Mass Hysteria Entertainment (MHYS) 10-Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from ______to______.

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(Exact name of registrant as specified in Charter

Nevada	000-53739	20-3107499
(State or other jurisdiction of incorporation or organization)	(Commission File No.)	(IRS Employee Identification No.)

5555 Melrose Avenue, Swanson Building

Suite 400

Hollywood, CA 90038

 (Address of Principal Executive Offices)

 _______________

 (323) 956-8388

 (Issuer Telephone number)

_______________

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No  

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

Large Accelerated FileroAccelerated FileroNon-Accelerated FileroSmaller Reporting Companyx

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

As of April 6, 2010, there were 74,172,952 shares of our common stock issued and outstanding.

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(Formerly, Michael Lambert, Inc.)

FORM 10-Q

February 28, 2010

TABLE OF CONTENTS

		Page
PART I-- FINANCIAL INFORMATION
Item 1.	Financial Statements		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		11
Item 4T	Control and Procedures		11
PART II-- OTHER INFORMATION
Item 1	Legal Proceedings		12
Item 1A	Risk Factors		12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		12
Item 3.	Defaults Upon Senior Securities		12
Item 4.	Submission of Matters to a Vote of Security Holders		12
Item 5.	Other Information		12
Item 6.	Exhibits		12
SIGNATURES			13

ITEM 1. FINANCIAL STATEMENTS

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(Formerly, Michael Lambert, Inc.)

(A Development-Stage Company)

BALANCE SHEETS

As of February 28, 2010 and November 30, 2009

	February 28, 2010			November 30, 2009
	(Unaudited)			(Audited)
CURRENT ASSETS
Cash	$	137,773		$	160
Subscription receivable		-			200,000
Total Current Assets		137,773			200,160
Intangible assets, net		3,050			3,140
Other assets		9,700			9,700
TOTAL ASSETS	$	150,523		$	213,000
LIABILITIES & STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$	5,111		$	5,111
Accounts payable – related party		6,150			6,150
Accrued liabilities		57,798			5,620
Common stock liability (Note 6)		200,000			200,000
Total current liabilities		269,059			216,881
Convertible long- term debt – related party (Note 4)		338,362			305,430
TOTAL LIABILITIES		607,421			522,311
Commitments and contingencies		-			-
STOCKHOLDERS’ DEFICIT
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding		-			-
Common stock, $0.001 par value, 140,000,000 shares authorized, 73,797,952 and 68,530,952 shares issued and outstanding as of February 28, 2010 and November 30, 2009, respectively.		73,798			68,531
Additional paid-in capital		4,730,034			4,589,816
Deficit accumulated during the development stage		(5,260,730	)		(4,967,658	)
TOTAL STOCKHOLDERS’ DEFICIT		(456,898	)		(309,311	)
TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT	$	150,523		$	213,000

See notes to financial statements

1

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(Formerly, Michael Lambert, Inc.)

(A Development-Stage Company)

STATEMENTS OF OPERATIONS

Three Months Ended February 28, 2010 and 2009, and for the period from Inception to February 28, 2010

(Unaudited) 

	Three Months Ended February 28,						For the Period from August 5, 2009 (Inception) to
	2010			2009			February 28, 2010
Sales revenue	$	-			-		$	-
Operating expenses:
General and administrative, including share-based compensation of $90,217 and $0 for the three months ended February 28, 2010 and 2009, respectively; and $247,797 for the period from Inception to February 28, 2010.		284,489			-			679,478
Selling expense		3,949			-			15,740
Total operating expenses		288,438			-			695,218
Other income (expenses):
Interest expense		(4,634	)		-			(8,634	)
Total other income and expense		(4,634	)		-			(8,634	)
Net loss from continuing operations		(293,072	)		-			(703,852
Net loss from discontinued operations		-			(297,573	)		-
Net loss	$	(293,072	)	$	(297,573	)	$	(703,852	)
Basic and diluted loss from continuing operations per share	$	(0.00	)	$	-
Basic and diluted loss from discontinued operations per share	$	-		$	(0.02	)
Basic and diluted weighted average shares outstanding		70,999,841			12,367,500

See notes to financial statements

2

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(Formerly, Michael Lambert, Inc.)

