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EX-5.1 - BOXSCORE BRANDS, INC.ex5-1.htm
EX-23.1 - BOXSCORE BRANDS, INC.ex23-1.htm
EX-10.2 - BOXSCORE BRANDS, INC.ex10-2.htm
EX-10.5 - BOXSCORE BRANDS, INC.ex10-5.htm
EX-10.3 - BOXSCORE BRANDS, INC.ex10-3.htm
EX-10.4 - BOXSCORE BRANDS, INC.ex10-4.htm


June 30, 2010                                                                                                                                                                                                                                                              File Number 333-165972

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

AMENDMENT NO. 1 to
FORM S-1
  REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
INTERNET MEDIA SERVICES, INC.
 (Exact name of registrant as specified in its charter)

Delaware
5961
22-3956444
(State or other jurisdiction
(Primary Industrial
(I.R.S. Employer
of Incorporation)
Classification Code)
Identification No.)

1434 6 th Street
Suite 9
Santa Monica, California  90401
(310) 295-1922
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

Raymond Meyers
Chief Executive Officer
1434 6th Street
Suite 9
Santa Monica, California  90401
(310) 295-1922
 (Name, address, including zip code, and telephone number,
including area code, of agent for service)
 
Copies of all communications, including all communications sent to the agent for
 
service should be sent to:
 
Law Office of Gary A. Agron
5445 DTC Pkwy., Suite 520
Greenwood Village, Colorado 80111
(303) 770-7254
 
Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this registration statement.
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. |X|
 
 
 

 
           If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective registration statement for the same offering. |_|
 
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 the 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 |_| (Do not check if a small reporting company.) Smaller Reporting Company |X|
 
CALCULATION OF REGISTRATION FEE
 
   
Proposed MaximumOffering
Proposed Maximum
Amount of
Title of Each Class of
Amount to be
Offering Price Per
Aggregate Offering
Registration
Securities To Be Registered
Registered
Share (1)
Price
Fee(2)(3)
         
Common Stock
7,500,000
$0.001
$7,500
$6.00
 
[1] No exchange or OTC market exists for the Registrant's common stock. The offering price was arbitrarily established by the Registrant’s management and does not reflect market value, assets or any established criteria of valuation.
 
[2] Estimated solely for purposes of calculating the registration fee under Rule 457(c).

[3] Previously paid.
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
 
 

 
SUBJECT TO COMPLETION                                   
THE DATE OF THIS PROSPECTUS IS JUNE ___, 2010

INTERNET MEDIA SERVICES, INC.
 
7,500,000 SHARES OF COMMON STOCK
 
The 7,500,000 shares of our common stock currently held by Document Security Systems, Inc. (“DSS”), will be distributed pro rata by us to the shareholders of DSS, based upon each DSS shareholder’s beneficial ownership of DSS shares on the record date, which is the close of business (Eastern daylight time) on __________, 2010 (the "Record Date"). For purposes of this registration statement and in connection with the distribution, we valued the shares to be distributed at $.001 per share.  We are not paying any commissions or discounts in connection with the distribution.  The shares may be illiquid as they are not listed on any national securities exchange nor are the shares quoted on the OTC Bulletin Board or any other quotation service, and no market for the shares may develop.  This prospectus covers the distribution of the shares and their resale.
 
The Offering involves substantial risk.  Please see the “Risk Factors” section beginning on page 4.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the prospectus. Any representation to the contrary is a criminal offense.
 
The information in this prospectus is not complete and may be changed. Holders may not sell, and we may not distribute, these securities until the registration statement and any amendment thereto is filed with the Securities and Exchange Commission and is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
_______________, 2010
 
 
 
 
 
 

 
 

 
TABLE OF CONTENTS

 
    Page
   
Summary of our Offering
1
Selected Financial Information
1
Questions and Answers About the Distribution
2
Special Note Regarding Forward-Looking Statements
3
Risk Factors
4
Use of Proceeds
12
Determination of Offering Price
12
Selling Security Holders
13
Plan of Distribution
13
Description of Securities
13
Interest of Named Experts and Counsel
15
Business
15
Market Price of Common Stock and Related Stockholder Matters
20
Management's Discussion and Analysis of Financial Condition and Results of Operations
20
Management
25
Corporate Governance
27
Security Ownership of Certain Beneficial Owners and Management
28
Related Party Transactions
28
Disclosure of Commission Position on Indemnification for Securities Act Liabilities
29
Where You Can Find More Information
29
Financial Statements
F-1

 
 
 

 
SUMMARY OF OUR OFFERING


OUR BUSINESS

Internet Media Services, Inc., is an Internet media company that acquires, builds, markets, and monetizes branded Web-based businesses.  We operate our branded Websites within discrete vertical business channels allowing us to utilize cross-promotion marketing activities between our Websites within a channel. Currently, we operate one Website within one business channel.

We are building our business around the identification, evaluation and cost-effective acquisition of under-valued Websites.  We primarily seek to acquire Web businesses that serve the small and mid-sized businesses since we feel that market segment offers the best opportunity for cost-effective revenue growth.   On October 8, 2009, we completed our first vertical channel acquisition in the legal channel with the asset purchase of the Web property LegalStore.com from Document Security Systems, Inc. in exchange for 7,500,000 shares of our common stock, which we agreed to issue pro rata to the shareholders of DSS.

We were incorporated in March 2007 as a Delaware corporation and refer to ourself herein as “we”, “us”, the “Company” or “IMS.”  We conduct our operations in Rochester, New York and Santa Monica, California.  Our corporate office is located at 1434 6 th Street, Suite 9, Santa Monica, CA 90401 and our telephone number is (310) 295-1922. Our website addresses are www.internetmediaservices.com and www.legalstore.com . Information contained on our websites is not a part of this prospectus.

THE OFFERING
 
We intend to distribute to the shareholders of DSS , on a pro rata basis, an aggregate of 7,500,000 shares of our common stock currently held by DSS based upon each DSS shareholder’s beneficial ownership of DSS shares on the Record Date (_____________). The distribution will be pro rata and the shareholders will not be required to pay any type of consideration in order to participate.
 
SELECTED FINANCIAL DATA
 
The following financial information summarizes the more complete historical financial information at the end of this prospectus.

   
As of March 31, 2010
   
As of December 31, 2009
 
             
Balance Sheet
           
Total Assets
  $ 343,479     $ 349,192  
Total Liabilities
  $ 128,811     $ 60,363  
Shareholders Equity
  $ 214,668     $ 288,829  
                 
   
Three Months Ended
   
Year Ended
 
   
March 31, 2010
   
December 31, 2009 (1)
 
                 
Statement of Operations
               
Revenue
  $ 154,280     $ 111,022  
Cost of Revenue
  $ 68,207     $ 80,983  
Operating Expense
  $ 160,234     $ 104,211  
           Net (Loss)
  $ (74,161 )   $ ( 74,172 )
 
 
(1) The Company’s operation began at the date of acquisition of LegalStore.com, October 8, 2009.
 
 
-1-

 
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION
 
WHY IS THE DISTRIBUTION STRUCTURED AS A DIVIDEND, RETURN OF CAPITAL, OR CAPITAL GAIN?
 
We will distribute to the shareholders of DSS, pro rata, 7,500,000 shares of our common stock currently held by DSS in connection with our asset purchase of LegalStore.com from DSS.  This distribution may constitute either a dividend, return of capital, or capital gain to DSS shareholders.  You should consult your tax advisor.
 
HOW WILL THE DISTRIBUTION OCCUR?
 
We will distribute to those shareholders owning shares of DSS common stock all 7,500,000 shares of our common stock currently held by DSS.
 
HOW MANY SHARES OF OUR COMMON STOCK WILL I RECEIVE?
 
You will receive shares of our common stock based upon your beneficial ownership of DSS shares on the Record Date.
 
WHAT IS THE RECORD DATE FOR THE DISTRIBUTION?
 
The record date for stockholders entitled to receive shares of our common stock is __________________.
 
WHAT IS THE DISTRIBUTION DATE?
 
We intend to distribute our shares as soon as possible following the effective date of this registration statement.
 
WHAT IF I WANT TO SELL MY INTERNET MEDIA SERVICES SHARES?
 
You should first consult your financial advisor. Currently, there is no public market for our common stock, and there can be no assurance that any public market will develop in the future.
 
WILL THE NUMBER OF SHARES OF COMMON STOCK I OWN IN DSS CHANGE AS A RESULT OF THE DISTRIBUTION?
 
No. The number of shares of DSS that you own will not change as a result of the distribution.
 
ARE THERE RISKS TO OWNING SHARES OF OUR COMMON STOCK?
 
Yes. Our business is subject to risks which are set forth in this prospectus.
 
WHAT ARE THE REASONS FOR THE DISTRIBUTION?
 
On October 8, 2009, we purchased certain assets of the LegalStore.com from DSS in exchange for 7,500,000 shares of our common stock currently held by DSS, which will be registered and issued to DSS shareholders.
 
 
-2-

 
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This prospectus contains such "forward-looking statements."  These statements may be made directly in this prospectus, and they may also be made a part of this prospectus by reference to other documents filed with the Securities and Exchange Commission, which is known as "incorporation by reference."
 
Words such as "may," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Forward-looking statements might include one or more of the following:
 
o Anticipated results of operations;
 
o Anticipated pricing of goods and services;
 
o Anticipated market demand;
 
o Description of plans or objectives of management for future operations;
 
o Forecasts of future economic performance; and
 
o Descriptions or assumptions underlying or relating to any of the above items.
 
In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this prospectus or in any document incorporated by reference might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this prospectus or the date of the document incorporated by reference in this prospectus. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
 
 
-3-

 
RISK FACTORS
 
Investors should carefully consider the risks described below before making an investment decision.  If any of the following risks actually occur, our business could be materially adversely affected. In such case, we may not be able to proceed with our planned operations and your investment may be lost entirely. The securities offered hereby should only be acquired by persons who can afford to lose their entire investment without adversely affecting their standard of living or financial security.

Risks Related to the Company
 
We have a limited operating history and may not be able to achieve financial or operational success.

We were founded in March 2007, and we initiated our first operating business by acquiring LegalStore.com in October 2009.  We have a limited operating history with respect to this or any newly acquired business.  As a result, we may not be able to achieve sustained financial or operational success, given the risks, uncertainties, expenses, delays and difficulties associated with an early-stage business in an evolving market.

Economic conditions could reduce our revenue and adversely affect our customers and our working capital.

The U.S. economy has been in a downward cycle that began in 2007 and substantially deepened in 2008. As most, if not all, of our proposed vertical segments rely on Internet generated sales of goods and services, or Internet revenue generated through the sales of online advertising, the reduced consumer and advertiser demand resulting from the economic downturn may negatively affect our revenues or negatively impact our ability to grow our revenues. We cannot predict when the current economic downturn will end or reverse. There also could be a number of follow-on effects from the credit crisis and current economic environment on our business, including insolvency of customers and the inability for us to raise additional working capital economically to support the growth of our operations.

Our growth strategy includes acquisitions that entail significant execution, integration and operational risks.

We are pursuing a growth strategy based in part on acquisitions, with the objective of creating a combined company that we believe can achieve increased cost savings and operating efficiencies through economies of scale especially in the integration of administrative services.  We closed on our first acquisition in October 2009.  We will seek to make additional acquisitions in the future to increase our revenue.

This growth strategy involves significant risks. There is significant competition for acquisition targets in our markets. Consequently, we may not be able to identify suitable acquisitions or may have difficulty finding attractive businesses for acquisition at reasonable prices. If we are unable to identify future acquisition opportunities, reach agreement with such third parties or obtain the financing necessary to make such acquisitions, we could lose market share to competitors who are able to make such acquisitions. This loss of market share could negatively impact our business, revenues and future growth.

We may be unable to achieve benefits from any acquisitions.
-
           Even if we are able to complete acquisitions, we may be unable to achieve the anticipated benefits of a particular acquisition, the anticipated benefits may take longer to realize than expected, or we may incur greater costs than expected in attempting to achieve anticipated benefits.

 
-4-

 
Any acquisition we make exposes us to risks.

Any acquisition we make carries risks which could result in an adverse effect on our financial condition.  These risks include:

 
diversion of our attention from normal daily operations of our business to acquiring and assimilating new website businesses;

 
the use of substantial portions of any cash we have available;
 
 
failure to understand the needs and behaviors of users for a newly acquired website or other product;  

 
redundancy or overlap between existing products and services, on the one hand, and acquired products and services, on the other hand;  

 
difficulty assimilating operations, technologies, products and policies of acquired businesses; and

 
assuming liabilities, including unknown and contingent liabilities, of acquired businesses.

If any of our relationships with Internet search websites terminate or if such websites’ methodologies are modified, traffic to our websites and corresponding consumer origination volumes could decline.

We depend in part on various Internet search websites, such as Google, MSN and Yahoo!, and other websites to direct a significant amount of traffic to our websites and to generate customer referrals for our customer referral activities. Search websites typically provide two types of search results, algorithmic and purchased listings. Algorithmic listings cannot be purchased and, instead, are determined and displayed solely by a set of formulas designed by search engine companies. Other listings can be purchased and are displayed if particular word searches are performed on a search engine. We rely primarily on algorithmic search results to direct a substantial share of the visitors to our websites and the advertiser customers we serve.

           Our ability to maintain the flow of visitors directed to our websites by search websites and other Internet websites is not entirely within our control. For example, search websites frequently revise their algorithms in an attempt to optimize their search result listings. Changes in the methodologies used by search websites to display results could cause our websites to receive less favorable placements, which could reduce the number of users who link to our websites from these search websites. Any reduction in the number of users directed to our websites would negatively affect our ability to earn revenue. If traffic on our websites declines, we may need to resort to more costly sources to replace lost traffic, and such increased expense could adversely affect our business and profitability.

Increases in the price of online marketing or the modification or termination of our relationships with Internet search websites and other Internet websites could have a negative impact on our revenues, margins and customer referrals.

Prices charged to us for online marketing have increased as a result of increased demand for advertising inventory, which has caused our advertising expenses to increase and our margins to decline. Our advertising contracts with online search engines and other Internet websites are typically short-term. If one or more Internet search websites or other Internet websites on which we rely for marketing modifies or terminates its relationship with us, our marketing expenses could further increase, the amount of website traffic and the number of customer referrals we generate could decrease, and our related revenues or margins could decline. As the number of customer referrals that we require to meet customer demand has increased, we have increased our levels of marketing to meet those requirements. However, we cannot assure you that an increase in marketing will result in an increase in customer referrals.

We expect to face increasing competition that could result in a loss of users and reduced profit margins.
 
The market within our designated vertical channels is anticipated to be highly competitive, and we expect competition to significantly increase in the future.  We compete or intend to compete with a wide variety of companies and web-based services, including well established websites.  We also anticipate that a number of companies are or will be attempting to enter the vertical channels we have identified, either directly or indirectly, some of which may become significant competitors in the future. As we broaden our services and evolve into a multi-channel company, we may be faced with increasing competition within each vertical channel we are in.
 
 
-5-

 
Some of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater financial, technical, sales and marketing resources, and engage in more extensive research and development than we do.  We anticipate some of our competitors will also have lower customer acquisition costs than we do and offer a wider variety of services.  If our competitors are more successful than we are in attracting customers, our ability to maintain a large and growing customer base will be adversely affected.
 
