Mass Hysteria Entertainment Company, Inc. - FORM 10-K

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Mass Hysteria Entertainment Company, Inc.	Financial_Report.xls
EX-23.1 - CONSENT OF DBBMCKENNON - Mass Hysteria Entertainment Company, Inc.	f10k2011ex23i_masshysteria.htm
EX-31.2 - RULE 13A-14(A)/ 15D-14(A) CERTIFICATION OF CHIEF FINANCIAL OFFICER - Mass Hysteria Entertainment Company, Inc.	f10k2011ex31ii_masshysteria.htm
EX-32.2 - SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER - Mass Hysteria Entertainment Company, Inc.	f10k2011ex32ii_masshysteria.htm
EX-10.6 - TECHNOLOGY LICENSE AGREEMENT - Mass Hysteria Entertainment Company, Inc.	f10k2011ex10vi_masshysteria.htm
EX-10.7 - TECHNOLOGY TRANSFER AND STOCK ISSUANCE AGREEMENT - Mass Hysteria Entertainment Company, Inc.	f10k2011ex10vii_masshysteria.htm
EX-32.1 - SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - Mass Hysteria Entertainment Company, Inc.	f10k2011ex32i_masshysteria.htm
EX-31.1 - RULE 13A-14(A)/ 15D-14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Mass Hysteria Entertainment Company, Inc.	f10k2011ex31i_masshysteria.htm

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended November 30, 2011

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

For the transition period from ___________ to _____________

Commission File Number 333-146517

Mass Hysteria Entertainment Company, Inc.

(Exact name of registrant as specified in its charter)

Nevada		20-3107499
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

8899 Beverly Blvd. Suite 710

Los Angeles, California 90048

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (310) 285-7800

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.00001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: o Yes x No

Indicate by check mark whether the registrant(1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 day. x Yes o No

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). x Yes o No

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

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

Large accelerated filter	o	Accelerated filter	o

Non-accelerated filter	o (Do not check if a smaller reporting company)	Smaller reporting company	x

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

The aggregate market value of the voting stock held by non-affiliates of the registrant at May 31, 2011 was approximately $1,527,780. The aggregate market value was computed by using the closing price of the common stock as of that date on the Over-the-Counter Bulletin Board (“OTCBB”). (For purposes of calculating this amount only, all directors and executive officers of the registrant have been treated as affiliates.)

As of March 12, 2012, 188,683,885 shares of our common stock were issued and outstanding.

Documents Incorporated by Reference: None.

TABLE OF CONTENTS

PART I

ITEM 1.	Business	1
ITEM 1A.	Risk Factors	7
ITEM 1B.	Unresolved Staff Comments	7
ITEM 2.	Properties	7
ITEM 3.	Legal Proceedings	7
ITEM 4.	Mine Safety Disclosures	7

PART II

ITEM 5.	Market For Registrant’s Common Equity, Related Stockholder Matter and Issuers Purchase of Equity Securities	7
ITEM 6.	Selected Financial Data	9
ITEM 7.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	9
ITEM 7A	Quantitative And Qualitative Disclosures About Market Risk	11
ITEM 8.	Financial Statements and Supplementary Data	F-1
ITEM 9.	Changes In And Disagreements With Accountants On Accounting And Financial Disclosure	12
ITEM 9A.	Controls And Procedures	12
ITEM 9B.	Other Information	13

PART III

ITEM 10.	Directors, Executive Officers And Corporate Governance	13
ITEM 11.	Executive Compensation	15
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	18
ITEM 13.	Certain Relationships And Related Transactions, And Director Independence	20
ITEM 14.	Principal Accounting Fees And Services	21

PART IV

ITEM 15.	Exhibits, Financial Statements Schedules	22

SIGNATURES		24

CERTIFICATION PURSUANT TO SECTION 302 (A) OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Corporate History

We were incorporated in Nevada on November 2, 2005 under the name “Michael Lambert, Inc.”. Up until August 5, 2009, we manufactured handbags.

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 transaction referenced above, we changed our name to Mass Hysteria Entertainment Company, Inc. (“we”, “us“, the “Company”, or “Mass Hysteria”) and also changed our business plan. We are now a development stage multi-media entertainment company created to produce feature films for theatrical, DVD, video on demand (VOD) and television distribution with an interactive component for commercial, documentary and educational film market. Our plan is to eventually produce a minimum of two original interactive theatrical films and also create a second screen (mobile) experience for non-Mass Hysteria films. In addition, we intend to continue creating traditional film and television projects.

Address and Telephone Number

Our executive offices are located at 8899 Beverly Blvd. Suite 710, Los Angeles, California 90048. Our telephone number at our executive office is (310) 285-7800.

Industry Overview

Film Industry

Industry analysts hold that the film business has a high profile among consumers worldwide which can be leveraged for ancillary revenue, marketing and promotional activities. While new technologies continue to expand the revenue and profit potential of motion pictures, the filmed entertainment industry has proven to be resistant to the economic cycles that adversely affect other businesses. For example, during the last recession in the U.S. when annual GDP (Gross Domestic Product) growth was 0.8% and 1.6% in 2000 and 2001, respectively, the US box office grew by 10% and 13%, respectively, in each of those years. Despite the very difficult economic climate in 2009, U.S. box office increased 6.5% over the record year of 2008 to $10.5 billion. PricewaterhouseCoopers projects U.S. box office to continue to grow by 5.2% through 2013 reaching $12.6 billion. Increase will be driven by the continued expansion of digital projection and the growth of 3-D technology.

International markets, accounting for 65% of worldwide revenue, were up 17% over 2004 figures, totaling $18.3 billion. Continuing the trend, industry analysts project worldwide box office to reach a projected market size of $37.7 billion, by 2013.

The home video market, which includes physical sales and rentals of DVD and Blu-ray and digital downloads, totaled $13.73 billion for the first three quarters of 2009, down only 3.65% from the same period the prior year. The transition from DVD to Blu-ray, as well as consumer confusion over HD formats—with Blu-ray only recently winning the format war over HD-DVD—has seemingly gained its traction, and showed a 10% rise in Blu-ray rentals. Industry analysts believe, the recession also contributes, as consumers embrace rentals to save money.

The home video market totaled $3.4 billion in the first half of 2009, up 8.3% from the same period last year. Digital sales and rentals, including cable and satellite VOD, totaled $968 million, up 21%. DVD sales dipped roughly 17%, to about $5 billion, accounting for a total decrease of 13.5% in home video sales. However, Blu-ray interest surged 91%, accounting for $407 million in sales.

The U.S. home video market is expected to grow by 2.5% to $28.2 billion over the next five years as decline in physical DVD sales offset by the growth of Blu-ray disc sales and the convenience of home video rentals enhanced by online rental subscription services and digital download capability. In addition, the proliferation of new channels of distribution, such as Internet, VOD, SVOD, satellite, DVRs, ReplayTV, the recent Netflix-TIVO joint venture and others yet to be created should also maintain strong demand for filmed content.

Production Process

The process begins with the development of a screenplay. During the development phase, the studio engages writers to draft and revise the screenplay and begins to obtain tentative commitments from a director and principal cast before ultimately deciding to "greenlight" (i.e., approving) the film for production. A proposed production schedule and budget may also be prepared during this phase.

An independent film company can attract A level talent as a more creative friendly environment than a studio. In addition, independents typically can produce a film for substantially less than a studio as it can partner more easily with talent (e.g., offer profit sharing in return for lower fees), has lower development costs and overhead that need to be defrayed, and sidesteps the interests of numerous parties (e.g., talent agents) that receive more compensation for a higher budgeted film. Finally, independents can take more creative risks than studios which rely on franchises, sequels and formulaic approaches. This is a further attraction for fresh talent.

The production process starts with the acquisition and development of a screenplay and continues with i) pre-production, ii) principal photography, and iii) post-production as seen below. Pre-production includes the securing of necessary production facilities and personal; the finalization of motion picture budgets and production schedules; and the selection of motion picture shooting locations and the building of necessary sets.

Production involves principal photography.

Post-production includes picture editing; the creation of special visual effects and opticals; the composing and recording of the musical score; sound editing, synchronizing dialogue, sound effects and music insertion; and ultimately the “final cut” and completion of the elements necessary for distribution.

Distribution to traditional media

Films are distributed through several windows of exploitation. Theatrical exhibition occurs first when release prints of the film are distributed to movie theaters worldwide in concert with extensive advertising (P&A, prints and advertising expense). Typically, theater owners retain approximately 50-60% of consumer ticket prices which in the aggregate comprise box office gross. Theatrical releases overseas occur at different times in each country and can be as much as 6 months after the U.S. release.

About 4-6 months after theatrical release is the DVD release. Distributors receive wholesale prices on product that is sold directly to consumers from retail outlets such as Wal-Mart and Best Buy and earn a percentage of rental income from chains such as Blockbuster and Netflix. Related costs for advertising, duplication, packaging, mastering and shipping typically run about 35% of distributor’s revenue. Soon after DVD “street date” is the pay-per-view window.

The pay TV window (HBO, Showtime, Encore) begins approximately 18 months after theatrical release. Prices received by distributors are based on contractual output arrangements and are tied to the film’s box office performance. A year or two later, the distributor will sell the film to a network or major cable channel and then about 5 years later, the film will be sold into syndication or re-sold to pay or cable.

The major film studios perform all of these activities in the U.S. and through owned and operated offices in about 30 overseas markets that comprise the lion’s share of international revenue. Producers often sell a film’s distribution rights through a sales agent to separate independent distributors in each overseas market. These sales are referred to as “pre-sales”, “advances” or “minimum guarantees”. These independent distributors, many of which are owned by major media companies and have considerable leverage in their home markets, will perform the above mentioned distribution functions. For each unit of revenue earned, the local distributor deducts a distribution fee, local distribution costs, and the advance that it paid and remits the remainder to the producer.

New Media

Online content has established itself as an emerging powerhouse in the broader media market. With an increasing number of viewers incorporating online content into their established media intake, at times replacing older mediums, we believe the industry is poised to redefine media consumption.

Three industry trends: (1) Multi-screen engagements; (2) social networking; and (3) mobile commerce are merging to become what we believe will be a powerful force influencing consumer behavior According to a July 2011 report from Pew Research Center, 35% of U.S. adults own and use smart phones, 8% use and own tablets, and 63% of online adults use social networking sites, of which 83% of these adults range from ages 18 – 29. Furthermore, in Forrester’s Mobile Commerce Forecast, 2011 to 2016 published in June 2011, it was estimated that mobile online shopping would reach $6 billion in 2011.

Accordingly, we believe these consumer dynamics and mobile usage patterns have created a demand for multi-screen solutions at cinematic events to allow moviegoers to actively participate and share event experiences in real-time with friends instead of passively watching.

Our Business

We are a development stage multi-media entertainment company created to produce feature films for theatrical, DVD, VOD and television distribution with an interactive component for the commercial, documentary and educational film market. Our mission statement is to bring multi-screen engagement to the theatrical motion picture venue. Eventually, we plan to produce a minimum of two original interactive theatrical films annually and also create a second screen (mobile) experience for currently produced non-interactive films. We may also license our IP to other film companies that wish to create interactive entertainment. In addition, we intend to continue creating traditional film and television projects.

While multiple screen engagement through mobile handsets is becoming more common, current usage at events has limited tools and interactivity (i.e. photo, text, single event usage). We intend to deliver multi-platform technology solutions for audiences to enhance their entertainment experiences across cinema events. Some of the features our solution offers will include, without limitation: (i) interactive mobile application experience; (ii) unique event custom content, games and viewing angles; (iii) multiple social communication options (social media and live event based); (iv) mobile commerce and product discount offerings; (v) reward based point system and leaderboard across all Mass Hysteria events; (vi) event integration across venue touch points (video board, concessions); (vii) Interactive two-way event engagement; (viii) integration with friends event and social networking communications; and (ix) pre and post-event features and integration.

We believe our custom content and multiple viewing offerings will create a more engaged experience causing the audience to become more invested in the event. Movies, in our opinion, become more communal in nature through real-time, social media based, interactive games and features accessible on a mobile device. Users will be able to participate in event specific activities with friends and other Mass Hysteria event participants or share event details with their social networking community. Users will also earn points or badges to attain social prestige and sponsor based rewards.

Furthermore, Mass Hysteria members can personalize their offering and feature set to dictate their experience at each Mass Hysteria event and control the data delivered and shared across their mobile device. Our product is designed to multi-platform technology solutions for audiences to enhance their entertainment experiences across cinema events.

Our plan is to change the theatrical paradigm. In that regard, we intend to produce an experience that is more fun in the theater than on a laptop; to transform the theatrical experience from passive to engaged, by encouraging the audience to interact with the film by downloading applications on their smart phones which will offer a dynamic range of in-movie features including gaming, texting, contests and additional content. Our core business, which we call, “Mass Hysteria Cinema”, intends to introduce full-spectrum interactivity and social networking into the movie-going experience. In ordinary movies the audience is ordered to turn off their handheld devices. In our movies the audience will be encouraged to turn on their handhelds and participate in the presentation, creating a radical new form of entertainment. Our goal is to fully immerse the audience in our movie, letting them interact with the content and, in some cases, even become collaborators in the Mass Hysteria brand.

We also intend to create a Mass Hysteria-branded website to extend the consumer’s Mass Hysteria experience outside of the theater. We hope this future site will not only be a content destination, but also be the source of our proprietary software applications enabling the integration of handheld devices into the movie narrative.

Beyond our unique cinema experience and destination website, our creative strategy also involves compiling an “Idea Database” from which we will draw original content and interactive initiatives. This will provide Mass Hysteria a cutting-edge blueprint for success through innovation.

