UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

xAnnual Report under Section 13 or 15(d) of the Securities

Exchange Act of 1934

For the fiscal year ended December 31, 2012

or

¨Transitional Report under Section 13 or 15(d) of the

Securities Exchange Act of 1934

Commission File Number: 333-165972

INTERNET MEDIA SERVICES, INC.

(Exact name of Registrant as specified in its charter)

Delaware	22-3956444
(State of incorporation)	(IRS Employer Identification Number)

1507 7th Street, #425

Santa Monica, California 90401

(Address of principal executive office)

(800) 467-1496

(Registrant’s telephone number)

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act:

Common Stock (Par Value - $0.001)

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act

Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes ¨ No x

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

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes x  No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

          Large Accelerated Filer ¨       Accelerated Filer ¨    Non-Accelerated Filer   ¨  Smaller Reporting Company x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently computed second fiscal quarter was $172,674 based upon price of such common stock was last sold on June 29, 2012.

As of April 2, 2013, there were 25,808,106 shares of Common Stock of Internet Media Services, Inc. outstanding.

INTERNET MEDIA SERVICES, INC.

Table of Contents

PART I
ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	5
ITEM 1B.	UNRESOLVED STAFF COMMENTS	9
ITEM 2.	PROPERTIES	9
ITEM 3.	LEGAL PROCEEDINGS	9
ITEM 4.	MINE SAFETY DISCLOSURES	9
PART II
ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	10
ITEM 6.	SELECTED FINAINCIAL INFORMATION	12
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS	12
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	16
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	16
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE	16
ITEM 9A.	CONTROLS AND PROCEDURES	17
ITEM 9B.	OTHER INFORMATION	17
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	18
ITEM 11.	EXECUTIVE COMPENSATION	19
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS	20
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND  DIRECTOR INDEPENDENCE	21
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	21
	PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	22
	SIGNATURES	23

PART I

ITEM 1 - BUSINESS

Overview

 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 Santa Monica, California and through March 13, 2013 used an independent warehouse and product fulfillment center in Western New York state.  Our corporate office is located at 1507 7th Street, #425, Santa Monica, CA 90401 and our telephone number is (800) 467-1496. Our corporate website address is www.internetmediaservices.com.  Information contained on our websites is not a part of this annual report.

Through March 13, 2013, we were primarily focused on creating, acquiring and partnering with companies with customer acquisition- customer relationship management solutions; however, we are also interested in information technology / content acquisition opportunities -- whether the content is informational, educational, or entertaining.  On October 8, 2009, we completed our first acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of LegalStore.com.  LegalStore.com is an Internet based company that primarily sells legal supplies and legal forms.  Our business plan was to leverage this acquisition with the creation and development of SimplyProspects.com -- a proprietary “auction-based marketplace” that could revolutionize the lead-sale industry in the legal field, and in numerous other key niche markets, including: elective medical; home reconstruction; health and medicine; leisure and travel; et al. However, we have suspended our pursuit of SimplyProspects.com until we have sufficient funds to continue development.

Recent Developments

On March 13, 2013, the Company entered into a stock sale agreement (“Agreement”) dated March 8, 2013 with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP agreed to pay to the Company total consideration of $210,000 including assumption of operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. The fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was recorded as on December 31, 2012 in the amount of $35,000, net of income tax effect.

In 2011, the Company test marketed its new service named SimplyProspects.com, an auction-based Internet application that provides a marketplace for businesses seeking to find new clients. SimplyProspects.com was released in July 2011 as part of a six-month beta program. At the end of this six-month period, in December 2011, the Company, based on the feedback obtained during the beta program, decided it needed to further develop the service prior to releasing the service into production. However, the Company needs additional financing to have this service available for commercial use. Due to the uncertainty in commercial launch of SimplyPospects.com service, the Company wrote off all the software developments costs in the amount of $38,200 during the year ended December 31, 2012.

After the sale of LegalStore.com and the suspension of SimplyProspects.com, the Company does not have any operations.  The Company intends to explore strategic alternatives including a merger with another entity.  Currently, the Company does not have any agreement with any entity and there is no assurance that such a transaction will ever be consummated.

Employees

At December 31, 2012, we had three full-time employees, and one part-time employee.  Two of the full-time employees and our part-time employee were located in the Los Angeles, CA area, with the remaining full-time employee located in the greater Rochester, NY area.  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.

Websites

We maintain one active website, www.internetmediaservices.com which serves as our corporate website and contains information about our company and business.  The Company owns over 12 domain names for future use or for strategic competitive reasons.

Available Information

Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is required to file annual, quarterly and current reports with the SEC.  You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549.  Please call the SEC at 1-800-SEC-0330 for further information about the public reference room.  The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The Company files electronically with the SEC.  The SEC makes available, free of charge, through the SEC Internet web site, the Company’s filings on Forms 10-K, 10-Q and 8-K, and amendments to those reports, as soon as reasonably practicable after they are filed with the SEC.

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ITEM 1A – RISK FACTORS

An investment in our securities is subject to numerous risks, including the Risk Factors described below. Our business, operating results or financial condition could be materially adversely affected by any of the following risks.  The risks described below are not the only ones we face. Additional risks we are not presently aware of or that we currently believe are immaterial may also materially affect our business. In such case, we may not be able to proceed with our planned operations and your investment may be lost entirely. The trading price of our common stock could decline due to any of these risks.  In assessing these risks, you should also refer to the other information contained or incorporated by reference in this Form 10-K, including our financial statements.  An investment in our securities 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, which we sold in March 2013.  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.

We have a history of losses and we may experience losses in the foreseeable future.

We have not achieved profitability and we may incur losses for the foreseeable future. In the years ended 2012, 2011and 2010, we incurred losses of approximately $427,000, $566,000 and $319,000, respectively.  As of December 31, 2012, our accumulated deficit was approximately $1,387,000, which represents our net losses since inception. As of March 2013, we have no operations. In order to achieve profitability, we will need to acquire a business, and experience revenue growth and manage our costs. Even if we do acquire a business and achieve profitability, we may be unable to sustain profitability on a quarterly or annual basis thereafter. It is possible that our revenue will grow at a slower rate than we anticipate or that operating expenses will increase beyond our current run rate.

We have been the subject of a going concern opinion by our independent registered public accounting firm which has raised substantial doubt as to our ability to continue as a going concern.

Our independent registered public accounting firm added an explanatory paragraph to their audit opinion issued in connection with our consolidated financial statements which states that our financial condition raises substantial doubt as to our ability to continue as a going concern.  We incurred a loss of $426,998 during the year ended December 31, 2012, incurred accumulated losses totaling $1,386,981, have a stockholders’ deficiency of $591,557 and have a working capital deficit of $690,649 at December 31, 2012.  These factors, among others including the selling of our operating assets in March 2013, indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Assurances cannot be given that adequate financing can be obtained to meet our capital needs. If we are unable to acquire a business or generate profits from a business acquired, and unable to continue to obtain financing to meet our working capital requirements, we may have to sharply curtail our business or cease operations altogether.  Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis to retain our current financing, to obtain additional financing and, ultimately, to attain profitability. Should any of these events not occur, we will be adversely affected and we may have to we will be adversely affected and we may have to cease operations.

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.

5

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.

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 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.

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;

□ intellectual property rights;

□ characteristics and quality of products and services;

□ taxation; and

□ online advertising and marketing, including email marketing and unsolicited commercial email.

6

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.

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 Chief Executive Officer, Raymond Meyers.  Our ongoing success also depends on our ability to identify, hire and retain skilled and qualified technical and other 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, 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, increased investment for an 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

The limited market for our common stock will make our stock price more volatile.  Therefore, you may have difficulty selling your shares.

The market for our common stock is limited and we cannot assure you that a larger market will ever be developed or maintained.  Currently, our common stock is traded on the OTCBB.  Securities traded on the OTCBB typically have low trading volumes.  Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price.  As a result, this may make it difficult or impossible for our shareholders to sell our common stock.

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

Our common stock is considered “penny stock”, which will further reduce the liquidity of our common 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.

7

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 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.

Our Board of Directors and our executive officers own 51.7% 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 are required to make an assessment of the effectiveness of our internal control over financial reporting. Our management concluded that as of December 31, 2012, that our disclosure controls and procedures were not effective and that material weaknesses exists in our internal control over financial reporting.  The material weaknesses consist of an insufficient complement of qualified accounting personnel and controls associated with segregation of duties and ineffective controls associated with identifying and accounting for complex and non-routine transactions in accordance with U.S. generally accepted accounting principles.  To address the material weaknesses we performed additional analyses and other post-closing procedures and retained the services of a consultant to ensure that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).  Notwithstanding these material weaknesses, management believes that the financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented.