(A Development-Stage Company)

STATEMENT OF STOCKHOLDERS’ DEFICIT

Balances for the three months ended February 28, 2010, and for the period from Inception to February 28, 2010

(Unaudited)

	Common Shares			Common Stock at Par Value			Additional Paid-in Capital			Deficit Accumulated During the Development Stage			Total
Balances at August 5, 2009		25,013,500			25,014			4,468,253			(2,915,639	)		1,577,628
Shares issued in recapitalization		42,015,452			42,015			(42,015	)		-			-
Contribution to capital		-			-			7,500			-			7,500
Shares issued for services:
on August 24, 2009 at $0.31 per share		200,000			200			61,800			-			62,000
on September 29, 2009 at $0.43 per share		100,000			100			42,900			-			43,000
on October 6, 2009 at $0.42 per share		100,000			100			41,900			-			42,000
on October 16, 2009 at $0.29 per share		2,000			2			578			-			580
on November 29, 2009 at $0.10 per share		100,000			100			9,900						10,000
Stock issued for cash, November 30, 2009 at $0.20 per- share (Note 6)		1,000,000			1,000			(1,000	)		-			-
Net loss		-			-			-			(2,052,019	)		(2,052,019	)
Balances at November 30, 2009		68,530,952		$	68,531		$	4,589,816		$	(4,967,658	)	$	(309,311	)
Shares issued for services:
On December 10, 2009 at $0.10 per share		152,000			152			15,048			-			15,200
On January 10, 2010 at $0.07 per share		20,000			20			1,380			-			1,400
On January 28, 2010 at $0.18 per share		50,000			50			8,950			-			9,000
On February 22, 2010 at $0.11 per share		145,000			145			15,805			-			15,950
Common shares issued to extinguish debt acquired from predecessors by Control Group member		5,900,000			5,900			49,368			-			55,268
Share based compensation related to options issued granted during December 2009.		-			-			48,667			-			48,667
Shares returned to treasury from predecessors on January 1, 2010		(1,000,000	)		(1,000	)		1,000			-			-
Net loss		-			-			-			(293,072	)		(293,072	)
Balances at February 28, 2010		73,797,952		$	73,798		$	4,730,034		$	(5,260,730	)	$	(456,898	)

3

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(Formerly, Michael Lambert, Inc.)

(A Development-Stage Company)

STATEMENTS OF CASH FLOWS

Three Months Ended February 28, 2010 and 2009, and for the period from Inception to February 28, 2010

(Unaudited)

	February 28, 2010			February 28, 2009			For the Period from August 5, 2009 (Inception) to February 28, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(293,072	)	$	(297,573	)	$	(703,852	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		90			-			90
Share-based compensation		90,217			270,000			247,797
Contributed services		-			-			7,500
Imputed rent expense		-			900			-
Imputed interest on debt		-			1,158			-
Gain on settlement of convertible notes		-			-			(14,000	)
Changes in:
Inventory		-			283			-
Accounts payable		-			20,548			21,732
Accrued  liabilities		52,179			325			41,300
Bank credit line		-			-			(1,156	)
NET CASH USED IN OPERATING ACTIVITIES		(150,586	)		(4,359	)		(400,589	)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from stockholders		-			5,000			-
Payment on Bank Credit Line Payable		-			(471	)		-
Proceeds from sale of common stock		200,000			-			200,000
Proceeds from convertible long term loans - related parties		88,199			-			338,362
NET CASH PROVIDED BY FINANCING ACTIVITIES		288,199			4,529			538,362
NET CHANGE IN CASH		137,613			170			137,773
Cash balance, beginning of period		160			186			-
Cash balance, end of period	$	137,773		$	356			137,773
Supplemental Disclosures:
Cash paid for interest	$	-		$	2,224			-
Cash paid for income taxes	$	-		$	-			-
Supplemental schedule of non-cash investing and financing activities:
Conversion of short-term convertible notes into common stock	$	55,268		$	-			73,268

See notes to financial statements

4

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(Formerly, Michael Lambert, Inc.)

