UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: June 30, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 4TH GRADE FILMS, INC. (Name of Small Business Issuer in its
Charter) 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
-----------------
(Address of Principal Executive Office)
Issuer's Telephone Number, including Area Code: (801) 649-3519
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 $0.01
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No |X|
Check whether the issuer is not required to file reports pursuant to Section 13
or 15 (d) of the Exchange Act . Yes |_| No |X|
Check whether the issuer (1) filed all reports required to be filed 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
days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company:
Large accelerated filer [ ] Accelerated filed [ ]
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|
State issuer's revenue for its most recent fiscal year: -0-
The market value of the voting stock held by non-affiliates is $16,000
based on 400,000 shares held by non-affiliates. Due to the lack of a trading
market for the issuer's common stock, these shares have been arbitrarily valued
at the same price of the Company's most recent common stock offering of $0.04
per share.
As of September 15, 2009, the registrant had 2,345,000 shares of common
stock outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format: Yes |_| No |X|
1
Table of Contents
PART I............................................................................................................................3
ITEM 1. BUSINESS........................................................................................................3
ITEM 1A. RISK FACTORS....................................................................................................8
ITEM 2: PROPERTIES.....................................................................................................11
ITEM 3: LEGAL PROCEEDINGS..............................................................................................11
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................................11
PART II..........................................................................................................................12
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES...12
ITEM 6: SELECTED FINANCIAL DATA........................................................................................13
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION...........................14
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................................16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................................17
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS..................................................................31
ITEM 9A: CONTROLS AND PROCEDURES........................................................................................31
ITEM 9B: OTHER INFORMATION..............................................................................................32
PART III.........................................................................................................................32
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE........................................................32
ITEM 11. EXECUTIVE COMPENSATION.........................................................................................35
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.................37
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE......................................41
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................................................................41
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.....................................................................42
SIGNATURES.......................................................................................................................43
2
PART I
FORWARD LOOKING STATEMENTS
In this report, references to "4th Grade Films" "4th Grade," the "Company,"
"we," "us," and "our" refer to 4th Grade Films, Inc.
This annual report contains certain forward-looking statements and for this
purpose any statements contained in this annual report that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors, many of which are not within our control.
These factors include but are not limited to economic conditions generally and
in the markets in which 4th Grade may participate, competition within 4th
Grade's chosen industry, technological advances and failure by us to
successfully develop business relationships.
ITEM 1. BUSINESS
HISTORICAL DEVELOPMENT
4th Grade Films, Inc. (the "Company" or "4th Grade Films") was incorporated
under the laws of the State of Utah on April 25, 2007, with an authorized
capital of 55,000,000 shares divided into 50,000,000 shares of Common Stock, par
value of $0.01 per share, and 5,000,000 shares of Preferred Stock, par value of
$.01 per share. The Company was formed for the primary purpose of financing,
producing, marketing and distributing films.
On May 14, 2007, the Company filed Articles of Amendment to the Articles of
Incorporation with the State of Utah that adopted certain designations and
powers, voting powers, preferences, and relative, participating, optional or
other rights of the Preferred Stock. Pursuant to the authority vested in the
Board of Directors the Company provided for the issuance of a series of
Preferred Stock, designated Preferred Stock, Series A, consisting of one million
(1,000,000) of the currently authorized five million (5,000,000) shares of
Preferred Stock. Each share of Preferred Stock, Series A, could be converted at
the option of the record holder thereof any time prior to August 31, 2008, into
ten (10) shares of fully paid and nonassessable shares of Common Stock, $0.01
par value. On August 31, 2008, all remaining issued and outstanding shares of
Preferred Stock, Series A, were automatically be called and each share of
Preferred Stock, Series A, was converted into ten (10) shares of fully paid and
nonassessable shares of Common Stock, $0.01 par value. Furthermore, the
Preferred Stock, Series A, was preferred over the shares of Common Stock and any
other series of Preferred Stock as to assets so that in the event of any
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, the holders of the Preferred Stock, Series A, could be
entitled to receive out of the assets of the Company available for distribution
to its stockholders, whether from capital, surplus or earnings, before any
distribution is made to the holders of shares of Common Stock or any other
series of Preferred Stock, an amount equal to one cent ($0.01) per share. In
addition, the holders of the Preferred Stock, Series A have no voting rights.
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. These proceeds were
used to commence operations in the film production industry.
On or about May 20, 2008, the Company offered a no minimum and a maximum of
1,300,000 shares of Commoon Stock at $0.04 per share pursuant to Rule 506 of
Regulation D of the Securities and Exchange Commission. The Company completed
the offering on or about May 31, 2008, selling all 1,300,000 shares of Common
Stock for gross proceeds of $52,000. These proceeds were used for marketing the
Company's feature film, working capital and further development of the Company's
operations in the film production industry.
On or about August 31, 2008, all outstanding Preferred Stock, Series A, was
automatically converted into Common stock on a one (1) preferred shares for ten
(10) shares of fully paid and nonassessable shares of Common Stock, $0.01 par
value.
3
BUSINESS OPERATIONS
4th Grade Films is an independent film production company. The Company is
engaged in developing content, securing financing, producing, marketing and
distributing films within the independent film community. The Company will focus
on independent film projects with budgets ranging from $25,000 to $250,000.
Independent films are often distinguishable by their content or style where the
writer or director's original authorial intent or personal creative vision is
usually maintained in the final film. Additionally, the term "independent film"
is typically used to describe less commercially driven art films which are
significantly different from the norms of plot-driven, mainstream traditional
"Hollywood" cinema.
CONTENT DEVELOPMENT
The Company plans to develop content through several means, including
internal development, production companies and talent agencies. Shane Thueson,
the Company's Vice President, oversees content development within the Company.
Mr. Thueson maintains a library of several original screenplays of his creation
and ownership, of which the Company may acquire in the future. If the Company
purchases a screenplay from Mr. Thueson it would be in an arm's length
transaction. The Company also intends to acquire content through its
relationship with other production companies and writers. The Company maintains
relationships with many production companies. Similar to 4th Grade Films other
production companies develop their own original content intended for production.
The Company may partner with another production company and/or writers to
further develop and/or acquire content. The Company also accepts submissions of
original content from agencies who represent writers, for consideration of
development and production.
FILM FINANCING
With respect to financing film production, the Company has heretofore
financed its initial project entirely through Company funds. In the future the
Company intends to finance projects both with internal funds and other financial
syndicates. The Company will use existing cash balances, potential future
proceeds from existing projects, additional equity financing, and debt financing
for internally funded projects. Outside financial syndicates may include
production and distribution companies. At present, the Company has no
commitments for additional equity investment, debt finance, or funding agreement
with any financial syndicate. Furthermore, the Company has generated no revenue
from its existing projects and can provide no assurances that the Company will
generate any profits in the future. The Company's success in financing film
projects is highly dependent on the Company's ability to develop, produce,
market and distribute profitable film projects.
FILM PRODUCTION
Production consists of three stages: pre-production, production and
post-production. In pre-production the movie is designed and planned, the budget
is determined, the crew and cast are hired, the equipment and locations are
secured. Production is the stage in which filming takes place. Post-production
involves the assembly of the film by editors, sound designers, and Composers.
Additional effects are added and the film is completed. As the producer, the
Company will oversee all elements of these three stages
MARKETING AND ADVERTISING
Marketing and distributing is generally the final stage of the filmmaking
cycle, where the movie is released to cinemas or to digital video disc ("DVD").
In conjunction with the release of the film the Company's strategy will be to
prepare press releases, submit for selection to film festivals, create internet
advertising and engage producer's agents and publicists to raise public
awareness and promote the film. The Company will seek the above strategies with
the intent of selling the film to a national or international distribution
company. As of July 15, 2009 the Company engaged Circus Road Films, Inc.
("Circus Road Films"), a producer's agent, to represent the Company's film and
solicit distribution, television licensing and international sales agency
agreements from established licensors of rights to feature films. As per the
terms of the agreement, Circus Road Films will be representing the Company's
first film, "Four Stories of St. Julian."
4
CURRENT FILM PROJECTS
4th Grade Films has developed, financed and produced a feature-length film.
The film, Four Stories of St. Julian (hereinafter "St. Julian" or the "Film"),
was developed internally by the Company. The production of the Film was financed
entirely by 4th Grade Films. The Company has begun its marketing and
distribution strategy as referenced above. The Company cannot provide any
assurances that the Film will obtain distribution or be profitable. Regardless
of the success of the Film, the Company will continue to develop, finance,
produce, market and distribute films within the independent film community.
However, the Company cannot provide assurances that it will be able to develop,
finance, produce, market and distribute in the future. To date the Company has
incurred approximately $100,000 in expenses related to the production of St.
Julian. The Company's management estimates that the total cost for the completed
film and marketing expenses associated with the film will cost the Company an
aggregate of approximately $110,000. Marketing costs will include preparing
press releases, film festival submission fees, internet advertising and other
marketing campaigns. The Company anticipates the budgets for future projects to
range from $25,000 to $250,000.
