UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2003
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________________
Commission File Number 0-13245
NEW YORK FILM WORKS INC.
(Exact name of registrant as specified in its charter)
New York
| 13-3051895
|
(State or other jurisdiction of incorporation or organization)
| (IRS Employer Identification No.)
|
928 Broadway, New York, New York
| 10010
|
(Address of principal executive offices)
| (Zip Code)
|
(212) 475-5700
(Registrant's telephone number, including area code)
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 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 |_| NO |X|
As of November 1, 2003, the Registrant had outstanding shares of common stock.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
NEW YORK FILM WORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of July 31, 2003
Consolidated Statements of Operations for the Three and Nine Months Ended July 31, 2003 and 2002
Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended July 31, 2003
Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2003 and 2002
Notes to Consolidated Financial Statements
NEW YORK FILM WORKS, INC.
CONSOLIDATED BALANCE SHEET
JULY 31, 2003
(UNAUDITED)
ASSETS |
|
Current assets |
|
Cash | $ 9,587 |
Accounts receivable, net of allowance |
|
for doubtful accounts of $7,668 | 38,237 |
Inventory | 4,111 |
Prepaid expenses | 29,397 |
|
|
Total current assets | 81,332 |
|
|
Property and equipment, net of
accumulated depreciation of $2,451,112 |
251,917
|
|
|
Other assets |
|
Domain names | 1,268,147 |
Website development | 51,399 |
Security deposits | 30,958 |
|
|
Total other assets | 1,350,504 |
|
|
| $ 1,683,753 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities |
|
Accounts payable and accrued expenses | $ 161,814 |
Current portion of capital lease obligation | 52,483 |
Loans payable - stockholder | 115,000 |
|
|
Total current liabilities | 329,297 |
|
|
Long term liabilities |
|
Due to related party | 324,407 |
Capital lease obligation, net of current portion | 47,015 |
|
|
Total long term liabilities | 371,422 |
|
|
Total liabilities | 700,719 |
|
|
Stockholders’ equity |
|
Common stock, $.001 par value; 120,000,000 authorized; |
|
103,500,000 shares issued and outstanding | 103,500 |
Additional paid-in capital | 4,310,241 |
Accumulated deficit | (3,430,707) |
|
|
Total stockholders’ equity | 983,034 |
|
$ 1,683,753
|
See accompanying notes to the financial statements.
NEW YORK FILM WORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Nine Months Ended July 31 | Three Months Ended July 31, |
| 2003 | 2002 | 2003 | 2002 |
|
|
|
|
|
Net sales | $ 44,318 | $ 752,147 | $ 176,363 | $ 243,807 |
Costs of sales | 372,240 | 559,480 | 121,061 | 181,192 |
|
|
|
|
|
Gross profit | 172,078 | 192,667 | 55,302 | 62,615 |
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
Selling expenses | 55,796 | 78,575 | 15,585 | 15,141 |
General and administrative expenses | 241,692 | 245,784 | 73,911 | 73,002 |
|
|
|
|
|
Total operating expenses | 297,488 | 324,359 | 89,496 | 88,143 |
|
|
|
|
|
Net loss from operations | (125,410) | (131,692) | (34,194) | (25,528) |
|
|
|
|
|
Interest expense | 7,337 | 7,564 | 2,743 | 2,870 |
|
|
|
|
|
Net loss | $ (132,747) | $ (139,256) | $ (36,937) | $ ( 28,398) |
|
|
|
|
|
Loss per share – basic and diluted | $ (0.001) | $ (0.002) | $ (0.000) | $ (0.000) |
|
|
|
|
|
Weighted average number of shares | 92,388,890 | 91,000,000 | 91,000,000 | 91,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements.
