U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------- ------------------
Commission File No.
000-52825
4TH GRADE FILMS, INC.
------------------------
(Name of Small Business Issuer as specified in its charter)
UTAH 20-8980078
---- -----------
(State or other jurisdiction of (Employer I.D. No.)
organization)
1338 SOUTH FOOTHILL DRIVE, #163
SALT LAKE CITY, UT 84108
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(Address of Principal Executive Office)
Issuer's Telephone Number, including Area Code: (801) 649-3519
(Former Name or Former Address, if changed since last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 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 days.
(1) Yes X No (2) Yes X No
---- ---- ---- ----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. (as
defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] 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|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
None, Not Applicable;
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court. Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the Registrant's classes of common stock, as of the latest
practicable date:
October 31, 2008
2,345,000
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Registrant required to be filed with this
10-Q Quarterly Report were prepared by management and commence on the following
page, together with related Notes. In the opinion of management, the Financial
Statements fairly present the financial condition of the Registrant. The
Financial Statements are on file with the Company's Auditor.
4TH GRADE FILMS, INC.
[A Development Stage Company]
BALANCE SHEET
As of September 30, 2008
and June 30, 2008
9/30/2008 6/30/2008
------------------- ------------------
[unaudited] [audited]
ASSETS
Assets
Current Assets
Cash $ 14,284 $ 40,389
------------------- ------------------
Total current assets 14,284 $ 40,389
Film Costs 100,149 $ 100,149
------------------- ------------------
Total Assets $ 114,433 $ 140,538
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 3,505 $ 2,725
Accrued Liabilities - related party 900 675
Income Taxes Payable 100 100
------------------- ------------------
Total Current Liabilities 4,505 3,500
------------------- ------------------
Long Term Liabilities
Note Payable - Shareholder $ 6,376 $ 25,948
------------------- ------------------
Total Long Term Liabilities 6,376 25,948
------------------- ------------------
Total Liabilities $ 10,881 $ 29,448
=================== ==================
Stockholders' Equity
Preferred Stock - 5,000,000 shares - 300
authorized at $0.01 par; 0 shares
issued and outstanding (Series A
Convertible) and 30,000 shares
outstanding respectively
Common Stock - 50,000,000 shares
authorized at $0.01 par; 2,345,000 and
2,045,000 shares issued and outstanding,
respectively 23,450 20,450
Paid-in Capital 123,762 126,462
Deficit Accumulated during the development stage (43,660) (36,122)
------------------- ------------------
Total Stockholders' Equity 103,552 111,090
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 114,433 $ 140,538
=================== ==================
See Notes to the Condensed Financial Statements
2
4TH GRADE FILMS, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF OPERATIONS
For the Three Month Period Ended September 30, 2008 and 2007
and for the period from inception through September 30, 2008
For the For the
Three Months Three Months Since Inception
Ended Ended through
9/30/08 9/30/07 9/30/08
---------------- ---------------- -----------------
Revenues $ - $ - $ -
Operating Expenses
Professional Expenses 6,571 7,104 31,330
SG&A 539 1,767 10,754
---------------- ---------------- -----------------
Total Operating Expenses 7,110 8,871 42,084
---------------- ---------------- -----------------
Net Income/(Loss) from Operations (7,110) (8,871) (42,084)
---------------- ---------------- -----------------
Interest Income - - -
Interest Expense (428) - (1,376)
---------------- ---------------- -----------------
Net Loss Before Income Taxes (7,538) (8,871) (43,460)
Provision for Income Taxes - - 200
---------------- ---------------- -----------------
Net Loss (7,538) (8,871) (43,660)
================ ================ =================
Loss Per Share $ (0.01) $ (0.01) $ (0.04)
================ ================ =================
Weighted Average Shares Outstanding 2,146,087 745,000 1,058,076
================ ================ =================
See Notes to the Condensed Financial Statements
3
4TH GRADE FILMS, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF CASH FLOWS
For the Three Month Period Ended September 30, 2008 and 2007
and for the period from inception through September 30, 2008
For the For the Since
Three Months Three Months Inception
Ended Ended through
9/30/08 9/30/07 9/30/08
------------ ------------ ------------
Net Loss (7,538) (8,871) (43,660)
Adjustments to reconcile net loss to net cash
Provided/(Used) by Operating Activities:
Additions to Capitalized Film Costs - (10,729) (100,149)
Increase/(Decrease) in Accounts Payable 780 1,570 3,505
Increase/(Decrease) in Accrued Liabilities - related party 225 - 900
Increase/(Decrease) in Accrued Director Compensation - 1,500 -
Increase/(Decrease) in Income Taxes Payable - - 100
Accrued Interest included in Notes Payable Balance 428 - 1,376
Issued Common Stock in Exchange for Payment of Expenses - 5,212
------------------------------------------------------------------------- ------------ ------------
Net Cash Used for Operating Activities (6,105) (16,530) (132,716)
Cash Provided by Financing Activities
Proceeds/(Payments) from Loan from Shareholder (20,000) - 5,000
Issued Common Stock for Cash - - 52,000
Issued Preferred Stock for Cash - - 90,000
------------ ------------ ------------
Net Cash Provided by Financing Activities (20,000) - 147,000
------------ ------------ ------------
Net Increase in cash (26,105) (16,530) 14,284
Beginning Cash Balance 40,389 32,343 -
------------ ------------ ------------
Ending Cash Balance $ 14,284 $ 15,813 $ 14,284
============ ============ ============
Supplemental Schedule of Cash Flow Activities
Cash paid for
Interest $ - $ - $ -
Income taxes $ - $ - $ 100
Common Stock Issued in Exchange for Payment of Expenses $ - $ - $ 5,212
See Notes to the Condensed Financial Statements
4
4TH GRADE FILMS, INC.