Additionally, our Branded Website will be the nexus of our three-phase content deployment plan designed to:

●	Virally market our movies across all media platforms

●	Engage the audience between theatrical releases

●	Build a loyal community around the Mass Hysteria brand

Our three-phase plan will begin 3-4 months in advance of the first original Mass Hysteria theatrical release, and then our plan will repeat itself for each successive release:

Phase One: Pre-Launch

Using short form comically compelling video content modeled after public service announcements (i.e. “Friends don’t let friend go to regular movies”), we intend to virally market our brand and movies, engage the audience with User-Gen contests and build a community around the Mass Hysteria brand. This phase will also see the online distribution source for our “Apps” to fully enable handheld devices for our Mass Hysteria Cinema experience.

Phase Two: In-Theatre

With the theatrical release of each Mass Hysteria movie we will also release exclusive “in-theatre” content. This additional material will be of unlockable “easter eggs” (hidden content), movie contest rewards and other exclusive downloadable content in the form of pictures, music and ring tones.

Phase Three: Post-Launch

Immediately following the theatrical release of each movie, we intend that the Mass Hysteria website will make available select portions of the movie content. Community members will be encouraged to create their own “mash-ups” (user-gen remixes) of our content for sponsored prizes and giveaways. We expect this will generate a fresh supply of no-cost user-generated content on the Mass Hysteria site.

We intend to build a technology ecosystem that enables a range of interactions, via handset between theatre audience members and a cloud server. The nature of the interaction involves social connectivity, conversation between audience members narrative extensions, in-experience gaming and content acquisition. The three core innovations are a mobile app, a mobile website and specially designed cloud architecture -- together these three technologies will create what we believe to be a unique immersive quality that can offer each theatrical audience member a customizable and sharable movie entertainment experience.

Revenue Streams

We expect to generate revenues in the following categories: (i) licensing; (ii) premium content; (iii) e-commence solutions; (iv) advertising and (v) film and ancillary revenue.

Licensing Revenue

Licensing revenue will be generated through two distinct forms of service (A) customs solutions and (ii) plug-n-play software solution.

Custom Solutions - Mass Hysteria will design and produce custom content experiences for venues. A nominal service fee will be charged based on estimated attendance. Fees will increase for individual users based on historic usage.

Plug-n-Play Software Solution – In the future, access to our system may be granted for a licensee to build it’s own experience using our API and a uniquely designed SDK (software development kit). Clients can pick and choose features to use through an online menu of feature options.

Premium Content.

While a majority of the developed content will be free at every event, certain “premium" content will be available based on the uniqueness of the content and the need to invest in additional venue systems/hardware, pay technical service fees or pay any potential league fees.

E-commerce Solutions

We intend to provide venues with solutions to improve sales of concessions and merchandise by allowing users to order products through the a mobile application which would allow users to order items through the mobile device and picked up multiple venue designated locations. We expect to charge a 5% commission on all orders completed through the application.

Advertising

We also intend to offer a variety of advertising solutions focused on: (1) providing event-based ads targeted based on age, event type, location or usage behavior; and (2) sponsorship deals with brands cleverly integrated across events and content offerings. Sponsors can be provided branding rights at venues, across categories or allowed to include products within the Mass Hysteria points/rewards program.

Film Revenue

Mass Hysteria will receive a licensing fee for all Mass Hysteria branded and enabled films. Mass Hysteria will also secure production fees associated with the development of Mass Hysteria branded films. These production fees will come in the form of a production services payment and a percentage of film related revenue (box office revenue, DVD/blue-ray sales, VOD and digital streaming and distribution). U.S. box office performance is the key variable that drives worldwide ancillary revenue (e.g., DVD, TV). A film’s “first cycle” generally begins with a U.S. theatrical release. The film’s performance at the box office will then drive its release into other domestic and international corridors. We intend to use a third party distributor for DVD distribution and television sales. We will receive royalty fees from distributors.

Government Regulation

Our business may be subjected to governmental regulation and required to comply in the following areas:

Distribution Arrangements. We intend to release our films in the United States through existing distribution companies. We will retain the right for ourselves to market the films on a jurisdiction-by-jurisdiction basis throughout the rest of the world and to market television and other uses separately. To the extent that we may engage in foreign distribution of our films, we will be subject to all of the governmental regulations of doing business abroad including, but not limited to, government censorship, exchange controls, and copying, and licensing or qualification. At this point it is not possible to predict, with certainty, the nature of the distribution arrangements and extent of exact governmental regulations that may impact our business.

Intellectual Property Rights. Rights to motion pictures are granted legal protection under the copyright laws of the United States and most foreign countries, including Canada. These laws provide substantial civil and criminal penalties for unauthorized duplication and exhibition of motion pictures. Motion pictures, musical works, sound recordings, artwork, and still photography are separately subject to copyright under most copyright laws. The results of such investigations may warrant legal action, by the owner of the rights, and, depending on the scope of the piracy, investigation by the Federal Bureau of Investigation and/or the Royal Canadian Mounted Police with the possibility of criminal prosecution. Under the copyright laws of Canada and the United States, copyright in a motion picture is automatically secured when the work is created and "fixed" in a copy. We intend to register our films for copyright with both the Canadian Copyright Office and the United States Copyright Office. Both offices will register claims to copyright and issue certificates of registration but neither will "grant" or "issue" copyrights. Only the expression (camera work, dialogue, sounds, etc.) fixed in a motion picture can be protected under copyright. Registration with the appropriate office establishes a public record of the copyright claim.

Censorship. An industry trade association, the Motion Picture Association of America, assigns ratings for age group suitability for domestic theatrical distribution of motion pictures under the auspices of its Code and Rating Administration. The film distributor generally submits its film to the Code and Rating Administration for a rating. We plan to follow the practice of submitting our motion pictures for ratings. We intend that all Mass Hysteria branded content will carry a rating no greater than PG13.

Labor Laws. Many of the screenplay writers, performers, directors and technical personnel in the entertainment industry who we intend to be involved in our productions are members of guilds or unions that bargain collectively on an industry-wide basis and may have state and governmental regulations that we must comply with.

Employees

As of November 30, 2011, we employed 2 people, our sole officer and director, Daniel Grodnik and an administrative director. We believe that our employee and labor relations are good.

Fiscal 2011 and First Quarter 2012 Developments

Interactive Script. In January 2011, we completed our first interactive comedy script written by Josh Miller and Pat Casey with Pat Proft. This will be our first original feature length motion picture for which we intend to employ our interactive viewing experience with moviegoers.

Amended and Restated Charter. We filed amended and restated articles of incorporation effective February 17, 2012, which amended and restated articles (i) increased our authorized common stock to two billion (2,000,000,000) shares; (ii) reduced the par value for its capital stock from $0.001 per share to $0.00001 per share; (iii) granted authority to our board of directors to effectuate a stock split or reverse stock split without stockholder approval; (iv) elected not to be governed by certain provisions pertaining to “resident domestic corporations” under the Nevada Revised Statutes; and (v) elected not to be governed by certain provisions relating to “issuing corporations” under the Nevada Revised Statutes. A copy of the amended and restated articles was filed as an exhibit to our Definitive Information Statement on Form 14C, filed with the Securities and Exchange Commission on January 13, 2012.

Technology Transfer and License. On February 6, 2012, we entered into two related agreements with Three Point Capital. (“3PC”) In exchange for $65,000 in cash and five Class B Units in 3PC’s subsidiary FanCloud, LLC (representing a 5% interest), we transferred certain intellectual property related to our mobile application. Concurrently with this transfer, 3PC granted us an exclusive, irrevocable, worldwide license to such transferred technology within the field of cinema.

Film Projects. Our chief executive officer is currently developing three traditional (non-interactive) action movies: “Bad Monday,” “End Of The Gun,” and “The Boiling Point”, and is also in development on 2 new theatrical films, “Unknown Solider” and “Cry Macho,” with two-time Academy Award winner Albert S. Ruddy. There is no guarantee that any of these films will be produced or that they will generate revenue for the Company as the movie business is highly speculative.

Where You Can Find More Information

We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). These filings are not deemed to be incorporated by reference into this report. You may read and copy any documents filed by us at the Public Reference Room of the SEC, 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings with the SEC are also available to the public through the SEC’s website at http://www.sec.gov .

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 1B. UNRESOLVED STAFF COMMENTS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 2. DESCRIPTION OF PROPERTY

Our business office is located at 8899 Beverly Blvd. Suite 710, Los Angeles, CA 90048. We have a 12 month lease expiring on April 30, 2012, for which we pay $2,927.40 per month.

ITEM 3. LEGAL PROCEEDINGS

To the best of our knowledge, there are no known or pending litigation proceedings against us.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

PART II

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

Our common stock is quoted on the Over-the-Counter Bulletin Board. In August 2009, we changed our corporate name to Mass Hysteria Entertainment Company, Inc. and on August 5, 2009 our symbol changed from “MBER.OB” to “MHYS.OB.” The following table shows the high and low bid prices for our common stock for each quarter since December 1, 2010 as reported by the OTC Bulletin Board. We consider our stock to be “thinly traded” and any reported sale prices may not be a true market-based valuation of the stock. Some of the bid quotations from the OTC Bulletin Board set forth below may reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

2011 (OTC Bulletin Board)	High Bid		Low Bid
First quarter	$	0.04	$	0.01
Second quarter		0.03		0.013
Third quarter		0.023		0.004
Fourth quarter	$	0.008	$	0.002

2010 (OTC Bulletin Board)	High Bid		Low Bid
First quarter	$	0.33	$	0.05
Second quarter		0.108		0.03
Third quarter		0.05		0.025
Fourth quarter	$	0.04	$	0.022

As of March 12, 2012, there were 103 record holders of our common stock.

We have not paid any cash dividends since our inception and do not contemplate paying dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained to retire debt and for the operation of the business.

Shares eligible for future sale could depress the price of our common stock, thus lowering the value of a buyer’s investment. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for shares of our common stock.

Our revenues and operating results may fluctuate significantly from quarter to quarter, which can lead to significant volatility in the price and volume of our stock. In addition, stock markets have experienced extreme price and volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons unrelated or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.

RECENT SALES OF UNREGISTERED SECURITIES

On March 1, 2012, we issued an 8% convertible promissory note in the aggregate principal amount of $10,000 to an accredited investor. The note has a maturity date of December 1, 2012. Beginning August 27, 2012, the note is convertible into shares of our common stock at a conversion price of fifty nine percent (59%) of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. The proceeds were used for working capital and general corporate purposes. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.

On February 14, 2012, we issued 6,000,000 shares of our common stock to a consultant for services rendered. The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

On February 6, 2012, we issued 4,000,000 shares of our common stock in consideration of cancellation of indebtedness. The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

On November 1, 2011, we issued 1,000,000 shares of our common stock to a consultant for services rendered. The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

On October 28, 2011, we issued an 8% convertible promissory note in the aggregate principal amount of $10,000 to an accredited investor. The note has a maturity date of July 31, 2012. Beginning April 25, 2012, the note is convertible into shares of our common stock at a conversion price of fifty nine percent (59%) of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. The proceeds were used for working capital and general corporate purposes. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.

On October 24, 2011, we issued 250,000 shares of our common stock to a consultant for services rendered. The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

On September 1, 2011, we issued 2,400,000 shares of our common stock to two consultants for services rendered. The issuances were exempt under Section 4(2) of the Securities Act of 1933, as amended.

Since August 29, 2011, the Company has issued an aggregate of 56,715,665 shares of common stock upon conversion of convertible notes. The aggregate principal and interest amount of these notes that were converted was $44,616.67. The issuances were exempt under Sections 3(a)(9) and 4(2) of the Securities Act of 1933, as amended.

On August 15, 2011, we issued 225,000 shares of our common stock to a consultant for services rendered. The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

On June 15, 2011, we issued 1,000,000 shares of our common stock to a consultant for services rendered. The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

ITEM 6. SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K (THIS “FORM 10-K”), 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 MASS HYSTERIA ENTERTAINMENT COMPANY, INC. (“THE COMPANY”, “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-K, UNLESS ANOTHER DATE IS STATED, ARE TO NOVEMBER 30, 2011.

General

We were incorporated in Nevada on November 2, 2005 under the name “Michael Lambert, Inc.”. Up until August 5, 2009, we manufactured handbags.

Plan of Operations For The Next Twelve Months

The Company is in the development stage and consequently is subject to the risks associated with development stage companies, including the need for additional financing; the uncertainty of the Company’s technology and intellectual property resulting in successful commercial products or services as well as the marketing and customer acceptance of such products or services; competition from larger organizations and dependence on key personnel. To achieve successful operations, the Company will require additional capital to finance the acquisition of film properties and their attendant costs, further development of our interactive technology, marketing and the creation and rendering of second screen content for original and repurposed movies for interactivity. No assurance can be given as to the timing or ultimate success of obtaining future funding.

Over the next twelve months, Mass Hysteria intends to enable at least one short-film to be interactive from a custom built app and beta tested with a live audience. We intend to outsource the building and testing of the App that will allow audiences to interact, via their handset, between the theatrical movies, other audience members and a cloud server. The nature of the interaction involves social connectivity, conversation between audience members narrative extensions, in-experience gaming and content acquisition. The three core innovations are a mobile app, a mobile website and specially designed cloud architecture -- together these three technologies will create what we believe to be a unique immersive quality that can offer each theatrical audience member a customizable and sharable movie entertainment experience.

