<PAGE>
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 April 30, 1999
( ) 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 0-21785
---------------------------
NEW VISUAL ENTERTAINMENT, INC.
------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 95-4543704
- ------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5920 Friars Road
Suite 104
San Diego, CA 92108
(Address of principal executive offices)
(619) 692-0333
(Issuer's telephone number)
(Former name, former address and former fiscal year
if changed since last report)
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 )
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 55,393,362 shares of Common Stock,
$.001 par value, were outstanding as of April 30, 1999.
Transitional Small Business Disclosure Forms (check one):
Yes ( ) No ( X )
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
INDEX TO FORM 10Q
APRIL 30, 1999
Page Nos.
---------
PART I - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-1
At October 31, 1998 and April 30, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS F-2
For the Six Months Ended April 30, 1998 and 1999
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
For the Three Months Ended April 30, 1998 and 1999
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY F-4
For the Six Months Ended April 30, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
For the Six Months Ended April 30, 1998 and 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 - F-13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<CAPTION>
October 31, April 30,
1998 1999
-------------- --------------
<S> <C> <C>
(Unaudited)
Current Assets:
Receivable from related parties $ 23,072 $ 23,072
-------------- --------------
Total Current Assets 23,072 23,072
Property and equipment - net of accumulated depreciation 163,391 132,961
Other assets 5,000 5,000
Film and video library, net - 49,468
Projects under development, net 60,124 36,968
-------------- --------------
Total Assets $ 251,587 $ 247,469
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Notes payable - related parties $ 285,500 $ 285,500
Accounts payable and accrued expenses 325,430 689,168
-------------- --------------
Total Current Liabilities 610,930 974,668
-------------- --------------
Commitments, Contingencies and Other Matters (Note 4)
Stockholders' Deficiency :
Cumulative convertible preferred stock, Series A and B - $30
par value; 200,000,000 shares authorized; liquidation price,
$30 per share; -0- shares issued and outstanding - -
Common stock - $0.001 par value; 100,000,000 shares
authorized; 51,866,128 and 55,393,362 shares issued and
outstanding at October 31, 1998 and April 30, 1999, respectively 51,866 55,393
Additional paid-in capital 9,844,309 9,969,349
Accumulated deficit (10,255,518) (10,751,941)
-------------- --------------
Total Stockholders' Deficiency (359,343) (727,199)
-------------- --------------
Total Liabilities and Stockholders' Deficiency $ 251,587 $ 247,469
============== ==============
See notes to consolidated financial statements.
F-1
</TABLE>
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the Six Months Ended
April 30,
----------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
REVENUES $ - $ 44,447
--------------- ---------------
COSTS AND EXPENSES:
Amortization of costs of projects - 40,580
Projects costs written off 799,706 87,500
Depreciation of property and equipment 32,688 30,430
Compensatory element of stock issuances 471,325 4,000
Selling, general and administrative expenses 172,391 378,360
--------------- ---------------
TOTAL COSTS AND EXPENSES 1,476,110 540,870
--------------- ---------------
LOSS BEFORE INCOME TAXES (1,476,110) (496,423)
INCOME TAX EXPENSE - -
--------------- ---------------
NET LOSS $ (1,476,110) $ (496,423)
=============== ===============
BASIC AND DILUTED LOSS PER SHARE $ (.03) $ (.01)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 43,827,389 53,629,746
=============== ===============
</TABLE>
ee notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the Three Months Ended
April 30,
----------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
REVENUES $ - $ 28,974
--------------- ---------------
COSTS AND EXPENSES:
Amortization of costs of projects - 20,290
Projects costs written off 399,853 43,750
Depreciation of property and equipment 16,344 15,215
Compensatory element of stock issuances 235,500 -
Selling, general and administrative expenses 80,890 186,483
--------------- ---------------
TOTAL COSTS AND EXPENSES 732,587 265,738
--------------- ---------------
LOSS BEFORE INCOME TAXES (732,587) (236,764)
INCOME TAX EXPENSE - -
