SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
--------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 28, 2003
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NOVA INTERNATIONAL FILMS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in Charter)
Delaware 2-98997-NY 11-2717273
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(State of Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Suite 805 One Pacific Place, 88 Queensway
Hong Kong
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (852) 2891 3130
-----------------------------
6350 N.E. Campus Drive, Vancouver, Washington 98661
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(Former Name or Former Address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Set forth below are the Financial Statements and Pro Forma Financial Statements
related to the Registrants acquisition of Solar Touch Limited, a British Virgin
Islands corporation on February 28, 2003. A Form 8-K detailing of the
acquisition was filed with the Securities and Exchange Commission on March 17,
2003.
(a) Financial Statements
SOLAR TOUCH LIMITED
INDEX TO FINANCIAL STATEMENTS
Pages
Report of Independent Auditors F-2
Balance Sheets as of December 31, 2002 and 2001 F-3
Statements of Operations for the years ended December 31, 2002 and 2001 F-4
Statements of Changes in Stockholders' Equity for the years ended
December 2002 and 2001 F-5
Statements of Cash Flows for the year ended December 31, 2002 and 2001 F-6
Notes to the Financial Statements F-7 - F-12
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF SOLAR TOUCH LIMITED
We have audited the accompanying balance sheets of Solar Touch Limited as of
December 31, 2002 and 2001, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 2002 and
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Baoding Pascali Broadcasting Cable TV Integrated Information Networking Co.,
Limited (Baoding), a joint venture, the investment in which, as discussed in
Note 3 to the financial statements is accounted for by the equity method of
accounting. The investment in Baoding was $7,218,860 and $6,573,413 as of
December 31, 2002 and 2001, respectively, and the equity in its net income was
$645,447 and $753,265 respectively, for the years then ended. The financial
statements of Baoding were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Baoding, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Solar Touch Limited as of December 31, 2002 and 2001
and the results of its operations and its cash flows for the years ended
December 31, 2002 and 2001 in conformity with generally accepted accounting
principles in the United States of America.
Thomas Leger & Co., L.L.P.
Houston, Texas
April 15, 2003
F-2
SOLAR TOUCH LIMITED
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(UNITED STATES DOLLARS)
ASSETS
2002 2001
---------- ----------
CURRENT ASSETS
Deferred merger costs $ 20,468 $ --
---------- ----------
Total current assets 20,468 --
Equity investment 7,218,860 6,573,413
---------- ----------
TOTAL ASSETS $7,239,328 $6,573,413
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued merger costs $ 20,468 $ --
---------- ----------
Total current liabilities 20,468 --
---------- ----------
STOCKHOLDERS' EQUITY Common Stock; $1 par value, 50,000
shares authorized; 1,000 and 100 shares issued
and outstanding
1,000 100
Additional paid-in capital 5,874,892 5,875,792
Retained earnings 1,342,968 697,521
---------- ----------
Stockholders' equity 7,218,860 6,573,413
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,239,328 $6,573,413
========== ==========
The accompanying footnotes are an integral part of these financial statements.
F-3
SOLAR TOUCH LIMITED
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(UNITED STATES DOLLARS)
2002 2001
----------- -----------
INCOME FROM OPERATIONS $ -- $ --
EQUITY IN EARNINGS ON INVESTMENT 645,447 753,265
----------- -----------
INCOME BEFORE TAX PROVISION 645,447 753,265
INCOME TAX EXPENSE -- --
----------- -----------
NET INCOME $ 645,447 $ 753,265
=========== ===========
The accompanying footnotes are an integral part of these financial statements.
F-4
SOLAR TOUCH LIMITED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(UNITED STATES DOLLARS)
Common Stock Additional
------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
Balance, January 1, 2001 100 $ 100 $ 5,875,792 $ (55,744) $ 5,820,148
Net income -- -- -- 753,265 753,265
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 100 100 $ 5,875,792 697,521 6,573,413
Common stock issued
to shareholders 900 900 (900) -- --
Net income -- -- -- 645,447 645,447
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 1,000 $ 1,000 $ 5,874,892 $ 1,342,968 $ 7,218,860
=========== =========== =========== =========== ===========
The accompanying footnotes are an integral part of these financial statements.
