STWC. Holdings, Inc. - Quarter Report: 2010 December (Form 10-Q)
U. S. Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2010
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________ to____________
Commission File No. 000-52825
4TH Grade Films, Inc.
(Exact name of the issuer as specified in its charter)
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Utah
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20-8980078
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(State or Other Jurisdiction of
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(I.R.S. Employer I.D. No.)
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incorporation or organization)
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1338 South Foothill Drive #163
Salt Lake City, UT 84108
(Address of Principal Executive Offices)
(801) 649-3519
(Issuer’s Telephone Number)
Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) 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 whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company [X]
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
Not applicable.
Indicate the number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date.
The number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:
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Class
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Outstanding as of February 8, 2011
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Common Capital Voting Stock, $0.01 par value per share
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2,345,000 shares
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FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements.
December 31, 2010
C O N T E N T S
| Condensed Balance Sheets | 3 |
| Condensed Statements of Operations | 4 |
| Condensed Statements of Cash Flows | 5 |
| Notes to Condensed Financial Statements | 6 |
2
4th Grade Films, Inc.
(A Development Stage Company)
Condensed Balance Sheets
December 31, 2010 and June 30, 2010
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12/31/2010
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6/30/2010
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[unaudited]
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[audited]
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ASSETS
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Assets
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Current Assets
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Cash
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$ | 97 | $ | 830 | ||||
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Accounts Receivable
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737 | - | ||||||
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Prepaid Expenses
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- | 625 | ||||||
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Total current assets
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834 | 1,455 | ||||||
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Film Costs
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24,088 | 24,825 | ||||||
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Total Assets
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$ | 24,922 | $ | 26,280 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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Liabilities
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Current Liabilities
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Accounts Payable
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$ | 12,392 | $ | 13,614 | ||||
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Accrued Liabilities - related party
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2,925 | 2,475 | ||||||
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Income Taxes Payable
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- | 100 | ||||||
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Total Current Liabilities
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15,317 | 16,189 | ||||||
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Long Term Liabilities
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Note Payable - Shareholder
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34,539 | 24,133 | ||||||
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Total Long Term Liabilities
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34,539 | 24,133 | ||||||
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Total Liabilities
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49,856 | 40,322 | ||||||
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Stockholders' Deficit
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Preferred Stock - 5,000,000 shares authorized at $0.01 par;
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- | - | ||||||
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0 shares issued and outstanding (Series A Convertible)
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Common Stock - 50,000,000 shares autorized at $0.01 par;
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2,345,000 and 2,345,000 shares issued and outstanding, respectively
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23,450 | 23,450 | ||||||
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Paid-in Capital
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123,762 | 123,762 | ||||||
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Deficit Accumulated during the development stage
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(172,146 | ) | (161,254 | ) | ||||
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Total Stockholders' Equity (Deficit)
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(24,934 | ) | (14,042 | ) | ||||
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Total Liabilities and Stockholders' Deficit
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$ | 24,922 | $ | 26,280 | ||||
See accompanying notes to financial statements.
3
4th Grade Films, Inc.
