETS





September 30, 2010
                      
                      
                      December 31, 2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      486,246
                      
                      
                      $
                      152,067Restricted
      cash
                      
                      
                      97,549
                      
                      
                      
                      127,890Accounts
      receivable, net
                      
                      
                      13,503
                      
                      
                      
                      23,817Prepaid
      expenses
                      
                      
                      33,500
                      
                      
                      
                      156,132Other
      current assets
                      
                      
                      2,008,981
                      
                      
                      
                      863,234Total
      current assets
                      
                      
                      2,639,779
                      
                      
                      
                      1,323,140Property
      and equipment, net
                      
                      
                      63,317
                      
                      
                      
                      122,295Investment
      in film library
                      
                      
                      12,837,051
                      
                      
                      
                      11,492,135Assets
      held for sale
                      
                      
                      16,000
                      
                      
                      
                      40,000Character
      rights, net
                      
                      
                      -
                      
                      
                      
                      45,652Deposits
      and other
                      
                      
                      340,909
                      
                      
                      
                      298,118Total
      assets
                      
                      $
                      15,897,056
                      
                      
                      $
                      13,321,340





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


F-1


PLATINUM
STUDIOS, INC


CONSOLIDATED
BALANCE SHEETS (continued)





September 30, 2010
                  
                  
                  December 31, 2009(Unaudited)LIABILITIES AND SHAREOLDERS'
      DEFICITCurrent
      liabilities:Accounts
      payable
                  
                  $
                  1,290,468
                  
                  
                  $
                  1,324,780Accrued
      expenses and other current liabilities
                  
                  
                  1,404,318
                  
                  
                  
                  1,325,304Deferred
      revenue
                  
                  
                  3,697,283
                  
                  
                  
                  1,681,653Short
      term notes payable
                  
                  
                  12,437,374
                  
                  
                  
                  12,541,105Related
      party payable
                  
                  
                  285,000
                  
                  
                  
                  -Related
      party notes payable, net of debt discount
                  
                  
                  3,750,000
                  
                  
                  
                  3,103,973Warrant
      derivative liability
                  
                  
                  1,446,000
                  
                  
                  
                  1,201,000Accrued
      interest - related party notes payable
                  
                  
                  151,159
                  
                  
                  
                  182,003Capital
      leases payable, current
                  
                  
                  19,036
                  
                  
                  
                  48,406Total
      current liabilities
                  
                  
                  24,480,638
                  
                  
                  
                  21,408,224Capital
      leases payable, non-current
                  
                  
                  -
                  
                  
                  
                  11,627Total
      liabilities
                  
                  
                  24,480,638
                  
                  
                  
                  21,419,851Commitments
      and ContingenciesShareholders'
      Deficit:Common
      stock, $.0001 par value; 500,000,000 shares authorized; 290,859,613 and
      271,255,629 issued and outstanding, respectively
                  
                  
                  29,086
                  
                  
                  
                  27,126Common
      stock subscribed
                  
                  
                  715,125
                  
                  
                  
                  732,196Additional
      paid in capital
                  
                  
                  16,469,390
                  
                  
                  
                  15,237,067Accumulated
      deficit
                  
                  
                  (25,797,183
                  )
                  
                  
                  (24,094,900
                  )Total
      shareholders' deficit
                  
                  
                  (8,583,582
                  )
                  
                  
                  (8,098,511
                  )Total
      liabilities and shareholders' deficit
                  
                  $
                  15,897,056
                  
                  
                  $
                  13,321,340





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


F-2


PLATINUM
STUDIOS, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





Three Months Ended
                    
                    
                    Nine Months EndedSeptember 30,
                    
                    
                    September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      revenue
                    
                    $
                    150,645
                    
                    
                    $
                    66,159
                    
                    
                    $
                    2,248,693
                    
                    
                    $
                    222,250Costs
      and expenses:Cost
      of revenues (excluding depreciation expense)
                    
                    
                    14,378
                    
                    
                    
                    22
                    
                    
                    
                    493,960
                    
                    
                    
                    10,022Operating
      expenses
                    
                    
                    489,774
                    
                    
                    
                    373,695
                    
                    
                    
                    1,904,360
                    
                    
                    
                    1,410,466Research
      and development
                    
                    
                    101,307
                    
                    
                    
                    54,748
                    
                    
                    
                    240,246
                    
                    
                    
                    139,796Stock
      option expense
                    
                    
                    153,600
                    
                    
                    
                    -
                    
                    
                    
                    262,295
                    
                    
                    
                    100,947Depreciation
      and amortization
                    
                    
                    6,886
                    
                    
                    
                    35,977
                    
                    
                    
                    84,840
                    
                    
                    
                    117,372Total
      costs and expenses
                    
                    
                    765,945
                    
                    
                    
                    464,442
                    
                    
                    
                    2,985,701
                    
                    
                    
                    1,778,603Operating
      loss
                    
                    
                    (615,300
                    )
                    
                    
                    (398,283
                    )
                    
                    
                    (737,008
                    )
                    
                    
                    (1,556,353
                    )Other
      income (expense):Gain
      on disposition of assets
                    
                    
                    55,200
                    
                    
                    
                    -
                    
                    
                    
                    249,220
                    
                    
                    
                    -Gain
      (loss) on settlement of debt
                    
                    
                    27,492
                    
                    
                    
                    (28,517
                    )
                    
                    
                    109,949
                    
                    
                    
                    453,451Gain
      (loss) on valuation of derivative liability
                    
                    
                    525,000
                    
                    
                    
                    (1,210,000
                    )
                    
                    
                    (245,000
                    )
                    
                    
                    (1,210,000
                    )Interest
      expense
                    
                    
                    (121,279
                    )
                    
                    
                    (525,557
                    )
                    
                    
                    (1,079,444
                    )
                    
                    
                    (874,855
                    )Bad
      debt expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (4,750
                    )Total
      other income (expense):
                    
                    
                    486,413
                    
                    
                    
                    (1,764,074
                    )
                    
                    
                    (965,275
                    )
                    
                    
                    (1,636,154
                    )Loss
      before provision for income taxes
                    
                    
                    (128,887
                    )
                    
                    
                    (2,162,357
                    )
                    
                    
                    (1,702,283
                    )
                    
                    
                    (3,192,507
                    )Provision
      for income taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Loss
      from continuing operations
                    
                    
                    (128,887
                    )
                    
                    
                    (2,162,357
                    )
                    
                    
                    (1,702,283
                    )
                    
                    
                    (3,192,507
                    )Loss
      from discontinued operations
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (52,354
                    )Net
      loss
                    
                    $
                    (128,887
                    )
                    
                    $
                    (2,162,357
                    )
                    
                    $
                    (1,702,283
                    )
                    
                    $
                    (3,244,861
                    )Basic
      and diluted loss per share:Loss
      from continuing operations
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )Loss
      from discontinued operations
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (0.00
                    )Net
      loss per share
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )Basic
      and diluted weighted average shares
                    
                    
                    289,778,706
                    
                    
                    
                    268,318,558
                    
                    
                    
                    282,777,651
                    
                    
                    
                    265,010,009





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


F-3


PLATINUM
STUDIOS, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)





Nine Months Ended September 30,2010
                  
                  
                  2009Cash
      flows from operating activitiesNet
      loss
                  
                  $
                  (1,702,283
                  )
                  
                  $
                  (3,244,861
                  )Adjustments
      to reconcile net loss to net cash provided (used) from operating
      activities:Depreciation
                  
                  
                  39,188
                  
                  
                  
                  50,854Amortization
                  
                  
                  45,652
                  
                  
                  
                  68,478Gain
      on diposal of assets
                  
                  
                  (249,220
                  )
                  
                  
                  -Gain
      on settlement of debt
                  
                  
                  (109,949
                  )
                  
                  
                  (453,451
                  )Equity
      instruments issued for services
                  
                  
                  395,890
                  
                  
                  
                  197,939Amortization
      of debt discount
                  
                  
                  729,088
                  
                  
                  
                  513,444Loss
      on valuation of derivative liability
                  
                  
                  245,000
                  
                  
                  
                  1,210,000Decrease
      (increase) in operating assets:Restricted
      cash
                  
                  
                  30,342
                  
                  
                  
                  (492,694
                  )Accounts
      receivable
                  
                  
                  10,313
                  
                  
                  
                  (11,702
                  )Investment
      in film library
                  
                  
                  (1,204,668
                  )
                  
                  
                  (13,612,242
                  )Prepaid
      expenses and other current assets
                  
                  
                  (1,065,906
                  )
                  
                  
                  (258,187
                  )Increase
      (decrease) in operating liabilities:Accounts
      payable and related party payables
                  
                  
                  405,636
                  
                  
                  
                  209,402Accrued
      expenses
                  
                  
                  178,038
                  
                  
                  
                  534,782Accrued
      interest
                  
                  
                  (30,844
                  )
                  
                  
                  170,811Deferred
      revenue
                  
                  
                  2,015,630
                  
                  
                  
                  59,792Net
      cash flows used in operating activities
                  
                  
                  (268,093
                  )
                  
                  
                  (15,057,635
                  )Cash
      flows from investing activitiesProceeds
      from sales of property and equipment and intangibles
                  
                  
                  309,800
                  
                  
                  