If we are unable to correct the identified deficiencies in our internal control in a timely manner, or if we identify other material weaknesses or deficiencies in the future, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC could be adversely affected.

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, the perception of our investors 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.

8

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 100,000,000 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.

ITEM 1B – UNRESOLVED STAFF COMMENTS

None.

ITEM 2 - PROPERTIES

Our corporate mailing address is 1507 7th Street, #425, Santa Monica, CA 90401.  We do not have any leased or owned property.

ITEM 3 - LEGAL PROCEEDINGS

There are no material legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

9

PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Effective on February 25, 2011, our common stock commenced its public listing on the OTC Bulletin Board (OTC: BB), where it trades under the symbol “ITMV”.

The table below sets forth the range of quarterly high and low closing sales prices for our common stock for 2012 and 2011. The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:

	High		Low
Year ending December 31, 2012
First Quarter	$	0.15	$	0.04
Second Quarter	$	0.04	$	0.02
Third Quarter	$	0.01	$	0.01
Fourth Quarter	$	0.01	$	0.01

	High		Low
Year ending December 31, 2011
First Quarter *	$	0.35	$	0.03
Second Quarter	$	0.38	$	0.09
Third Quarter	$	0.15	$	0.04
Fourth Quarter	$	0.15	$	0.05

* Closing price data for the first quarter of 2011 became available on March 4, 2011.

The last reported sales price of our common stock on the OTC Bulletin Board on April 2, 2013 was $.01

Issued and Outstanding

Our certificate of incorporation authorizes 100,000,000 shares of Common Stock, par value $0.001 and 10,000,000 shares of Preferred Stock, par value $0.001. As of April 2, 2013, we had 25,808,106 shares of Common Stock, and 0 shares of Preferred Stock issued and outstanding.

Stockholders

As of April 2, 2013, we had approximately 902 record holders of our common stock.  This number does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers.

Dividends

We did not pay dividends during 2012 or 2011.  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

Stock Transfer Agent and Warrant Agent

Our stock transfer agent is Corporate Stock Transfer, 3200 Cherry Creek Drive South, Suite 430, Denver, CO 80209. We act as our own warrant agent for our outstanding warrants.

Recent Issuances of Unregistered Securities

During the three months ended December 31, 2012, the Company sold 50,000 shares of its Common Stock for $500. The shares of common stock to be issued in this transaction have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued and sold in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.

10

Share Repurchased by the Registrant

We did not purchase or repurchase any of our securities in the fiscal year ended December 31, 2012.

Securities authorized for issuance under equity compensation plans

On July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”) and on July 26, 2011, shareholders holding a majority of shares of the Company approved, by written consent, the Plan. The total number of shares of common stock available for issuance under the Plan is 5,000,000 shares. Awards may be granted to employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies. Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options. Stock based compensation includes expense charges related to all stock-based awards. Such awards include options, warrants and stock grants. Generally, the Company issues stock options that vest over three years and expire in 5 to 10 years.

The Company records shares based payments under the provisions of ASC 718. Stock based compensation expense is recognized over the requisite service period based on the grant date fair value of the awards. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model on certain assumptions. The Company estimated the expected volatility based on data used by peer group of public companies. The expected term was estimated using the simplified method. The risk-free interest rate assumption was determined using the equivalent U.S. Treasury bonds yield over the expected term. The Company has never paid any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. Therefore, the Company assumed an expected dividend yield of zero.

The following table sets forth information as of December 31, 2012 regarding equity compensation plans under which our equity securities are authorized for issuance.

Equity Plan Compensation Information

	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation Plans (excluding securities reflected in column (a))
Plan Category	(a)		(b)		(c)
Equity compensation plans approved by securities holders (1)		2,660,000	$	0.29		2,340,000
Total		2,660,000				2,340,000

(1)   Pursuant to our 2011 Equity Incentive Plan

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ITEM 6 – SELECTED FINANCIAL INFORMATION

This item is not applicable to us as a smaller reporting company.

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”).   Internet Media Services, Inc. desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable us to do so.  Except for the historical information contained herein, this report contains forward-looking statements (identified by the words "estimate," "project," "anticipate," "plan," "expect," "intend," "believe," "hope," "strategy" and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements, including, without limitation, those discussed under Part I, Item 1A “Risk Factors” in this Annual Report, and those described herein that could cause actual results to differ materially from the results anticipated in the forward-looking statements, and the following:

	Our limited operating history with our business model.
	The low cash balance and limited financing currently available to us. We may in the near future have a number of obligations that we will be unable to meet without generating additional income or raising additional capital.
	Further cost reductions or curtailment in future operations due to our low cash balance and negative cash flow
	Our ability to effect a financing transaction to fund our operations which could adversely affect the value of our stock.
	Our limited cash resources may not be sufficient to fund continuing losses from operations.
	The failure of our products and services to achieve market acceptance.
	The inability to compete in our market, especially against established industry competitors with greater market presence and financial resources

The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition and should be read in conjunction with the financial statements and footnotes that appear elsewhere in this report.

General

 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 Santa Monica, California and through March 13, 2013 used an independent warehouse and product fulfillment center in Western New York state.  Our corporate office is located at 1507 7th Street, #425, Santa Monica, CA 90401 and our telephone number is (800) 467-1496. Our corporate website address is www.internetmediaservices.com.  Information contained on our websites is not a part of this annual report.

Through March 13, 2013, we were primarily focused on creating, acquiring and partnering with companies with customer acquisition- customer relationship management solutions; however, we are also interested in information technology / content acquisition opportunities -- whether the content is informational, educational, or entertaining.  On October 8, 2009, we completed our first acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of LegalStore.com.  LegalStore.com is an Internet based company that primarily sells legal supplies and legal forms.  Our business plan was to leverage this acquisition with the creation and development of SimplyProspects.com -- a proprietary “auction-based marketplace” that could revolutionize the lead-sale industry in the legal field, and in numerous other key niche markets, including: elective medical; home reconstruction; health and medicine; leisure and travel; et al. However, we have suspended our pursuit of SimplyProspects.com until we have sufficient funds to continue development.

SimplyProspects.com was released in July 2011 as part of a six-month beta program.  At the end of this six-month period in December 2011, we, based on the feedback obtained during the beta program, decided to further develop the service during 2012 prior to releasing the service into production.  In 2012 we were unsuccessful in raising investment capital to launch the service and, at this time, we are uncertain about raising sufficient investment capital to support the national release and operational needs of the service.

Discontinued Operations

As a result of the board of directors committing to a plan to sell LegalStore.com prior to December 31, 2012, the related assets and liabilities are considered to be held for sale and are presented as discontinued operations on the balance sheets as of December 31, 2012 and 2011. In accordance with ASC 205-20 “Discontinued Operations” the Company has presented the results of LegalStore.com operations as discontinued operations in the accompanying statements of operations and statements of cash flows as of and for the years ended December 31, 2012 and 2011.

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On March 13, 2013, the Company entered into a stock sale agreement (“Agreement”) dated March 8, 2013 with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP agreed to pay to the Company total consideration of $210,000 including assumption of operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. The fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was recorded as on December 31, 2012 in the amount of $35,000, net of income tax effect. The Company used the proceeds for payment of its payables and for working capital purposes.

In 2011, the Company test marketed its new service named SimplyProspects.com, an auction-based Internet application that provides a marketplace for businesses seeking to find new clients. SimplyProspects.com was released in July 2011 as part of a six-month beta program. At the end of this six-month period, in December 2011, the Company, based on the feedback obtained during the beta program, decided it needed to further develop the service prior to releasing the service into production. However, the Company needs additional financing to have this service available for commercial use. Due to the uncertainty in commercial launch of SimplyPospects.com service, the Company wrote off all the software developments costs in the amount of $38,200 during the year ended December 31, 2012.

After the sale of LegalStore.com and the suspension of SimplyProspects.com, the Company does not have any operations.  The Company intends to explore strategic alternatives including a merger with another entity.  Currently, the Company does not have any agreement or understanding with any entity and there is no assurance that such a transaction will ever be consummated.

Results of Operations

For the Twelve Months Ended December 31, 2012 Compared to the Twelve Months Ended December 31, 2011

Revenue

In 2011, SimplyProspects.com had approximately $20,000 in ancillary revenue generated from the beta program.  In 2012, due to the lack of financing we could not commercially launch this service and as such the service did not generate any revenue in 2012.

Cost of Revenue

During 2011, we incurred $24,000 in cost of revenue related to SimplyProspects.com beta program. In the absence of commercial activities in 2012, there were no expenses on this account.