(A Development-Stage Company)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ORGANIZATION, BUSINESS AND CHANGE IN CONTROL

Mass Hysteria Entertainment Company, Inc. (the “Company” or “MHYS”), formerly Michael Lambert, Inc. (“MLI”) was incorporated in Nevada on November 2, 2005.   MLI was in the business of manufacturing handbags, but ceased operations in June 2009.

On August 5, 2009 (date of “Inception” for financial reporting purposes), Daniel Grodnik was appointed as the Company's President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board and Secretary. Mr. Grodnik has worked in the movie industry for almost thirty years. He has served as the Chairman and CEO of the National Lampoon, a publicly-traded entertainment company. A total of 50,000,000 shares were issued to, or purchased by, Daniel Grodnik and the affiliated parties representing 74.6% of the shares of outstanding common stock of the Company at the time of transfer. For financial accounting purposes, this change in control by MHYS was treated as a recapitalization with the assets contributed and liabilities assumed recorded at their historical basis. There were no assets acquired or liabilities assum ed by MHYS shareholders after the change in control, which would have been recorded at fair value.  A Control Group member also acquired notes payable, which convertible, from the predecessors for which the remaining balance acquired of $55,268 (after the note conversion amount of $10,000) was converted into 5,900,000 shares of our common stock in December 2009 as part of the completion of the change in control and recapitalization.

The Company is a development stage company at a time of great change in the entertainment business. Like much of corporate America, the entertainment sector is currently going through an upheaval. The motion picture business has had four significant revenue streams (theatrical, home video, cable and broadcast) since the early 1980's. Today, home video is in decline and new profit centers are opening up such as video-on-demand and internet portals that rely on micro-transactions.  Mass Hysteria Entertainment is endeavoring to be a company at the forefront of creating new revenue streams as they relate to the motion picture experience. Over the next twelve months, Mass Hysteria will be creating movies that will take advantage of traditional revenue streams that are still viable, and at the same time, identifying those micro-tra nsactions that will define new media's involvement in the film business such as downloading applications to smart phones that will allow the theater-goer to "participate" with the on-screen experience. Mass Hysteria is working with filmmakers who have realized great success such as producer Albert Ruddy (two Academy Awards for best picture, The Godfather and Million Dollar Baby), writer Pat Proft (Police Academy, Hot Shots, Naked Gun, and Scary Movie) and also with executives from the video game and social networking sectors. Our plan is to combine these individual entertainment experiences and destinations into an alternative theatrical experience for the youth audience.

NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim financial statements of MHYS have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Form 10-K filed with the SEC.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to our financial statements which substantially duplicate the disclos ures contained in our Annual Report on Form 10-K have been omitted.

Significant Accounting Policies

Development-Stage Company

On August 5, 2009 (“Inception”), the Company entered into the development stage with its intended new business, which currently has no revenues. Management expects to sustain losses from operations until such time it can generate sufficient revenues sufficient to meet its anticipated cost structure. The Company is considered a development-stage company in accordance with Accounting Standards Codification (“ASC”) 915 – “Development Stage Entities,” formerly Statement of Financial Accounting Standards (“SFAS”) No. 7 “Accounting and Reporting by Development Stage Enterprises”. Upon distribution of the Company’s products, it will exit the development stage. The nature of our operations is highly speculative, and there is a consequent risk of loss of your investment.
60; The success of our plan of operation will depend to a great extent on the operations, financial condition, and management of the identified business opportunity.

5

Discontinued Operations

When specific operations of a business are sold, abandoned, or otherwise disposed of, the business must account for these related revenues and expenses (including any gains or losses on related assets disposed of) as gain (loss) from discontinued operations. Continuing operations must be reported separately in the income statement from discontinued operations, and any gain or loss from the disposal of a segment be reported along with the operating results of the discontinued segment.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require the Company's most significant, difficult and subjective judgments include the valuation and recognition of share-based compensation.

The Company bases its estimates and judgments on historical experience and on various other factors that are considered reasonable under the circumstances, the results of which form the basis for making judgments that are not readily apparent from other sources. Actual results could differ materially from these estimates.