                  -Investment
      in property and equipment
                  
                  
                  (16,788
                  )
                  
                  
                  (2,956
                  )Net
      cash flows proviced (used) in investing activities
                  
                  
                  293,012
                  
                  
                  
                  (2,956
                  )Cash
      flows from financing activitiesProceeds
      from non-related loans
                  
                  
                  1,034,853
                  
                  
                  
                  14,411,320Proceeds
      from related party loans
                  
                  
                  7,500
                  
                  
                  
                  1,103,534Payments
      on non-related party loans
                  
                  
                  (1,278,832
                  )
                  
                  
                  (22,313
                  )Payments
      on related party loans
                  
                  
                  (90,562
                  )
                  
                  
                  (539,243
                  )Payments
      on capital leases
                  
                  
                  (86,248
                  )
                  
                  
                  (14,559
                  )Issuance
      of common stock, net of offering costs
                  
                  
                  722,549
                  
                  
                  
                  120,000Net
      cash flows provided by financing activities
                  
                  
                  309,260
                  
                  
                  
                  15,058,739Net
      increase (decrease) in cash
                  
                  
                  334,179
                  
                  
                  
                  (1,852
                  )Cash,
      at beginning of year
                  
                  
                  152,067
                  
                  
                  
                  42,023Cash,
      at end of period
                  
                  $
                  486,246
                  
                  
                  $
                  40,171Nine Months Ended June 30,2010
                  
                  
                  2009Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                  
                  $
                  337,632
                  
                  
                  $
                  50,113Equity
      instrument issued for debt discount
                  
                  $
                  -
                  
                  
                  $
                  1,649,000Warrant
      derivative liability
                  
                  $
                  -
                  
                  
                  $
                  934,000Non-cash
      financing activities related to the acquisition of Wowio,
    LLC
                  
                  $
                  -
                  
                  
                  $
                  1,618,355Stock
      issued as payments of notes payable, accounts payable and accrued
      interest
                  
                  $
                  53,773
                  
                  
                  $
                  813,857





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


F-4


PLATINUM
STUDIOS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2010


(UNAUDITED)





(
      1 )
            Description of
      business





Nature of operations – The
Company controls a library consisting of more than 4,000 characters and is
engaged principally as a comics-based entertainment company adapting characters
and storylines for production in film, television, publishing and all other
media.




Platinum
Studios, LLC was formed and operated as a California limited liability company
from its inception on November 20, 1996 through September 14, 2006. On September
15, 2006, Platinum Studios, LLC filed with the State of California to convert
Platinum Studios, LLC into Platinum Studios, Inc., (“the Company”, “Platinum”) a
California corporation. This change to the Company structure was made in
preparation of a private placement memorandum and common stock offering in
October, 2006.




On
December 10, 2008, the Company purchased Long Distance Films, Inc. to facilitate
the financing and production of the film currently titled “Dead of Night”. The
Company’s license to the underlying rights of the “Dead of Nights” characters
was due to expire unless principle photography commenced on a feature film by a
date certain. The Company had previously licensed these rights to Long Distance
Films, Inc. The Company then purchased Long Distance Films, Inc., with its
production subsidiary, Dead of Night Productions, LLC in order to expedite and
finalize the financing of the film with Standard Chartered Bank and Omnilab Pty,
Ltd., currently holding debt of $11,250,481 and $485,000, respectively. Long
Distance Films, Inc.’s only assets are investments in its subsidiaries related
to the film production of “Dead of Night” and has no liabilities or equity other
than 100 shares of common stock wholly owned by Platinum Studios, Inc. No
consideration was paid by the Company for the acquisition of Long Distance
Films, Inc. and no value was assigned to the transaction, which would be
eliminated on consolidation.




(
      2 )
            Basis of financial
      statement presentation and
consolidation





The
      accompanying unaudited financial statements of the Company have been
      prepared in accordance with United States generally accepted accounting
      principles for interim financial statements and with the instructions to
      Form 10-Q and Article 10 of Regulation S-X, promulgated by the Securities
      and Exchange Commission (the “SEC”). Accordingly, they do not include all
      of the information and disclosures required by United States generally
      accepted accounting principles for complete financial statements. The
      consolidated financial statements include the financial condition and
      results of operations of our wholly-owned subsidiary, Long Distance Films,
      Inc. and its two wholly-owned subsidiaries Dead Of Night Investment
      Company, LLC and Dead Of Night Production Company, LLC. Intercompany
      balances and transactions have been eliminated in consolidation. In the
      opinion of management, all adjustments (consisting of normal recurring
      adjustments) considered necessary for a fair presentation have been
      included. The results of operations for interim periods are not
      necessarily indicative of the results that may be expected for the fiscal
      year. The financial statements should be read in conjunction with the
      Company’s December 31, 2009 financial statements and accompanying notes
      included in the Company’s Annual Report on Form 10-K (the “Annual
      Report”). All terms used but not defined elsewhere herein have the
      meanings ascribed to them in the Annual
Report.


3


The
      balance sheet at December 31, 2009 has been derived from the audited
      financial statements at that date but does not include all the information
      and footnotes required by United States generally accepted accounting
      principles for complete financial
statements.





(
      3 )
            Going
      concern





The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred significant losses
which have resulted in an accumulated deficit of $25,797,183 as of September 30,
2010. The Company plans to seek additional financing in order to execute its
business plan, but there is no assurance the Company will be able to obtain such
financing on terms favorable to the Company or at all. These items raise
substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects related to recovery and classification of assets, or
the amounts and classifications of liabilities that might result from the
outcome of this uncertainty.





(
      4 )
            Summary of significant
      accounting policies





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





Revenue recognition- Revenue
from the licensing of characters and storylines (“the properties”) owned by the
Company are recognized in accordance with FASB guidance where revenue is
recognized when the earnings process is complete. This is considered to have
occurred when persuasive evidence of an agreement between the customer and the
Company exists, when the properties are made available to the licensee and the
Company has satisfied its obligations under the agreement, when the fee is fixed
or determinable and when collection is reasonably assured.




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


4


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




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




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




Use of estimates - The
      preparation of financial statements in conformity with accounting
      principles generally accepted in the United States requires management to
      make estimates and assumptions that affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities at the
      date of financial statements, and the reported amounts of revenues and
      expenses during the reporting periods. Actual results could differ from
      those estimates.





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





Restricted cash –These
      funds are related to the draws on a production loan for “Dead of Night”
      and can only be used for production expenses related to this
      film.





Concentrations of risk -
      Financial instruments that potentially subject the Company to
      concentrations of credit risk consist primarily of uninsured cash
      balances. The Company maintains its cash balances with what management
      believes to be a high credit quality financial institution. At times,
      balances within the Company’s cash accounts may exceed the Federal Deposit
      Insurance Corporation (FDIC) limit of $250,000. During the three and nine
      months ended September 30, 2010 and 2009, the Company had customer
      revenues representing a concentration of the Company’s total revenues. For
      the three months ended September 30, 2010, two customers represented
      approximately 66% and 13% of total revenues, respectively. For the nine
      months ended September 30, 2010, one customer represented approximately
      91% of total revenues. For the three and nine months ended September 30,
      2009, one customer represented approximately 94% of total
      revenues.





Derivative Instruments –Platinum Studios entered into a Credit Agreement on May 6, 2009,
      with Scott Rosenberg, the Company’s CEO and Chairman, in connection with
      the issuance of two secured promissory notes and an unsecured promissory
      note. Two warrants were issued to Scott Rosenberg in connection with the
      issuance of various promissory notes as of May 6, 2009 and June 3,
      2009.


5


A
      description of the notes is as
follows:





May 6, 2009 Secured
      Debt - The May 6, 2009 Secured Debt has an aggregate principal
      amount of $2,400,000, and is convertible into shares of the Company’s
      common stock at a conversion price of $0.048. The May 6, 2009 Secured Debt
      bears interest at the rate of eight percent per annum. Upon the occurrence
      of an event of default, the May 6, 2009 Secured Debt bears interest at the
      rate of ten percent per annum. Interest is payable upon the expiration of
      the notes on May 6, 2010. The original principal amount of $2,400,000 is
      to be repaid upon the expiration of the notes on May 6, 2010. The notes
      were subsequently extended thru November 30, 2010. The May 6, 2009 Secured
      Debt has the following features that can be considered to be embedded
      derivatives: (i) the conversion feature of the notes, (ii) a holder’s
      right to force a redemption of the Notes upon an event of default, and,
      (iii) the increased interest rate upon an event of default. In connection
      with this debt the Company also issued warrants to purchase 25,000,000
      shares of the Company’s common stock for $0.048 per share. The debt is
      secured by all the assets of the
Company,





June 3, 2009 Secured
      Debt - The June 3, 2009 Secured Debt has an aggregate principal
      amount of $1,350,000, and is convertible into shares of the Company’s
      common stock at a conversion price of $0.038. The June 3, 2009 Secured
      Debt bears interest at the rate of eight percent per annum. Upon the
      occurrence of an event of default, the June 3, 2009 Secured Debt bears
      interest at the rate of ten percent per annum. Interest is payable upon
      the expiration of the notes on June 3, 2010. The original principal amount
      of $1,350,000 is to be repaid upon the expiration of the notes on June 3,
      2010. The notes were subsequently extended thru November 30, 2010. The
      Company may prepay the notes at any time. The June 3, 2009 Secured Debt
      has the following features that can be considered to be embedded
      derivatives: (i) the conversion feature of the notes, (ii) a holder’s
      right to force a redemption of the Notes upon an event of default, and,
      (iii) the increased interest rate upon an event of default. In connection
      with this debt the Company also issued warrants to purchase 14,062,500
      shares of the Company’s common stock for $0.038 per share. The debt is
      secured by all the assets of the
Company.





