Our financial statements, together with the report of auditors, are as follows
The accompanying footnotes are an integral part of these financial statements.
The accompanying footnotes are an integral part of these financial statements.
The accompanying footnotes are an integral part of these financial statements.
Oct 31 10 102,355,260 $6,626,877 5,750,000 $206,000 $(8,950,504) $(2,117,627)
The accompanying footnotes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 1. Description of Business
The Movie Studio, Inc. (the "Company") was incorporated in the State of Delaware
1961 under the name Magic Fingers, Inc. The company is a vertically integrated
motion picture production company that develops, manufactures and distributes
independent motion picture content for worldwide consumption on a multitude of
devices.
The Company has operated under various names since incorporation, most recently
Destination Television, Inc. from February 2007 to November 2012, when the name
was changed to The Movie Studio, Inc.
From October 31, 2001, the Company's focus was on the developing a private
television network, in high traffic locations such as bars and nightclubs.
During this development period, the Company received incidental revenue from the
sale of advertising and the production of commercials. In 2010, the Company
began implementation of its current business model, using the technology
previously developed for the private television network.
Note 2. Summary of significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of The Movie Studio,
Inc. (Formerly Destination Television, Inc.), a Delaware corporation, and its
wholly owned subsidiary Destination Television, Inc., a Florida corporation.
All significant inter-company account balances and transactions between the
Company and its subsidiary have been eliminated in consolidation.
Long-Lived Assets
In accordance with Financial Accounting Standard Board ("FASB") Accounting
Standards Codification ("ASC") Topic 360 "Property, Plant, and Equipment," the
Company records impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets'carrying amounts. There
were no impairment charges during the years ended October 31, 2010 and 2009.
Fair Value of Financial Instruments
The fair values of the Company's assets and liabilities that qualify as
financial instruments under FASB ASC Topic 825, "Financial Instruments,"
approximate their carrying amounts presented in the accompanying consolidated
statements of financial condition at October 31, 2010 and 2009.
Revenue recognition
In accordance with the FASB ASC Topic 605, "Revenue Recognition," the Company
recognizes revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the sales price is fixed or determinable,and collectability is
reasonably assured.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC Topic 740
"Income Taxes," which requires accounting for deferred income taxes under the
asset and liability method. Deferred income tax asset and liabilities are
computed for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in
the future based on the enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce the deferred income
tax assets to the amount expected to be realized.
F-7
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 2. Summary of significant Accounting Policies (continued)
Income Taxes (continued)
In accordance with GAAP, the Company is required to determine whether a tax
position of the Company is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. The Company files an income tax return in the U.S. federal
jurisdiction, and may file income tax returns in various U.S. state and local
jurisdictions. Generally the Company is no longer subject to income tax
examinations by major taxing authorities for years before 2005. The tax
benefit to be recognized is measured as the largest amount of benefits that
is greater than fifty percent likely of being realized upon ultimate settle-
ment. Derecognition of a tax benefit previously recognized could result in
the Company recording a tax liability that would reduce net assets. This
policy also provides guidance on thresholds, measurement, de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition that is intended to provide better financial
statement comparability among different entities. It must be applied to all
existing tax positions upon initial adoption and the cumulative effect, if
any, is to be reported as an adjustment to stockholder's equity as of
January 1, 2009. Based on its analysis, the Company has determined that the
adoption of this policy did not have a material impact on the Company's
financial statements upon adoption. However, management's conclusions
regarding this policy may be subject to review and adjustment at a later
date based on factors including, but not limited to, on-going analyses of
and changes to tax laws, regulations and interpretations thereof.
Comprehensive Income
The Company complies with FASB ASC Topic 220, "Comprehensive Income,"
which establishes rules for the reporting and display of comprehensive
income (loss) and its components. FASB ASC Topic 220 requires the
Company's change in foreign currency translation adjustments to be included
in other comprehensive loss, and is reflected as a separate component of
stockholders'equity.
Stock-Based Compensation
The Company complies with FASB ASC Topic 718 "Stock Basesd Compensation,"
which establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity
instruments.
FASB ASC Topic 718 focuses primarily on accounting for transactions in which
an entity obtains employee services in share-based payment transactions.
FASB ASC Topic 718 requires an entity 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 (with limited exceptions). That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award (usually the vesting period). No
compensation costs are recognized for equity instruments for which employees
do not render the requisite service. The grant-date fair value of employee
share options and similar instruments will be estimated using option-pricing
models adjusted for the unique characteristics of those instruments (unless
observable market prices for the same or similar instruments are available).