FILMMAKING INDUSTRY
The film industry as it stands today spans the globe. The major business
centers of film making are concentrated in the United States, EU, India and
China. Distinct from the business centers are the locations where movies are
filmed. Because of labor and infrastructure costs, many films are produced in
countries other than the one in which the company which pays for the film is
located. For example, many U.S. movies are filmed in Canada, the United Kingdom,
Australia, New Zealand or in Eastern European countries. Hollywood, California
is the primary nexus of the U.S. film industry.
The film industry consists of the technological and commercial institutions
of filmmaking: i.e. film production companies, film studios, cinematography,
film production, screenwriting, pre-production, post production, film festivals,
distribution; and actors, film directors and other film personnel.
Though the expense involved in making movies almost immediately led film
production to concentrate under the auspices of standing production companies,
advances in affordable film making equipment, and expansion of opportunities to
acquire investment capital from outside the film industry itself, have allowed
independent film production to evolve.
Independent films are often described as less commercially-driven art films
which differ markedly from the norms of plot-driven, mainstream classical
Hollywood cinema. The independent film scene's development in the 1990s and
2000s has been stimulated by a range of factors, including the development of
affordable high-definition digital video cameras that can rival 35 mm film
quality and easy-to-use computer editing software and the increasing visibility
of independent film festivals such as the Sundance Film Festival.
Independent movie-making has resulted in the proliferation and
repopularization of short films and short film festivals. Full-length films are
often showcased at film festivals such as the Sundance Film Festival, the
Slamdance Film Festival, the South By Southwest film festival, the Raindance
Film Festival, or the Cannes Film Festival. Award winners from these exhibitions
often get picked up for distribution by major film distribution companies, and
go on to worldwide releases.
5
COMPETITION
4th Grade Films faces competition from both within the independent
filmmaking community and the broader film industry. In addition to the large
studios there are thousands of smaller production companies that produce either
studio-backed or independent films. The smaller companies look to regionally
release their films theatrically or for additional financing and resources to
distribute, advertise and exhibit their project on a national scale. The
direct-to-video market is not often noted as artistically fertile ground but
among its many entries are ambitious independent films that either failed to
achieve theatrical distribution or did not seek it. Moving forward, particularly
as theatrical filming goes digital and distribution eventually follows, the line
between "film," direct-to-disc productions, and feature-length videos whose main
distribution channel is wholly electronic, should continue to blur. Although the
Company will seek theatrical distribution for its projects, the Company's
strategy is to market and specifically to the direct-to-video and wholly
electronic distribution channels.The Company believes that its primary
competition in the direct-to-video and wholly electronic channels are other
independent filmmakers and smaller production companies. However many large
production studios will develop a film project which is not generally released
for several possible reasons: poor quality, controversial nature, or a simple
lack of general public interest. Studios, limited in the annual number of films
they grant cinematic releases to, may choose to pull the completed film from the
theatres, or never exhibit it in theatres at all. Studios then recoup some of
their losses through video sales and rentals. Virtually all filmmakers are
competitors in the direct-to-video market due to its low barriers of entry. In
consideration of the Company's lack of financial resources, scarcity of
relationships within the film community, and absence of marketing and
distribution assets, the Company is at a significant disadvantage relative to
its competitors within the filmmaking industry.
EMPLOYEES
Other than the Company's officers and diretors it does not have any
employees. The Company's officers and directors manage the Company's operations
and oversee the Company's strategic development. James Doolin, President and
Director, is responsible for overseeing the daily operations of the Company.
Shane Thueson, the Company's Vice President, oversees content development within
the Company. Mr. Thueson maintains a library of several original screenplays of
his creation and ownership, of which the Company may acquire in the future. If
the Company purchases a screenplay from Mr. Thueson it would be in an arm's
length transaction. John Winchester, Secretary and Director, along with Mr.
Doolin and Mr. Thueson manages the Company's strategic development and manages
the Company's execution of its business plan. Mr. Doolin, Mr. Thueson and Mr.
Winchester were paid $1,000 during fiscal year ended June 30, 2008. Executive
compensation was paid semi-annually, with the first $500 payment made on October
1, 2007 and the subsequent $500 payment paid March 1, 2008. Effective April 1,
2008, the directors resolved to suspend payment of $1,000 per year to each
member of the board of directors. The payment to the Directors will be
reinstated once the Company generates positive operating cash flow. Furthermore,
the Company does not anticipate adding any employees in the next twelve months.
COMPANY HEADQUARTERS
The Company's office is located at 1704 East Harvard Ave., Salt Lake City,
Utah 84108. The Company's office costs $75 per month. The monthly rent includes
a 200 square foot office space, access to a computer and phone. The Company
rents the office space, computer and phone from James Doolin, the Company's
President and Director. The Company believes that the rent expenses are at
current market rates. If necessary, the Company will lease a larger office to
accommodate future growth. The Company also leases a mail box at 1338 South
Foothill Drive, #163, Salt Lake City, UT 84108. The mail box costs $25 per
month.
6
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS
OR LABOR CONTRACTS
Other than possibly applying for a trademark on the Company's name, 4th
Grade Films, Inc., the Company does not foresee filing any applications for
patents or licenses.
Other than an agreement with Savage Pictures, LLC ( "Savage Pictures"), a
Utah limited liability company, whereby Savage is entitled to receive ten
percent (10%) of the net proceeds from St. Julian, the Company does not
plan to execute any franchises, concession or royalty agreements or labor
contracts. Savage Pictures will receive 10% of St. Julian's net proceeds, which
shall take into account deductions including without limitation, production
costs, post-production costs, and marketing costs. The Company will provide
Savage Pictures with annual reports and make payments according to these
reports, provided, however, that a report need not be issued if St. Julian has
not accumulated revenue in the reporting period. The agreement with Savage
Pictures was executed and effective as of February 20, 2008.
The Company, will register any screenplays that are created by Mr. Thueson
for the ownership of the Company with the Writers Guild of America (the "WGA")
to protect the copyright in literary property. Registration with the WGA has
become important in lawsuits for copyright infringement especially where the
degree of copying is very loose or vague or conceptual: invoking the Guild
itself as registrar indicates that the Guild's standards concept of property
rights in literary works were expected to be followed by at least the
registrant.
Although registration with the WGA is an important part of assisting in
protecting the screenplay owner's rights, registration is not the same as a US
Copyright. Although a registration may constitute evidence in a copyright
dispute, registration is not even prima facie proof of ownership. The Company
can make no assurances that its screenplays will be completely protected from
infringement by registering it with the WGA. The Company may choose to apply for
copyright protection with the US Copyright Office in order to ensure the best
protection of the Company owned screenplays. Currently the Company has not filed
an application with the US Copyright Office for any screenplay.
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
The integrated disclosure system for small business issuers adopted by the
SEC in Release No. 34-30968 and effective as of August 13, 1992, substantially
modified the information and financial requirements of a "Small Business
Issuer," defined to be an issuer that has revenues of less than $25 million; is
a U.S. or Canadian issuer; is not an investment company; and if a majority-owned
subsidiary, the parent is also a small business issuer; provided, however, an
entity is not a small business issuer if it has a public float (the aggregate
market value of the issuer's outstanding securities held by non-affiliates) of
$25 million or more. We are now considered to be a "smaller reporting company,
effective February 4, 2008, when the SEC abolished Regulation SB.
We are also subject to the Sarbanes-Oxley Act of 2002. This Act creates a
strong and independent accounting oversight board to oversee the conduct of
auditors, of public companies and to strengthen auditor independence. It also
requires steps to enhance the direct responsibility of senior members of
management for financial reporting and for the quality of financial disclosures
made by public companies; establishes clear statutory rules to limit, and to
expose to public view, possible conflicts of interest affecting securities
analysts; creates guidelines for audit committee members' appointment, and
compensation and oversight of the work of public companies' auditors; prohibits
certain insider trading during pension fund blackout periods; and establishes a
federal crime of securities fraud, among other provisions.
Section 14(a) of the Exchange Act requires all companies with securities
registered pursuant to Section 12(g) of the Exchange Act to comply with the
rules and regulations of the SEC regarding proxy solicitations, as outlined in
Regulation 14-A. Matters submitted to our stockholders at a special or annual
meeting thereof or pursuant to a written consent will require us to provide our
stockholders with the information outlined in Schedules 14-A or 14-C of
Regulation 14; preliminary copies of this information must be submitted to the
SEC at least 10 days prior to the date that definitive copies of this
information are forwarded to our stockholders.
We are also required to file annual reports on Form 10-K and quarterly
reports on Form 10-Q with the Securities Exchange Commission on a regular basis,
and will be required to timely disclose certain material events (e.g., changes
in corporate control; acquisitions or dispositions of a significant amount of
assets other than in the ordinary course of business; and bankruptcy) in a
Current Report on Form 8-K.
7
RESEARCH AND DEVELOPMENT COSTS DURING THE LAST TWO FISCAL YEARS
None; not applicable
COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
None; not applicable. However, environmental laws, rules and regulations
may have an adverse effect on any business venture viewed by us as an attractive
acquisition, reorganization or merger candidate, and these factors may further
limit the number of potential candidates available to us for acquisition,
reorganization or merger.
