U.S. SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A1
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number:
March 31, 2003 2-98997-NY
NOVA INTERNATIONAL FILMS, INC.
- --------------------------------------------------------------------------------
(Exact name of Company as specified in its charter)
DELAWARE 11-2717273
------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
Suite 805, One Pacific Place, 88
Queensway, Hong Kong
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(Address of Principal Executive Offices) (Zip Code)
(852) 2591 1221
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(Company's telephone number, including area code)
Indicate by check mark whether the Company (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 Company was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock outstanding as of March 31, 2003 was
60,364,933.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
NOVA INTERNATION FILMS, INC.
FORM 10-QSB/A1
INDEX
Page
EXPLANATORY NOTE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements...................................... 1
Item 2. Management's Discussion and Analysis...................... 12
Item 3. Controls and Procedures................................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................... 16
Item 2. Changes in Securities and Use of Proceeds................. 16
Item 3. Defaults Upon Senior Security Holders..................... 16
Item 4. Submission of Matters to a Vote of Security Holders....... 16
Item 5. Other Information......................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................... 16
SIGNATURES .......................................................... 17
EXPLANATORY NOTE
----------------
Subsequent to the filing of the Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2003, the Company issued certain shares of the Company's
common stock that are related to the quarter ended March 31, 2003 and the
expenses incurred during this period should have been recorded in the Company's
consolidated financial statements for the quarter ended March 31, 2003. The
Company is filing this Amendment No. 1 on Form 10-QSB/A1 to restate the
previously filed consolidated financial statements on Form 10-QSB for the
quarter ended March 31, 2003. The restatements relate to the following:
a. On August 8, 2003, the Company approved a director's compensation agreement
with Mr. Jun-Tang Zhao, a director of the Company, to compensate him for
acting as a director and head of project development in China to
co-ordinate the Company's investment in the Baoding cable TV network with
the joint venture partner and local government for a period of two years
starting from February 28, 2003 by issuing 1,000,000 shares of the
Company's common stock. In accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") and the Emerging Issues Task Force Consensus in Issue No.
96-18, "Accounting for Equity Instruments that are issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
("EITF 96-18"), the Company has accounted for the issuance of stock as
director's compensation based on the fair market value of the Company's
stock as at the date of commencement of this agreement. For the three
months ended March 31, 2003, the Company expensed $25,833 associated with
this agreement as director's compensation and recorded a liability of
$25,833 at March 31, 2003 as the shares were issued subsequent to August 8,
2003. The director compensation agreement with Mr. Zhao was terminated on
October 27, 2003 and the remaining expense of $516,668 will be recorded in
the third quarter.
b. By a directors' resolution dated August 8, 2003, the Company's board of
directors approved the issuance of 1,200,000 shares of the Company's common
stock to Mr. Yau-Sing Tang, a director of the Company, for his services
rendered in connection with the acquisition of Solar Touch Limited in
February 2003. In accordance with SFAS 123 and EITF 96-18, the Company
expensed $744,000 associated with the issuance of these shares and included
this expense in "Merger Costs" for the three months ended March 31, 2003
and recorded a liability of $744,000 at March 31, 2003 as the shares were
issued subsequent to August 8, 2003.
All the information presented below in the consolidated financial statements and
the related notes include the above restatements and Item 2 - Management
Discussion and Analysis has been amended accordingly.