NEW YORK FILM WORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 2003 AND JULY 31, 2002
(UNAUDITED)
| 2003 | 2002 |
Cash flows used in operating activities: | |
|
Net loss | $ (132,747) | $ (139,256) |
Adjustments to reconcile net loss to
net cash used in operating activities: |
| |
Depreciation | 29,513 | 14,322 |
Bad debts | 668 | - |
Increase (decrease) in cash flows from operating
activities resulting from changes in: |
|
|
Accounts receivable | 48,864 | 24,377 |
Inventory | 614 | (143) |
Prepaid expenses | 1,730 | 1,283 |
Security deposits | 1,100 | - |
Accounts payable and accrued expenses | (42,509) | 32,392 |
|
|
|
Net cash used in operating activities | (92,767) | (67,025) |
|
|
|
Cash flows used in investing activities: |
|
|
Purchase of fixed assets | - | (535) |
|
|
|
Cash flows provided by (used in) financing activities: |
|
|
Proceeds from loans payable | 115,000 | - |
Payments reducing capital lease obligations | (24,364) | (21,420) |
|
|
|
Net cash provided by (used in) financing activities: | 90,636 | (21,420) |
|
|
|
Net decrease in cash | (2,131) | (88,980) |
|
|
|
Cash, beginning of the period | 11,718 | 110,948 |
|
|
|
Cash, end of period | $ 9,587 | $ 21,968 |
|
|
|
|
|
|
See accompanying notes to the financial statements.
NEW YORK FILM WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company provides a variety of film processing, film finishing and image conversion and related services to professional photographers, corporate and institutional clients and to the amateur photography market throughout the New York Metropolitan area. In addition, the Company operates a full service dark-room/laboratory facilities and retail photography services.
The accompanying condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-KSB for the year ending October 31, 2002 filed by the Company with the Securities and Exchange Commission on October 20, 2003.
The accompanying condensed consolidated financial statements reflect, in the opinion of management, all adjustments (consisting primarily only of normal recurring adjustments) necessary to present fairly the results for the interim periods. The results of operations for the three and nine months ended July 31, 2003 are not necessarily indicative of results to be expected for the entire year ending October 31, 2003.
NOTE 2 – ACQUISITION
In June 2003, the Board of Directors of the Company approved a “Share Exchange Agreement” with the shareholders of Bladon Studios Limited (“Bladon”), a company organized under the laws of England and Wales, engaged in providing specialty facilities for natural history film and television makers and website design. Pursuant to SFAS 141, the Share Exchange Agreement was accounted for as a “reverse acquisition,” resulting in the Company being accounted for as the “acquired company.”
As part of this agreement the Company issued warrants to the Bladon shareholders to purchase for $100 a total of 940,909,091 shares of the Company’s common stock, which will represent 89% of the Company’s issued and outstanding common stock. These warrants are exercisable when the Company’s Certificate of Incorporation is amended to authorize sufficient shares of its common stock to allow such exercise.
The warrants will terminate and the purchase of Bladon will be rescinded in the event that the amendment to the Company’s Certificate of Incorporation is not completed by June 30, 2004.
The following table provides an analysis of the purchase price of Bladon Studios Limited.
Total purchase price | $1,035,933 |
Fair value of net asset acquired | 1,035,933 |
|
|
Excess of cost over fair value of net assets acquired allocated to goodwill |
$ -
|
Unaudited pro forma operating results for the nine months ended July 31, 2003, for the Company, assuming the acquisition of Bladon occurred on November 1, 2002, are as follows:
Revenues | $ 552,215 |
Net loss | (186,045) |
|
|
Loss per share – basic and diluted | $ (0.002) |
Pro forma information for the nine months ended July 31, 2002 is not presented since Bladon had no operations prior to November 1, 2002.
NOTE 3 – RECENTLY ISSUED ACCOUNTINGNSTANDARDS
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46, Consolidation of Variable Interest Entities, which requires variable interest entities (commonly referred to as SPEs) to be consolidated by the primary beneficiary of the entity if certain criteria are met. FIN No. 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. The adoption of this statement does not impact the Company's historical or present financial statements, as the Company has not created or acquired any variable interest entities, nor does it expect to in the future.
In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation, Transition, and Disclosure. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also required that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 required disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements of SFAS No. 148 are effective for interim periods beginning after December 15, 2002. The adoption of the provisions of SFAS No. 148 did not have an impact on the Company's financial statements. The Company has modified its quarterly reporting, commencing with the quarter ended April 30, 2003 as provided for in the new standard.