COMPARISON OF OPERATING RESULTS

RESULTS OF OPERATION FOR THE YEAR ENDED NOVEMBER 30, 2011 COMPARED TO THE YEAR ENDED NOVEMBER 30, 2010

We had revenues of $47,500 for the year ended November 30, 2011 as compared to $25,000 for the year ended November 30, 2010. The lack of significant revenue in both periods is a directly related to the establishment of our business plan. As the new Company meets its business plan goals, we expect to generate more revenue in the future. In the period from August 5, 2009 ("Inception") to date, the Company has assembled its new management team, developing its intellectual property and is fine-tuning its marketing and merchandising strategies.

For the year ended November 30, 2011, we had general and administrative expenses of $1,000,578; net interest expense of $148,049, excess fair value of derivative of $27,091, and gain in fair value of derivative liability of $42,158. For the year ended November 30, 2010, we had general and administrative expenses of $1,026,022; selling expenses of $18,782; net interest expense of $25,870.

We had a net loss of $1,086,060, for the year ended November 30, 2011, as compared to a net loss from continuing operations of $1,045,674, for the year ended November 30, 2010.

LIQUIDITY AND CAPITAL RESOURCES

We had total assets of $112,964 as of November 30, 2011, consisting of $3,851 in cash, $1,392 in net intangible assets, $95,250 in capitalized film costs, and $5,855 in other assets. We had a working capital deficit of $743,832.

We had total liabilities of $1,394,888 as of November 30, 2011, consisting of current liabilities, which included $70,170 of accounts payable; accrued liabilities of $246,538, accrued payroll of $172,181; short term debt of $70,000; short term convertible debt of $78,014 in stand ready obligation of $50,000 and derivative liability of $116,635. In addition, we had convertible long-term debt of $138,289 and related party convertible debt with a balance of $453,061 as of November 30, 2011.

We had a total stockholders’ deficit of $1,288,540 as of November 30, 2011, and an accumulated deficit as of November 30, 2011of $7,099,392.

We had $380,643 in net cash used in operating activities for the year ended November 30, 2011, which included $1,086,060 in net loss, offset by $336,520 in share-based compensation, $103,411 in amortization of discount on short-term debt, $25,000 of bad debt expense, 42,158 of change in fair value of derivative liability and depreciation of $874. Cash flows used in operations were offset by changes in operating assets and liabilities totaling $258,750.

We had $382,500 of net cash provided by financing activities for the year ended November 30, 2011, which included $337,500 from the issuance of convertible debt, $10,000 in short term debt, $25,000 in stand ready obligation and $10,000 from the sale of stock.

During March 2012, the Company entered issued an 8 percent convertible promissory note to raise $10,000 in operating capital. The Note matures on December 1, 2012, and any unpaid principal or interest at that date accrues interest at the default rate of 22 percent annually. The note may be converted into common stock, at 59 percent of market price, at any time after 180 days from the issuance date until the maturity date.

Since we have no liquidity and have suffered losses, we depend to a great degree on the ability to attract external financing in order to conduct our business activities and expand our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. If we are unable to raise additional capital from conventional sources, including increases in related party and non-related party loans and/or additional sales of 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. We have no commitments to provide us with financing in the future, other than described above. Our independent registered public accounting firm included an explanatory paragraph raising substantial doubt about the Company’s ability to continue as a going concern.

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, and the conversion of convertible debt, if converted, may result in dilution to our shareholders. We cannot provide assure, however, that financing will be available in amounts or on terms acceptable to us, or at all.

Critical Accounting Policies and Estimates

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Use of Estimates:

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

Revenue Recognition:

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is assured. We had $47,500 in revenue for the twelve months ended November 30, 2011 and $25,000 in revenues for the twelve months ended November 30, 2010 relating to continuing operations.

Stock-Based Compensation:

The Company accounts for its stock-based compensation under the provisions of ASC 718 “Compensation-Stock Compensation.” Accounting for Stock Based Compensation. Under ASC 718, the Company is permitted to record expenses for stock options and other employee compensation plans based on their fair value at the date of grant. Any such compensation cost is charged to expense on a straight-line basis over the periods the options vest. If the options had cashless exercise provisions, the Company utilizes variable accounting.

Derivative Financial Instruments

The provisions of ASC 815 "Derivatives and Hedging" applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined ASC 815 and to any freestanding financial instruments that are potentially settled in an entity's own common stock. The guidance impacts the Company's financial statements and position due to certain warrants and embedded conversion features in which the exercise or conversion price resets upncertain events. See Note 5 for theimpact of such transactions on the financial statements.

Our issued and outstanding common stock purchase warrants and embedded conversion features are recorded at their fair value upon issuance and at each reporting period. The common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire. These common stock purchase warrants do not trade in an active securities market, and as such, we estimate the fair value of these warrants using the Black-Scholes option pricing model. The value of the embedded conversion feature also determined using the Black-Scholes option pricing model. All future changes in the fair value of the embedded conversion feature will be recognized currently in earnings until the note is converted or redeemed.

Off-Balance Sheet Arrangements

None.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Mass Hysteria Entertainment Company, Inc.

We have audited the accompanying balance sheets of Mass Hysteria Entertainment Company, Inc. (the "Company"), a development stage company, as of November 30, 2011 and 2010, and the related statements of operations, stockholders' deficit, and cash flows for the years then ended, and the period from August 5, 2009 ("Inception") to November 30, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mass Hysteria Entertainment Company, Inc as of November 30, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, and the period from August 5, 2009 ("Inception") to November 30, 2011 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Notes 2 and 3 of the financial statements, the Company is a development-stage company, has no liquidity, has incurred losses and used cash in operating activities. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with respect to these matters are discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ dbbmckennon

Newport Beach, California

March 14, 2012

F-1

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(A Development-Stage Company)

Balance Sheets

	November 30, 2011			November 30, 2010

Assets
Current Assets
Cash	$	3,851		$	780
Accounts receivable, net of allowance for doubtful accounts		-			2,797
Other assets		5,855			9,996
Total current assets		9,706			13,573

Intangible assets, net		1,392			2,266
Film costs		95,250			95,250
Total Assets	$	106,348		$	111,089

Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	70,170		$	45,284
Accrued liabilities (Note 4)		246,538			141,814
Accrued payroll		172,181			62,930
Short-term debt (Note 5)		70,000			60,000
Short-term convertible debt, net of discount of $41,486 and $0, respectively (Note 5)		78,014			-
Derivative liability		116,635			-
Total current liabilities		753,538			310,028

Convertible long-term debt, net of discount of $61,711 and $0, respectively (Note 5)		138,289			-
Convertible long-term debt - related party		453,061			453,061
Stand ready obligation		50,000			-
Total Liabilities		1,394,888			763,089

Commitments and contingencies (Note 6)

Stockholders' Deficit
Series A Preferred stock, $0.001 par value; 10,000,000 shares authorized; 10,000 and zero issued and outstanding as of November 30, 2011 and 2010, respectively		10			-
Common stock, $0.001 par value; 300,000,000 shares authorized at November 30, 2011 108,431,950 and 80,106,077 shares issued and outstanding as of November 30, 2011 and 2010, respectively (Note 7)		108,431			80,106
Additional paid-in capital		5,702,411			5,281,226
Deficit accumulated during the development stage		(7,099,392	)		(6,013,332	)
Total Shareholders' Deficit		(1,288,540	)		(652,000	)
Total Liabilities and Stockholders' Deficit	$	106,348		$	111,089

The accompanying notes are an integral part of the financial statements

F-2

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(A Development-Stage Company)

Statements of Operations

	For the years ended November 30,						For the period from Inception to November 30,
	2011			2010			2011

Production revenue	$	47,500		$	25,000		$	72,500

Operating expenses:
General and administrative		1,000,578			1,026,022			2,421,589
Selling Expense		-			18,782			30,573
Total Operating expenses		1,000,578			1,044,804			2,452,162

Operating loss		(953,078	)		(1,019,804	)		(2,379,662	)

Other income (expense):
Interest Income		201			225			426
Interest expense		(148,250	)		(26,095	)		(178,345	)
Excess of fair value of derivative		(27,091	)		-			(27,091	)
Gain (Loss) on change in fair value of derivative liability		42,158			-			42,158
Total other income (expense)		(132,982	)		(25,870	)		(162,852	)

Net Loss	$	(1,086,060	)	$	(1,045,674	)	$	(2,542,514	)

Basic and diluted weighted average shares outstanding		84,112,051			76,404,361

Basic and diluted net loss from continuing operations per share	$	(0.01	)	$	(0.01	)

The accompanying notes are an integral part of the financial statements

F-3

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(A Development-Stage Company)

Statements of Stockholders’ Deficit

	Preferred A				Common Stock							Deficit Accumulated
	Number of Shares		Amount		Number of Shares		Amount		Additional Paid-in Capital			during the Development Stage			Total Stockholders' Deficit
		-	$	-
Balances at November 30, 2008						11,593,500		11,594		2,814,900			(2,915,639	)		(89,145	)

Common shares issued for services						1,620,000		1,620		268,380			-			270,000
Imputed rent expense						-		-		4,773			-			4,773
Common shares issued to extinguish debt of predecessors						10,800,000		10,800		1,141,200			-			1,152,000
Shares issued for services on August 5, 2009 at $0.24 per share						1,000,000		1,000		239,000			-			240,000
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
on March 9, 2010 at $0.08 per share						375,000		375		29,625			-			30,000
on May 27, 2010 at $0.032 per share						78,125		78		2,422			-			2,500
on June 23, 2010 at $0.04 per share						600,000		600		23,400			-			24,000
on September 1, 2010 at $0.03 per share						1,255,000		1,255		37,745			-			39,000
Share based compensation related to options issued granted during December 2009						-		-		228,667			-			228,667
Common shares issued to extinguish debt acquired from predecessors by Control Group member						5,900,000		5,900		49,368			-			55,268
On October 12, 2010, shares issued as committed on June 1, 2010						3,000,000		3,000		197,000			-			200,000
Contributed services						-		-		82,000			-			82,000
Net loss						-		-		-			(1,045,674	)		(1,045,674	)
Balances at November 30, 2010		10.000	$	10		80,106,077	$	80,106	$	5,281,226		$	(6,013,332	)	$	(652,000	)

F-4

	Preferred A				Common Stock
	Number of				Number of				Additional Paid -		Accumulated			Total Shareholders'
	Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
Balances at November 30, 2010		-	$	-		80,106,077	$	80,106	$	5,281,226	$	(6,013,332	)	$	(652,000	)
Shares issued for legal services:
on February 18, 2011 at $0.021 per share						420,000		420		8,400					8,820
on May 5, 2011 at $0.020 per share						900,000		900		17,100					18,000
on June 15, 2011 at $0.02 per share						1,000,000		1,000		19,000					20,000
on June 17, 2011 at $0.02 per share						450,000		450		8,550					9,000
on July 14, 2011 at $0.02 per share						165,000		165		3,135					3,300
on August 15, 2011 at $0.010 per share						225,000		225		2,025					2,250
on September 1, 2011 at $0.008 per share						2,400,000		2,400		16,800					19,200
on October 18, 2011 at $0.0032 per share						3,500,000		3,500		7,700					11,200
on October 24, 2011 at $0.003 per share						250,000		250		500					750
on November 1, 2011 at $0.004 per share						1,000,000		1,000		3,000					4,000
Share based compensation related to options granted during December 2009										240,000					240,000
Preferred A shares issued to CEO		10,000		10						9,990					10,000
Beneficial conversion feature on convertible long term debt										75,000					75,000
Shares issued for cash						10,000,000		10,000		-					10,000
Conversion of short term convertible debt						3,571,429		3,571		6,429					10,000
Conversion of short term convertible debt						4,444,444		4,444		3,556					8,000
Net loss												(1,086,060	)		(1,086,060	)
Balances at November 30, 2011		10,000	$	10		108,431,950	$	108,431	$	5,702,411	$	(7,099,392	)	$	(1,288,540	)

The accompanying notes are an integral part of the financial statements

F-5

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

(A Development-Stage Company)

Statements of Cash Flows

	For the Year Ended November 30, 2011			For the Year Ended November 30, 2010			From Inception to November 30, 2011
Cash Flows from Operating Activities:
Net loss	$	(1,086,060	)	$	(1,045,674	)	$	(2,542,514	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		874			874			1,748
Bad debt expense		25,000			-			25,000
Share-based compensation		336,520			357,467			851,567
Loss on settlement of convertible notes		-			-			(14,000	)
Contributed services		-			82,000			89,500
Change in fair market value of derivative liability		(42,158	)		-			(42,158	)
Loss on excess fair value of derivative liability		27,091			-			27,091
Amortization of discount on convertible debt		103,411			-			103,411
Changes in operating assets and liabilities:
Accounts receivable		-			(2,797	)		(2,797	)
Prepaid expenses		-			(295	)		(295	)
Accounts payable		27,777			34,023			83,535
Accrued liabilities		51,794			144,123			185,036
Accrued payroll		175,108			-			175,108
Bank credit line		-			-			(1,156	)
Net cash used in operating activities		(380,643	)		(430,279	)		(1,060,924	)

Cash Flows from Investing Activities:
Film costs		-			(32,000	)		(32,000	)
Other assets		1,214			-			1,214
Net cash provided by (used in) investing activities		1,214			(32,000	)		(30,786	)

Cash Flows from Financing Activities:
Stand ready obligation		25,000			-			25,000
Proceeds from issuance of convertible debt		337,500			-			337,500
Proceeds from issuance of convertible debt to related parties		-			202,899			453,061
Proceeds from issuance of short-term debt		10,000			60,000			70,000
Proceeds from sale of common stock		10,000			200,000			210,000
Net cash provided by financing activities		382,500			462,899			1,095,561

Net increase in cash and cash equivalents		3,071			620			3,851
Cash and cash equivalents, beginning balance		780			160			-
Cash and cash equivalents, ending balance	$	3,851		$	780		$	3,851


Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	-		$	-		$	-
Income taxes	$	-		$	800		$	800

Supplemental schedule of non-cash investing and financing activities:
Conversion of convertible debt	$	18,000		$	55,268		$	91,268
Cash received under subscription agreement	$	-		$	-		$	200,000
Stock-based compensation to be issued, included in accrued liabilities, for script developement		-			40,000			40,000
Common stock issued in lieu of cash payment for script costs		-			23,250			23,250

The accompanying notes are an integral part of the financial statements

F-6

MASS HYSTERIA ENTERTAINMENT, INC.