More intense competition could also require us to increase our marketing expenditures, thereby reducing our profit margins and any profitability.

If we are unable to compete effectively, our business, revenues and future growth may suffer.
 
We contend with a variety of Internet and traditional offline competitors.  Many of our current and potential online and traditional store-based or print publication-based competitors have longer operating histories, more industry experience, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we do.  These current and potential competitors may be able to devote substantially greater resources to Internet websites and systems development than we can, including through acquisitions, investments and joint ventures. Our competitors may also be able to secure products from vendors on more favorable terms, fulfill customer orders more efficiently, adopt more aggressive pricing or devote more resources to marketing and promotional campaigns. In addition, traditional store-based and print publication-based retailers are able to offer customers the experience to see and feel products in a manner that is not possible over the Internet.
 
We cannot assure you that we will be able to compete successfully against current or future competitors. Competitive pressures may result in increased marketing costs, decreased prices for our advertising products and services, and decreased website traffic and loss of market share, which would adversely affect our business, revenues and future growth.
 
If we are not successful in increasing the number of our customers or having customers actively engage in revenue producing activities through our websites, products and services, our business and financial results will suffer.
 
The success of our business depends upon our ability to increase our base of customers actively engaged in revenue generating activities through our websites, products or services.  Our ability to increase our base of customers is dependent upon attracting new customers to our websites.  We may not be able to increase the level of new customers visiting our websites.  Failure to increase or maintain our base of customers would reduce our revenue and our ability to implement our strategies.

Our success is dependent upon our ability to enhance the quality and scalability of our various products and services in a changing environment.  If we are unable to do so, we may be unable to generate revenue growth.

Our customers use a wide variety of constantly changing hardware and software. We will continue to invest significant resources to develop products and services for new or emerging software and hardware platforms that may develop from time to time. However, there is a risk that a new hardware or software platform for which we do not provide products or services could rapidly grow in popularity. As a result, we may not be in a position to develop products or services for such platforms or may be late in doing so. If we fail to introduce new products or services that address the needs of emerging market segments or if our new products or services do not achieve market acceptance as a result of delays in development or other factors, our future growth and revenue opportunity could suffer.

 
-6-

 
If we are unable to develop new or enhanced features or fail to predict or respond to emerging trends, our revenue and any profitability will suffer.

Our future success will depend in part on our ability to modify or enhance our website features to meet user’s demands, add features and address technological advancements. If we are unable to predict preferences or industry changes, or if we are unable to modify our website features in a timely manner, we may lose members. New features may be dependent upon our obtaining needed technology or services from third parties, which we may not be able to obtain in a timely manner, upon terms acceptable to us, or at all. We spend significant resources developing and enhancing our features. However, new or enhanced features may have technological problems or may not be accepted by users. If we are unable to successfully develop, acquire or implement new features or enhance our existing features in a timely and cost-effective manner, our revenue and any profitability will suffer.

We do not currently maintain redundant capabilities and a catastrophic event could result in a significant disruption of our services.

Our computer equipment and the telecommunications infrastructure of our third-party network provider are vulnerable to damage from fires, earthquakes, floods, power loss, telecommunications failures, terrorism and similar events. Our servers are also vulnerable to computer viruses, worms, physical and electronic break-ins, sabotage and similar disruptions from unauthorized tampering of our computer systems. We do not currently maintain redundant capabilities and a catastrophic event could result in a significant and extended disruption of our services. Currently, we do not have a disaster recovery plan to address these and other vulnerabilities. As a result, it would be difficult to operate our business in the event of a disaster. Any prolonged disruption of our services due to these, or other events, would severely impact or shut down our business. We do not carry earthquake or flood insurance, and the property, business interruption and other insurance we do carry may not be sufficient to cover, if at all, losses that may occur as a result of any events which cause interruptions in our services.

If we fail to develop and diversify our website features, functionality and product and service offerings, we could lose market share.

Internet content, user tools and business models are evolving rapidly due to low barriers to entry and continuous technology innovations. To remain competitive, we must continue to improve the ease of use, responsiveness, functionality and features of our websites, develop content, new products and services, and continually improve the consumer’s purchasing experience. The time, expense and effort associated with such development may be greater than anticipated, and any features, functions, and products and services actually developed and introduced may not achieve consumer or advertiser acceptance or enhance user loyalty. Furthermore, our efforts to meet changing customer needs may require the development or licensing of increasingly complex technologies at great expense. If we are unable to develop and bring to market additional features, functions, content, products and services, we could lose market share to competitors, which could negatively impact our business, revenues and future growth.

Technological advances and changes in customer demands or industry standards could result in increased costs or render our products and services obsolete or less competitive.

The market for our products and services is characterized by rapid technological advances, changes in customer requirements, changes in protocols and evolving industry standards. Our efforts to keep up with such advances, requirements, protocol and standards may lead to increased product and service development costs and costly changes to our procedures and methodologies. If we fail in such efforts, our products and services may become obsolete or less competitive.  There is no assurance that we will be successful in keeping up with technological advances and changes in customer demands and industry standards, and our failure to do so may have a negative impact on our business, prospects and financial condition.

If we are unable to obtain or maintain key website addresses, our ability to operate and grow our business may be impaired.

Our website addresses, or domain names, are critical to our business. However, the regulation of domain names is subject to change, and it may be difficult for us to prevent third parties from acquiring domain names that are similar to ours, that infringe our trademarks or that otherwise decrease the value of our brands. If we are unable to obtain or maintain key domain names for the various areas of our business, our ability to operate and grow our business may be impaired.

 
-7-

 
Assertions by any third party that we infringe its intellectual property could result in costly and time-consuming litigation, expensive licenses or the inability to operate as planned.

The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition, the possibility of intellectual property rights claims against us may grow. Our services or technologies may not be able to withstand third-party claims or rights restricting their use. Companies, organizations or individuals, including our competitors, may hold or obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to provide our services or develop new services and features, which could make it more difficult for us to operate our business.

If we are determined to have infringed upon a third party’s intellectual property rights, we may be required to pay substantial damages, stop using technologies or services found to be in violation of a third party’s rights or seek to obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, or at all, and may significantly increase our operating expenses or may require us to restrict our business activities in one or more respects. We may also be required to develop alternative non-infringing technologies or services that could require significant effort and expense or may not be feasible. In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or service, our business and results of operations could be harmed.

Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third-parties.

We rely on a combination of trademark, patent, trade secret and copyright law, license agreements and contractual restrictions, including confidentiality agreements and non-disclosure agreements with employees, contractors and suppliers, to protect our proprietary rights, all of which provide only limited protection.

In addition, effective patent, trademark, copyright and trade secret protection may not be available in every country in which our technologies and services are available. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving.

Government regulations and legal uncertainties concerning the Internet could hinder our business operations.

Laws applicable to the Internet and online privacy generally are becoming more prevalent. New laws and regulations may be adopted regarding the Internet or other online services in the United States and foreign countries that could limit our business flexibility or cause us to incur higher compliance costs. Such laws and regulations may address:

 
user privacy;
 
 
freedom of expression;
 
 
information security;
 
 
pricing, fees and taxes;
 
 
content and the distribution of content;
 
 
-8-

 
 
intellectual property rights;
 
 
characteristics and quality of products and services;
 
 
taxation; and
 
 
online advertising and marketing, including email marketing and unsolicited commercial email.
 
There can be no assurance that future laws will not impose taxes or other regulations on Internet commerce, which could substantially harm our business, results of operations and financial condition. The nature of such laws and regulations and the manner in which they may be interpreted and enforced is uncertain. The adoption of additional laws or regulations, either domestically and abroad, may decrease the popularity or impede the expansion of Internet marketing, restrict our present business practices, require us to implement costly compliance procedures or expose us and/or our customers to potential liability, which, in turn, could adversely affect our business. Furthermore, the applicability of existing laws to the Internet is unsettled with regard to many important issues, including intellectual property rights, export of encryption technology, personal privacy, libel and taxation. It may take years to determine whether and how such existing and future laws and regulations apply to us. If we are required to comply with new regulations or new interpretations of existing regulations, or if we are unable to comply with these regulations, our business could be harmed.

Changes in the legal regulation of the Internet may have specific negative effects on our business and operating results. For example, we may be considered to “operate” or “do business” in states where our customers conduct their business, resulting in regulatory action. Alternatively, we may be subject to claims under state consumer protection statutes if our customers are dissatisfied with the quality of our services, customer referrals or contract cancellation policies. These claims could result in monetary fines or require us to change the manner in which we conduct our business, either of which could adversely affect our business and operating results. Any of these types of claims, regardless of merit, could be time-consuming, harmful to our reputation and expensive to litigate or settle.

The increased security risks of online advertising and e-commerce may cause us to incur significant expenses and may negatively impact our credibility and business.

A significant prerequisite of online commerce, advertising, and communications is the secure transmission of confidential information over public networks. Concerns over the security of transactions conducted on the Internet, consumer identity theft and user privacy have been significant barriers to growth in consumer use of the Internet, online advertising, and e-commerce. A significant portion of our sales is billed directly to our customers’ credit card accounts. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of confidential information. Encryption technology scrambles information being transmitted through a channel of communication to help ensure that the channel is secure even when the underlying system and network infrastructure may not be secure. Authentication technologies, the simplest example of which is a password, help to ensure that an individual user is who he or she claims to be by “authenticating” or validating the individual’s identity and controlling that individual’s access to resources. Despite our implementation of security measures, however, our computer systems may be potentially susceptible to electronic or physical computer break-ins, viruses and other disruptive harms and security breaches. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may specifically compromise our security measures. Any perceived or actual unauthorized disclosure of personally identifiable information regarding website visitors, whether through breach of our network by an unauthorized party, employee theft or misuse, or otherwise, could harm our reputation and brands, substantially impair our ability to attract and retain our audiences, or subject us to claims or litigation arising from damages suffered by consumers, and thereby harm our business and operating results. If consumers experience identity theft after using any of our websites, we may be exposed to liability, adverse publicity and damage to our reputation. To the extent that identity theft gives rise to reluctance to use our websites or a decline in consumer confidence in financial transactions over the Internet, our businesses could be adversely affected. Alleged or actual breaches of the network of one of our business partners or competitors whom consumers associate with us could also harm our reputation and brands. In addition, we could incur significant costs in complying with the multitude of state, federal and foreign laws regarding the unauthorized disclosure of personal information. For example, California law requires companies that maintain data on California residents to inform individuals of any security breaches that result in their personal information being stolen. Because our success depends on the acceptance of online services and e-commerce, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. Internet fraud has been increasing over the past few years, and fraudulent online transactions, should they continue to increase in prevalence, could also adversely affect the customer experience and therefore our business, operating results and financial condition.
 
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We depend on key management, technical and marketing personnel for continued success.

Our success and future growth depend, to a significant degree, on the skills and continued services of our management team, including Raymond Meyers, our Chief Executive Officer, and Michael Buechler, our Executive Vice president.  Our ongoing success also depends on our ability to identify, hire and retain skilled and qualified technical and Internet marketing personnel in a highly competitive employment market.  As we develop and acquire new products and services, we will need to hire additional employees.  Our inability to attract and retain well-qualified managerial, technical and Internet sales and marketing personnel may have a negative effect on our business, operating results and financial condition.

We may be required to seek additional funding, and such funding may not be available on acceptable terms or at all.
 
We may need to obtain additional funding due to a number of factors beyond our expectations or control, including a shortfall in revenue, increased expenses, increased need for working capital due to growth, increased investment in capital equipment or the acquisition of businesses, services or technologies. If we do need to obtain funding, it may not be available on acceptable terms or at all. If we are unable to obtain sufficient funding, our business would be harmed. Even if we were able to find outside funding sources, we might be required to issue securities in a transaction that could be highly dilutive to our investors or we may be required to issue securities with greater rights than the securities we have outstanding today. We may also be required to take other actions that could lessen the value of our common stock, including borrowing money on terms that are not favorable to us. If we are unable to generate or raise capital that is sufficient to fund our operations, we may be required to curtail operations, reduce our services, defer or cancel expansion or acquisition plans or cease operations in certain jurisdictions or completely.
 
Risks Related to our Securities

Our common stock is not listed on any stock exchange and may be extremely illiquid.

We intend to seek to list our common stock for quotation on the OTC Bulletin Board. There can be no assurance that the shares will be quoted on the Bulletin Board and, even if quoted, there may be extremely limited or no trading activity.   Accordingly, the shares may be extremely illiquid.

Our common stock may be considered “penny stock”, further reducing its liquidity.

Our common stock may be considered “penny stock”, which will further reduce the liquidity of our common stock.  Our common stock is likely to fall under the definition of “penny stock,” trading in the common stock is limited because broker-dealers are required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving the common stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our common stock, thereby further reducing the liquidity of our common stock.

"Penny stocks” are equity securities with a market price below $5.00 per share other than a security that is registered on a national exchange, included for quotation on the NASDAQ system or whose issuer has net tangible assets of more than $2,000,000 and has been in continuous operation for greater than three years. Issuers who have been in operation for less than three years must have net tangible assets of at least $5,000,000.

 
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Rules promulgated by the Securities and Exchange Commission under Section 15(g) of the Exchange Act require broker-dealers engaging in transactions in penny stocks, to first provide to their customers a series of disclosures and documents including: 

 
A standardized risk disclosure document identifying the risks inherent in investment in penny stocks;
 
All compensation received by the broker-dealer in connection with the transaction;

 
Current quotation prices and other relevant market data; and o Monthly account statements reflecting the fair market value of the securities.

These rules also require that a broker-dealer obtain financial and other information from a customer, determine that transactions in penny stocks are suitable for such customer and deliver a written statement to such customer setting forth the basis for this determination.

Our directors and executive officers will continue to exert significant control over our future direction, which could reduce the sale value of our Company.

Upon completion of the distribution, members of our Board of Directors and our executive officers will own 65.02% of our outstanding common stock.  Accordingly, these stockholders, if they act together, will be able to control all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership, which could result in a continued concentration of representation on our Board of Directors, may delay, prevent or deter a change in control and could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our assets.

Investors should not anticipate receiving cash dividends on our common stock, thereby depriving investors of yield on their investment.

We have never declared or paid any cash dividends or distributions on our common stock and intend to retain future earnings, if any, to support our operations and to finance expansion. Therefore, we do not anticipate paying any cash dividends on the common stock in the foreseeable future.  Such failure to pay a dividend will deprive investors of any yield on their investment in our common stock.

Our indemnification of officers and directors and limitations on their liability could limit our recourse against them.

Our Certificate of Incorporation and Bylaws contain broad indemnification and liability limiting provisions regarding our officers, directors and employees, including the limitation of liability for certain violations of fiduciary duties.  Shareholders therefore will have only limited recourse against these individuals.
 
If we fail to implement and maintain proper and effective internal controls and disclosure controls and procedures, our ability to produce accurate and timely financial statements and public reports could be impaired, which could adversely affect our operating results, our ability to operate our business and investors’ views of us.
 