F-5
SOLAR TOUCH LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2002 AND 2001
(UNITED STATES DOLLARS)
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 645,447 $ 753,265
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings on investment (645,447) (753,265)
--------- ---------
Net cash provided by operating activities -- --
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS -- --
--------- ---------
CASH AND CASH EQUIVALENTS, at beginning of year -- --
--------- ---------
CASH AND CASH EQUIVALENTS, end of year $ -- $ --
========= =========
NON-CASH FINANCING AND INVESTING ACTIVITIES
Deferred and accrued merger costs $ 20,468 $ --
========= =========
The accompanying footnotes are an integral part of these financial statements.
F-6
SOLAR TOUCH LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Solar Touch Limited (the "Company") was incorporated in the British
Virgin Islands on April 26, 1999. The Company owns a 49% equity
interest in Baoding Pascali Broadcasting Cable TV Integrated
Information Networking Co., Limited ("Baoding"). The Company itself has
no income and expense except for the share of equity in earnings of
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 the
Company. Baoding is to operate for a period of 20 years. Baoding is
principally engaged in the construction and operation of a cable
integrated TV transmission network system in the same area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
---------------------
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles in the United States of
America.
Equity method of accounting
---------------------------
The equity method of accounting is used when the Company has a 20% to
50% interest in other entities. Under the equity method, original
investments are recorded at cost and adjusted by the Company's share of
undistributed earnings or losses of these entities.
Income taxes
------------
The Company accounts for income tax using Statements of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes".
SFAS No. 109 requires an asset and liability approach for financial
accounting and reporting for income taxes and allows recognition and
measurement of deferred tax assets based upon likelihood of realization
of tax benefits in future benefits in future years. Under the asset and
liability approach, deferred taxes are provided for the net tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes. A valuation allowance is provided for deferred tax
assets if it is more likely than not these items will expire before the
Company is able to realize their benefits, or that future deductibility
is uncertain.
F-7
SOLAR TOUCH LIMITED
NOTES TO THE FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Use of estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the reported
amounts in these accompanying financial statements and notes. Actual
amounts could differ from those estimates.
Recently issued accounting pronouncements
-----------------------------------------
In April 2002, the FASB issued SFAS No. 145: "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". This statement made revisions to the accounting
for gains and losses from the extinguishment of debt, rescinded
Statement No. 44, and required certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted
for in the same manner as sale-leaseback transactions. The Company is
required to and will adopt SFAS No. 145 on January 1, 2002. The
adoption of SFAS No. 145 is not expected to have a material impact on
the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires
that a liability for a cost that is associated with an exit or disposal
activity be recognized when the liability is incurred. This standard
nullifies the guidance of EITF Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". Under
EITF Issue No. 94-3, an entity recognized a liability for an exit cost
on the date that the entity committed itself to an exit plan. Under
SFAS No. 146, the FASB concludes that an entity's commitment to an exit
plan does not, by itself, create a present obligation to other parties
that meets the definition of a liability. SFAS No. 146 also establishes
that fair value is the objective for the initial measurement of the
liability. SFAS No. 146 will be effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does
not expect that this standard will have a material effect on its
financial statements.
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
that this standard will have any effect on its financial statements.
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
F-8
SOLAR TOUCH LIMITED
NOTES TO THE FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
3. 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 the PRC.
Pursuant to the joint venture agreement and its auxiliary agreement
(collectively the "JV agreement"), the Chinese joint venture partner
(the "JV partner"), which is a state-owned enterprise, contributed
certain assets and liabilities, including the exclusive right to
operate cable broadcasting networks in the city of Baoding and its
surrounding areas in the Province of Hebei, PRC while the Company
contributed cash to Baoding for their respective ownership. It was also
agreed that the cash contributed by the Company was used to purchase
certain assets and liabilities from the JV partner by Baoding.
The financial statements of Baoding were prepared in accordance with
International Accounting Standards issued by the International
Accounting Standards Committee ("IASC") and were audited by an
independent certified public accountants firm in accordance with
International Standards on Auditing. The auditor's reports and
financial statements of Baoding describe a significant working capital
deficit as of December 31, 2002 and 2001. However the auditors did not
qualify the Baoding financial statements in this respect and did not
state there is a substantial doubt for Baoding to continue as a going
concern. The Company believes Baoding has access to sufficient working
capital. There are no material differences between International
Accounting Standards and generally accepted accounting principles in
the United States of America as it relates to the Baoding financial
statements.