(A Development-Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION, BUSINESS AND CHANGE IN CONTROL

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 June 9, 2009, the Company entered into a material definitive agreement with Belmont Partners, LLC by which Belmont acquired 11,286,000 shares of the Company’s common stock in a private transaction. Following the transaction, Belmont Partners, LLC controlled approximately 85.41% of the Company’s outstanding capital stock.

To better reflect the Company’s new business plan, on June 25, 2009, MLI changed their name to “Mass Hysteria Entertainment Company, Inc.” ("MHe", “Mass Hysteria” or the “Company”). MHe is an innovative motion picture production company that produces branded young adult film content for theatrical, DVD, and television distribution. MHe’s plan is to produce a minimum of three theatrical films a year that appeal specifically to the youth market.

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. On August 5, 2009, pursuant to the terms of a stock purchase agreement, an affiliate of Mr. Grodnik purchased a total of 7,984,548 shares of issued and outstanding common stock of MHe from Belmont Partners. At this time, Belmont Partners’ designee was the sole officer and director of the Company. In addition to the shares sold by Belmont Partners, the Company also issued 42,015,452 shares to Mr. Grodnik and certain affiliated parties in connection with the change of control (the “Control Group”). The total of 50,000,000 shares were issued to, or purchased by, Daniel Grodnik and the affiliated parties represents 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 MHe was treated as a recapitalization with the assets contributed and liabilities assumed recorded at their historical basis. There were no assets significant acquired by MHe shareholders upon the change in control, which would have been recorded at fair value.

The Company is entering a time of great change in the entertainment business. 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. The Company 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 revenue streams 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. Our plan is to combine these entertainment experiences into an alternative theatrical experience for young adults. Technology is evolving, too. Interactive mobile applications are in development by third parties. We expect to license or develop our own mobile applications in the near future, depending on our ability to raise capital and generate traditional sources of revenues. There are technology and competitive risks associated with interactive mobile devices and theatrical films.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development-Stage Company

On August 5, 2009, the Company entered into the development stage with its intended new business, which currently has minimal 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.” Upon distribution of the Company’s products, it will exit the development stage. The nature of our operations is highly speculative, and there is consequently a risk of loss of your investment. 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.

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, evaluation of the Company’s stand-ready obligation and values of derivative instruments. We use the Black-Scholes valuation model for simplicity purposes. Various valuation techniques render varying amounts. We consistently use this model and use inputs that are appropriate. As the Company develops its technologies, and capitalization of costs occurs, the carrying value of those long-lived assets will need to be evaluated for impairment.

We base our 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

The Company accounts for financial instruments under the guidance of ASC 820-10 – “Fair Value Measurements”. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

F-8

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

As of November 30, 2011and 2010, the Company’s derivatives which include the embedded conversion feature on the convertible note payable were considered level 2 financial instruments. See Note 5 for valuation technique and assumptions used.

The Company's financial remaining instruments consisted primarily of (level 1), accounts receivable, accounts payable, accrued liabilities, and short-term debt. The carrying amounts of the Company's financial instruments generally approximate their fair values as of November 30, 2011 and 2010 due to the short term nature of these instruments.

The Company did not have any level 3 instruments at November 30, 2011 and 2010.

Cash and Cash Equivalents

For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents.

The Company may maintain cash and cash equivalent balances at financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. The Company did not have any cash equivalents at November 30, 2011 and 2010.

Accounts Receivable

Accounts receivable are reported net of allowance for expected losses. It represents the amount management expects to collect from outstanding balances. Differences between the amount due and the amount management expect to collect, are charged to operations in the year in which those differences are determined, with an offsetting entry to a valuation allowance. As of November 30, 2011, the Company reserved $25,000 against accounts receivable. There were no such charges during the year ended November 30, 2010.

Film Costs

The Company capitalizes film production costs in accordance with ASC 926 – “Entertainment”. Film costs include costs to develop and produce films, which primarily consist of consulting fees, 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 began capitalizing script costs on March 1, 2010. See Note 9 for additional disclosure.

Website Development Costs

Website development costs are for the development of the Company's Internet website. These costs have been capitalized when acquired and installed, and are being amortized over its estimated useful life of three years on a straight line basis. The Company accounts for these costs in accordance with ASC 340, “Other Assets and Deferred Costs”, which specifies the appropriate accounting for costs incurred in connection with the development and maintenance of websites. At November 30, 2011, the Company owned a website costing $3,230 and had an estimated useful life of three (3) years. Depreciation expenses related to website development costs during the years ended November 30, 2011 and 2010 were $874 and $874, respectively.

F-9

Derivative Financial Instruments

The provisions of ASC 815 - “Derivatives and Hedging” applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined ASC 815 and to any freestanding financial instruments that are potentially settled in an entity's own common stock. The guidance impacts the Company's financial statements and position due to certain warrants and embedded conversion features in which the exercise or conversion price resets upon certain events. See Note 5 for the impact of such transactions on the financial statements.

Convertible Debt

If a conversion feature of conventional convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount. In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

Guarantees

During the year ended November 30, 2011, the Company has entered into an agreement to provide for a guarantee of indebtedness. The Company’s exposure to credit loss, in the event of nonperformance of the related film financed by the indebtedness, is represented by the amounts stipulated in the agreement, and is limited to a maximum of $250,000. The total guarantee accruals do not necessarily represent future cash requirements or cash reserves. As of November 30, 2011, management has evaluated the guarantee liability under ASC 460-10 – “Guarantees” and ASC 450-20 – ”Loss Contingencies” by reviewing the ability to repay obligation under contract to determine if there is a probable chance of a default, and if so, provide a reasonable estimate for losses. See Note 6 for Management’s determination.

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. In loss periods, dilutive common equivalent shares are excluded as the effect would be anti-dilutive. At November 30, 2011, the Company’s dilutive securities outstanding consisted of (1) the CEO’s options to purchase shares of common stock (see Note 8), for which the exercise price is above the average closing price of the Company’s common stock and thus excluded under the treasury method; (2) 6,768,454 shares relative to convertible notes to a related party expected to be issued (post conversion) beginning in February 2015; (3) 131,642,572 shares relative to convertible notes (post conversion) beginning in September 2011; and (4) 944,001 million shares related to warrants issued with the $37,500 convertible note. At November 30, 2010, the Company’s dilutive securities outstanding consisted of (i) the CEO’s options to purchase shares of common stock (See Note 8) for which the exercise price is above the average closing price of the Company’s common stock and thus excluded under the treasury method and (2) 6,768,454 shares relative to convertible notes to a related party expected to be issued (post conversion) beginning in February 2015. The preceeding common equivalent was excluded from the diluted net loss per share as the effects would have been anti-dilutive.

Impairment of Long-Lived Assets

The Company has adopted ASC 360-10, - "Property, Plant and Equipment" which requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment, annually, or more often, if events and circumstances warrant such. As of November 30, 2011 and 2010, no impairments were necessary.

Recoupable Costs and Producer Advances

Recoupable costs and producer advances represent amounts paid by the Company that will be expected to be subsequently recouped through the collection of fees associated with the Company's licensing of content represented by third parties. In connection with the film production segment's content operations which may be represented by others, the Company will enter into sales agency agreements whereby the Company will act as a sales agent for a producer's film ("Sales Agency Agreements"). These Sales Agency Agreements typically include provisions whereby certain costs that are incurred for promotion related activities will be paid by the Company on behalf of the producer (such as movie trailer and ad material costs). The Company may also pay the producer an advance for the related film prior to the distribution of such film. As the Company subsequently licenses the producer's film and license fees are collected, the recoupable costs and producer advances will be recovered by the Company through these license fee collections. License fees typically are not paid to the producer of the related film until such recoupable costs and producer advances have been fully recovered by the Company.

Producers Fees

Producer fees will be recognized upon receipt of the fees and delivery of the related services. If upon receipt of the fees all services have not been provided, the fees will be deferred and recognized as the services are performed.

Royalties

Royalty and profit participation will be recognized when the amounts are known and the receipt of the royalties is reasonably assured. Accordingly, recognition generally occurs upon receipt (usually quarterly or semi-annually).

F-10

Distribution Revenues

Distribution Revenues will be recognized when earned and appropriately reported by third (3rd) party distribution companies and recorded gross along with any distribution expenses charged by the Distributor and upon receipt of such revenues.

Producer Development, Production Service Fees and Film Distribution Fees

As these services are provided, these fees will be invoiced to the third party financiers and producers and recognized when the amount has been determined and receipt is reasonably assured.

Stock Options

In accordance with the provisions of ASC 718 “Compensation-Stock Compensation,” the Company accounts for employee and non-employee director stock issuances and stock options under the fair value method which requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at grant date based on the estimated fair value of the award. The Company uses the straight-line attribution method to recognize share-based compensation costs over the requisite service period of the award.

Accounting for Non-Employee Stock-Based Compensation

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505 - “Equity”. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company's common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty's performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.

Deferred Producer Liabilities

Deferred producer liabilities represent outstanding amounts due to the producer or to be retained by the Company upon the collection of license fee amounts related to the sale of repped content by the Film Production segment. In accordance with the Sales Agency Agreements entered into by the Company and represented content producers, when license fees associated with the Company's sale of represented content are collected, the amounts are paid to the producer and/or retained by the Company. Amounts are paid to the Company for its sales agency commission, recoupment of outstanding film costs and producer advances ("Recoupable Costs") or as market fee revenue. The terms of the Sales Agency Agreements provide that collected license fees will be distributed to the producer and/or retained by the Company based on a specific allocation order as defined by each agreement. The allocation order is dependent on certain criteria including total license fee collections, outstanding Recoupable Cost balances and certain other criteria as specified by the Sales Agency Agreements. Because these criteria cannot be reasonably determined until the license fees are collected, the appropriate allocation order of uncollected license fees cannot be established. Accordingly, the uncollected license fee amounts are recorded as deferred producer liabilities until such time as the amounts are collected and the allocation order can be reasonably determined.

F-11

Income Taxes

The Company makes certain estimates and judgments in determining its income tax provision expense. These estimates and judgments are used in the determination of tax credits, benefits and deductions, and the calculation of certain tax assets and liabilities which are a result of differences in the timing of the recognition of revenue and expense for tax and financial statement purposes. The Company also uses estimates and judgments in determining interest and penalties on uncertain tax positions. Significant changes to these estimates could result in a material change to the Company's tax provision in subsequent periods.

The Company is required to evaluate the likelihood that it will be able to recover its deferred tax assets. If the Company's evaluation determines that the recovery is unlikely, it would be required to increase the provision for taxes by recording a valuation allowance against the deferred tax assets equal to the amount that is not expected to be recoverable. The Company currently estimates that its deferred tax assets will be recoverable. If these estimates were to change and the Company's assessment indicated it would be unable to recover the deferred tax assets, the Company would be required to increase its income tax provision expense in the period of the change in estimate.

The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of tax regulations. The Company adopted the provisions of ASC 740 “Income Taxes”. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax position liabilities. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. This process is based on various factors including, but not limited to, changes in facts and circumstances, changes in tax law, settlement of issues under audit, and new audit activity. Changes to these factors and the Company's estimates regarding these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.

Recent Accounting Pronouncements

In September 2011, FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This update simplifies how an entity tests goodwill for impairment. It provides an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Given this option, an entity no longer would be required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. Adoption of this standard will not have a material impact on the Company’s consolidated results of operations and financial condition.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11 Disclosures about Offsetting Assets and Liabilities. The Standard requires additional disclosure to help the comparability of US GAAP and IFRS financial statements. The new standards are effective for annual and interim periods beginning January 1, 2013. Retrospective application is required. The guidance concerns disclosure only and will not have an impact on our financial position or results of operations.

The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. Except for the ASUs listed above, those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.

F-12

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. However, the Company is a development-stage company, has limited available capital, has limited revenues from intended operations, suffered losses since inception and used cash in operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. We are seeking debt or equity capital to meet our obligations and business needs. There is no assurance that future capital raising plans will be successful in obtaining sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments that might result from these uncertainties.

NOTE 4 – ACCRUED LIABILITIES

Accrued liabilities by major classification are as follows:

	November 30, 2011		November 30, 2010
Accrued interest	$	75,973	$	30,095
Accrued consulting fees		91,000		75,000
Accrued legal fees		3,771		3,075
Accrued payroll taxes		63,800		27,800
Other accrued expenses		11,994		5,844

Total accrued liabilities	$	246,538	$	141,814

Accrued interest represents interest on a long term loan from a related party, and the interest on a short term note payable from an external party. Accrued consulting fees are for script writers and a film consultant. Other accrued expenses consist of accrued rent and related office parking.

Based on the CEO’s employment agreement, the Company accrues $30,000 per month for gross wages, and pays these wages at various times as capital becomes available. During the year ended November 30, 2010, accrued wages of $82,000 were personally forgiven by the CEO; as a result, this amount was recorded to contributed services in the accompanying statement of stockholders’ deficit. The CEO’s compensation is required to be reported on IRS Form W-2; however, no such reporting has been made by the Company. Payroll taxes are accrued for the CEO’s salary to properly reflect the amount of expense related to his compensation which includes the contemplation of penalties and interest. In the event the Company is audited by the IRS, it will likely be liable for certain taxes, penalties and interest. See Note 6 for details of the CEO’s employment agreement.