Fair Value of Financial Instruments

In the first quarter of fiscal year 2009, the Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures ("ASC 820-10"). ASC 820-10 defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. ASC 820-10 delays, until the first quarter of fiscal year 2009, the effective date for ASC 820-10 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of ASC 820-10 did not have a material impact on the Company's financial position or operations, but does require that the Company disclose assets and liabilities that are recognized and measured at fair value on a non-recurring basis, presented in a three-tier fair value hierarchy, as follows:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of February 28, 2010, the Company did not have any Level 1, 3 financial assets or liabilities which require valuation. The Company had a common stock liability that was a level 2 liability on the accompanying balance sheet.

Film Costs

The Company capitalizes film production costs in accordance with Statement of Position ASC 926 – “Entertainment”, formerly ("SOP") 00-2, Accounting by Producers or Distributors of Films. Film costs include costs to develop and produce films, which primarily consist of salaries, equipment and overhead costs, as well as the cost to acquire rights to films. Film costs include amounts for completed films and films still in development.  The Company begin capitalizing script costs March 1, 2010.

Loss per Share

Loss per share is computed on the basis of the weighted average number of common shares outstanding. Diluted loss per share is computed on the basis of the weighted average number of common shares outstanding.

NOTE 3 - GOING CONCERN

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern. The Company is a development-stage company, with limited available capital and no revenues from intended operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon the Company's ability to meet its financing requirements, raise additional capital, and the success of its future operations. There is no assurance that future capital raising plans will be successful in obtaining sufficient funds to assure the eventual profitability of the Company. Management belie ves that actions planned and presently being taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. The financial statements do not include any adjustments that might result from these uncertainties.

NOTE 4 - RELATED PARTY BORROWINGS

Since July 2009, a related party of the Control Group of the Company has made advances on behalf of the Company and purchased predecessor convertible debt totaling $305,430, as of November 30, 2009.  Of the $305,430 owed to the related party, $250,162 was for payments made to various parties for services and expenses on behalf of the Company and $55,268 was for purchase of predecessor debt as part of the recapitalization.  During February 2010, $55,268 of convertible debt acquired by this related party, as part of the recapitalization and change in ownership, was converted into 5,900,000 shares of common stock for full satisfied of the liability.  During the quarter ended February 28, 2010, the holder has advanced the Company an additional $88,199 in working capital for operations. On this date, the p arties established a note which converts the total balance of $338,362 into a total of 4,229,512 common shares, based on a share price of $0.08 per share, interest at 6%, per annum, due February 28, 2015.  

6

NOTE 5 - COMMITMENTS AND CONTINGENCIES

Employment Agreements

In August 2009 the Company entered into an engagement agreement with successful comedy writer Pat Proft to hire him as the Senior Vice President of Comedy.  His role is to create and write our movies.  Per the terms of his engagement, Mr. Proft received 200,000 shares of our common stock (see Note 6), and an initial monthly salary of $10,000 for a minimum of one year.  During March 2010, subsequent to quarter-end, a new agreement was negotiated which reflected that Pat would be paid half of this monthly salary in the form of stock compensation – retroactive from January 2010.  See Note 9 – Subsequent Events.

On December 17, 2009, the Company entered into an employment agreement with our President and CEO which provides for a base salary of $360,000 per year, payable semi-monthly for a period of five years, expiring December 17, 2014.  Among other things, the employment agreement calls for periodic increases in the base salary and bonuses based upon performance.  The agreement also allows for the Company, at the discretion of the Board of Directors, to provide for medical insurance and a contribution to a retirement benefit plan.  The President and CEO was also awarded options to purchase common stock. See Note 7.

NOTE 6 – STOCKHOLDERS’ DEFICIT

Capital Stock

The Company has two classes of stock:

1.   Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding; and,

2.   Common stock, $0.001 par value, 140,000,000 shares authorized, 73,797,952 and 68,530,952 shares issued and outstanding as of February 28, 2010 and November 30, 2009, respectively.

Reorganization and Settlement of Liabilities with Common Stock

In connection with the recapitalization, the convertible notes totaling $55,238 acquired by a Control Group member were paid in full through the issuance of 5,900,000 shares of common stock during February 2010.  Because this note was part of the recapitalization, the conversion of the shares were afforded such treatment.

