SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 1996
[ ] 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 2-98997-NY
NOVA INTERNATIONAL FILMS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2717273
(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number)
501 S.E. COLUMBIA SHORES BOULEVARD
SUITE 350
VANCOUVER, WASHINGTON 98661
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (360) 737-6800
Indicate by check mark 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 X No
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date:
Common, $.00001 par value per share: 73,583,000 outstanding as of March 1,
1996
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NOVA INTERNATIONAL FILMS, INC.
Index to Financial Information
Period Ended January 31, 1996
<TABLE>
<CAPTION>
Item Page
<S> <C>
Item 1 - Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
</TABLE>
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1996 1995
<S> <C> <C>
ASSETS
Cash $ 21,466 $ 23,619
Furniture and equipment at cost, less
accumulated depreciation 684 781
Total assets $ 22,150 $ 24,400
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Accounts payable and accrued expenses $ 5,000 $ 5,936
Debt - 3,375,119
Total liabilities $ 5,000 $ 3,381,055
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock, $.00001 par value;
100,000,000 shares authorized,
73,583,000 shares issued
and outstanding, respectively. $ 736 $ 736
Additional paid-in capital 8,197,260 8,197,260
Accumulated deficit (8,180,846) (11,554,651)
Total stockholders' equity (deficit) $ 17,150 $ (3,356,655)
Total liabilities and stockholders'
equity (deficit) $ 22,150 $ 24,400
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
Jan. 31, 1996 Jan. 31, 1995
<S> <C> <C>
REVENUES $ - $ -
COSTS AND EXPENSES:
General and administrative 1,340 4,455
Depreciation and amortization 97 564
1,437 5,019
OPERATING LOSS (1,437) (5,019)
OTHER INCOME:
Interest income 123 250
123 250
OTHER EXPENSES:
Interest expense - 75,745
- 75,745
LOSS BEFORE PROVISION FOR
INCOME TAXES (1,314) (80,514)
PROVISION FOR INCOME TAXES - -
NET LOSS BEFORE (80,514)
EXTRAORDINARY INCOME (1,314)
EXTRAORDINARY INCOME:
Forgiveness of Debt 3,375,119 -
NET INCOME (LOSS) $ 3,373,805 $ (80,514)
Net (Income loss) per share $ .04585 $ (0.0011)
Average no. of shares outstanding 73,583,000 $ 73,583,000
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
Jan. 31, 1996 Jan. 31, 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,314) $ (80,514)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 97 564
Net changes in assets and
liabilities:
Accounts payable (936) (26)
Total adjustments (839) 538
Net cash provided (used) by
operating activities 2,153 (79,976)
Cash flows from financing activities:
Net proceeds from debt financing - 75,745
Net cash provided (used) by financing
activities - 75,745
Net (decrease) increase in cash (2,153) (4,231)
Cash at beginning of period 23,619 38,967
Cash at end of period $ 21,466 $ 34,736
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996
1) Nature of Business and Organization
Nova International Films, Inc. (the Company) was incorporated on November
27, 1984 in the State of Delaware. The Company was formed for the purpose
of financing and producing motion pictures for distribution in the
theatrical, home video and pay and free television markets throughout the
world.
a. Issuance of Common Stock
On January 2, 1986, the Company completed a public offering, whereby
ten million (10,000,000) units were sold at $.10 per unit, each unit
consisting of one (1) share of Common Stock, $.00001 par value, and
one (1) Redeemable Common Stock Purchase Warrant. These warrants have
now lapsed.
b. Disposition of Assets
On May 12, 1993 (the "Closing"), the stockholders of the Company
approved an Acquisition Agreement dated March 3, 1993 (the "Acquisition
Agreement") by and between the Company and Epic Productions, Inc.
("Epic"), pursuant to which the Company sold, assigned, transferred
and conveyed to Epic and Epic acquired from the Company (i) all of the
issued and outstanding shares of capital stock of each of Byzantine
Fire, Inc. a California corporation, Wings of the Apache, Inc., a
California corporation, and A/R Productions, Ltd., a California
corporation (collectively, the "Subsidiary Corporations"); (ii) all
rights to the completed films "Triumph of the Spirit", "Firebirds" and
"Why Me?", (sometimes collectively herein the "Completed Films"); and
(iii) the Company's rights related to the film project "Carlito's Way"
and Jean Claude Van Damme. In exchange therefor, Epic assumed all
debts and liabilities of the Company with respect to the assets
acquired, paid the Company the sum of $50,000, acquired the Bank Loan
from the Bank as described in Note #5 "Debt" and modified the loan
arrangements thereafter plus other indebtedness due Epic from the
Company.
2) General
As noted elsewhere, the financial statements for the years ended October
31, 1995, 1994 and 1993 are unaudited. However, it is management's opinion
that all adjustments necessary for fair presentation of these financial
statements have been made and are included herein.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996
3) Summary of Significant Accounting Policies
a. Financial Statement Presentation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 53, the Company has elected to present an unclassified
balance sheet.
b. Film Costs
Film costs, including related interest and production overhead, are
capitalized as incurred. Film costs also include costs associated
with film promotion and distribution. The individual film forecast
method is used to amortize film costs based upon the revenue recognized
in proportion to management's estimate of ultimate revenues to be
received. Estimated future revenues are reviewed periodically by
management and revised when appropriate. Profit participation, if
any, are accrued in the same manner. Unamortized film costs are
compared with net realizable values on a film-by-film basis and losses
are provided when appropriate.
c. Revenue Recognition
Film rental revenues are recognized in accordance with the provisions
of Statement of Financial Accounting Standards No. 53. Revenues from
theatrical distribution of films in the United States and Canada are
recognized on the dates of exhibition. Revenues from foreign, home
video, television and pay television license agreements are recognized
when the license period begins and the film is available for release
pursuant to the terms of the license agreement between the distributor
and the sub-distributor. Amounts received from the distributor prior
to the availability of the films are recorded as deferred revenue.