June 3, 2009 Unsecured
      Debt - The June 3, 2009 Unsecured Debt has an aggregate principal
      amount of $544,826, and is convertible into shares of the Company’s common
      stock at a conversion price of $0.048. The June 3, 2009 Unsecured Debt
      bears interest at the rate of eight percent per annum. Upon the occurrence
      of an event of default, the June 3, 2009 Unsecured Debt bears interest at
      the rate of ten percent per annum. The Company is required to make
      payments of $29,687 per month. The monthly payments are to be applied
      first to interest and second to principal. The remaining principal amount
      is to be repaid upon the expiration of the note on June 3, 2010. The
      Company may prepay the note at any time. The June 3, 2009 Unsecured Debt
      has the following features that can be considered to be embedded
      derivatives: (i) the conversion feature of the notes, (ii) a holder’s
      right to force a redemption of the Notes upon an event of default, and,
      (iii) the increased interest rate upon an event of default. The note
      balance was paid in full on April 1,
2010.


6


In
      determining the fair market value of the embedded derivatives, we used
      discounted cash flows analysis. We also used a binomial option pricing
      model to value the warrants issued in connection with these debts. The
      Company determined the initial fair value of the embedded derivatives to
      be $715,904 and the initial fair value of the warrants to be $934,000 as
      of June 30, 2009. The embedded derivatives have been accounted for as a
      debt discount that will be amortized over the one year life of the notes.
      Amortization of the debt discount has resulted in $0 and a $729,088
      increase to interest expense for the three and nine months ended September
      30, 2010, respectively.





A
      description of the Warrants is as
follows:





1)
      The May 6, 2009 warrant entitles the holder to purchase up to 25,000,000
      shares of the Company’s common stock at a price of $0.048 per share. The
      May 6, 2009 warrant is exercisable up until May 6, 2019. The May 6, 2009
      warrant shall expire and no longer be exercisable upon a change in
      control. The exercise price and the number of shares underlying the
      warrant are subject to anti-dilution adjustments from time to time if the
      Company issues common stock at below the exercise price at that time for
      the warrants.





2)
      The June 3, 2009 warrant entitles the holder to purchase up to 14,062,500
      shares of the Company’s common stock at a price of $0.038 per share. The
      June 3, 2009 warrant is exercisable up until June 3, 2019. The June 3,
      2009 warrant shall expire and no longer be exercisable upon a change in
      control. The exercise price and the number of shares underlying the
      warrant are subject to anti-dilution adjustments from time to time if the
      Company issues common stock at below the exercise price at that time for
      the warrants.





In
      determining the fair market value of the Warrants, we used the binomial
      model with the following significant assumptions: exercise price $0.038 –
      $0.048, trading prices $0.01 - $0.08, expected volatility 124.4%, expected
      life of 60 months, dividend yield of 0.00% and a risk free rate of 3.59%.
      The fair value of these warrants has been recorded as part of the debt
      discount as discussed above as well as being recognized as a derivative
      liability. The derivative liability is re-valued at each reporting date
      with changes in value being recognized as part of current earnings. This
      revaluation for the three and nine months ended September 30, 2010
      resulted in a gain of $525,000 and a loss of $245,000,
      respectively.





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





Fixed assets
              
              UsefulLivesFurniture
      and fixtures
              
              7
      yearsComputer
      equipment
              
              5
      yearsOffice
      equipment
              
              5
      yearsSoftware
              
              3
      yearsLeasehold
      improvements
              
              Shorter
      of lease term or useful economic
life


7


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





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





Fair Value of Financial
Instruments – The Company follows a framework for consistently measuring
fair value under generally accepted accounting principles, and the disclosures
of fair value measurements. The framework provides a fair value hierarchy to
classify the source of the information.





The fair
value hierarchy is based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure
fair value and include the following:





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





Level 2 –
Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.





Level 3 –
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.




The
carrying amounts reported in the balance sheets for cash on hand, receivables,
payables and accrued expenses approximate their fair values due to the short
term nature of these financial instruments.




Investment in Film Library –
Investment in film library includes the unamortized costs of one completed,
unreleased film. The capitalized costs include all direct production and
financing costs, capitalized interest and production overhead. The costs of the
film productions are amortized using the individual-film-forecast-method,
whereby the costs are amortized and participations and residual costs are
accrued in proportion that current year’s revenues bears to managements’
estimate of ultimate revenue at the beginning of the current year expected to be
recognized from exploitation, exhibition or sale of the film. Ultimate revenue
includes estimates over a period not to exceed ten years following the date of
initial release.


8


Film
development costs are stated at the lower of amortized cost or estimated fair
value. The valuation of the film development costs are reviewed on a title by
title basis, when an event or change in circumstances indicates the fair value
of the film is less than the unamortized cost. The fair value of the film is
determined using managements’ future revenue and cost estimates in an
undiscounted cash flow approach. Additional amortization is recorded in an
amount by which unamortized costs exceed the estimated fair value of the film.
Estimates of future revenue involve measurement uncertainty and it is therefore
possible that reductions in the carry costs of film development costs may be
required as a consequence of changes in managements’ future revenue
estimates.





Purchased intangible assets and
      long-lived assets– Intangible assets are capitalized at
      acquisition costs and intangible assets with definite lives are amortized
      on the straight-line basis. The Company periodically reviews the carrying
      amounts of intangible assets and property. Long-lived assets, such as
      property and equipment, and purchased intangibles subject to amortization,
      are reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable.
      Recoverability of assets to be held and used is measured by a comparison
      of the carrying amount of an asset to the estimated undiscounted future
      cash flows expected to be generated by the asset. If the carrying amount
      of an asset exceeds its estimated future cash flows, the impairment charge
      to be recognized is measured by the excess of the carrying amount over the
      fair value of the asset.





Advertising costs -
      Advertising costs are expensed the later of when incurred or when the
      advertisement is first run. For the three and nine months ended September
      30, 2010 and 2009, advertising expenses were
$0.





Research and development-
Research and development costs, primarily character development costs and design
not associated with an identifiable revenue opportunity, are charged to
operations as incurred. For the three and nine months ended September 30, 2010,
research and development expenses were $101,307 and $240,249, respectively. For
the three and nine months ended September 30, 2009, research and development
expenses were $54,748 and $139,796, respectively.





Income taxes– Deferred taxes
are provided on a liability method whereby deferred tax assets are recognized
for deductible temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in the tax laws and rates on the date of enactment.





Net income/(loss) per share –
Basic income per share is computed by dividing net income (loss) available to
common stockholders by the weighted average number of shares of common stock
outstanding during the periods, excluding shares subject to repurchase or
forfeiture. Diluted income per share increases the shares outstanding for the
assumption of the vesting of restricted stock and the exercise of dilutive stock
options and warrants, using the treasure stock method, unless the effect is
anti-dilutive.


9


Recently issued accounting
pronouncements – In January 2010, the FASB issued Accounting Standards
Update 2010-06, “Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements.”This guidance amends the disclosure requirements related
to recurring and nonrecurring fair value measurements and requires new
disclosures on the transfers of assets and liabilities between Level 1 (quoted
prices in active market for identical assets or liabilities) and Level 2
(significant other observable inputs) of the fair value measurement hierarchy,
including the reasons and the timing of the transfers. Additionally, the
guidance requires a roll forward of activities on purchases, sales, issuance and
settlements of the assets and liabilities measured using significant
unobservable inputs (Level 3 fair value measurements). The guidance became
effective for the reporting period beginning January 1, 2010, except for the
disclosure on the roll forward activities for Level 3 fair value measurements,
which will become effective for the reporting period beginning January 1, 2011.
Other than requiring additional disclosures, adoption of this new guidance will
not have a material impact on our financial statements.





The FASB
issued guidance under Accounting Standards Update (“ASU”) No. 2010-08,
“Technical Corrections to Various topics. The ASU eliminates certain
inconsistencies and outdate provisions and provides needed clarifications. The
changes are generally nonsubstantive nature and will not result in pervasive
changes to current practice. However, the amendments that clarify the guidance
on embedded derivatives and hedging (ASU Subtopic 815-15) may cause a change in
the application of the Subtopic. The clarifications of the guidance on embedded
derivatives and hedging (Subtopic 815-15) are effective for fiscal years
beginning after December 15, 2009.




On
February 24, 2010, the FASB issued Accounting Standards Update (ASU) 2010-09,
Amendments to Certain Recognition and Disclosure Requirements. The amendments to
the FASB Accounting Standards Codification (TM) (ASC) 855, Subsequent Events,
included in the ASU make a number of changes to the existing requirements of ASC
855. The amended guidance was effective on its issuance date, except that the
use of the issued date by conduit bond obligors will be effective for interim or
annual periods ending after June 15, 2010. As a result of the amendments, SEC
filers that file financial statements after February 24, 2010 are not required
to disclose the date through which subsequent events have been
evaluated.