This Amendment No. 1 on Form 10-QSB/A1 does not reflect events occurring after
the filing of the Company's original Quarterly Report on Form 10-QSB for the
three months ended March 31, 2003, or modify, amend or update the disclosures
therein in any way other than as set forth above.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOVA INTERNATIONAL FILMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
(unaudited) (audited)
(restated)
CURRENT ASSETS
Cash $ 100 $ --
Deferred merger cost -- 20,468
Deferred consulting fees 2,705,796 --
------------ ------------
Total current assets 2,705,896 20,468
NON-CURRENT ASSETS
Equity investment 7,275,383 7,218,860
------------ ------------
Total assets $ 9,981,279 $ 7,239,328
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 851,036 $ 20,468
------------ ------------
Total liabilities 851,036 20,468
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common Stock, $.00001 par value;
100,000,000 shares authorized,
60,364,933 shares issued and outstanding 604 1,000
Additional paid-in capital 11,772,165 5,874,892
Retained earnings (deficit) (2,642,526) 1,342,968
------------ ------------
Total stockholders' equity 9,130,243 7,218,860
------------ ------------
Total liabilities and stockholders' equity $ 9,981,279 $ 7,239,328
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
1
NOVA INTERNATIONAL FILMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
(restated)
REVENUE $ -- $ --
EXPENSES
Director's compensation (25,833) --
Professional fees (11,926) --
Consulting fees (245,981) --
------------ ------------
LOSS FROM OPERATIONS (283,740) --
OTHER INCOME (EXPENSES)
Merger costs (3,758,277) --
Equity in earnings of investment 56,523 63,472
------------ ------------
PROFIT (LOSS) BEFORE TAXES (3,985,494) 63,472
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (3,985,494) $ 63,472
============ ============
Net income (loss) per share - basic and diluted $ (0.07 $ 0.00
============ ============
Weighted average no. of shares outstanding - basic and diluted 53,286,289 49,567,002
============ ============
Note: The number of weighted average shares outstanding at March 31, 2002 is
the amount of shares issued for the reverse merger and is for comparison
purposes only.
The accompanying notes are an integral part of these
consolidated financial statements.
2
NOVA INTERNATIONAL FILMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
(restated)
Cash flows from operating activities:
Net (loss) income $(3,985,494) $ 63,472
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock issued for consulting fees 245,981 --
Merger costs paid by the issue of shares 2,945,000 --
Equity in earnings of investment (56,523) (63,472)
Changes in operating assets and liabilities:
Decrease in deferred merger costs 20,468 --
Increase in accounts payable and accrued liabilities 830,568 --
----------- -----------
Net cash used in operating activities -- --
----------- -----------
Cash flows from financing activities:
Cash received in merger 1,809
Repayment of short term loan from related party (1,709) --
----------- -----------
Net cash provided by financing activities 100 --
----------- -----------
Net increase in cash 100 --
Cash at beginning of period -- --
----------- -----------
Cash at end of period $ 100 $ --
=========== ===========
The accompanying notes are an integral part of
these condensed statements.
3
NOVA INTERNATIONAL FILMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
1. DESCRIPTION OF BUSINESS AND BUSINESS COMBINATION
Nova International Films, Inc. (the "Company") was incorporated on November
27, 1984 in the State of Delaware. During February 2003, the Company acquired
all of the issued and outstanding shares of Solar Touch Limited ("Solar Touch")
from Kingston Global Co. Limited in a reverse merger. As consideration for Solar
Touch's shares, the Company issued 49,567,002 shares of its common stock. Solar
Touch is a British Virgin Islands corporation which owns a 49% equity interest
in Baoding Pascali Broadcasting Cable TV Integrated Information Networking Co.,
Limited ("Baoding").
Baoding, a company established in the People's Republic of China (the
"PRC") and located in the city of Baoding, was formed pursuant to a joint
venture agreement dated July 23, 1999 and signed between Baoding Pascali
Multimedia Transmission Networking Co. Limited (the "JV partner"), a state-owned
enterprise established in the PRC, and Solar Touch. Baoding is to operate for a
period of 20 years and is principally engaged in the construction and operation
of a cable integrated TV transmission network system in the same area.
2. BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared by Nova
International Films, Inc. and include all material adjustments which in the
opinion of the management are necessary for a fair presentation of financial
results for the three months ended March 31, 2003 and 2002. All adjustments and
provisions included in these statements are of normal recurring nature. The
December 31, 2002 audited balance sheet only includes the balances of Solar
Touch Limited and is for comparative purposes only. The information contained
herein is condensed from that which would appear in the annual financial
statements; accordingly, the financial statements included herein should be
reviewed in conjunction with the Solar Touch financial statements and related
notes thereto included in the Form 8K dated February 28, 2003 filed by the
Company with the Securities and Exchange Commission. In addition, the financial
statements included herein should be read in conjunction with the financial
statements of the Company included in the Form 10-KSB and Form 10-QSB for the
year ended October 31, 2002 and the three-month period ended January 31, 2003,
respectively. The results of operations for the interim period presented are not
necessarily indicative of the results that can be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amount of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ materially
from those results.
4
NOVA INTERNATIONAL FILMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS
Subsequent to the filing of the Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2003, the Company issued certain shares of the Company's
common stock that are related to the quarter ended March 31, 2003 and the
expenses incurred during this period should have been recorded in the Company's
consolidated financial statements for the quarter ended March 31, 2003. As a
result of issuance of those shares, the Company has restated its previously
reported consolidated financial statements for the three months ended March 31,
2003. The restatements relate to the following:
a. On August 8, 2003, the Company approved a director's compensation agreement
with Mr. Jun-Tang Zhao, a director of the Company, to compensate him for
acting as a director and head of project development in China to
co-ordinate the Company's investment in the Baoding cable TV network with
the joint venture partner and local government for a period of two years
starting from February 28, 2003 by issuing 1,000,000 shares of the
Company's common stock. In accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") and the Emerging Issues Task Force Consensus in Issue No.
96-18, "Accounting for Equity Instruments that are issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
("EITF 96-18"), the Company has accounted for the issuance of stock as
director's compensation based on the fair market value of the Company's
stock as at the date of commencement of this agreement. For the three
months ended March 31, 2003, the Company expensed $25,833 associated with
this agreement as director's compensation and recorded a liability of
$25,833 at March 31, 2003 as the shares were issued subsequent to August 8,
2003. The director compensation agreement with Mr. Zhao was terminated on
October 27, 2003 and the remaining expense of $516,668 will be recorded in
the third quarter.
b. By a directors' resolution dated August 8, 2003, the Company's board of
directors approved the issuance of 1,200,000 shares of the Company's common
stock to Mr. Yau-Sing Tang, a director of the Company, for his services
rendered in connection with the acquisition of Solar Touch Limited in
February 2003. In accordance with SFAS 123 and EITF 96-18, the Company
expensed $744,000 associated with the issuance of these shares and included
this expense in "Merger Costs" for the three months ended March 31, 2003
and recorded a liability of $744,000 at March 31, 2003 as the shares were
issued subsequent to August 8, 2003.