[A Development Stage Company]
Notes to the Condensed Financial Statements
NOTE 1- BASIS OF PRESENTATION
The accompanying unaudited, condensed financial statements of 4th
Grade Films, Inc. (the "Company" or "4th Grade Films") have been
prepared in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC") and disclosures normally
included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the period
ended June 30, 2008. In the opinion of management these interim
financial statements contain all adjustments, which consist of normal
recurring adjustments, necessary for a fair presentation of financial
position. The results of operations for the interim period are not
necessarily indicative of the results to be expected for the full
year.
NOTE 2- LIQUIDITY/GOING CONCERN
The Company has accumulated losses since inception, has minimal
assets, and has a net operating loss of $7,538 for the three months
ended September 30, 2008. Because the Company has accumulated losses
since inception, has minimal liquid current assets, and has limited
sales activity there is substantial doubt about the Company's ability
to continue as a going concern. Management plans include continuing to
develop, finance, produce, market and distribute films within the
independent film community. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
NOTE 3- DIRECTOR COMPENSATION EXPENSES / RELATED PARTY TRANSACTIONS
Effective April 1, 2008, the directors resolved to suspend payment of
$1,000 per year to each member of the board of directors. The
Compensation was paid semi-annually, with the first $500 payment made
on October 1, 2007 and the subsequent $500 payment paid on March 1,
2008. The payment to the Directors will be reinstated once the Company
generates positive operating cash flow.
During the year ended June 30, 2008, James Doolin, the Company's
President and director, loaned the Company an aggregate of $25,000 on
an unsecured debenture. The Note accrues interest at 10% per annum and
matures on December 31, 2010. On August 19, 2008, the Company repaid
$20,000 of the outstanding note payable. As of September 30, 2008, the
outstanding note payable to the shareholder was $6,376, including
accrued interest. From inception through September 30, 2008 the
Company accrued interest of $1,376 on the note.
As of September 30, 2008, approximately 77.9% of the Company's issued
and outstanding common stock is controlled by one family giving them
effective power to control the vote on substantially all significant
matters without the approval of other stockholders.
The Company rents office space from the Company's President at a cost
of $75 per month. The Company has accrued $900 in unpaid rental fees
from this arrangement.
Note 4 - Film Costs
Film costs consisted of the following as of September 30, 2008:
Films:
Released $ -
Completed, not released -
In production 100,149
In development, or Preproduction -
----------
Total $ 100,149
==========
As of September 30, 2008, the Company does not have any unamortized
film costs of completed or released films or participation liabilities
and, therefore, does not present an estimate of the amortization of
these costs.
5
Note 5 - Conversion of Preferred Stock, Series A
On or about May 15, 2007, the Company offered a no minimum and a
maximum of 30,000 shares of Preferred Stock, Series A, at $3.00 per
share pursuant to Rule 506 of Regulation D of the Securities and
Exchange Commission. The Company completed the offering on or about
June 1, 2007, selling all 30,000 shares of Preferred Stock, Series A,
for gross proceeds of $90,000. On August 31, 2008, the 30,000
outstanding shares of Preferred Stock, Series A, were mandatorily
converted to the Company's Common Stock. The Preferred Stock, Series
A, were converted on a 1 for 10 share basis for 300,000 common shares.
As of September 30, 2008, the Company had no Preferred Stock
outstanding and 2,045,000 Common shares issued and outstanding.