If an equity award is modified after the grant date, incremental compensation
cost will be recognized in an amount equal to the excess of the fair value of
the modified award over the fair value of the original award immediately
before the modification. No employee stock options or stock awards vested
during 2010 or 2009 under FASB ASC 718.
Nonemployee awards
The fair value of equity instruments issued to a nonemployee is measured by
using the stock price and other measurement assumptions as of the date of
either: (i) a commitment for performance by the nonemployee has
F-8
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 2. Summary of significant Accounting Policies (continued)
Stock-Based Compensation (continued)
been reached; or (ii) the counterparty's performance is complete. Expenses
related to nonemployee awards are generally recognized in the same period as
the Company incurs the related liability for goods and services received.
The Company recorded stock compensation expense of approximately $-0- and
$170,430 during the years ended October 31, 2010 and 2009, respectively,
related to consulting services.
Recently Adopted Accounting Pronouncements
The Company evaluates the pronouncements of various authoritative accounting
organizations, primarily the Financial Accounting Standards Board (FASB),
the SEC, and the Emerging Issues Task Force (EITF), to determine the impact
of new pronouncements on GAAP and the impact on the Company. The following
are recent accounting pronouncements that have been adopted during 2012, or
will be adopted in future periods.
Fair Value Measurements: In May 2011, the FASB amended the ASC to develop
common requirements for measuring fair value and for disclosing information
about fair value measurements in accordance with GAAP and International
Financial Reporting Standards. The amendment is effective for the first
interim or annual period beginning on or after December 15, 2011. The
adoption of this amendment on January 1, 2012 did not have a material impact
on the Company's results of operations and financial condition.
Comprehensive Income: In June 2011, the FASB amended the ASC to increase
the prominence of the items reported in other comprehensive income.
Specifically, the amendment to the ASC eliminates the option to present the
components of other comprehensive income as part of the statements of
shareholders' equity. The amendment must be applied retrospectively and is
effective for fiscal years and the interim periods within those years,
beginning after December 15, 2011.
In February 2013, the FASB amended the ASC to require entities to provide
information about amounts reclassified out of other comprehensive income by
component. The Company is required to present, either on the face of the
financial statements or in the notes, the amounts reclassified from other
comprehensive income to the respective line items in the statements of
operations. This amendment is effective for interim and annual periods
beginning after December 15, 2012
The Company has adopted all accounting pronouncements issued since
December 31, 2007 through February 25, 2013, none of which had a material
impact on the Company's financial statements.
Loss Per Common Share
The Company complies with the accounting and disclosure requirements of
FASB ASC 260,"Earnings Per Share." Basic loss per common share is computed
by dividing net loss available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted
loss per common share incorporates the dilutive effect of common stock
equivalents on an average basis during the period.
F-9
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 3. Going Concern
The accompany financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assume that Destination
Television, Inc. will continue in operation for a least one year and realize its
assets and discharge its liabilities in the normal course of operations.
Several conditions cast doubt about the Company's ability to continue as a going
concern. The Company has an accumulated deficit of approximately $8.9 million as
of October 31, 2010, has no cash available for payment of operating expenses, no
source of revenue, and requires additional financing in order to finance its
business activities on ongoing basis. The Company's future capital requirements
will depend on numerous factors, including but not limited to continued progress
in the pursuit of business opportunities. The Company is actively pursuing
alternative financing and has discussions with various third parties, although
no firm commitments have been obtained. In the interim, the principal share-
holder has committed to meeting any operating expenses incurred by the Company.
The Company believes that actions it is presently taking to revise its operating
and financial requirements provide it with the opportunity to continue as a
going concern.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. While we believe that the actions already taken or
planned, will mitigate the adverse conditions and events which raise doubt about
the validity of going concern assumption used in preparing these financial
statements, there can be no assurance that these actions will be successful.
If the Company were unable to continue as a going concern, then substantial
adjustments would be necessary to the carrying values of the reported
liabilities.
Note 4. Acquired Amortizable Intangible Assets
As of October 31, 2006, the Company invested $3,280 in establishing trademarks
associated with its concept of placing TV's in bars, hotels and gyms. The
Company amortizes the costs of these intangibles over their estimated useful
lives unless such lives are deemed indefinite. Amortizable intangible assets
are also tested for impairment based on undiscounted cash flows and, if
impaired, written down to fair value based on either discounted cash flows or
appraised values. Intangible assets with indefinite lives are tested for
impairment, at least annually, and written down to fair value as required.