In November 2002, the EITF reached a consensus on EITF No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and / or rights to use assets. The provisions of EITF No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company believes that its current accounting is consistent with the provisions of EITF 00-21 and therefore does not expect that the application of the provisions of EITF 00-21 will have a material impact on the Company's financial statements.
In November 2002, the EITF reached a consensus on EITF No. 02-16, Accounting for Consideration Received from a Vendor by a Customer. EITF No. 02-16 provides guidance as to how customers should account for cash consideration received from a vendor. EITF No. 02-16 presumes that cash received from a vendor represents a reduction of the prices of the vendor's products or services, unless the cash received represents a payment for assets or services provided to the vendor or a reimbursement of costs incurred by the customer to sell the vendor's products. The provisions of EITF No. 02-16 will apply to all agreements entered into or modified after December 31, 2002. Management does not expect the provisions of EITF No. 02-16 to have a material impact on the Company's financial statements.
In November 2002, the FASB issued FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN No. 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of FIN No. 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not guarantee the indebtedness of others, therefore, there will not be any impact on the Company's financial statements and there was no need for the Company to modify its disclosures herein as required.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associates with Exit or Disposal Activities. SFAS No. 146 nullifies the accounting for restructuring costs provided in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability associated with an exit or disposal activity be recognized and measured at fair value only when incurred. In addition, onetime termination benefits should be recognized over the period employees will render service, if the service period required is beyond a minimum retention period. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. Management does not expect that the application of the provisions of SFAS No. 146 will have a material impact on the Company’s financial statements.
In January 2002, the Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) reached a consensus on EITF No. 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expense. EITF No. 01-14 required that reimbursements received for out-of-pocket expenses be classified as revenue on the income statement. This change has no material impact on the Company’s historical and present financial statements.
In November 2001, the FASB's EITF reached a consensus on EITF Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products, which is which is a codification of EITF Nos. 00-14, 00-22 and 00-25. This issue presumes that consideration from a vendor to a customer or reseller of the vendor's products to be a reduction in the selling prices of the vendor's product and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's income statement and could lead to negative revenue under certain circumstances. Revenue reduction is required unless consideration related to a separate identifiable benefit and the benefit's fair value can be established. This issue is to be applied retroactively in the first fiscal quarter beginning after December 15, 2001. The Company adopted this statement on February 1, 2002 with no material impact on its financial statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and discontinued operations. The Company adopted this statement on May 1, 2002 with no material impact on its financial statements.
NOTE 4 – LOANS PAYABLE AND RELATED PARTY TRANSACTIONS
The short-term loan is payable to a stockholder of the Company. The loan is due on demand with interest at 7.5% per annum. Subsequent to July 31, 2003 this stockholder advanced an additional $115,000. This additional advance is due on demand with interest at 7% per annum.
Long-term debt of $324,407 is due to a former shareholder of Bladon and is payable from future cash flow generated by the Company, is non-interest bearing and no payment is expected to be made within the next year.
NOTE 5 – ISSUANCE OF SHARES
On June 30, 2003, Gerald Cohen, a principal stockholder, converted $15,000 of short-term debt into 12,500,000 shares of the Company.
NOTE 6– STATEMENT OF CASH FLOWS – SUPPLEMENTAL DISCLOSURES
| July 31, |
| 2003 | 2002 |
|
|
|
Cash paid during year for interest | $ 6,527 | $ 8,926 |
|
|
|
Non-cash investing and financing activities: |
|
|
Acquisition of subsidiary
|
|
|
Domain names and website development | $ 1,319,546 | - |
Plant and equipment | 146,790 | - |
Accounts receivable | 9,406 |
|
Accounts payable and accrued expenses | (74,596) | - |
Capital lease obligations | (40,806) | - |
Due to related party | (324,407) | - |
Additional paid-in capital | (1,035,933) | - |
|
|
|
Short-term debt converted into equity | (15,000) | - |
Issuance of capital stock | 15,000 | - |
NOTE 7– SUBSEQUENT EVENTS
In September 2003, the Company entered into a lease for new space, which will expire on September 30, 2008. The lease includes provisions requiring the Company to pay a proportionate share of the increase in real estate taxes and operating expenses over base period amounts.