We must ensure that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis.  We will be required to spend considerable effort establishing and maintaining our internal controls, which will be costly and time-consuming and will need to be re-evaluated frequently.  We are in the process of documenting, reviewing and, if appropriate, improving our internal controls and procedures in anticipation of being a reporting company and eventually being subject to Section 404 of the Sarbanes-Oxley Act of 2002, which will require annual management assessments of the effectiveness of our internal control over financial reporting.  Under current regulations, we expect that the first year for this assessment will be fiscal 2011.  As we begin the assessment process in anticipation of being subject to these Section 404 requirements and, as part of that documentation and testing, we may identify areas for further attention and improvement.  We are in the process of developing disclosure controls and procedures designed to ensure that information required to be disclosed by us in our public reports and filings is recorded, processed, summarized and reported within the time periods specified by applicable SEC rules and forms.
 
 
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Implementing any appropriate changes to our internal controls and disclosure controls and procedures may entail substantial costs to modify our existing financial and accounting systems and internal policies, take a significant period of time to complete, and distract our officers, directors and employees from the operation of our business. These changes may not, however, be effective in establishing or maintaining the adequacy of our internal controls or disclosure controls, and any failure to maintain that adequacy, or a consequent inability to produce accurate financial statements or public reports on a timely basis, could materially adversely affect our business. Further, investors’ perceptions that our internal controls or disclosure controls are inadequate or that we are unable to produce accurate financial statements may seriously affect the price of our common stock.

We have additional common stock and preferred stock available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock.

Our Certificate of Incorporation authorizes the issuance of up to 25,000,000 shares of our common stock and up to 10,000,000 shares of preferred stock.  The common stock and the preferred stock can be issued by the Board of Directors, without stockholder approval.  Any future issuances of common stock, an increase in the authorized shares of common stock or preferred stock would further dilute the percentage ownership of the Company held by our investors.
 
USE OF PROCEEDS
 
The shares included in this registration statement are currently owned by DSS in connection with our purchase of LegalStore.com and will be distributed pro rata to the shareholders of DSS as of the Record Date. We will not receive any proceeds from the sale of the shares offered by this prospectus.  Accordingly, we will not generate proceeds from this Offering to fund any acquisitions.
 
DETERMINATION OF OFFERING PRICE
 
There is no established public market for the shares of common stock being registered. As a result the offering price of the shares of common stock offered hereby has been arbitrarily determined by us to be $0.001 per share, and does not necessarily bear any relationship to assets, earnings, book value or any other objective criteria of value. In addition, no investment banker, appraiser or other independent third party has been consulted concerning the offering price for the shares or the fairness of the offering price. For purposes of this registration statement and in connection with the distribution, we have based our determination of a value of $.001 per share distributed due to the fact that we are a start-up company with negligible revenue and there is no market for the common stock we intend to distribute, nor is it quoted or traded on any exchange and is accordingly, highly illiquid.  Moreover, our ability to remain in business requires us to either raise debt or equity capital or generate profitability, none of which can be assured.  We valued the 7.5 million shares issued to DSS that we agreed to register and distribute in order to acquire Legalstore.com at a higher price ($.047 per share) for financial statement purposes because we had no activity or operating assets prior to the acquisition and the cash consideration paid for the common stock issued to the founders prior to the acquisition was based on par value and not a reliable indication of fair value.  Therefore, we determined that the fair value of the interest in LegalStore.com to be a more reliable measure of fair value of the asset purchase for financial statement purposes in accordance with US GAAP.  We did not utilize an outside appraisal service, but performed the calculations internally using historical financial information provided by seller. We valued LegalStore.com using a discounted cash flow model.  In determining the value under the discounted cash flow, the Company utilized a growth rate for revenue of 9% in year 2010 and 2011, 7% in 2012 and 6% in 2013 and 2014 and a growth rate for expenses of 9% in 2010, 12% in 2011, and 6% in years 2012 through 2014.  In addition, the Company used a discount rate of 17.85% and a tax rate of 37%.  The discount rate was determined utilizing a weighted average cost of capital approach.

Using the discounted cash flow model method, the fair value of LegalStore.com at time of acquisition was $350,000 or $.047 per IMS share issued ($350,000 divided by 7.5 million shares).

 
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SELLING SECURITY HOLDERS
 
We intend to distribute all 7,500,000 shares currently held by DSS being registered hereby to the DSS shareholders on a pro rata basis.
 
PLAN OF DISTRIBUTION
 
The securities to be registered will be distributed by us to DSS shareholders as of the Record Date on a pro rata basis.
 
Our common stock may be considered “penny stock”, further reducing its liquidity.

Our common stock may be considered “penny stock”, which will further reduce the liquidity of our common stock.  Our common stock is likely to fall under the definition of “penny stock,” trading in the common stock is limited because broker-dealers are required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving the common stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our common stock, thereby further reducing the liquidity of our common stock.

Penny stocks” are equity securities with a market price below $5.00 per share other than a security that is registered on a national exchange, included for quotation on the NASDAQ system or whose issuer has net tangible assets of more than $2,000,000 and has been in continuous operation for greater than three years. Issuers who have been in operation for less than three years must have net tangible assets of at least $5,000,000.

Rules promulgated by the Securities and Exchange Commission under Section 15(g) of the Exchange Act require broker-dealers engaging in transactions in penny stocks, to first provide to their customers a series of disclosures and documents including: 

 
A standardized risk disclosure document identifying the risks inherent in investment in penny stocks;
 
All compensation received by the broker-dealer in connection with the transaction;

 
Current quotation prices and other relevant market data; and o Monthly account statements reflecting the fair market value of the securities.

DESCRIPTION OF SECURITIES
 
General
 
The following is a summary of information concerning our capital stock. The summary is qualified by our Certificate of Incorporation and bylaws, which you must read for complete information on our capital stock, and which are included as exhibits to the registration statement, of which this prospectus is a part.
 
Common Stock
 
We are authorized to issue 25,000,000 shares of Common Stock, $.001 par value authorized, of which 20,501,000 (including the 7,500,000 shares to be distributed to the DSS shareholders) are issued and outstanding as of March 31, 2010.
 
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Voting Rights
 
Each outstanding share of common stock entitles the holder thereof to one vote per share on matters submitted to a vote of stockholders. Stockholders do not have preemptive rights to purchase shares in any future issuance of our common stock. 
 
The holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our Board of Directors. Our Board of Directors has never declared a dividend. Should we decide in the future to pay dividends, it will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including the Company’s financial condition and the results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant. Each share is entitled to the same dividend.  In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders after payment of all creditors. 

Preferred Stock

                We are authorized to issue up to 10,000,000 shares of $.001 par value preferred stock in one or more series with such designations, voting powers, if any, preferences and relative, participating, optional or other special rights, and such qualifications, limitations and restrictions, as are determined by resolution of our Board of Directors.  The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our Company without further action by stockholders and could adversely affect the rights and powers, including voting rights, of the holders of common stock.  In certain circumstances, the issuance of preferred stock could depress the market price of the common stock. No shares of preferred stock have been issued.
 
Dividends
 
We have not declared any dividends, and we do not plan to declare any cash dividends in the foreseeable future.
 
Warrants, Options and Convertible Debt
 
There are no outstanding options, warrants or convertible debt.
 
Transfer Agent
 
Our transfer agent is Corporate Stock Transfer, Inc., Denver, Colorado.

Agreements Related To Common Stock Issuance In Connection With Legalstore.com

On October 8, 2009, we acquired from DSS all of the assets and liabilities of Legalstore.com, a division of DSS, in exchange for 7,500,000 shares of our common stock currently held by DSS. In connection with the purchase of Legalstore.com, we also entered into a Registration Rights Agreement and our principal stockholders entered into a Stock Pledge and Escrow Agreement (collectively, the Agreements).  In connection with the Agreements, we are required to file a registration statement on Form S-1, on a best efforts basis, in order to register the 7,500,000 shares of common stock which we intend to distribute pro rata to the DSS shareholders.  These shares are being registered by this prospectus.  Under the Agreements, we are also required to raise at least $200,000 to be used for working capital.  If we fail to secure registration of at least 20% of the 7,500,000 shares of common stock within 360 days of the closing, or fail to meet certain working capital thresholds contained in the purchase agreement, we will be considered to be in default.  In the event of a default, DSS may receive up to an additional 12,500,000 shares of our currently outstanding common stock which will be conveyed to DSS by our two principal shareholders, Messrs. Meyers and Buechler.  These shares are currently held in escrow as collateral.
 
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In addition to the Agreements, our two principal shareholders and DSS have entered into a voting agreement whereby our two principal shareholders agreed to vote all common stock held by them so as to elect two nominees designated by DSS as members of our Board of Directors, which consists of five members.



INTEREST OF NAMED EXPERTS AND COUNSEL

The validity of the securities offered hereby will be passed upon by the Law Office of Gary A. Agron. The financial statements of the Company and the business acquired (Legalstore.com) appearing in this prospectus have been audited by Freed Maxick & Battaglia, CPAs, PC, our independent registered public accounting firm.
 
BUSINESS

Overview

We are an Internet media company that acquires, builds, markets, and monetizes branded Web-based businesses.  We operate our branded Websites within discrete vertical business channels allowing us to utilize cross-promotion marketing activities between our Websites within a channel. Currently, we operate one Website within one business channel, the legal channel.

We use Internet marketing techniques and applications, either developed by us or purchased from a third party, to generate high-quality traffic (visitors) to our Websites. This traffic in turn supports our revenue model which consists of either advertising-based revenue, or sale of a product or service.

We are building our business around the identification, evaluation and cost-effective acquisition of under-valued Websites.  We primarily seek to acquire Web businesses that serve the small and mid-sized businesses since we feel that market segment offers the best opportunity for cost-effective revenue growth. We did not have any operations until our first acquisition in October, 2009 when we acquired our first Web-based business that fit our criteria, the LegalStore.com. We are in the process of building out our first vertical business channel, the legal channel, using LegalStore.com as our anchor Website.

We generate revenue through the sale of products and services via our vertical channel Websites.  Our executive office does not generate revenue and incurs administrative expenses primarily for personnel, rent, utilities, legal, and accounting activities.  Our vertical channel Websites incur expenses for cost of goods, personnel, rent, utilities and general administrative categories.

Our Strategy

Our objective is to build a leading Internet media company consisting of multiple Web-based businesses that offer products or services to small to medium-sized business.  Key elements of our strategy include:

 
·
Continue to target Websites for acquisition that serve the small to medium sized business market segment. We seek to acquire existing Web businesses within vertical channels we believe are currently underdeveloped.  We use an acquisition model that seeks opportunities that have some of the following characteristics: Web-based service offering where the customer accesses our application server via the Internet; defined market segment; cash flow positive (post transaction); undervalued (based on potential growth); in need of automation or process improvement; synergistic to other owned Web businesses; recurring revenue model; scalable model. Web businesses for acquisition will be found through a combination of word of mouth, business brokers, and Internet sites offering Web businesses for sale.
 
To finance future acquisitions of Web businesses, we will seek to purchase the business using debt or equity financing or through issuance of our common stock.  We cannot assure that we will raise additional debt or equity capital or issue common stock on terms favorable to us or at all.  Our inability to raise capital could require us to delay or eliminate our plans to expand, and would likely impact future revenues.
 
 
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Once a Web business is acquired, we will begin to integrate the business into our current operations starting with the financial areas.  Bank accounts and merchant accounts will be moved under our control, as well as accounts receivable and accounts payable.  We will then analyze the technology requirements necessary to improve the overall operation of the Website.
 
 
·
Develop or acquire marketing services or technologies. We operate Web businesses, and as such, depend on Web-based marketing and technology applications to generate search traffic to our Websites. Once at our Websites, we attempt to convert the traffic into a paying customer.  While we currently utilize marketing solutions through our relationships with other providers such as search engines and third party technology providers, we will seek opportunities either to internally develop some or all of these services and products.
 
 
·
Selling additional products and services to existing customers. We believe we can sell additional products and services once a customer places their first order which can increase our average revenue per customer (measured over a fixed period), and improve our revenue growth.
 
 
·
Strengthening customer retention. We seek to enhance customer retention and build lasting relationships with our customers.  Such efforts begin with our marketing message, continue through the ordering process, and conclude with the fulfillment process.  We believe we can build lasting customer relationships by listening to our customers, consistently examining our internal processes, focusing on customer satisfaction, and offer an expanded product line.
 
    Our Services

Our goal is to develop a diversified and broad range of products and services that are offered through a collection of vertically oriented Websites that target small to medium-sized business.  The products and services we offer through our Websites will first be dependent on the Website offerings at time of acquisition. As we evaluate the potential revenue opportunities associated with the acquired Website, we will expand the products and services offerings to address those opportunities.

We are currently in the build-out phase of our first vertical channel, the legal channel, through our acquisition of the Web business Legalstore.com in October 2009.  Traditionally, LegalStore.com offered legal supplies and print services for the small to medium-size law firms.  We have continued to offer these products and services.  As we identify additional products and services to be offered to our customers in the future we anticipate a product/service development timeframe to be between three and six months measured from the approval by management of the development project to the product/service release to the general public.

Sales and Marketing

Our Websites focus on one specific business channel.  We define a business channel as a business category such as “Automotive”, “Careers”, or “Legal”.   Presently, we have one vertical channel operating, the legal channel, and one Website in production within that channel, www.legalstore.com.
 
 
We sell our products and services primarily through our Websites.  In addition, we provide a toll-free sales number and chat service for our customers that have questions that cannot be answered by using our Website. Orders can be placed through our toll-free sales number but not through our chat service.

For the Legal channel, we market our products and services through search engine positioning, paid-marketing sources including search engine placement, email marketing activities to our current and past customer base on an opt-in basis, and partnerships with other channel providers.
 
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Technology

We implemented a new third-party e-commerce solution for our LegalStore.com Website in October 2009.  Hosted in the data center of the e-commerce provider, the LegalStore.com Website contains over 1500 product codes and over 3,000 customer account records.  In addition, we have off-line access to approximately 10,000 customer account records that are stored on local computers within the LegalStore.com offices in Rochester, NY.

Our First Acquisition – LegalStore.com
 
On October 8, 2009, we entered into an Asset Purchase Agreement with Lester Levin Inc. (“LLI”), a New York corporation and wholly owned subsidiary of Document Security Systems, Inc. (“DSS”), whereby we purchased the assets and liabilities of Legalstore.com (constituting the Business), a division of DSS, in exchange for 7,500,000 shares of common stock of our company.
 
Pursuant to the Asset Purchase Agreement, we agreed to purchase all the assets of Legalstore.com, including, cash and cash equivalents, accounts receivable, inventories, fixed assets, customer lists, and domain names.  In addition to issuing the common stock, we agreed to assume certain liabilities associated with Legalstore.com, including an existing office lease.
 