Note 6 - Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements". This statement clarified the definition of fair value,
establishes a framework for measuring fair value, and expands the
disclosures on fair value measurements. This statement does not
require any new fair value measurements. SFAS No. 157 is effective for
the Company beginning July 1, 2008. On February 12, 2008, the FASB
issued Financial Staff Position FAS 157-2, "Effective Date of FASB
Statement No. 157." This Staff Position delays the effective date of
SFAS No. 157 until July 1, 2009, for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring
basis (at least annually). The delay is intended to allow the FASB's
constituents additional time to consider the effect of the various
implementation issues that have arisen, or that may arise, from the
application of SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" (SFAS 159). This
Statement provides companies with an option to report selected
financial assets and liabilities at fair value. Generally accepted
accounting principles have required different measurement attributes
for different assets and liabilities that can create artificial
volatility in earnings. The Statement's objective is to reduce both
complexity in accounting for financial instruments and the volatility
in earnings caused by measuring related assets and liabilities
differently. SFAS 159 is effective for the Company beginning July 1,
2008. The Company is currently evaluating the impact of this standard
on its financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) ("SFAS
141R"), "Business Combinations" and SFAS No. 160 ("SFAS 160"),
"Noncontrolling Interests in Consolidated Financial Statements, an
amendment of Accounting Research Bulletin No. 51". SFAS 141R will
change how business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in subsequent
periods. SFAS 160 will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling
interests and classified as a component of equity. SFAS 141R and SFAS
160 are effective for the Company beginning July 1, 2009. Early
adoption is not permitted. The Company is evaluating the impact these
statements will have on its financial statements.
In March 2008, the FASB issued SFAS No. 161 "Disclosures about
Derivative Instruments and Hedging Activities" ("SFAS No. 161"), which
will be effective for the Company beginning July 1, 2009. SFAS No. 161
changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced
disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedging items
are accounted for under SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" and its related interpretations,
and (iii) how derivative instruments and related hedged items affect
an entity's financial position, financial performance, and cash flows.
The Company is evaluating the impact this statement may have on its
financial statements.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PLAN OF OPERATION
For the next 12 months, the Company will:
(1) Execute on its marketing campaign for the Company's Film. The marketing
campaign will include submitting the Film to film festivals and developing
relationships with independent film distributors. The Company will submit
the Film into several independent film festivals to seek exposure within
the independent film community. Management has targeted approximately
thirty film festivals throughout North America to enter the Film.
Management believes that film festivals provide broad marketing exposure
within the independent film community. The Company can provide no
assurances that the Film will be selected to be showcased at a film
festival. Furthermore, Management's marketing plan includes marketing the
film directly to distribution entities. Currently, the Company does not
have any distribution agreements established with independent film
distributors, but will work to develop distribution channels throughout the
next twelve months. The Company can make no assurances that the Company
will be able to sell or distribute the Film. Other than submission fees to
film festivals and travel expenses, the Company does not anticipate in
allocating substantial monetary resources to the marketing of the Film over
the next twelve months. The Company estimates the total marketing expenses
for the next twelve months, including submission fees and travel expenses
for the Film, will not exceed $10,000. The Company's current cash resources
will be sufficient to cover the planned marketing expenses.
(2) Continue seeking opportunities in developing, financing, producing,
marketing and/or distributing film content within the independent film
market. Other than the Film, the Company does not have any other projects
in production, but plans to begin pre-production of its next project within
the next twelve months. Depending on the budget of the next project the
Company may need to raise additional funding to finance the project. The
Company's management will advance the Company monies not to exceed $50,000,
as loans to the Company, to help the Company produce, market and distribute
film content. The loan will be on terms no less favorable to the Company
than would be available from a commercial lender in an arm's length
transaction. If the Company needs funds in excess of $50,000, it will be up
to the Company's management to raise such monies. These funds may be raised
as either debt or equity, but management does not have any plans or
relationships currently in place to raise such funds. The Company can
provide no assurances that if additional funds are needed that it will be
able to obtain financing.
(3) As part of an ongoing management process, the Company's fund raising
efforts and support for the above initiatives will be continuously reviewed
and prioritized to ensure that returns are commensurate with levels of
investment.
The Company has accumulated losses since inception and has not been able to
generate profits from operations. The Company has recently commenced marketing
its first film project within the independent film community. The Company
intends to generate revenue through marketing and distributing the film, however
the Company can provide no assurances that it will be able to generate any
revenue from the film. Operating capital, including the proceeds to finance the
Company's first film project has been raised through the Company's shareholders.
The Company's plan of operation for the next twelve months will continue to
be developed, managed and operated solely by the Company's Officers and
Directors. The Company does not currently have any employees nor does it
anticipate hiring any employees over the next twelve months.
The Company has not been able to generate positive cash flow from
operations since inception. This along with the above mentioned factors raise
substantial doubt the Company's ability to continue as a going concern.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
OPERATING RESULTS - OVERVIEW
The three month period ended September 30, 2008, resulted in a net loss of
$7,538. The Basic Loss per Share for the three month period ended September 30,
2008 was ($0.01). Details of changes in revenues and expenses can be found
below.