Issuance of Common Stock Related to Employment Agreements and Services Rendered

In December 2009, the Company issued 152,000 shares to four individuals for consulting and Board of Director services to the Company.  These shares were expensed to share-based compensation for $15,200, based on a closing stock price per share of $0.10 on the date of issuance.

In January 2010, the Company issued 50,000 shares to one individual for consulting services to the Company.  These shares were expensed by the Company at $9,000, based on a price per share of $0.18 on the date of issuance.

Also during January 2010, the Company issued 20,000 shares to an outside consulting firm for services rendered.  These shares were expensed by the Company at $1,400, based on a price per share of $0.07 on the date of issuance.

On February 11, 2010, upon Board approval, the Company issued 145,000 shares to five individuals for various operational services to the Company.  These shares vested immediately and were expensed by the Company at $15,950, based on a price per share of $0.11 on the date of issuance.

On February 20, 2010, one million shares of common stock issued to two prior shareholders during August 2009 were cancelled upon a request by the CEO and concurrence by the two shareholders.

Sale of Common Stock

On November 30, 2009, the Company sold 1,000,000 shares to an individual pursuant to a subscription agreement at a price of $0.20 per share.  The cash was received on December 1, 2009.  The subscription agreement executed by the Company calls for an adjustment (“Ratchet”) after six months.  If, on that date, the Company’s closing bid price for the immediately preceding trading day is less than $0.20 per share, then the Company may be required to issue additional shares of its common stock to the purchaser to offset the purchaser’s total investment. Since the number of shares under the ratchet provision is indeterminate and based on a fixed dollar amount to the market price at the end of six months, management has recorded the common stock as a liability in the accompanying balance s heet at February 28, 2010.

7

NOTE 7 – EMPLOYEE STOCK OPTIONS

In addition to his annual salary, the President and CEO’s Employment Agreement grants employee stock options to purchase common stock in an amount equal to 20,000,000 shares at an exercise price of $0.07 per share.  The options shall vest equally over a five-year period (4,000,000 shares per year), commencing on January 1, 2010.  Each series of options shall survive for 24 months following vesting, and may be exercised all or in part by our President, and each series of options shall include a “cashless feature.”

Using the Simplified Method under ASC 718, the expected term of these options would be approximately 6.5 years.  These options, granted in December 2009, have a fair market value of $1,200,000, as calculated using the Black-Scholes pricing model with inputs as defined below:

Fair value of stock options awarded:	2009
Assumptions:
Expected volatility		238	%
Dividend yield		0	%
Expected option life (years)		6.5
Risk-free interest rate		2.24	%
Market price of option	$	0.06

Under ASC 718, stock compensation expense of $1,200,000 will be recognized and expensed quarterly, beginning with the first quarter of the Company's 2010 fiscal year and equally over the five-year vesting period until the options are vested in their entirety in December 2014.  As of February 28, 2010, $48,667 of this stock compensation had been recorded as expense.

NOTE 8 - DISCONTINUED OPERATIONS

The Company’s decision to discontinue the operations of its handbag business coincided with the Control Change which occurred at the beginning of June 2009.  As a result, all financial data pertaining directly to the operations relative to the handbag business was collapsed with the net amount reported separately from the continuing operations.  This collapsing effect was used to restate the financials for all periods presented.  For the three months ended February 28, 2010 and 2009 and the period from Inception to February 28, 2010, losses from discontinued operations were $0, $297,573 and $0, respectively.  Loss per weighted average share from discontinued operations for the three month periods ended February 28, 2010 and 2009 were $(0) and $(0.02), respectively.

NOTE 9 - SUBSEQUENT EVENTS

On March 9, 2010, upon Board approval, a revised employment agreement (retroactive to January 1, 2010) was negotiated between the Company and Pat Proft to reflect that half of his monthly $10,000 salary would be paid in the form of stock compensation.  Thus, for the months of January, February and March 2010, $15,000 accrued wages due Pat would be converted to 166,667 shares of common stock based on the current market price on that day of $0.09 per share.