--------------- ---------------
NET LOSS $ (732,587) $ (236,764)
=============== ===============
BASIC AND DILUTED LOSS PER SHARE $ (.02) $ (.01)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 44,181,362 54,511,555
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1999
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Total
--------------------- -------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficiency
---------- ---------- ---------- ---------- ----------- ------------- -------------
<S> <C><C> <C> <C> <C> <C> <C>
Balance - October 31, 1998 - $ - 51,866,128 $ 51,866 $ 9,844,309 $(10,255,518) $ (359,343)
Issuance of common stock for services:
($.04 per share at December 1998) - - 100,000 100 3,900 - 4,000
Issuance of common stock for cash
(November 1, 1998 - April 30, 1999) - - 2,427,234 2,427 72,140 - 74,567
Issuance of common stock in settlement
of debt ($.05 per share at December - - 1,000,000 1,000 49,000 - 50,000
1998)
Net loss - - - - - (496,423) (496,423)
---------- ---------- ---------- ---------- ----------- ------------- -------------
Balance - April 30, 1999 - $ - 55,393,362 $ 55,393 $ 9,969,349 $(10,751,941) $ (727,199)
========== ========== ========== ========== =========== ============= =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the Six Months Ended
April 30,
----------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,476,110) $ (496,423)
Adjustments to reconcile net loss to net cash used by operating activities:
Compensatory elements of stock issuances 471,325 4,000
Projects costs written-off 799,706 87,500
Amortization of costs of projects - 40,580
Depreciation of property and equipment 32,688 30,430
Increase (decrease) from changes in:
Projects under development (80,054) (154,392)
Accounts payable and accrued expenses 25,314 413,738
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (227,131) (74,567)
-------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES
Proceeds from issuance of common stock 221,900 74,567
-------------- --------------
DECREASE IN CASH (5,231) -
CASH AND CASH EQUIVALENTS - BEGINNING 6,600 -
-------------- --------------
CASH AND CASH EQUIVALENTS - ENDING $ 1,369 $ -
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ - $ -
============== ==============
Income taxes $ - $ -
============== ==============
Accounts payable satisfied by issuance of stock $ - $ 50,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
AT APRIL 30, 1999
NOTE 1- SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements are unaudited. These
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission ( the
"SEC"). Certain information and footnote disclosures normally
included in the financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the financial statements reflect
all adjustments (which include only normal recurring
adjustments) necessary to state fairly the financial position
and results of operations as of and for the periods indicated.
These financial statements should be read in conjunction with
the Company's financial statements and notes thereto for the
year ended October 31, 1999, included in the Company's Form
10KSB for the year ended October 31, 1999 as filed with the
Securities and Exchange Commission.
The preparation of financial statements in conformity with
general 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 statement
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
New Visual Entertainment, Inc. ("NVE") (formerly known as
Siliwood) and its subsidiary, NV Entertainment ("NV")
(collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated.
DESCRIPTION OF BUSINESS
The Company, (previously known as Bellwether Investment Inc.),
was incorporated under the laws of the State of Utah on
December 5, 1985. On October 18, 1995, the Company acquired
all of the outstanding shares of Siliwood Entertainment
Corporation ("Siliwood"), a development-stage company with no
operations. The Company issued 5,911,592 shares of common
stock to the shareholders of Siliwood to effect the reverse
acquisition. The reverse acquisition was accounted for as a
recapitalization and was accounted for in a manner similar to
a pooling of interest. The Company then changed its name to
Siliwood Entertainment Corporation.
F-6
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1999
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF BUSINESS (CONTINUED)
On June 10, 1996, the Company acquired certain assets and
assumed various liabilities from Infinity Vision Entertainment
("IVE"). Immediately following the purchase, Siliwood changes
its name to New Visual Entertainment, Inc. ("NVE").