Operating Expenses

General and Administrative

During the year ended December 31, 2012, we incurred general and administrative expenses of $241,280 compared to $460,461 incurred during the year ended December 31, 2011. Our general and administrative expenses during the year ended December 31, 2012 decreased by $219,181 or 47.6% from 2011. The decrease was principally due to decreased salaries and benefits of $196,375 during the year ended December 31, 2012. Our executives did not receive salaries during 2012, and we reduced our headcount early in 2012 due to cost reduction measures resulting in reduced salaries and benefits expense.

Selling and Marketing

For the year ended December 31, 2012, our selling and marketing expenses, consisting of search engine and web marketing expenses were $1,226, compared to $16,447 during the year ended December 31, 2011. The decrease was due to reduced levels of activity related to SimplyProspects.com.

Other Expenses

Interest expense for the year ended December 31, 2012 increased by $19,891 or 113.3% compared to our interest expense incurred during the year ended December 31, 2011. The increase was due to the increased levels of borrowings outstanding during 2012 and due to additional interest resulting from defaults of convertible promissory notes. During the year ended December 31, 2012, we also incurred a loss of $105,009 associated with the change in the fair value of our convertible promissory notes and during the year ended December 31, 2011 we incurred a loss of $80,724 associated with the change in the fair value of our convertible promissory notes.

Discontinued Operations

In 2012, our loss from discontinued operations was $37,858, including a write-down of assets associated with the discontinued component of $35,000, compared to net income of $17,274 in 2011. Reduced revenue from discontinued operations resulted in decreased profits in 2012.

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Net Loss

As a result of the foregoing, our net loss for the year ended December 31, 2012 decreased by $139,444 or 24.6% to $426,998 compared to a net loss of $566,442 incurred in 2011.

Liquidity and Capital Resources

At December 31, 2012, we had a working capital deficiency of $690,649 compared to working capital deficiency of $230,547 at December 31, 2011. The increase in working capital deficiency was due to our operating losses and reclassification of revolving note from a related party from a long-term liability at December 31, 2011 to a current liability at December 31, 2012, as well as an increase in the fair value of notes payable as a result of default on our outstanding notes. During the year ended December 31, 2012, our operating activities from continuing operations used cash of approximately $167,000 compared to approximately $474,000 used during the year ended December 31, 2011.

During the year ended December 31, 2012, our operating losses from continuing operations, after adjusting for non-cash items, utilized approximately $220,000 of cash, and working capital items provided approximately $53,000 of cash. The principal component of these working capital changes was an increase in our accounts payable and accrued expenses. During the year ended December 31, 2011, our operating losses from continuing operations, after adjusting for non-cash items, utilized approximately $488,000 of cash, and working capital items provided approximately $14,000 of cash.

During the year ended December 31, 2012, we received $10,500 from a private sale of shares of our common stock and had approximately $67,000 of net additional borrowings from a related party. Further, we were able to reduce notes payable and accrued interest through a conversion to equity in the amount of approximately $51,000.

In March 2013, we sold LegalStore.com for total consideration of $210,000 including assumption of operating liabilities.  After the sale, we do not have any operations. We intend to explore strategic alternatives including a merger with another entity. Currently, we do not have any agreement with any entity and there is no assurance that such a transaction will ever be consummated.

The accompanying consolidated financial statements have been prepared on a going concern basis. As shown in the accompanying consolidated financial statements, we incurred a loss of $426,998 during the year ended December 31, 2012, have incurred accumulated losses totaling $1,386,981, have a stockholders’ deficiency of $591,557 and have a working capital deficit of $690,649 ($650,197 excluding discontinued operations) at December 31, 2012. These factors, among others, indicate that we may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

           To allow us to continue the development of its business plans and satisfy its obligations on a timely basis, we will need to raise additional financing to fund our operations for fiscal year 2013.  Should additional financing not be available, we will have to negotiate with our lenders to extend the repayment dates of its indebtedness. There can be no assurance, however, that we will be able to successfully restructure our debt obligations in the event we fail to obtain additional financing.

Management's plans in this regard include, but are not limited to, current discussions and negotiations for a merger with another entity. We believe that such a transaction will provide it with business operations and also necessary working capital. In addition, we are also in discussions for raising additional financing to execute on some of our current business plans. We do not have an agreement with any entity and there is no assurance that such a transaction will ever be consummated and that we will be successful in completing a transaction that will provide the financing. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.

Inflation

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the last three years as we are generally able to pass the increase in our material and labor costs to our customers, or absorb them as we improve the efficiency of our operations.

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, 2012, 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.  At December 31, 2012, allowance for doubtful accounts was $2,000 and no allowance for doubtful accounts was considered necessary at December 31, 2011. 

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.

 Intangible Assets

We amortize intangible assets and additions over the estimated useful lives of the assets. As of December 31, 2012 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 $17,000 per year. Intangible assets relate to LegalStore.com and due to the Company’s plan to sell the LegalStore.com, the Company ceased amortization of intangible assets as of January 1, 2013.

Impairment Test

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. It was determined that the carrying value of long-lived intangible assets was in excess of the fair value of the assets as of December 31, 2012 based on the proceeds from the sale of LegalStore.com subsequent to year end. As a result, an impairment charge was recorded to reduce the carrying value of the customer list in the amount of $17,190. No impairment charges were recorded during the year ended December 31, 2011.

 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.

In September 2011 the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment. The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing the option of performing a “qualitative” assessment to determine whether further impairment testing is necessary. Under this standard, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the two-step impairment test under Topic 350 is unnecessary. However, if the Company concludes otherwise, it is required to perform the first step of the two-step impairment test, as described in Topic 350. If the carrying amount of a reporting unit exceeds its fair value under the first step, the Company is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. The Company also has the option to bypass the qualitative assessment for any reporting unit in any period and to proceed directly to performing the first step of the two-step goodwill impairment test. The Company may resume performing the qualitative assessment in any subsequent period. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted. The Company adopted this standard for its goodwill impairment testing during the year ended December 31, 2011.

The entire amount of goodwill recorded by the Company was attributable to the acquisition of LegalStore.com. With the subsequent sale of LegalStore.com in March 2013, it was determined the fair value of consideration received was in excess of the carrying value of the reporting unit’s net assets. As a result, an impairment charge was recorded against the carrying value of goodwill in the amount of $19,417. No impairment charges were recorded during the year ended December 31, 2011.

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Software Development Costs

During 2011, the Company incurred costs to develop software intended for use in its SimplyPospects.com product line.  Costs incurred during the preliminary design of the software were expensed.  Costs incurred after the design phase was completed that relate to the development of the software were capitalized and recorded as a component of fixed assets on the balance sheet. Training costs and post-implementation maintenance costs are expensed as incurred. Because of the uncertainty in commercial launch of SimplyPospects.com service, the Company recognized the expense of all the software developments costs during the year ended December 31, 2012.

Fair Value of Debt

Under ASC 480, Distinguishing Liabilities from Equity, the Company determined the notes payable are liabilities reported at fair value because the notes payable will be convertible into a variable number of common shares at fixed monetary amount, known at inception. The notes payable are to be subsequently measured at fair value at each reporting period, with changes in fair value being recognized in earnings. The fair value of the notes payable is measured by calculating possible outcomes of conversion to common shares and repayment of the notes payable, then weighting the probability of each possible outcome according to management’s estimates. The fair value measurement is classified as a Level 3 in the valuation hierarchy.

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.

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, 2012 and 2011.  We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense.  During the years ended December 31, 2012 and 2011, we did not recognize any 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.

Discontinued Operations

As a result of the board of directors committing to a plan to sell LegalStore.com prior to December 31, 2012, the related assets and liabilities are considered to be held for sale and are presented as discontinued operations on the balance sheets as of December 31, 2012 and 2011. In accordance with ASC 205-20 “Discontinued Operations” the Company has presented the results of LegalStore.com operations as discontinued operations in the accompanying statements of operations and statements of cash flows for the years ended December 31, 2012 and 2011.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our audited financial statements for the fiscal years ended December 31, 2012 and 2011 follow Item 14, beginning at page F-1.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

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ITEM 9A - CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer  also acting as chief financial officer , as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our chief executive officer also acting as chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this annual report, has concluded that our disclosure controls and procedures were not effective and that material weaknesses described below exists in our internal control over financial reporting based on his evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the chief executive officer also acting as chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.