On March
5, 2010, the FASB issued Accounting Standards Update (ASU) 2010-11, Scope
Exception Related to Embedded Credit Derivatives. The ASU address questions that
have arisen in practice about the intended breath of the embedded credit
derivative scope exception in FASB ASC 815. The amended guidance clarifies that
the scope exception applies to contracts that contain an embedded credit
derivative that is only in the form of subordination of one financial instrument
to another. The amended guidance is effective at the beginning of an entity’s
first fiscal quarter beginning after June 15, 2010 and will not have any impact
on our financial statements.


10




(
      5)
            Other Current
      Assets




Other
current assets consist primarily of receipts on “Dead of Night” from sales in
foreign territories. These receipts are held in a collection account and managed
by a collection agency pursuant to a collection account maintenance agreement.
These receipts are remitted on a regular basis to Standard Chartered Bank as pay
down on the production loan per the collection account maintenance
agreeement.




( 6 )
            Property
      and equipment





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





September 30, 2010(Unaudited)
                  
                  
                  December 31, 2009Property
      and equipment, cost:Office
      equipment
                  
                  $
                  12,920
                  
                  
                  $
                  13,207Furniture
      and fixtures
                  
                  
                  78,335
                  
                  
                  
                  118,140Computer
      equipment
                  
                  
                  76,103
                  
                  
                  
                  149,387Software
                  
                  
                  74,251
                  
                  
                  
                  93,149Leasehold
      improvements
                  
                  
                  5,200
                  
                  
                  
                  20,557246,809
                  
                  
                  
                  394,440Less
      accumulated depreciation
                  
                  
                  (183,492
                  )
                  
                  
                  (272,145
                  )Net
      property and equipment
                  
                  $
                  63,317
                  
                  
                  $
                  122,295





(
      7 )
            Character
      rights





Character
rights are recorded at cost. The Top Cow rights agreement expired in June, 2010.
The Company continues to have rights on certain projects that are in development
for an additional year and potentially beyond if certain milestones are
achieved.


11


(
      8 )
            Short-term and
      long-term debt




Short-term debt
                                      
                                      September 30,
                                        2010
                                        (Unaudited)
                                      
                                      
                                      December 31,
                                        2009Loan
      payable to officer - uncollateralized; interest only at 5%. Due upon
      demand.
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,405Loan
      payable to shareholder - uncollateralized; payable in monthly installments
      of interest only at 12%. Due upon demand.
                                      
                                      
                                      100,000
                                      
                                      
                                      
                                      100,000Loan
      payable to shareholder - uncollateralized; payable in monthly installments
      of interest only at 12%. Due upon demand.
                                      
                                      
                                      25,000
                                      
                                      
                                      
                                      25,000Loan
      payable to shareholder - uncollateralized; payable in monthly installments
      of interest only at 12%. Due July 1, 2011.
                                      
                                      
                                      169,897
                                      
                                      
                                      
                                      253,283Bank
      line of credit - uncollateralized; payable in monthly installments of 5%
      of principal plus interest
                                      
                                      
                                      37,665
                                      
                                      
                                      
                                      50,000Loan
      payable to shareholder - uncollateralized; payable in monthly installments
      of interest only at 12%. Due upon demand.
                                      
                                      
                                      3,328
                                      
                                      
                                      
                                      28,328Loan
      payable to shareholder - uncollateralized; payable in monthly installments
      of interest only at 12%. Due upon demand.
                                      
                                      
                                      10,000
                                      
                                      
                                      
                                      10,000Loan
      payable to shareholder - uncollateralized; payable in monthly installments
      of interest only at 12%. Due upon demand.
                                      
                                      
                                      10,000
                                      
                                      
                                      
                                      10,000Loan
      payable to shareholder - uncollateralized; payable in monthly installments
      of interest only at 12%. Due upon demand.
                                      
                                      
                                      46,003
                                      
                                      
                                      
                                      89,780Loan
      payable to shareholder - uncollateralized; payable in monthly installments
      of interest only at 12%. Due upon demand.
                                      
                                      
                                      300,000
                                      
                                      
                                      
                                      300,000


12


(
      8 )
            Short-term and
      long-term debt (continued)





Short-term debt
                  
                  September 30,
                    2010
                    (Unaudited)
                  
                  
                  December 31,
                    2009Loan
      payable to officer - The interest rate is 8.00%. Balance plus accrued
      interest is due June 3, 2011. Secured by all the assets of the
      Company
                  
                  
                  1,350,000
                  
                  
                  
                  1,350,000Loan
      payable to officer - payable in monthly installments of $29,688 per month.
      The interest rate is 8.00%. Balance due June 3, 2010.
                  
                  
                  -
                  
                  
                  
                  81,657Loan
      payable to officer - The interest rate is 8.00%. Balance plus accrued
      interest is due May 6, 2011. Secured by all the assets of the
      Company
                  
                  
                  2,400,000
                  
                  
                  
                  2,400,000Standard
      Chartered Bank note payable of $13,365,000 loan collateralized by all
      rights in the sales agency agreement and the distribution agreement in
      connection with the film "Dead of Night". Interest rate of Libor plus 2%,
      due April 1, 2011 at the latest.
                  
                  
                  11,250,481
                  
                  
                  
                  10,945,932Omnilab
      Pty Ltd - 10% funded of gap investment of $4,850,000 for production "Dead
      of Night," to be recovered from gross receipts in North America. Interest
      rate of 4.09%, due April 1, 2011 at the latest.
                  
                  
                  485,000
                  
                  
                  
                  485,000DON
      Tax Credits, LLC - collateralized by the Louisiana motion picture
      investor, tax credits issued by the State of Louisiana and by the Parish
      of Jefferson, Louisiana. Interest rate of 7%. Due October 1,
      2009.
                  
                  
                  -
                  
                  
                  
                  243,782Discounts
      on related party debt
                  
                  
                  -
                  
                  
                  
                  (729,088
                  )Total
      short-term debt
                  
                  
                  16,187,374
                  
                  
                  
                  15,645,079less:
      related party notes payable, net of discounts
                  
                  
                  3,750,000
                  
                  
                  
                  3,103,974Total
      short-term notes payable
                  
                  $
                  12,437,374
                  
                  
                  $
                  12,541,105


13


(
      9 )
            Operating and capital
      leases





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





On July
10, 2006, the Company entered into an operating agreement for the lease of real
property located in Los Angeles, California. The agreement has a five year term,
commencing September 1, 2006 and ending August 31, 2011. The Company is
currently in default of its lease agreement and has abandoned the leasehold as
of June 30, 2010.





On May
18,2010, the Company entered into an operating agreement for the lease of
real property located in Los Angeles, CA. The agreement has a three year term
commencing on June 15, 2010 and ending on June 15, 2013.





Rent
expense under non-cancelable operating leases was $17,366 and $202,173 for the
three and nine months ended September 30, 2010, respectively.





The
Company has various non-cancelable leases for computers, software, and
furniture, at a cost of $195,434 and $264,248 at September 30, 2010 and December
31, 2009, respectively. The capital leases are secured by the assets which
cannot be freely sold until the maturity date of the lease. Accumulated
amortization for equipment under capital lease totaled $151,252 and $174,569 at
September 30, 2010 and December 31, 2009, respectively. The Company is currently
in default on a majority of its lease agreements and as a result, all future
payments are immediately due. The Company is negotiating settlements on the
leases in default.





At
September 30, 2010, future minimum rental payments required under non-cancelable
capital leases that have initial or remaining terms in excess of one year are as
follows:





Years Ending December 31,
                              
                              Capital Leases2010
                              
                              $
                              8,0002011
                              
                              
                              12,0002012
                              
                              
                              -Thereafter
                              
                              
                              -Total
      minimum obligations
                              
                              
                              20,000Less
      amounts representing interest
                              
                              
                              964Present
      value of net minimum obligations
                              
                              
                              19,036Less
      current portion
                              
                              
                              -Long-term
      portion
                              
                              $
                              19,036


14


(
      10 )
            Commitments and
      Contingencies





As of
September 30, 2010, seven unsecured short term notes totaling $494,331 have
exceeded their maturity date, are due upon demand, and could be considered in
default. The Company is currently negotiating with the note holders to extend
the maturity dates of these notes.





As of
September 30, 2010, the Company’s liabilities included a payable to the Internal
Revenue Service in the amount of $216,772 associated with payroll tax
liabilities for the second, third and fourth quarters of 2008, along with
associated penalties and interest for late payment. The Company has been making
monthly payments of $10,000 towards this balance and plans to liquidate the
balance in full from receipts due on the sale of its Drunkduck.com
website.





The
Company’s legal proceeds are as follows:




Transcontinental Printing v.
Platinum.On or about July 2, 2009, Transcontinental Printing, a New York
corporation, filed suit against the Company in Superior Court, County of Los
Angeles (Case No. SC103801) alleging that the Company failed to pay for certain
goods and services provided by Transcontinental in the total amount of $106,593.
The Company believes that Transcontinental failed to mitigate damages and,
therefore, the amount owed is in dispute. The Company settled the suit agreeing
to pay $92,000 plus interest at 10% per annum with a payment schedule of $2,000
per month for five months and then increasing to $10,000 per month until paid in
full. The company has made all scheduled payments to date. As of September 30,
2010, the accounts payable of the Company included a balance of $64,945 for this
settlement.