On March 9, 2010, upon Board approval, the Company issued 375,000 shares to three individuals for operational consulting and advisory services rendered or to be rendered to the Company.  These shares were fully vested and expensed by the Company at $30,000, based on a price per share of $0.08 on the date of issuance.

8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q (THIS "FORM 10-Q"), CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF MICHAEL LAMBERT, INC. ("THE COMPANY", "MLI", "WE", "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-Q, UNLESS ANOTHER DATE IS STATED, ARE TO FEBRUARY 28, 2010.

DESCRIPTION OF BUSINESS

History

Michael Lambert, Inc. was incorporated in Nevada on November 2, 2005.  Up until August 5, 2009, the Company manufactured handbags.  We produced only 613 handbags from inception to May 31, 2009 and no other clothing accessories.  We only sold our products under the brand “Michael Lambert” and sold our products at two independently owned clothing stores in the San Antonio, Texas area.   We manufactured the handbags, which were hand-sewn by a third party, Fuerza Unida, a sewing cooperative in San Antonio, Texas consisting of minority women.

On August 5, 2009 (the "Effective Date"), pursuant to the terms of a Stock Purchase Agreement, Daniel Grodnik and affiliated parties purchased a total of 7,984,548 shares of our issued and outstanding common stock. This constituted a majority control of the Company.  In addition to the shares purchased, the Company also issued 42,015,452 shares to Daniel Grodnik and certain affiliated parties in connection with the Change of Control.  The total of 50,000,000 shares issued to Daniel Grodnik and the affiliated parties represents 74.6% of the shares of outstanding common stock of the Company at the time of transfer.  

In connection with the Change of Control, the Company has changed our name to Mass Hysteria Entertainment Company, Inc. and also changed our business plan.  Mass Hysteria Entertainment Company, Inc. (“MHYS”) is an innovative motion picture studio that produces branded young adult film content for theatrical, DVD, and television distribution managed by the former Chairman/CEO of National Lampoon, Inc. MHYS’s plan is to produce a minimum of three theatrical films a year that appeal specifically to the youth market.

Plan of Operations For The Next Twelve Months

Mass Hysteria Entertainment is a development stage company at a time of great change in the entertainment business. Like much of corporate America, the entertainment sector is currently going through an upheaval. The motion picture business has had four significant revenue streams (theatrical, home video, cable and broadcast) since the early 1980's. Today, home video is in decline and new profit centers are opening up such as video-on-demand and internet portals that rely on micro-transactions.  Mass Hysteria Entertainment is endeavoring to be a company at the forefront of creating new revenue streams as they relate to the motion picture experience. Over the next twelve months, Mass Hysteria will be creating movies that will take advantage of traditional revenue streams that are still viable, and at the same time, identifying those micro-transactions that will define new media's involvement in the film business such as downloading applications to smart phones that will allow the theater-goer to "participate" with the on-screen experience. Mass Hysteria is working with filmmakers who have realized great success such as producer Albert Ruddy (two Academy Awards for best picture, The Godfather and Million Dollar Baby), writer Pat Proft (Police Academy, Hot Shots, Naked Gun, and Scary Movie) and also with executives from the video game and social networking sectors. Mass Hysteria Entertainment's plan is to combine these individual entertainment experiences and destinations into an alternative theatrical experience for the youth audience.

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COMPARISON OF OPERATING RESULTS

Results of Operation for the Three Months Ended February 28, 2010 Compared to the Three Months Ended February 28, 2009

We did not have any sales revenues or related costs of sales for the three month periods ended February 28, 2010, or February 28, 2009, other than those related to the discontinued operations (handbag company).  We recognized $0 net loss from discontinued operations during the three months ended February 28, 2010 vs. $297,573 in net losses from discontinued operations during the three months ended February 28, 2009.  The lack of sales in current period is a direct reflection of the change of control and introducing a new focus and business plan.  As the new Company meets its business plan goals, we expect to generate revenue in the future.

For the three months ended February 28, 2010, we had general and administrative expenses of $284,489, selling expenses of $3,949, and interest expense of $4,634. For the three months ended February 28, 2009, all expenses incurred were for the handbag business which has since been discontinued. The general and administrative, selling and interest expenses were a result of expenses incurred relative to the change in control and overall business focus to the film and entertainment industry.