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL TIME EMPLOYEES
None.
REPORTS TO SECURITY HOLDERS
You may read and copy any materials that we file with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may
also find all of the reports that we have filed electronically with the SEC at
their internet site www.sec.gov
ITEM 1A. RISK FACTORS
The Company's business operations are highly speculative and involve
substantial risks. Only investors who can bear the risk of losing their entire
investment should consider buying our shares. Some of the risk factors that you
should consider are the following:
THE COMPANY IS IN AN EARLY STAGE OF DEVELOPMENT
4th Grade Films is a development stage company. The Company has limited
assets and has had limited operations since inception. The Company can provide
no assurance that its current and proposed business will produce any material
revenues or that will ever operate on a profitable basis.
THE COMPANY MAY EXPERIENCE LOSSES ASSOCIATED WITH START-UP
The Company has limited operating history. The Company will also experience
expenses related to the development of film projects, including production
costs, marketing, general and administrative expenses. The Company expects that
its current and ongoing business expenses will result in losses early in its
development.
THE COMPANY MAY EXPERIENCE FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results are likely to fluctuate in the future as a
result of a variety of factors. Some of these factors may include economic
conditions; the amount and timing of the receipt of sale of the Company's
current and/or future film projects; the success of the Company's productions,
the success of the Company's marketing strategy; capital expenditures and other
costs relating to the development of film projects; the ability of the Company
to develop contacts and establish a network and customer base within the film
and entertainment industry; and the cost of advertising and related media. Due
to all of the foregoing factors, the Company's operating results in any given
quarter may fall below expectations. In such an event, any future trading price
of the Company's common stock would likely be materially and adversely affected.
THE COMPANY'S BUSINESS MODEL MAY CHANGE OR EVOLVE
The Company and its prospects must be considered in light of the risks, as
identified in the Risk Factors section of this filing, expenses and difficulties
frequently encountered by companies in an early stage of development. Such risks
for the Company include, but are not limited to, an evolving business model. To
address these risks the Company must, among other things, develop strong
business development and management activities, develop the strength and quality
of its operations, develop and produce high quality film content that can be
marketed and distributed. There can be no assurance that the Company will be
successful in meeting these challenges and addressing such risks, and the
failure to do so could have a material adverse effect on the Company's business,
financial condition, result of operations and prospects in the independent film
industry.
8
THE INDUSTRY THAT THE COMPANY PARTICIPATES HAS RELATIVELY LOW BARRIERS TO
ENTRY AND THE COMPANY MAY FACE SIGNIFICANT COMPETITION
There are relatively low barriers to entry into the independent film
industry. Firms such as the Company rely on the skill, knowledge and
relationships of their personnel and their ability to develop content, secure
financing, produce films, market and distribute films within the independent
film community. The Company has no patented product or technology that would
preclude or inhibit competitors from entering the independent film market. The
Company started with limited capital and anyone interested in entering the
Company's business could also start with limited capital. In addition, any large
or small film production company that seeks to enter the industry could produce
their own film in the same or similar manner as the Company.
4th Grade faces competition both within the independent filmmaking
community and the broader film industry. In addition to the large studios, there
are thousands of smaller production companies that produce either studio-backed
or independent films. There can be no assurance that existing or future
competitors will not produce film content that is distributed through more
channels and gains greater exposure to a wider audience, which could have a
material adverse effect on the Company's business, financial condition, results
of operations and prospects.
AUDITOR'S OPINION EXPRESSES DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE
AS A "GOING CONCERN"
The independent auditor's report issued in connection with the audited
financial statements of the Company for the period ended June 30, 2009,
expresses "substantial doubt about its ability to continue as a going concern,"
due to the Company's status as a development stage company and its lack of
significant operations. If the Company is unable to develop, produce and
distribute film content we may have to cease to exist, which would be
detrimental to the value of the Company's common stock. The Company can make no
assurances that its business operations will develop and provide the Company
with significant cash to continue operations.
THE COMPANY MAY NEED FUTURE CAPITAL AND MAY NOT BE ABLE TO OBTAIN
ADDITIONAL FINANCING
The Company may need future capital and may not be able to obtain
additional financing. If additional funds are needed, 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. There can be no assurance that such
additional funding, if needed, will be available on terms acceptable to the
Company, or at all. The Company may be required to raise additional funds
through public or private financing, strategic relationships or other
arrangements. There can be no assurance that such additional funding, if needed,
will be available on terms acceptable to the Company, or at all. If adequate
funds are not available on acceptable terms, the Company may be unable to
develop or enhance its services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on its business, financial condition, results of
operations and prospects.
FUTURE CAPITAL RAISED THROUGH EQUITY FINANCING MAY BE DILUTIVE TO
STOCKHOLDERS
Any additional equity financing may be dilutive to stockholders. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the stockholders of the Company will be reduced,
stockholders may experience additional dilution in net book value per share and
such equity securities may have rights, preferences or privileges senior to
those of the holder of the Company's common stock.
9
FUTURE DEBT FINANCING MAY INVOLVE RESTRICTIVE COVENANTS THAT MAY LIMIT THE
COMPANY'S OPERATING FLEXIBILITY
Furthermore, a debt financing transaction, if available, may involve
restrictive covenants, which may limit the Company's operating flexibility with
respect to certain business matters. If additional funds are raised through debt
financing, the debt holders may require the Company to make certain agreements,
covenants, which could limit or prohibit the Company from taking specific
actions, such as establishing a limit on further debt, a limit on dividends,
limit on sale of assets, or specific collateral requirements. Furthermore, if
the Company raises funds through debt financing, the Company would also become
subject to interest and principal payment obligations. In either case, if the
Company was unable to fulfill either the covenants or the financial obligations,
the Company may risk defaulting on the loan, whereby ownership of the firm's
assets could be transferred from the shareholders to the debt holders.
EXECUTIVE OFFICERS HAVE LIMITED LONG-TERM EXPERIENCE WITHIN THE INDEPENDENT
FILM INDUSTRY
Other than Mr. Thueson's experience in the independent film industry,
specifically in the development of film content, the Company's officers have no
specific experience in the film production industry. This lack of experience may
make it more difficult to establish the contacts and relationships necessary to
successfully produce and distribute film content. The Company is dependent to a
great extent upon the experience and abilities of Shane Thueson, Vice President
and Director. Mr. Thueson has over ten years of experience working within the
film content development side of the independent film industry. The loss of
services of Mr. Thueson could have a material adverse effect on the Company's
business, financial condition or results of operation.
THE COMPANY'S SUCCESS IS DEPENDENT ON MANAGEMENT
The Company's success is dependent, in large part, on the active
participation of its Executive Officers. The loss of their services would
materially and adversely effect the Company's business and future success. The
Company does not have employment agreements with its Executive Officers. The
Company does not have key-man life insurance in effect at the present time.
THE COMPANY MAY FACE POTENTIAL LIABILITY
The Company intends to continue to produce and distribute film content
within the independent film community. Its failure or inability to properly
acquire the rights to film content could impact the Company's business
reputation or result in a claim for substantial damages, regardless of its
responsibility for such failure. The Company does not have an insurance policy
covering claims of this kind, and such claims could adversely affect the
Company's business, results of operations and financial conditions.
EXECUTIVE OFFICERS AND MAJORITY SHAREHOLDERS MAINTAIN SIGNIFICANT CONTROL
OVER THE COMPANY AND ITS ASSETS
4th Grade's executive officers maintain control over the Company's board of
directors and also control the Company's business operations and policies. In
addition, James Doolin, the Company's President, and his father, Michael Doolin,
control approximately 78% of the currently issued and outstanding common shares
of the Company. As a result, these two individuals, will be able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
THE COMPANY IS UNLIKELY TO PAY DIVIDENDS
It is unlikely that the Company will pay dividends on its common stock,
resulting in an investor's only return on an investment in the Company's common
stock being the appreciation of the per share price. The Company can make no
assurances that the Company's common stock will ever appreciate.
NO MARKET FOR COMMON STOCK; NO MARKET FOR SHARES
There has never been any "established trading market" for shares of common
stock of the Company. The Company intends to submit for listing on the OTC
Bulletin Board of the Financial Industry Regulatory Authority ("FINRA"). If a
market for the Company's common stock does develop, any market price for shares
of our common stock is likely to be very volatile, and numerous factors beyond
our control may have a significant effect. In addition, the stock markets
generally have experienced, and continue to experience, extreme price and volume
fluctuations which have affected the market price of many small capital
companies and which have often been unrelated to the operating performance of
these companies. These broad market fluctuations, as well as general economic
and political conditions, may adversely affect the market price of our common
stock in any market that may develop. Sales of "restricted securities" under
Rule 144 may also have an adverse effect on any market that may develop. See
Part II, Item 5.
