SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended OCTOBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-98997-NY
NOVA INTERNATIONAL FILMS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 11-2717273
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6350 N.E. Campus Drive
Vancouver, Washington 98661
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number, including area code: (360) 737-6800
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ] N/A
State Issuer's revenues for its most recent fiscal year: $0.
As of December 31, 1998, the aggregate market value of the Common Stock
held by non-affiliates of the Issuer (15,083,000 shares) was approximately
$150,830. The number of shares outstanding of the Common Stock ($.00001
par value) of the Issuer as of the close of business on December 31, 1998
was 73,583,000.
Documents Incorporated by Reference: None
<PAGE>
PART I
Item 1. Description of Business.
General development of business.
Nova International Films, Inc. (the "Company" or the "Registrant") was
incorporated in the State of Delaware on November 27, 1984. The Company
was principally engaged in the business of developing, financing and
producing motion pictures (sometimes herein "film(s)") for distribution.
On January 2, 1986, the Company completed an initial public offering and
raised gross proceeds of $1 million.
During fiscal 1990, the Company was able to complete and release two films
it placed into production in fiscal 1989. These films were entitled
"Triumph of the Spirit" and "Firebirds". Additionally, in January 1990,
the Company acquired from Epic Productions, Inc. ("Epic") all of the issued
and outstanding capital stock of Byzantine Fire, Inc. which at the time
owned the rights to the completed film property "Why Me?". This film was
also released during fiscal year 1990. Other than the foregoing, the
Company has not been involved in the release of any other films.
The Company also had previously entered into an agreement in principle with
Epic, whereby the Company had the option, should Epic produce, to co-
produce a motion picture entitled "Carlito's Way" (the "Carlito's Way
Rights").
The Company also had the contractual right (the "Van Damme Rights") to
engage Jean Claude Van Damme as the lead actor in a motion picture subject
to meeting certain terms and conditions set forth in an agreement between
the parties.
These two film rights, together with the three films described above,
represented as of March 1993 all of the Company's interests in various film
properties.
Pursuant to an Acquisition Agreement dated March 3, 1993 (the "Acquisition
Agreement") by and between the Company and Epic, the Company on May 12,
1993 (the "Closing") 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; (ii) all rights to the completed films
"Triumph of the Spirit", "Firebirds" and "Why Me?", (iii) the Carlito's Way
Rights and (iv) the Van Damme Rights. See Part III, Item 12.
As a result of the foregoing, the Company has no current business
operations and has begun and will continue to seek another business
opportunity. 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.
In addition, as a result of other transactions described in Part III, Item
12, the Company has eliminated its bank indebtedness.
Financial information about industry segments.
The Company, which has no current business operations, was engaged solely
in the film industry. There are no separate industry segments in
connection with the business of the Company. For financial information,
reference is made to the financial statements included elsewhere herein.
Narrative description of business.
The Company was principally engaged in the business of developing,
financing and producing motion pictures for distribution.
The Company was involved in various phases of exploration, acquisition, and
development of properties with the primary intention of producing
theatrical motion pictures. From this development process, the Company was
able to complete and release during fiscal 1990 the two films it placed
into production in fiscal 1989. These films were entitled "Triumph of the
Spirit" and "Firebirds". Additionally, as more fully described above, the
Company acquired in January 1990 all of the issued and outstanding capital
stock of Byzantine which at the time owned the rights to the completed film
property "Why Me?". This film was also released during fiscal year 1990.
See disclosure above under "General development of business", however, for
information on the sale of all of the Company's film properties. As a
result, the Company has no current business operations.
Motion Picture Industry Overview
The procedures and practices described in the following generalized
discussion are intended only to provide a background against which the
previous business of the Company may be evaluated. There can be no
assurance that the procedures and practices described in the following
generalized discussion has applied (or will ever apply) in any particular
instances to the business of the Company.
Production
The process by which an idea or a story becomes a finished motion picture
includes several distinct steps, which are described in chronological
sequence below. The "producer" is primarily responsible for the execution
and implementation of this process.