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.
F-9
SOLAR TOUCH LIMITED
NOTES TO THE FINANCIAL STATEMENTS
3. EQUITY INVESTMENT CONTINUED
As of December 31, 2002 and 2001, the condensed balance sheet of
Baoding was as follows:
2002 2001
----------- -----------
Current assets $ 1,410,691 $ 911,411
Non-current assets 16,753,480 16,761,019
----------- -----------
Total assets $18,164,171 $17,672,430
=========== ===========
Current liabilities $ 3,375,227 $ 3,144,258
Non-current liabilities -- 1,056,467
Capital and reserves 14,788,944 13,471,705
----------- -----------
Total liabilities and equity $18,164,171 $17,672,430
=========== ===========
The results of operations of the Company's equity basis investment in
Baoding are summarized as follows:
2002 2001
----------- -----------
Net sales $ 4,015,958 $ 3,786,489
=========== ===========
Income from operations 1,118,042 1,536,861
Other income 199,197 414
----------- -----------
Income before tax provision 1,317,239 1,537,275
----------- -----------
Income tax -- --
----------- -----------
Net income $ 1,317,239 $ 1,537,275
=========== ===========
The Company's equity in earnings of Baoding (49%) $ 645,447 $ 753,265
=========== ===========
F-10
SOLAR TOUCH LIMITED
NOTES TO THE FINANCIAL STATEMENTS
4. 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 all
significant temporary differences between the tax and financial
statement bases of assets and liabilities. The tax consequences of
those differences are classified as current or non-current based upon
the classification of the related assets or liabilities in the
financial statements. No provision for deferred taxation has been made,
as there is no temporary difference at the balance sheet date.
5. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
Baoding's operations are conducted in the PRC. Accordingly, the
Company's business, financial condition and results of operations may
be influenced by the political, economic and legal environments in the
PRC, and by the general state of the PRC economy.
Baoding's operations in the PRC are subject to special considerations
and significant risks not typically associated with companies in North
America and Western Europe. These include risks associated with, among
others, the political, economic and legal environments and foreign
currency exchange. Its results may be adversely affected by changes in
the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad,
and rates and methods of taxation, among other things.
6. SUBSEQUENT EVENTS
Reverse merger
--------------
On November 1, 2002, and amended February 21, 2003, the Company entered
into a reverse merger agreement (subject to certain conditions) with
Nova International Films, Inc. (Nova). Pursuant to the Share Exchange
Agreement, on February 28, 2003, Nova acquired all of the issued and
outstanding shares of the Company. As consideration for the Company's
shares, Nova issued 49,567,002 shares of its common stock.
F-11
SOLAR TOUCH LIMITED
NOTES TO THE FINANCIAL STATEMENTS
6. SUBSEQUENT EVENTS CONTINUED
Consultzing agreements
----------------------
The Company entered into one-year consulting agreements with GCA
Consulting Limited (GCA) and Orient Financial Services, Inc. (Orient)
that commenced on the closing date of the above Share Exchange
Agreement. The services to be rendered include consultation and
advisory services relating to administrative and corporate development
of Nova and other managerial assistance as mutually agreed upon between
the parties hereto. As consideration for the services to be rendered,
Nova will issue 2,960,931 and 1,800,000 shares of common stock to GCA
and Orient, respectively.
Option Agreement
----------------
On February 28, 2003, Nova 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
shares of common stock in Nova for $50,000. The optionees facilitated
the acquisition of the Company by Nova. The options and stock issued to
the consultants above will be valued in accordance with the United
States generally accepted accounting principles as determined by the
Financial Accounting Standards Board's statements and interpretations.
F-12
(b) Pro Forma Financial Statements
The following unaudited pro forma combined financial statements give
effect to the merger using the purchase method of accounting as prescribed by
Statement of Financial Accounting Standards No. 141 "Business Combination". The
following unaudited financial pro forma combined financial statements and the
accompanying notes should be read in conjunction with the historical financial
statements and related notes of Solar Touch Limited ("Solar"), which are
included elsewhere in this document. In addition, the following unaudited pro
forma combined financial statements should be read in conjunction with the
financial statements and related notes of Nova International Films, Inc.