We had a net loss from continuing operations of $293,072, and a net loss from discontinued operations of $0 for the three months ended February 28, 2010, compared to a net loss from continuing operations of $0, and discontinued operations of $297,573 for the three months ended February 28, 2009.  The increase in net loss from continuing operations was mainly attributable to the $284,489 in general and administrative expenses incurred for the new business focus.

Liquidity and Capital Resources

We had total assets of $150,523 as of February 28, 2010, including cash on hand of $137,773; $9,700 of prepaid rent and a security deposit; and $3,050 of intangible assets (website).  

We had total liabilities of $607,421 as of February 28, 2010, consisting of current liabilities, which included $11,261 of accounts payable; $57,798 of accrued liabilities; and a $200,000 common stock conversion liability related to a ratchet provision contained in a subscription agreement.  We had long-term liabilities including a related party loan payable of $338,362.

We had negative working capital of $131,286, a total shareholders’ deficit of $456,898 as of February 28, 2010 and an accumulated deficit as of February 28, 2010 of $5,260,730.

We had $150,586 in net cash used in operating activities for the three months ended February 28, 2010, which included $293,072 in net loss, offset by $90,217 in shares issued for services; and a $52,179 increase in accrued liabilities.

We had $288,199 of net cash provided by financing activities for the three months ended February 28, 2010, which included $88,199 in proceeds from loans payable to related party and $200,000 for sale of common stock.

We depend to a great degree on the ability to attract external financing in order to conduct our business activities and in order that we have sufficient cash on hand to expand our operations.  We are currently funded solely by our shareholders.  We anticipate that our founders and shareholders will continue to support our operations and loan us additional funds on an as needed basis until such time as we can support our operations with revenues from our products, if ever.

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If we are unable to raise additional capital from conventional sources, including increases in the related party note payable or additional sales of additional stock, we may be forced to curtail or cease our operations. Even if we are able to continue our operations, the failure to obtain financing could have a substantial adverse effect on our business and financial results.

In the future, we may be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when it approaches a condition of cash insufficiency. The sale of additional equity securities, if accomplished, may result in dilution to our shareholders. We cannot assure you, however, that financing will be available in amounts or on terms acceptable to us, or at all.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"), have concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our C hief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. They were deemed not effective due to adjustment and disclosure omissions identified by our Independent Registered Public Accounting firm. The Company will continue to take steps to identify matters of accounting and disclosure.

(b)   Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

INHERENT LIMITATIONS OF INTERNAL CONTROLS

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:

-   pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

-   provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with the U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

-   provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Management does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degr ee of compliance with the policies or procedures may deteriorate.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

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

On November 30, 2009, the Company sold 1,000,000 shares to an individual pursuant to a subscription agreement at a price of $0.20 per share.  The cash was received on December 1, 2009.

In December 2009, the Company issued 152,000 shares to four individuals for consulting and Board of Director services to be rendered to the Company.  These shares were expensed to share-based compensation for $15,200, based on a closing stock price per share of $0.10 on the date of issuance.

In January 2010, the Company issued 50,000 shares to one individual for consulting services to be rendered to the Company.  These shares were expensed by the Company at $9,000, based on a price per share of $0.18 on the date of issuance.

Also during January 2010, the Company issued 20,000 shares to an outside consulting firm for services rendered.  These shares were expensed by the Company at $1,400, based on a price per share of $0.07 on the date of issuance.

On February 11, 2010, upon Board approval, the Company issued 145,000 shares to five individuals for various operational services rendered or to be rendered to the Company.  These shares were expensed by the Company at $15,950, based on a price per share of $0.11 on the date of issuance, since these were fully vested.

We claim an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and we paid no underwriting discounts or commissions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6.  EXHIBITS

(a)   Exhibits

31.1 Certifications of Chief Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1 Certifications of Chief Executive Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MASS HYSTERIA ENTERTAINMENT COMPANY, INC.
DATED: April __, 2010	By: /s/ Daniel Grodnik
	Daniel Grodnik Chief Executive Officer and Principal Accounting Officer

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