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


15




TBF Financial Inc. v.
Platinum. On or about August 20, 2009, TB Financial, Inc. filed suit
against the Company in the Superior Court of California, County of Los Angeles
(Case No. BC420336) alleging that the Company breached a written lease agreement
for computer equipment and seeking damages of $42,307 plus interest at a rate of
ten percent (10%) per annum from July 7, 2008. On November 19, 2009, TB
Financial filed a Request for Default against the Company; however, the Company
turned the matter over to Company counsel to oppose any requests for default. On
February 24, 2010, a default judgment was entered against the Company in the
amount of $51,506 and the Company received a request for Writ of Execution on
March 1, 2010. On May 19, 2010, the Company settled with TBF Financial for
$30,000 with three payments of $1,000 due on May 19, 2010 and June and July 15,
2010 with a final payment of $27,000 on July 31, 2010. In July, 2010, the
Company made the final payment of $27,000 on the settlement.




Rustemagic v. Rosenberg &
Platinum Studios. On or about June 30, 2009, Ervin Rustemagic filed suit
against the Company and its President, Scott Rosenberg, in the California
Superior Court for the County of Los Angeles (Case No. BC416936) alleging that
the Company (and Mr. Rosenberg) breached an agreement with Mr. Rustemagic
thereby causing damages totaling $125,000. According to the Complaint, Mr.
Rustemagic was to receive 50% of producer fees paid in connection with the
exploitation of certain comics-based properties. Rustemagic claims that he
became entitled to such fees and was never paid. The Company and Rosenberg deny
that Rustemagic is entitled to the gross total amount of money he is seeking.
The matter has now been removed to arbitration. The Company has not reserved any
payable for this proceeding.




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




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


16


(
      11 )
            Investment in
      Films





Investment
in films includes the unamortized costs of one completed, unreleased film. The
capitalized costs include all direct production and financing costs, capitalized
interest and production overhead. The costs of the film productions are
amortized using the individual-film-forecast-method, whereby the costs are
amortized and participations and residual costs are accrued in proportion that
current year’s revenues bears to managements’ estimate of ultimate revenue at
the beginning of the current year expected to be recognized from exploitation,
exhibition or sale of the film. Ultimate revenue includes estimates over a
period not to exceed ten years following the date of initial
release.




Film
development costs are stated at the lower of amortized cost or estimated fair
value. The valuation of the film development costs are reviewed, when an event
or change in circumstances indicates the fair value of the film is less than the
unamortized cost. The fair value of the film is determined using managements’
future revenue and cost estimates in an undiscounted cash flow approach.
Additional amortization is recorded in an amount by which unamortized costs
exceed the estimated fair value of the film. Estimates of future revenue involve
measurement uncertainty and it is therefore possible that reductions in the
carry costs of film development costs may be required as a consequence of
changes in managements’ future revenue estimates.




As of
September 30, 2010, all of the investment in films is related to the “Dead of
Night” production. Based on management’s assessment of ultimate revenue and
anticipated release date of the film, the total film development cost of
$12,837,051 will be amortized during 2011.


17


(
      12 )
            Related party
      transactions





The
Company has an exclusive option to enter licensing of rights for agreements to
individual characters, subject to existing third party rights, within the RIP
Awesome Library of RIP Media, Inc., specific and only to those 404 Awesome
Comics characters currently owned and controlled by RIP Media, Inc, a schedule
of which has been provided to the Company. Rip Media, Inc is a related entity in
which Scott Rosenberg has the economic benefit. Such licensing option includes
all rights worldwide, not including print and digital comic publishing rights.
The ownership of the intellectual property in its entirety, including copyright,
trademark, and all other attributes of ownership including but not limited to
additional material created after a license agreement from Rip Media to Platinum
Studios, Inc (and however disbursed thereafter) shall be, stay and remain that
of Rip Media in all documents with all parties, including the right to revoke
such rights upon breaches, insolvency of the Company or insolvency of the
licensee (s) or others related to exploitation of the intellectual property, and
Platinum is obligated to state same in all contracts. In some cases, there are
some other limitations on rights. Any licensing of rights from Rip Media to the
Company is contingent upon and subject to Platinum’s due diligence and
acceptance of Chain of Title. Currently, we have the above exclusive right to
enter into agreements related to the licensing of motion picture rights and
allied/ancillary rights until the date upon which Platinum Studios CEO, Scott
Mitchell Rosenberg is no longer the Company s CEO and Chairman of the Board and
holds at least 30% of the outstanding capital stock of the Company. Rip Media
Inc retains the right on the above characters to enter directly into agreements
to license rights, negotiate and sign option agreements with other parties in so
far as Platinum is made aware of the agreement prior to its signing, and that
there is economic participation to Platinum in a form similar to its agreement
with Rip Media in general, and that if there is a material to change to the
formula, that Platinum’s Board of Directors may require specific changes to the
proposed agreement such that it conforms with other licenses from Rip Media made
from January 1, 2010 forward. If the material change is cured, then Rip’s rights
to enter into an agreement, still subject to its financial arrangement with
Platinum, remain the same. We do not have access to other characters, stories,
rights (including trademarks, trade names, url’s) controlled by Rosenberg or his
related entities. In regards to new acquisitions, including trademarks, Rip
Media must present to Platinum, for Platinum’s acquisition, any rights it
desires to acquire, and may only acquire if Platinum does not choose to acquire
(within 5 business days of notice), however this acquisition restriction on Rip
Media does not apply to any properties or trademarks or trade names or
copyrights or rights of any kind that Scott Rosenberg or any of his related
entities or rights to entities he may own or acquire or create that are, used to
be, or could be related in any fashion to Malibu Comics or Marvel Comics,
including trademarks and trade names that may be acquired by Rip Media or other
Rosenberg entities due to expiration or abandonment by Malibu, Marvel or other
prior owners of marks from other comics or rights related companies, or, such as
with trademarks, marks that may be similar only in name or a derivative of a
name, which Rip has the unfettered right to acquire and exploit without
compensation to Platinum. For the nine months ended September 30, 2010, RIP
Media, Inc. earned $475,000 under this arrangement of which $190,000 was paid in
cash and $285,000 was accrued.





Scott
Mitchell Rosenberg is attached and credited at his election as producer or
executive producer, without offset, to provide production consulting services to
the Company’s Customers (Customer) (including but not limited to production
companies, studios, financiers and any company related to filmed entertainment
or audio visual productions) on all audio visual productions through Scott
Mitchell Rosenberg Productions (another related entity which is often, in the
entertainment industry, referred to as a “loan-out” company) wholly owned or
controlled by Scott Mitchell Rosenberg or related entities. Rosenberg’s right is
absolute and not subject to restriction or offset by Company. Often, at the time
the Company enters into an agreement with a Customer, a separate contract is
entered into between the related entity and the Customer. In addition,
consulting services regarding development of characters and storylines may also
be provided to the Company by this related entity. Revenue would be paid
directly to the related entity by the Customer.


18


The
      Company entered into a Credit Agreement on May 6, 2009, with Scott
      Rosenberg, the Company’s CEO and Chairman, in connection with the issuance
      of two secured promissory notes and an unsecured promissory note. Two
      warrants were issued to Scott Rosenberg in connection with the issuance of
      various promissory notes as of May 6, 2009 and June 3, 2009. During the
      nine months ended September 30, 2010, the Company made principle payments
      to Scott Rosenberg on the unsecured debt in the amount of
      $73,266.





A
      description of the notes is as
follows:





May 6, 2009 Secured
      Debt - The May 6, 2009 Secured Debt has an aggregate principal
      amount of $2,400,000, and is convertible into shares of the Company’s
      common stock at a conversion price of $0.048. The May 6, 2009 Secured Debt
      bears interest at the rate of eight percent per annum. Upon the occurrence
      of an event of default, the May 6, 2009 Secured Debt bears interest at the
      rate of ten percent per annum. Interest is payable upon the expiration of
      the notes on May 6, 2010. The original principal amount of $2,400,000 is
      to be repaid upon the expiration of the notes on May 6, 2010. The notes
      were subsequently extended thru November 30, 2010. The May 6, 2009 Secured
      Debt has the following features that can be considered to be embedded
      derivatives: (i) the conversion feature of the notes, (ii) a holder’s
      right to force a redemption of the Notes upon an event of default, and,
      (iii) the increased interest rate upon an event of default. In connection
      with this debt the Company also issued warrants to purchase 25,000,000
      shares of the Company’s common stock for $0.048 per share. The debt is
      secured by all the assets of the
Company.





June 3, 2009 Secured
      Debt - The June 3, 2009 Secured Debt has an aggregate principal
      amount of $1,350,000, and is convertible into shares of the Company’s
      common stock at a conversion price of $0.038. The June 3, 2009 Secured
      Debt bears interest at the rate of eight percent per annum. Upon the
      occurrence of an event of default, the June 3, 2009 Secured Debt bears
      interest at the rate of ten percent per annum. Interest is payable upon
      the expiration of the notes on June 3, 2010. The original principal amount
      of $1,350,000 is to be repaid upon the expiration of the notes on June 3,
      2010. The notes were subsequently extended thru November 30, 2010. The
      Company may prepay the notes at any time. The June 3, 2009 Secured Debt
      has the following features that can be considered to be embedded
      derivatives: (i) the conversion feature of the notes, (ii) a holder’s
      right to force a redemption of the Notes upon an event of default, and,
      (iii) the increased interest rate upon an event of default. In connection
      with this debt the Company also issued warrants to purchase 14,062,500
      shares of the Company’s common stock for $0.038 per share. The debt is
      secured by all the assets of the
Company.