10
RISKS OF "PENNY STOCK"
Our common stock may be deemed to be "penny stock" as that term is defined
in Rule 3a51-1 of the SEC. Penny stocks are stocks (i) with a price of less than
five dollars per share; (ii) that are not traded on a "recognized" national
exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ- listed stocks must still meet requirement (i) above); or (iv) in
issuers with net tangible assets less than $2,000,000 (if the issuer has been in
continuous operation for at least three years); or $5,000,000 (if in continuous
operation for less than three years); or with average revenues of less than
$6,000,000 for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the SEC require broker
dealers dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a penny
stock for the investor's account. Potential investors in our common stock are
urged to obtain and read such disclosure carefully before purchasing any shares
that are deemed to be "penny stock."
Moreover, Rule 15g-9 of the SEC requires broker dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any "penny stock" to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his, her or
its financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor, and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in our common stock
to resell their shares to third parties or to otherwise dispose of them.
THERE HAS BEEN NO "ESTABLISHED PUBLIC MARKET" FOR OUR COMMON STOCK SINCE
INCEPTION
At such time as we identify a business opportunity or complete a merger or
acquisition transaction, if at all, we may attempt to qualify for quotation on
either NASDAQ or a national securities exchange. However, at least initially,
any trading in our common stock is likely to be conducted on the OTCBB market.
ITEM 2: PROPERTIES
4th Grade has no properties at this time and has no agreements to acquire
any properties. Currently, we rent an office from the Company's President, James
Doolin. The Company's office costs $75 per month. The monthly rent includes a
200 square foot office space, access to a computer and phone. The Company
believes that the rent expenses are at current market rates. If necessary, the
Company will lease a larger office to accommodate future growth. The Company
also leases a mail box at 1338 South Foothill Drive, #163, Salt Lake City, UT
84108. The mail box costs $25 per month.
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We have not submitted a matter to a vote of our shareholders during the
fourth quarter of our fiscal year ended June 30, 2009.
11
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
There has never been any established "public market" for shares of common
stock of the Company. The Company submitted an application for listing on the
OTC Bulletin Board of FINRA. The application was approved on April 28, 2009;
however no FINRA market partipant has posted a bid or ask price for the
Company's common shares and therefore no quarterly bid data exists for the since
the application was approved in April, 2009. No assurance can be given that any
market for the Company's common stock will develop or be maintained. For any
market that develops for the Company's common stock, the sale of "restricted
securities" (common stock) pursuant to Rule 144 of the Securities and Exchange
Commission by the directors, executive officers or any other person to whom any
such securities may be issued in the future may have a substantial adverse
impact on any such public market. Information about the date when directors,
executive officers or any other person who may be deemed a beneficial holder,
holding period of "restricted securities" commenced can be found under the
caption "Recent Sales of Unregistered Securities," Part II, Item 5.
HOLDERS
We currently have approximately 60 shareholders.
DIVIDENDS
We have never paid dividends on our common stock. The Board of Directors
presently intends to pursue a policy of retaining earnings, if any, for use in
our operations and to finance expansion of our business. Any declaration and
payment of dividends in the future, of which there can be no assurance, will be
determined by our Board of Directors in light of conditions then existing,
including our earnings, financial condition, capital requirements and other
factors. There are presently no dividends which are accrued or owing with
respect to our outstanding stock. No assurance can be given that dividends will
ever be declared or paid on our common stock in the future.
RECENT SALES OF UNREGISTERED SECURITIES
We have sold no unregistered securities during the period covered by this
Annual Report.
All unregistered securities that were sold in prior periods were sold to
persons who were "accredited investors," as defined under Rule 501. We believe
that the offer and sale of these securities were exempt from the registration
requirements of the Securities Act, pursuant to Sections 4(2) and 4(6) thereof,
and Rule 506 of Regulation D of the SEC. Section 18 of the Securities Act
preempts state registration requirements of private sales to "accredited
investors."
Resales of these unregistered shares mentioned above must be made through
an available exemption such as Rule 144 or Section 4(1) of the Securities Act in
"routine trading transactions." Any person who acquires any of these securities
in a private transaction may be subject to the same resale requirements. (See
below for a general discussion on Rule 144).
RESALES OF UNREGISTERED SECURITIES
Rule 144 - Generally
--------------------
The following is a summary of the current requirements of Rule 144 for
Restricted Securities of Reporting Issuers:
Non-Affiliate (and has not been an
Affiliate During the Prior Three
Affiliate or Person Selling on Behalf of an Affiliate Months)
====================================================== ======================================
During six-month holding period - no resales under During six- month holding period -
Rule 144 Permitted. no resales under Rule 144 permitted.
After Six-month holding period - may resell in After six-month holding period but
accordance with all Rule 144 requirements including: before one year - unlimited public
-Current public information, resales under Rule 144 except that
-Volume limitations, the current public information
-Manner of sale requirements for equity requirement still applies.
securities, and
-Filing of Form 144. After one-year holding period -
unlimited public resales under Rule
144; need not comply with any other
Rule 144 requirements.
12
USE OF PROCEEDS OF REGISTERED SECURITIES
We have sold no registered securities during the period covered by this
Annual Report.
PURCHASES OF EQUITY SECURITIES BY US AND AFFILIATED PURCHASERS
We did not purchase any of our securities during the period covered by this
Annual Report.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
None.
ITEM 6: SELECTED FINANCIAL DATA
Not required, pursuant to Item 3.01(c) of Regulation S-K.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
When used in this report, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act
of 1934 regarding events, conditions, and financial trends that may affect the
4th Grade's future plans of operations, business strategy, operating results,
and financial position. Persons reviewing this report are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. Such factors are discussed further below under "Trends and
Uncertainties", and also include general economic factors and conditions that
may directly or indirectly impact our financial condition or results of
operations.
PLAN OF OPERATIONS
For the next 12 months, the Company will:
(1) On July 15, 2009 the Company engaged Circus Road Films, Inc. ("Circus
Road Films"), a producer's agent, to represent the Company's film and
solicit distribution, television licensing and international sales agency
agreements from established licensors of rights to feature films. As per
the terms of the agreement, Circus Road Films will be representing the
Company's first film, "Four Stories of St. Julian. The Company will work
with Circus Road Films to continue to market the Company's Film. The
marketing campaign will also include submitting the Film to additional film
festivals and developing relationships with independent film distributors.
In the past 12 months the Company's Film has been named as an official
finalist to the 2009 Canada International Film Festival, an official
selection of the Rainier Independent Film Festival, and has also been
chosen to receive the Gold Kahuna Award for Excellence in Filmmaking at the
2009 Honolulu International Film Festival. The Company will continue to
pursue entering film festival to obtain greater exposure for the Film.
(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 additional 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.
14
The Company has accumulated losses since inception and has not been able to
generate profits from operations. The Company began the marketing process of its
first film project within the independent film community within the past year.
The Company intends to generate revenue through distributing or selling 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. Other than the Company's officer 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.
RESULTS OF OPERATIONS
The Company has not generated a profit since inception. The Company
generated a net loss of $(29,105) on no revenue for the year ended June 30, 2009
compared with net loss of $(30,796) on no revenue for the year ended June 30,
2008. The decrease in net loss for the most recent fiscal year was due to the
decrease in professional and general administrative expenses. 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.
The Company did not generate revenues in the years ended June 30, 2009 or
June 30, 2008. The Company has begun marketing its first film project. Depending
on the market acceptance of the film and management's and the Company's producer
representative's ability to distribute the film, the Company may generate
revenue in the upcoming twelve months. The Company can provide no guidance
regarding future revenue nor can it provide any assurances that it will be able
to generate revenue.
LIQUIDITY AND CAPITAL RESOURCES
Balance Sheet Information:
The following information is a summary of our balance sheet as of June 30, 2009:
Summary Balance Sheet as of June 30, 2009
===========================================
Total Current Assets $ 1,683
Film Costs 100,149
Total Assets 101,832
Total Liabilities 19,847
Accumulated Deficit (65,227)
Total Stockholders' Equity 81,985
At June 30, 2009 our total current assets were $1,683 and consisted of cash
and cash equivalents; we also had capitalized Film Costs of $100,149. As of June
30, 2008 our total assets were valued at $140,538, of which $40,389 was cash and
$100,149 was capitalized Film Costs.
Liabilities at June 30, 2009 totaled $19,847, and consisted of $12,982 in
accounts payable and accrued liabilities and $6,865 in a note payable to James
Doolin, the Company's President.
15
FUNDING THROUGH PRIVATE PLACEMENTS
The Company has completed the following three transactions to finance its
formation and operations:
1) On April 25, 2007, Hangman Productions, Inc., paid $5,212 in
expenses on behalf of the Company. The expenses were related to the
formation and incorporation of 4th Grade Films, Inc.
2) On June 1, 2007, the Company completed an offering of 30,000 shares
of Preferred Stock, Series A, at a price of $3.00 per share. This
offering was conducted under Rule 506 of Regulation D of the
Securities and Exchange Commission, and the applicable provisions of
Rule 144-14-25s of the Utah Division of Securities, which provides for
sales of securities by public solicitation to "accredited" and
"sophisticated" investors. The offering was subsequently closed and
the Company received gross proceeds of $90,000. On August 31, 2008,
the Preferred Stock, Series A, was automatically converted on a 1 for
10 basis to the Company's Common Stock.