(A Development Stage Company)
Condensed Statements of Operations
For the Three and Six Months Ended December 31, 2010 and 2009, and
For the Period from Inception [April 25, 2007] through December 31, 2010
(Unaudited)
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For the
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For the
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For the
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For the
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Three Months
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Three Months
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Six Months
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Six Months
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Since Inception
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Ended
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Ended
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Ended
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Ended
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through
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12/31/2010
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12/31/2009
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12/31/2010
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12/31/2009
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12/31/2010
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Revenues
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$ | 737 | - | $ | 737 | - | $ | 737 | |||||||||
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Cost of Revenues
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737 | - | 737 | - | 737 | ||||||||||||
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Gross Profit
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- | - | - | - | - | ||||||||||||
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Operating Expenses
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Professional Expenses
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1,587 | 3,536 | 7,214 | 8,734 | 67,319 | ||||||||||||
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SG&A
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445 | 2,253 | 2,308 | 2,478 | 23,954 | ||||||||||||
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Impairment of unamortized film -
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development costs
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- | - | - | 75,323 | 75,323 | ||||||||||||
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Total Operating Expenses
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2,032 | 5,789 | 9,522 | 86,535 | 166,596 | ||||||||||||
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Net Income/(Loss) from Operations
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(2,032 | ) | (5,789 | ) | (9,522 | ) | (86,535 | ) | (166,596 | ) | |||||||
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Interest Income
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- | - | - | - | - | ||||||||||||
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Interest Expense
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(726 | ) | (414 | ) | (1,370 | ) | (798 | ) | (5,150 | ) | |||||||
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Net Loss Before Income Taxes
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(2,758 | ) | (6,203 | ) | (10,892 | ) | (87,333 | ) | (171,746 | ) | |||||||
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Provision for Income Taxes
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- | - | - | - | 400 | ||||||||||||
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Net Loss
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$ | (2,758 | ) | $ | (6,203 | ) | $ | (10,892 | ) | $ | (87,333 | ) | $ | (172,146 | ) | ||
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Loss Per Share - Basic and Diluted
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.09 | ) | ||
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Basic and Diluted Weighted
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Average Shares Outstanding
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2,345,000 | 2,345,000 | 2,345,000 | 2,345,000 | 1,843,415 | ||||||||||||
See accompanying notes to financial statements.
4
4th Grade Films, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
For the Six Months Ended December 31, 2010 and 2009, and
For the Period from Inception [April 25, 2007] through December 31, 2010
(Unaudited)
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For the
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For the
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Six Months
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Six Months
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Since Inception
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Ended
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Ended
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through
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12/31/2010
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12/31/2009
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12/31/2010
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Net Loss
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$ | (10,892 | ) | $ | (87,333 | ) | $ | (172,146 | ) | |||
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Adjustments to reconcile net loss to net cash
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Provided/(Used) by Operating Activities:
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Impairment of capitalized film development costs
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- | 75,323 | 75,323 | |||||||||
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Additions to Capitalized Film Costs
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- | - | (100,149 | ) | ||||||||
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Amortization of Film Costs
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737 | - | 737 | |||||||||
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(Increase)/Decrease in Accounts Receivable
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(737 | ) | (737 | ) | ||||||||
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(Increase)/Decrease in Prepaid Expenses
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625 | (4,496 | ) | - | ||||||||
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Increase/(Decrease) in Accounts Payable
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(1,222 | ) | (11 | ) | 12,392 | |||||||
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Increase/(Decrease) in Accrued Liabilities - related party
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450 | 450 | 2,925 | |||||||||
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Increase/(Decrease) in Income Taxes Payable
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(100 | ) | (100 | ) | - | |||||||
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Accrued Interest included in Notes Payable Balance
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1,370 | 798 | 5,150 | |||||||||
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Issued Common Stock in Exchange for Payment of Expenses
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- | - | 5,212 | |||||||||
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Net Cash Used for Operating Activities
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(9,769 | ) | (15,369 | ) | (171,293 | ) | ||||||
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Cash Provided by Financing Activities
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Proceeds from Loan from Shareholder
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9,036 | 13,964 | 49,390 | |||||||||
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Payments on Loan from Shareholder
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- | - | (20,000 | ) | ||||||||
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Issued Common Stock for Cash
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- | - | 52,000 | |||||||||
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Issued Preferred Stock for Cash
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- | - | 90,000 | |||||||||
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Net Cash from Financing Activities
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9,036 | 13,964 | 171,390 | |||||||||
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Net Decrease in cash
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(733 | ) | (1,405 | ) | 97 | |||||||
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Beginning Cash Balance
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830 | 1,683 | - | |||||||||
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Ending Cash Balance
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$ | 97 | $ | 278 | $ | 97 | ||||||
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Supplemental Schedule of Cash Flow Activities
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Cash paid for
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Interest
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$ | - | $ | - | $ | - | ||||||
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Income taxes
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$ | - | $ | - | $ | 400 | ||||||
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Common Stock Issued in Exchange for Payment of Expenses
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$ | - | $ | - | $ | 5,212 | ||||||
See accompanying notes to financial statements.