Expected annual amortization expense related to amortizable intangible assets
is, as follows:
As of October 31,
2010 $ 300
2011 300
2012 300
2013 300
Thereafter 280
Total expected annual --------
amortization expense $ 1,480
=======
|
F-10
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 5. Income Taxes
The Company has approximately $11.1 million in net operating loss carryovers
available to reduce future income taxes. These carryovers expire at various
dates through the year 2029. The Company has adopted FASB ASC Topic 740,
"Income Taxes," which provides for the recognition of a deferred tax asset
based upon the value the loss carry-forwards will have to reduce future
income taxes and management's estimate of the probability of the realization
of these tax benefits. The Company's management determined that it was more
likely than not that the Company's net operating loss carry-forwards would
not be utilized; therefore, a valuation allowance against the related
deferred tax asset has been established.
A summary of the deferred tax asset presented on the accompanying balance
sheets is, as follows:
October 31,
2010 2009
----------- -----------
Deferred tax asset:
Net operating loss carry-forwards $4,405,757 $4,332,350
other temporary differences 1,800 1,800
---------- ---------
Deferred tax asset 4,407,557 4,334,150
Less: Valuation allowance (4,407,557) (4,334,150)
Net deferred tax asset $ - $ -
October 31,
2010 2009
----------- -----------
Statutory federal income tax expense (34)% (34)%
State and local income tax
(net of federal benefits) (5) (5)
Other temporary differences 39 39
Valuation allowance - % - %
|
Note 6. Commitments
Facilities
The Company leases from a stockholder, Dr. H. K. Terry, pursuant to an oral
agreement on a month-to-month basis, an 8,500 square foot building in Fort
Lauderdale, Florida, which serves as its administrative offices and compute
operations center. The rent is $4,500 per month and the Company is responsible
for utilities. Rent expense was $54,000 for each of the years ended October
31, 2010 and October 31, 2009.
Employment Agreements
Gordon Scott Venters is employed as the Company's president and Chief
executive officerpursuant to an employment agreement, effective November 1,
2007. The three-year employmentagreement, which extended a previous agreement,
provides for an annual salary of $161,662; annual increases of a minimum of 5%;
and participation in incentive or bonus plans at the discretion of the Board of
Directors. The agreement additionally provides for certain confidentiality and
non-competition provisions and a minimum payment of 18 months salary in the
event of a change of control or termination "without cause," or if the employee
terminates for "good reason." As of October 31, 2010, Mr. Venters was owed
$248,557 for accrued unpaid salary. As of October 31, 2009, Mr. Venters was
owed $86,895 for accrued unpaid salary.
F-11
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 7. Payroll Taxes Payable
The Company has been delinquent in its payment of payroll taxes. As of July
31, 2009, the total of payroll taxes payable, including estimated interest and
penalties, was $261,710. In August, October and November 2007, the Internal
Revenue Service filed tax liens against the Company in the total amount of
$198,351. In August 2007, the Company made a lump-sum payment of $48,000, and
in November 2007, an additional lump sum payment of $18,600. These payments
were made in connection with the Company's submission of an Offer in Compromise
to settle its payroll tax obligations. The Offer in Compromise was rejected and
the Company appealed the initial determination, which also was rejected in June
2009. The Company plans to submit a revised Offer in Compromise. There is no
assurance that an acceptable settlement will be reached. Payroll tax obligations
for the calendar years 2007, 2008 and 2009 have been paid as required.
Note 8. Notes Payable
Convertible Notes Payable - Dr. Terry
As of October 31, 2010, notes payable due Dr. Terry totaled $500,000, comprised
of convertible notes of $400,000 and $100,000 at 6% and 8%, respectively. Of the
$500,000 principal balance of convertible notes payable, $300,000 of the notes
are secured by all of the assets of the Company and $200,000 of the notes are
unsecured.
The convertible notes have not been registered under the Securities Act of 1933,
as amended, and therefore, may not be transferred in the absence of an exemption
from registration under such laws and will be considered "restricted securities"
as that term is defined in Rule 144 adopted under the Securities Act, and may be
sold only in compliance with the resale provisions set forth therein.
