STWC. Holdings, Inc. - Quarter Report: 2013 September (Form 10-Q)
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 September 30, 2013
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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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [X] No [ ] (The Registrant does not have a corporate Web site.)
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 November 12, 2013
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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.
September 30, 2013
C O N T E N T S
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Condensed Balance Sheets
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3
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Condensed Statements of Operations
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4
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Condensed Statements of Cash Flows
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5
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Notes to Condensed Financial Statements
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6
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2
4th Grade Films, Inc.
(A Development Stage Company)
Condensed Balance Sheets
September 30, 2013 and June 30, 2013
(Unaudited)
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9/30/2013
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6/30/2013
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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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$ | 1,141 | $ | 1,091 | ||||
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Accounts Receivable
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91 | - | ||||||
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Total current assets
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1,232 | 1,091 | ||||||
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Total Assets
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$ | 1,232 | $ | 1,091 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Liabilities
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Current Liabilities
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Accrued Liabilities - related party
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$ | 25,511 | $ | 22,701 | ||||
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Accounts Payable
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7,455 | - | ||||||
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Income Taxes Payable
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100 | 100 | ||||||
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Total Current Liabilities
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33,066 | 22,801 | ||||||
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Long Term Liabilities
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Note Payable - Shareholder
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91,869 | 89,118 | ||||||
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Total Long Term Liabilities
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91,869 | 89,118 | ||||||
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Total Liabilities
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124,935 | 111,919 | ||||||
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Stockholders' Deficit
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Preferred Stock - 5,000,000 shares
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authorized at $0.01 par; 0 shares
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issued and outstanding (Series A
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Convertible)
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- | - | ||||||
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Common Stock - 50,000,000 shares
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authorized at $0.01 par; 2,345,000 and
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2,345,000 shares issued and outstanding
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23,450 | 23,450 | ||||||
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Additional Paid-in Capital
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123,762 | 123,762 | ||||||
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Deficit Accumulated during the development stage
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(270,915 | ) | (258,040 | ) | ||||
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Total Stockholders' Deficit
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(123,703 | ) | (110,828 | ) | ||||
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Total Liabilities and Stockholders' Deficit
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$ | 1,232 | $ | 1,091 | ||||
See accompanying notes to condensed financial statements.
3
4th Grade Films, Inc.
(A Development Stage Company)
Condensed Statements of Operations
For the Three Months Ended September 30, 2013 and 2012, and
For the Period from Inception [April 25, 2007] through September 30, 2013
(Unaudited)
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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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Since Inception
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Ended
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Ended
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through
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9/30/2013
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9/30/2012
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9/30/2013
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Revenues
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$ | 141 | $ | - | $ | 1,372 | ||||||
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Revenues - Related Party
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- | - | 2,000 | |||||||||
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Total Revenues
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141 | - | 3,372 | |||||||||
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Cost of Revenues
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- | - | 1,231 | |||||||||
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Gross Profit
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141 | - | 2,141 | |||||||||
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Operating Expenses
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Professional Expenses
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10,540 | 9,025 | 117,538 | |||||||||
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SG&A
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225 | 235 | 32,809 | |||||||||
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Impairment of unamortized film -
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development costs
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- | - | 98,917 | |||||||||
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Total Operating Expenses
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10,765 | 9,260 | 249,264 | |||||||||
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Net Loss from Operations
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(10,624 | ) | (9,260 | ) | (247,123 | ) | ||||||
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Interest Expense - Related Party
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(2,251 | ) | (1,734 | ) | (23,092 | ) | ||||||
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Net Loss Before Income Taxes
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(12,875 | ) | (10,994 | ) | (270,215 | ) | ||||||
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Provision for Income Taxes
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- | - | 700 | |||||||||
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Net Loss
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$ | (12,875 | ) | $ | (10,994 | ) | $ | (270,915 | ) | |||
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Loss Per Share - Basic and Diluted
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.13 | ) | |||
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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 | 2,060,247 | |||||||||
See accompanying notes to condensed financial statements.