5
4th Grade Films, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
December 31, 2010
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The interim financial statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010. The results of operations for the period ended December 31, 2010, are not necessarily indicative of the operating results for the full year.
NOTE 2 LIQUIDITY/GOING CONCERN
The Company has accumulated losses since inception, has minimal assets, and has a net operating loss of $2,758 for the three months ended December 31, 2010. Because the Company has accumulated losses since inception, has minimal liquid current assets, and has limited sales activity there is substantial doubt about the Company's ability to continue as a going concern. Management plans include continuing to develop, finance, produce, market and distribute films within the independent film community. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 REVENUE RECOGNITION
The Company recognizes revenue from the distribution of its films when earned and reported to it by its distributor, Vanguard International Cinema. The Company recognizes revenues derived from its feature films net of reserves for returns, rebates and other incentives after the distributor has retained a distribution fee as a percentage of revenue.
Because a third party is the principal distributor of the Company’s films, the amount of revenue that is recognized from films in any given period is dependent on the timing, accuracy and sufficiency of the information received from the distributor. As is typical in the film industry, the distributor may make adjustments in future periods to information previously provided to the Company that could have a material impact on the Company’s operating results in later periods. Furthermore, management may, in its judgment, make material adjustments in future periods to the information reported by the distributor to ensure that revenues are accurately reflected in the Company’s financial statements. To date, the distributor has not made subsequent, nor has the Company made, material adjustments to information provided by the distributor and used in the preparation of the Company’s historical financial statements.
NOTE 4 DIRECTOR COMPENSATION EXPENSES / RELATED PARTY TRANSACTIONS
Effective April 1, 2008, the directors resolved to suspend payment of $1,000 per year to each member of the board of directors. The Compensation was paid semi-annually, with the first $500 payment made on October 1, 2007 and the subsequent $500 payment paid on March 1, 2008. The payment to the Directors will be reinstated once the Company generates positive operating cash flow.
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As of December 31, 2010, James Doolin, the Company's President and director, loaned the Company an aggregate of $23,277 on an unsecured debenture. The Note accrues interest at 10% per annum and matures on December 31, 2011. As of December 31, 2010, the outstanding note payable balance to the shareholder was $27,773, including accrued interest. From inception through December 31, 2010 the Company accrued interest of $4,497 on the note.
As of December 31, 2010, Michael Doolin, a shareholder of the Company, loaned the Company an aggregate of $6,113 on an unsecured debenture. The Note accrues interest at 10% per annum and matures on December 31, 2011. As of December 31, 2010, the outstanding note payable balance to the shareholder was $6,766, including accrued interest. As of December 31, 2010 the Company has accrued interest of $653 on the note.
As of December 31, 2010, approximately 77.9% of the Company's issued and outstanding common stock is controlled by one family giving them effective power to control the vote on substantially all significant matters without the approval of other stockholders.
The Company rents office space from the Company’s President at a cost of $75 per month. The Company has accrued $2,925 in unpaid rental fees from this arrangement.