The effect of the restatements discussed above on the consolidated balance sheet
at March 31, 2003, the consolidated statement of operations for the three months
ended March 31, 2003 and the consolidated statement of cash flow for the three
month ended March 31, 2003, is shown in the following tables:
5
NOVA INTERNATIONAL FILMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS (Continued)
Consolidated Balance Sheet at March 31, 2003
--------------------------------------------
As previously
reported Restatements As restated
CURRENT ASSETS
Cash $ 100 $ 100
Deferred consulting fees 2,705,796 2,705,796
------------ ------------
Total current assets 2,705,896 2,705,896
NON-CURRENT ASSETS
Equity investment 7,275,383 7,275,383
------------ ------------
Total assets $ 9,981,279 $ 9,981,279
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 81,203 $ 769,833 $ 851,036
------------ ------------
Total liabilities 81,203 851,036
------------ ------------
STOCKHOLDERS' EQUITY
Common stocks 604 604
Additional paid-in capital 11,772,165 11,772,165
Retained deficit (1,872,693) (769,833) (2,642,526)
------------ ------------
Total stockholders' equity 9,900,076 9,130,243
------------ ------------
Total liabilities and stockholders' equity $ 9,981,279 $ 9,981,279
============ ============
6
NOVA INTERNATIONAL FILMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS (Continued)
Consolidated Statement of Operations
For the three months ended March 31, 2003
As previously
reported Restatements As restated
REVENUE $ -- $ --
EXPENSES
Director's compensation -- (25,833) (25,833)
Professional fees (11,926) (11,926)
Consulting fees (245,981) (245,981)
------------ ------------
LOSS FROM OPERATIONS (257,907) (283,740)
OTHER INCOME (EXPENSES)
Merger costs (3,014,277) (744,000) (3,758,277)
Equity in earnings of investment 56,523 56,523
------------ ------------
LOSS BEFORE TAXES (3,215,661) (3,985,494)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS $ (3,215,661) $ (3,985,494)
------------ ------------
Net loss per share - basic and diluted $ (0.06) $ (0.07)
============ ============
Weighted average no. of shares outstanding
basic and diluted $ 53,286,289 $ 53,286,289
============ ============
7
NOVA INTERNATIONAL FILMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS (Continued)
Consolidated Statement of Operations
------------------------------------
For the three months ended March 31, 2003
-----------------------------------------
As previously
reported Restatements As restated
Cash flows from operating activities:
Net loss $(3,215,661) (769,833) $(3,985,494)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued for consulting fees 245,981 245,981
Merger costs paid by the issue of shares 2,945,000 2,945,000
Equity in earnings of investment (56,523) (56,523)
Changes in operating assets and liabilities:
Decrease in deferred merger costs 20,468 20,468
Increase in accounts payable and accrued
liabilities 60,735 769,833 830,568
----------- -----------
Net cash used in operating activities -- --
----------- -----------
Cash flows from financing activities:
Cash received in merger 1,809 1,809
Repayment of short term loan from
related party (1,709) (1,709)
----------- -----------
Net cash provided by financing activities 100 100
----------- -----------
Net increase in cash 100 100
Cash at beginning of period -- --
----------- -----------
Cash at end of period $ 100 $ 100
=========== ===========
8
NOVA INTERNATIONAL FILMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
4. EQUITY INVESTMENT
The equity investment represents a 49% equity interest in Baoding, a
company established in the PRC and principally engaged in the construction and
operation of a cable integrated TV transmission network system in Baoding, the
PRC.
Baoding maintains its books and records in Renminbi ("RMB") the PRC's
currency. Translation of amounts in United States dollars ("US$") has been made
at the single rate of exchange of US$1.00:RMB8.3. No representation is made that
RMB amounts have been or could be, converted into US$ at that rate. On January
1, 1994, the PRC government introduced a single rate of exchange as quoted daily
by the People's Bank of China (the "Unified Exchange Rate"). This quotation of
exchange rates does not imply free convertibility of RMB to other foreign
currencies. All foreign exchange transactions continue to take place either
through the Bank of China or other banks authorized to buy and sell foreign
currencies at the exchange rate quoted by the People's Bank of China. Approval
of foreign currency payments by the Bank of China or other institutions requires
submitting a payment application form together with suppliers' invoices,
shipping documents and signed contracts.
As of March 31, 2003, the unaudited condensed balance sheet of Baoding was
as follows:
Current assets $ 1,639,994
Non-current assets 17,024,198
-----------
Total assets $18,664,192
-----------
Current liabilities $ 3,760,860
Non-current liabilities --
Capital and reserves 14,903,332
-----------
Total liabilities and equity $18,664,192
-----------
The unaudited results of operations of Baoding for the three months ended
March 31, 2003 and 2002 are summarized as follows:
2003 2002
Net sales $ 820,548 $ 844,388
--------- ---------
Income from operations $ 115,409 $ 131,183
Other income (expenses) (56) (1,649)
--------- ---------
Income before tax provision 115,353 129,534
--------- ---------
Income tax -- --
--------- ---------
Net income $ 115,353 $ 129,534
--------- ---------
The Company's equity in earnings
of Baoding (49%) $ 56,523 $ 63,472
========= =========
9
NOVA INTERNATIONAL FILMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
5. INCOME TAXES
The Company is a British Virgin Islands investment holding company and does
not carry on any business and does not maintain any offices in the United States
of America. No provision for income taxes or tax benefits for the Company has
been made.