Accordingly, former IVE partners have an interest in NVE
(formerly known as Siliwood) stock. The acquisition of these
assets and the assumption of these liabilities has been
accounted for as a purchase and the costs were allocated based
on fair market value. There were no operations of NVE prior to
acquisition. The Company is currently engaged in the
development, design and distribution of software techniques,
videos and theaters for stereoscopic (3-D) authoring and
visualization.
The accompanying consolidated financial statements have been
performed in conformity with generally accepted accounting
principles, which contemplate continuation of the Company as a
going-concern. As of April 30, 1999, the Company has a
stockholders' deficiency of $727,199, a working capital
deficiency of $951,596 and an accumulated deficit of
$10,751,941.
The Company has continued losses in each of its years of
operation, negative cash flow and liquidity problems. These
conditions raise substantial doubt about the consolidated
Company's ability to continue as a going concern. The
accompanying consolidated financial statements do not include
any adjustments relating to the recoverability of reported
assets or liabilities should the Company be unable to continue
as a going concern.
The Company has been able to continue based upon the financial
support of certain of its stockholders and the continued
existence of the company is dependent upon this support and
its ability to acquire assets by the issuance of stock.
Management's plans in this regard are to receive the continued
support of the stockholders and/or to obtain other financing
until profitable operation and positive cash flow are achieved
and maintained. There can be no guarantee that the
stockholders will provide this support.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company
to concentrations of credit risks, are principally trade
accounts receivable. The Company maintains an allowance for
uncollectible accounts receivable and, generally, does not
require collateral. At April 30, 1999, no allowance for
uncollectible accounts was deemed necessary by management.
CASH AND CASH EQUIVALENTS
The Company considers all short-term highly liquid investments
with a maturity of three months or less when purchased to be
cash or cash equivalents.
F-7
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1999
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed on a straight-line method over the estimated useful
lives of the assets which generally range from five to seven
years. Maintenance and repair expenses are charged to
operations as incurred.
INTANGIBLE ASSETS
Intangible assets consists of a stereoscopic imaging
technology and the rights to certain stereoscopic/3-D titles.
These costs are stated at the lower of cost or net realizable
value and will be amortized over their estimated economic life
of 5 years. These costs are evaluated quarterly to determine
the net realizable value. During the year ended October 31,
1997, a valuation allowance of $330,893 was charged to
operations related to such assets.
FILM AND VIDEO LIBRARY AND PROJECTS UNDER DEVELOPMENT
Film and video library and projects under development are
stated at the lower of amortized cost or market. Upon
completion, costs are amortized on an individual production
basis in the proportion that current gross revenues bear to
management's estimate of total gross revenues with such
estimates being reviewed at least quarterly. In prior years,
several projects under development were determined to have no
estimated realizable value and were accordingly written-off.
Projects costs written-off during the six months ended April
30, 1998 and 1999 were $799,706 and $87,500, respectively. For
the six months ended April 30 1998 and 1999, amortization
expense related to the film and video library was $-0- and
$40,580, respectively.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). SFAS No. 109 employs an asset and
liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are
recognized for tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future
years to difference between the financial statement carrying
amounts and the tax bases of existing assets and liabilities.
Under SFAS No. 109, the effect on deferred income taxes of a
change in tax rates is recognized income in the period that
includes the enactment date.
ACCOUNTING ESTIMATES
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, disclosures of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
F-8
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1999
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Quoted market prices generally are not available for all of
the Company's financial instruments. Accordingly, fair values
are based on judgements regarding current economic conditions,
risk characteristics of various financial instruments and
other factors. These estimates involve uncertainties and
matters of judgement and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect
the estimates.
A description of the methods and assumptions used to estimate
the fair value of each class of the Company's financial
instruments is as follows:
Cash, receivables, accounts payables and accrued expenses have
carrying amounts that approximate fair value due to the short
maturity of these instruments. Management was not able to
practically estimate the fair value of notes payable due to
their related party nature.