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NOTE 5 - BORROWINGS

Related Party

Since July 2009, a member 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. During the quarter ended February 28, 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 satisfaction of the liability. During the quarter ended February 28, 2010, the holder advanced the Company $88,199 in working capital for operations. Cumulative advances as of February 28, 2010 were established in a convertible note totaling $338,362. Such note is convertible into 4,229,512 common shares, based on $0.08 share price. The convertible note bears interest at 6% per annum, and is due February 28, 2015. During the quarter ended May 31, 2010, the holder advanced the Company an additional $75,383, for which an additional note agreement was effected. Such note is convertible into 1,507,660 common shares based on a fixed conversion price of $0.05, interest at 6% per annum, due May 31, 2015. During the quarter ended August 31, 2010, the holder advanced the Company an additional $33,511, for which an additional note agreement was effected, which dictates that the note will be convertible into 837,775 common shares based on a fixed conversion price of $0.04, interest at 6% per annum, due August 31, 2015. During the quarter ended November 30, 2010, the holder advanced the Company an additional $5,805, for which an additional note was effected, which indicates that the note will be convertible at a fixed conversion price of $0.03 per share, interest at 6% per annum. The notes are to be immediately convertible; no beneficial conversion feature was deemed applicable at the date of issuance. As of November 30, 2011 and 2010, the Company has accrued $54,863 and $27,679 of interest expense related to these notes respectivley.

Short-term Convertible Debt with Ratchet Provisions

On February 23, March 1, May 6, August 9, and October 18, 2011, the Company borrowed $42,500, $12,500, $35,000, $37,500, and $10,000, respectively, from external parties for use as operating capital. The parties entered into convertible debt agreements whereby the Company is liable for repayment of the principal and 8% annual interest by the agreements’ expiration dates ranging between November 28, 2011 and July 18, 2012. Failure to repay principal or interest when due triggers a default interest rate (from notes’ inception date) of 22%, annually, on the unpaid amount. The weighted average interest rate for short-term convertible debt is 8%. As of November 30, 2011, the note dated February 23, 2011 was in default.

After 180 days, the notes are convertible into common stock at a 41% discount off the average of the lowest three (3) trading prices for the Company’s common stock within the ten (10) days preceding the conversion.

These notes contain a “ratchet” provision, which protects the note holders in case the issuer sells stock during the term of the notes for a per-share price which is less than the effective conversion rate. Due to this ratchet provision, these notes are considered to contain a derivative instrument associated with the embedded conversion feature. This liability is recorded on the face of the financial statements as “derivative liability”, and must be revalued each reporting period.

The Company discounted the notes by the fair market value of the derivative liability upon inception of each note. These discounts will be accreted back to the face value of the notes over the note term.

Additionally, the $37,500 convertible note agreement entered into on August 9, 2011 contained an attached warrant to purchase one (1) million shares of Company common stock at a fixed price of $0.001 per share. The warrant has a five year life, expiring on August 9, 2016. Using the Black-Scholes pricing model, along with the inputs listed directly below, we calculated the fair market value of this warrant to be $9,992. Because the warrant reflected a derivative liability, the entire value was recorded as a loss on derivative at the date of grant and the liability is recorded on the face of the financial statements. Additionally, this derivative liability is revalued each quarterly reporting period.

F-14

Annual dividend yield			-
Expected life (years)			5.0 yrs.
Risk-free interest rate			.91%
Expected volatility			268.97%

During the year ended November 30, 2011, the Company borrowed a total of $137,500 in short-term convertible debt, of which $10,000 and $8,000 was converted into 3,571,429 and 4,444,444 shares of common stock by the applicable note holder on August 29 and November 23, 2011, respectively.

The Company calculated the derivative liability using the Black-Scholes pricing model for each note upon inception and recorded the fair market value of the derivative liability as a discount to the note. A range of inputs to the Black-Scholes model are listed below. Aggregate discounts at inception for these notes were $131,607. During year ended November 30, 2011, interest expense from accretion of the discount was $90,121, leaving an unamortized discount of $41,486 as of November 30, 2011. The discount is being amortized over the period of the notes using the straight line method, which does not yield substantially different results than the effective interest method. There were no such notes outstanding during the year ended November 30, 2010.

The derivative liability associated with these notes was revalued as of November 30, 2011 using the Black-Scholes Model, using the below range of inputs. Aggregate derivative liabilities associated with these notes were $116,635 as of November 30, 2011. Based on this revaluation, the Company recognized a gain in fair value of derivative liability of $42,158 during the year ended November 30, 2011.

During year ended November 30, 2011, the range of inputs used to calculate derivative liabilities noted above were as follows:

Annual dividend yield			-
Expected life (years)			.01 - .63 yrs.
Risk-free interest rate			.01-.09%
Expected volatility			51.6-234.9%

Convertible Debt

On March 31, 2011, the Company borrowed $200,000 from an external party for use as operating capital. The parties entered into a long term convertible note agreement which makes the Company liable for repayment of the principal and 2% annual interest by the agreement’s expiration date of December 28, 2014. Beginning September 27, 2011, the note is convertible into shares of our common stock at a fixed conversion price of $0.016 per share. As a result, the Company will be liable to issue up to 12,500,000 shares common stock upon conversion. Based on a $0.022 closing price on the day of note agreement, we recorded a discount of $75,000 as a result of the beneficial conversion feature (“BCF”). As such, the Company discounted the note by the value of the BCF upon inception of the note. During the year ended November 30, 2011 interest expense from accretion of the discount was $13,289, leaving a remaining discount of $61,711 as of November 30, 2011. The discount is being amortized using the effective interest method over the term of the note, which is effectively straight-lines the amortization since the note is due in a balloon payment at the end of the term.

Other

On July 13, 2010, the Company borrowed $60,000 from a shareholder for use as operating capital. Both parties entered into a loan agreement which makes the Company liable for repayment of the principal and 15% annual interest within a twelve month period following the execution of the loan agreement. During the years ended November 30, 2011 and 2010, the Company incurred and accrued for $9,000 and $2,416 in interest expense, respectively, related to this short-term debt. As of November 30, 2011, the Company has accrued $11,416 of interest expense related to this note. As of November 30, 2011, the note is in default.

Future annual principal payments due under the above notes are as follows:

Years Ending
November 30,
2012	$	179,500
2013		-
2014		-
2015		653,061
Total	$	832,561

Also see Note 12 for subsequent issuances of convertible debt.

F-15

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Office Leases

On September 1, 2009, the Company entered into a sublease for its office space with Charter Consulting Group, Inc.(owned by a member of the Control Group of the Company). The sublease was month to month at a rate of $4,818. Included within the sublease is various other office expenses including phone equipment rental and phone services, among others. In addition, the Company paid a security deposit of $9,636. During the year ended November 30, 2011, the Company terminated this lease and netted the deposit against the unpaid balance upon termination. Management does not believe any additional amounts are due related to this lease.

On April 14, 2011, the Company entered into a lease for office space. The lease is for one (1) year and requires monthly payments of $2,927 in addition to a security deposit of $8,782(equal to 3 month’s rent in advance). The security deposit was reduced after six months of on-time rent payments, with the reduction applied to against one month’s rent. Office lease expense for the years ended November 30, 2011 and 2010 was $39,878 and $57,695, respectively.

Consulting Agreements

In August 2009, the Company entered into a one year engagement agreement with successful comedy writer Pat Proft to hire him as the Senior Vice President of Comedy. His role was to create and write our movies. Per the terms of his engagement, Mr. Proft received 200,000 shares of our common stock (see Note 7), and an initial monthly fee of $10,000 for a minimum of one year. During March 2010, a new agreement was negotiated which reflected that Mr. Proft would be paid half of this monthly fee in the form of stock compensation – retroactive from January 2010. As of the year ended November 30, 2011, accrued cash and stock compensation totaling $15,000 and $40,000, respectively, was due to Mr. Proft and included in accrued liabilities on the accompanying balance sheet. This agreement terminated in August 2010.

Employment Agreement

On December 17, 2009, the Company entered into an employment agreement with our 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. Our CEO was also awarded options to purchase common stock. See Note 8. During fiscal 2010, our CEO voluntarily forgave $82,000 of accrued wages, which the Company recorded to equity as contributed services.

Stand-Ready Obligation

During the production of the film Carjacked, the production company Carjacked Entertainment, LLC and Carjacked Investments, LLC (collectively “Carjacked LLC’s”) obtained financing from Wet Rose Productions, LLC (“Wet Rose”) in the amount of $850,000. GrodfilmCorp,owned by the Company's CEO, is the managing member of the LLC's and acts on behalf of 9207-8856 Quebec Inc, a Quebec company and owner of the copyright to the motion picture "Carjacked".

On October 5, 2010, the Company entered into an indirect guarantee of the indebtedness in which the Company guaranteed any shortfalls in repayment of the $850,000 of debt related to the investment provided Wet Rose up to an amount not to exceed $250,000. The financing from Wet Rose becomes due and payable at a date which is 30 months after first release of the film Carjacked. The film was released on November 22, 2011 and is due and payable in 30 months on May 22, 2014. As of November 30, 2011, management has evaluated the guarantee liability under ASC 460-10 – “Guarantees” and ASC 450-20 – “Loss Contingencies” by reviewing the projected ability of the Carjacked film to repay the obligation under contract to determine if there is a probable chance of a default, and if so, provide a reasonable estimate for losses. As of November 30, 2011, management has determined it is too early in the films release and guarantee contract to make a reasonable estimate of probable losses.

Funding closed on December 23, 2010. In connection therewith, as consideration, the Company would receive a $50,000 “guarantor fee” upon close of production funding for the motion picture Carjacked, which was recorded as a stand-ready obligation liability until the contingency is resolved over the 30-month period. The Company received $25,000 of the total $50,000 during fiscal 2011. The remaining $25,000 was initially recorded as a receivable and reserved against as of November 30, 2011 as Management determined collectability was in doubt.

Movie Rights Option Contract

On November 1, 2010, the Company entered in to an “option/purchase” agreement with Richard Taylor (the “Writer”) in which the Company would be granted the exclusive right and option (“Option”) to acquire all motion picture, television and allied and ancillary rights to the Writer’s screenplay – “Bad Monday”. The initial term of this agreement is one year; however the Company would have the option to extend this option agreement for two additional years. As consideration, the Company would pay the Writer $2,000 for the initial term, and $3,500 and $7,500 for each respective extended year chosen. The initial term was extended through October 31, 2012 at no additional cost. If the Company exercises this Option, the Writer would be paid a purchase price of between $40,000 and $100,000, depending on the final production budget for the motion picture. Additionally, the Writer would be entitled to 5% of the net proceeds of the picture, and an additional 2.5% of net proceeds if the Writer received shared writing credit on the picture.

F-16

Salary Reporting and Related Taxes

During the years ended November 30, 2011 and 2010, the Company paid certain accrued salaries to its CEO which were not reported on Internal Revenue Service Form W-2. In the event the Company is audited by federal or state agencies, certain assessments for taxes, penalties and interest may be assessed. In connection therewith, the Company has accrued approximately $63,800 and $27,000, at November 30, 2011 and 2010, respectively for possible assessments.

NOTE 7 - STOCKHOLDERS’ DEFICIT

Capital Stock

The Company has two classes of stock:

●	Preferred stock, $0.001 par value, 10,000,000 shares authorized, 10,000 and zero shares issued and outstanding as of November 30, 2011 and 2010 respectively issued and outstanding; and,
●	Common stock, $0.001 par value, 300,000,000 shares authorized, 108,431,950 and 80,106,077 shares issued and outstanding as of November 30, 2011 and 2010, respectively.

Increase in Authorized Common Stock

On May 17, 2011, our board of directors unanimously adopted a resolution declaring it advisable to amend our certificate of incorporation to increase our authorized common stock from 140,000,000 shares to 300,000,000 shares. Stockholders holding a majority of our voting power took action by written consent on May 31, 2011 for the purpose of approving the Charter Amendment and the Capitalization Increase. We filed an Information Statement on Form 14C on June 16, 2011 giving notice of the action taken by written consent of our stockholders approving the Charter Amendment and Capitalization Increase. The Charter Amendment was filed with the Nevada Secretary of State on August 8, 2011.

On January 5, 2012, our board of directors adopted a resolution declaring it advisable to amend and restate our Articles of Incorporation to increase its authorized common stock from 300,000,000 shares to 2,000,000,000 shares and reduce the par value of common stock from $0.001 to $0.00001 per share. In addition, the Board of Directors was granted authority to effectuate a stock split or reverse without shareholder approval. Stockholders holding a majority of our voting power took action by written consent on January 5, 2012 for the purpose of approving the Amended and Restated Articles of Incorporation. We filed an Information Statement on Form 14C on January 13, 2012 giving notice of these action taken by written consent of our stockholders The Amended and Restated Articles of Incorporation were filed on January 5, 2012 with an effective date of February 17, 2012.

F-17

Stock Split

On June 23, 2009, the directors of the Company approved a three (3) for one (1) stock split (the “Forward Split”) of the Company’s issued and outstanding common stock by written consent in lieu of a special meeting in accordance with the Nevada Corporation Law.

On June 29, 2009, we notified The Financial Industries Regulatory Authority (“FINRA”), is the independent regulator for all securities firms doing business in the United States, of our name change and the forward split of our common shares. On July 31, 2009, FINRA declared the name change effective and as a result of the effectiveness of the name change our symbol was changed to MHYS. FINRA also declared our forward split effective with a record date of June 23, 2009 and a payable date of August 5, 2009.