First, a producer acquires the rights to an existing literary property,
e.g., a novel, play or short story, or the producer commissions the
preparation of a story outline based on an original concept or idea. Next,
the producer, with his own funds or funds obtained from others, finances
the first draft of a screenplay based on the literary material and also
finances any additions, revisions or redrafts that may be required. After
a screenplay has been prepared, the producer options or otherwise assembles
the director, principal actors and other key creative personnel, and
prepares a budget. This phase of making a film is known as "development".
Once the project is fully developed, and if not already arranged, the
producer must provide or locate financing. The number and combination of
financing sources and vehicles is limited only by the imagination.
Once the financing has been arranged or committed, the project is ready for
"pre-production". During the following approximately three months,
locations are secured, casting is completed and the shooting schedule is
planned. Next, the principal photography, or the actual "shooting" of the
motion picture is commenced. Principal photography is usually ten to
twelve weeks in duration.
During the "post-production" phase, the film is edited, music and special
effects are added, and the sound-track and film are synchronized to produce
the master negative from which the prints for the theater projection are
made. The post-production phase may take from four to eight months.
Distribution
Arrangements for the distribution of a motion picture vary greatly.
Typically, a motion picture will be released to theaters in the United
States and Canada for exhibition first - the "domestic" theatrical market;
usually, thereafter, the film is distributed abroad - the "foreign" market.
Following domestic and foreign exhibition of a film, the motion picture is
distributed further by release of video cassettes, by exhibition on pay
television (principally cable and subscription TV), by release to non-
theatrical markets (including airlines, ships and schools) and then by
exhibition on network and/or syndicated television. Depending upon the
actual film product, it is sometimes necessary to alter the foregoing steps
in distributing a film.
The revenues available from these markets, the time of the receipt of
revenues and the relative importance of the various markets have changed
dramatically in recent years with the growth of pay television and home
video and the increased demand for projects created by and for these
markets.
The profits of an enterprise involved in the motion picture industry are
greatly dependent upon public taste, which is both unpredictable and
susceptible to change without warning or explanation. As a result, it is
impossible to predict accurately the success or failure of a motion
picture. The success of a project may also be significantly affected by
the popularity of other motion pictures then being distributed.
Moreover, significant problems are often encountered during the production
of a motion picture which cannot be reliably ascertained in advance and
which are beyond the control of the entities involved. Such problems may
include cost overruns, labor problems, delays or inabilities to obtain
supplies, props or costumes, equipment breakdowns, injury, illness or
death to cast members or the director and weather delays. Accordingly, no
assurances can be made that a project will ever be completed, or if
completed, that it can be done so in a timely manner. As a result,
enterprises involved in the motion picture industry may, therefore,
experience delays in generating revenues, if any. In addition, even if a
project is completed, any problem encountered during the production of a
motion picture may add to the costs of the project which could
significantly affect a project's chances of achieving financial success.
Employees
Other than its two officers, the Company currently has no employees.
Competition
Competition in the motion picture industry is intense. Many companies
compete to obtain the literary properties, creative personnel, talent,
production personnel and financing which are essential to the motion
picture industry. Many of such companies are organizations of
substantially larger size and capacity, with far greater financial and
personal resources and longer operating history and may, therefore, be
better able to acquire properties, personnel and financing.
In connection with its search for another business opportunity, the Company
will remain an insignificant participant among firms which engage in the
acquisition of business opportunities. There are many established venture
capital and financial concerns which have significantly greater financial
and personnel resources and technical expertise than the Company. In view
of the Company's limited financial resources and limited management
availability, the Company will continue to be at a significant competitive
disadvantage compared to the Company's competitors.
Item 2. Description of Property.
The Company maintains its offices on a rent-free month-to-month basis in
office space provided by one of its officers. The office is located at
6350 N.E. Campus Drive, Vancouver, Washington 98661.
Item 3. Legal Proceedings.
At the present time, there is no material litigation pending or, to
management's knowledge, threatened against the Company.
Item 4. Submission of Matters to a Vote of Security-Holders.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market Information.
The Company's Common Stock is traded in the over-the-counter market and is
listed on the OTC Bulletin Board and quoted in the "pink sheets"
promulgated by the National Quotation Bureau, Incorporated. To date, there
has been only sporadic trading of the Company's Common Stock. The high and
low bid quotations for the Company's Common Stock tabulated below represent
prices between dealers and do not include retail markups, markdowns,
commissions or other adjustments and may not represent actual transactions.