3) On May 31, 2008, the Company completed an offering of 1,300,000
shares of Common Stock a price of $0.04 per share. This offering was
conducted under Rule 506 of Regulation D of the Securities and
Exchange Commission, and the applicable provisions of Rule 144-14-25s
of the Utah Division of Securities, which provides for sales of
securities by public solicitation to "accredited" investors. The
offering was subsequently closed and the Company received gross
proceeds of $52,000.
FUNDING FUTURE ACQUISITIONS AND OPERATIONS
Our ability to fund our operations and acquisitions is discussed
above under "Plan of Operations."
OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
16
PART F/S
4TH GRADE FILMS, INC.
[A Development Stage Company]
Report of Independent Registered Public Accounting Firm
and
Financial Statements
June 30, 2009
17
4TH GRADE FILMS, INC.
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accounting Firm 19
Balance Sheets as of June 30, 2009 and 2008 20
Statements of Operations for the Years ended June 30, 2009 and 2008 and for the Period
from Inception [April 25, 2007] through June 30, 2009 and 2008 21
Statement of Stockholders' Equity for the Period from Inception [April 25, 2007]
through June 30, 2009 22
Statements of Cash Flows for the Years ended June 30, 2009 and 2008 and for the Period
from Inception [April 25, 2007] through June 30, 2009 and 2008 23
Notes to Financial Statements 24 - 30
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
4th Grade Films, Inc.
We have audited the accompanying balance sheets of 4th Grade Films, Inc. [a
development stage company] as of June 30, 2009 and 2008, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended June 30, 2009 and 2008 and the for the period from inception [April 25,
2007] through June 30, 2009. 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 audit.
We conducted our audit 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 has
determined that it is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audit 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 purposes of expressing an opinion on the effectiveness of the Company's
internal controls over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 4th Grade Films, Inc. (a
development stage company) as of June 30, 2009 and 2008, and the results of
their operations and their cash flows for the years ended June 30, 2009 and 2008
and for the period from inception [April 25, 2007] through June 30, 2009 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 Note 2 to the
financial statements, the Company has accumulated losses, minimal assets, no
revenues, and is still developing its planned principal operations. These
factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ MANTYLA MCREYNOLDS, LLC
Mantyla McReynolds, LLC
Salt Lake City, Utah
September 15, 2009
19
4TH GRADE FILMS, INC.
[A Development Stage Company]
Balance Sheets
June 30, 2009 and 2008
6/30/2009 6/30/2008
------------------ ------------------
ASSETS
Assets
Current Assets
Cash $ 1,683 $ 40,389
------------------ ------------------
Total current assets 1,683 $ 40,389
Film Costs 100,149 $ 100,149
------------------ ------------------
Total Assets $ 101,832 $ 140,538
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 11,307 $ 2,725
Accrued Liabilities - related party 1,575 675
Income Taxes Payable 100 100
------------------ ------------------
Total Current Liabilities $ 12,982 3,500
------------------ ------------------
Long Term Liabilities
Note Payable - Shareholder $ 6,865 $ 25,948
------------------ ------------------
Total Long Term Liabilities $ 6,865 25,948
------------------ ------------------
Total Liabilities 19,847 $ 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 (65,227) (36,122)
------------------ ------------------
Total Stockholders' Equity 81,985 111,090
------------------ ------------------
Total Liabilities and Stockholders' Equity 101,832 $ 140,538
================== ==================
(See accompanying notes to financial statements)
20
4TH GRADE FILMS, INC.
(A Development Stage Company)
Statement of Operations
For the Years ended June 30, 2009 and 2008 and for the
Period from Inception [April 25, 2007] through June 30, 2009
For the For the
Year Year Since Inception
Ended Ended through
6/30/2009 6/30/2008 6/30/2009
----------------- ----------------- -----------------
Revenues $ - $ - $ -
Operating Expenses
Professional Expenses 24,685 19,636 49,444
General & Administrative 3,403 10,112 13,618
----------------- ----------------- -----------------
Total Operating Expenses 28,088 29,748 63,062
----------------- ----------------- -----------------
Net Income/(Loss) from Operations (28,088) (29,748) (63,062)
----------------- ----------------- -----------------
Interest Income - - -
Interest Expense (917) (948) (1,865)
----------------- ----------------- -----------------
Net Loss Before Income Taxes (29,005) (30,696) (64,927)
Provision for Income Taxes 100 100 300
----------------- ----------------- -----------------
Net Loss (29,105) (30,796) (65,227)
================= ================= =================
Loss Per Share $ (0.01) $ (0.04) $ (0.04)
================= ================= =================
Weighted Average Shares Outstanding 2,294,863 848,288 1,498,340
================= ================= =================
(See accompanying notes to financial statements)
21
4TH GRADE FILMS, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
For the Period from Inception [April 25, 2007] through June 30, 2009
Additional Total
Preferred Common Preferred Common Paid-in Retained Stockholders'
Shares Shares Stock Stock Capital Earnings Equity
--------- -------- ----------- ------- --------- --------- ------------
Balance, April 24, 2007 - - $ - $ - $ - $ - $ -
Issued common stock to - 745,000 - 7,450 (2,238) - 5,212
shareholders for payment of expenses
April 27, 2007 at $0.007 per share
Issued preferred shares to 30,000 - 300 - 89,700 - 90,000
shareholders for cash,
June 1, 2007 at $3.00 per share
Net loss for the period
from 4/25/07 through 6/30/07 - - - - - (5,326) (5,326)
--------- -------- ----------- ------- --------- --------- ------------
Balance, June 30, 2008 30,000 745,000 300 7,450 87,462 (5,326) 89,886
Issued common stock to shareholders
for cash May 31, 2008 at $0.04
per share - 1,300,000 - 13,000 39,000 - 52,000
Net Loss for the year ended June
30, 2008 - - - - - (30,796) (30,796)
--------- -------- ----------- ------- --------- --------- ------------
Balance, June 30, 2008 30,000 2,045,000 $ 300 $20,450 $126,462 $(36,122) $111,090
Preferred shares converted to Common
shares, on a 1 Preferred Share for
10 Common Share basis, on August
31, 2009 (30,000) 300,000 (300) 3,000 (2,700)
Net Loss for the year ended June
30, 2008 - - - - - (29,105) (29,105)
--------- -------- ----------- ------- --------- --------- ------------
Balance, June 30, 2009 - 2,345,000 - $23,450 $123,762 $(65,227) $ 81,985
========= ======== =========== ======= ========= ========= ============
(See accompanying notes to financial statements)
22
4TH GRADE FILMS, INC.
(A Development Stage Company)
Statements of Cash Flows
For the Years ended June 30, 2009 and 2008 and for the
Period from Inception [April 25, 2007] through June 30, 2009
For the For the
Year Year Since Inception
Ended Ended through
6/30/2009 6/30/2008 6/30/2009
------------ ------------ -----------
Net Loss $ (29,105) $ (30,796) $ (65,227)
Adjustments to reconcile net loss to net cash
Provided/(Used) by Operating Activities:
Additions to Capitalized Film Costs - (42,430) (100,149)
Increase/(Decrease) in Accounts Payable 8,582 2,650 11,982
Increase/(Decrease) in Accrued Liabilities -
related party 900 675 1,575
Increase/(Decrease) in Income Taxes Payable - - 100
Accrued Interest included in Notes Payable Balance 917 948 1,865
Issued Common Stock in Exchange for
Payment of Expenses - - 5,212
------------ ------------ -----------
Net Cash Used for Operating Activities (18,706) (68,953) (145,317)
Cash Provided by Financing Activities
Proceeds from Loan from Shareholder - 25,000 25,000
Payments on Loan from Shareholder (20,000) - (20,000)
Issued Common Stock for Cash - 52,000 52,000
Issued Preferred Stock for Cash - - 90,000
------------ ------------ -----------
Net Cash Provided by Financing Activities (20,000) 77,000 147,000
------------ ------------ -----------
Net Increase in cash (38,706) 8,047 1,683
Beginning Cash Balance 40,389 32,342 -
------------ ------------ -----------
Ending Cash Balance $ 1,683 $ 40,389 $ 1,683
============ ============ ===========
Supplemental Schedule of Cash Flow Activities
Cash paid for
Interest $ - $ - $ -
Income taxes $ 100 $ - $ 100
Common Stock Issued in Exchange for Payment
of Expenses $ - $ - $ 5,212
(See accompanying notes to financial statements)
23
4TH GRADE FILMS, INC.
(A Development Stage Company)
Notes to the Financial Statements
For the Year Ended June 30, 2009
Note 1 - Background and Summary of Significant Accounting Policies
Company Background
The Company was incorporated in the State of Utah on April 25, 2007
4th Grade Films, Inc., is an independent film production company. The
Company is engaged in developing content, securing financing,
producing, marketing and distributing films within the independent
film community.