The Company provides for deferred income taxes using the liability method,
by which deferred income taxes are recognized for al significant temporary
differences between the tax and financial statement bases of assets and
liabilities. The tax consequences off those differences are classified as
current or non-current based upon the classification of the related asset and
liabilities in the financial statements. No provision for deferred taxation has
been made, as there is no temporary difference at the balance sheet date.
6. EARNINGS (LOSS) PER COMMON SHARE
Basic EPS amounts are based on the weighted average shares of common stock
outstanding. Diluted EPS assumes the conversion, exercise or issuance of all
potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share. For presentation and comparative purposes, the Company has assumed
49,567,002 shares were outstanding during 2002 to the date of the reverse merger
of the Company and Solar Touch Limited.
7. CONSULTING AGREEMENTS
On February 28, 2003, the Company entered into one-year consulting
agreements with GCA Consulting Limited ("GCA") and Orient Financial Services,
Inc. ("Orient"). The services to be rendered include consultation and advisory
services relating to administrative and corporate development of the Company and
other managerial assistance as mutually agreed upon between the parties hereto.
As consideration for the services to be rendered, the Company issued 2,960,931
and 1,800,000 shares of common stock to GCA and Orient, respectively. In
accordance with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") and the Emerging Issues Task Force
Consensus in Issue No. 96-18, "Accounting for Equity Instruments that are Issued
to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" ("EITF 96-18"), the Company has accounted for the consulting agreement
based on the fair market value of the Company's stock at the commencement date
of the agreement. For the three months ended March 31, 2003, the Company
expensed $245,981 associated with these agreements and recorded deferred
consulting fees of $2,705,796 at March 31, 2003.
8. OPTION AGREEMENT
On February 28, 2003, the Company granted an option to DSS Associates,
Carter Fleming International Ltd., Grand Unison Limited, and Emerging Growth
Partners, Inc. (the "Optionees") to purchase an aggregate of 4,750,000 shares of
common stock of the Company for $50,000. The optionees facilitated the
acquisition of the Company and Solar Touch. In accordance with SFAS 123 and EITF
96-18, the Company expensed $2,945,000 associated with these options and
included this expense in "Merger Costs" for the three months ended March 31,
2003. On April 30, 2003, the optionees exercised the 4,750,000 options.
10
NOVA INTERNATIONAL FILMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
9. DIRECTOR'S COMPENSATION AGREEMENT
On August 8, 2003, the Company approved a director's compensation agreement
with Mr. Jun-Tang Zhao, a director of the Company, to compensate him for acting
as a director and head of project development in China to co-ordinate the
Company's investment in Baoding with the joint venture partner and local
government for a period of two years starting from February 28, 2003 by issuing
1,000,000 shares of common stock in the Company. In accordance with SFAS 123 and
EITF 96-18, the Company has accounted for the issuance of stocks as a director's
remuneration based on the fair market value of the Company's stock as at the
date of commencement of this agreement. For the three months ended March 31,
2003, the Company expensed $25,833 associated with this agreement and recorded a
liability of $25,833 at March 31, 2003. Subsequent to August 8, 2003, the
Company issued the relevant shares to Mr. Zhao. The director compensation
agreement with Mr. Zhao was terminated on October 27, 2003 and the remaining
expense of $516,668 will be recorded in the third quarter.