We accounted for the acquisition in accordance with ASC 805-10 “Business Combinations”, whereby we measured the identifiable assets acquired and liabilities assumed based on the acquisition date fair value.  We are required to recognize and measure any related goodwill acquired in the business combination or a gain from a bargain purchase.  In order to determine the goodwill or gain from a bargain purchase, we are required to determine the fair value of the consideration transferred in a business combination.  The fair value is calculated as the sum of the acquisition date fair value of the assets transferred by us, the liabilities incurred by us and the equity interest issued by us.  We had no activity or value prior to the acquisition and the consideration paid for the common stock issued prior to the acquisition was based on par value and not a reliable indication of fair value.  Therefore, we determined that the fair value of the interest in the Business acquired is a more reliable measure.  As a result, we valued the Business acquired using a discounted cash flow model and compared it to the fair value assigned to the identifiable assets and liabilities acquired to determine the amount of goodwill to record in connection with the business combination, which will be deductible for income tax purposes.  In determining the discounted cash flow, we utilized a growth rate for revenue of 9% in year 2010 and 2011, 7% in 2012 and 6% in 2013 and 2014 and a growth rate for expenses of 9% in 2010, 12% in 2011, and 6% in years 2012 through 2014.  In addition, we used a discount rate of 17.85% and a tax rate of 37%.  The discount rate was determined utilizing a weighted average cost of capital approach.
 
In connection with the Asset Purchase Agreement, we and DSS also entered into a Registration Rights Agreement and a Stock Pledge and Escrow Agreement (collectively, the Agreements).  In connection with the Agreements, we are required to file a registration statement on Form S-1, on a best efforts basis, with respect to the 7,500,000 shares of common stock issued pursuant to the terms of the Agreements, as well as raise at least $200,000 to be used for working capital in our company. If we fail to secure registration of at least 20% of the 7,500,000 shares of common stock within 360 days of the closing, and fail to meet certain working capital thresholds contained in the Agreements, then we will be considered to be in default. In the event of a default by us, DSS, Inc may receive up to an additional 12,500,000 shares of our common stock currently issued and outstanding and owned by our two principal shareholders.  These shares are currently held in escrow as collateral.

 
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In addition to the Agreements, our two principal shareholders, DSS and we have entered into a voting agreement whereby our principal shareholders agreed to vote all common stock held by them so as to elect two nominees designated by Lester Levin Inc. or DSS as members of our Board of Directors, which consists of five members.
 
The fair value of assets and liabilities acquired as a result of this business combination were as follows:
 
Fair value of the consideration transferred
  $ 350,000  
         
Fair value of identifiable assets acquired
       
 and liabilities assumed:
       
Accounts receivable
    31,161  
Inventory
    101,011  
Fixed assets
    28,411  
Domain name
    50,000  
Customer list
    120,000  
Total
    330,583  
         
Goodwill
  $ 19,417  
 
The revenue of $111,022 and loss of $(74,172) included in our consolidated statement of operations for the year ended December 31, 2009 consist primarily of Legalstore.com operations from the date of acquisition, October 8, 2009 through December 31, 2009. The unaudited pro forma revenue and loss of the entity if the acquisition had taken place as of January 1, 2008 are as follows:
             
   
Revenue
   
Loss
 
             
Supplemental pro forma from January 1, 2009
           
to December 31, 2009
  $ 470,647     $ (81,252 )
                 
Supplemental pro forma from January 1, 2008
               
to December 31, 2008
  $ 609,807     $ (29,574 )

Competition
 
The markets within our designated vertical channels are highly competitive, and we expect competition to significantly increase in the future.  We compete or intend to compete with a wide variety of companies and Web-based services, including well established Websites.  We also anticipate that a number of companies are or will be attempting to enter the vertical channels we have identified, either directly or indirectly, some of which may become significant competitors in the future.  As we broaden our services and evolve into a multi-channel company, we may be faced with increasing competition within each vertical channel we are in.
 
Some of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater financial, technical, sales and marketing resources, and engage in more extensive research and development than we do.  We anticipate some of our competitors will also have lower customer acquisition costs than we do and offer a wider variety of services.  If our competitors are more successful than we are in attracting customers, our ability to maintain a large and growing customer base will be adversely affected.
 
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Intellectual Property
 
Our ability to compete is dependent in significant part on our ability to develop and maintain the proprietary aspects of our business and operate without infringing upon the proprietary rights of others. We currently rely primarily on a combination of copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions, and other similar measures to protect our proprietary information. As of March 31, 2010, we do not own any U.S. patents, and we do not have any patent applications pending but not yet issued. Due to the rapidly changing nature of applicable technologies, we believe that the improvement of existing offerings, reliance upon trade secrets and unpatented proprietary know-how and development of new offerings generally will continue to be our principal source of proprietary protection. While we have hired third party contractors to help develop and design some of our websites and applications, we own the intellectual property created by these contractors. The e-commerce software that we currently utilize in our LegalSotre.com business is dependent on commercially available third party software.  While we do not own the software, we do own the processes, procedures, and data that is associated with the use of the e-commerce software.
 
We require all of our employees, contractors and many of those with whom we have business relationships to sign non-disclosure and confidentiality agreements and to assign to us in writing all inventions created while working for us.  In such cases, we have the right to distribute or sublicense the third-party software with our products.
 
When appropriate, we have also entered into nondisclosure agreements with suppliers and business partners to limit access to and disclosure of our proprietary information. Nonetheless, neither the intellectual property laws nor contractual arrangements, nor any of the other steps we have taken to protect our intellectual property can ensure that others will not use our intellectual property.
 
We license, or lease from others, many technologies used in our services. We expect that we and our customers could be subject to third-party infringement claims as the number of websites and third party service providers for Web-based businesses grows. Although we do not believe that our technologies or services infringe the proprietary rights of any third parties, we cannot ensure that third parties will not assert claims against us in the future or that these claims will not be successful.

Government Regulations

The applicability of existing laws to the Internet is unsettled with regard to many important issues, including intellectual property rights, export of encryption technology, personal privacy, libel and taxation. It may take years to determine whether and how such existing and future laws and regulations apply to us. If we are required to comply with new regulations or new interpretations of existing regulations, or if we are unable to comply with these regulations, our business could be harmed.

Laws applicable to the Internet and online privacy generally are becoming more prevalent. New laws and regulations may be adopted regarding the Internet or other online services in the United States and foreign countries that could limit our business flexibility or cause us to incur higher compliance costs. Such laws and regulations may address:  user privacy; freedom of expression; information security; pricing, fees, and taxes; content and distribution of content; intellectual property rights; characteristics and quality of products and services; taxation; and online advertising and marketing, including email marketing and unsolicited commercial email.

There can be no assurance that future laws will not impose taxes or other regulations on Internet commerce, which could substantially harm our business, results of operations and financial condition. The nature of such laws and regulations and the manner in which they may be interpreted and enforced is uncertain. The adoption of additional laws or regulations, either domestically and abroad, may decrease the popularity or impede the expansion of Internet marketing, restrict our present business practices, require us to implement costly compliance procedures or expose us and/or our customers to potential liability, which, in turn, could adversely affect our business.
 
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Changes in the legal regulation of the Internet may have specific negative effects on our business and operating results. For example, we may be considered to “operate” or “do business” in states where our customers conduct their business, resulting in regulatory action. Alternatively, we may be subject to claims under state consumer protection statutes if our customers are dissatisfied with the quality of our services, customer referrals or contract cancellation policies. These claims could result in monetary fines or require us to change the manner in which we conduct our business, either of which could adversely affect our business and operating results. Any of these types of claims, regardless of merit, could be time-consuming, harmful to our reputation and expensive to litigate or settle.

Employees
 
At June 30, 2010, we had five full-time employees, and one part-time employee.  Three of the full-time employees were located at our Rochester, NY location, and the balance of our employees are located at our Santa Monica, CA office.  None of our employees are represented by a labor union or are party to a collective bargaining agreement, and we consider our relationships with our employees to be good.

Facilities
 
We lease approximately 4,000 square feet of office and warehouse space at 320 North Goodman Street, Suite 209, in Rochester, NY for our LegalStore.com business unit for $1,750 per month on a five year lease expiring October 31, 2010.  Our corporate offices are located at 1434 6th Street, Suite 9, Santa Monica, CA and consist of 2,000 square feet under a one year lease for $2,000 per month, which expires January 31, 2011.
 
MARKET PRICE FOR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
 
There is currently no public trading market for our common stock, and the shares may be illiquid because they are not listed or quoted on any exchange or the OTC Bulletin Board. We intend to apply for quotation of our common stock on the OTC Bulletin Board.  In order to do so, we must identify a brokerage firm willing to make a market in our common stock and to sponsor for us and file an application for our common stock to be quoted on the OTC Bulletin Board.  We can provide no assurance that we will be able to identify such a broker and market maker or satisfy OTC Bulletin Board requirements to list our stock for quotation on the OTC Bulletin Board.  Accordingly, no market for the shares may develop.
 
Upon distribution of the shares included in this registration statement to the DSS shareholders, there will be approximately 5,500 holders of our common stock.  We currently have four stockholders, including DSS who currently holds the 7,500,000 shares of our common stock being registered.
 
We have not declared any cash dividends on our common stock since our inception and do not anticipate doing so in the foreseeable future.
 
We do not have any equity compensation plan.
 
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  General

We are an Internet media company that acquires, builds, markets, and monetizes branded Web-based businesses.  We are building our business around the identification, evaluation and cost-effective acquisition of under-valued Websites.  We primarily seek to acquire Web businesses that serve the small and mid-sized businesses since we feel that market segment offers the best opportunity for cost-effective revenue growth.  We operate our branded Websites within discrete vertical business channels allowing us to utilize cross-promotion marketing activities between our Websites within a channel.
 
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We believe our company has progressed beyond the development stage but that our limited revenue causes us to consider our operations to be in an earlier stage of development.  We did not have any operations until our first acquisition in October, 2009 when we acquired our first Web-based business that fit our criteria, the LegalStore.com.  LegalStore.com offers legal supplies, legal forms, and related legal products to the professional community.  We currently operate one Website within one business channel, the legal channel, using LegalSotre.com as our anchor Website.  We continue to look for acquisitions of other under-valued Web-based businesses, both within the Legal channel and outside of that channel, but no acquisitions are currently being discussed or negotiated.  Currently, we do not have any material commitments for capital expenditures in 2010.

We use Internet marketing techniques and applications, either developed by us or purchased from a third party, to generate high-quality traffic (visitors) to our Website, LegalStore.com.  We also acquire Internet traffic through paid search, comparison shopping websites, and our email marketing efforts.  This traffic in turn supports our revenue model which consists of either advertising-based revenue, or sale of a product or service.  Currently, 100% of our revenue comes from the sale of a product or service through the LegalStore.com Website.  As we continue to develop our business we anticipate realizing advertising revenue.

We do not anticipate the cost of operating our one Website to increase in the next year unless the third-party provider of the e-commerce software we utilize decides to raise their prices.  As of date, we have not received a notice of a price increase.  We anticipate our cost of current marketing activities, on a percentage basis, to remain flat.  Currently, the cost of our marketing activities for our one Website, LegalStore.com, is approximately 8% of revenue.  While we cannot specifically estimate the cost for operational expenses for future Websites we might acquire or develop, we anticipate development, marketing and operational expenses to be approximately in-line with our current development, marketing and operational expenses associated with LegalStore.com.

 To facilitate our future growth through the acquisition of Internet Web-businesses may be required to raise substantial amounts of new financing in the form of additional equity investments, loan financings, or from strategic partnerships.  There can be no assurance that we will be able to obtain additional financing on terms that are acceptable to us and at the time required by us, or at all. Further, any financing may cause dilution of the interests of our current stockholders.  If we are unable to obtain additional equity or loan financing, our financial condition and results of operations will be materially adversely affected.

Results of Operations

For the Quarter Ended March 31, 2010

We did not have any revenue in 2009 until the completion of our acquisition of the LegalStore.com on October 8, 2009.  Accordingly, revenue comparisons in prior periods are not meaningful.  Revenue for the three month period ended March 31, 2010 totaled $154,280.  Costs of revenue for this period totaled $68,207 resulting in a gross profit of $86,073.  During this period we incurred general and administrative operating expenses of $150,090 and selling and marketing expenses of $10,144.  As a result, we had a net loss from operations of $74,161.

For The Year Ended December 31, 2009

We did not have any revenue in 2009 until the completion of our acquisition of the LegalStore.com on October 8, 2009.  Accordingly, revenue comparisons in prior periods are not meaningful.  Revenue for the three month period subsequent to the acquisition date through December 31, 2009 totaled $111,022.  Costs of revenue for this period totaled $80,983 resulting in a gross profit of $30,039.  During this period we incurred general and administrative operating expenses totaling $97,731 and selling and marketing expenses of $6,480  As a result, we had a net loss from operations of $74,172.  The 2009 unaudited pro-forma results of operations had the acquisition occurred January 1, 2009 are presented later in this prospectus.
 
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Liquidity and Capital Resources

At March 31, 2010, we had cash totaling $4,977, accounts receivable of $32,569, inventory of $94,492, and prepaid expenses of $2,641.  Current assets totaled $134,679.  Total assets totaled $343,479.

At March 31, 2010, we had accounts payable of $47,338, accrued expenses of $16,729, and advances from related party of $64,744.  Total current liabilities were $128,811 at March 31, 2010.

At March 31, 2010, we had a working capital surplus of $5,868.

We expect to use our existing cash and revolving line of credit to support our current operations and our efforts to achieve consistent positive cash flow from operations through December 2010, although there is no guarantee we will be able to do so.  We believe we may need to raise funds later this year to address our first six months of 2011 liquidity needs through either a debt or equity offering, although there is no guarantee we will be able to do so.  Our ability to fund operational requirements out of our available cash, cash generated from operations and revolving line of credit depends on a number of factors.  Some of these factors include our ability to (i) increase sales of our existing core products in the Legal channel; and (ii) introduce new products and services for the legal channel.  Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may lead to cost increases that could have a material adverse effect on us and our plans.  If we cannot generate sufficient cash to fund current operations out of available cash, cash generated from operations and revolving line of credit, we may need to raise additional funds. No assurances can be given that currently available funds will satisfy our working capital needs for the period estimated, or that we can obtain additional working capital through the sale of common stock or other securities, the issuance of indebtedness or otherwise or on terms acceptable to us. Further, no assurances can be given that any such equity financing will not result in a further substantial dilution to the existing stockholders or will be on terms satisfactory to us.

 To facilitate our future growth through the acquisition of Internet Web properties we may be required to raise substantial amounts of new financing in the form of additional equity investments, loan financings, or from strategic partnerships. There can be no assurance that we will be able to obtain additional financing on terms that are acceptable to us and at the time required by us, or at all. Further, any financing may cause dilution of the interests of our current stockholders. If we are unable to obtain additional equity or loan financing, our financial condition and results of operations will be materially adversely affected.

During 2009, our Chief Executive Officer advanced us $23,929 for working capital.  These advances are unsecured, non-interest bearing, and are due on demand.  During the first quarter 2010, additional advances from our Chief Executive Officer of $40,815 for working capital were received by us upon the same terms as the 2009 advances.  The advances are included in current liabilities on our balance sheet as of December 31, 2009 and March 31, 2010, respectively.  On April 8, 2010, the aggregate advances of $64,744 have been formalized with the execution of a $200,000 revolving line of credit agreement between our Chief Executive Officer and us.

Subsequent to March 31, 2010, additional advances from our Chief Executive Officer of $43,927 for working capital were received by us under the April 2010 $200,000 revolving line of credit agreement.  As of June 20, 2010, the outstanding balance of the $200,000 revolving line of credit totaled $108,671.