The Company is considered to be in the development stage as defined in
Financial Accounting Standards Board Statement No. 7. It has yet to
commence full-scale operations and it continues to develop its planned
principle operations.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit in commercial
banks.
Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents,
accounts payable and notes payable approximate fair value.
<
24
4TH GRADE FILMS, INC.
(A Development Stage Company)
Notes to the Financial Statements
For the Year Ended June 30, 2009
(continued)
Note 1 - Background and Summary of Significant Accounting Policies (cont)
Filmed Entertainment Costs
In accordance with SOP 00-2, Filmed entertainment costs include
capitalized production costs and overhead. These costs, as well as
participation and exploitation costs, are recognized as operating
expenses on an individual film basis in the ratio that the current
year's gross revenues bear to management's estimate of total ultimate
gross revenues from all sources. Marketing costs and development costs
under term deals are charged as operating expenses as incurred.
Development costs for projects not produced are written-off at the
earlier of the time the decision is taken not to develop the story or
after three years. Filmed entertainment costs are stated at the lower
of unamortized cost or estimated fair value on an individual motion
picture or television product basis. Revenue forecasts for both motion
pictures and television products are continually reviewed by
management and revised when warranted by changing conditions. When
estimates of total revenues and other events or changes in
circumstances indicate that a motion picture or television production
has a fair value that is less than its unamortized cost, a loss is
recognized currently for the amount by which the unamortized cost
exceeds the film or television production's fair value.
Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences in net property and
equipment and bad debt reserve for financial and income tax reporting.
The Company complies with the provisions of Statement of Financial
Accounting Standards No. 109 [the Statement], "Accounting for Income
Taxes." The Statement requires an asset and liability approach for
financial accounting and reporting for income taxes, and the
recognition of deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and tax basis of the
Company's assets and liabilities at enacted tax rates expected to be
in effect when such amounts are realized or settled.
Net Loss Per Common Share
In accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share," basic loss per common share is based on the
weighted-average number of shares outstanding. Diluted income or loss
per share is computed using weighted average number of common shares
plus dilutive common share equivalents outstanding during the period
using the treasury stock method.
Revenue Recognition
Revenues are recognized in accordance with SOP 00-2 paragraph .07.
Specifically, revenues from the distribution of motion pictures are
recognized as they are exhibited and revenues from home entertainment
sales, net of reserve for estimated returns, together with related
costs, are recognized on the date that video and DVD units are made
widely available for sale by retailers and all Company-imposed
restrictions on the sale of video and DVD units have expired. Payments
received in advance of initial availability are deferred revenue until
all of SOP 00-2 revenue recognition requirements have been met.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
25
4TH GRADE FILMS, INC.
(A Development Stage Company)
Notes to the Financial Statements
For the Year Ended June 30, 2009
(continued)
Note 2 - Significant Concentrations and Going Concern
The Company currently only has one film in production. Any foreseeable
potential revenues for the Company are dependent upon the success of
that film and any future film projects.
The Company has accumulated a loss since inception [April 25, 2007] of
($65,227). In the fiscal year ending June 30, 2009 the Company
incurred a net loss of ($29,105) on no revenue. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. If the Company is unable to develop significant operations,
the Company may have to cease to exist.
4th Grade Films is an independent film production company. The Company
is engaged in developing content, securing financing, producing,
marketing and distributing films within the independent film
community. The Company will focus on independent film projects with
budgets ranging from $25,000 to $250,000. Independent films are often
distinguishable by their content or style where the writer or
director's original authorial intent or personal creative vision is
usually maintained in the final film. Additionally, the term
"independent film" is typically used to describe less commercially
driven art films which are significantly different from the norms of
plot-driven, mainstream traditional "Hollywood" cinema.
Currently, 4th Grade Films has developed, financed and produced a
film. The feature-length film, The Four Stories of St. Julian
(hereinafter "St. Julian" or the "Film"), was developed internally by
the Company. The production of the Film was financed entirely by 4th
Grade Films, Inc. The Company has begun marketing the film as
referenced above. The Company cannot provide any assurances that the
Film will obtain distribution or be profitable. Regardless of the
success of the Film, the Company will continue to develop, finance,
produce, market and distribute films within the independent film
community. However, the Company cannot provide assurances that it will
be able to develop, finance, produce, market and distribute in the
future. To date the Company has incurred $100,149 in costs related to
the production of St. Julian. The Company's management estimates that
the total cost for marketing expenses will be approximately $10,000.
Marketing costs will include preparing press releases, film festival
submission fees, internet advertising and other marketing campaigns.
The Company anticipates the budgets for future projects to range from
$25,000 to $250,000.
26
4TH GRADE FILMS, INC.
(A Development Stage Company)
Notes to the Financial Statements
For the Year Ended June 30, 2009
(continued)
Note 3 - Film Costs
Film costs consisted of the following as of June 30, 2009:
Films:
Released $ -
Completed, not released 100,149
In production -
In development, or Preprodution -
----------
Total $ 100,149
==========
As of June 30, 2009, 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.
Note 4 - Stockholders Equity
Preferred Stock - Series A
Pursuant to the authority vested in the Board of Directors the Company
provided for the issuance of a series of Preferred Stock, designated
Preferred Stock, Series A, consisting of one million (1,000,000) of
the currently authorized five million (5,000,000) shares of Preferred
Stock.
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, all remaining
issued and outstanding shares of Preferred Stock, Series A, was
automatically called and each share of Preferred Stock, Series A, was
converted into ten (10) shares of fully paid and nonassessable shares
of Common Stock, $0.01 par value.
Common Stock
During the Company's Board of Directors meeting held on April 24,
2007, the Company authorized the issuance of 745,000 or $0.01 par
value common shares to Hangman Productions, Inc. ("Hangman"), in
exchange for expenses incurred by Hangman. The expenses paid by
Hangman totaled $5,212 which created an additional paid-in deficit of
$2,238 related to the issuance of the common shares.
On May 31, 2008, the Company completed an offering of a no minimum and
a maximum of 1,300,000 shares of Common Stock at $0.04 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,
2008, selling all 1,300,000 shares for gross proceeds of $52,000.
27
4TH GRADE FILMS, INC.
(A Development Stage Company)
Notes to the Financial Statements
For the Year Ended June 30, 2009
(continued)
Note 5 - Income Taxes
The provision for income taxes consists of the following:
Current Taxes (minimum franchise tax) $ 100
Deferred tax benefit (net of valuation for allowance) -
Deferred tax liability -
----------
$ 100
==========
Deferred income tax assets and liabilities at June 30, 2009 consist of
the following temporary differences:
Amount Expected Rate Asset(Liability)
------ ------------- ---------------
Net operating loss carry-
forwards(expiring through 2028):
Federal 63,361 15% $ 9,504
State of Utah 63,061 5% $ 3,153
Related party accrued interest 1,865 20% $ 373
----------------
$ 13,030
Valuation Allowance $(13,030)
----------------
Deferred tax asset 06/30/2009 $ -
================
The Company's valuation allowance for deferred tax assets increased by
$6,139 during the year ended June 30, 2009.
The following is a summary of federal net operating loss carryforwards
and their expiration dates:
Amount Expiration Date
$ 5,325 6/30/2027
$ 30,061 6/30/2028
$ 27,975 6/30/2029
Reconciliation between taxes at the statutory rates (20%) and the
actual income tax provision for continuing operations is as follows:
Expected provision (benefit) based on statutory rates $ (5,801)
Effect of:
Increase (decrease) in valuation allowance $ 5,816
State minimum franchise tax $ 85
----------------
Total actual provision $ 100
================
The Company has not yet generated taxable income. The Company does not
believe the realization of any benefit from the deferred asset will be
realized. Therefore, the Company recorded a valuation allowance for
the full amount of the deferred tax asset.
Uncertain Tax Positions
The Company adopted the provisions of FIN 48 on July 1, 2007. As a
result of this adoption, we have not made any adjustments to deferred
tax assets or liabilities. We did not identify any material uncertain
tax positions of the Company on returns that have been filed or that
will be filed. The Company has a Net Operating Loss as disclosed
above. Since it is not thought that this Net Operating Loss will ever
produce a tax benefit, even if examined by taxing authorities and
disallowed entirely, there would be no effect on the financial
statements.
A reconciliation of our unrecognized tax benefits for 2009 is
presented in the table below:
Balance as of July 1, 2008 $ -
Additions based on tax positions related to the current year -
Additions based on tax positions related to prior year -
Reductions for tax positions of prior years -
Reductions due to expiration of statute of limitations -
Settlements with taxing authorities -
----
Balance as of June 30, 2009 $ -
The Company has filed income tax returns in the US. Tax returns for
the years ended June 30, 2007, 2008 and 2009 are open for examination.
28
4TH GRADE FILMS, INC.
(A Development Stage Company)
Notes to the Financial Statements
For the Year Ended June 30, 2009
(continued)
Note 6 - Related Party Transactions
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. In August, 2008, the Company repaid $20,000 of
the Note. The Note accrues interest at 10% per annum and matures on
December 31, 2010. As of June 30, 2009, the outstanding note payable
to the shareholder was $6,865. For the fiscal year ended June 30, 2009
the Company accrued interest of $917 on the note.
