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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 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 accompanying unaudited consolidated quarterly financial statements have been
prepared on a basis consistent with generally accepted accounting principles in
the United States ("GAAP") for interim financial information and pursuant to the
rules of the Securities and Exchange Commission ("SEC"). In the opinion of
management, the accompanying unaudited financial statements reflect all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair presentation of the results of operations, financial position and cash
flows for the periods presented. The results of operations for the periods are
not necessarily indicative of the results expected for the full year or any
future period. These statements should be read in conjunction with the Entity's
Annual Report on Form 10-K for the year ended October 31, 2010 as filed with the
SEC on January 12, 2013 (the "2010 Annual Report")
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 periods ended July 31,
2011 and 2010.
6
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2011
Note 2. Summary of significant Accounting Policies (continued)
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 April 30, 2011 and October 31, 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.
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 stockholders 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, ongoing 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.
7
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2011
Note 2. Summary of significant Accounting Policies (continued)
Stock-Based Compensation
The Company complies with FASB ASC Topic 718 "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 the quarter ended January 31, 2011 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 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 of approximately $-0- and $-0- during the nine
months ended July 31, 2011 and 2010, respectively, related to consulting
services.
Recently Adopted Accounting Pronouncements
In December 2010, FASB issued ASC ASU 2010-28, "When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts (Topic 350) - Intangibles - Goodwill and Other." ASU 2010-28 amends
the criteria for performing Step 2 of the goodwill impairment test for
reporting units with zero or negative carrying amounts and requires performing
Step 2, if qualitative factors indicate that it is more likely than not that
goodwill impairment exists. The amendments to this update are effective for us
in the first quarter of 2011. Any impairment to be recorded upon adoption will
be recognized as an adjustment to our beginning retained earnings. The Company
adopted the pronouncement on January 1, 2011 resulting in no impact to the
Company's financial statements.
8
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2011
Note 2. Summary of significant Accounting Policies (continued)
Recently Adopted Accounting Pronouncements (continued)
In April 2010, the FASB issued ASU No. 2010-13, "Compensation - Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-
Based Payment Award in the Currency of the Market in Which the Underlying Equity
Security Trades," which addresses the classification of a share-based payment
award with an exercise price denominated in the currency of a market in which
the underlying equity security trades. Topic 718 is amended to clarify that a
share-based p1yment award with an exercise price denominated in the currency of
a market in which a substantial portion of the entity's equity securities trades
shall not be considered to contain a market, performance or service condition.
Therefore, such an award is not to be classified as a liability if it otherwise
qualifies as equity classification. The amendments in this update should be
applied by recording a cumulative-effect adjustment to the opening balance of
retained earnings. The cumulative-effect adjustment should be calculated for all
awards outstanding as of the beginning of the fiscal year in which the
amendments are initially applied, as if the amendments had been applied
consistently since the inception of the award. ASU No. 2010-13 is effective for
interim and annual periods beginning on or after December 15, 2010 and is not
expected to have amaterial impact on the Company's consolidated financial
position or results of operations. The Company adopted the pronouncement on
January 1, 2011 resulting in no impact to the Company's financial statements.
In January 2010, the FASB issued Accounting Standards Update 2010-06,"Fair
Value Measurements and Disclosures (Topic 820) - Improving Disclosures about
Fair Value Measurements" (ASU 2010-06), to require new disclosures related
to transfers into and out of Levels 1 and 2 of the fair value hierarchy and
additional disclosure requirements related to Level 3 measurements. The
guidance also clarifies existing fair value measurement disclosures about
the level of disaggregation and about inputs and valuation techniques used
to measure fair value. The additional disclosure requirements are effective
for the first reporting period beginning after December 15, 2009, except for
the additional disclosure requirements related to Level 3 measurements, which
are effective for fiscal years beginning after December 15, 2010. The Company
adopted the pronouncement on January 1, 2011 resulting in no impact to the
Company's financial statement.
The Company has adopted all accounting pronouncements issued since December 31,
2007 through July 31, 2011, 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 netloss 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.