June 3, 2009 Unsecured
      Debt - The June 3, 2009 Unsecured Debt has an aggregate principal
      amount of $544,826, and is convertible into shares of the Company’s common
      stock at a conversion price of $0.048. The June 3, 2009 Unsecured Debt
      bears interest at the rate of eight percent per annum. Upon the occurrence
      of an event of default, the June 3, 2009 Unsecured Debt bears interest at
      the rate of ten percent per annum. The Company is required to make
      payments of $29,687.50 per month. The monthly payments are to be applied
      first to interest and second to principal. The remaining principal amount
      is to be repaid upon the expiration of the note on June 3, 2010. The
      Company may prepay the note at any time. The June 3, 2009 Unsecured Debt
      has the following features that can be considered to be embedded
      derivatives: (i) the conversion feature of the notes, (ii) a holder’s
      right to force a redemption of the Notes upon an event of default, and,
      (iii) the increased interest rate upon an event of default. The note
      balance was paid in full on April 1,
2010.


19


In
      determining the fair market value of the embedded derivatives, we used
      discounted cash flows analysis. We also used a binomial option pricing
      model to value the warrants issued in connection with these debts. The
      Company determined the initial fair value of the embedded derivatives to
      be $715,904 and the initial fair value of the warrants to be $934,000 as
      of June 30, 2009. The embedded derivatives have been accounted for as a
      debt discount that will be amortized over the one year life of the notes.
      Amortization of the debt discount has resulted in $0 and a $729,088
      increase to interest expense for the three and nine months ended September
      30, 2010, respectively.





A
      description of the Warrants is as
follows:





1)
      The May 6, 2009 warrant entitles the holder to purchase up to 25,000,000
      shares of the Company’s common stock at a price of $0.048 per share. The
      May 6, 2009 warrant is exercisable up until May 6, 2019. The May 6, 2009
      warrant shall expire and no longer be exercisable upon a change in
      control. The exercise price and the number of shares underlying the
      warrant is subject to anti-dilution adjustments from time to time if the
      Company issues common stock at below the exercise price at that time for
      the warrants.





2)
      The June 3, 2009 warrant entitles the holder to purchase up to 14,062,500
      shares of the Company’s common stock at a price of $0.038 per share. The
      June 3, 2009 warrant is exercisable up until June 3, 2019. The June 3,
      2009 warrant shall expire and no longer be exercisable upon a change in
      control. The exercise price and the number of shares underlying the
      warrant is subject to anti-dilution adjustments from time to time if the
      Company issues common stock at below the exercise price at that time for
      the warrants.





In
      determining the fair market value of the Warrants, we used the binomial
      model with the following significant assumptions: exercise price $0.038 –
      $0.048, trading prices $0.01 - $0.08, expected volatility 124.4%, expected
      life of 60 months, dividend yield of 0.00% and a risk free rate of 3.59%.
      The fair value of these warrants has been recorded as part of the debt
      discount as discussed above as well as being recognized as a derivative
      liability. The derivative liability is re-valued at each reporting date
      with changes in value being recognized as part of current earnings. This
      revaluation for the three and nine months ended September 30, 2010
      resulted in a gain of $525,000 and a loss of $245,000,
      respectively.


20


In June,
2010, the Company consummated a sale of its Drunkduck.com website to an
affiliate of Brian Altounian, President and Chief Operating Officer of the
Company. The sale includes all components of the website, all copyrights, trade
secrets, trademarks, trade names and all material contracts related to the
website’s operations. The selling price totaled $1,000,000 comprised of $500,000
in cash and $500,000 in future royalties. The Company has already received
$300,000 of the cash proceeds with the balance of $200,000 due October 28, 2010.
The Company will also receive payments equal to ten percent of Net Revenues
generated from the website until the $500,000 of royalties is received. The
Company retains partial ownership until the total selling price has been
received.





(
      13 )
            Shareholders
      equity





In March
2010, the Company issued to a consultant 183,000 shares of common stock for
$0.05/share which represented market value on the date of issuance totaling
$9,150. Related services represented a finders’ fee associated with the current
private placement with the value of the services charged to additional paid-in
capital.





In April
2010, the Company issued 15,143,924 in fulfillment of previously received common
stock subscriptions. The Company also issued 2,764,335 shares with a value of
$138,217 as payment for services and accrued wages. The Company issued an
additional 300,000 shares to Brian Altounian, the President of the Company, with
a value of $15,000 for salary due.




In
September, 2010, the Company issued to a consultant 1,212,725 shares of commons
stock for services performed. The issuance represented a market value of
$70,000.




As of
September 30, 2010, the Company had sold 14,302,500 shares related to a private
placement offering valued at $715,125. The related shares had not been issued at
September 30, 2010 and accordingly, the $715,125 value of the shares sold has
been included in Common Stock Subscribed at September 30, 2010.


21


(
      14 )
            Common stock
      equivalents





Warrants and options outstanding at
September 30, 2010 are summarized as follows:





Outstanding
                                                                
                                                                
                                                                ExercisableNumber
                                                                  Outstanding
                                                                
                                                                
                                                                Weighted
                                                                  Average
                                                                  Remaining
                                                                  Contractual Life
                                                                
                                                                
                                                                Weighted
                                                                  Average
                                                                  Exercise Price
                                                                
                                                                
                                                                Number
                                                                  Exercisable
                                                                
                                                                
                                                                Weighted
                                                                  Average
                                                                  Exercise PriceWarrants
      outstanding, December 31, 2009
                                                                
                                                                
                                                                41,958,600
                                                                
                                                                
                                                                
                                                                1.78
                                                                
                                                                
                                                                $
                                                                0.10
                                                                
                                                                
                                                                
                                                                41,958,600
                                                                
                                                                
                                                                $
                                                                0.10Granted
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Warrants
      outstanding, September 30, 2010
                                                                
                                                                
                                                                41,958,600
                                                                
                                                                
                                                                
                                                                1.78
                                                                
                                                                
                                                                $
                                                                0.10
                                                                
                                                                
                                                                
                                                                41,958,600
                                                                
                                                                
                                                                $
                                                                0.10As
      of September 30, 2010, no warrants have been exercised.Options
      outstanding December 31, 2009
                                                                
                                                                
                                                                19,085,000
                                                                
                                                                
                                                                
                                                                6.25
                                                                
                                                                
                                                                $
                                                                0.10
                                                                
                                                                
                                                                
                                                                18,547,190
                                                                
                                                                
                                                                $
                                                                0.10Granted
                                                                
                                                                
                                                                6,000,000
                                                                
                                                                
                                                                
                                                                4.03
                                                                
                                                                
                                                                
                                                                0.06
                                                                
                                                                
                                                                
                                                                6,237,810
                                                                
                                                                
                                                                
                                                                0.06Forfeited
                                                                
                                                                
                                                                (500,000
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (0.10
                                                                )
                                                                
                                                                
                                                                (500,000
                                                                )
                                                                
                                                                
                                                                (0.10
                                                                )Options
      outstanding September 30, 2010
                                                                
                                                                
                                                                24,585,000
                                                                
                                                                
                                                                
                                                                6.03
                                                                
                                                                
                                                                $
                                                                0.10
                                                                
                                                                
                                                                
                                                                24,285,000
                                                                
                                                                
                                                                $
                                                                0.10





(
      15 )
            Income
      taxes





Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in the tax laws and rates on the date of
enactment.




The Company recognizes tax benefits
from uncertain positions if it is "more likely than not" that the position is
sustainable, based upon its technical merits. The initial measurement of the tax
benefit is the largest amount of tax benefit that is greater than 50 percent
likely of being realized upon ultimate settlement with a taxing authority having
full knowledge of all relevant information.


22


The
Company, as a matter of policy, would record any interest and penalties
associated with uncertain tax positions as a component of income tax expense in
its statement of operations. There are no penalties accrued as of September 30,
2010, as the Company has significant net operating loss carry forwards, even if
certain of the Company’s tax positions were disallowed, it is not foreseen that
the Company would have to pay any taxes in the near future. Consequently, the
Company does not calculate the impact of interest or penalties on amounts that
might be disallowed.





(
      16 )
            Subsequent
      events





In
October, 2010, the Company issued 14,102,500 shares in fulfillment of previously
received commons stock subscriptions with at value of $705,125.





In
October, 2010 the Company issued 1,337,000 shares with a value of $66,850 which
represented a finders’ fee associated with the current private placement with
the value of the services charged to additional paid-in capital.





In
October, 2010 the Company issued 1,603,853 shares with a value of $80,193 in
settlement of debt.


23


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


FORWARD-LOOKING
STATEMENTS





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




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




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





GENERAL





We are a
comics-based entertainment company. We own the rights to a library of over 4,000
comic book characters, which we adapt and produce for film, television and all
other media. Our library contains characters in a full range of genre and
styles. With deals in place with film studios and media players, our management
believes we are positioned to become a leader in the creation of new content
across all media.