NOTE 5 FILM COSTS
Film costs consisted of the following as of December 31, 2010:
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December 31, 2010
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June 30, 2010
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Opening Balance
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$ | 24,825 | $ | 24,825 | ||||
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Additions
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- | - | ||||||
| $ | 24,825 | $ | 24,825 | |||||
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Amortization
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(737 | ) | - | |||||
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Ending Balance
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$ | 24,088 | $ | 24,825 | ||||
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Development/Preproduction
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$ | - | $ | - | ||||
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Production
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- | - | ||||||
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Completed not released
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- | 24,825 | ||||||
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Completed released
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24,088 | - | ||||||
| $ | 24,088 | $ | 24,825 | |||||
The production cost of the Company’s feature films are stated at the lower of cost less accumulated amortization, or fair value. Once a film is released, film costs are amortized in the proportion that the revenue during the period for each title (Current Revenue) bears to the estimated remaining total revenue to be received from all sources for each title (Ultimate Revenue) as of the beginning of the current fiscal period. The amount of film costs that is amortized each period will depend on the ratio of Current Revenue to Ultimate Revenue for each film for such period. The Company makes certain estimates and judgments of Ultimate Revenue to be received for each title based on information received from its distributor and its knowledge of the industry. Estimates of Ultimate Revenue and anticipated participation and residual costs are reviewed periodically in the ordinary course of business and are revised if necessary. A change in any given period to the Ultimate Revenue for an individual title will result in an increase or decrease to the percentage of amortization of capitalized film costs and accrued participation and residual costs relative to a previous period.
Amortization of capitalized film costs was $737 during the quarter ended December 31, 2010.
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NOTE 6 PREPAID EXPENSES
On July 30, 2009 the Company engaged the services of Circus Road Films, Inc. (“CRF”). CRF will act as a sales representative for the film “Four Stories of St. Julian”, and will seek distribution agreements. The fee for this agreement was $7,500 and 10% of gross proceeds, after the Company has received $75,000. The fee is based on gross proceeds from any distribution agreements that the Company enters into within the following twelve months.
The Company capitalized the $7,500 upfront costs as a prepaid expense and expensed it over a 12 month period. The Company expensed the final $625 of the prepaid expense in the quarter ended September 30, 2010.
NOTE 7 RECENT ACCOUNTING PRONOUNCEMENTS
In October 2009, the FASB issued Accounting Standards Update No. 2009-13 for Revenue Recognition – Multiple Deliverable Revenue Arrangements (Subtopic 605-25) “Subtopic”. This accounting standard update establishes the accounting and reporting guidance for arrangements under which the vendor will perform multiple revenue – generating activities. Vendors often provide multiple products or services to their customers. Those deliverables often are provided at different points in time or over different time periods. Specifically, this Subtopic addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The amendments in this guidance will affect the accounting and reporting for all vendors that enter into multiple-deliverable arrangements with their customers when those arrangements are within the scope of this Subtopic. This Statement is effective for fiscal years beginning on or after June 15, 2010. Earlier adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity will apply the amendments under this Subtopic retrospectively from the beginning of the entity’s fiscal year. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. This Statement had no impact on the financial statements of the Company upon adoption.
The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated 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 consolidated financial statements.
NOTE 8 SUBSEQUENT EVENTS
The Company signed a foreign distribution agreement with Vanguard International Cinema (“Vanguard”) February 1, 2011. The agreement grants Vanguard the exclusive worldwide rights to sell, license, sub-license, and distribute the Company’s film, Four Stories of St. Julian, with the exception of the United States, Canada and Puerto Rico, which Vanguard licensed in a previous agreement.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Plan of Operations
The Company’s plan of operations for the next 12 months is to continue with its current efforts in the independent film production arena. 4th Grade has been involved in the film production primarily focused on developing, financing, producing, marketing and distributing film content within the independent film market.
4th Grade produced a feature-length film, Four Stories of St. Julian (the “Film” or “St. Julian”). The company recently signed a distribution agreement for Four Stories of St. Julian with Vanguard Cinema and granting the exclusive right to distribute the film in all DVD, digital and television markets in the United States, Puerto Rico, and Canada. 4th Grade continues to seek new film projects and plans to begin pre-production of another film project within the next twelve months.