9
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 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 July 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 shareholderhas 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
Since October of 2006, the Company invested $3,280 in establishing trademarks
associated with its Bar TV concept. 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 July 31, 2011
2007 ............................. $ 525
2008 .............................. 525
2009 .............................. 525
2010 .............................. 525
2011 .............................. 225
-----
accumulated amortization 2,325
|
10
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2011
Note 5. Income Taxes
The Company has approximately $9.1 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 SFAS 109 which provides
for the recognition of a deferred tax asset based upon the value the loss
carryforwards 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:
July 31, October 31,
2011 2010
------------ ------------
Deferred tax asset:
Net operating loss carry-forward $4,621,017 $4,405,757
Other Temporary differences - 1,800
------------ ------------
Deferred Tax asset 4,621,017 4,407,557
Less: Valuation allowance (4,621,017) (4,407,557)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
July 30, October 31,
2011 2010
------------ ------------
Statutory federal income tax expense (34)% (34)%
State and local income tax
(net of federal benefits) ( 5) ( 5)
Other temporary differences
Valuation allowance 39 39
------------ ------------
-% -%
============ ============
|
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 $40,500 and $40,500 for each of the nine months
ended July 31, 2011 and 2010, respectively.
11
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 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 July 30, 2011, Mr. Venters was owed
approximately $551,134 for accrued unpaid salary.
Note 7. Payroll Taxes Payable
The Company has been delinquent in its payment of payroll taxes. As of July
31, 2011,the total of payroll taxes payable, including estimated interest and
penalties was aproximately $324,145. Accrued interest on the payroll taxes for
the nine months ended July 31, 2011 was $13,709.
Note 8. Notes Payable
Convertible Notes Payable - Dr. Terry
As of July 31, 2011, 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. Interest expense on these notes for the nine months ended is $24,000.
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 July 31, 2011. Interest expense on these notes for the
nine months ended was $9,225.
12
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2011
Note 9. Stockholders' Deficiency
Common Stock
Stock Issued for Cash
During the three months ended July 31, 2011, the Company had not issued
any common stock for cash.
Stock Issued for Services
During period ended July 31, 2011, the Company did not issue any shares of
common stock for services.
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 July 31, 2011 there were 5,750,000 shares of Series B Preferred
Stock outstanding; and on October 31, 2010 there were 5,750,000 shares
outstanding. Each share of Series B Preferred Stock is convertible into one
share of common stock.
Note 10. Common Stock Options
During the three months ended July 31, 2011, there were no stock option
granted nor were any issued and outstanding.
13
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2011
Note 10. Convertible Units
During the nine months ended July 31, 2011 the Company made available through
its Venture Capital Partners Llc subsidiary, authorized the sale of $1,000,000
worth of convertible units under the exemption rules of 144k and Section 504-D
of the SEC.
Such units are are convertible into restricted common shares that have a one
waiting period before an investor can resell into the market. These convertible
Units are sold in lots of $10,000 each having a ratio of (100:1 at $0.01).
During the none months ended July 31, 2011 the company raised $25,000 from the
sale of these securities through private placement in the State of Florida.
Note 11. Litigation
As of July 31, 2011, the Company was not a party to any existing or
threatened litigation.
Note 12. Related Party Transactions
Dr. Harold Terry
As of July 31 2011, the balances owed for the convertible note was $705,000,
these notes are unsecured, non-interest bearing at 7%.
As of July 31, 2011, the interest owed on these notes payable was adjusted
to $236,593.
As of July 31, 2011, the balance owed for the studio rent was $463,500.
Gordon Scott Venters
Effective July 31, 2011, Gordon Scott Venters, entered into a three-year
employment agreement with the Company, which is described above in Note 6-
Commitments-Employment Agreements.
Note 12. Related Party Transactions (continued)
Gordon Scott Venters (continued)
As of July 31, 2011 Gordon S Venters was owed approximately $551,153.
Note 13. Supplemental Cash Flow Information
Selected non-cash investing and financing activities are summarized,
as follows:
2011 2010
----------- -----------
Stocks issued for services $ - $ -
Stocks issued for payment of loans payable - -
Options issued for services - -
|
Note 14. Subsequent Events
As of July 31, 2011 there were no subsequent events.
14
THE MOVIE STUDIO, INC.
(FORMERLY DESTINATION TELEVISION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2011