REVENUE RECOGNITION
Substantially all revenues are derived from the production and
licensing of videos and commercial films. Revenue is
recognized over the shorter of the license term or the
expected revenue term.
ADVERTISING
Advertising costs are charged to operations when incurred.
Advertising expense for the six months ended April 30, 1999
was $1,870.
LOSS PER SHARE
Basic earnings per share ("Basic EPS") is computed by dividing
net income available to common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share ("Diluted EPS") gives effect to all
dilutive potential common shares outstanding during a period.
In computing diluted EPS, the treasury stock method is used in
determining the number of shares assumed to be purchased from
the conversion of common stock equivalents.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company accounts for its stock-based
compensation arrangements pursuant to APB Opinion No. 25,
"Accounting for Stock Issued to Employees". In accordance with
the provisions of SFAS No. 123, the Company discloses the
proforma effects of accounting for these arrangements using
the minimum value method to determine fair value.
F-9
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1999
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
During 1996, the Company adopted the Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". Under the provisions of this statement, the
Company has evaluated its long-lived assets for financial
impairment, and will continue to evaluate them as events or
changes in circumstances indicate that the carrying amount of
such assets may not be fully recoverable.
The Company evaluates the recoverability of long-lived assets
by measuring the carrying amount of the assets against the
estimated undiscounted future cash flows associated with them.
At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the
assets are adjusted to their fair values.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective November 1, 1998, the Company adopted the provisions
of SFAS No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes standards for reporting comprehensive income,
defined as all changes in equity from non-owner sources.
Adoption of SFAS No. 130 did not have a material effect on the
Company's financial position or results of operations.
Effective November 1, 1998, the Company adopted the provisions
of SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information". SFAS No. 131 establishes standards
for the way public enterprises report information about
operating segments in annual financial statements and requires
those enterprises to report selected information about
operating segments in interim financial reports issued to
stockholders. Adoption of SFAS No. 131 did not have a material
effect on the Company's financial position or results of
operations.
Effective November 1, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 132, "Employers'
Disclosures About Pensions and Postretirement Benefits", which
standardizes the disclosure requirements for pensions and
other postretirement benefits. The Statement addresses
disclosure only. It does not address liability measurement or
expense recognition. There was no effect on financial position
or net income as a result of adopting SFAS No. 132.
F-10
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1999
NOTE 2 - PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
October 31, April 30,
1998 1999
------------- -------------
Furniture and fixtures $ 2,376 $ 2,376
Camera equipment 278,660 278,660
Office equipment 26,442 26,442
------------- -------------
307,478 307,478
Less: Accumulated depreciation 144,087 174,517
------------- -------------
Total $ 163,391 $ 132,961
============= =============
For the six months ended April 30, 1998 and 1999, depreciation
expense was $32,688 and $30,430, respectively.
NOTE 3 - PREFERRED STOCK AND COMMON STOCK
DESCRIPTION OF SECURITIES
On October 18, 1995, the Company approved a 1-for-2 reverse
stock split. All common shares and price per share information
disclosed in the financial statements and notes have been
adjusted to give effect to the 1-for-2 reverse stock split.
On July 23, 1996, the Company issued 200,000 shares of
non-voting series "B" cumulative convertible preferred stock
(3-to-1 conversion feature for common stock) with a
liquidation value of $30 per share for the acquisition of the
rights of a music library, which consist of 2,100 titles. Each
music title was appraised at a value range of $1,000 to
$3,000. The value of the acquisition was based upon the fair
market value of the stock that was issued. In September 1999,
the Company's Board of Directors elected to cancel the
preferred shares of NVE stock. The decision was made and
executed as the Company sought to take delivery of the music
library and the seller was unable to provide the content.
For the Year ended October 31, 1998:
------------------------------------
For the period from November 1, 1998 to April 30, 1999, the
Company issued 2,427,234 shares of common stock at prices
ranging from $.02 to $.05 per share totalling $74,567,
pursuant to Rule 144.