Issuance of Series A Preferred Shares

On April 5, 2011, our Board approved the issuance of 10,000 shares of Series A Preferred Stock to our CEO, Dan Grodnik, in consideration of $10,000 of accrued compensation due Mr. Grodnik. The Board’s sole director determined and approved the fair market value of these shares to be $1.00 per share. The shares were issued on April 13, 2011.

On April 13, 2011, pursuant to a resolution passed by our director under the authority of our certificate of incorporation, as amended, we filed a Certificate of Designation with the Nevada Secretary of State to create and set for the terms of a series of preferred stock of the Company known as Series A Preferred Stock, par value $0.001 per share. The Series A Preferred Stock is not convertible. Holders of the Series A Preferred Stock do not have any preferential dividend or liquidation rights. The shares of Series A Preferred Stock are not redeemable. Pursuant to the certificate of designation establishing the Series A Preferred Stock, on all matters submitted to a vote of the holders of the common stock, including, without limitation, the election of directors, a holder of shares of the Series A Preferred Stock shall be entitled to the number of votes on such matters equal to the product of (a) the number of shares of the Series A Preferred Stock held by such holder, (b) the number of issued and outstanding shares of our common stock, as of the record date for the vote, or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited, and (c) 0.0002.

The issuance of the Series A Preferred Stock effectively transferred voting control of the Company to Mr. Grodnik.

Stock Incentive Plans

On February 16, 2011, our board of directors adopted the 2011 Stock Incentive Plan. The purpose of our 2011 Stock Incentive Plan is to advance the best interests of the Company by providing those persons who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 23,000,000 shares, subject to adjustment. As of November 30, 2011, the Company had 17,565,000 shares remaining to be issued under the plan.

On March 13, 2012, our board of directors adopted the 2012 Stock Incentive Plan. See Note 12.

F-18

Reorganization and Settlement of Liabilities with Common Stock

In June 2009, the Company issued 4,800,000 shares of common stock upon conversion of notes with predecessors which resulted in an extinguishment charge of $1,124,957 based on the closing price of the Company’s common stock of $0.24 per share shortly after the extinguishment.

On August 5, 2009, the Control Group acquired or received 50,000,000 shares of common stock, as well as 6,000,000 shares of common stock from the conversion of $10,000 of notes acquired. 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 the quarter ended February 28, 2010. Because this note was part of the recapitalization, the conversion of the shares was afforded such treatment.

Issuance of Common Stock Related to Employment Agreements and Services Rendered

On August 24, 2009, the Company issued 200,000 shares per the terms of the employment agreement with Pat Proft which were immediately vested. These shares were valued at $62,000 based on the closing price per share on the date of issuance of $0.31.

On September 29, 2009, the Company issued 100,000 shares of common stock to one individual for Board of Director services rendered to the Company. This issuance was expensed as share-based compensation at a cost of $43,000, or $0.43 per share based on the closing stock price on the date of issuance.

On October 6, 2009, the Company issued 100,000 shares of common stock to one individual for services rendered to the Company as the Senior Vice President of Technology. This issuance was expensed as share-based compensation at a cost of $42,000, or $0.42 per share based on the closing stock price on the date of issuance.

On October 16, 2009, the Company issued 2,000 shares of common stock to two individuals for consulting services rendered to the Company. This issuance was expensed as share based compensation at a cost of $580, or $0.29 per share-based on the closing stock price on the date of issuance.

On November 25, 2009, the Company issued 100,000 shares of common stock to four individuals for legal services provided to the Company. This issuance was expensed as share based compensation at a cost of $10,000, or $0.10 per share-based on the closing stock price on the date of issuance.

In December 2009, upon Board approval 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, upon Board approval the Company issued 50,000 shares to one individual for consulting services 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, upon Board approval, 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 22, 2010, upon Board approval, the Company issued 145,000 shares to five individuals for various operational services rendered 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, 1,000,000 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.

F-19

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, on the date of the agreement, for the months of January, February and March 2010, $15,000 of accrued wages due Pat would be converted into 166,667 shares of common stock based on the market price on of the Company’s common stock on the preceding day of $0.09 per share. As of August 31, 2010, accrued wages for shares yet to be issued are $40,000. The liability is included in accrued liabilities in the accompanying balance sheet.

On March 9, 2010, upon Board approval, the Company issued 375,000 shares to three individuals for operational consulting and advisory services 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.

On May 27, 2010, upon Board approval, the Company issued 78,125 shares to an individual for accounting and advisory services rendered to the Company. These shares were fully vested and expensed by the Company at $2,500 based on a price per share of $0.03 on the date of issuance.

On June 23, 2010, upon Board approval, the Company issued 600,000 shares to five individuals / entities for consulting services rendered to the Company. One consultant, who received 100,000 shares for services rendered, is a brother of the CEO. These shares were fully vested and expensed by the Company in the amount of $24,000 based on a price per share of $0.04 on the date of issuance.

On September 1, 2010, upon Board approval, the Company issued 1,255,000 shares to three individuals for consulting services rendered to the Company. These shares were fully vested and expensed by the Company in the amount of $39,000 based on a price of $0.03 per share on the date of issuance.

On February 18, May 5, June 17, July 14, and October 18, 2011, the Company’s Board approved the issuances of 420,000, 900,000, 450,000, 165,000, and 3,500,000 shares of common stock, respectively, to a professional services firm for legal services rendered. Based on the closing market prices on the respective days ranging from $0.0032 to $0.021 per share, the Company recorded stock compensation of $50,320 related to these transactions.

On June 15 and September 1, 2011, the Company’s Board approved the issuances of 1,000,000 and 900,000 shares, respectively to one individual for consulting services rendered to the Company. Based on closing market prices on the respective days ranging from $0.008 to $0.02 per share, the Company recorded stock compensation of $27,200 related to these transactions.

On September 1, 2011, the Company’s Board approved the issuance of 1,500,000 shares to one individual for consulting and advisory services rendered to the Company. These shares were fully vested and expensed by the Company in the amount of $12,000 based on a price of $0.008 per share on the date of issuance.

On August 15 and October 24, 2011, the Company’s Board approved the issuances of 225,000 and 250,000 shares, respectively to two vendors for services rendered to the Company. These shares were fully vested and expensed by the Company in the amount of $3,000 based on closing market prices on the respective days ranging from $0.003 to $0.01 per share on the date of issuance.

F-20

On November 1, 2011, the Company’s Board approved the issuance of 1,000,000 shares to one individual for employment services rendered to the Company. These shares were fully vested and expensed by the Company in the amount of $4,000 based on a price of $0.004 per share on the date of issuance.

During the years ended November 30, 2011 and 2010 and the period from Inception to November 30, 2011, the Company recorded $96,520, $128,800 and $382,900 in stock-based compensation related to services in general and administrative expense in the accompanying statement of operations. These expenses are exclusive of stock option expense in Note 8.

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 called for an adjustment (“Ratchet”) after six months based on the market price of the Company’s common stock. If, on that date, the Company’s closing bid price for the immediately preceding trading day was less than $0.20 per share, then the Company was required to issue additional shares of its common stock to the purchaser to offset the purchaser’s total investment. Initially, since the number of shares under the ratchet provision was indeterminate and based on a fixed dollar amount to the market price at the end of six months, management recorded the common stock as a liability in the accompanying balance sheet at November 30, 2009. Upon the adjustment date of May 31, 2010, the additional amount of shares required to be issued were determinable and thus were reclassified from liability to equity as the adjustment provision expired. Based on a closing common stock price of $0.05 on the next business day, the Company computed an additional 3,000,000 shares of common stock a required to be issued to the individual. The Company issued such shares on or about October 10, 2010.

On November 23, 2011, the Company sold $10,000,000 shares to an individual for $0.001 per share for aggregate funds of $10,000.

Also see Note 12 for subsequent issuances of common stock.

NOTE 8 – 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 December 17, 2009. Each series of options shall survive for 24 months following vesting, and may be exercised all or in part, 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. Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period. In determining historical volatility, we used both the Company’s volatility as well as the volatility for other similar public companies. We believe due to the limited history in the Company’s stock, this was the best approach. The selection of another methodology to calculate volatility or even a different weighting between implied volatility and historical volatility could materially impact the valuation of stock options and other equity based awards and the resulting amount of share-based compensation expense recorded in a reporting period.

F-21

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:

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. During the years ended November 30, 2011 and 2010 and the period from Inception to November 30, 2011, stock compensation of $240,000, $228,667, and $468,667 has been recorded as expense in general and administrative in the accompanying statement of operations, respectively. Future compensation expense is $240,000, annually through 2014. As of November 30, 2011, approximately 7,831,732 options are fully vested and are exercisable by the CEO.

The weighted average options outstanding as of November 30, 2011 and 2010 equaled the options issued to the CEO above, 20,000,000. There were no other options issued, exercised or forfeited during the years then ended. The weighted average exercise price was $0.07 for both the years ended November 30, 2011 and 2010. The weighted average remaining contractual life of the options for the years ended November 30, 2011 and 2010 was approximately three (3) and four (4) years, respectively. There is no intrinsic value for options outstanding as all exercise prices are above the year and closing Company stock price.

NOTE 9 – FILM PRODUCTION COSTS

The Company capitalizes film production costs in accordance with Statement of Position ASC 926 – “Entertainment”. 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 began capitalizing script costs on March 1, 2010. Costs incurred during the year ended November 30, 2010, totaling $95,250, were recorded to script costs in non-current assets in connection with Mass Hysteria, the movie. The Company has assessed script costs in determining that no impairment or write-off of capitalized costs is necessary as of November 30, 2011 the movie is still being pursued.

NOTE 10– MEDIA DISTRIBUTION AGREEMENTS - RELATED PARTIES

Slam I Am

On July 12, 2010, the Company entered into an agreement with NY-based Screen Media Ventures, LLC, (“Screen Media”) in which the Company agreed to license to Screen Media the distribution rights to the motion picture ”Stonerville” written by Kevin Sepe and Tom Alexander and produced by Kevin Sepe, the Control Group member that funded the Company’s working capital as discussed in Note 6. This movie wasreleased date is January 2011.

Under this ten year agreement, the Company and Screen Media will share net proceeds from Home Video (“HV”) and Video on Demand (“VOD”) sales on a 50/50 ratio. Net proceeds is defined as gross proceeds less a five percent service fee to Screen Media and any third party distribution/marketing costs directly related to the distribution of the movie.

For all distribution excluding HV and VOD, Screen Media shall earn a 25% distribution fee and shall be reimbursed for all legitimate distribution costs as defined by both parties. The balance of the proceeds is then distributed to Mass Hysteria, which in turn pays the producer and financier (the related party discussed in Note 5) these proceeds less an amount defined in a drafted agreement between the Company and the producer/financier. The agreement, executed on December 1, 2010, allows for the Company to be paid 10% of the first $600,000 in proceeds received from Screen Media, and 15% for any proceeds in excess of $600,000. Additionally, the Company will be reimbursed up to a maximum of $10,000 in actual out-of-pocket expenses incurred in the distribution process.

F-22

Carjacked

Carjacked Entertainment, LLC (the “LLC”) was formed to produce Carjacked, a feature film. The rights to Carjacked, the movie, are held by a Montreal, Canada company. Mass Hysteria’s CEO is the managing member and holds an equity interest in the LLC through a company he controls, Grodfilm Corp. See Note 6 for guarantee agreement provided by Mass Hysteria in connection with an unrelated investor in the amount of $250,000. Also see below.

The Company was assigned an agreement by Grodfilm Corp (owned by the Company’s CEO, Dan Grodnik) which entitled Mass Hysteria to $75,000 in revenue for its participation in the pre-production of the movie. Under this agreement, Mass Hysteria received $25,000 during pre-production of the movie during fiscal 2010 and $25,000 during fiscal 2011. As of November 30, 2011, it is not certain that we will receive the final payment in the near-term, and accordingly, we provided an allowance for such amount.

NOTE 11 – INCOME TAXES

We have identified our U.S. Federal tax returns as our “major” tax jurisdiction, and our corporate offices are located in California. The United States Federal return years 2008 through 2010 are still subject to tax examination by the United States Internal Revenue Service; however, we do not currently have any ongoing tax examinations. The Company is subject to examination by various State agencies for the years ended 2007 through 2010 and currently does not have any ongoing tax examinations. The Company has had losses to date, and therefore has paid no income taxes.

Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. The Company elected to capitalize all start-up costs for income tax reporting purposes under Section 195 of the Internal Revenue Code. The Company's deferred tax assets consist entirely of start-up costs. Effective August 5, 2009 (Inception), prior net operating loss carry forwards are no longer available to the Company, due to the Company’s abandonment of the related handbag manufacturing business.

Aggregate start-up costs capitalized through November 30, 2011, are approximately $3.7 million; the deferred tax asset is approximately $1.6 million. The amount of benefits the Company may receive from the start-up costs for income tax purposes is further dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined. Accordingly, management recorded a valuation allowance for 100% of the deferred tax assets of approximately $1.6 million, an increase from the prior year of $1.3 million

The difference between the California statutory rate of approximately 8.83% and the actual provision rate is due to permanent difference required to arrive at taxable income. A full valuation allowance has been placed on 100% of the Company's deferred tax assets as it cannot be determined if the assets will be ultimately realized through future taxable income.

