HLWD Almost Never Films Inc (CE)

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Share Exchange

On January 15, 2016, pursuant to the share exchange agreement, among Almost Never Films Inc. (f/k/a Smack Sportswear), a Nevada corporation (the “Company”, “we,” “our” or “us”), Almost Never Films Inc., an Indiana corporation (“ANF”), and the two shareholders of ANF (the “ANF Shareholders”), we issued to the ANF Shareholders, an aggregate of 1,000,000 shares of our Series A Convertible Preferred Stock (the “Series A Convertible Preferred Stock”), par value $0.001 per share in exchange for all 100,000,000 shares of the issued and outstanding common stock of ANF (the “Share Exchange”). As a result of the Share Exchange, ANF became our wholly-owned subsidiary, and our business became the business of ANF, effective January 15, 2016.

As part of Share Exchange, Doug Samuelson, our sole officer prior to the Share Exchange, resigned as Interim Chief Executive Officer and Chief Financial Officer of the Company and Danny Chan was elected as our new Chief Executive Officer, new Chief Financial Officer and a director on our board of directors (the “Board”), and Derek Williams was elected as our Chief Operating Officer. Mr. Chan and Mr. Williams held the same executive office positions at ANF prior to the Share Exchange. Effective February 12, 2016, which was ten (10) days after the filing and distribution of an Information Statement on Schedule 14f-1 by the Company, Mr. Williams became a director on our Board, and Doug Samuelson resigned as a director on our Board.

Under accounting principles generally accepted in the United States of America ("GAAP"), the acquisition by us of ANF is considered to be a capital transaction in substance, rather than a business combination. This transaction is reflected as a recapitalization, and is accounted for as a change in capital structure.  Accordingly, the accounting for the acquisition is identical to that resulting from a reverse acquisition. Under reverse acquisition accounting, the comparative historical financial statements of the Company, as the legal acquirer, are those of the accounting acquirer, ANF.  As a result, the comparable financial statements for prior period will be the financial statements of ANF. The parties have taken all actions necessary to ensure that the Share Exchange is treated as a tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as amended.

On February 29, 2016, our corporate name was changed from “Smack Sportswear” to “Almost Never Films Inc.”  On March 2, 2016, the Company’s OTCQB trading symbol was changed from “SMAK” to “HLWD”.

On March 4, 2016, the ANF Shareholders converted all 1,000,000 shares of our Series A Convertible Preferred Stock into an aggregate of 100,000,000 shares of common stock of the Company. Following these conversions, no shares of Series A Convertible Preferred Stock were outstanding.

We continue to be a "smaller reporting company" and a “shell company,” each, as defined under the Securities and Exchange Act of 1943, as amended (the “Exchange Act”), following the Share Exchange.

Organizational History

We are a Nevada corporation incorporated on October 31, 2007 under the name Reshoot Production Company.  Our corporate name was changed to Smack Sportswear on December 15, 2011 and Almost Never Films Inc. on February 29, 2016. Subsequent to June 30, 2015, the Company ceased its operations relating to the manufacturing and sales of sportswear.

On January 15, 2016, the Company acquired ANF, a film company focused on film production and production related services in connection with genre specific motion pictures with production costs in the $5.0 million to $50.0 million range. As a result of this transaction, ANF became our wholly-owned subsidiary, and our business has become the business of ANF, effective January 15, 2016. See “— The Share Exchange ” for additional information.

Current Plan of Operations

As a result of the Share Exchange, effective January 15, 2016, we became a film company focused on film production and production related services in connection with genre specific motion pictures with production costs in the $5.0 million to $50.0 million range.

During the next 12 months, we estimate that we will need a minimum of $200,000 to utilize for development of scripts, $10,000 for travel related expenses and $95,000 for costs associated with operating as a public company, including legal and accounting fees.

If we are not successful and do not commence operations as planned, we estimate that we will need no less than $25,000 for working capital and $95,000 for costs associated with operating as a public company, including legal and accounting fees.