For the period November 1, 1997 to October 31, 1998, the
Company issued 4,792,500 shares of common stock at various
amounts for officers compensation and director fees totalling
$739,826.
F-11
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1999
NOTE 3 - PREFERRED STOCK AND COMMON STOCK (CONTINUED)
DESCRIPTION OF SECURITIES (CONTINUED)
For the Year ended October 31, 1998: (Continued)
-----------------------------------
In November 1997, the Company issued 1,000,000 shares of
common stock at $.05 totalling $50,000 for a subsequently
aborted acquisition.
On March 25, 1998, the Company issued 100,000 shares of common
stock at $.06 for professional services totalling $5,500.
On April 13, 1998, the Company issued 3,000,000 shares of
common stock at $.05 in settlement of debt totalling $130,000.
On June 2, 1998, the Company issued 410,000 shares of common
stock between $.05 and $.12 in settlement of debt totalling
$31,500.
During August 1998, the Company issued 187,000 shares of
common stock at $.05 for professional services totalling
$10,700.
On September 8, 1998, the Company issued 60,000 shares of
common stock at $.05 for professional services totalling
$3,000.
For the Six Months Ended April 30, 1999:
---------------------------------------
For the period from November 1, 1998 to April 30, 1999, the
Company issued 2,427,234 shares of common stock at prices
ranging from $.02 to $.05 per share totalling $74,567,
pursuant to Rule 144.
On December 15, 1998, the Company issued 100,000 shares of
common stock at $.04 for professional services totalling
$4,000.
On December 28, 1998, the Company issued 1,000,000 shares of
common stock at $.05 in settlement of debt totalling $50,000.
F-12
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1999
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company hired a television company to produce 26 episodes
of live music acts in 3-D. As of October 31, 1997, the Company
paid $1,515,563 to the television company. All 26 episodes
have yet to be completed as of October 31, 1998 in 3-D. Since
no revenues were recognized, the Company wrote-off the
accumulated project cost of $1,515,563 during the year ended
October 31, 1998.
The Company's projects under development stipulate royalty
payments which are based on percentages of revenue.
The Company's headquarters are located in San Diego,
California. Rent expense for the six months ended April 30,
1998 and 1999 was $4,500 and $3,960, respectively.
CONCENTRATION OF CREDIT RISK
For the year ended October 31, 1998 and the six months ended
April 30, 1999, substantially all of the net revenues were
derived from three companies. At April 30, 1999, no
receivables were due from the above customers.
F-13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
- -------
The following is a discussion and analysis of the results of operations of the
Company and should be read in conjunction with the Company's consolidated
financial statements and related notes contained in this Form 10-Q.
Certain information contained in this Form 10-Q may contain forward-looking
statements. The forward- looking statements are subject to certain risks and
uncertainties. Actual results could differ materially from current expectations.
Among the factors that could affect the Company's actual results and could cause
results to differ from those contained in the forward-looking statements
contained herein is the Company's ability to commercialize its technologies
successfully, which will be dependent on business, financial and other factors
beyond the Company's control, including, among others, market acceptance,
ability to manufacture on a large scale basis and at feasible costs, together
with all the risks inherent in the establishment of a new enterprise and the
marketing and manufacturing of new products.
PLAN OF OPERATION
- -----------------
New Visual Entertainment, Inc. was founded with the mission to produce and
distribute high-impact 3D films for the growth oriented specialty venue markets,
such as theme parks, amusement parks, family entertainment centers and casinos.
The Company, through its proprietary technology, utilizes a low cost 3D
production and exhibition technology to compete in these markets. The Company
plans to use this proprietary technology to continue to produce high-quality,
cost effective 3D films and market them to venues not accessible to other 3D
systems and software providers due to cost prohibitiveness.