4
4th Grade Films, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
For the Three Months Ended September 30, 2013 and 2012, and
For the Period from Inception [April 25, 2007] through September 30, 2013
(Unaudited)
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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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Since Inception
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Ended
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Ended
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through
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9/30/2013
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9/30/2012
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9/30/2013
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Cash Flows from Operating Activities
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Net Loss
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$ | (12,875 | ) | $ | (10,994 | ) | $ | (270,915 | ) | |||
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Adjustments to reconcile net loss to net cash
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Provided by/(Used in) by Operating Activities:
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Issued Common Stock in Exchange for Payment of Expenses
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- | - | 5,212 | |||||||||
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Impairment of Capitalized Film Development Costs
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- | - | 98,917 | |||||||||
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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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- | - | 1,231 | |||||||||
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(Increase)/Decrease in Accounts Receivable
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(91 | ) | 9 | (91 | ) | |||||||
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Increase/(Decrease) in Accounts Payable
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7,455 | 7,525 | 7,455 | |||||||||
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Increase/(Decrease) in Accrued Liabilities- related party
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2,810 | 1,225 | 25,511 | |||||||||
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Increase/(Decrease) in Income Taxes Payable
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- | - | 100 | |||||||||
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Accrued Interest included in Notes Payable Balance
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2,251 | 1,734 | 23,092 | |||||||||
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Net Cash Used in Operating Activities
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(450 | ) | (501 | ) | (209,637 | ) | ||||||
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Cash Flows from Financing Activities
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Proceeds from Loan from Shareholder
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500 | 500 | 88,778 | |||||||||
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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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500 | 500 | 210,778 | |||||||||
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Net Increase (Decrease) in cash
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50 | (1 | ) | 1,141 | ||||||||
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Beginning Cash Balance
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1,091 | 3 | - | |||||||||
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Ending Cash Balance
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$ | 1,141 | $ | 2 | $ | 1,141 | ||||||
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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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$ | - | $ | - | $ | 700 | ||||||
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Common Stock Issued in Exchange for Payment of Expenses
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$ | - | $ | - | $ | 5,212 | ||||||
See accompanying notes to condensed financial statements.
5
4th Grade Films, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
September 30, 2013
(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, 2013. The results of operations for the period ended September 30, 2013, 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 loss of $12,875 for the three months ended September 30, 2013. 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
As of September 30, 2013, James Doolin, a shareholder of the Company and a former officer and director, loaned the Company an aggregate of $52,587 on an unsecured line of credit. The total funding available to the Company under the line of credit is $100,000. The line accrues interest at 10% per annum and matures on December 31, 2014. As of September 30, 2013, the outstanding balance owed to the shareholder was $71,908 including accrued interest. For the three months ended September 30, 2013 the Company accrued interest of $1,760 on the line.
6
As of September 30, 2013, Michael Doolin, a shareholder of the Company, loaned the Company an aggregate of $16,191 on an unsecured line of credit. The total funding available to the Company under the line of credit is $50,000. The line accrues interest at 10% per annum and matures on December 31, 2014. As of September 30, 2013, the outstanding balance owed to the shareholder was $19,961, including accrued interest. For the three months ended September 30, 2013 the Company has accrued interest of $491 on the line.
As of September 30, 2013, 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 a shareholder of the Company at a cost of $75 per month. The Company also pays James Doolin a fee of $500 per Form 10-Q and $1,000 per Form 10-K to prepare the Company’s EDGAR filings. As of September 30, 2013, the Company has accrued $9,400 related to these arrangements.
During the quarter ended September 30, 2013 legal services were provided by a shareholder. The total expense incurred for these services was $1,585 for the quarter ending September 30, 2013. As of September 30, 2013, the outstanding amounts payable to the shareholder was $16,111.
NOTE 5 RECENT ACCOUNTING PRONOUNCEMENTS
The Company has reviewed all 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.
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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 Operation
The Company’s plan of operations for the next 12 months is to continue with its current efforts in the independent film production arena. The Company has also entered the Corporate Promotional Video Market. 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.