Critical Accounting Policies
 
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.  The consolidated financial statement for the fiscal year ended December 31, 2009 describe the significant accounting policies and methods used in the preparation of the consolidated financial statements.  Actual results could differ from those estimates and be based on events different from those assumptions.  Future events and their effects cannot be predicted with certainty; estimating therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained.  The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements:
 
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Accounts Receivable
 
We provide credit in the normal course of business to the majority of our customers.  We perform periodic credit evaluations of our customers’ financial condition and generally we do not require collateral.  We closely monitor outstanding balances and write off amounts we believe are uncollectible after reasonable collection efforts have been made.  To determine if an account receivable allowance was necessary at year-end, we reviewed our accounts receivable aging as well as collections received.  No allowance for doubtful accounts was considered necessary at December 31, 2009 or March 31, 2010.
 
Inventory
 
Inventories consist of legal supplies held for resale and are stated at the lower of cost or market on the first-in, first-out (“FIFO”) method.
 
Fixed Assets
 
We record fixed assets at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. We reviewed the fixed assets additions and determined an appropriate life for each class of asset.  Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred.  Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.
 
Intangible Assets
 
We amortize intangible assets and additions over the estimated useful lives of the assets. As of December 31, 2009 and March 31, 2010 our intangible assets consist of a customer list and domain name acquired pursuant to the asset purchase of LegalStore.com.  Upon obtaining the domain name and customer list, we estimated their useful life to be ten years with a gross carrying amount of $170,000 resulting in an annual amortization cost of $4,250 per year.
 
Long-Lived Assets
 
We review long-lived assets and certain identifiable intangibles 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 future net undiscounted cash flows expected to be generated by the asset including its ultimate disposition.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
 
Goodwill
 
Goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination. We do not amortize goodwill, rather it is tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value.  Annually, we determine the fair valve of the reporting unit and compare this amount to the carrying value of the assets.  If the carrying value of the asset exceeds the fair market value, an impairment loss is recorded.  Given the limited activity from the date of acquisition to December 31, 2009, we determined that nothing significant changed within the business that would result in impairment as of December 31, 2009.
 
Income Tax
 
We account for income taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carryforwards.  Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized in the immediate future.  We determine if it is more likely than not that the tax attributes making up the deferred tax asset will be utilized prior to expiration.  We reviewed the limited activity that resulted in a net loss and determined there was not sufficient evidence to support the deferred tax asset.
 
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We review tax positions taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain tax position.  We did not have any material unrecognized tax benefit at December 31, 2009 and March 31, 2010.  We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense.  During the period ended December 31, 2009 and March 31, 2010, we recognized no interest and penalties.
 
Revenue Recognition
 
We recognize revenue for sales of legal products when title of the goods transfers to the customer, either at the time the product is delivered or shipped to the customer based on our agreement with customer.
 
Share-Based Payments
 
We record our common shares issued based on the value of the shares issued or consideration received, including cash, services rendered or other non-monetary assets, whichever is more readily determinable.
 
Business Combination
 
We measured the identifiable assets acquired and liabilities assumed based on the acquisition date fair value.  We are required to recognize and measure any related goodwill acquired in the business combination or a gain from a bargain purchase.  In order to determine the goodwill or gain from a bargain purchase, we are required to determine the fair value of the consideration transferred in a business combination.  The fair value is calculated as the sum of the acquisition date fair value of the assets transferred by us, the liabilities incurred by us and the equity interest issued by us.  We had no activity or value prior to the acquisition and the consideration paid for the common stock issued prior to the acquisition was based on par value and not a reliable indication of fair value.  Therefore, we determined that the fair value of the interest in the Business acquired is a more reliable measure.  As a result, we valued the Business acquired using a discounted cash flow model and compared it to the fair value assigned to the identifiable assets and liabilities acquired to determine the amount of goodwill to record in connection with the business combination, which will be deductible for income tax purposes.  In determining the discounted cash flow, we utilized a growth rate for revenue of 9% in year 2010 and 2011, 7% in 2012 and 6% in 2013 and 2014 and a growth rate for expenses of 9% in 2010, 12% in 2011, and 6% in years 2012 through 2014.  In addition, we used a discount rate of 17.85% and a tax rate of 37%.  The discount rate was determined utilizing a weighted average cost of capital approach.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.
 
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MANAGEMENT

Directors and Executive Officers
 
Name
Age
Position
Director/Officer Since
       
Raymond J. Meyers
53
Chief Executive Officer, President,
April 2008
   
Treasurer ,and Director
 
       
Michael Buechler
37
Executive Vice President, Secretary,
June 2009
   
and Director
 
       
Alexander A. Orlando
47
Director
April 2008
       
Patrick White
56
Director
October 2009
       
Philip Jones
40
Director
October 2009

The principal occupations for at least the past five years of each of our directors and executive officers are as follows:

Raymond Meyers founded IMS in March 2007 and has been Chief Executive Officer and President since the Company’s inception.  Mr. Meyers founded and operated several technology-based companies, with the most recent one being eBoz, Inc., an Internet marketing tools company, which he operated from November 2001 toApril 2005 and sold to Web.com (NasdaqGM: WWWW), formerly Website Pros, Inc.,  in April 2005.  From April 2005 to December 2006 he was an employee of Web.com holding the position of General Manager, eBoz Division.  He founded our company in March 2007.  He was previously (from December 1996 to December 1999) CEO and President of ProtoSource Corporation, a NASDAQ listed company.  He is a graduate of Rutgers University with continuing education at UCLA.  As a result of his service as our President and Chief Executive Officer since inception, we believe Mr. Meyers provides the board with a deep understanding of all aspects of our business, and therefore should serve on our board.
 
Michael Buechler joined  IMS in March 2009 and is currently its Executive Vice President – Web Properties.  Mr. Buechler co-founded Linkbuddies.com banner exchange in 1998 and operated it until it was sold to iBoost, Inc. in 2000.  LinkBuddies was one of the first banner exchanges in the world.  Mr. Buechler was Vice President – Web Properties at eBoz, Inc., an Internet marketing tools company from 2001 until its sale to Web.com (formerly Website Pros, Inc.) in 2005.  From 2005 to 2008, he was employed by Web.com as Director – Product Strategy and was responsible for product strategy for this NASDAQ listed Web services company.  Mr. Buechler  is involved with every aspect of our business, including our strategic business planning,  marketing strategies and operations, and therefore we believe should serve on our board.
 
Alexander A. Orlando holds the positions of Chief Financial Officer and Treasurer for Eagle International Institute, Inc. from _March, 2008 to Present.  He was Vice President for eBoz, Inc., an Internet marketing tools company, from January 2000 to December 2007, Senior Executive for ITT Industries-Goulds Pumps from August 1998 to December 1999, General Manager and Controller for Foley-PLP from Jan 1995 to Aug 1998,   Managing Partner of Wagner's Tax and Consulting Services and Owner of several Subway Sandwich Franchises and Real Estate Investments from 1995 to Present.  He is a graduate of Ithaca College with a BS in Finance and Accounting, with continuing education at Geneseo State College.  We believe that Mr. Orlando should serve on our board as he brings to it substantial experience as senior executive in the Internet field and the financial management arena.  
 
Patrick White has been Chief Executive Officer and a Director of Document Security Systems, Inc. (“DSS”) since August 2002. In addition, Mr. White was President of DSS from August 2002 until June 2006 and was Chairman of the Board of Directors of DSS from August 2002 until January 2008.  DSS is an NYSE AMEX listed company. Mr. White received his Bachelors of Science (Accounting) and Masters of Business Administration degrees from Rochester Institute of Technology.  Mr. White is qualified to serve on our board because the skills and experience he has gained in his role as chief executive officer and chairman of a publicly traded company.  
 
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Philip. Jones is a CPA and holds an MBA from Rochester Institute of Technology.  He has 13 years experience in both the public and private accounting and finance sectors, including positions at Arthur Anderson  from 1996 to 1998 and PricewaterhouseCoopers from  2003 to  2004 , American Fiber Systems (Controller) from  2000 to  2003, and 2004 to 2005 , and Zapata (NYSE:ZAP)(Accounting Manager and Director of Finance) from  1998  to  2000 . Mr. Jones joined Document Security Systems, Inc. ("DSS")  in  2005 as its  Corporate Controller and has been its Chief Financial Officer since  2009 .  DSS is an NYSE AMEX listed company.  We believe that Mr. Jones having served as a Chief Financial Officer of a publicly traded company brings institutional knowledge to the board, especially in regard to our finances, and therefore should serve on our board.

Term of Office

Directors are elected to hold office until the next annual meeting of shareholders and until their successors are elected and qualified.  Annual meetings of the shareholders, for the selection of directors to succeed those whose terms expire, are held at such time each year as designated by the Board of Directors.  Officers of the Company are elected by the Board of Directors, which is required to consider that subject at its first meeting after every annual meeting of shareholders.  Each officer holds office until his successor is elected and qualified or until his earlier resignation or removal.

Executive Compensation

We do not have employment agreements with our executive officers, Mr. Meyers and Mr. Buechler.  We currently pay Mr. Meyers and Mr. Buechler $3,000 per month each.  We do not have key person life insurance on the lives of any of our executive officers.

The following table discloses compensation received by our Chief Executive Officer and acting Chief Financial Officer, and our Executive Vice-President, also referred to herein as our “named executive officers,” for the fiscal years ended December 31, 2009 and 2008.
 
 
 
Name and Principal Position
 
 
 
Year
 
 
Salary ($)
 
 
Bonus ($)
 
Stock Awards ($)
 
Option Awards ($)
 
All Other Compensation ($)
 
 
Total ($)
Raymond J Meyers,
 
2009
 
(2)
$7,500
 
 
 
 
 
$7,500
Chief Executive Officer, acting Chief Financial Officer
 
2008
(1)
 
 
 
 
 
                             
Michael Buechler,
 
2009
 
(2)
$7,500
 
 
 
 
 
$7,500
Executive Vice President
 
2008
(1)
 
 
 
 
 

 
1.
During 2008, Mr. Meyers and Mr. Buechler were not employees and did not receive any compensation from the Company.
 
2.
During 2009, Mr. Meyers and Mr. Buechler started to receive paid compensation for their services effective October 15, 2009 at a rate of $3,000 per month each.  In 2009, each received $1,500 in October, $3,000 in November, and $3,000 in December.
 
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Director Compensation

Our non-employee directors do not currently receive compensation for their services as directors although they are provided reimbursement for out-of-pocket expenses incurred in attending Board meetings.  We may pay cash and stock-based compensation to our directors in the future.

Board Committees

We do not have any committees of the Board of Directors.  We consider a majority of our Board members (consisting of Messrs. Orlando, White and Jones) to be independent directors under NYSE AMEX rules.

Equity Incentive Plan 

We intend to adopt an equity incentive plan, which we refer to as our Plan, which will provide for the grant of options intended to qualify as “incentive stock options” and “non-statutory stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, together with the grant of bonus stock and stock appreciation rights, at the discretion of our Board of Directors. Incentive stock options are issuable only to our eligible officers, directors and key employees. Non-statutory stock options are issuable only to our non-employee directors and consultants. We have not determined the aggregate maximum number of shares of common stock or appreciation rights that may be issued under the Plan. The Plan will be administered by our full Board of Directors. Under the Plan, the Board will determine which individuals shall receive options, grants or stock appreciation rights, the time period during which the rights may be exercised, the number of shares of common stock that may be purchased under the rights and the option price.

Limitation on Liability and Indemnification of Officers and Directors

Our Certificate of Incorporation provides that liability of directors to us for monetary damages is eliminated to the full extent provided by Delaware law. Under Delaware law, a director is not personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director’s duty of loyalty to us or our stockholders; (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) for authorizing the unlawful payment of a dividend or other distribution on our capital stock or the unlawful purchases of our capital stock; (iv) a violation of Delaware law with respect to conflicts of interest by directors; or (v) for any transaction from which the director derived any improper personal benefit.

The effect of this provision in our Certificate of Incorporation is to eliminate our rights and our stockholders’ rights (through stockholders’ derivative suits) to recover monetary damages from a director for breach of the fiduciary duty of care as a director (including any breach resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (v) above. This provision does not limit or eliminate our rights or the rights of our security holders to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s duty of care or any liability for violation of the federal securities laws.
 
CORPORATE GOVERNANCE
 
We do not have an audit committee, compensation committee or nominating committee. As we grow and evolve into a SEC registrant, our corporate governance structure is expected to be enhanced.
 
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ND MANAGEMENT
 
As of the date of this prospectus, there are 20,501,000 shares of common stock outstanding, including the 7,500,000 to be distributed to the DSS shareholders. The following table sets forth certain information regarding the beneficial ownership of the outstanding shares as of the date of this prospectus by (i) each person who is known by us to own beneficially more than 5% of our outstanding common stock or holds options on securities convertible into common stock within 60 days from the date hereof; (ii) each of our executive officers and directors; and (iii) all of our executive officers and directors as a group. Except as otherwise indicated, each such person has sole investment and voting power with respect to such shares, subject to community property laws where applicable. The address of our executive officers and directors is in care of us at 1434 6th Street, Suite 9, Santa Monica, CA 90401.  DSS’ address is 28 Main Street, Suite 1525, Rochester, New York 14614.

 
Name of Beneficial Owner
Shares Beneficially Owned
 
Percentage Beneficially Owned
 
Raymond J. Meyers
9,000,000   43.90 %
Document Security Systems, Inc. (1)
7,500,000   36.58 %
Michael Buechler
4,000,000   19.51 %
Alexander A. Orlando
1,000   % *
Patrick White (2)
320,000   1.7 %
Philip Jones
0   0.0% %
All executive officers and directors
       
as a group (five persons)
13,320,000   64.94 %
         
*Less than 1%
       

(1) Until we complete the distribution to DSS shareholders, these shares are recorded as held of record by DSS. Mr. White is a DSS shareholder.  Mr. White has sole investment and voting power with regard to the DSS shares until we complete the distribution to the shareholders of DSS.
(2) Represents shares to be received upon completion of our distribution of the 7,500,000 shares to the DSS shareholders.  
  
RELATED PARTY TRANSACTIONS
 
During 2009, Raymond Meyers, a principal shareholder and our Chief Executive Officer of the Company, made advances to the Company of $23,929.  The advances are unsecured, non–interest bearing, have no stated repayment terms and are due on demand.  The advances are included in current liabilities in the accompanying balance sheet as of December 31, 2009.  During the first quarter of 2010, additional advances of $40,815 were received from Mr. Meyers by the Company for working capital and upon the same terms as the 2009 advances.  On April 8, 2010, the aggregate advances of $64,744 have been formalized with the execution of a $200,000 revolving line of credit agreement between the Company and our Chief Executive Officer. This credit agreement matures on April 8, 2011, bears interest at an annual rate of 6% above LIBOR, and is secured by all of our assets.  In the event of default and upon expiration of any applicable cure period, Mr. Meyers, in his sole discretion may request repayment in the form of newly issued common stock of the Company valued at the average closing price of the such common stock for the prior ten business days.
 
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Subsequent to March 31, 2009, additional advances from our Chief Executive Officer of $43,927 for working capital were received by us under the April 2010 $200,000 revolving line of credit agreement between the Company and our Chief Executive Officer.  As of June 20, 2010, the outstanding balance of the $200,000 revolving line of credit totaled $108,671.
 