10. SHARES ISSUED TO MR. YAU-SING TANG
By a directors' resolution dated August 8, 2003, the Company's board of
directors approved the issuance of 1,200,000 shares of common stock of the
Company to Mr. Yau-Sing Tang, a director of the Company, for his services
rendered in connection with the acquisition of Solar Touch Limited in February
2003. In accordance with SFAS 123 and EITF 96-18, the Company expensed $744,000
associated with the issuance of these stocks and included this expense in
"Merger Costs" for the three months ended March 31, 2003 and recorded a
liability of $744,000 at March 31, 2003. Subsequent to August 8, 2003, the
Company issued the relevant shares to Mr. Tang. (See Note 3.)
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
This quarterly report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities Exchange Act of 1934. These statements relate to future events
or the Company's future financial performance. The Company has attempted to
identity forward-looking statements by terminology including "anticipates,"
"believes," "expects," "can," "continue," "could," estimates," "intends," "may,"
"plans," "potential," "predict," "should" or "will" or the negative of these
terms or other comparable terminology. Although the Company believes that the
expectation reflected in the forward-looking statements are reasonable, the
Company cannot guarantee future results, level of activity, performance or
achievements. The Company expectations are as of the date this Form 10-QSB is
filed, and the Company does not intend to update any of the forward-looking
statements after the date this quarterly report on Form 10-QSB is filed to
confirm these statements to actual results, unless required by law.
Overview
Nova International Films, Inc. (the "Company") was incorporated on November
27, 1984 in the State of Delaware. Prior to May 1993, the Company was
principally engaged in the business of developing, financing and producing
motion pictures for distribution. Since May 1993, however, the Company had had
no current business operations until on November 1, 2002, the Company signed a
Share Exchange Agreement (the "Exchange Agreement") to acquire a 100% ownership
interest in Solar Touch Limited ("Solar Touch") in exchange for 49,567,002
(post-split) shares of the Company's common stock. In addition, the Share
Exchange Agreement provides for the issuance of approximately 4,761,000
(post-split) shares to certain financial consultants. Solar Touch is a British
Virgin Islands corporation which owns a 49% equity interest in Baoding Pascali
Broadcasting Cable TV Integrated Information Networking, Co., Ltd. ("Baoding").
Baoding, a company established in the People's Republic of China, operates a
cable TV network in the municipality of Baoding, near Beijing, in the People's
Republic of China.
Pursuant to the Exchange Agreement, on February 28, 2003 (the "Closing
Date"), the Company acquired (the "Acquisition") from Kingston Global Co.
Limited ("Kingston") all of the issued and outstanding equity interests of Solar
Touch (the "Solar Touch Shares"). As consideration for the Solar Touch Shares,
the Company issued 49,567,002 shares of its common stock to Kingston and Sino
Concept Enterprises Limited (the "Sellers"). In addition to the common stock
issued to the Sellers, the Company also issued 4,760,931 shares to the Seller's
financial consultants. The consideration for the Acquisition was determined
through arms length negotiations between the management of the Company and the
Sellers.
On the Closing Date, Mr. Martin Rifkin resigned as President, Treasurer and
a Director of the Company. On the same day, Mr. William Rifkin resigned as
Chairman of the Board, Secretary and a Director of the Company. Effective March
1, 2003, Messrs. Jun-Tang Zhao, Raymond Ying-Wai Kwan, Yau-Sing Tang and George
Raney began serving their terms as members of the Board of Directors of the
Company. The newly elected directors appointed Mr. Raymond Ying-Wai Kwan as
Chief Executive Officer and Mr. Yau-Sing Tang as Chairman of the Board of
Directors and Chief Financial Officer.
On February 28, 2003, the Company granted an option to DSS Associates,
Carter Fleming International LTD, Grand Unison LTD, and Emerging Growth Partners
Inc. (the "Optionees") to purchase an aggregate of 4,750,000 (post-split) shares
of common stock in the Company for a total of $50,000. On April 30, 2003, the
Optionees exercised the option in full by delivering to the Company a duly
executed Notice of Exercise and by wire transferring the aggregate exercise
price for the shares to the Company.