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





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


24


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




Set forth
below is a discussion of the financial condition and results of operations of
Platinum Studios, Inc. (the “Company”, “we”, “us,” and “our”) for the nine
months ended September 30, 2010 and 2009. The following discussion should be
read in conjunction with the information set forth in the consolidated financial
statements and the related notes thereto appearing elsewhere in this
report.





RESULTS
OF CONSOLIDATED OPERATIONS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009





Net
Revenue





Net
revenue for the three and nine months ended September 30, 2010 was $150,645 and
$2,248,693, respectively, as compared to $66,159 and $222,250 for the three and
nine months ended September 30, 2009. Currently the Company derives most of its
revenue from options to purchase rights and the purchase of rights to
properties. This type of revenue can vary significantly between quarters and
years. The net revenue for the three months ended September 30, 2010 was
primarily related to purchase of rights to properties for merchandising. The net
revenue for the nine months ended September 30, 2010 was primarily purchased
rights revenue from one customer as principle photography initiated on one of
the Company’s properties. The net revenue for the three and nine months ended
September 30, 2009 primarily represented purchased rights revenue from one
customer.





Cost
of revenues





For the
three and nine months ended September 30, 2010, costs of revenue were $14,378
and $493,960, respectively as compared to $22 and $10,022 for the three and nine
months ended September 30, 2009. The increase is primarily due to participation
fees to a related party, RIP Media, Inc. as discussed in the related party
transactions footnote.





Operating
expenses





Operating
expenses increased $116,079 or 31% for the three months ended September 30, 2010
to $489,774 as compared to $373,695 for the three months ended September 30,
2009. The increase was primarily related to increases of $5,989 in moving
expense related to the Company moving its office to a new location, $11,964 in
office expense as the Company digitized its legal documents and incurred
printing costs related to its new address, $14,645 in commission expense related
to new licensing revenues, $16,404 in accounting fees primarily related to a new
offering of Company stock, $64,817 in consulting fees as the Company brought in
two consultants to help with its strategic planning and operations and $42,131
in payroll taxes. These increases were offset by decreases in salary of $33,342
as the Company reduced its workforce and rent of $11,665 due to lower rent at
the Company’s new office.


25


Operating
expenses increased $493,894 or 35% for the nine months ended September 30, 2010
to $1,904,360 as compared to $1,410,466 for the nine months ended September 30,
2009. The increase was primarily related to increases of $24,459 in moving
expense related to the Company moving its office to a new location, $86,489 in
rent expense as the Company paid additional rent during the first six months of
2010 as it tried to work out its lease with Douglass Emmet, $41,789 in
commissions related to new licensing agreements, $75,000 in a write down of a
prepaid option, $212,918 in legal expense related to a percentage fee on due
licensing revenue received in the second quarter and $216,501 in consulting fees
as the Company brought in two consultants to help with its strategic planning
and operations. These increases were offset by decreases in salary of $208,425
as the company reduced its workforce and accounting and audit fees of
$20,074.





Research
and development





Research
and development costs increased $46,559 or 85% and $100,450 or 72% for the three
and nine months ended September 30, 2010, respectively. This increase was due to
increased salaries and one additional employee added to the development
group.





Stock
option expense





Stock
option expense for the three and nine months ended September 30, 2010 was
$153,600 and $262,295 respectively, as compared to $0 and $100,947 for the three
and nine months ended September 30, 2009. The expense for the three months ended
September 30, 2010 was related to new option grants compared to $0 for the three
months ended September 30, 2009. Stock option expense for the nine months ended
September 30, 2010 increased $161,348 to $262,295 as compared to $100,947 for
the nine months ended September 30, 2009, with $211,570 of the expense related
to new options granted.





Depreciation
and amortization





For the
three and nine months ended Sept 30, 2010 depreciation and amortization was
$6,886 and $84,840, respectively as compared to $35,977 and $117,372 for the
three and nine months ended September 30, 2009.





Gain
on disposition of assets





Gain on
disposition of assets for the three and nine months ended September 30, 2010 was
$55,200 and $249,220, respectively, as compared to $0 for the three and nine
months ended September 30, 2009. The gain for the three and nine months ended
September 30, 2010 was primarily related to receipt of funds for the sale of the
Company’s Drunkduck.com website to a related party.


26


Gain
(loss) on settlement of debt





The
company recorded a gain on settlement of debt of $27,492 and $109,949 for the
three and nine months ended September 30, 2010, respectively, as compared to a
loss of $28,517 for the three months ended September 30, 2009 and a gain of
$453,451 for the nine months ended September 30, 2009. The gain for the three
and nine months ended September 30, 2010 was primarily related to the settlement
of leases in default. The gain for the nine months ended September 30, 2009 was
due to the final payment issued to the Wowio former partners. This transaction
was paid in stock at a value less than the acquisition payable
remaining.





Gain
(loss) on derivative liability





The
Company recorded a gain on derivative liability of $525,000 for the three months
ended September 30, 2010 and a loss of $245,000 for the nine months ended
September 30, 2010, as compared to a loss of $1,210,000 for the three and nine
months ended September 30, 2009. The derivative liability, recorded in
connection with debts payable to the Company’s CEO during the three months ended
June 30, 2009, is re-valued at each reporting date with changes in value being
recognized as part of current earnings.





Interest
expense




For the
three and nine months ended September 30, 2010, interest expense was $121,279
and $1,079,444, respectively, as compared to $525,557 and $874,855 for the three
and nine months ended September 30, 2009. The decrease for the three months and
the increase of the nine months is primarily related to the timing of
amortization of debt discount recorded as interest expense in connection with
debts payable to the Company’s CEO during 2009.




As a
result of the foregoing, the net loss decreased by $2,033,470 for the three
months ended September 30, 2010 to $(128,887) and decreased by $1,542,578 for
the nine months ended September 30, 2010 to $(1,702,282) as compared to the same
periods in 2009.





LIQUIDITY
AND CAPITAL RESOURCES (UNAUDITED)





Platinum
Studios entered into a Credit Agreement on May 6, 2009, with Scott Rosenberg,
the Company’s CEO and Chairman, in connection with the issuance of two secured
promissory notes and an unsecured promissory note.


27


A
description of the notes is as follows:





May 6, 2009 Secured Debt -
The May 6, 2009 Secured Debt has an aggregate principal amount of $2,400,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The May 6, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the May 6,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on May 6, 2010. The original
principal amount of $2,400,000 is to be repaid upon the expiration of the notes
on May 6, 2010. The notes were subsequently extended thru November 30, 2010. The
May 6, 2009 Secured Debt has the following features that can be considered to be
embedded derivatives: (i) the conversion feature of the notes, (ii) a holder’s
right to force a redemption of the Notes upon an event of default, and, (iii)
the increased interest rate upon an event of default. In connection with this
debt the Company also issued warrants to purchase 25,000,000 shares of the
Company’s common stock for $0.048 per share. The debt is secured by all the
assets of the Company,





June 3, 2009 Secured Debt -
The June 3, 2009 Secured Debt has an aggregate principal amount of $1,350,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.038. The June 3, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on June 3, 2010. The original
principal amount of $1,350,000 is to be repaid upon the expiration of the notes
on June 3, 2010. The notes were subsequently extended thru November 30, 2010.
The Company may prepay the notes at any time. The June 3, 2009 Secured Debt has
the following features that can be considered to be embedded derivatives: (i)
the conversion feature of the notes, (ii) a holder’s right to force a redemption
of the Notes upon an event of default, and, (iii) the increased interest rate
upon an event of default. In connection with this debt the Company also issued
warrants to purchase 14,062,500 shares of the Company’s common stock for $0.038
per share. The debt is secured by all the assets of the Company.





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





Net cash
used by operations during the nine months ended September 30, 2010 was $268,093
as compared to $15,057,635 for the nine months ended September 30, 2009. The
reduction in the cash used by operations was primarily due to $1,204,668 used
for production costs associated with “Dead of Night” for the nine months ended
September 30, 2010 as compared to $13,612,242 for the nine months ended
September 30, 2009. Additional reductions in the cash used by operations were
related to an increase in deferred revenue of $2,015,630 for the nine months
ended September 30, 2010 as compared to an increase of $59,792 for the nine
months ended September 30, 2009. The deferred revenues are primarily related to
cash received on foreign sales of the film “Dead of Night” as deposits prior to
delivery of the film to the distributors. Additionally, cash flows used by
operations decreased as the Company generated $2.4 million in revenues for the
nine months ended September 30, 2010 as compared to $.2 million for nine months
ended September 30, 2009. These additional revenues allowed the company to come
closer to meeting its overhead obligations without addition of substantial
financing or equity investment in the Company.





Net cash
provided by investing activities was $293,012 for the nine months ended
September 30, 2010 as compared to cash used by investing activities for the nine
months ended September 30, 2009 of $2,956, primarily due to cash receipts
related to the sale of the Company’s Drunk Duck website.