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
 
The Company provides indemnification for all reasonable actions taken by a director or officer in good faith to the fullest extent permitted under Delaware law.  In addition, under Delaware law, officers and directors are not liable for monetary damages unless an officer’s or director's breach of or failure to perform duties as a director constitutes a violation of the criminal law or involves a transaction from which the director derived an improper personal benefit either directly or indirectly.
 
           Insofar as indemnification for liabilities arising under the Securities Act may be available to directors, officers and controlling persons of the Registrant pursuant to any provision or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
 
WHERE YOU CAN FIND MORE INFORMATION
 
We have filed a registration statement on Form S-1 with the SEC with respect to the shares of our common stock being registered hereunder. This prospectus, which is a part of such registration statement, does not include all of the information that you can find in such registration statement or the exhibits to such registration statement. You should refer to the registration statement, including its exhibits and schedules, for further information about us and our common stock. Statements contained in this prospectus as to the contents of any contract or document are not necessarily complete and, if the contract or document is filed as an exhibit to a registration statement, is qualified in all respects by reference to the relevant exhibit.
 
After the distribution, we will file annual, quarterly and current reports, proxy statements and other information with the SEC. The registration statement is, and any of these future filings with the SEC will be, available to the public over the Internet on the SEC's website at www.sec.gov . You may read and copy any filed document at the SEC's public reference rooms in Washington, D.C. at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC's regional offices. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms.
 
-29-

 
 
 
 
 
 
 
 
 
 
 
INTERNET MEDIA SERVICES, INC.
FINANCIAL STATEMENTS
 
MARCH 31, 2010
 
 
 
 
 
 
 
 
 
 
 
F-1

 

 
INTERNET MEDIA SERVICES, INC.

CONTENTS
 
   
 
Page
   
Consolidated Financial Statements:
 
   
Balance Sheet
F-3
   
Statement of Operations
F-4
   
Statement of Cash Flows
F-5
   
   
Notes to the Consolidated Financial Statements
F-6
 
 
 
 
 
 

 
 
F-2

 
INTERNET MEDIA SERVICES, INC.
 
BALANCE SHEET
March 31, 2010
(Unaudited)
     
       
       
ASSETS
     
       
Current assets:
     
Cash
  $ 4,977  
Accounts receivable
    32,569  
Inventory
    94,492  
Prepaid expenses
    2,641  
Total current assets
    134,679  
         
Property and equipment, net
    25,433  
         
Other intangibles, net
    161,500  
         
Goodwill
    19,417  
         
Other assets
    2,450  
         
Total assets
  $ 343,479  
         
LIABILITIES AND STOCKHOLDERS' EQUITY
       
         
Current liabilities:
       
Accounts payable
  $ 47,338  
Accrued expenses
    16,729  
Advances from related party
    64,744  
Total current liabilities
    128,811  
         
Stockholders' equity
       
Common stock, $.001 par value, 25,000,000 shares authorized,
       
20,501,000 shares issued and outstanding
    20,501  
Additional paid in capital
    342,500  
Accumulated deficit
    (148,333 )
      214,668  
         
Total liabilities and stockholders' equity
  $ 343,479  
 
See accompanying notes.
 
 
F-3

 
 
INTERNET MEDIA SERVICES, INC.
 
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2010
(Unaudited)
     
       
       
Revenue
  $ 154,280  
         
Costs of revenue
    68,207  
         
Gross profit
    86,073  
         
Operating expenses:
       
General and administrative
    150,090  
Selling and marketing
    10,144  
      160,234  
         
         
Net loss
  $ (74,161 )
         
Loss per share - basic and diluted
  $ (0.00 )
         
Weighted average common shares outstanding - basic and diluted
    20,501,000  
 
See accompanying notes.
 
 
F-4

 
 
INTERNET MEDIA SERVICES, INC.
 
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2010
(Unaudited)
   
       
       
Cash flows from operating activities:
     
Net loss
  $ (74,161 )
Adjustments to reconcile net loss to net
       
  cash used by operating activities:
       
Depreciation and amortization
    5,739  
(Increase) decrease in assets:
       
Accounts receivable
    677  
Inventory
    (3,663 )
Prepaid expenses and other assets
    160  
Increase in liabilities:
       
Accounts payable and accrued expenses
    27,633  
Net cash used by operating activities
    (43,615 )
         
Cash flows from financing activities:
       
Net advances from related party
    40,815  
Net cash provided by financing activities
    40,815  
         
Net decrease in cash
    (2,800 )
         
Cash - beginning of year
    7,777  
         
Cash - end of year
  $ 4,977  
 
See accompanying notes.
 
 
F-5

 
NOTE 1. - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying balance sheets and related interim statements of operations and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in accordance with U.S. generally accepted accounting principles. All significant intercompany transactions have been eliminated.

Interim results are not necessarily indicative of results expected for a full year. For further information regarding Internet Media Services, Inc. (the “Company”) accounting policies, refer to the audited consolidated financial statements and footnotes thereto for the fiscal year ended December 31, 2009.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure.
 
The material operations of the Company began on October 8, 2009 with the acquisition of LegalStore.com. Accordingly, there are no comparitive March 31, 2009 financial statements presented.
 
Fair Value of Financial Instruments - Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2010. The carrying amounts reported in the balance sheet as of March 31, 2010 of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of revolving credit lines, notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions.

NOTE 2. - RELATED PARTY CREDIT AGREEMENT

During 2009 and the first quarter of 2010 Mr. Raymond Meyers, a shareholder and chief executive officer of the Company, made advances to the Company for working capital needs. As of March 31, 2010, outstanding advances payable to Mr. Meyers amounted to $64,744. The advances were unsecured, non-interest bearing, had no stated repayment terms and were due on demand. On April 8, 2010, the aggregate advances were formalized with the execution of a $200,000 revolving credit agreement. Subsequent to March 31, 2010, Mr. Meyers made additional advances in the amount of $43,927. This credit agreement matures on April 8, 2011, bears interest at an annual rate of 6% above LIBOR, and is secured by all of the assets of the Company. In the event of default and upon the expiration of any applicable cure period, Mr. Meyers, in his sole discretion may request repayment in the form of newly issued common stock of the Company.  Under the terms of the agreement the Company is required to comply with various covenants.

NOTE 3. - STOCKHOLDERS’ EQUITY

On April 8, 2010, the Company approved for issuance up to 10,000,000 shares of $.001 par value preferred stock.  The rights and preferences of the preferred stock will be determined by board resolution upon issuance.  There are no preferred shares issued and outstanding.
 
F-6

 
 

FINANCIAL STATEMENTS

INTERNET MEDIA SERVICES, INC.


DECEMBER 31, 2009
with
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

INTERNET MEDIA SERVICES, INC.

CONTENTS

 
 
Page
   
Report of Independent Registered Public Accounting Firm
F-8
   
   
Consolidated Financial Statements:
 
   
Balance Sheet
F-9
Statement of Operations and Accumulated Deficit
F-10
Statement of Stockholders’ Equity
F-11
Statement of Cash Flows
F-12
   
Notes to the Consolidated Financial Statements
F-13 - F-17
 


 
F-7

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
Internet Media Services, Inc. and Subsidiary


We have audited the accompanying consolidated balance sheet of Internet Media Services, Inc. and Subsidiary as of December 31, 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor have we been engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

As discussed in the restatement paragraph within Note 1 to the consolidated financial statements, Internet Media Services, Inc. has updated its previously issued 2009 financial statements to present major expense line items by functional category and earnings per share along with weighted average number of common shares outstanding on the statements of operations, include the statement of stockholders’ equity and revise certain footnote disclosures as required by accounting principles generally accepted in the United States of America.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Internet Media Services, Inc. and Subsidiary as of December 31, 2009, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.


/s/ FREED MAXICK & BATTAGLIA, CPAs, PC

Buffalo, New York
April 9, 2010, except for items disclosed in Note 1 regarding restatement, as to which the date is June 30, 2010
 
F-8

 
INTERNET MEDIA SERVICES, INC.
 
   
CONSOLIDATED BALANCE SHEET
 
December 31, 2009
 
   
       
       
       
ASSETS
     
       
Current assets:
     
Cash
  $ 7,777  
Accounts receivable
    33,246  
Inventory
    90,829  
Prepaid expenses
    5,251  
Total current assets
    137,103  
         
Property and equipment, net
    26,922  
Other intangibles, net
    165,750  
Goodwill
    19,417  
         
Total assets
  $ 349,192  
         
LIABILITIES AND STOCKHOLDERS' EQUITY
       
         
Current liabilities:
       
Accounts payable
  $ 26,653  
Accrued expenses
    9,781  
Advances from related party
    23,929  
Total current liabilities
    60,363  
         
Stockholders' equity
       
Common stock, $.001 par value, 25,000,000 shares authorized,
       
20,501,000 shares issued and outstanding
    20,501  
Additional paid in capital
    342,500  
Accumulated deficit
    (74,172 )
      288,829  
         
Total liabilities and stockholders' equity
  $ 349,192  

See accompanying notes.
 
F-9

 
INTERNET MEDIA SERVICES, INC.
 
   
CONSOLIDATED STATEMENT OF OPERATIONS
 
For the Year Ended December 31, 2009
 
   
       
       
       
       
Revenue
  $ 111,022  
         
Cost of sales
    80,983  
         
Gross profit
    30,039  
         
Operating expenses:
       
General and administrative
    97,731  
Selling and marketing
    6,480  
      104,211  
         
Net loss
  $ (74,172 )
         
Loss per share - basic and diluted
  $ (0.00 )
         
Weighted average common shares outstanding - basic and diluted
    20,501,000  

 

See accompanying notes.
 
F-10

 
INTERNET MEDIA SERVICES, INC.
 
   
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
For the Year Ended December 31, 2009
 
                           
                               
               
Additional
         
Total
 
   
Shares
   
Common
 
Paid-in
   
Accumulated
 
Stockholders'
 
   
Outstanding
 
Stock
   
Capital
   
Deficit
   
Equity
 
                               
Balance at December 31, 2008
    -     $ -     $ -     $ -     $ -  
                                         
Common stock issued to founders
    13,001,000       13,001       -       -       13,001  
                                         
Common stock issued to acquire Legalstore.com
    7,500,000       7,500       342,500       -       350,000  
                                         
Net loss
    -       -       -       (74,172 )     (74,172 )
                                         
Balance at December 31, 2009
    20,501,000     $ 20,501     $ 342,500     $ (74,172 )   $ 288,829  
 
 
See accompanying notes.
 
F-11

 
INTERNET MEDIA SERVICES, INC.
 
   
CONSOLIDATED STATEMENT OF CASH FLOWS
 
For the Year Ended December 31, 2009
 
   
       
       
       
Cash flows from operating activities:
     
Net loss
  $ (74,172 )
Adjustments to reconcile net loss to net
       
  cash used by operating activities:
       
Depreciation and amortization
    5,739  
(Increase) decrease in assets:
       
Accounts receivable
    (2,085 )
Inventory
    10,182  
Prepaid expenses
    (5,251 )
Increase in liabilities:
       
Accounts payable and accrued expenses
    36,434  
Net cash used by operating activities
    (29,153 )
         
Cash flows from financing activities:
       
Advances from related party
    23,929  
Proceeds from sale of common stock
    13,001  
Net cash provided by financing activities
    36,930  
         
         
Cash - end of year
  $ 7,777  
         
Non-cash investing and financing activities during the year
       
         
Acquisition of the business through issuance of common stock
  $ 350,000  
 
See accompanying notes.

 
 
F-12

 
 
NOTE 1. – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business - Internet Media Services, Inc. (the Company) is in the business of acquiring, building and monetizing internet web properties through the acquisition of existing web properties in vertical business channels identified by management and using these web properties as an anchor to build within that vertical market.  On October 8, 2009, the Company completed its first acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of Legalstore.com (see Note 2).  Legalstore.com is an internet based company that primarily sells legal supplies and legal forms, including security paper.  The Company also sells products and supplies for use in the medical and educational fields.  The Company was incorporated on March 26, 2007 and did not have operations until the acquisition in 2009.

Principles of Consolidation - The consolidated financial statements include the accounts of Internet Media Services, Inc. and its wholly-owned subsidiary (Legalstore.com, Inc.).  All intercompany balances and transactions have been eliminated in consolidation.

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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating, therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained.

Accounts Receivable - The Company provides credit in the normal course of business to the majority of its customers.  The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.  Management closely monitors outstanding balances and writes off amounts that it believes are uncollectible after reasonable collection efforts have been made.  No allowance for doubtful accounts was considered necessary at December 31, 2009.The Company does not accrue interest on past due accounts receivable.

Inventory - Inventories consist of legal supplies held for resale and are stated at the lower of cost or market on the first-in, first-out (“FIFO”) method.

Fixed Assets - Fixed assets are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred.  Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.

Intangible Assets - Intangible assets consist of a customer list and domain name acquired pursuant to the asset purchase agreement (see Note 2).

    Gross    
Net Carrying
   
Accumulated
   
Carrying
 
   
Useful life
   
Amount
   
Amortization
   
Cost
 
                         
Domain name
    10     $ 50,000     $ 1,250     $ 48,750  
Customer list
    10       120,000       3,000       117,000  
Total
          $ 170,000     $ 4,250      165,750  

 
F-13

 
 
NOTE 1. – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Amortization expense related to these intangible assets amounted to $4,250 for the year ended December 31, 2009.  The expected future amortization expense for the next five years is $17,000 per year.

Impairment of Long-Lived Assets - The Company reviews long-lived assets and certain identifiable intangibles 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 future net undiscounted cash flows expected to be generated by the asset including its ultimate disposition.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Goodwill - Goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination. The Company does not amortize goodwill, rather it is tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value.  The Company performs annual assessments of potential impairment and has determined that no impairment is necessary as of December 31, 2009.

Income Taxes – The Company accounts for income taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carryforwards.  Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized in the immediate future.

The Company reviews tax positions taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain tax position.  The Company did not have any material unrecognized tax benefit at December 31, 2009.  The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense.  During the year ended December 31, 2009, the Company recognized no interest and penalties.

The Company files U.S. federal tax returns and tax returns in various states.  The tax years 2007 through 2009 remain open to examination by the taxing jurisdictions to which the Company is subject.

Common Shares Issued - Common shares issued are recorded based on the value of the shares issued or consideration received, including cash, services rendered or other non-monetary assets, whichever is more readily determinable.

Revenue Recognition - Revenue is recognized for sales of legal products when title of the goods transfers to the customer, either at the time the product is delivered or shipped to the customer based on our agreement with customer.

 
F-14

 
 
NOTE 1. – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments - The Company discloses fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2009.
 
These financial instruments include cash, accounts receivable, accounts payable, accrued liabilities and short term advances. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the short term advances is estimated based upon the carrying value which approximates the fair value of the advance.

Advertising Costs- Generally consist of online, keyword advertising with various search engines with additional amounts spent on certain targeted advertising.   Advertising costs are expensed as incurred and amounted to approximately $6,500 for the year ended December 31, 2009.

Earnings Per Common Share - The Company presents basic earnings per share.  Basic earnings per share reflects the actual weighted average of shares issued and outstanding during the period. There are no dilutive or potentially dilutive instruments outstanding as of December 31, 2009.