Through the use of this proprietary technology, the Company developed three new
feature films during 1998 and 1999. They were (1) "Wonder in Belize", an
underwater 3D film; (2) "Big Waves" in Hawaii; and (3) "A Day at the Beach", an
off-road and surfing lifestyle adventure. The Company also produced two
customer-driven productions in 1999: "Miss Hawaiian Tropic '99" for C3D, and
"Game On", a paintball film for JT USA.
With the production of the above films, the Company has strengthened its
position as a special venue content producer of 3D material. Additionally, it
has positioned itself to produce and distribute multi- media and alternative
format content for traditional and web-based consumption.
The Company's plan of operation for the 2000 fiscal year will consist of
activities aimed at:
o Investigating and, if appropriate, pursuing definitive agreements for
acquisitions believed by the Board to be consistent with the Company's
plan to develop and distribute 3D content over a variety of traditional
and new media (such as 3D films for special venues, computer software,
videotape, television and Internet distribution).
o Establishing strategic partnerships for the production, marketing,
sales, licensing and other distribution of the Company's 3D content.
o Developing new 3D content and otherwise expanding the Company's library
of 3D material.
o Acquiring additional studio production and editing equipment, cameras,
lenses, and mobile theater transport equipment.
<PAGE>
PLAN OF OPERATION (CONTINUED)
- -----------------
The Company believes, with the right strategic partnerships, it can function as
a full-scale production studio capable of financing, producing and distributing
3D and traditional content to multiple mass markets.
RESULTS OF OPERATIONS
- ---------------------
For the Six Months Ended April 30,1999 vs. the Six Months Ended April 30, 1998
- ------------------------------------------------------------------------------
REVENUES. Revenues increased to approximately $44,000 for the six months ended
April 30, 1999. There were revenues for the six months ended April 30, 1998. The
increase of $44,000 was primarily due to revenue recognized from film and video
library productions.
COSTS AND EXPENSES. Cost and expense includes amortization of project costs,
writedown of project costs, depreciation of property and equipment, compensatory
element of stock issuances, acquired in-process research and development
expenses, and selling, general and administrative costs. Total costs and
expenses decreased from $1,476,000 for the six months ended April 30, 1998 to
$541,000 for the six months ended April 30, 1999. The decrease was principally
related to the decrease in compensatory element of stock issuances of $467,000
and a decrease in projects costs written off of $712,000.
NET LOSS. The net loss was approximately $496,000 for the six months ended April
30, 1999, as compared to a net loss of $1,476,000 for the six months ended April
30, 1998 of $3,112,000. The decrease in net loss was principally related to
lower writedowns in projects and lower compensatory issuances of common stock.
For the Three Months Ended April 30, 1999 Vs. Three Months Ended April 30, 1998
- -------------------------------------------------------------------------------
Due to the small volume of revenue activities in these periods, the analysis of
these periods would not be meaningful.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Operations have been financed through private sales of common stock resulting in
net proceeds of approximately $75,000 for the six months ended April 30, 1999
and $222,000 for the six months ended April 30, 1998. In addition, during these
years, a substantial portion of expenses were paid by the issuance of stock.
Net cash used by operating activities approximated $75,000 for the six months
ended April 30, 1999 and $227,000 for the six months ended April 30, 1998. Net
cash used for operating activities consisted of new project production costs and
the cash portion of selling, general and administrative costs.
PROPOSED MERGER
- ---------------
In September 1999, the Company entered into a merger agreement with
Astounding.com, Inc. ("Astounding"). The merger agreement provides for the
Company to issue 10,000,000 shares of its common stock for all of the
outstanding shares of Astounding. The closing of the merger was subject to
various conditions including the receipt of a debt or equity financing of at
least $1,000,000 and requisite shareholders approval. During the three months
ended January 31, 2000, the Company terminated its previously announced merger
with Astounding because certain conditions had not been satisfied.
<PAGE>
ACQUISITIONS
- ------------
In January 2000, the Company completed the acquisition of 100% of the common
stock of Impact Pictures, Inc., a small development-stage San Diego-based
multi-media production firm, for 50,000 shares of the Company's common stock.