OPERATING RESULTS REVENUES
The Company has not generated a profit since inception. The Company
generated a net loss of $7,538 and no revenue for the period ended September 30,
2008. For the period ended September 30, 2007 the Company generated no revenue
and a net loss of $8,871. The Company will not provide any forecasts of future
earnings or profitability. The future success of the Company cannot be
ascertained with any certainty, and if and until the Company obtains
distribution of its film projects, no such forecast or guidance will be
formulated or provided.
OPERATING RESULTS COST OF GOODS SOLD/COST OF SALES
Cost of sales was $0 for the three month period ended September 30, 2008
and 2007. The Company did not generate any revenue for the periods ended
September 30, 2008 and 2007, and therefore did not incur any expenses related to
revenue.
7
OPERATING RESULTS OPERATING EXPENSES
Operating expense for the three month period ended September 30, 2008, was
$7,110. Operating expenses included professional fees and general administrative
expenses.
- The Company's professional fees include accounting and legal fees. The
net accounting and legal expenses incurred in the three month period ended
September 30, 2008 totaled $6,571 and $7,104 for the period ended September
30, 2007. The Company estimates annual accounting expenses to be
approximately $14,000. Management's estimate for legal expenses for the
fiscal year to be approximately $5,000.
- The Company incurred $225 in rent for the three month period ended
September 30, 2008 and 2007. General and administrative expenses for the
quarter ended September 30, 2008 was $539 and $1,767 for the quarter ended
September 30, 2007.
OPERATING RESULTS INTEREST EXPENSES
The Company incurred $428 in interest expense for the quarter ended
September 30, 2008. The Company did not incur any interest expense for the
quarter ended September 30, 2007. The interest expense for the quarter ended
September 30, 2008, was attributed to a loan from James Doolin, the Company's
President and director. During the year ended June 30, 2008, James Doolin, the
Company's President and director, loaned the Company an aggregate of $25,000 on
an unsecured debenture. The Note accrues interest at 10% per annum and matures
on December 31, 2010. On August 19, 2008, the Company repaid $20,000 of the
outstanding note payable. As of September 30, 2008, the outstanding note payable
to the shareholder was $6,376. From inception through September 30, 2008 the
Company accrued interest of $1,376 on the note.
LIQUIDITY
As of September 30, 2008, the Company had no accounts receivable, $4,405 in
accounts payable and accrued liabilities. The Company had no inventory as of
September 30, 2008, but has capitalized film development costs of $100,149.
The Company has a cash balance of $14,285 as of September 30, 2008.
Management does not anticipate that the Company's existing cash balance will
cover the Company's general expenses of operation for the next twelve months.
However, the Company's management will continue to advance the Company monies
not to exceed $50,000, as loans to the Company. The loan will be on terms no
less favorable to the Company than would be available from a commercial lender
in an arm's length transaction. Currently a member of the Company's management
has loaned the Company approximately $5,000 in principal. If the Company needs
funds in excess of $50,000, it will be up to the Company's management to raise
such monies. These funds may be raised as either debt or equity, but management
does not have any plans or relationships currently in place to raise such funds.
The Company can provide no assurances that if additional funds are needed the
Company will be able to obtain financing.
The Company's ability to continue as a going concern is dependent on
management's ability to generate revenue and to manage the Company's expenses.
Management will continue to seek to explore opportunities to enhance the value
of the Company and its profitability.
8
CRITICAL ACCOUNTING POLICIES - ESTIMATES
Our discussion herein and analysis thereof is based upon our financial
statements in Item 1 above, which have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission("SEC")for
interim financial reporting. The preparation of these statements requires
management to make estimates and best judgments that affect the reported
amounts.
OFF-BALANCE SHEET ARRANGMENTS
We do not have any off-balance sheet arrangements as of September 30, 2008.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
This item is not applicable to smaller reporting companies.
Item 4(T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) are designed to ensure that information required to be disclosed
in reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in rules and forms
adopted by the Securities and Exchange Commission ("SEC"), and that such
information is accumulated and communicated to management, including the
President and Vice President, to allow timely decisions regarding required
disclosures.
Under the supervision and with the participation of our management,
including our President and Vice President, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange
Act")). Based upon that evaluation, our President and Vice President concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter covered by this report, there has
been no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
This item is not applicable to smaller reporting companies.
Item 1A. Risk Factors
None; not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None; not applicable
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None; not applicable
Item 5. Other Information.
None; applicable
Item 6. Exhibits.
(a) Exhibits
31.1 302 Certification of James Doolin
31.2 302 Certification of Shane Thueson
32 906 Certification
(b)Reports on Form 8-K.
None; Not Applicable.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
4TH Grade Films, Inc.
Date: 10/31/08 /S/JAMES DOOLIN
--------------------------------------------
James Doolin, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has also been signed below by the following person on
behalf of the Registrant and in the capacities and on the dates indicated.
Date: 10/31/08 /S/SHANE THUESON
--------------------------------------------
Shane Thueson, Vice President and Director
10