28


Net cash
provided by financing activities was $309,260 for the nine months ended
September 30, 2010 as compared to $15,058,739 for the nine months ended
September 30, 2009. The reduction in cash provided by financing activities is
primarily attributed to less financing required for the production of the film
“Dead of Night” for the nine months ended September 30, 2010 of $1,034,853 as
compared to $14,411,320 for the nine months ended September 30, 2009. The
Company was also able to make payments of $1,278,832 on non-related party loans
for the nine months ended September 30, 2010 as compared to $22,313 for the nine
months ended September 30, 2009, primarily related to payments made on the
production loan for “Dead of Night” to Standard Chartered Bank from deposits
received on foreign sales.





At
September 30, 2010 the Company had cash balances of $486,246 and a restricted
cash balance of $97,549. Restricted cash will be used in the production of the
film “Dead of Night”. The Company will issue additional equity and may consider
debt financing to fund future growth opportunities and support operations.
Although the Company believes its unique intellectual content offers the
opportunity for significantly improved operating results in future quarters, no
assurance can be given that the Company will operate on a profitable basis in
2010, or ever, as such performance is subject to numerous variables and
uncertainties, many of which are out of the Company’s control.





The
Company has reduced its overhead by moving to smaller office space and
negotiating settlements on various leases. The Company’s current cash
requirements are generally related to overhead and development costs of
approximately $250,000 per month. The company has been able to piggyback on its
success in achieving licensing revenues on one of its properties associated with
a major studio release for summer of 2011, by exploiting its retained rights.
The Company generated $100,000 during the third quarter 2010 in new licensing
revenues on the property, but there is no assurance the Company will be able to
continue to achieve new licensing revenues. The Company plans to utilize
approximately $1.8M of a projected $5M potential offering, although there is no
assurance the offering will be completed or the S-1 filing declared effective.
The Company also anticipates that it will be able to extend its secured debt
until such time as it has the resources to repay the debt, although there is no
assurance the secured lender, Scott Rosenberg, the Company’s CEO and Chairman,
will continue to extend the debt and to defer interest payments when necessary
due to current cash flows.




MARKET
RISKS




We
conduct our operations in the United States. Historically, neither fluctuations
in foreign exchange rates nor changes in foreign economic conditions have had a
significant impact on our financial condition or results of operations. We
currently do not hedge any of our foreign currency exposures and are therefore
subject to the risk of exchange rate fluctuations.


29




We are
exposed to foreign exchange rate fluctuations as our foreign currency consumer
receipts are converted into U.S. dollars. Foreign exchange rate fluctuations did
not have a material impact on our financial results in the nine months ended
September 30, 2010 or in the years ended December 31, 2009 and
2008.




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




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




GOING
CONCERN





The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred significant losses
which have resulted in an accumulated deficit of $25,797,183 as of September 30,
2010. The Company plans to seek additional financing in order to execute its
business plan, but there is no assurance the Company will be able to obtain such
financing on terms favorable to the Company or at all. These items raise
substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects related to recovery and classification of assets, or
the amounts and classifications of liabilities that might result from the
outcome of this uncertainty.





OFF-BALANCE
SHEET ARRANGEMENTS





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





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





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


30


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




INVESTMENT
IN FILMS. Investment in films includes the unamortized costs of one completed
unreleased film. The capitalized costs include all direct production and
financing costs, capitalized interest and production overhead. The costs of the
film productions are amortized using the individual-film-forecast-method,
whereby the costs are amortized and participations and residual costs are
accrued in proportion that current year’s revenues bears to managements’
estimate of ultimate revenue at the beginning of the current year expected to be
recognized from exploitation, exhibition or sale of the film. Ultimate revenue
includes estimates over a period not to exceed ten years following the date of
initial release.




Investment
in films are stated at the lower of amortized cost or estimated fair value. The
valuation of the film development costs are reviewed by management, when an
event or change in circumstances indicates the fair value of the film is less
than the unamortized cost. The fair value of the film is determined using
managements’ future revenue and cost estimates in an undiscounted cash flow
approach. Additional amortization is recorded in an amount by which unamortized
costs exceed the estimated fair value of the film. Estimates of future revenue
involve measurement uncertainty and it is therefore possible that reductions in
the carry costs of film development costs may be required as a consequence of
changes in managements’ future revenue estimates.




Management’s
current assessment of the fair value of its production, “Dead of Night” includes
analysis of foreign territories sold, deposits received against foreign
territory sales, estimated value of the unsold foreign territories and the
guarantee by Omnilab Pty, Ltd of a domestic release of the film. Any change in
these assessments could result in the write down of the investment in
films.





INCOME
TAXES. Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Because of our historical operating losses, we have
provided a full valuation allowance against our net deferred tax assets. When we
have a history of profitable operations sufficient to demonstrate that it is
more likely than not that our deferred tax assets will be realized, the
valuation allowance will be reversed. However, this assessment of our planned
use of our deferred tax assets is an estimate which could change in the future
depending upon the generation of taxable income in amounts sufficient to realize
our deferred tax assets.


31


WARRANT
DERIVATIVE LIABILITY. Platinum Studios entered into a Credit Agreement on May 6,
2009, with Scott Rosenberg in connection with the issuance of two secured
promissory notes and an unsecured promissory note. Two warrants were issued to
Scott Rosenberg in connection with the issuance of various promissory notes as
of May 6, 2009 and June 3, 2009.





A
description of the Warrants is as follows:





1) The
May 6, 2009 warrant entitles the holder to purchase up to 25,000,000 shares of
the Company’s common stock at a price of $0.048 per share. The May 6, 2009
warrant is exercisable up until May 6, 2019. The May 6, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.





2) The
June 3, 2009 warrant entitles the holder to purchase up to 14,062,500 shares of
the Company’s common stock at a price of $0.038 per share. The June 3, 2009
warrant is exercisable up until June 3, 2019. The June 3, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.





In
determining the fair market value of the Warrants, we used the binomial model
with the following significant assumptions: exercise price $0.038 – $0.048,
trading prices $0.01 - $0.08, expected volatility 124.4%, expected life of 60
months, dividend yield of 0.00% and a risk free rate of 3.59%. The derivative
liability is re-valued at each reporting date with changes in value being
recognized as part of current earnings. This revaluation for the three and nine
months ended September 30, 2010 resulted in a gain of $525,000 and a loss of
$245,000, respectively. Any change in the significant assumptions could result
in a different valuation that could effect the Company’s results of
operations.





ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





n/a


32


ITEM
4T. CONTROLS AND PROCEDURES





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


33


PART
II - OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS




Transcontinental Printing v.
Platinum.On or
about July 2, 2009, Transcontinental Printing, a New York corporation, filed
suit against the Company in Superior Court, County of Los Angeles (Case No.
SC103801) alleging that the Company failed to pay for certain goods and services
provided by Transcontinental in the total amount of $106,593. The Company
settled the suit agreeing to pay $92,000 plus interest at 10% per annum with a
payment schedule of $2,000 per month for five months and then increasing to
$10,000 per month until paid in full. The company has made all scheduled
payments to date. As of September 30, 2010, the accounts payable of the Company
included a balance of $64,945 for this settlement.




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




TBF Financial Inc. v.
Platinum. On or about August 20, 2009, TB Financial, Inc. filed suit
against the Company in the Superior Court of California, County of Los Angeles
(Case No. BC420336) alleging that the Company breached a written lease agreement
for computer equipment and seeking damages of $42,307 plus interest at a rate of
ten percent (10%) per annum from July 7, 2008. On November 19, 2009, TB
Financial filed a Request for Default against the Company; however, the Company
turned the matter over to Company counsel to oppose any requests for default. On
February 24, 2010, a default judgment was entered against the Company in the
amount of $51,506 and the Company received a request for Writ of Execution on
March 1, 2010. On May 19, 2010, the Company settled with TBF Financial for
$30,000 with three payments of $1,000 due on May 19, 2010 and June and July 15,
2010 with a final payment of $27,000 on July 31, 2010. In July, 2010, the
Company made the final payment of $27,000 on the settlement.


34




Rustemagic v. Rosenberg &
Platinum Studios. On or about June 30, 2009, Ervin Rustemagic filed suit
against the Company and its President, Scott Rosenberg, in the California
Superior Court for the County of Los Angeles (Case No. BC416936) alleging that
the Company (and Mr. Rosenberg) breached an agreement with Mr. Rustemagic
thereby causing damages totaling $125,000. According to the Complaint, Mr.
Rustemagic was to receive 50% of producer fees paid in connection with the
exploitation of certain comics-based properties. Rustemagic claims that he
became entitled to such fees and was never paid. The Company and Rosenberg deny
that Rustemagic is entitled to the gross total amount of money he is seeking.
The matter has now been removed to arbitration. The Company has not reserved any
payable for this proceeding.




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




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




ITEM 1A. RISK FACTORS




There are
no material changes from the risk factors previously disclosed in the
Registrant’s Form 10-K filed on April 15, 2010.




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




During
the nine months ended September 30, 2010, the Company sold 19,603,984 shares of
our common stock valued at $989,563.


35




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




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None




ITEM 6. EXHIBITS





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





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





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





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


*Filed herewith


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on November 22,
2010.





Platinum
      Studios, Inc.By:
              /s/ Scott Mitchell
      RosenbergScott
      Mitchell RosenbergChief
      Executive Officerand
      Chairman of the BoardBy:
              /s/Orrin HalperOrrin
      HalperChief
      Financial Officer


36