Loans Payable - Dr. Terry
On May 16, 2008, the Company borrowed $30,000 from Dr. Terry. The loan which is
unsecured is payable in one-year with 6% interest. Loans payable to Dr. Terry
totaled $205,000 as of October 31, 2010.
Note 9 - Stockholders' Deficiency
Common Stock Stock Issued for Cash. During year ended October 31, 2010, the
Company issued to accredited investors a total of 5,500,000 shares of common
stock for $0.005 per share for a total of $27,500. During fiscal year 2009,
the Company issued to accredited investors a total of 5,950,000 shares of
common stock for $103,100, of which 2,950,000 shares were issued at $0.018 per
share, 1,000,000 shares were issued at $0.015, and 2,000,000 shares were
issued at $0.01 per share. None of the above shares have been registered
under the Securities Act of 1933, as amended, and therefore, may not be trans-
ferred in the absence of an exemption from registration under such laws and
will be considered "restricted securities" as that term is defined in Rule 144
adopted under the Securities Act, and may be sold only in compliance with the
resale provisions set forth therein.
F-12
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 9. Stockholders' Deficiency (continued)
Common Stock (continued)
Stock Issued for Services
In fiscal year 2009, the Company issued a total of 15,246,500 shares of common
stock as payment for services, of which 2,500,000 shares were issued pursuant to
a consulting agreement described below; 200,000 and 150,000 to two separate
consultants and 50,000 shares for fees to a director.
Stock Issued in Exchange for Debt
In November 2007, the Company's president, Gordon Scott Venters, acquired from
the Company 2,000,000 shares of its Series B Preferred Stock as payment of
$56,000 of accrued unpaid salary. The shares were valued at $56,000, or $0.028
per share, which represented the approximate value, at the date of issuance, of
the common stock into which the Series B Preferred Stock may be converted. Also,
in September and October 2008, Mr. Venters, acquired a total 15,000,000 shares
of common stock from the Company at an average price of approximately $0.0051
as payment for accrued but unpaid salary of $76,000. The shares of Series B
Preferred Stock and the common shares have not been registered under the
Securities Act of 1933, as amended, and therefore, may not be transferred in
the absence of an exemption from registration under such laws and will be
considered "restricted securities" as that term is defined in Rule 144 adopted
under the Securities Act, and may be sold only in compliance with the resale
provisions set forth therein. In April 2007, Mr. Venters, acquired from the
Company 500,000 shares of its common stock, which were valued at $26,000, or
$0.052 per share, as repayment of a $25,000 loan he made to the Company in
August 2006 and payment of $1,000 of accrued unpaid salary. Additionally, in
October 2007, he acquired 1,000,000 shares of common stock, which were valued
at $0.04 per share, in exchange for $40,000 of accrued unpaid salary. These
shares have not been registered under the Securities Act of 1933, as amended,
and therefore, may not be transferred in the absence of an exemption from
registration under such laws and will be considered "restricted securities"
as that term is defined in Rule 144 adopted under the Securities Act, and may
be sold only in compliance with the resale provisions set forth therein.
Preferred Stock
Series B Preferred Stock The Series B Preferred Stock is identical in all
aspects to the Common Stock, including the right to receive dividends, except
that each share of Series B Preferred Stock has voting rights equivalent to
four times the number of shares of Common Stock into which it could be
converted. As of October 31, 2009, there were 5,750,000 shares of Series B
Preferred Stock outstanding; on October 31, 2007, there were 3,750,000 shares
outstanding. Each share of Series B Preferred Stock is convertible into one
share of common stock.
Note 10. Common Stock Options
The following table summarizes the key assumptions used in determining the
fair value of options granted during the fiscal year ended October 31, 2010
an 2010.
Table of Key Assumptions
Interest Dividend Expected Expected
Rate Yield Volatility Life
--------- ---------- ----------- ----------
5.0% 0.0% 200.0% 12 mos.
|
F-13
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 10. Common Stock Options
The following table summarizes the option activity during the fiscal years
ended October 31, 2010 and October 31, 2009.
On May 30, 2008, the consultant notified the Company that he was terminating
the Consulting Agreement effective June 29, 2008, at which time the options
expired. No options or warrants were outstanding at October 31, 2010 and
October 31, 2009.
Note 11. Litigation
As of October 31, 2010, the Company was not a party to any existing or
threatened litigation.