Bid Prices
Period High Low
Fiscal Year Ended October 31, 1997:
Nov. 1, 1996 to Jan. 31, 1997 $.03 $.01
Feb. 1, 1997 to April 30, 1997 $.02 $.01
May 1, 1997 to July 31, 1997 $.03 $.01
Aug. 1, 1997 to Oct. 31, 1997 $.01 $.01
Fiscal Year Ended October 31, 1998:
Nov. 1, 1997 to Jan. 31, 1998 $.01 $.01
Feb. 1, 1998 to April 30, 1998 $.01 $.01
May 1, 1998 to July 31, 1998 $.01 $.01
Aug. 1, 1998 to Oct. 31, 1998 $.01 $.01
(b) Holders.
As of December 31, 1998, there were approximately 625 record holders of the
Company's Common Stock.
(c) Dividends.
No dividends have been declared or paid on the Company's Common Stock since
inception. The Company presently intends to retain earnings, if ever
achieved, for use in its business and, therefore, there is no assurance
when, or if ever, dividends may be paid.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto and is qualified in its entirety by the
foregoing.
Results of Operations
The Company had no revenues for the fiscal years ended October 31, 1997 and
1998. During the fiscal year ended October 31, 1998, the Company had a net
loss of $ $(4,254) as compared to a net loss of $(3,661) during the fiscal
year ended October 31, 1997, as compared to net income of $3,366,642 for
the year ended October 31, 1996. The net income for the year ended October
31, 1996 is principally due to the forgiveness 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 $3,872 as
of October 31, 1998. Accordingly, the Company has significantly reduced
its overhead. In connection therewith, the Company does not pay any
officer salaries and rent. Its costs primarily include only those costs
necessary to retain its corporate charter, file necessary tax returns and
report to the Securities and Exchange Commission, and certain expenses in
seeking business opportunities.
In addition, as a result of the closing of the Acquisition Agreement (see
Notes to the Financial Statements included elsewhere herein), the Company
has no current business operations and has begun and will continue to seek
another business opportunity. 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.
Year 2000 Issue
The year 2000 issue is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Software
programs and hardware that have date-sensitive software or embedded chips
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a major system failure or miscalculations causing
disruptions of operations, including a temporary inability to engage in
normal business activities. As a result, many companies will be required
to undertake major projects to address the year 2000 issue.
Because the Company has nominal assets, including no personal property such
as computers, it is not anticipated that the Company will incur any
negative impact as a result of this potential problem. However, it is
possible that this issue may have an impact on the Company in the event the
Company acquires or participates in another business opportunity.
Management intends to address this potential problem with any prospective
merger, acquisition candidate or other participant. There can be no
assurances that management of the Company will be able to avoid a problem
in this regard in the event the Company acquires or participates in another
business opportunity.
Item 7. Financial Statements.
See the Financial Statements annexed to this report.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
Set forth below are the present directors and executive officers of the
Company. Note that there are no other persons who have been nominated or
chosen to become directors nor are there any other persons who have been
chosen to become executive officers. There are no arrangements or
understandings between any of the directors, officers and other persons
pursuant to which such person was selected as a director or an officer.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have
qualified. Officers serve at the discretion of the Board of Directors.
Present Position Has Served As
Name Age and Offices Director Since
William Rifkin 78 Chairman of the Board, December 1984
Secretary and Director
Martin Rifkin 37 President, Treasurer April 1985
and Director
WILLIAM RIFKIN has been Chairman of the Board and a Director of the
Company since December 1984. Since October 1994, he has also been
Secretary of the Company. From March 1990 to October 1994, he was also the
Company's President. From 1985 through 1991, Mr. Rifkin was a
Director of Memory Sciences Corporation, a public company involved in
the computer industry, and was its Treasurer from April 1987 to January
1990. Since 1984, he has also been President and a director of Profit
Merchandising Corp., a public company engaged in the distribution of
weatherstripping products. Mr. Rifkin is the father of Martin Rifkin.