Once completed, a typical theatrical film will generally be made
available for license as follows:
<TABLE>
<CAPTION>
Months After
Market place Initial Release Period
<S> <C> <C>
Domestic theatrical 6 months
All foreign markets 2 to 5 years
Domestic home video 6 months 6 months
Domestic cable/pay
television 12 to 18 months 1 to 2 years
Domestic syndication
television 30 to 60 months 5 to 7 years
</TABLE>
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996
d. Depreciation and Amortization
Furniture and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of the related
assets, which is typically five years.
e. Per Share Amounts
Per share amounts are based on the weighted average number of shares
outstanding during the period.
4) Furniture and Equipment
The following is a summary of Furniture and Equipment at cost, less
accumulated depreciation:
<TABLE>
<CAPTION>
January 31, October 31,
1996 1995
<S> <C> <C>
Office/Computer Equipment $38,153 $38,153
Telephone Equipment 10,934 10,934
Furniture & Equipment
at cost 49,087 49,087
Accumulated Depreciation 46,052 48,306
$ 684 $ 781
</TABLE>
5) Debt
In connection with the financing of the film "Triumph of the Spirit", the
Company was unable to pay Credit Lyonnais Bank Nederland N.V. (the "Bank")
the note payable (the "Bank Loan") incurred to finance such film at its
original maturity date of March 31, 1991. The Company was able to negotiate
an extension of the maturity date of this note until September 30, 1991, but
thereupon the Company became in default of its obligation.
Upon the Closing of the Acquisition Agreement, Epic acquired the Bank Loan
from the Bank and modified the payment terms of the Bank Loan assigned to
it and other indebtedness of the Company to Epic. In October 1993, Epic
assigned and contributed to the capital of the Company all of such
indebtedness of the Company to Epic plus accrued and unpaid interest. In
addition, at the Closing, $3 million of indebtedness (plus interest thereon)
under the Bank Loan was not acquired by Epic, pursuant to which the Bank,
Epic and the Company agreed that such portion of the Bank Loan (The
"Nonrecourse Obligations") be payable interest and then principal only from
operating receipts from "Triumph of the Spirit" which was acquired by Epic
pursuant to the Acquisition Agreement.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996
As of November 30, 1996, Nova assigned to Epic and Epic assumed the
remaining $3 million Nonrecourse Obligations plus interest thereon. As such
no interest was accrued for Fiscal Year Ended October 31, 1995.
7) Commitments and Contingencies
The Company has been named co-defendant in a lawsuit commenced by an
individual alleging breach of an oral agreement regarding the rights to
"Triumph of the Spirit." The claim is for damages in excess of $20
million. Such action was dismissed by the jurisdictional court. This
dismissal has been appealed and is currently pending. The Company believes
the suit is without merit and is accordingly defending its position. The
lawsuit is covered by an errors and omissions insurance policy up to $5
million. The deductible portion of the policy totaling $25,000 was paid
in fiscal 1990. Management believes that there will be no further material
adverse effect on the financial position or results of operations of the
Company from this lawsuit. In addition, pursuant to the acquisition
agreement, Epic has agreed to indemnify the Company for any losses arising
out of the assets acquired therunder by Epic.
8) Liquidity and Capital Resources
At the current time, the Company's sole means to pay for its overhead
operations is its existing cash reserves in the total amount of $21,466
as of January 31, 1996. Accordingly, the Company has significantly reduced
its overhead.
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Results of Operations
During the fiscal quarter ended January 31, 1996, the Company had net
income of $3,373,805 as compared to a net loss of $80,514 for the quarter ended
January 31, 1995. The net income for the fiscal quarter ended January 31, 1996
is principally due to the foregiveness of debt of $3,375,119 resulting from
Epic assuming as of November 30, 1995 the remaining $3 million Nonrecourse
Obligations. As a result of the foregoing, the Company has eliminated its bank
indebtedness.
Liquidity and Capital Resources
At the current time, the Company's sole means to pay for its overhead
operations is its existing cash reserves in the total amount of $21,466 as of
January 31, 1996. Accordingly, the Company has significantly reduced its
overhead.
In addition, as a result of the closing of the Acquisition Agreement (see
Notes to the Financial Statements included herein), the Company has no current
business operations and has begun and will continue to seek another business
opportunity which may or may not be in the film industry. As of the date of
this report, the Company has no agreement, understanding or arrangement to
acquire or participate in any specific business opportunity. No assurance can
be given that the Company will be able to consummate any such arrangements or,
if consummated, that such business opportunity will be successful.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
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.
There are no exhibits applicable to this Form 10-Q.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the quarter for
which this report is filed:
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NOVA INTERNATIONAL FILMS, INC.
(Registrant)
Dated: March 15, 1996 By: /s/William Rifkin
William Rifkin,
Chairman of the Board
(Principal Executive Officer)
Dated: March 15, 1996 By: /s/William Rifkin
William Rifkin,
Principal Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NOVA
INTERNATIONAL FILMS, INC.'S QUARTERLY REPORT FOR THE QUARTER ENDED JANUARY
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 21,466
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,466
<PP&E> 684
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,150
<CURRENT-LIABILITIES> 5,000
<BONDS> 0
<COMMON> 736
0
0
<OTHER-SE> 8,197,260
<TOTAL-LIABILITY-AND-EQUITY> 22,150
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,314)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,375,119
<CHANGES> 0
<NET-INCOME> 3,373,805
<EPS-PRIMARY> (.046)
<EPS-DILUTED> (.046)
</TABLE>
