Our financial statements, together with the
report of auditors, are as follows
309 E. Citrus Street
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 2011
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, 2011 and 2010.
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,
2011 and 2010.
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-6
THE MOVIE STUDIO,
INC.
(FORMERLY DESTINATION
TELEVISION, INC.)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 2011
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 benefit that is greater than fifty percent likely of being realized
upon ultimate settlement. De-recognition 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 “Compensation
– Stock 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 2011 or 2010 under FASB ASC 718.
F-7
THE MOVIE STUDIO,
INC.
(FORMERLY DESTINATION
TELEVISION, INC.)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 2011
Note 2 – Summary of significant Accounting Policies (continued)
Stock-Based Compensation (continued)
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 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 $-0- during the years ended October 31, 2011 and 2010,
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 28, 2012, 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-8
THE MOVIE STUDIO,
INC.
(FORMERLY DESTINATION
TELEVISION, INC.)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 2011
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 $9.1 million as of October 31, 2011, 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
shareholder 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,
|
|
|
2012
|
|
300
|
|
2013
|
|
300
|
|
Thereafter
|
|
280
|
|
|
|
|
|
Total expected annual amortization expense
|
$ 880
|
F-9
THE MOVIE STUDIO,
INC.
(FORMERLY DESTINATION
TELEVISION, INC.)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER
31, 2011
Note
5 - Income Taxes
The
Company has approximately $9.2 million in net operating loss carryovers available to reduce future income taxes. These carryovers
expire at various dates through the year 2030. 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,
|
|
|
|
2011
|
|
2010
|
|
Deferred tax asset:
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$ 4,598,128
|
|
$ 4,405,757
|
|
Other Temporary differences
|
|
-
|
|
1,800
|
|
Deferred tax asset
|
|
4,598,128
|
|
4,407,557
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
(4,598,128)
|
|
(4,407,557)
|
|
Net deferred tax asset
|
|
$ -
|
|
$ -
|
|
|
October 31,
|
|
|
2011
|
|
2010
|
|
Statutory federal income tax expense
|
(34)
|
%
|
|
(34)
|
%
|
|
State and local income tax
|
(5)
|
|
|
(5)
|
|
|
(net of federal benefits)
|
|
|
|
|
|
|
Other temporary differences
|
-
|
|
|
-
|
|
|
Valuation allowance
|
39
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
-
|
%
|
|
-
|
%
|
The Company has taken a full valuation allowance against the deferred
asset attributable to the NOL carry-forwards of approximately $4,600,000 and $4,400,000 at October 31, 2011 and 2010, respectively,
due to the uncertainty of realizing the future tax benefits.
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 computer 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, 2011 and October 31, 2010.
F-10
THE MOVIE STUDIO,
INC.
(FORMERLY DESTINATION
TELEVISION, INC.)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 2011
Note 6 – Commitments (continued)
Employment Agreements
Gordon Scott Venters
is employed as the Company's president and chief executive officer pursuant to an employment agreement, effective November 1, 2007.
The three-year employment agreement, 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, 2011, Mr. Venters
was owed $547,597 for accrued unpaid salary. As of October 31, 2010, Mr. Venters was owed $414,597 for accrued unpaid salary.
Note 7 - Payroll
Taxes Payable
As of October 31, 2011 and 2010, the Company
owed the Internal Revenue Service approximately $336,386 and $299,923, respectively, for unpaid payroll taxes, interest, and penalties,
for unpaid payroll taxes for periods ended prior to the year ended October 31, 2007. 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, 2009 and 2010 have been paid as required.
Note 8 - Notes
Payable
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.
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.
None of the above
shares have 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, 2011, 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.
F-11
THE MOVIE STUDIO,
INC.
(FORMERLY DESTINATION
TELEVISION, INC.)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 2011
Note 10- Common
Stock Options
No options or warrants
were outstanding at October 31, 2011 and October 31, 2010.
Note 11 –
Litigation
As of October 31,
2011, the Company was not a party to any existing or threatened litigation.
Note
12 - Related Party Transactions
Gordon Scott Venters
Effective November
2007, Gordon Scott Venters, entered into an employment agreement with the Company, which is described above in
Note
6--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 –
Subsequent Events
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-12