MARTIN RIFKIN has been President and Treasurer of the Company since
October 1994 and a Director since April 1985. In addition, from April 1985
to October 1994, he was Vice President of the Company. Since December
1985, Mr. Rifkin has been a Director of Nutrition Now, Inc., a public
company which manufactures and markets nutritional supplements and since
November 1987, he has been its Secretary and Treasurer and since
February 1992, its President. Also, from August 1988 to February 1992,
he was its Vice President. In addition, Mr. Rifkin has been Treasurer
and Director of Profit Merchandising Corp. (see biography of William
Rifkin above) since September 1983 and Vice President since June 1985.
Since February 1994, Mr. Rifkin has been a Director of Cyberia Holdings,
Inc., formerly known as NW Venture Corp. Also, from February 1994 to
January 1997, he was its President, Secretary and Treasurer. Martin Rifkin
is the son of William Rifkin.
Item 10. Executive Compensation.
For the fiscal year ended October 31, 1998, none of the Company's executive
officers received compensation from the Company.
Since inception, no director has received any compensation for his services
as such. However, in the past, directors have been and will continue to be
reimbursed for reasonable expenses incurred on the Company's behalf.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1998, by (i)
each person who is known by the Company to own beneficially more than 5% of
the Company's outstanding Common Stock; (ii) each of the Company's
directors; and (iii) directors and officers of the Company as a group:
Number Percent of Shares of
Name and Address Owned Class
William Rifkin 53,050,000(1) 72.1%
6350 N.E. Campus Drive
Vancouver, WA
Martin Rifkin 5,450,000(2) 7.4%
6350 N.E. Campus Drive
Vancouver, WA
All Officers and 58,500,000(1)(2) 79.5%
Directors as a Group
(consisting of 2 persons)
(1)Includes 2,000,000 shares owned of record by the wife of William Rifkin,
which shares may be deemed to be beneficially owned by him.
(2)Includes 850,000 shares owned of record by the wife of Martin Rifkin,
which shares may be deemed to be beneficially owned by him, and 150,000
shares held by Martin Rifkin as custodian for his daughter under the
Uniform Gifts to Minors Act.
Item 12. Certain Relationships and Related Transactions.
Prior to December 27, 1995, Epic Productions, Inc. ("Epic") owned
40,000,000 shares of Common Stock of the Company which represented
approximately 54% of the outstanding shares of the Company's Common Stock.
On December 27, 1995, Epic sold all of such shares to William Rifkin. As a
result, Epic is no longer a stockholder of the Company.
Pursuant to an Acquisition Agreement dated March 3, 1993 (the "Acquisition
Agreement") by and between the Company and Epic, the Company on May 12,
1993 (the "Closing") 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"), (iii) the Carlito's Way Rights (as defined in Part I,
Item 1) and (iv) the Van Damme Rights (as defined in Part I, Item 1).
In connection with the financing of the film "Triumph of the Spirit", the
Company was unable to pay to 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. As of April 30, 1993, such
indebtedness totalled $9,188,864. The Company was able to negotiate an
extension of the maturity date of this note until September 30, 1991, but
since then the Company has been in default of its obligation.
Pursuant to the Acquisition Agreement, at Closing, (a) 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 the Subsidiary Corporations, (ii) the Completed Films, (iii) the
Carlito's Way Rights and (iv) the Van Damme Rights, and in exchange
therefor, (b) Epic assumed all debts and liabilities of the Company with
respect to the assets acquired, paid the Company the sum of $50,000,
acquired a substantial portion of the Bank Loan from the Bank as described
below and modified the loan arrangements thereunder plus other indebtedness
due Epic from the Company.
At Closing, Epic acquired all but $3 million of the indebtedness under 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 (which other
indebtedness was $983,069 as of April 30, 1993). All of such indebtedness
acquired by Epic is hereinafter referred to as the "Primary Obligations".
The terms of such modification were as follows: (i) principal shall be due
and payable 18 years from Closing, and (ii) interest shall be 6% per annum
payable within 45 days following the close of each fiscal year of the
Company, payable in arrears commencing October 31, 1993, not to exceed 20%
of the net profits of the Company during the applicable year.