During the quarter ended September 30, 2010, the Company developed a new website 4thgradefilms.com and also produced a new short-format film, Moist Nights (the “Short-Film” or “Moist Nights”). The website was developed to provide additional marketing efforts for the St. Julian film, which was released by Vanguard Cinema on August 24, 2010. In addition to the website the Company also developed a youtube channel and facebook page to promote the Company’s current and future projects. Along with the website and social-media marketing the Company produced Moist Nights as a promotional video to showcase St. Julian. The Company does not anticipate generating any revenue directly from Moist Nights.
During the quarter ended December 31, 2010, the Company continued to build awareness through its social networking efforts through the Company’s website, youtube channel and facebook page. The Company also continued to seek a distributor to license St. Julian to all worldwide markets with the exception of United States, Canada and Puerto Rico, which have already been licensed.
On February 1, 2011, the Company signed a foreign distribution agreement granting Vanguard International Cinema (“Vanguard”) the exclusive worldwide rights to sell, license, sub-license, and distribute the Company’s film, Four Stories of St. Julian, with the exception of the United States, Canada and Puerto Rico, which Vanguard licensed in a previous agreement. The Company licensed all media rights to Vanguard including Home Video, DVD, VOD, Broadcast Television, Satellite Television, Cable Television, Hospitality Television, Educational, Institutional, Theatrical, Pay Per View, IP, and mobile.
9
The Company will continue seeking opportunities developing, financing, producing, marketing and distributing additional media content. The Company does not currently have any projects in production, but plans to begin pre-production of another film project within the next twelve months. The Company’s management may advance the Company monies, not to exceed $50,000, to finance future projects or fund working capital requirements. The monies advanced from the Company’s management will be non-secured loans to the Company. The loan will be on terms no less favorable to the Company than would be available from a commercial lender in an arm’s length transaction. The Company is also seeking financing from outside sources to fund future projects. These funds may be raised as either debt or equity, but management does not have any plans or relationships currently in place and can provide no assurance that it will be able to obtain such funds.
The Company has accumulated losses since inception and has not been able to generate profits from operations. As mentioned above, the Company signed a distribution agreement with Vanguard Cinema to distribute St. Julian through various media channels throughout the United States, Puerto Rico and Canada. Effective February 1, 2011 the Company signed a foreign distribution agreement to distribution St. Julian to all other worldwide markets. The Company received $737 in revenue for the quarter ended December 31, 2010 The Company can provide no assurance that revenue generated will be sufficient to fund future operating activities. Operating capital, including the proceeds to finance the Film has been raised through the Company’s shareholders and management.
The Company’s plan of operation for the next twelve months will continue to be managed and operated solely by the Company’s officers and directors. Other than the Company officers and directors the Company does not 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 of the Company’s ability to continue as a going concern.
The Company’s common stock currently trades on the Over-the-Counter Bulletin Board (OTCBB) under the symbol FHGR.
Results of Operations
Three Months Ended December 31, 2010 compared to Three Months Ended December 31, 2009
Operating Results – Overview
The three month period ended December 31, 2010, resulted in a net loss of $2,758. The Basic Loss per Share for the three month period ended December 31, 2010 was ($0.01). Details of changes in revenues and expenses can be found below.
Operating Results – Revenue
In the quarter ended December 31, 2010 the Company generated $737 in revenue from a distribution agreement the Company has with its film St. Julian. The Company generated a net loss of $2,758 for the quarter ended December 31, 2010. For the quarter ended December 31, 2009 the Company generated no revenue and a net loss of $6,203. The Company will not provide any forecasts of future earnings or profitability. The future success of the Company cannot be ascertained with any certainty. Through two different distribution agreements with Vanguard Cinema the Company has licensed the rights of St. Julian to be distributed through various media channels throughout the world. The Company has received nominal revenue from this distribution agreement, and can provide no assurance or forecast of revenue that will be generated from this agreement in the future.
Operating Results – Cost of Goods Sold / Cost of Revenues
Cost of revenues was $737 for the three month period ended December 31, 2010. Cost of revenues includes amortization of film production costs of $737.