In February 2000, the Company completed the acquisition of 100% of the common
stock of New Wheel Technology, Inc. ("New Wheel"), a development-stage
California based technology company, for 2,000,000 restricted shares of New
Visual's common stock. An additional 10,000,000 restricted shares of common
stock have been delivered to an escrow agent and will be released to the New
Wheel stockholders upon the achievement by New Wheel of a defined technological
development milestone. New Wheel is presently working on developing a high speed
digital transmission technology over copper wire.
GOING-CONCERN CONSIDERATION
- ---------------------------
The Company has continued losses in each of its years of operation, negative
cash flow and liquidity problems. These conditions raise substantial doubt about
the consolidated Company's ability to continue as a going-concern. The
accompanying consolidated financial statements do not include any adjustments
relating to the recoverability of reported assets or liabilities should the
Company be unable to continue as a going-concern.
The Company has been able to continue based upon the financial support of
certain of its stockholders and the continued existence of the Company is
dependent upon this support and its ability to acquire assets by the issuance of
stock. Management's plans in this regard are to receive the continued support of
the stockholders and/or to obtain other financing until profitable operation and
positive cash flow are achieved and maintained. There can be no guarantee that
the stockholders will provide this support.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
Statement of Financial Accounting Standards No. 130, "Comprehensive Income"
(SFAS 130), was issued in June 1997. SFAS 130 requires reclassification of
earlier financial statements for comparative purposes. SFAS 130 requires that
all items defined as comprehensive income, including changes in the amounts of
certain items, foreign currency translation adjustments and gains and losses on
certain securities, be shown in a financial statement SFAS 130 does not require
a specific format for the financial statement in which comprehensive income is
reported, but does require that an amount representing total comprehensive
income be reported in that statement. The adoption of SFAS 130 did not have a
material effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS 131"), was issued in June 1997.
SFAS 131 becomes effective for the Company's fiscal year 1999 and requires
restatement of disclosures for earlier periods presented for comparative
purposes. This new standard requires companies to disclose segment data based on
how management makes decisions about allocating resources to segments and how it
measures segment performance. SFAS 131 requires companies to disclose a measure
of segment profit or loss, segment assets, and reconciliations to consolidated
totals. It also requires entity-wide disclosures about a company's products and
services, its major customers and the material countries in which it holds
assets and reports revenues. The adoption of SFAS 131 did not have a material
effect on the Company's financial statements.
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
- ----------------------------------------------------------
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits" ("SFAS 132"), was issued in
February 1998. SFAS 132 becomes effective for 1999 and requires restatement of
disclosures for earlier periods presented for comparative purposes. SFAS 132
revises employers' disclosure about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans, but
rather standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate analysis, and eliminates certain disclosures that are no
longer useful. The adoption of SFAS 132 did not have a material effect on the
Company's financial statements.
<PAGE>
PART II -- OTHER INFORMATION.
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item. 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Not applicable.
(b) Reports on Form 8-K.
None.
Item 27. Financial Data Schedule (2)
- ---------------
(2) Filed herewith
<PAGE>
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 thereunto duly authorized.
Dated: March 16, 2000
--------------
NEW VISUAL ENTERTAINMENT, INC.
(Registrant)
/s/ Ray Willenberg, Jr.
--------------------------
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW VISUAL
ENTERTAINMENT, INC. AND SUBSIDIARY BALANCE SHEET AS OF APRIL 30, 1999 AND
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 23
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23
<PP&E> 307
<DEPRECIATION> 175
<TOTAL-ASSETS> 247
<CURRENT-LIABILITIES> 975
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> (783)
<TOTAL-LIABILITY-AND-EQUITY> 247
<SALES> 0
<TOTAL-REVENUES> 44
<CGS> 70
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (496)
<INCOME-TAX> 0
<INCOME-CONTINUING> (496)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