12
Results of operations
Revenue
The Company had no revenue for the three months ended March 31, 2003 and
2002 respectively.
Loss from operations
For the three months ended March 31, 2003, the Company had a loss from
operations of $283,740 as compared to a loss from operation of $0 for the three
months ended March 31, 2002. The loss is primarily attributable to the
director's compensation of $25,833, the professional fees of $11,926 and the
consulting fees of $245,981.
Merger costs
For the three months ended March 31, 2003, the Company incurred merger
costs of $3,758,277 as a result of the Company's acquisition of Solar Touch in a
reverse merger whereas there was no such expense for the three months ended
March 31, 2002.
Equity in earnings of investment
This represents the Company's 49% share of undistributed earnings of its
investment in Baoding. For the three months ended March 31, 2003, the Company's
49% share of earnings of its investment in Baoding was $56,523 which was a
$6,949 or 11% decrease from $63,472 for the three months ended March 31, 2002.
This is primarily due to the decrease in net sales of Baoding by $23,840 or 3%
from $844,388 for the three months ended March 31, 2002 to $820,548 for the
three months ended March 31, 2003 and accordingly, the decrease in net income of
Baoding by $14,181 or 11% from $129,534 for the three months ended March 31,
2002 to $115,353 for the three months ended March 31, 2003.
Net income (loss)
The Company recorded a net loss of $3,985,494 for the three months ended
March 31, 2003 as compared to a net profit of $63,472 for the three months ended
March 31, 2002. This is primarily due to the merger costs of $3,758,277 incurred
in relation to the Company's acquisition of Solar Touch in a reverse merger, the
director's compensation of $25,833, the professional fees of $11,926 and the
consulting fees of $245,981.
Financial condition, liquidity, capital resources
As of March 31, 2003, we had cash of $100. As of March 31, 2003, our
current assets include deferred consulting fees of $2,705,796. As of March 31,
2003, our current liabilities include accrued merger expense of $813,277,
accrued directors' compensation of $25,833, and accrued professional fees of
$11,926.
We had no significant capital expenditure commitment outstanding as of
March 31, 2003.
Plan of Operation
In view of the absence of working capital to finance the Company's
operations and working captial requirements, the Company is looking for the
opportunity of raising necessary capital by private placement of new shares or
issuance of debentures. In the meantime, the Company's sole means to pay for its
overhead is its existing cash in total amount of $100 as of March 31, 2003.
Accordingly, the Company does not pay any officer salaries and rent. The
13
Company's costs mainly include only those costs necessary to retain its
corporate charter, file necessary tax returns and report to the Securities and
Exchange Commission, and certain professional expenses such as accountants' and
attorney's fees to maintain the corporate compliance. We believe that we have
access to sufficient working capital to provide for these costs.
Exchange rate
Fluctuations of currency exchange rates between Renminbi and United States
dollar could adversely affect our business since our sole investment conducts
its business primarily in China, and its revenue from operations is settled in
Renminbi. The Chinese government controls its foreign reserves through
restrictions on imports and conversion of Renminbi into foreign currency.
Although the Renminbi to United States dollar exchange rate has been stable
since January 1, 1994 and the Chinese government has stated its intention to
maintain the stability of the value of Renminbi, there can be no assurance that
exchange rates will remain stable. The Renminbi could devalue against the United
States dollar. Exchange rate fluctuations may adversely affect our revenue
arising from the sales of products in China and denominated in Renminbi and our
financial performance when measured in United States dollar.
Recent accounting pronouncements
In April 2002, The Financial Accounting Standards Board (FASB) issued SFAS
Statement No. 145, "Recission of FASB Statements No. 4, 22 and 64. Amendment of
FASB Statement No. 13, and Technical Corrections." The Statement addresses the
accounting for extinguishment of debt, sale-leaseback transactions and certain
lease modifications. The Statement is effective for transactions occurring after
May 15, 2002. The Company does not expect the adoption of Statement No. 15 to
have a material impact on the Company's future results of operations or
financial position.