Minimum future rents for subsequent years are as follows:
October 31, |
|
2003 | $ 12,000 |
2004 | 147,000 |
2005 | 153,000 |
2006 | 158,000 |
2007 | 163,000 |
Thereafter | 155,000 |
|
|
| $ 788,000 |
Provided that the Company is not in default, the Company has the option to extend the lease for two additional years until September 30, 2010. The minimum rents during this two-year period will be $175,000 and $181,000 for years ending September 30, 2009 and 2010, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations - Three Months and Nine Months ended July 31, 2002 and 2003
The acquisition of Bladon Studios Limited on June 30, 2003 had no material impact on the Company’s Statement of Operations for the periods in question.
Total Sales include the selling price of the products and services sold by us. Total Sales for the three months ended July 31, 2003 were $176,363 as compared to sales of $243,807 for the corresponding period ended July 31, 2002. The demand for our products and services decreased by $67,444. Total Sales for the nine month period ended July 31, 2003 decreased by $207,829 from the corresponding period ended July 31, 2002; Total Sales for the current nine month period were $544,318 as compared to Total Sales of $752,147 for the nine months ended July 31, 2002. Nearly all of our sales were generated by sales to professional photographers, film dealers and photographic editors of magazines and periodicals. No single customer accounted for 10% or more of our sales revenues. Sales were lower due to the general poor conditions in the photographic marketplace.
The Cost of Sales decreased to $121,061 for the three months ended July 31, 2003 as compared to the reported Cost of Sales of $181,192 for the corresponding period ended July 31, 2002. During the nine months ended July 31, 2003, Cost of Sales decreased by approximately $187,240 from the corresponding period ended July 31, 2002; Cost of Sales for the current nine month period were $372,240 as compared to Cost of Sales of $559,480 for the nine months ending July 31, 2002. Gross profit as a percentage of sales increased from 25.7% to 31.4% for the three month period and from 25.6% to 31.6% for the nine month period.
Our General and Administrative Expenses consist of payroll, executive and administrative personnel expenses and other general corporate related expenses. Our General and Administrative Expenses remained constant for the three months ended July 31, 2002 and the three months ended July 31, 2003. General and Administrative Expenses for the nine months ended July 31, 2001 decreased to $241,692 from $245,784 for the nine months ended July 31, 2000. Our Selling and Shipping Expenses, remain constant for the three month period. Our Selling and Shipping Expenses for the nine months ended July 31, 2003 were $55,796 as compared to $78,575 for the corresponding period ended July 31, 2002.
Liquidity and Capital Resources
At July 31, 2003 our Company's Cash and Cash Equivalents were $9,587. Our Company had negative working capital of $247,965 ended July 31, 2003. The Company has been subsequently funded by a $115,000 loan from a stockholder and has subsequently reduced the accounts payable by renegotiating payments on the premises we occupy. However, any projections of future cash needs is subject to substantial uncertainty. We finance our operations primarily with existing capital and funds generated from operations.
Controls and Procedures
The Company is not required to furnish the information required by item 307 of Regulation S-B until its year ended July 31, 2005.
Item 3. Controls and Procedures
Based upon an evaluation performed within 90 days of this report, our CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that material information relating to our company is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared, and that our internal controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.
In accord with SEC requirements, the CEO and CFO note that, since the date of their evaluations to the date of this Quarterly Report, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
31.1 Chief Executive Officer - Rule 13a-14(a) Certification31.2 Chief Executive Officer - Rule 13a-14(a) Certification
32.1 Chief Executive Officer - Sarbanes-Oxley Act Section 906 Certification32.2 Chief Financial Officer - Sarbanes-Oxley Act Section 906 Certification
(b) We have not filed any reports on Form 8-K during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEW YORK FILM WORKS INC.
Date: November 7, 2003
| /s/ Roger Bailey
|
| Roger Bailey
|
| Chief Executive Officer
|
| | /s/ Barrington J. Fludgate |
| | Barrington J. Fludgate |
| | Chief Financial Officer |