Based on our evaluation under the frameworks described above, our management concluded that as of December 31, 2012, that our disclosure controls and procedures were not effective and that material weaknesses exists in our internal control over financial reporting.  The material weaknesses consist of an insufficient complement of qualified accounting personnel and controls associated with segregation of duties and ineffective controls associated with identifying and accounting for complex and non-routine transactions in accordance with U.S. generally accepted accounting principles.  To address the material weaknesses we performed additional analyses and other post-closing procedures and retained the services of a consultant to ensure that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).  Notwithstanding these material weaknesses, management believes that the financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B – OTHER INFORMATION

None

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PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS and CORPORATE GOVERNANCE

Directors and Executive Officers

Name	Age	Position	Director/Officer Since
Raymond Meyers	56	Chief Executive Officer, President,	April 2008
		Principal Financial Officer, Treasurer, and Director
Michael Buechler	40	Secretary and Director	June 2009
Alexander A. Orlando	50	Director	April 2008
Patrick White	59	Director	October 2009
Philip Jones	44	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 to April 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 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. We believe that as a result of his service as our Founder, President and Chief Executive Officer since inception, which adds historical knowledge, operational expertise and continuity to our board of directors, and his extensive corporate management experience, including serving as the chief executive officer of a publically-held company, he  provides the board with a deep understanding of all aspects of our business, both strategically and operationally, and therefore should serve on our board.

Michael Buechler was IMS’s Executive Vice President – Web Properties from March 2009 through January 2012 and currently serves as Secretary and Director.  Mr. Buechler currently holds the position of Director of Product at Dun and Bradstreet Credibility Corp.  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 has a thorough understanding of our business and industry and has been instrumental in our development.  We believe Mr. Buechler should serve as a member of our board of directors based on the perspective and extensive experience he brings to our board of directors in the development of strategies for our current and future Internet-based products and services, his experience in the marketing of scalable Internet-based products and services, and his extensive knowledge of the Internet.

Alexander 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 Mr. Orlando should serve on our board of directors based on the perspective he brings to our board of directors from his exposure to the internal and external financial requirements and controls of both large and smaller technology companies, and the unique perspective he brings to the our board of directors from his entrepreneurial experiences.

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Patrick White was Chief Executive Officer and a Director of Document Security Systems, Inc. (“DSS”) from August 2002 to December 2012.  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.  We believe Mr. White is qualified to serve on our board of directors based on his extensive corporate management experience, including serving as the chief executive officer of a publically-held company (DSS), and his experience with the organizational challenges involved with becoming and operating as a publically-held company.

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 Mr. Jones should serve as a member of our board of directors based on his experience in the public and private accounting and finance sectors, and being Chief Financial Officer at a publically traded company (DSS), which provides our board of directors with insights into the areas of corporate finance, cash management, and SEC reporting requirements.

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.

Committees of the Board of Directors

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

Corporate Governance

We do not have an audit committee, compensation committee or nominating committee. As we grow and evolve as a SEC registrant, our corporate governance structure is expected to be enhanced.

ITEM 11 - EXECUTIVE COMPENSATION

We do not have employment agreements with our executive officer, Mr. Meyers.  However, we anticipate negotiating and entering into an employment agreement with Mr. Meyers during the year 2013.  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 former Executive Vice-President, also referred to herein as our “named executive officers,” for the fiscal years ended December 31, 2012 and 2011.  No compensation was paid to or deferred for Mr. Meyers or Mr. Buechler in the year ended 2012.

Summary Compensation Table

Name and Principal Position	Year	Salary		Bonus		Stock Awards		Option Awards (1)		All Other Compensation		Total
Raymond J Meyers,	2012	$	-	$	-	$	-	$	-	$	-	$	-
Chief Executive Officer, acting Chief Financial Officer	2011	$	56,977	$	-	$	-	$	10,000	$	-	$	66,977
Michael Buechler,	2012	$	-	$	-	$	-	$	-	$	-	$	-
Former Executive Vice President	2011	$	60,977	$	-	$	-	$	10,000	$	-	$	70,977

(1)   In July 2011, our board granted Mr. Meyers and Mr. Buechler, 500,000 stock options individually through our Equity Incentive Plan at a strike price of $.30, vesting equally over a three year period, and with an expiration date of five years from date of grant.  The Company records shares based payments under the provisions of ASC 718.  Stock based compensation expense is recognized over the requisite service period based on the grant date fair value of the awards. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Value of option awards is the dollar amount recognized for financial statements reporting purposes with respect to fiscal year 2011.  See Note 7 to Consolidated Financial Statements.

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Outstanding Equity Awards at Fiscal Year-End

Name	Number of Securities Underlying Unexercised Options	Number of Securities Underlying Unexercised Options	Option Exercise Price	Option Expiration Date
	(Exercisable)	(Un-exercisable)
Michael Buechler	166,667	333,333 (1)	$0.30	7/21/2016
Raymond Meyers	166,667	333,333 (1)	$0.30	7/21/2016

(1) Vest pro-ratably in equal installments on July 22, 2012, July 22, 2013 and July 22, 2014, respectively.

Director Compensation

Our non-employee directors do not currently receive cash compensation for their services as directors although they are provided reimbursement for out-of-pocket expenses incurred in attending Board meetings.  In order to attract and retain qualified persons to our Board, in July 2011, we granted our non-employee directors stock options through our Equity Incentive Plan.  Each non-employee director received 500,000 stock options at a strike price of $.30, vesting equally over a three year period, and with an expiration date of ten years from date of grant. Directors were not compensated during the year ended December 31, 2012.

Equity Incentive Plan 

On July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”) and on July 26, 2011, shareholders holding a majority of shares of the Company approved, by written consent, the Plan. The Plan provides 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. Upon stockholder approval of the Plan, a total of 5,000,000 shares of common stock or appreciation rights 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.  As of December 31, 2012, the Company has issued 2,660,000 options under the Plan to employees, directors and outside consultants.

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.

 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

As of the April 2, 2013, there are 25,808,106 shares of common stock outstanding.  The following table sets forth certain information regarding the beneficial ownership of the outstanding common shares as of April 2, 2013 by (i) each person who owns beneficially more than 5% of our outstanding common stock; (ii) each of our executive officers and directors; and (iii) all of our executive officers and directors as a group. The shares listed include as to each person any shares that such person has the right to acquire within 60 days from the date hereof. 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 1507 7th Street, #425, Santa Monica, CA 90401.

20

SECURITY OWNERSHIP OF MANAGEMENT

Name of Beneficial Owner	Common Shares Beneficially Owned	Percentage Beneficially Owned
Executive officers and directors Raymond J. Meyers (1)	9,308,781	35.8	%
Michael Buechler (1)	4,166,667	16.0	%
Patrick White (1)	496,633	1.9	%
Philip Jones (1)	176,972		*
Alexander A. Orlando (1)	167,832		*
All executive officers and directors
as a group (five persons) (2)	14,316,885	53.7	%
Greater than 5% stockholders
Bohlen Enterprises LLC (1)	5,112,747	18.1	%
2800 Middle Country Rd. Lake grove, NY 11755
*Less than 1%

(1) Includes 166,667 shares issuable upon exercise of options.

(2) Includes 833,335 shares issuable upon exercise of options.

(3) Includes 2,500,000 shares issuable upon exercise of warrants.

  Mr. Stephen Bohlen makes the investment decisions on behalf of Bohlen Enterprises LLC.

 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The Company has a revolving credit agreement with Mr. Raymond Meyers, a shareholder and chief executive officer of the Company. As effectively amended on September 30, 2012, this credit agreement is in the amount of $282,000, and as further amended on April 3, 2013, this credit agreement now has a maturity date of June 30, 2013. The outstanding balance on the credit agreement bears interest at an annual rate of 6% above one year LIBOR (6.9% as of December 31, 2012), and is secured by all of the assets of the Company. For the years ended December 31, 2012 and 2011, interest expense under this note amounted to $17,814 and $14,759, respectively. As of December 31, 2012, accrued interest amounted to $39,112 ($21,298- 2011), which is included in accrued expenses in the accompanying balance sheet. As of December 31, 2012 the revolving credit line had an outstanding balance of $281,228 ($214,489 - December 31, 2011).  Under the terms of the agreement the Company is required to comply with various covenants. 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. As of December 31, 2012, the Company was in default of the credit agreement due to a failure to pay interest when due. Mr. Meyers has waived this default through the maturity date.

Director Independence

As our common stock is currently traded on the OTC Bulletin Board, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’s directors and specified committees of the board of directors meet independence standards prescribed by such rules.  However, we consider a majority of our Board members (consisting of Messrs. Orlando, White and Jones) to be independent directors under NYSE AMEX rules.