10
Operating Results – Operating Expenses
Operating expense for the three month period ended December 31, 2010, was $2,032 compared with $5,789 for the three month period ended December 31, 2009. Operating expenses included professional fees, general administrative expenses, and impairment of unamortized films costs.
The Company's professional fees include accounting, legal fees, website development, film production, and distribution sales agent fee.
Accounting expenses incurred in the three month period ended December 31, 2010 totaled $1,587 and $3,536 for the period ended December 31, 2009.
The Company incurred $0 in legal fees in the quarter ended December 31, 2010 compared to $0 in legal fees in the quarter ended December 31, 2009.
The Company incurred $200 in website development expenses in the quarter ended December 31, 2010 and $0 in the quarter ended December 31, 2009. The Company also incurred $0 in post-production expenses in the quarter ended December 31, 2010 and $0 in the quarter ended December 31, 2009.
The Company incurred expenses associated with Circus Road Films, Inc., a distribution sales agent, engaged to market the Film. The Company capitalized the $7,500 upfront costs as a prepaid expense and expensed it over a 12 month period. The Company expensed the final $625 of the prepaid expense in the quarter ended September 30, 2010. The Company amortized $1,250 of prepaid expenses in the quarter ended December 31, 2009.
The Company incurred $445 in other general and administrative expenses for the three month period ended December 31, 2010 and $2,253 in other general and administrative expenses for the three month period ended December 31, 2009. The decrease in expenses for December 31, 2010 compared to the same period in 2009 is due to the completion of the agreement with Circus Road Films, which had been completely expensed in prior periods over the term of the contract.
The Company estimates annual accounting expenses to be approximately $10,000. Management estimates legal expenses for the fiscal year to be approximately $5,000.
Operating Results – Interest Expenses
The Company incurred $726 in interest expense for the quarter ended December 31, 2010 and $414 in interest expense for the quarter ended December 31, 2009. The increase in interest expense for the quarter ended December 31, 2010, was attributed to an increase in the outstanding loan balance from James Doolin, the Company's President and director, and Michael Doolin, a shareholder of the Company.
Liquidity and Capital Requirements
As of December 31, 2010, the Company had accounts receivable of $737, $15,317 in accounts payable and accrued liabilities. The Company had no inventory as of December 31, 2010, but has capitalized film development costs of $24,088.
The Company has a cash balance of $97 as of December 31, 2010. Management does not anticipate that the Company's existing cash balance will cover the Company's general expenses of operation for the next twelve months. However, the Company’s management will continue to advance the Company monies not to exceed $50,000, as loans to the Company. The loan will be on terms no less favorable to the Company than would be available from a commercial lender in an arm's length transaction. Currently a member of the Company’s management has loaned the Company approximately $23,277 in principal, and a shareholder has loaned the Company $6,113 in principal. If the Company needs funds in excess of $50,000, it will be up to the Company's management to raise such monies. These funds may be raised as either debt or equity, but management does not
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have any plans or relationships currently in place to raise such funds. The Company can provide no assurances that if additional funds are needed the Company will be able to obtain financing.
Off-balance Sheet Arrangements
None; not applicable
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4(T). Controls and Procedures.
Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including the President and Vice President, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of our management, including our President and Vice President, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our President and Vice President concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter covered by this Quarterly Report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None; not applicable.
Item 1A. Risk Factors
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None; not applicable.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None; not applicable.
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None; not applicable.
Item 6. Exhibits
(a) Exhibits
(b) Reports on Form 8-K
Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
4TH GRADE FILMS, INC.
(Issuer)
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Date:
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February 08 2011
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By:
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/s/James Doolin
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James Doolin, Principal Financial Officer / President & Director
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Quarterly Report has also been signed below by the following person on behalf of the Registrant and in the capacities and on the dates indicated.
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Date:
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February 08, 2011
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By:
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/s/Shane Thueson
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Shane Thueson, Principal Executive Officer, Vice President & Director
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