NOTE 12 - SUBSEQUENT EVENTS

Amended and Restated Charter

We filed amended and restated articles of incorporation with the Nevada Secretary of State on each of December 16, 2011 and January 5,2012 respectively (with the January 5, 2012 version superseding the previously filed version), which amended and restated articles (i) increased our authorized common stock to two billion (2,000,000,000) shares; (ii) reduced the par value for its capital stock from $0.001 per share to $0.00001 per share; (iii) granted authority to our board of directors to effectuate a stock split or reverse stock split without stockholder approval; (iv) elected not to be governed by certain provisions pertaining to “resident domestic corporations” under the Nevada Revised Statutes; and (v) elected not to be governed by certain provisions relating to “issuing corporations” under the Nevada Revised Statutes. A copy of the amended and restated articles was filed as an exhibit to our Definitive Information Statement on Form 14C, filed with the Securities and Exchange Commission on January 13, 2012. The amended and restated articles became effective on February 17, 2012, as stated therein.

F-23

Issuance of Common Stock

Subsequent to November 30, 2011, the Company has issued 21,573,441 shares for legal and other consulting services rendered to the Company. Shares were valued based on the Company’s closing stock price on the date of issuance which ranged from $0.0050 to $0.0047. Total expense recognized to based on these issuances is approximately $38,000.

On February 14, 2012 our Board approved the issuance of 5,000,000 shares to a relative of our CEO in settlement of an interest free advance received on January 3, 2012. The stock issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

Convertible Notes

On January 4, 2012, the Company borrowed $ 22,500 from an external party for use as operating capital. The parties entered into a convertible note payable agreement which make the Company liable for repayment of the principal and 8% annual interest by the agreement’s expiration date of October 4, 2012. Failure to repay principal or interest when due triggers a default interest rate (from note’s inception date) of 22%, annually, on the unpaid amount. After 180 days, the note is convertible into common stock at a 41% discount off the average of the lowest three (3) trading prices for the Company’s common stock within the ten (10) days preceding the conversion. This note contains a “ratchet” provision, which protects the note holder in case the issuer sells stock during the term of the notes for a per-share price which is less than the effective conversion rate. Due to this ratchet provision, this note is considered to contain a derivative instrument associated with the embedded conversion feature. This liability will be recorded on the face of the financial statements as “derivative liability”, and must be revalued each reporting period. The Company discounted the note by the fair market value of the derivative liability upon inception of the note. This discount will be accreted back to the face value of the note over the note term using the straight line method,.

On March 1, 2012, we borrowed $10,000 from an external party for use as operating capital. The parties entered into convertible note payable agreements which make the Company liable for repayment of the principal and 8% annual interest by the agreements’ expiration date of November 30, 2012. Failure to repay principal or interest when due triggers a default interest rate (from notes’ inception date) of 22%, per annum, on the unpaid amount. After 180 days, the note is convertible into common stock at a 41% discount of the average of the lowest three (3) trading prices for the Company’s common stock within the ten (10) days preceding the conversion. The convertible note carries the same provisions as specified in the convertible note entered into on January 4, 2012 and will be accounted for in the same manner described above.

Conversion of short-term convertible debt.

Subsequent to November 30, 2011, the Company issued 31,967,461 shares of common stock to a third party holder of short-term convertible debt for the conversion of $16,700 of principal. The conversion prices ranged from $0.00032 to $0.00081 with an effective conversion price of approximately $0.0005. The remaining principal on this note through the date of this report is $7,800.

Subsequent to November 30, 2011, the Company issued 17,727,647 shares of common stock to a holder of short-term convertible debt for the conversion of $9,130 of principal and $786 of accrued interest. The conversion prices ranged from $0.00022 to $0.00079 with an effective conversion price of approximately $0.00056. The remaining principal on this note through the date of this report is approximately $3,900.

F-24

Technology Transfer and License.

On February 6, 2012, we entered into two related agreements with Three Point Capital. (“3PC”) In exchange for $65,000 in cash and five Class B Units in 3PC’s subsidiary FanCloud, LLC (representing a 5% interest), we transferred certain of our intellectual property related to our mobile application. Concurrently with this transfer, 3PC granted us an exclusive, irrevocable, worldwide license to such transferred technology within the field of cinema.

On February 6, 2012, in connection with a Technology and Transfer License (above) with Three Point Capital (“3PC”) our Board approved the issuance of (i) 1,991,559 shares to three individuals for services, including the development of a long-term business plan based on fair market value of the stock at that time of $1,000 and (ii) 1,991,559 shares to 3PC for services rendered based on the fair market value of $1,000 of the stock at that time.

2012 Stock Incentive Plan

On March 13, 2012, our board of directors adopted the 2012 Stock Incentive Plan. The purpose of our 2012 Stock Incentive Plan is to advance the best interests of the Company by providing those persons who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 56,000,000 shares, subject to adjustment. No shares have been issued under this Plan.

F-25

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by SEC Rule 13a-15 or Rule 15d-15, our Chief Executive and Principal Accounting Officers carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures are not effective as of November 30, 2011 and that they do not allow for information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive and Principal Accounting Officers as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company in accordance with as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the (i) effectiveness and efficiency of operations, (ii) reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and (iii) compliance with applicable laws and regulations. Our internal controls framework is based on the criteria set forth in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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.

Management’s assessment of the effectiveness of the small business issuer’s internal control over financial reporting is as of the November 30, 2011. We believe that internal control over financial reporting is not effective. The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by the Company’s Chief Financial Officer in connection with the review of our financial statements as November 30, 2011 and communicated the matters to our management. Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not affect the Company’s financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures can affect the Company’s results and its financial statements for the future years.

We are committed to improving our financial organization. As part of this commitment, we will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to the Company: i) Appointing one or more outside directors to our board of directors who shall be appointed to the audit committee of the Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; and ii) Preparing and implementing sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on the Company’s Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support the Company if personnel turn over issues within the department occur. This coupled with the appointment of additional outside directors will greatly decrease any control and procedure issues the company may encounter in the future.

In an effort to remedy these matters, we hired a chief financial officer in February 2012.

Changes in Internal Control: There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls: The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or its system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of the Company’s control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.

This annual report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management’s report in this annual report.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Set forth below is certain information concerning our directors and executive officers:

Name	Age	Position
Daniel Grodnik	59	President, Chief Executive Officer and Chairman
Alan Bailey	64	Chief Financial Officer and director

Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.

Daniel Grodnik is a director and our President and Chief Executive Officer. 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. Mr. Grodnik has produced dozens of movies over the course of his career including “Bobby,” which had an all-star cast including Anthony Hopkins, Demi Moore, Sharon Stone, Helen Hunt, Lawrence Fishburne, Elijah Wood, Lindsay Lohan, William H. Macy, Nick Cannon, and Heather Graham and for which he was nominated for a Golden Globe for Best Picture, Powder, Blind Fury and “1969” starring Robert Downey and Kiefer Sutherland and scores of other theatrical and television movies with stars such as Ashley Judd, Tim Allen, Richard Dreyfuss, Christian Slater, Alec Baldwin, Jeff Goldblum, Winona Ryder, etc. Mr. Grodnik is a member of the Producer’s Guild of America and for the past 20 years has been an oral panelist at his Alma-Mater USC to grade the Masters Thesis in producing.

Alan Bailey is a director and our Chief Financial Officer. Mr. Bailey is a veteran of the entertainment industry with 35 years of senior level corporate finance, audit and compliance experience at Paramount Pictures, including serving as its Senior Vice President and Treasurer from 1974 through March 2009. Since that time, he has served as the Chief Executive Officer and co-Founder of new media company Dynamic Media International Inc. (“DMI”) which produces and distributes high definition content through its Dynamic Media Network division; it produces and distributes music through its Dynamic Media Music division it executive produces lower budget/high quality motion pictures and television programs through its Dynamic Media Pictures division. Mr. Bailey is also the owner and operator of the Movieville International Film Festival which acts as a platform to showcase the work of newly aspiring filmmakers. Previous to Paramount Pictures , Mr. Bailey served as Vice President in charge of offshore financial operations at Gulf + Western Industries, and served in public accounting with the leading international films of Ernst & Young and Grant Thornton. Mr. Bailey is a Fellow of the English Institute of Chartered Accountants.

Term of Office

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board

Information about our Board and its Committees.

We do not have either an audit committee, compensation committee, or a nominating committee. It is the view of the board of directors that it is appropriate to not have any of these committees since they are not required to maintain a listing on the OTC Bulletin Board, since it only has one director who would serve on any such committees in any event, and due to the additional and unnecessary costs associated with administering the committees.

We do not have any defined policy or procedure requirements for stockholders to submit recommendations or nominations for directors. Our board of directors believes that, given the early stages of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted by management or stockholders, and makes recommendations for election or appointment.

A stockholder who wishes to communicate with our board of directors may do so by directing a written request to our Company addressed to our Chief Executive Officer. We intend to hold annual meetings of stockholders during the summer season, at which meetings our directors will be up for re-election. We currently do not have a policy regarding the attendance of board members at the annual meeting of stockholders.

Family Relationships

There are no family relationships between or among any of the current directors, executive officers or persons nominated or charged by the Company to become directors or executive officers.

Involvement in Certain Legal Proceedings

None of our directors or executive officers has, during the past ten years:

●	been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

●	had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;

●

been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or

●	been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Director Independence

Our board of directors has determined that currently none of it members qualify as “independent” as the term is used in Item 407 of Regulation S-B as promulgated by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. - Marketplace Rule 4200. The chairman of the board is also an officer of the Company. The Company plans to appoint an outside director as chairman in the future.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and stockholders holding more than 10% of our outstanding common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership of our common stock. Executive officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on review of the copies of such reports furnished to us for the period ended November 30, 2011, no Section 16(a) reports required to be filed by our executive officers, directors, and greater-than-10% stockholders were filed on a timely basis.

Code of Ethics

We have adopted a code of ethics that applies to the principal executive officer and principal financial and accounting officer. We will provide to any person without charge, upon request, a copy of our code of ethics. Requests may be directed to our principal executive offices at 8899 Beverly Blvd., Suite 710, Los Angeles, CA 90048.

ITEM 11. EXECUTIVE COMPENSATION

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officer during the years ended November 30, 2011, and 2010 in all capacities for the accounts of our executive, including the Chief Executive Officer and Chief Financial Officer:

Summary Compensation Table
							Stock		Option			All Other
Name and Position	Year	Salary			Bonus		Awards ($)		Awards ($)			Compensation		Total ($)
Daniel Grodnik	2011	$	360,000	(1)		--		--	$	240,000	(3)		--	$	600,000
President and Chief Executive Officer	2009	$	360,000	(2)		--		--	$	228,667	(3)		--	$	588,667

Alan Bailey	2011		N/A			N/A		N/A		N/A-			N/A		N/A
Chief Financial Officer (since March 2, 2012)	2010		N/A			N/A		N/A		N/A-			N/A		N/A

(1) $172,181 of this amount was accrued as salary but not paid.

(2) $62,930 of this amount was accrued as salary but not paid. In addition, Mr. Grodnk forgave $82,000 of his accrued and unpaid salary for the year ended November 30, 2010.

(3) On December 17, 2009, the Company agreed to Mr. Grodnik an option award of 20,000,000 shares with exercise price of $0.07. Our stock price was $0.06 on December 17, 2009. The options vest equally (pro-rata per day) over a five year period. As such 4,000,000 and, 3,831,732 shares under such option vested in the years ended November 30, 2011, and 2010 respectively.

Grants of Plan-Based Awards

The following table sets forth information concerning the number of shares of common stock underlying restricted stock awards and stock options granted to the Named Executive Officers in the year ended November 30, 2011:

All Other

Stock

Awards:

All Other

Option

Awards:

Name

Grant Date

Approval Date

Estimated Future Payouts Under

Non-Equity

Incentive

Plan Awards

Estimated Future Payouts Under

Equity

Incentive

Plan Awards

Number of

Shares of Stock

Units

(#)

Number of

Securities

Underlying Options

(#) (1)

Exercise or

Base Price

of Option Awards

($/Sh) (2)

Grant Date

Fair Value of Stock and

Option Awards

(3)

Daniel Grodnik

12/17/2009

—

20,000,000

0.07

1,200,000

(1)	On December 17, 2009, pursuant to an employment agreement the Company agreed to grant Mr. Grodnik an option to purchase 20,000,000 shares of common stock . The options vest over equally (pro-rata per day) over a 5 year period until fully vested on December 17, 2014.
(2)	The exercise price is $0.07 per share.
(3)	Represents the grant date fair value of each equity award calculated in accordance with ASC 718.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth all outstanding equity awards made to each of the Named Executive Officers that are outstanding at the end of the year ended November 30, 2011.

Option Awards

Stock Awards

Name

Number of Securities

Underlying Unexercised

Options (#) Exercisable

Number of Securities

Underlying Unexercised

Options (#) Unexercisable

Option Exercise

Price ($)

Option

Expiration Date

Number of Shares

or Units of Stock That

Have Not Vested (#)

Market Value of Shares

or Units of Stock

That Have Not Vested

Daniel Grodnik

7,831,732

12,168,268

0.07

12/17/2016

(1)

—

(1)	The options vest equally (pro-rata per day) over a 5 year period until fully vested on December 17, 2014. Each option expires 24 months after vesting.

Option Exercises and Stock Vested

4,000,000 shares under Daniel Grodnik’s option to purchase 20,000,000 shares vested in the year ended November 30, 2011. No stock options were exercised by any named executive officer in the year ended November 30, 2011.

Employment Agreements

On December 17, 2009, we entered into employment agreements with Daniel Grodnik pursuant to which we employ Mr. Grodnik as our Chief Executive Officer. The agreement is for an initial term of five years and provides for an annual base salary during the term of the agreement of $360,000, which amount shall automatically be increased by 10% when and if the Company’s revenues exceed $1,000,000. Mr. Grodnik may also receive bonuses at the discretion of the board of directors and will receive a bonus equal to 2% of gross theatrical box office sales for any of our theatrically released motion pictures.