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

Audit fees consist of fees for professional services rendered for audit and review services of the Company’s consolidated financial statements included in the Company’s annual financial statements and review of financial statements included on Form 10-Q, and within Form S-1, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements.  The aggregate fees billed or to be billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C. for audit and review services for the fiscal years ended December 31, 2012 and 2011 were $41,000 and $43,000, respectively.  For the year ended December 31, 2012 and 2011, the Company was not required to have an audit of its internal controls over financial reporting.

21

Audit Related Fees

The aggregate fees billed or to be billed for other related services by our principal accountant, Freed Maxick CPAs, P.C. for the years ended December 31, 2012 and 2011 were $0 and $0, respectively.

Tax Fees

The aggregate fees billed or to be billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C., for tax compliance, tax advice and tax planning during the years ended December 31, 2012 and 2011 were $3,900 and $3,500, respectively.  

All Other Fees

The aggregate fees billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C., during the years ended December 31, 2012 and 2011 were $0 and $0, respectively.

We do not have an Audit Committee. Our Board of Directors pre-approves all auditing services and permissible non-audit services provided to us by our independent registered public accounting firm. All fees listed above were pre-approved in accordance with this policy.

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

The Exhibits listed below designated by an * are incorporated by reference to the filings by Internet Media Services, Inc. under the Securities Act of 1933 or the Securities and Exchange Act of 1934, as indicated. All other exhibits are filed herewith.

3.1	Certificate of Incorporation dated March 26, 2007, as amended by Certificate of Amendment dated October 4, 2010 (incorporated by reference to the Company’s Form 8-K (file number 333-165972) filed on October 7, 2010).*
3.2	By-laws, as amended (incorporated by reference to exhibit 3.2 to the Company’s Registration Statement on Form S-1 (file number 333-165972) filed on April 9, 2010).*
10.1	Premise lease agreement dated January 13, 2010 with SC Sunrise LLC for 1434 6th. Street, Unit 9, Santa Monica, CA (incorporated by reference from Company’s Registration Statement on Form S-1 (file number 333-165972) dated April 9, 2010).*
10.2	Agreements dated October 8, 2009 with Document Security Systems (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated June 30, 2010).*
10.3	Credit Facility Agreement, dated April 8, 2010, between the Company and Raymond Meyers (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated June 30, 2010).*
10.4	Security Agreement, dated April 8, 2010, between the Company and Raymond Meyers (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated June 30, 2010).*
10.5	Secured Promissory Note, dated April 8, 2010, between the Company and Raymond Meyers (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated June 30, 2010).*
10.6	Secured Promissory Note 2, dated June 30, 2010, between the Company and Raymond Meyers (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated July 26, 2010).*
10.7	Form of Warrant to Purchase Common Stock of Internet Media Services, Inc. dated March 17, 2011 (file number 333-165972).*
10.8	Securities Purchase Agreement by and between Internet Media Services, Inc. and Asher Enterprises, Inc. dated August 26, 2011 (file number 333-165972, filed September 8, 2011).*
10.9	Securities Purchase Agreement by and between Internet Media Services, Inc. and Asher Enterprises, Inc. dated October 3, 2011 (file number 333-165972, filed October 17, 2011).*
10.10	Securities Purchase Agreement by and between Internet Media Services, Inc. and Asher Enterprises, Inc dated December 1, 2011 (file number 333-165972, filed December 16, 2011).*
10.11	Asset Purchase Agreement by and between Internet Media Services, Inc. and Enthusiast Media holdings, Inc. dated March 7, 2012 (file number 333-165972, filed March 13, 2012).*.
10.12	Form of Internet Media Services, Inc. 2011 Equity Incentive Plan dated July 26, 2011 (file number 333-165972, filed July 27, 2011)*.
10.13	Stock Purchase Agreement by and among Western Principal Partners LLC, Internet Media Services, Inc and Raymond Meyers dated March 8, 2013 (file number 333-165972, filed March 19, 2013)*.
31.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14(a) and15d-14(a) (filed herewith.)
32.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. 1350 (furnished herewith.)

22

INTERNET MEDIA SERVICES, INC.

CONTENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements:
Balance Sheets	F-3
Statement of Operations	F-4
Statement of Stockholders’ Equity (Deficiency)	F-5
Statement of Cash Flows	F-6
Notes to the Consolidated Financial Statements	F-7 – F-16

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Internet Media Services, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Internet Media Services, Inc. and Subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders' equity (deficiency), and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we 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 the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Internet Media Services, Inc. and Subsidiaries as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that Internet Media Services, Inc. and Subsidiaries will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, Internet Media Services, Inc. and Subsidiaries has suffered recurring losses from operations since inception and, as of December 31, 2012, has negative working capital and a stockholders’ deficiency. Further, subsequent to December 31, 2012, the Company entered into an agreement to sell the stock of its wholly owned subsidiary, LegalStore.com.  After the sale of LegalStore.com, the Company does not have any operations.  These factors raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ FREED MAXICK CPAs, P.C.

Buffalo, New York

April 15, 2013

F-2

INTERNET MEDIA SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of
	December 31, 2012			December 31, 2011
ASSETS
Current assets:
Cash	$	1,262		$	808
Prepaid expenses and other assets		10,169			6,464
Current assets of discontinued operations		116,460			148,174
Total current assets		127,891			155,446
Property and equipment, net		-			38,200
Other assets		-			3,483
Non-current assets of discontinued operations		99,092			153,574
Total assets	$	226,983		$	350,703
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable	$	39,026		$	23,401
Accrued expenses		61,340			26,346
Notes payable		280,034			223,224
Revolving note from related party		281,228			-
Current liabilities of discontinued operations		156,912			113,022
Total current liabilities		818,540			385,993
Long-term revolving note from related party		-			214,489
Deferred tax liability		-			1,066
Commitments and contingencies		-			-
Stockholders' deficiency
Common stock, $.001 par value, 100,000,000 shares
authorized, 24,637,893 shares issued and outstanding
(23,821,000 - 2011)		24,638			23,821
Additional paid-in capital		770,786			685,317
Accumulated deficit		(1,386,981	)		(959,983	)
Total stockholders' deficiency		(591,557	)		(250,845	)
Total liabilities and stockholders' deficiency	$	226,983		$	350,703
The accompanying notes are an integral part of the financial statements

F-3

INTERNET MEDIA SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended
	December 31, 2012			December 31, 2011
Revenue	$	-		$	19,646
Costs of revenue		-			24,002
Gross loss		-			(4,356	)
Operating expenses:
General and administrative:
Salaries and benefits		73,716			270,091
Professional fees		47,219			44,990
Other		120,345			145,380
		241,280			460,461
Selling and marketing		1,226			16,447
		242,506			476,908
Operating loss		(242,506	)		(481,264	)
Other expenses:
Loss from change in fair value of notes payable		(105,009	)		(80,724	)
Interest expense		(37,440	)		(17,549	)
		(142,449	)		(98,273	)
Loss before income taxes		(384,955	)		(579,537	)
Income tax provision		(4,185	)		(4,179	)
Loss from continued operations		(389,140	)		(583,716	)
Discontinued operations
Net (loss) income from discontinued operations		(2,858	)		17,274
Write-down of assets associated with a discontinued component, net of income tax effect		(35,000	)		-
		(37,858	)		17,274
Net loss	$	(426,998	)	$	(566,442	)
Net loss from continuing operations per share- basic and diluted	$	(0.02	)	$	(0.02	)
Net (loss) income from discontinued operations per share- basic and diluted		0.00			0.00
Net loss per share - basic and diluted	$	(0.02	)	$	(0.02	)
Weighted average common shares
outstanding - basic and diluted		24,313,958			23,307,301

The accompanying notes are an integral part of the financial statements

F-4

INTERNET MEDIA SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
	Shares Outstanding		Common Stock		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders' Equity (Deficiency)
Balance at December 31, 2010		21,321,000	$	21,321	$	423,680	$	(393,541	)	$	51,460
Issuance of common stock and warrants for cash		2,500,000		2,500		247,500		-			250,000
Stock-based compensation expense		-		-		14,137		-			14,137
Net loss		-		-		-		(566,442	)		(566,442	)
Balance at December 31, 2011		23,821,000		23,821		685,317		(959,983	)		(250,845	)
Issuance of common stock and warrants for cash		200,000		200		10,300		-			10,500
Stock-based compensation expense		-		-		24,796		-			24,796
Shares issued upon conversion of convertible notes		616,893		617		50,373		-			50,990
Net loss		-		-		-		(426,998	)		(426,998	)
Balance at December 31, 2012		24,637,893	$	24,638	$	770,786	$	(1,386,981	)	$	(591,557	)