Critical accounting policies and estimates

 

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments 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. We continually evaluate our estimates and judgments, our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.

Going Concern

 

The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to our ability to continue as a going concern.

 

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management's efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.  

Results of Operations

For the three months ended March 31, 2016

During the three months ended March 31, 2016, the Company had no revenue and incurred $9,627 on general and administrative expenses and $30,175 on professional fees. The Company’s professional fees were primarily for ongoing regulatory requirements.

Other Expense

During the three months ended March 31, 2016, the Company incurred interest expenses of $4,990, relating to promissory notes payable.

During the three months ended March 31, 2016, the Company settled promissory notes payable and accrued interest totaling $248,600 in exchange for 49,720,000 common shares with a fair market value of $0.02 per share ,   resulting in a loss on debt settlement of $745,800 .

Net Loss

 

The Company’s net loss for the three months ended March 31, 2016 was $790,592.

Period from July 8, 2015 (inception) to March 31, 2016.

During July 8, 2015 (inception) to March 31, 2016, the Company had no revenue and incurred $11,550 on general and administrative expenses and $33,675 on professional fees. The Company’s professional fees were primarily for ongoing regulatory requirements.

Other Expense

During July 8, 2015 (inception) to March 31, 2016, the Company incurred interest expenses of $4,990, relating to promissory notes payable.

During July 8, 2015 (inception) to March 31, 2016, the Company settled promissory notes payable and accrued interest totaling $248,600 in exchange for 49,720,000 common shares with a fair market value of $0.02 per share.

Net Loss

The Company’s net loss from July 8, 2015 (inception) to March 31, 2016 was $796,015.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

 

As of March 31, 2016, we had a cash balance of $53,203.  We do not have sufficient funds to operate for the next twelve months. There can be no assurance that additional capital will be available to the Company. We currently have no agreements, arrangements or understandings with any person or entity to obtain funds through bank loans, lines of credit or any other sources.  Since the Company has no such arrangements or plans currently in effect, its inability to raise funds for the above purposes will have a severe negative impact on its ability to remain a viable company.

Going Concern Consideration

The accompanying condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. During the period from July 8, 2015 (inception) to March 31, 2016, the Company incurred a net loss from continuing operations of $796,015 and cash used in operating activities was $41,797, and as of that date, is delinquent in payments of $58,078 for accounts payable and $271,398 for payroll and sales taxes. As of March 31, 2016, the Company had a working capital deficiency of $482,909 and a shareholders’ deficit of $796,015. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. 

The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, an additional cash infusion and an identification of new business opportunities. During the period ended March 31, 2016, the Company raised $95,000 from investors to pay past obligations and to allow the Company to continue operating in its shell status. Management believes this funding and future funding will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow it to continue looking for opportunities to acquire operating companies or merge with other operational entities. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stock holders, in case of equity financing.

  

As of March 31, 2016, we had prepaid expenses of $5,000 and working capital deficit of $482,909.  The working capital deficit was primarily due to net liabilities assumed in the recapitalization .

 

Net cash used in operating activities was $41,797 from July 8, 2015 (inception) to March 31, 2016, primarily related to payment of professional fees.

 

There were no cash flows used in investing activities from July 8, 2015 (inception) to March 31, 2016.

 

Net cash flows provided by financing activities was $95,000 from July 8, 2015 (inception) to March 31, 2016 from investors to pay past obligations and to allow the Company to continue operating in its shell status

 

We do not have any material commitments for capital expenditures during the next twelve months.  Although our proceeds from the issuance of debt and our offering of shares of common stock is currently sufficient to fund our operating expenses, we anticipate we will need to raise additional funds in the future so that we can expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms.  However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.

Off-balance sheet arrangements

 

During July 8, 2015 to March 31, 2016, we did not have any "off-balance sheet arrangements" (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K).

 

Recent accounting pronouncements

Management has considered all recent accounting pronouncements issued since the last audit of our financial statements.  The Company's management believes that these recent pronouncements will not have a material effect on the Company's financial statements.