On October 29, 1993, the Company and Epic entered into an agreement whereby
Epic assigned and contributed to the capital of the Company the
indebtedness described above as the Primary Obligations of the Company to
Epic of $7,171,933 plus accrued and unpaid interest of $201,600.
As indicated above, $3 million of indebtedness under the Bank Loan was not
acquired by Epic. In connection therewith, the Bank, Epic and the Company
entered into an agreement at Closing which provided that such portion of
the Bank Loan (the "Nonrecourse Obligations") be nonrecourse to the Company
and payable interest and then principal only from operating receipts from
"Triumph of the Spirit"which was acquired by Epic pursuant to the
Acquisition Agreement.
As of November 30, 1995, the Company assigned to Epic and Epic assumed the
remaining $3 million Nonrecourse Obligations plus interest thereon.
Each of the Company and Epic have agreed to indemnify the other in respect
of any claims, demands and losses (collectively, "Losses") that may be
asserted against, imposed upon and incurred by the other resulting from the
breach of any representations, warranties and obligations of the other as
contained in the Acquisition Agreement. In addition, Epic has agreed to
indemnify the Company for any Losses that arise out of or in any way are
connected to or result from the assets being acquired by Epic or any of the
Subsidiary Corporations, including without limitation, any claims arising
under or with respect to the business, operations and assets of each of the
Subsidiary Corporations. Excluded from the foregoing indemnity shall be
Losses attributable to fraud or willful misconduct. Also, the Company has
agreed to defend and hold Epic harmless against and in respect of any and
all liabilities and costs attributable to the litigation which is being
assumed by Epic described in the Acquisition Agreement, but only to the
extent such liabilities and costs are covered by applicable insurance.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Incorporation of Registrant with filing receipt(1)
3.2 Certificate of Amendment of Certificate of Incorporation with
filing receipt (filed November 17, 1989)(2)
3.3 By-Laws of Registrant(1)
4.1 Specimen of Common Stock Certificate of Registrant(1)
4.2 Promissory Note in the principal amount of $7,171,933(3)
4.3 Promissory Note in the principal amount of $3,000,000(3)
10.1 Loan Agreement and Security Assignment (for the film "Triumph of
the Spirit")(4)
99.1 Acquisition Agreement dated as of March 3, 1993 by and between Nova
International Films, Inc. and Epic Productions, Inc.(3)
99.2 Amendment to Loan Agreement and Security Assignment dated as of May
12, 1993 by and between Credit Lyonnais Bank Nederland, N.V., Nova
International Films, Inc. and Epic Productions, Inc.(3)
99.3 Amendment to Loan Agreement dated as of May 12, 1993 by and between
Epic Productions, Inc. and Nova International Films, Inc.(3)
99.4 Assignment Agreement/Contribution to Capital dated October 29,
1993(5)
99.5 Letter Agreement dated November 30, 1995 (re: Nonrecourse
Obligations)(6)
(1)Incorporated herein by reference from Registrant's Registration
Statement on Form S-18, effective November 12, 1985.
(2)Incorporated herein by reference from Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1989.
(3)Incorporated herein by reference from Registrant's Current Report on
Form 8-K (dated: May 12, 1993).
(4)Incorporated herein by reference from Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1990.
(5)Incorporated herein by reference from Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1993.
(6)Incorporated herein by reference from Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1995.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the last quarter of the
period covered by this report:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NOVA INTERNATIONAL FILMS, INC.
(Registrant)
By:/s/Martin Rifkin
Martin Rifkin, President
Dated: January 22, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated:
Signature Title Date
/s/William Rifkin Chairman of the Board, 1/22/99
William Rifkin Secretary and Director
Principal Executive\Officer,
Principal Financial Officer
and Principal Accounting
Officer)
/s/Martin Rifkin President, Treasurer, 1/22/99
Martin Rifkin and Director
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
OCTOBER 31, 1998
INDEX TO FINANCIAL STATEMENTS
Page
Introductory Comment 14
Balance Sheets 15
Statements of Operations 16
Statements of Stockholders' Equity (Deficit) 17
Statements of Cash Flows 19
Notes to Financial Statements 20
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
OCTOBER 31, 1998
The financial information included herein is unaudited. However, in the
opinion of management the accompanying Balance Sheet of Nova International
Films, Inc. as of October 31, 1998 and 1997, and the related Statements of
Operations, Cash Flows and Stockholders' Equity (Deficit) for the periods ended
October 31, 1998, 1997, and 1996, present fairly, in all material respects, the
financial position of Nova International Films, Inc. as of October 31, 1998 and
1997, and the results of operations, cash flows and its Stockholders' equity
(deficit) for the periods ended October 31, 1998, 1997, and 1996, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred losses before
extraordinary income in each of the last three fiscal years which have severely
depleted its working capital and have raised doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are discussed in "Management's Discussion and Analysis or Plan of Operation".