The accompanying notes are an integral part of the financial statements

F-5

INTERNET MEDIA SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended
	December 31, 2012			December 31, 2011
Cash flows from operating activities:
Net loss	$	(426,998	)	$	(566,442	)
Loss (income) from discontinued operations		37,858			(17,274	)
Adjustments to reconcile net loss to net
cash used by operating activities:
Stock based compensation		24,796			14,137
Deferred tax liability		541			469
Impairment of property and equipment		38,200
Loss from change in fair value of notes payable		105,009			80,724
(Increase) decrease in assets:
Prepaid expenses and other assets		(3,705	)		(3,632	)
Other assets		3,483			-
Increase in liabilities:
Accounts payable and accrued expenses		53,410			18,416
Net cash used by continuing operations		(167,406	)		(473,602	)
Net cash provided by discontinued operations		90,621			86,434
Net cash used by operating activities		(76,785	)		(387,168	)
Cash flows from investing activities:
Purchase of software development costs		-			(38,200	)
Net cash used by investing activities		-			(38,200	)
Cash flows from financing activities:
Proceeds from sale of common stock		10,500			250,000
Net borrowings from related party		66,739			12,304
Proceeds from issuance of notes		-			142,500
Net cash provided by financing activities		77,239			404,804
Net increase (decrease) in cash		454			(20,564	)
Cash - beginning of year		808			21,372
Cash - end of year	$	1,262		$	808
Cash paid for :
Income taxes	$	3,400		$	1,999
Non-cash financing activities:
Note payable and accrued interest converted to shares of common stock	$	50,990		$	-

The accompanying notes are an integral part of the financial statements

F-6

INTERNET MEDIA SERVICES, INC.

NOTES TO THE CONSOILDATED FINANCIAL STATEMENTS

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

Nature of Business - During the years ended December 31, 2012 and 2011, Internet Media Services, Inc. (the Company) was a digital media company created to develop, own and operate a portfolio of integrated “internet properties”, offering complementary business models and components. The Company was primarily focused on creating, acquiring and partnering with companies with customer acquisition- customer relationship management solutions, as well as information technology / content acquisition opportunities, whether the content is informational, educational, or entertainment.  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.  LegalStore.com is an internet based company that primarily sells legal supplies and legal forms.

On March 13, 2013, the Company entered into a stock sale agreement (“Agreement”) dated March 8, 2013 with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP agreed to pay to the Company total consideration of $210,000 including assumption of operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. The fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was recorded as on December 31, 2012 in the amount of $35,000, net of income tax effect.

In 2011, the Company test marketed its new service named SimplyProspects.com, an auction-based Internet application that provides a marketplace for businesses seeking to find new clients. SimplyProspects.com was released in July 2011 as part of a six-month beta program. At the end of this six-month period, in December 2011, the Company, based on the feedback obtained during the beta program, decided it needed to further develop the service prior to releasing the service into production. However, the Company needs additional financing to have this service available for commercial use. Due to the uncertainty in commercial launch of SimplyPospects.com service, the Company wrote off all the software developments costs during the year ended December 31, 2012.

After the sale of LegalStore.com and the suspension of SimplyProspects.com, the Company does not have any operations.  The Company intends to explore strategic alternatives including a merger with another entity.  Currently, the Company does not have any agreement with any entity and there is no assurance that such a transaction will ever be consummated.

In accordance with ASC 205-20 “Discontinued Operations-Other Presentation Matters” results of LegalStore.com operations are presented as discontinued operations on the consolidated balance sheets, statements of operations and statements of cash flows.

Management's plans

As discussed above, the Company sold LegalStore.com in 2013. After the sale, the Company does not have any operations. The Company intends to explore strategic alternatives including merger with another entity. Currently, the Company does not have an agreement with any entity and there is no assurance that such a transaction will ever be consummated.

The accompanying consolidated financial statements have been prepared on a going concern basis. As shown in the accompanying consolidated financial statements, the Company incurred a loss of $426,998 during the year ended December 31, 2012, has incurred accumulated losses totaling $1,386,981, has a stockholders’ deficiency of $591,557 and has a working capital deficit of $690,649 ($650,197 excluding discontinued operations) at December 31, 2012. These factors, among others, indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company needs to raise additional financing to fund the Company’s operations for fiscal year 2013, to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis. Should additional financing not be available, the Company will have to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance, however, that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing.

Management's plans in this regard include, but are not limited to, current discussions and negotiations for a merger with another entity. The Company believes that such a transaction will provide it with business operations and also necessary working capital. In addition, the Company is also in discussion for raising additional financing to execute on some of its current business plans. The Company does not have any agreement with any entity and there is no assurance that such a transaction will ever be consummated and that the Company will be successful in completing a transaction that will provide the financing. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-7

Principles of Consolidation- The consolidated financial statements include the accounts of Internet Media Services, Inc. and the discontinued operations of 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. At December 31, 2012, allowance for doubtful accounts was $2,000 and no allowance for doubtful accounts was considered necessary at December 31, 2011. 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.

Software Development Cost - During 2011, the Company incurred costs to develop software intended for use in its SimplyPospects.com product line. Costs incurred during the preliminary design of the software were expensed. Costs incurred after the design phase was completed that relate to the development of the software were capitalized and recorded as a component of fixed assets on the balance sheet. Training costs and post-implementation maintenance costs are expensed as incurred. Total software costs included on the balance sheet as of December 31, 2011 amounted to $38,200. The Company did not incur and capitalize any additional software development costs during 2012.  Due to the uncertainty in commercial launch of SimplyPospects.com service, the Company wrote off all the software developments costs during the year ended December 31, 2012.

Intangible Assets - Intangible assets arose from business combinations and consist of a customer list and domain name acquired that are amortized, on a straight-line basis, over the estimated useful life. The following table summarizes the net asset value for each intangible asset category as of December 31,:

		2012						2011
		Gross				Net		Gross				Net
	Useful	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	life in years	Value		Amortization		Value		Value		Amortization		Value
Customer List	10	$	102,810	$	39,000	$	63,810	$	120,000	$	27,000	$	93,000
Domain Name	10		50,000		16,250		33,750		50,000		11,250		38,750
Total		$	152,810	$	55,250	$	97,560	$	170,000	$	38,250	$	131,750

Amortization expense related to these intangible assets amounted to $17,000 for the year ended December 31, 2012 ($17,000 - 2011). All of the above assets relate to LegalStore.com and due to the Company’s plan to sell the LegalStore.com, the Company ceased amortization of intangible assets as of January 1, 2013.

F-8

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. It was determined that the carrying value of long-lived intangible assets was in excess of the fair value of the assets as of December 31, 2012 based on the proceeds from the sale of LegalStore.com subsequent to year end. As a result, an impairment charge was recorded to reduce the carrying value of the customer list in the amount of $17,190. No impairment charges were recorded during the year ended December 31, 2011.

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.

In September 2011 the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment. The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing the option of performing a “qualitative” assessment to determine whether further impairment testing is necessary. Under this standard, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the two-step impairment test under Topic 350 is unnecessary. However, if the Company concludes otherwise, it is required to perform the first step of the two-step impairment test, as described in Topic 350. If the carrying amount of a reporting unit exceeds its fair value under the first step, the Company is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. The Company also has the option to bypass the qualitative assessment for any reporting unit in any period and to proceed directly to performing the first step of the two-step goodwill impairment test. The Company may resume performing the qualitative assessment in any subsequent period. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted. The Company adopted this standard for its goodwill impairment testing during the year ended December 31, 2011.

The entire amount of goodwill recorded by the Company was attributable to the acquisition of LegalStore.com. With the subsequent sale of LegalStore.com in March 2013, it was determined the fair value of consideration received was in excess of the carrying value of the reporting unit’s net assets. As a result, an impairment charge was recorded against the carrying value of goodwill in the amount of $19,417. No impairment charges were recorded during the year ended December 31, 2011.

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, 2012 or 2011. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2012 and 2011, the Company recognized no interest and penalties.

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.

Preferred Stock Authorized - The Company has authorization for“blank check” preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to common stock. As of December 31, 2012 and 2011, there are 10,000,000 shares of preferred stock authorized, and no shares issued or outstanding.

F-9

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 the customer.

Fair Value of Financial Instruments -Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, revolving note from related party and notes payables. Fair values were assumed to approximate carrying values for these financial instruments, except for notes payable, 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 revolving note from related party approximates the carrying value of the obligations based on these instruments bearing interest at variable rates consistent with the current rates available to the Company. Notes payable to third parties are measured at fair values at each reporting period (see Note 4).