Restatement - Subsequent to the original issuance of the financial statements, it was determined that certain disclosures required by accounting principles generally accepted in the United States (GAAP) were omitted.  These financial statements have been restated to present major expense line items by functional category and earnings per share along with weighted average number of common shares outstanding on the statement of operations, include a statement of stockholders’ equity, as well as add and revise certain footnote disclosures required by GAAP.  The footnote disclosures restatements made are as follows:

 
Ø
Note 1 was restated to include accounting policies related to the fair value of common shares issued and earnings per share, as well as modify and expand the accounting policy related to revenue recognition.
 
 
Ø
Note 2 was expanded to include assumptions used in determining the fair value of assets purchased and liabilities assumed under the discounted cash flow model and to provide supplemental pro forma information on the revenue and earnings of the combined entity for the current and prior reporting period.
 
 
Ø
Note 3 was restated to include the estimated useful life for each major class of fixed asset presented.
 
 
Ø
Note 4 was expanded to include the method and assumptions used in determining the fair value of stock issued to founders.
 
 
Ø
Note 5 was revised to clarify the identity of the stockholder who provided advances to the Company as Mr. Raymond Meyers and updated for additional advances subsequent to December 31, 2009.

 
F-15

 
NOTE 1. – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

There were no changes to the balance sheet, earnings, statement of cash flows, or equity of the Company as a result of these restatements.  The financial statements have not been updated to reflect subsequent events since the date of the original issuance of the financial statements.

NOTE 2. – ACQUISITION OF BUSINESS

On October 8, 2009, the Company entered into an Asset Purchase Agreement with Lester Levin Inc. (“LLI”), a New York corporation and wholly owned subsidiary of Document Security Systems, Inc. (“DSS”), whereby the Company purchased the assets and liabilities of Legalstore.com (constituting the Business), a division of DSS, in exchange for 7,500,000 shares of common stock of the Company.

Pursuant to the Asset Purchase Agreement, the Company agreed to purchase all the assets of Legalstore.com, including, cash and cash equivalents, accounts receivable, inventories, fixed assets, customer lists, and domain names.  In addition to issuing the common stock, the Company agreed to assume certain liabilities associated with Legalstore.com, including an existing office lease.

The Company accounted for the acquisition in accordance with ASC 805-10 “Business Combinations”, whereby the Company measured the identifiable assets acquired and liabilities assumed based on the acquisition date fair value.  The Company is required to recognize and measure any related goodwill acquired in the business combination or a gain from a bargain purchase.  In order to determine the goodwill or gain from a bargain purchase, the Company is required to determine the fair value of the consideration transferred in a business combination.  The fair value is calculated as the sum of the acquisition date fair value of the assets transferred by the Company, the liabilities incurred by the Company and the equity interest issued by the Company.  The Company had no activity or value prior to the acquisition and the consideration paid for the common stock issued prior to the acquisition was based on par value and not a reliable indication of fair value.  Therefore, the Company determined that the fair value of the interest in the Business acquired is a more reliable measure.  As a result, the Company valued the Business acquired using a discounted cash flow model and compared it to the fair value assigned to the identifiable assets and liabilities acquired to determine the amount of goodwill to record in connection with the business combination, which will be deductible for income tax purposes.  In determining the discounted cash flow, the Company utilized a growth rate for revenue of 9% in year 2010 and 2011, 7% in 2012 and 6% in 2013 and 2014 and a growth rate for expenses of 9% in 2010, 12% in 2011, and 6% in years 2012 through 2014.  In addition, the Company used a discount rate of 17.85% and a tax rate of 37%.  The discount rate was determined utilizing a weighted average cost of capital approach. All the operations of the Business are included in the accompanying statement of operations beginning with the date of the Asset Purchase Agreement.

In connection with the Asset Purchase Agreement, the Company and a majority shareholder of the Company also entered into a Registration Rights Agreement and a Stock Pledge and Escrow Agreement (collectively, the Agreements).  In connection with the Agreements, the Company is required to file a registration statement on Form S-1, on a best efforts basis, with respect to the 7,500,000 shares of common stock issued pursuant to the terms of the Agreements, as well as raise at least $200,000 to be used for working capital in the Company. If the Company fails to secure registration of at least 20% of the 7,500,000 shares of common stock within 360 days of the closing, and fails to meet certain working capital thresholds contained in the Agreements, then the Company will be considered to be in default. In the event of a default by the Company, Document Security Systems, Inc may receive up to an additional 12,500,000 shares of the Company’s Common Stock currently issued and outstanding and owned by the principal shareholders.  These shares are currently held in escrow as collateral.

In addition to the Agreements, the Company’s principal shareholders, the Company and Document Security Systems, Inc entered into a voting agreement whereby the principal shareholders of the Company agreed to vote all common stock held by them so as to elect two nominees designated by Lester Levin Inc. or Document Security Systems, Inc as members of the Company’s Board of Directors, which consists of five members.

The fair value of assets and liabilities acquired as a result of this business combination were as follows:

Fair value of the consideration transferred
  $ 350,000  
         
Fair value of identifiable assets acquired
       
 and liabilities assumed:
       
Accounts receivable
    31,161  
Inventory
    101,011  
Fixed assets
    28,411  
Domain name
    50,000  
Customer list
    120,000  
Total
    330,583  
         
Goodwill
  $ 19,417  
 
 
F-16

 
The revenue of $111,022 and loss of $(74,172) included in the Company's consolidated statement of operations for the year ended December 31, 2009 consist primarily of Legalstore.com operations. The unaudited pro forma revenue and loss of the entity if the acquisition had taken place as of January 1, 2008 are as follows:

   
Revenue
   
Loss
 
             
Supplemental pro forma from January 1, 2009
           
to December 31, 2009   $ 470,647     $ (81,252 )
                 
Supplemental pro forma from January 1, 2008
               
to December 31, 2008
  $ 609,807     $ (29,574 )

NOTE 3. - FIXED ASSETS
 
Fixed assets consist of the following at December 31, 2009:

 
  Estimated
     
 
 Useful Life
     
         
Machinery and equipment
1 to 5 years
  $ 18,050  
Furniture and fixtures
5 to 7 years
    7,820  
Leasehold improvements
3 to 5 years
    2,541  
        28,411  
Less: accumulated depreciation
      (1,489 )
           
      $ 26,922  

Depreciation expense was $1,489 for the year ended December 31, 2009.

NOTE 4. - STOCKHOLDERS’ EQUITY

During the year ended December 31, 2009, the Company issued 13,001,000 shares of common stock to the founders in exchange for $13,001. The amount of cash consideration paid was determined based on the par value of the shares issued.  Given the absence of a “regular, active public market”, and no previous sales of the Company common stock, the Company determined the fair value of the initial 13,001,000 shares sold to be the consideration paid.  The Company took the following into consideration in making this determination; the Company had no transactions or activity prior to and immediately subsequent the initial stock sale and the Company was an inactive shell during this time period.

Subsequent to December 31, 2009, the Company approved for issuance up to 10,000,000 shares of $.001 par value preferred stock.  The rights and preferences of the preferred stock will be determined by board resolution upon issuance.  As of April 9, 2010, no preferred shares have been issued.

NOTE 5. - ADVANCES FROM RELATED PARTY

During 2009, Mr. Raymond Meyers, a shareholder and chief executive officer of the Company, advanced the Company $23,929 for working capital needs.   The advances were unsecured, non-interest bearing, had no stated repayment terms and were due on demand.  The advances are included in current liabilities in the accompanying balance sheet as of December 31, 2009.  Subsequent to December 31, 2009, additional advances net of repayments amounting to  $84,742 were received from Mr. Meyers by the Company.  On April 8, 2010, the aggregate advances were formalized with the execution of a $200,000 revolving credit agreement.  This credit agreement matures on April 8, 2011, bears interest at an annual rate of 6% above LIBOR, and is secured by all of the assets of the Company.

NOTE 6. - INCOME TAXES

Following is a summary of the components giving rise to the income tax provision (benefit) for the year ended December 31, 2009:

Deferred:
     
Federal
    (24,071 )
State
    (4,964 )
Total deferred
    (29,035 )
         
Less increase in allowance
    29,035  
Net deferred
       
Total income tax provision
  $ -  
         
Individual components of deferred taxes are as follows as of December 31, 2009:
       
         
Deferred tax assets:
       
Net operating loss carryforwards
  $ 28,182  
Depreciable and amortizable assets
    853  
Total
    29,035  
Less valuation allowance
    (29,035 )
         
Gross deferred tax assets
  $ -  
         
 
The Company has approximately $68,700 in net operating loss carryforwards (“NOL’s”) available to reduce future taxable income.  These carryforwards begin to expire in year 2029.  Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in the future and utilize the NOL’s before they expire, the Company has recorded a valuation allowance to reduce the net deferred tax asset to zero.  The difference between the statutory federal tax rate and the effective tax rate is due to the state income tax rate and the change in the valuation allowance.

NOTE 7. - COMMITMENTS

Facilities - The Company leases office and warehouse space with a monthly rental of $1,740. This lease was assumed by the Company according to the asset purchase agreement as discussed in Note 2.  Lease expense for year ended December 31, 2009 was $3,740.  The lease expires in October 2010, although renewal options exist to extend lease agreements.  Subsequent to December 31, 2009, the Company entered into a second lease for corporate office space, which requires monthly payments of $2,000 and expires on January 31, 2011.  Total approximate future lease commitments under both of these leases are as follows:

 
2010
$39,400
 
2011
$2,000
 
F-17

 
 
 
 
 
 
 
 
 
FINANCIAL STATEMENTS
LEGALSTORE.COM
(A DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)

OCTOBER 8, 2009
with
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 
 

 
 
F-18

 
LEGALSTORE.COM
(A DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)

CONTENTS






 
Page
   
Report of Independent Registered Public Accounting Firm
F-20
   
   
Carve-Out Financial Statements:
 
Balance Sheet
F-21
Statement of Operations
F-22
Statement of Changes in Divisional Equity
F-23
Statement of Cash Flows
F-24
   
   
Notes to the Carve-Out Financial Statements
F-25 - F-31

 
 
 
 

 
 
F-19

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors of
Document Security Systems, Inc.
 
 
We have audited the accompanying carve-out balance sheet of Legalstore.com (a division of Document Security Systems, Inc.) as of October 8, 2009, and the related carve-out statements of operations, cash flows and changes in divisional equity for the period from January 1, 2009 through October 8, 2009. These financial statements are the responsibility of Legalstore.com’s management. Our responsibility is to express an opinion on these carve-out financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  Legalstore.com is not required to have, nor have we been engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Legalstore.com’s internal control over financial reporting.  Accordingly we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the carve-out financial position of Legalstore.com (a division of Document Security Systems, Inc.) as of October 8, 2009, and the results of its carve-out operations, cash flows and changes in divisional equity for the period from January 1, 2009 through October 8, 2009, in conformity with U.S. generally accepted accounting principles.
 
As discussed in Notes 1and 8 to the carve-out financial statements, on October 8, 2009 Document Security Systems, Inc. entered into an asset purchase agreement to sell the assets associated with Legalstore.com (a division of Document Security Systems, Inc.).
 
 
/s/ FREED MAXICK & BATTAGLIA, CPAs, PC
 
Buffalo, New York
June 30, 2010

 
F-20

 
LEGALSTORE.COM
(A DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
 
CARVE-OUT BALANCE SHEET
October 8, 2009
     
       
       
ASSETS
     
       
Current assets:
     
Cash
  $ 10,405  
Accounts receivable
    31,161  
Inventory
    101,011  
Total current assets
    142,577  
         
Property and equipment, net
    30,383  
Goodwill
    81,013  
         
Total assets
  $ 253,973  
         
LIABILITIES AND DIVISIONAL EQUITY
       
         
Current liabilities:
       
Accounts payable
  $ 13,264  
Accrued expenses
    39,438  
Total current liabilities
    52,702  
         
Commitments and contingencies (Note 6)
    -  
         
Divisional equity
    201,271  
         
Total liabilities and divisional equity
  $ 253,973  

See accompanying notes.
 
F-21

 
LEGALSTORE.COM
(A DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
 
CARVE-OUT STATEMENT OF OPERATIONS
For the Period From January 1, 2009 through October 8, 2009
 
     
       
       
Revenue
  $ 359,625  
         
Cost of sales
    178,759  
         
Gross profit
    180,866  
         
Operating expenses:
       
Compensation and benefits
    139,041  
Rent and utilities
    22,255  
Other
    16,182  
Depreciation
    9,218  
Marketing and advertising
    1,250  
      187,946  
         
Net loss
  $ (7,080 )

See accompanying notes.
 
F-22

 
 
LEGALSTORE.COM
(A DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
 
CARVE-OUT STATEMENT OF CHANGES IN DIVISIONAL EQUITY
For the Period From January 1, 2009 through October 8, 2009
     
       
       
       
Balance at December 31, 2008
  $ 197,118  
         
Net transfers from parent
    3,907  
         
Stock based compensation
    7,326  
         
Net loss
    (7,080 )
         
Balance at October 8, 2009
  $ 201,271  

See accompanying notes.
 
 
 
 
 
F-23

 
LEGALSTORE.COM
(A DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
 
CARVE-OUT STATEMENT OF CASH FLOWS
For the Period From January 1, 2009 through October 8, 2009
     
       
       
Cash flows from operating activities:
     
Net loss
  $ (7,080 )
Adjustments to reconcile net loss to net
       
  cash provided by operating activities:
       
Depreciation
    16,335  
Stock based compensation
    7,326  
Increase in assets:
       
Accounts receivable
    (8,842 )
Inventory
    (5,997 )
Incrase (decrease) in liabilities:
       
Accounts payable
    (1,440 )
Accrued expenses
    4,750  
Net cash provided by operating activities
    5,052  
         
Cash flows from investing activities:
       
Purchase of fixed assets
    (5,005 )
Net cash used by investing activities
    (5,005 )
         
Cash flows from financing activities:
       
Payments of capital lease obligations
    (346 )
Net transfers from parent
    3,907  
Net cash provided by financing activities
    3,561  
         
         
Net increase in cash
    3,608  
         
Cash - beginning of period
    6,797  
         
Cash - end of period
  $ 10,405  

See accompanying notes.
 
F-24

 
NOTE 1. - BACKGROUND AND BASIS OF PRESENTATION

The accompanying carve-out financial statements of Legalstore.com (the “Legalstore.com” and “Business”), a division of Lester Levin, Inc, a New York corporation, have been prepared from the historical accounting records of Lester Levin, Inc.  Lester Levin, Inc. is a wholly owned subsidiary of Document Security Systems, Inc.  Legalstore.com primarily sells legal supplies and documents, including security paper and products for the users of legal documents and supplies in the legal, medical and educational fields.  These carve-out financial statements for Legalstore.com are presented on a carve-out basis from the consolidated financial statements of Document Security Systems, Inc.  These carve-out financial statements have been prepared to facilitate the sale of Legalstore.com assets to Internet Media Services, Inc. (IMS) and the expected subsequent filing of the Form S-1 by IMS (See Note 8).  All material assets and liabilities specifically identified with the Business have been presented in the balance sheet; all material revenues and expenses specifically identified with the Business and allocations of corporate expenses have been presented in the statement of operations. The financial statements have been presented as of the point in time immediately prior to the sale of the LegalStore.com assets and do not reflect the sale transaction discussed in Note 8.
 