In addition to his annual salary, the 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 (pro-rata per day) over a five-year period (until fully vested on December 17, 2014. Each series of options shall survive for 24 months following vesting, and may be exercised all or in part by shall include a “cashless feature.”

The agreement also contains the following material provisions: (i) reimbursement for all reasonable travel and other out-of-pocket expenses incurred in connection with his employment; (ii) four (4) weeks paid vacation leave, including payment of actual vacations not to exceed $15,000; (iii) medical, dental and life insurance benefits; (iv) an $800 per month automobile allowance; (v) a severance payment of $5,000,000 in the event that Mr. Grodnik’s duties and responsibilities are significantly changed or in the event of a “Change in Control” (as defined in the agreement).

Potential Payments upon Termination

Under the terms of Mr. Grodnik’s employment agreement, he is entitled to a severance payment of $5,000,000 in the event that Mr. Grodnik’s duties and responsibilities are significantly changed or in the event of a “Change in Control” (as defined in the agreement).

The following table sets forth quantitative information with respect to potential payments to be made to Mr. Grodnik upon termination in the circumstances described above. The potential payments are based on the terms of the Employment Agreement discussed above. For a more detailed description of the Employment Agreement, see the “Employment Agreements” section above.

Name		Potential Payment upon Termination
Daniel Grodnik		$	5,000,000

Compensation of Directors

The following table sets forth the compensation paid to each director (other than compensation set forth under Executive Compensation) for services rendered during the fiscal year ended November 30, 2011.

Fees Earned or

Paid in

Stock

Option

All Other

Name

Cash

Awards ($)

Compensation

Total ($)

Daniel Grodnik

All directors receive reimbursement for reasonable out-of-pocket expenses in attending Board of Directors meetings and for promoting our business.

From time to time we may engage certain members of the Board of Directors to perform services on our behalf. In such cases, we compensate the members for their services at rates no more favorable than could be obtained from unaffiliated parties. We did not engage any members of the Board of Directors to perform services our behalf the year ended November 30, 2011.

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

The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 12, 2012 by the following persons:

·	each person who is known to be the beneficial owner of more than five percent (5%) of our issued and outstanding shares of common stock;

·	each of our directors and executive officers; and

·	all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. The number of shares and the percentage beneficially owned by each individual listed above include shares that are subject to options held by that individual that are immediately exercisable or exercisable within 60 days from March 12, 2012, and the number of shares and the percentage beneficially owned by all officers and directors as a group includes shares subject to options held by all officers and directors as a group that are immediately exercisable or exercisable within 60 days from March 12, 2012.

Name and Address (1)	Number of Common Shares Beneficially Owned	Percentage Owned (2)	Number of Series A Shares Beneficially Owned	Percentage Owned (3)	Percentage of Total Voting Power (4)
5% Stockholders:
Michael Greenfield (5)	10,000,000	5.30%	--	--	*
Directors and Officers:
Daniel Grodnik	23,000,000(6)	11.69%	10,000	100%	98.6%
Alan Bailey	11,000,000	5.83%	0	*	*
All directors and officers as a group (2 persons)	34,000,000(6)	17.29%	10,000	100%	98.6%

*Less than 1%

(1)	Unless otherwise noted, the address is 8899 Beverly Blvd, Suite 710, West Hollywood, CA 90048.

(2)	Based on 188,683,885 common shares issued and outstanding.

(3)	Based on 10,000 series A preferred shares issued and outstanding

(4)

Holders of our common stock are entitled to one vote per share, for a total of 188,683,885 votes. Holders of our Series A preferred stock are entitled to the number of votes on such matters equal to the product of (a) the number of shares of the Series A Preferred Stock held by such holder, (b) the number of issued and outstanding shares of Mass Hysteria’s common stock, on a fully-diluted basis, as of the record date for the vote, or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited, and (c) 0.0002, for a total of 11,068,717,544 votes.

(5)	The address is 8313 Fountain Avenue, #A, Los Angeles, CA 90069

(6)	Includes 8,000,000 shares under presently exercisable options.

Securities Authorized for Issuance Under Equity Compensation Plans. The following provides information concerning compensation plans under which our equity securities are authorized for issuance as of November 30, 2011:

	(a)		(b)		(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (1)		--		--		--
Equity compensation plans not approved by security holders		0	$	N/A		17,565.000
Total		0	$	N/A		17,565,000

(1) 2011 Stock Incentive Plan. On February 16, 2011, our board of directors adopted the 2011 Stock Incentive Plan. The purpose of our 2011 Stock Incentive Plan is to advance the best interests of the company by providing those persons who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 23,000,000 shares, subject to adjustment.

Our board of directors administers our plan and has full power to grant stock options and common stock, construe and interpret the plan, establish rules and regulations and perform all other acts, including the delegation of administrative responsibilities, it believes reasonable an proper. Any decision made, or action taken, by our board of directors arising out of or in connection with the interpretation and administration of the plan is final and conclusive.

The board of directors, in its absolute discretion, may award common stock to employees of, consultants to, and directors of the company, and such other persons as the board of directors or compensation committee may select, and permit holders of common stock options to exercise such options prior to full vesting therein and hold the common stock issued upon exercise of the option as common stock. Stock options may also be granted by our board of directors or compensation committee to non-employee directors of the company or other persons who are performing or who have been engaged to perform services of special importance to the management, operation or development of the company.

In the event that our outstanding common stock is changed into or exchanged for a different number or kind of shares or other securities of the company by reason of merger, consolidation, other reorganization, recapitalization, combination of shares, stock split-up or stock dividend, prompt, proportionate, equitable, lawful and adequate adjustment shall be made of the aggregate number and kind of shares subject to stock options which may be granted under the plan.

Our board of directors may at any time, and from time to time, suspend or terminate the plan in whole or in part or amend it from time to time in such respects as our board of directors may deem appropriate and in our best interest.

2012 Stock Incentive Plan. On March 13, 2012, our board of directors adopted the 2012 Stock Incentive Plan. The purpose of our 2012 Stock Incentive Plan is to advance the best interests of the company by providing those persons who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 56,000,000 shares, subject to adjustment.

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

On October 5, 2010, we entered into that Guarantee Agreement with Carjacked Entertainment LLC (“CE”) and Carjacked Entertainment Investments, LLC (“CEI”, together with CE, the “Producers”), pursuant to which we guaranteed repayment of up to $250,000 to Wet Rose Productions, LLC for funds invested by Wet Rose for the film “Carjacked.” In exchange for the guarantee, the Producers agreed to pay us $50,000. Our sole officer and director is managing member of CE.

Effective November 1, 2010, Grodfilm Corp. assigned that certain Memorandum of Agreement with Carjacked Entertainment, LLC related to producer fees on the film entitled “Carjacked” to us. Our President and Chief Executive Officer is the principal officer and controlling stockholder of Grodfilm Corp. In addition, our President and Chief Executive Officer is the managing member of Carjacked Entertainment, LLC. Neither our president and CEO nor CE owns the rights to the film “Carjacked.”

Our President and Chief Executive Office currently has other interests in other companies in the film industry. He is currently sole officer and sole stockholder of GrodfilmCorp., a company involved in producing motion pictures. Until such time as we are better capitalized, our President and Chief Executive Office will devote the majority of his time to our company but may not devote his entire time to us. He will devote so much of his time as is, in his judgment necessary to conduct such business in the best interest of our company. Any agreements entered into between us and any affiliates shall be on terms and conditions no less favorable to us than can be obtained by independent third parties.

On April 5, 2011, we issued 10,000 shares of Series A Preferred Stock to our President in satisfaction of $10,000 of accrued but unpaid salary.

Director Independence

For our description of director independence, see “Director Independence” under the section entitled “Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act” above.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Appointment of Auditors

dbbmckennon audited our consolidated financial statements for the fiscal years ended November 30, 2011 and 2010.

Audit Fees

dbbmckennon billed us $17,500 in fees for our 2011 annual audit and $14,000 for the review of our quarterly financial statements in 2011. dbbmckennon billed $30,000 in fees for our 2010 annual and for the review of our quarterly financial statements in 2010.

Audit Related Fees

There were no fees for audit related services for the years ended November 30, 2011 and 2010.

Tax Fees

For the Company’s fiscal years ended November 30, 2011 and 2010, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.

All Other Fees

The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended November 30, 2011 and 2010.

Pre-Approval Policies and Procedures

We have implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, our board of directors pre-approves all services to be provided by dbbmckennon and the estimated fees related to these services.

All audit, audit related, and tax services were pre-approved by our board of directors, which concluded that the provision of such services dbbmckennon was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. Our pre-approval policies and procedures provide for the board of directors’ pre-approval of specifically described audit, audit-related, and tax services on an annual basis, but individual engagements anticipated to exceed pre-established thresholds must be separately approved. The policies and procedures also require specific approval by our board of directors if total fees for audit-related and tax services would exceed total fees for audit services in any fiscal year. The policies and procedures authorize the audit committee to delegate to one or more of its members pre-approval authority with respect to permitted services.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) We have filed the following documents as part of this Annual Report on Form 10-K:

1. Financial Statements

Report of Independent Registered Public Accounting Firm

Financial Statements:

Balance Sheets

Statements of Operations

Statements of Stockholders’ Deficit

Statements of Cash Flows

Notes to Financial Statements

2. Financial Statement Schedules: None

3. Exhibits: See the Exhibit index below

Exhibit No.		Description

3.1		Articles of Incorporation of Michael Lambert, Inc. (now known as Mass Hysteria Entertainment Company, Inc.), incorporated by reference to our Registration Statement on Form SB-2 filed on October 5, 2007.
3.2		Certificates of Correction to Articles of Incorporation of Michael Lambert, Inc. (now known as Mass Hysteria Entertainment Company, Inc.), incorporated by reference to our Registration Statement on Form SB-2 filed on October 5, 2007.
3.3		Articles of Amendment to Articles of Incorporation of Michael Lambert, Inc. (now known as Mass Hysteria Entertainment Company, Inc.), incorporated by reference to our Current Report on Form 8-K, filed on August 10, 2009.
3.4		Bylaws of Michael Lambert, Inc. (now known as Mass Hysteria Entertainment Company, Inc.), incorporated by reference to our Registration Statement on Form SB-2 filed on October 5, 2007.
3.5		Certificate of Designation-Series A Preferred Stock, attached as an exhibit to our Quarterly Report for the period ended February 28, 2011, filed on April 19, 2011 and incorporated herein by reference.
3.6		Certificate of Amendment to Articles of Incorporation, filed as an exhibit to our Definitive Information Statement on Form 14C filed on June 16, 2011 and incorporated herein by reference.
3.7		Amended and Restated Articles of Incorporation, filed as an exhibit to our Definitive Information Statement on Form 14C filed on June 16, 2011 and incorporated herein by reference.
4.1		Form of 6% Convertible Promissory Note, filed as an exhibit to our Annual Report on Form 10K for the year ended November 30, 2011 filed on March 15, 2011 and incorporated herein by reference..
4.2		Form of 8% Convertible Promissory Note filed as an exhibit to our Annual Report on Form 10K for the year ended November 30, 2011 filed on March 15, 2011 and incorporated herein by reference.
4.3		Convertible Promissory Note ($200,000) dated March 31, 2011, filed as an exhibit to our Current Report on Form 8-K dated March 31, 2011, filed on April 6, 2011 and incorporated herein by reference.
4.4		Warrant dated August 3, 2011, filed as an exhibit to our Quarterly Report on Form 10Q for the period ended August 31, 2011, filed on October 24, 2011 and incorporated herein by reference.

4.5		8% Convertible Promissory Note, filed as an exhibit to our Quarterly Report on Form 10Q for the period ended August 31, 2011, filed on October 24, 2011 and incorporated herein by reference
10.1		Employment Agreement for Daniel Grodnik, incorporated by reference to our Annual Report on Form 10-K for the year ended November 30, 2009 filed on March 16, 2010.
10.2		Agreement with In Cue LLC dated December 1, 2010, filed as an exhibit to our Annual Report on Form 10-K for the year ended November 30, 2011, filed on March 15, 2011 and incorporated herein by reference
10.3		Guarantee Agreement., filed as an exhibit to our Annual Report on Form 10-K for the year ended November 30, 2011, filed on March 15, 2011 and incorporated herein by reference
10.4		Agreement with 3-Point Capital (business plan) filed as an exhibit to our Quarterly Report on Form 10Q for the period ended August 31, 2011, filed on October 24, 2011 and incorporated herein by reference
10.5		Agreement with 3-Point Capital (capital raise) filed as an exhibit to our Quarterly Report on Form 10Q for the period ended August 31, 2011, filed on October 24, 2011 and incorporated herein by reference
10.6		Technology License Agreement
10.7		Technology Transfer and Stock Issuance Ageement
23.1		Consent of dbbmckennon
31.1		Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer and Chief Financial Officer
31.2		Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer
32.1		Section 1350 Certification of Chief Financial Officer

SIGNATURES

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

Dated: March 14, 2012

By:	/s/ Daniel Grodnik
	Daniel Grodnik
	President,, Chief Executive Officer, Chairman and Secretary (Principal Executive Officer)

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date

/s/ Daniel Groknik	President, Chief Executive Officer,	14-Mar-12
Daniel Grodnik	and Secretary
	(Principal Executive Officer)

/s/ Alan Bailey	Chief Financial Officer and director	14-Mar-12
Alan Bailey	(Principal Financial and Accounting Officer)

Attached files

Mass Hysteria Entertainment Company, Inc. Reports

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