("Nova") which were included in Form 10-KSB and Form 10-QSB filed with the
Securities and Exchange Commission for the year ended October 31, 2002 and the
three-month period ended January 31, 2003 respectively.
The unaudited pro forma combined financial statements are provided for
information purposes only and do not purport to represent what the combined
financial position and results of operations would have been had the merger in
fact occurred on the dates indicated. The following unaudited pro forma combined
balance sheet represents the combined financial position of Nova and Solar as of
December 31, 2002. The unaudited pro forma combined statement of operations give
effect to the proposed merger of Nova and Solar for the year ended December 31,
2002, assuming the merger occurred at the beginning of the year. The unaudited
pro forma combined financial statements are presented for illustrative purposes
only. The pro forma adjustments are based upon available information and
assumptions that management believes are reasonable.
NOVA INTERNATIONAL FILMS, INC AND SOLAR TOUCH LIMITED
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 2002
(UNITED STATES DOLLARS)
Pro Forma
Nova Solar Adjustments Pro Forma
(unaudited) (audited)
CURRENT ASSETS
Cash $ 1,809 $ -- $ 1,809
Deferred merger costs -- 20,468 (20,468) 1 --
----------- ----------- -----------
Total current assets 1,809 20,468 1,809
EQUITY INVESTMENT -- 7,218,860 7,218,860
----------- ----------- -----------
$ 1,809 $ 7,239,328 $ 7,220,669
=========== =========== ===========
CURRENT LIABILITIES
Accrued expenses $ 1,800 20,468 47,009 1,2 $ 69,277
Loan from related party 18,524 -- (18,524) --
----------- ----------- 2 -----------
Total current liabilities 20,324 20,468 69,277
STOCKHOLDERS' EQUITY
Common stock 60 1,000 (456) 3 604
Additional paid-in capital 8,198,166 5,874,892 (5,250,961) 2,3 8,822,097
Accumulated deficit (8,216,741) 1,342,968 5,202,464 1,3 (1,671,309)
----------- ----------- -----------
Total stockholders' equity (18,515) 7,218,860 7,151,392
----------- ----------- -----------
Total liabilities and
stockholders' equity $ 1,809 7,239,328 $ 7,220,669
=========== =========== ===========
Notes to Pro Forma Balance Sheet
1. To record merger costs.
2. To convert Nova's accrued expenses and loan from related party to
additional paid-in capital.
3. To record changes for stock issued and re-capitalize Nova with the
capital structure of Solar.
4. To eliminate loss from discontinued operation.
NOVA INTERNATIONAL FILMS, INC AND SOLAR TOUCH LIMITED
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(UNITED STATES DOLLARS)
Pro Forma
Nova Solar Adjustments Pro Forma
(unaudited) (audited)
Revenue $ -- $ -- $ -- $ --
Costs and Expenses
General and Administrative
expenses -- -- -- --
------------ ------------ ------------ ------------
Loss from operation -- -- -- --
Equity in earnings on investment -- 645,447 -- 645,447
Merger costs -- -- (3,014,277) 1 (3,014,277)
------------ ------------ ------------ ------------
Income (Loss) before tax
provision -- 645,447 (3,014,277) (2,368,830)
Income tax expense -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) from
continuing operation -- 645,447 (3,014,277) (2,368,830)
Loss from discontinued
operation (2,576) -- 2,576 4 --
------------ ------------ ------------ ------------
Net loss $ (2,576) $ 645,447 $ (3,011,701) $ (2,368,830)
============ ============ ============ ============
Loss per common share:-
Basic and diluted
Loss from continuing
operation $ -- $ (0.04)
Loss from discontinued
operation (0.00) --
------------ ------------
Net loss $ (0.00) $ (0.04)
============ ============
Weighted average no. of common shares
outstanding:-
Basic 6,037,000 60,354,002
============ ============
Notes to Pro Forma Combined Statement of Operations
1. To record merger costs.
2. To convert Nova's accrued expenses and loan from related party to
additional paid-in capital.
3. To record changes for stock issued and re-capitalize Nova with the
capital structure of Solar.
4. To eliminate loss from discontinued operation. (c)
(c) Exhibits
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NOVA INTERNATIONAL FILMS, INC.
/s/ Raymond Ying wai Kwan
--------------------------------
Date: May 16, 2003 Name: Raymond Ying-wai Kwan
Title: Chief Executive Officer