Note 12. Related Party Transactions
Dr. Harold Terry
On December 21, 2007, the Company issued a one-year 8%, $100,000 secured
convertible note to Dr. Harold Terry, a major shareholder of the Company's
common stock for $100,000 cash. The note is convertible into common stock
at $0.05 per share and is collateralized by all of the Company's assets,
both tangible and intangible, and is restricted as to transferability. The
proceeds of the note were used for working capital. As of October 31, 2008,
notes payable due Dr. Terry totaled $500,000, comprised of convertible notes
of $400,000 and $100,000 at 6% and 8%, respectively. Of these convertible
notes payable, $300,000 are secured by all of the assets of the Company and
$200,000 of the notes are unsecured.
On May 16, 2008, the Company borrowed $30,000 from Dr. Terry. The loan which
is unsecured is payable in one-year with 6% interest. In fiscal year 2007,
Dr. Terry made $125,000 of unsecured loans to the Company. As of October 31,
2009, the total of unsecured loans payable to Dr. Terry totaled $205,000.
The Company leases the building that houses its offices from Dr. Terry on a
month-to-month basis, at $4,500 per month, which has been accrued by the
Company but not paid. As of October 31, 2010 and October 31, 2009, the Company
owed Dr. Terry for accrued interest $205,698 and $162,093, respectively; and
for accrued rent $423,000 and $369,000, respectively. These amounts are
included in the accompanying consolidated balance sheets as accrued interest,
related party and accounts and accrued expenses payable, respectively.
F-14
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2010
Note 12. Related Party Transactions (continued)
Gordon Scott Venters
Effective November 2007, Gordon Scott Venters, entered into a three-year
employment agreement with the Company, which is described above in Note 5-
Commitments-Employment Agreements. In November 2007, Mr. Venters, acquired
from the Company 2,000,000 shares of its Series B Preferred Stock as payment
of $56,000 of accrued unpaid salary. The shares were valued at $56,000, or
$0.028 per share, which represented the approximate value, at the date of
issuance, of the common stock into which the Series B Preferred Stock may be
converted. Also, in September and October 2008, Mr. Venters, acquired a
total 15,000,000 shares of common stock from the Company at an average price
of approximately $0.0051 as payment for accrued but unpaid salary of $76,000.
The shares of Series B Preferred Stock and the common shares have not been
registered under the Securities Act of 1933, as amended, and therefore, may
not be transferred in the absence of an exemption from registration under
such laws and will be considered "restricted securities" as that term is
defined in Rule 144 adopted under the Securities Act, and may be sold only
in compliance with the resale provisions set forth therein.
In August 2006 and February 2007, Mr. Venters made non-interest bearing
unsecured loans to the Company in the amounts of $25,000 and $5,000,
respectively. In April 2007, the Company repaid the $5,000 loan and Mr.
Venters acquired from the Company 500,000 shares of its common stock, which
were valued at $26,000, or $0.052 per share, in exchange for the $25,000 loan
and the balance of $1,000 was applied to accrued unpaid salary. Additionally,
in August 2007, he acquired 1,000,000 shares of common stock, which were
valued at $0.04 per share, in exchange for $40,000 of accrued unpaid salary.
At October 31, 2010 and 2009, the Company owed Mr. Venters $414,597 and
$248,557, respectively, for accrued unpaid salary.
Note 13. Supplemental Cash Flow Information Selected non-cash investing and
financing activities are summarized as follows:
2010 2009
--------- ---------
Stock issued for services $ - $ 120,500
Stock issued for payment of loan payable - -
Options issued for services - 49,930
|
Note 14. Subsequent Events
At March 31, 2011, the Company owed Dr. K. Terry, a related party shareholder,
a total of $1,353,420, which represented $436,500 for accrued rent, $705,000
for convertible notes, and $211,920 for accrued interest against the convertible
notes. On April 1, 2011, the total due Dr. Terry of $1,353,420 was purchased by
Ventures Capital Partners, LLC, another related party, which provided Dr.Terry
an equity interest in Ventures Capital Partners, LLC.
In November 2012, the Company changed its name from Destination Television, Inc.
to the Movie Studio, Inc. During the month of November 2012, the Company became
involved in litigation regarding the ownership of equipment left in the building
by a previous tenant. The building serves as the corporate headquarters for the
Company. The Company was ordered by the court to preserve the equipment until
ownership can be established by the court. The Company has made no claim of
ownership of the equipment and expects to be dismissed from the litigation
F-15