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the FASB Accounting Standards Coded (“ASC") 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Earnings Per Common Share - The Company presents basic and diluted earnings per share. Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued. In a loss year, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. The Company recorded $17,274 of income from discontinued operations in 2011, which yields a de minimis amount of earnings per share on a dilutive basis.

As of December 31, 2012, there were 36,704,425 (8,006,649 - 2011)  shares potentially issuable under convertible debt agreements, options, and warrants that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the year. Included in this amount are 6,556,098 shares potentially issuable under convertible debt agreements (after considering the 4.99% limitation on conversion, see Note 4), as of December 31, 2012 (6,970,335 - 2011).

Advertising Costs -Advertising costsgenerally consist of online,keyword advertising with various search engines with additional amounts spent on certain targeted advertising. Advertising costs, which relate to discontinued operations, are expensed as incurred and amounted to approximately $32,600 for the year ended December 31, 2012 ($46,500 - 2011).

Share-Based Compensation Expense - The Company accounts for stock-based compensation under the provisions of ASC 718-10 “Stock Compensation." This statement requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period in which the employee is required to provide service in exchange for the award, which is usually the vesting period.

Reclassifications -Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to current period presentation. These classifications had no effect on the results of operations or cash flows for the periods presented.

F-10

NOTE 2. DISCONTINUED OPERATIONS

As a result of the board of directors committing to a plan to sell LegalStore.com prior to December 31, 2012, the related assets and liabilities are considered to be held for sale and are presented as discontinued operations on the balance sheets as of  December 31, 2012 and 2011. In accordance with ASC 205-20 “Discontinued Operations” the Company has presented the results of LegalStore.com operations as discontinued operations in the accompanying statements of operations and statements of cash flows for the years ended December 31, 2012 and 2011.

On March 13, 2013, the Company entered into a stock sale agreement (“Agreement”) dated March 8, 2013 with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP agreed to pay to the Company total consideration of $210,000 including assumption of operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. The fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was recorded as on December 31, 2012 in the amount of $35,000, net of income tax effect. The Company used the proceeds for payment of its payables and for working capital purposes.

The following table sets forth the carrying amounts of the major classes of assets and liabilities aggregated in discontinued operations in the consolidated balance sheet were as follows:

	December 31,		December 31,
	2012		2011
Cash	$	379	$	885
Accounts receivable, net		26,641		31,337
Inventory		89,440		115,952
Current assets of discontinued operations	$	116,460	$	148,174
Property and equipment, net	$	1,532	$	2,407
Other intangibles, net		97,560		131,750
Goodwill		-		19,417
Non current assets of discontinued operations	$	99,092	$	153,574
Accounts payable	$	92,684	$	71,969
Accrued expenses		64,228		41,053
Current liabilities of discontinued operations	$	156,912	$	113,022

Discontinued Operations was as follows:

	For the year ended
	December 31,			December 31,
	2012			2011
Revenue	$	511,283		$	535,280
Costs of revenue		276,617			268,564
Gross profit		234,666			266,716
Operating expenses:
General and administrative:
Salaries and benefits		58,311			87,217
Professional fees		8,110			10,110
Other		79,226			58,743
		145,647			156,070
Selling and marketing		91,877			93,372
		237,524			249,442
(Loss) income from discontinued operations		(2,858	)		17,274
Write-down of assets associated with a discontinued component, net of income tax effect		(35,000	)		-
	$	(37,858	)	$	17,274

F-11

NOTE 3. - FIXED ASSETS

Fixed assets consist of the following at December 31:

	Estimated Useful Life	2012		2011
Software	3 years	$	-	$	38,200
Furniture and fixtures	5 to 7 years		4,374		4,374
			4,374		42,574
Less: accumulated depreciation			2,842		1,967
		$	1,532	$	40,607

Depreciation expense was $874 for the year ended December 31, 2012 ($874 - 2011). No amortization has been recorded on software during the year ended December 31, 2011 as the software has not been placed into service. Because of the uncertainty in commercial launch of SimplyPospects.com service, the Company wrote off all the software developments costs during the year ended December 31, 2012.

NOTE 4. NOTES PAYABLE

During 2011, the Company entered into a subscription agreement with two accredited investors under a Private Placement offering. Under this subscription agreement, each of the investors received a 12% convertible promissory note with warrants for aggregate consideration of $25,000 in cash. The notes were secured by a lien on all assets of the Company. The principal amounts of the notes plus accrued interest automatically were converted into common stock on the maturity date of August 31, 2012. The conversion price was determined based on a twenty percent discount of the fair market value of the average closing transaction price of the Company’s common stock for the ten days of trading prior to conversion, but the conversion price was not to be less than $0.10 per share according to the agreements. Upon completion of the Private Placement offering, each investor received a two year warrant to purchase shares of the Company’s common stock at $0.30 per share. The warrants are exercisable for such number of common shares equal to twenty percent of the funds invested (20% warrant coverage) amounting to 16,667. The Company did not allocate a portion the proceeds to the warrants because the warrants' value is not considered material.

In accordance with the agreement, on August 31, 2012, two convertible promissory notes in the principal amount of $25,000 and accrued interest of $2,791 were converted to 277,910 shares of the Company's common stock. The fair value of the debt was $31,250, resulting in an increase to equity of $34,041 upon conversion.

Also in 2011, the Company issued three Convertible Promissory Notes (“Note”) in the aggregate principal amount of $117,500. The Notes, which are due on various dates between May and September, 2012, bear interest at the rate of 8% per annum, with a provision for additional interest under certain circumstances, are unsecured and are convertible into shares of the Company's common stock at the election of lender at any time after 180 days from the date of the Note issuance at a conversion price equal to a 41% discount (for two Notes) or 42% discount (for one Note) to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The conversion price is subject to certain anti-dilution protection; for example, if the Company issues shares for a consideration less than the applicable conversion price, the conversion price is reduced to such amount. The lender agreed to restrict its ability to convert the Note and receive shares of the Company if the number of shares of common stock beneficially held by the lender and its affiliates in the aggregate after such conversion exceeds 4.99% of the then outstanding shares of common stock. On March 2, 2012, the lender elected to partially convert one Note in the principal amount of $8,000 into shares of the Company stock and was issued 338,983 shares of common stock by the Company pursuant to the terms of the Note. The fair value of the note converted and shares issued was $16,949.

F-12

As of December 31, 2012, the outstanding principal of the three Notes amounted to $109,500 and the maximum number of common shares the note could be converted into based on 4.99% of the outstanding shares as of December 31, 2012 is 1,229,431 shares. Based on the average of the three lowest stock prices for the last ten days preceding December 31, 2012, the three Notes would be convertible into 31,377,758 shares, after considering the default noted below, when not taking into account the 4.99% limit on the number of shares the holder may own. An increase in the Company's stock price will result in decreased number of shares the Company would be obligated to issue.

The three convertible promissory notes have become due and payable along with any unpaid interest on various dates between May and September 2012. The aggregate outstanding principal of $109,500 plus unpaid interest was not paid on the maturity dates. As a result, the three convertible promissory notes are considered to be in default and therefore, due and payable in an amount equal to the Default Sum as defined in the agreement. The Default Sum is equal to 150% of the sum of the unpaid principal, unpaid interest and unpaid default interest, which amounted to $193,954 in aggregate as of December 31, 2012. Further, the default interest rate for the three convertible notes during the default period has increased to 22%.

On November 7, 2012, the Company received a demand notice requesting payment for the Default Sum owed together with all unpaid interest. If the Company fails to comply with this demand notice within five days from receipt of the demand notice the investor may exercise the rights under the convertible promissory notes. This includes, but is not limited to, conversion of the Default Sum owed into equity as provided for in the convertible promissory notes or bringing an action against the Company for all amounts due under the convertible promissory notes.

On January 22, 2013, the lender elected to convert a Convertible Promissory Note in the principal amount of $5,500 into shares of the Company stock and was issued 1,170,213 shares of common stock by the Company pursuant to the terms of the Convertible Promissory Note.