As of June 30, 2009, approximately 75.5% 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 $1,575 in unpaid rental fees
from this arrangement.
Note 7 - Accrued Director Fee
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.
Note 8 - Recent Accounting Pronouncements
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 an amendment of FASB
Statement No. 13" ("SFAS 161"). SFAS 161 will enhance the current
disclosure framework in SFAS No. 133 for derivative instruments and
hedging activities. SFAS 161 is effective for the Company beginning
July 1, 2009. The Company anticipates that the adoption of SFAS 161
will not have a material impact on the Company's financial statements.
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial
Guarantee Insurance Contracts - an interpretation of FASB Statement
No. 60" ("SFAS 163"). SFAS 163 clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement of premium revenue and claim liabilities. This Statement
also requires expanded disclosures about financial guarantee insurance
contracts. SFAS 163 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008
(July 1, 2009 for the Company). The Company anticipates that the
adoption of SFAS 163 will not have a material impact on the Company's
financial statements.
In May 2009, the FASB issued Statement No. 165, "Subsequent Events"
("SFAS 165"), which establishes general standards of accounting for,
and requires disclosure of, events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued. SFAS 165 is effective for fiscal years and interim periods
ending after June 15, 2009. We adopted the provisions of SFAS 165 for
the year ended June 30, 2009 and have evaluated any subsequent events
through September 15, 2009, the date the financial statements are
issued. We do not believe there are any material subsequent events
which would require further disclosure.
29
4TH GRADE FILMS, INC.
(A Development Stage Company)
Notes to the Financial Statements
For the Year Ended June 30, 2009
(continued)
Note 8 - Recent Accounting Pronouncements (cont)
In June 2009, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 168, The
"FASB Accounting Standards Codification" and the Hierarchy of
Generally Accepted Accounting Principles. This standard replaces SFAS
No. 162, The Hierarchy of Generally Accepted Accounting Principles,
and establishes only two levels of U.S. generally accepted accounting
principles ("GAAP"), authoritative and nonauthoritative. The FASB
Accounting Standards Codification (the "Codification") will become the
source of authoritative, nongovernmental GAAP, except for rules and
interpretive releases of the SEC, which are sources of authoritative
GAAP for SEC registrants. All other nongrandfathered, non-SEC
accounting literature not included in the Codification will become
nonauthoritative. This standard is effective for financial statements
for interim or annual reporting periods ending after September 15,
2009. We will begin to use the new guidelines and numbering system
prescribed by the Codification when referring to GAAP in the first
quarter of fiscal 2009. As the Codification was not intended to change
or alter existing GAAP, it will not have any impact on our financial
statements.
The Company has reviewed all other recently issued, but not yet
adopted, accounting standards in order to determine their effects, if
any, on its results of operation, financial position or cash flows.
Based on that review, the Company believes that none of these
pronouncements will have a significant effect on its financial
statements.
Note 9 - Subsequent Events
On June 30, 2009, the Company adopted SFAS 165, which requires an
entity to evaluate subsequent events through the date that the
financial statements are issued or are available to be issued and
disclose in the notes the date through which the entity has evaluated
subsequent events and whether the financial statements were issued or
were available to be issued on the disclosed date. SFAS 165 defines
two types of subsequent events, as follows: the first type consists of
events or transactions that provide additional evidence about
conditions that existed at the date of the balance sheet (that is,
recognized subsequent events), and the second type consists of events
or transactions that provide additional evidence about conditions that
did not exist at the date of the balance sheet but arose after that
date (that is, nonrecognized subsequent events).
The Company has evaluated subsequent events through September 15,
2009, the date the financial statements are issued, and has concluded
that no recognized subsequent events have occurred since its fiscal
2009 year ended June 30, 2009. One nonrecognized subsequent event has
occurred since June 30, 2009, as described below.
On July 30, 2009 the Company engaged the services of Circus Road
Films, Inc. Circus Road Films, Inc. will act as a sales representative
for the film "Four Stories of St. Julian", and will seek distribution
agreements. The fee for this agreement $7,500 upfront and 10%, after
the Company has received $75,000, of the gross proceeds from any
distribution agreements that the Company enters into within the
following twelve months.
30
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual Report, we carried out
an evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that information
required to be disclosed is recorded, processed, summarized and reported within
the specified periods and is accumulated and communicated to management,
including our President and Secretary, to allow for timely decisions regarding
required disclosure of material information required to be included in our
periodic SEC reports. Our disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives and our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to a reasonable assurance level of
achieving such objectives. However, it should be noted that the design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote. In addition, we reviewed our internal controls, and
there have been no significant changes in our internal controls or in other
factors in the last fiscal quarter that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.
Evaluation of Disclosure Controls and Procedures. Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures, as of the end of the period covered by this report were
effective such that the information required to be disclosed by us in reports
filed under the Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms and (ii)
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding disclosure. A controls system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
Management's Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes of
accounting principles generally accepted in the United States. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer evaluated the effectiveness of our internal control over
financial reporting as of June 30, 2009. In making this assessment, our
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal Control Integrated
Framework. Based on this evaluation, our management, with the participation of
the President and Secretary/Treasurer, concluded that, as of June 30, 2009, our
internal control over financial reporting was effective.
This Annual Report does not include an attestation report of our registered
public accounting firm regarding internal controls over financial reporting.
Management's report was not subject to attestation by our independent registered
public accounting firm pursuant to the temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this Annual Report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in internal control over financial reporting.
31
ITEM 9B: OTHER INFORMATION
We filed a Form 8-K Current Report on June 5, 2008, reporting:
- the issuance of 1,300,000 unregistered common shares for cash;
- Effective June 1, 2008, 4th Grade is no longer a subsidiary of Hangman
Productions, Inc.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
IDENTIFICATION OF OFFICERS AND DIRECTORS
Our executive officers and directors and their respective ages, positions
and biographical information are set forth below.
James P. Doolin, President and a director, is 33 years of age. Mr. Doolin
graduated from the University of Utah, in Salt Lake City. He graduated with a
bachelor of science, finance degree. After completion of his undergraduate Mr.
Doolin was employed by Jenson Services, Inc., a merger and acquisition
consulting firm, from 1998 until entering graduate school in 2001. After
graduation from Pepperdine's Graziadio School of Business, Mr. Doolin worked as
an associate at an Investment Banking firm in Southern California. For the past
five years, Mr. Doolin has been a financial consultant to development stage
businesses and public corporations.
Shane E. Thueson, Vice President and a director, is 33 years of age. Mr.
Thueson attended, but did not graduate from Brigham Young University, where he
studied history. Mr. Thueson worked for a entertainment management production
company, Benderspink Management and Productions, in Hollywood, California, from
2001 through 2002. Mr. Thueson was also employed as the Marketing Programs
Manager for an internet technology company based in Orem, Utah. Mr. Thueson
resigned as the Marketing Programs manager in March, 2005, to become a full-time
screenplay writer. For the past five years Mr. Thueson has developed and written
numerous original screenplays. In addition to being the Vice President of
Hangman Productions, Inc., a reporting entity, Mr. Thueson was also an officer
and director of Cole, Inc. In December, 2003, Cole Inc., changed its name to
Reflect Scientific, Inc., at which time Mr. Thueson resigned.
John K. Winchester, Secretary and director, is 34 years of age. Mr.
Winchester graduated from the University of Utah, in Salt Lake City. He
graduated with a bachelor of science, communication degree. Mr. Winchester
served as the district merchandising coordinator for Sony Computer Entertainment
America, Inc., from 2000 through 2004. Mr. Winchester has managed an
environmental irrigation company based in Sandy, Utah, since 2004.
32
INVOLVEMENT IN OTHER PUBLIC COMPANIES
James P. Doolin, President and a director, was an officer and director of
Wasatch Web Advisors, Inc. In October, 2003, Wasatch Web Advisors, Inc. became
Raser Technologies, Inc., at which time Mr. Doolin resigned. Mr. Doolin was also
an officer and director of Cole, Inc. Cole, Inc., became Reflect Scientific,
Inc. in December, 2003, at which time Mr. Doolin resigned. Mr. Doolin was also
an officer and director of The Autoline Group, Inc., which became GeNOsys, Inc.,
in August, 2005, at which time Mr. Doolin resigned. Mr. Doolin is currently the
President and director of Hangman Productions, Inc. Hangman Productions, Inc.,
is a reporting entity and its common stock is quoted on the OTC Bulletin Board
under the symbol HGMP. Mr. Doolin is also an officer and director of Left Lane
Imports, Inc., which is not a reporting entity at this time.
Shane E. Thueson, Vice President and a director, and John K. Winchester,
Secretary and director, both currently serve as officers and directors of
Hangman Productions, Inc. Hangman Productions, Inc., is a reporting entity and
its common stock is quoted on the OTC Bulletin Board under the symbol HGMP.
PREVIOUS BLANK CHECK OR SHELL COMPANY EXPERIENCE
In the last five years neither of our directors has had any blank check or
shell company experience.