Document Security Systems, Inc.’s, equity in the Business has been presented in lieu of shareholders' equity in the carve-out financial statements.  The financial information presented in these carve-out financial statements also reflects certain allocations from Document Security Systems, Inc. that are directly related to the Business and are based on historical activity levels.  As such, the carve-out financial statements may not necessarily reflect the financial position, results of operations or cash flows that the Business might have had in the past, or might have in the future, if the Business had existed as a separate, stand-alone business during the periods presented.
 
The allocations consist of bookkeeping, financial and executive management time, liability insurance, and accounting software costs incurred on behalf of the Business by Document Security Systems, Inc.  In addition, the allocations include stock based compensation expense for options to purchase Document Security Systems, Inc. common stock that was granted to the Business’s employees along with accrued payroll taxes related to grants of common stock of Document Security Systems, Inc.  Management of Document Security Systems, Inc. believes that these allocations and contributions have been made on a reasonable basis. Payments made by Document Security Systems, Inc. to the Business or to Document Security Systems, Inc. from the Business are presented as transfers from and to parent as a component of divisional equity.

NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting - The carve-out financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The Business's significant accounting policies are summarized below.

 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating, therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained.
 
F-25

 
NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash - Cash includes bank deposits.  At times, bank balances may exceed federally insured limits.  The Business has not experienced any losses in such accounts and believes it is not exposed to any significant risk with respect to cash.

Accounts Receivable - The Business provides credit in the normal course of business to the majority of its customers.  The Business performs periodic credit evaluations of its customers’ financial conditions and generally does not require collateral.  Management closely monitors outstanding balances and writes off amounts that it believes are uncollectible after reasonable collection efforts have been made.  No allowance for doubtful accounts was considered necessary at October 8, 2009.  The Business does not accrue interest on past due accounts receivable.

Inventory - Inventories consist of legal supplies held for resale and are stated at the lower of cost or market on the first-in, first-out (“FIFO”) method.

Fixed Assets - Fixed assets are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives or lease period of the assets whichever is shorter. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred.  Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.

Goodwill - Goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination. The Business has elected the push-down method of accounting whereby the net assets acquired that were adjusted to fair market value with the excess cost recorded as goodwill on the financial statements of Document Security Systems, Inc. have been pushed down to these carve-out financial statements.  The Business does not amortize goodwill, rather it is tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value.  The Business performs annual assessments of potential impairment and has determined that no impairment is necessary as of October 8, 2009.

Impairment of Long-Lived Assets - The Business reviews long-lived assets and certain identifiable intangibles 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 future net undiscounted cash flows expected to be generated by the asset including its ultimate disposition.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets.
 
F-26

 
NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments - The Business discloses fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of October 8, 2009.
 
These financial instruments include cash, accounts receivable, accounts payable and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.

Share-Based Payments - The Business accounts for compensation expense for stock option awards granted under Document Security System, Inc.’s Stock Incentive Plans over the requisite service period based on the grant date fair value of the awards.    During the period from January 1, 2009 through October 8, 2009, there were no options issued to purchase shares of stock of the Business’s parent company, Document Security Systems, Inc., to the Business’s employees.  Legalstore.com employees had 5,500 options outstanding as of October 8, 2009.
 
Compensation expense from stock option grants to the Business’s employees in prior years amounted to $7,326 for the period from January 1, 2009 through October 8, 2009.   
 
The Business uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Business records compensation expense related to stock options over the requisite service period based on the grant date fair value of the awards.
 
Revenue Recognition - Sales of legal products are recognized when a product or service is delivered, shipped or provided to the customer and all material conditions relating to the sale have been substantially performed.

Advertising Costs - Generally consist of online, keyword advertising with Google, with additional amounts spent on certain print media in targeted industry publications.   Advertising costs were approximately $345 for the period from January 1, 2009 through October 8, 2009.

Income Taxes - Through October 8, 2009, the Business was not a separate taxable entity for federal, state, or local income tax purposes, and its operations were included in the consolidated tax returns of Document Security Systems, Inc.  Accordingly, all tax attribute carryforwards, such as tax credits and net operating losses, are retained by Document Security Systems, Inc., with no allocation to the Business.  The Business has calculated the tax provision on the separate return basis to illustrate the impact on the Business. Accordingly, deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse.  The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.  In addition, a valuation allowance is established to the extent necessary to reduce deferred income tax assets to amounts that more likely than not will be realized.
 
F-27

 
NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Business’s adoption of accounting for uncertainty in income tax did not have a material impact on the Business’s results of operations and financial position, and therefore, the Business did not have any adjustments to the January 1, 2007 beginning balance of divisional equity.  The Business reviews the financial statement recognition and measurement for income tax positions that Document Security Systems, Inc. has taken or expects to take in its consolidated income tax returns on behalf of the Business that were uncertain.   As of October 8, 2009, the Business determined that it did not have any uncertain tax positions.  In addition, the Business did not have any material unrecognized tax benefit at October 8, 2009.  It is the Business’s policy to recognize interest accrued and penalties related to unrecognized tax benefits in income tax expense.  For the period January 1, 2009 through October 8, 2009, the Business recognized no interest and penalties. 

NOTE 3. - FIXED ASSETS

  Fixed assets consisted of the following at October 8, 2009:
 
     
Estimated
 
     
Useful Life
 
         
Machinery and equipment
5 years
  $ 29,194  
Leasehold improvements
10 years (1)
    4,026  
Furniture and fixtures
7 years
    20,743  
Software and websites
3 years
    28,995  
        82,958  
Less: accumulated depreciation
      (52,575 )
           
      $ 30,383  

(1)Expiration of lease term.

Depreciation expense was $16,335 for the period from January 1, 2009 through October 8, 2009.
 
F-28

 
NOTE 4. - INCOME TAXES

The provision (benefit) for income taxes shown in the Business’s statement of operations for the period from January 1, 2009 through October 8, 2009 consist of the following:

The provision (benefit) for income taxes as of October 8, 2009 consists of the following:
 
       
Currently payable:
     
     Federal
  $ -  
     State
    -  
Total currently payable
    -  
  Deferred:
       
     Federal
    (1,021 )
     State
    (340 )
Total deferred
    (1,361 )
Less increase in allowance
    1,361  
Net deferred
    -  
Total income tax provision (benefit)
  $ -  
         
         
Individual components of deferred taxes are as follows:
 
         
Deferred tax assets:
       
Net operating loss carry forwards
  $ 24,423  
Equity issued for services
    4,309  
    Total
    28,732  
Less valuation allowance
    (26,698 )
Gross deferred tax assets
  $ 2,034  
         
Deferred tax liabilities:
       
Depreciation
  $ 2,034  
Gross deferred tax liabilities
    2,034  
         
Net deferred tax liabilities
  $ -  

Had the Business filed stand alone tax returns, as of October 8, 2009, net operating losses (NOL’s) of approximately $127,000 would have been available to reduce future taxable income.  Due to the uncertainty as to the Business’s ability to generate sufficient taxable income in the future and utilize the NOL’s before they expire, the Business has recorded a valuation allowance.   On a stand-alone basis, it is assumed that the Business is not a member of a controlled group and therefore, had a Federal tax rate of 15%.
 
F-29

 
 NOTE 5. - DEFINED CONTRIBUTION PENSION PLAN

The Business’s employees participate in an Employee savings plan (the “401(k) Plan”) sponsored by Document Security Systems, Inc., which qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.  Employees become eligible to participate in the Plan at the beginning of the following quarter after the employee’s hire date.  Employees may contribute up to 20% of their pay to the Plan, subject to the limitations of the Internal Revenue Code.   The Business’s matching contributions are discretionary.   Pursuant to the 401(k) Plan, employees may elect to defer a portion of their salary on a pre-tax basis.  During the period from January 1, 2009 through October 8, 2009, the Business did not make any matching contributions.
 
NOTE 6. - COMMITMENTS

Facilities - The Business leases 3,829 square feet of office and warehouse space with a monthly rental of approximately $1,700. Lease expense for period from January 1, 2009 through October 8, 2009 was approximately $17,500.  The lease expires on October 31, 2010, although renewal options exist to extend lease agreements for up to an additional 4 years.  Total approximate lease commitments under this lease subsequent to October 8, 2009 are as follows:

 
2009
-
$  3,500
 
2010
-
$19,000


NOTE 7. - RELATED PARTY TRANSACTIONS

Funding - The Business’s cash requirements are funded by Document Security Systems, Inc., which are not subject to formal financing arrangements and do not bear interest.  Transfers to and from Document Security Systems, Inc. are recorded as transfers to/from affiliate as a component of divisional equity because amounts are not expected to be repaid. Included in divisional equity are amounts charged by Document Security Systems, Inc. for allocated corporate services.

Corporate Services - In accordance with SAB No. 55, corporate expense allocations have been reflected in these financial statements.  The corporate expenses have been allocated based on a direct relationship to the Business’s operations and are primarily related to accounting and finance operations performed by Document Security Systems, Inc. personnel on behalf of the Business and liability insurance and for costs associated with the shared use of Document Security Systems, Inc. accounting and ERP system.  In addition, the allocations include stock based compensation expense for options to purchase Document Security Systems, Inc.’s common stock that was granted to the Business’s employees along with accrued payroll taxes related to grants of common stock of Document Security Systems, Inc.  Management believes that the basis used for allocating corporate services is reasonable.  However, the terms of these transactions may differ from those that would have resulted from transactions among related parties.
 
F-30

 
NOTE 8. - SALE OF LEGALSTORE.COM ASSETS

On October 8, 2009, Lester Levin Inc., a New York corporation (“LLI”) and wholly owned subsidiary of Document Security Systems, Inc., entered into an Asset Purchase Agreement with Internet Media Services, Inc., a Delaware corporation (“IMS”), whereby LLI agreed to sell the assets associated with its Legalstore.com business to IMS. This transaction has not been reflected in the accompanying financial statements.
 
Pursuant to the Asset Purchase Agreement, LLI agreed to sell to IMS all the assets of Legalstore.com, including, but not limited to, equipment, inventories, contracts, domain names, accounts receivable, and certain cash and cash equivalents. In consideration of the sale and transfer of the Acquired Assets, IMS agreed to issue 7,500,000 shares of common stock, par value $.001 per share, of IMS (“IMS Common Stock”) (the “Purchase Price”) to Document Security Systems, Inc., representing 37% of the then outstanding shares.  In addition to issuing the new IMS Common Stock, IMS agreed to assume certain liabilities associated with Legalstore.com, including an existing office lease, trade payables and accrued payroll.  Certain liabilities presented in the accompanying carve-out financial statements will not be assumed by IMS.
 
Within 180 days of closing, IMS intends to file a registration statement on Form S-1 with respect to the IMS Common Stock pursuant to the terms of the Asset Purchase Agreement and Registration Rights Agreement executed by IMS and Document Security Systems, Inc concurrently with the Asset Purchase Agreement. Pursuant to the terms of the Asset Purchase Agreement, Registration Rights Agreement, and the Stock Pledge and Escrow Agreements executed by IMS’ principal shareholders, IMS, LLI and Document Security Systems, Inc, if IMS fails to secure registration of at least 20% of the IMS Common Stock within 360 days of closing, and to meet certain working capital thresholds contained in the Asset Purchase Agreement, then IMS will be in default. In the event of a default by IMS with respect to the registration of the IMS Common Stock, if IMS has failed to satisfy the working capital requirements provided for in the Asset Purchase Agreement, Document Security Systems, Inc may take back the collateral, consisting of up to 12,500,000 additional shares of IMS Common Stock owned by the IMS shareholders identified in the Pledge Agreements.  If IMS is in default with respect to the registration of IMS Common Stock, and IMS has satisfied the working capital requirements contained in the Asset Purchase Agreement, Document Security Systems, Inc may take back the collateral, consisting of up to 5,250,000 additional shares of IMS Common Stock owned by the IMS shareholders identified in the Pledge Agreements.
 
In addition to the Asset Purchase Agreement, the Registration Rights Agreement, and the Pledge Agreements, IMS’s principal shareholders, IMS and Document Security Systems, Inc entered into a voting agreement whereby the principal shareholders of IMS agreed to vote all IMS Common Stock held by them so as to elect two nominees designated by LLI or Document Security Systems, Inc as members of the IMS Board of Directors.
 
F-31

 
 
 
 
 
 
 
 
 
FINANCIAL STATEMENTS

LEGALSTORE.COM
(A DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)


DECEMBER 31, 2008
 
 
 

 
 
F-32

 
LEGALSTORE.COM
(A DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)

CONTENTS
 
 
Page
   
Report of Independent Registered Public Accounting Firm
F-34
   
   
Carve-Out Financial Statements:
 
Balance Sheets
F-35
Statements of Operations
F-36
Statements of Cash Flows
F-37
Statements of Changes in Divisional Equity
F-38
   
   
Notes to the Carve-Out Financial Statements
F-39 - F-48





 
F-33

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors of
Document Security Systems, Inc.
 
We have audited the accompanying carve-out balance sheets of Legalstore.com (a division of Document Security Systems, Inc.) as of December 31, 2008 and 2007, and the related carve-out statements of operations, cash flows and changes in divisional equity for the years then ended. These financial statements are the responsibility of Legalstore.com’s management. Our responsibility is to express an opinion on these carve-out financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  Legalstore.com is not required to have, nor have we been engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Legalstore.com’s internal control over financial reporting.  Accordingly we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the carve-out financial position of Legalstore.com (a division of Document Security Systems, Inc.) as of December 31, 2008 and 2007, and the results of its carve-out operations, cash flows and changes in divisional equity for the years then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 8 to the carve-out financial statements, on October 8, 2009 Document Security Systems, Inc. entered into an asset purchase agreement to sell the assets associated with Legalstore.com (a division of Document Security Systems, Inc.).

/s/ FREED MAXICK & BATTAGLIA, CPAs, PC

Buffalo, New York
December 11, 2009
 
F-34

 

LEGALSTORE.COM
(a Division of Document Security Systems, Inc.)
Carve-Out Balance Sheets
As of
                   
   
September 30,
   
December 31,
   
December 31,
 
    2009     2008     2007  
   
(unaudited)
             
                   
ASSETS
                 
                   
Current assets:
                 
Cash
  $ 18,186     $ 6,797     $ 137,734  
Accounts receivable
    31,434       22,319       35,407  
Inventory
    92,521       95,014       116,108  
                         
      Total current assets
    142,141       124,130       289,249  
                         
Fixed assets, net
    32,218       46,718       49,961  
Goodwill
    81,013       81,013       81,013  
                         
Total assets
  $ 255,372     $ 251,861     $ 420,223  
                         
LIABILITIES AND DIVISIONAL EQUITY
                       
                         
Current liabilities:
                       
Accounts payable
  $ 18,563     $ 19,709     $ 40,671  
Accrued liabilities
    35,833       34,688       34,688  
Current portion of capital lease obligations
    -       346       980  
                         
      Total current liabilities
    54,396       54,743       76,339  
                         
Capital lease obligations
    -       -       347  
                         
Commitments and contingencies (see Note 6)
                       
                         
Divisional equity
    200,976