Under ASC 480, Distinguishing Liabilities from Equity, the Company determined the notes payable are liabilities reported at fair value because the notes payable will be convertible into a variable number of common shares at fixed monetary amount, known at inception. The notes payable are to be subsequently measured at fair value at each reporting period, with changes in fair value being recognized in earnings. The fair value of the notes payable is measured by calculating possible outcomes of conversion to common shares and repayment of the notes payable, then weighting the probability of each possible outcome according to management’s estimates. Management has determined that the most likely outcome will be conversion at the default sum and the fair value of the notes payable is equal to the estimated fair value of equity securities the Company will issue upon conversion. The fair value measurement is classified as a Level 3 in the valuation hierarchy. The following table is a roll forward of the notes payable fair value:

Fair value at December 31, 2011	$	223,224
Changes in fair value and adjustment for default provision		105,009
Adjustment for conversion		(48,199	)
Fair value at December 31, 2012	$	280,034

NOTE 5. REVOLVING NOTE FROM RELATED PARTY

The Company has a revolving credit agreement with Mr. Raymond Meyers, a shareholder and chief executive officer of the Company. As effectively amended on September 30, 2012, this credit agreement is in the amount of $282,000, and as further amended on April 3, 2013, this credit agreement now has a maturity date of June 30, 2013. The outstanding balance on the credit agreement bears interest at an annual rate of 6% above one year LIBOR (6.9% as of December 31, 2012), and is secured by all of the assets of the Company. For the years ended December 31, 2012 and 2011, interest expense under this note amounted to $17,814 and $14,759, respectively. As of December 31, 2012, accrued interest amounted to $39,112 ($21,298- 2011), which is included in accrued expenses in the accompanying balance sheet. As of December 31, 2012 the revolving credit line had an outstanding balance of $281,228 ($214,489 - December 31, 2011).  Under the terms of the agreement the Company is required to comply with various covenants. 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. As of December 31, 2012, the Company was in default of the credit agreement due to a failure to pay interest when due. Mr. Meyers has waived this default through the maturity date.

NOTE 6. - STOCKHOLDERS’ (DEFICIENCY) EQUITY

On February 25, 2011, the Company received a notice of clearance letter to have its stock listed on the OTC Bulletin Board pursuant to FINRA Rule 6432 and Rule 15c2-11 under the Securities and Exchange act of 1934. The Company was assigned the stock ticker symbol “ITMV”.

F-13

On March 17, 2011, the Company entered into a subscription agreement with one (1) accredited investor. Under this subscription agreement, the Company issued a total of 2,500,000 shares of common stock and a seven year (7) warrant to purchase 2,500,000 shares of stock at an exercise price of $.30 in consideration of $250,000 in cash.

On March 21, 2012, the Company sold in a private placement 50,000 shares of its common stock and warrants to acquire 50,000 shares of the Company stock at an exercise price of $0.15 for total proceeds of $5,000. The warrants have a contractual term of three years. The fair value of warrants issued in the private placement is minor.

In April 2012, the Company sold in a private placement 100,000 shares of its common stock and warrants to acquire 100,000 shares of the Company stock at an exercise price of $0.15 for total proceeds of $5,000. The warrants have a contractual term of three years. The fair value of warrants issued in the private placement is minor.

In December 2012, the Company sold in a private placement 50,000 shares of its common stock for $500.

Outstanding warrant securities consist of the following at December 31, 2012:

			Exercise
	Warrants		Price		Expiration
2011 Common share private placement warrants		2,500,000	$	0.30	March 2018
2011 Convertible Notes warrants		16,667	$	0.30	June 2014
2012 Private Placements warrants		150,000	$	0.15	March - April 2015
		2,666,667

Outstanding warrant securities consist of the following at December 31, 2011:

			Exercise
	Warrants		Price		Expiration
2011 Common share private placement warrants		2,500,000	$	0.30	March 2018
2011 Convertible Note warrants		16,667	$	0.30	June 2014
		2,516,667

NOTE 7. – EQUITY INCENTIVE PLAN

On July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”) and on July 26, 2011, shareholders holding a majority of shares of the Company approved, by written consent, the Plan. The total number of shares of common stock available for issuance under the Plan is 5,000,000 shares. Awards may be granted to employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies. Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options. Stock based compensation includes expense charges related to all stock-based awards. Such awards include options, warrants and stock grants. Generally, the Company issues stock options that vest over three years and expire in 5 to 10 years.

The Company records shares based payments under the provisions of ASC 718 "Compensation - Stock Compensation". Stock based compensation expense is recognized over the requisite service period based on the grant date fair value of the awards. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company did not grant any options during the year ended December 31, 2012. The following weighted-average assumptions were used for the year ended December 31, 2011:

	2011
Risk-free interest rate		1.86	%
Expected dividend yield		0	%
Expected stock price volatility		75	%
Expected life of options	5.7 years

The Company estimated the expected volatility based on data used by its peer group of public companies. The expected term was estimated using the simplified method. The risk-free interest rate assumption was determined using the equivalent U.S. Treasury bonds yield over the expected term. The Company has never paid any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. Therefore, the Company assumed an expected dividend yield of zero.

F-14

A summary of all stock option activity for the years ended December 31, 2012 and 2011 is as follows:

			Weighted Average		Weighted Average		Aggregate Intrinsic
	Options		Exercise Price		Contractual life		Value
Outstanding at December 31, 2010		-	$	-
Options granted		3,015,000	$	0.27
Options exercised		-	$	-
Options cancelled		-	$	-
Outstanding at December 31, 2011		3,015,000	$	0.27
Options granted		-	$	-
Options exercised		-	$	-
Options cancelled		(355,000)	$	0.10
Outstanding at December 31, 2012		2,660,000	$	0.29	6.7 years	$	-
Exercisable at December 31, 2012		866,668	$	0.29	6.7 years	$	-

The Company did not grant any options during the year ended December 31, 2012. The weighted average grant date fair value of options granted during the year ended December 31, 2011 was $.03. The total fair value of options that vested during 2012 amounted to $23,800 ($0 – 2011). The Company recorded expenses for options issued during the year ended December 31, 2012 of $24,796 ($14,137 - 2011).

At December 31, 2012, there was approximately $35,750 of unrecognized compensation cost related to non-vested options. This cost is expected to be recognized over a weighted average period of approximately 1.5 years.

NOTE 8. - INCOME TAXES

Following is a summary of the components giving rise to the income tax provision (benefit) for the years ended December 31, 2012 and 2011:

	2012			2011
Current:
Federal	$	-		$	-
State		3,644			3,710
Total current		3,644			3,710
Deferred
Federal		(119,282	)		(172,816	)
State		(37,514	)		(18,564	)
Total deferred		(156,796	)		(191,380	)
Less increase in allowance		157,337			191,849
Net deferred		541			469
Total income tax provision	$	4,185		$	4,179

In addition to the above income tax provision, there is a $1,607 deferred tax benefit included in discontinued operations related to a reversal of the deferred tax liability related to goodwill that was eliminated upon impairment of the LegalStore.com goodwill for book purposes as of December 31, 2012.

F-15

Individual components of deferred taxes are as follows as of December 31, 2012 and 2011:

	2012			2011
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	419,720		$	294,901
Depreciable and amortizable assets		20,938			3,506
Prepaid expense		(1,001	)		(956	)
Fair market value adjustments		52,580			29,574
Stock based compensation		9,437			3,012
Bad Debt Reserve		766			-
Total		502,440			330,037
Less valuation allowance		(502,440	)		(331,103	)
Net deferred tax assets (liabilities)	$	-		$	(1,066)

The Company has approximately $1,098,000 in net operating loss carryforwards (“NOL’s”) available to reduce future taxable income. These carryforwards begin to expire in year 2030. 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.

During the years ended December 31, 2012 and 2011 the Company had no unrecognized tax benefits.  The Company’s policy is to recognize interest accrued and penalties related to unrecognized tax benefits in tax expense.

The Company files income tax returns in the U.S. federal jurisdiction and in the states of California and New York. The tax years 2009-2012 generally remain open to examination by these taxing authorities. In addition, the 2008 tax year is still open for the state of California.

The differences between United States statutory Federal income tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:

	2012			2011
Statutory United States Federal rate		34.0	%		34.0	%
State income taxes net of federal benefit		3.6	%		1.7	%
Change in valuation reserves		(40.5	%)		(33.0	%)
Permanent differences		(1.5	%)		(0.4	) %
Other		3.3	%		(3.0	)  %
Effective tax rate (provision) benefit		(1.1	%)		(0.9	%)

F-16

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		INTERNET MEDIA SERVICES, INC.
April 15, 2013	By:	/s/ Raymond Meyers
		Raymond Meyers Chief Executive Officer (Principal Executive Officer and Principal Financial Officer )

In accordance with Section 13 or 15(d) of the Exchange Act of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

April 15, 2013	By:	/s/ Michael Buechler
		Michael Buechler Director
April 15, 2013	By:	/s/ Philip Jones
		Philip Jones Director
April 15, 2013	By:	/s/ Raymond Meyers
		Raymond Meyers Chief Executive Officer and Director (Principal Executive Officer and Principal Financial Officer )
April 15, 2013	By:	/s/ Alexander Orlando
		Alexander Orlando Director
April 15, 2013	By:	/s/ Patrick White
		Patrick White Director

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