SIGNIFICANT EMPLOYEES
The Company has no employees who are not executive officers, but who are
expected to make a significant contribution to the Company's business
TERM OF OFFICE
The term of office for our directors is one year, or until a successor is
elected and qualified at the Company's annual meeting of shareholders, subject
to ratification by the shareholders. The term of office for each officer is one
year or until a successor is elected and qualified and is subject to removal by
the Board.
FAMILY RELATIONSHIPS
James Doolin, the Company's President and director, is the son of one of
the Company's largest shareholders, Michael Doolin.
33
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Our common shares are registered under the Securities and Exchange Act of
1934 and therefore our officers, directors and holders of more than 10% of our
outstanding shares are subject to the provisions of Section 16(a) which requires
them to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of common stock and our other
equity securities. Officers, directors and greater than ten-percent beneficial
owners are required by SEC regulations to furnish us with copies of all Section
16(a) reports they file. Based solely upon a review of the copies of such forms
furnished to us during the fiscal year ended June 30, 2009, the following were
filed, but not timely:
Name Type Filed
- ------------------------------------------------- ------------- ----------------
- ------------------------------------------------- ------------- ----------------
James P. Doolin Form 3 July 8, 2008
Shane E. Thueson Form 3 July 8, 2008
John. K. Winchester Form 3 July 8, 2008
Leonard W. Burningham Form 3 July 15, 2008
Quad D Partnership Form 3 August 1, 2008
Michael J. Doolin Form 3 August 1, 2008
CODE OF ETHICS
We have adopted a code of ethics for our principal executive and financial
officers.
NO INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past five years, no director, officer, promoter or control
person:
- has filed a petition under federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer
appointed by a court for the business or property of such person, or any
partnership in which he was a general partner at or within two years before
the time of such filing, or any corporation or business association of
which he was an executive officer at or within two years before the time of
such filing;
- was convicted in a criminal proceeding or named subject of a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
- was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him or her from or otherwise limiting
his/her involvement in any type of business, securities or banking
activities;
- was found by a court of competent jurisdiction in a civil action, by the
Securities and Exchange Commission or the Commodity Futures Trading
Commission, to have violated any federal or state securities law, and the
judgment in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or vacated.
34
CORPORATE GOVERNANCE
Nominating Committee
We have not established a Nominating Committee because, due to our
development of operations and the fact that we only have three directors and
executive officers, we believe that we are able to effectively manage the issues
normally considered by a Nominating Committee. Following the entry into any
business or the completion of any acquisition, merger or reorganization, a
further review of this issue will no doubt be necessitated and undertaken by new
management.
If we do establish a Nominating Committee, we will disclose this change to
our procedures in recommending nominees to our board of directors.
Audit Committee
We have not established an Audit Committee because, due to our development
of operations and the fact that we only have three directors and executive
officers, we believe that we are able to effectively manage the issues normally
considered by an audit committee. Following the entry into any business or the
completion of any acquisition, merger or reorganization, a further review of
this issue will no doubt be necessitated and undertaken by new management
ITEM 11. EXECUTIVE COMPENSATION
ALL COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual ricted lying Pay- Comp-
Position Ended ($) ($) Compen -Stock Options outs ensat'n
- ---------------------------------------------------------------------
James P. 06-30-08 0 0 $1,000 0 0 0 0
Doolin, 06-30-09 0 0 0 0 0 0 0
Director,
President
Shane E. 06-30-08 0 0 $1,000 0 0 0 0
Thueson, 06-30-09 0 0 0 0 0 0 0
Director,
Vice
President
John K. 06-30-08 0 0 $1,000 0 0 0 0
Winchester, 06-30-09 0 0 0 0 0 0 0
Director,
Secretary
No deferred compensation or long-term incentive plan awards were issued or
granted to the Company's management during the year ended June 30, 2009. Mr.
Doolin, Mr. Thueson and Mr. Winchester were paid $1,000 per year ended June 30,
2008 for their services. No employee, director, or executive officer has been
granted any option or stock appreciation rights; accordingly, no tables relating
to such items have been included within this Item.
35
COMPENSATION OF DIRECTORS
Executive compensation was paid to the Company's officers and directors
related to services performed for the Company's operations and managing the
Company's strategic development. 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 commencing
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.
OUTSTANDING EQUITY AWARDS
None
OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR
None. We have no outstanding options or stock appreciation rights.
OPTIONS/SAR EXERCISES IN THE LAST FISCAL YEAR
None. We have no outstanding options or stock appreciation rights.
LONG TERM INCENTIVE PLAN AWARDS IN THE LAST FISCAL YEAR
None. We have no long-term incentive plans.
36
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the ownership by any person known to us to
be the beneficial owner of more than 5% of any class of our voting securities as
of June 30, 2009. Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with respect
to securities. The persons named in the table below have sole voting power and
investment power with respect to all shares of common stock shown as
beneficially owned by them. The percentage of beneficial ownership is based upon
2,345,000 shares of common stock outstanding at that date.
Number of Shares Percentage
Name Beneficially Owned of Class
- ---------------- ------------------ --------
Leonard W. Burningham 170,000 7.2%
1227 East Gilmer Drive
Salt Lake City, UT 84105
James P. Doolin
1338 South Foothill Dr, #163 898,000 38.2%
Salt Lake City, UT 84108
Michael J. Doolin 130,000* 5.5%
5 Pepperwood Drive
Sandy, UT 84092
Quad D LTD Partnership* 745,000* 31.8%
5 Pepperwood Drive
Sandy, UT 84092
TOTAL 1,943,000 82.8%
*Michael Doolin is the general partner of Quad D LTD Partnership. Quad D
Partnership owns 745,000 common shares.
37
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the holdings of common stock of the
Company's directors and executive officers as of the date hereof. The percentage
of beneficial ownership is based upon 2,345,000 shares of common stock
outstanding at that date.
Name Beneficially Owned of Class
- ---------------- ------------------ --------
James P. Doolin*
1338 South Foothill Dr, #163 898,000 38.2%
Salt Lake City, UT 84108
Shane E. Thueson 1,000 0%
1338 South Foothill Dr, #163
Salt Lake City, UT 84108
John K. Winchester 1,000 0%
1338 South Foothill Dr, #163
Salt Lake City, UT 84108
TOTAL OFFICERS & DIRECTORS 900,000 38.2%
38
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
None. We have no equity compensations plans.
CHANGES IN CONTROL
We do not have any arrangements that would result in any change in control
of our company. However, there are no provisions in our Articles of
Incorporation or Bylaws that would delay, defer or prevent a change in control.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
None. We have no undisclosed related transactions.
RESOLVING CONFLICTS OF INTEREST
Our directors must disclose all conflicts of interest and all corporate
opportunities to the entire board of directors. Any transaction involving a
conflict of interest will be conducted on terms not less favorable than that
which could be obtained from an unrelated third party.
DIRECTOR INDEPENDENCE
We do not have any independent directors serving on our board of directors
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to us by our principal
accountants during the fiscal years ended June 30, 2009 and 2007:
Fee Category 2009 2008
- --------------------------------------------------------------
- --------------------------------------------------------------
Audit Fees $ 12,624 14,210
Audit-related Fees $ 0 0
Tax Fees $ 405 390
All Other Fees $ 0 0
-----------------
Total Fees $ 13,029 14,600
=================
Audit Fees - Consists of fees for professional services rendered by our
principal accountants for the audit of our annual financial statements and
review of the financial statements included in our Form 10-Q or services that
are normally provided by our principal accountants in connection with statutory
and regulatory filings or engagements.
Audit-related Fees - Consists of fees for assurance and related services by
our principal accountants that are reasonably related to the performance of the
audit or review of our financial statements and are not reported under "Audit
fees."
Tax Fees - Consists of fees for professional services rendered by our
principal accountants for tax compliance, tax advice and tax planning.
All Other Fees - Consists of fees for products and services provided by our
principal accountants, other than the services reported under "Audit fees,"
"Audit-related fees," and "Tax fees" above.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
We have not adopted an Audit Committee; therefore, there is no Audit
Committee policy in this regard. However, we do require approval in advance of
the performance of professional services to be provided to us by our principal
accountant. Additionally, all services rendered by our principal accountant are
performed pursuant to a written engagement letter between us and the principal
accountant.
39
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits. The following exhibits are filed as part of this Annual Report:
No. Description
- ---- ---------------------------------------------------------------------------------------
31.1 Certification of Principal Executive Officer as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
31.2 Certification of Principal Financial Officer as adopted pursuant to Section 302 of the
Sarbanes Oxley Act of 2002 *
32.2 Certification of Principal Executive and Financial Officer Pursuant to 18 U.S.C Section
1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
* Filed herewith
40
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 15, 2009 4TH GRADE FILMS, INC.
By: /S/James Doolin
James Doolin
President & Director
Principal Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following person on behalf of the registrant and in the capacities and on
the dates indicated.
Date: September 15, 2009
By: /S/Shane Thueson
Shane Thueson
Vice President & Director
Principal Executive Officer
41