In July 2002, the FASB issued SFAS Statement No. 146, "Accounting for Cost
Associated with Exit or Diposal Activities." The Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supercedes Emergin Issues Task Force Issue No. 94-3, "Liabilitiy Recognition
for Certain Employee Termination Benefits and Other Costs to Exit and Activity
(Including Certain Costs Incurred in a Restructing)." The provisions of
Statement No. 146 are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect the adoption of
Statement No. 146 to have a material impact on the Company's future results of
operations or financial position.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Acquisitions of Financial Institutions, except Transactions between
Two or More Mutual Enterprises." The Company does not expect this standard will
have any effect on its financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN 45 is not expected to have a material effect on the
Company's financial position, results of operations, or cash flows.
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In December 2002, the FASB issued SFAS No.148, "Accounting for Stock-Based
Compensation. Transition and Disclosure" SFAS No. 148 amends SFAS No. 123
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company does not expect the adoption of SFAS No. 148 to have a
material effect on our financial position, results of operations, or cash flows.
ITEM 3. CONTROLS AND PROCEDURES
1) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in the reports filed under the Exchange Act of 1934 is
accumulated and communicated to the Company's management, including its
principal executive and financial officers, as appropriate, to allow timely
decisions regarding required disclosure.
Within the 90 days prior to the filing of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including its principal executive and financial officer of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon and as of the date of that evaluation, the
Company's principal executive and financial officer concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that Company files and submits under the
Exchange Act of 1934 is recorded, processed, summarized and reported as and when
required.
2) Changes in Internal Control
There were no changes in the Company's internal controls or in other
factors that could have significantly affected those controls subsequent to the
date of the Company's most recent evaluation.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds.
On February 28, 2003, we issued 49,567,002 shares of our common stock as
consideration for the acquisition of all of the issued and outstanding equity
interests of Solar Touch Limited. These shares were issued to two parties
located in the People's Republic of China pursuant to Section 4(2) of the
Securities Act of 1933, as amended. In addition, we also issued 4,760,931 shares
to the Sellers' financial consultants. The consideration for the acquisition was
determined through arms length negotiations between the management of the
Company and the Sellers.
Subsequent to March 31, 2003, we issued 1,000,000 shares of common stock to
Mr. Jun-Tang Zhao, a director of the Company, as compensation for services to
the Company. A portion of these services related to the three months ended March
31, 2003 (see Note 9 to the consolidated financial statements). Also subsequent
to March 31, 2003, we issued 1,200,000 shares of common stock to Mr. Yau-Sing
Tang, a director of the Company, for services rendered in connection with the
acquisition of Solar Touch Limited in February 2003 (see Note 10 to the
consolidated financial statements). These issuances were made pursuant to
Section 4(2) of the Securities Act of 1933, as amended, and pursuant to
Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
number Description
31 Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certifications of the Chief Executive Officer and the Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
16
(b) Reports on Form 8-K:
During the three months ended March 31, 2003, the Company filed the
following report on the Form 8-K:
Form Filing date Event reported
8-K January 10, 2003 A report on Form 8-K (item 4), which
announced the change in the Company's
certifying accountant
8-K February 28, 2003 A report on Form 8-K (items 1, 2 and 5)
which announced the changes in control
of the Company, the Company's
acquisition of Solar Touch and the
change in the address of the Company's
principal executive office
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NOVA INTERNATIONAL FILMS, INC.
Date: November 12 , 2003 /s/ Raymond Ying-Wai Kwan
-------------------------------------
Name: Raymond Ying-Wai Kwan
Title: Chief Executive Officer
Date: November 12, 2003
/s/ Yau-Sing Tang
-------------------------------------
Name: Yau-Sing Tang
Title: Chief Financial Officer
17