The Company will continue to seek opportunities developing, financing, producing, marketing and distributing additional media content. Over the past twelve months, the Company has developed several screenplays. The screenplays are “Working Late”, “Beaver Parade” and “Devil Music” (working title). The Company has been marketing the screenplays within the independent film community to try to generate interest in one or more of these projects. Over the past few years the Company’s management has developed a network and database of contacts within film studios, productions companies, literary agencies, and management companies, to whom it has concentrated its marketing efforts for the screenplays.
The Company recently began discussions with an independent film producer to provide screenplay writing services (“Pre-Production Services”) to the producer. The Company expects to execute an agreement within the next quarter whereby the Company will provide Pre-Production Services to the producer.
Along with marketing screenplays and providing Pre-Production Services the Company began a new line of business within the video production arena. The new line of business is involved in producing corporate and promotional videos. For the year ending June 30, 2013, the Company completed a promotional video project for a corporate customer. The Company hopes to grow this line of its business.
The Company’s management may advance the Company monies, not to exceed $150,000, to finance the existing and 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.
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The Company has accumulated losses since inception and has not been able to generate profits from operations. 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 distribute St. Julian to all other worldwide markets. The Company can provide no assurance that revenue generated from these distribution agreements will be sufficient to fund future operating activities.
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 about 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
Overview
The three months ended September 30, 2013 resulted in a net loss of $12,875. The three months ended September 30, 2012, resulted in a net loss of $10,994.
The basic loss per share for the three months ended September 30, 2013, was $0.01 and a loss per share of $0.01 for the three months ended September 30, 2012. Details of changes in revenues and expenses can be found below.
Revenues
The Company generated $141 in revenue from the Film for the three month period ended September 30, 2013, and generated no revenue for the three month period ended September 30, 2012.
Operating Expenses
Operating expense for the three months ended September 30, 2013, increased to $10,765 compared to $9,260 for the three months ended September 30, 2012. The increase can be attributed to higher legal fees.
Interest Expenses
Interest expense for the three months ended September 30, 2013, was $2,251, compared to $1,734 for the three months ended September 30, 2012. The outstanding Notes Payable balances were higher for the three months ended September 30, 2013; therefore, the Company incurred greater interest expenses compared to the three month period ended September 30, 2012.
Liquidity and Capital Requirements
As of September 30, 2013, the Company had current assets of $1,232 and $33,066 in current liabilities. The Company had no inventory as of September 30, 2013.
9
The Company has a cash balance of $1,141 as of September 30, 2013. 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 $150,000, 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 two shareholders, James Doolin and Michael Doolin, have loaned the Company money. James Doolin has loaned the Company approximately $52,587 in principal. Michael Doolin has loaned the Company $16,191 in principal. If the Company needs funds in excess of $150,000, it will be up to the Company's management to raise such monies. These funds may be raised as either debt or equity, but management does not have any plans or relationships currently in place to raise such funds. The Company can provide no assurances that if additional funds are needed the Company will be able to obtain financing.
Off-balance Sheet Arrangements
None; not applicable
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. 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.
10
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None; not applicable.
None; not applicable.
Item 6. Exhibits
(a) Exhibits
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Exhibit No.
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Identification of Exhibit
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31.1
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Certification of Shane Thueson Pursuant to Section 302 of the Sarbanes-Oxley Act.*
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31.2
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Certification of Nicholl Doolin Pursuant to Section 302 of the Sarbanes-Oxley Act.*
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32
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Certification of Shane Thueson and Nicholl Doolin Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act.*
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101.INS
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XBRL Instance Document**
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101.SCH
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XBRL Taxonomy Extension Schema**
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase**
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase**
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101.LAB
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XBRL Taxonomy Extension Label Linkbase**
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase**
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* Filed herewith.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
(b) Reports on Form 8-K
11
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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11/12/13
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By:
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/s/Shane Thueson
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Shane Thueson, Principal Executive 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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11/12/13
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By:
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/s/Nicholl Doolin
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Nicholl Doolin, Principal Financial Officer, Vice President & Director
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12