The financial statements do not include adjustments that might result from the
outcome of this uncertainty.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
BALANCE SHEETS
(Unaudited)
October 31, October 31,
1998 1997
ASSETS
Cash $ 3,872 $ 9,126
Total assets $ 3,872 $ 9,126
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
LIABILITIES:
Accounts payable and
accrued expenses $ 1,800 $ 2,800
Debt - -
Total liabilities $ 1,800 $ 2,800
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 (8,195,924) (8,191,670)
Total stockholders'
equity (deficit) $ 2,072 $ 6,326
Total liabilities and
stockholders'
equity (deficit) $ 3,872 $ 15,187
The accompanying notes are an integral part of these statements.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Year For the Year For the Year
Nov. 1, 1997 Nov. 1, 1996 Nov. 1, 1995
Through Through Through
Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1996
REVENUES $ - $ - $ -
COST AND EXPENSES:
Selling, general and admin. $ 4,254 $ 3,401 $ 8,473
Depreciation and amortization 390 391
$ 4,254 $ 3,791 $ 8,864
OPERATING LOSS $(4,254) $ (3,791) $(8,864)
OTHER INCOME
Interest income $- $ 130 $ 387
LOSS BEFORE PROVISION FOR
INCOME TAXES $(4,254) $(3,661) $(8,477)
PROVISION FOR INCOME TAXES - - -
NET LOSS BEFORE
EXTRAORDINARY INCOME $(4,254) $(3,661) $(8,477)
EXTRAORDINARY INCOME:
Forgiveness of Debt - - 3,375,119
NET INCOME (LOSS) $(4,254) $(3,661) 3,366,642
Net loss per share $(.00006) $(.00005) $.04575
Average no. of share
outstanding 73,583,000 73,583,000 73,583,000
The accompanying notes are an integral part of these statements.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
YEARS ENDED OCTOBER 31, 1992, 1993, 1994, 1995, 1996, 1997 AND 1998
Common Stock
$.00001 Par Value Additonal
No. of Paid-in
Shares Amount Capital
Balance at October 31, 1992 73,583,000 $736 $1,805,727
Effect of Acquisition with Epic (982,000)
Epic's assignment and contribution
of debt to capital 7,373,533
Net Loss from 11/1/92 thru 10/31/93
Balance at October 31, 1993 73,583,000 $736 $8,197,260
Net Loss from 11/1/93 thru 10/31/94
Balance at October 31, 1994 73,583,000 $736 $8,197,260
Net Loss From 11/1/94 thru 10/31/95
Balance at October 31, 1995 73,583,000 $736 $8,197,260
Net Income from 11/1/95 thru 10/31/96
Balance at October 31, 1996 73,583,000 $736 $8,197,260
Net Income from 11/1/96 thru 10/31/97
Balance at October 31, 1997 73,583,000 $736 $8,197,260
Net Income from 11/1/97 thru 10/31/98
Balance at October 31, 1998 73,583,000 $736 $8,197,260
The accompanying notes are an integral part of these statements.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
YEARS ENDED OCTOBER 31, 1992, 1993, 1994, 1995, 1996, 1997 AND 1998
Accumulated
Deficit Total
Balance at October 31, 1992 $ (10,031,053) $ (8,224,590)
Effect of Acquisition with Epic (982,000)
Epic's assignment and contribution
of debt to capital 7,373,533
Net Loss from 11/1/92 thru 10/31/93 1,259,975) (1,259,975)
Balance at October 31, 1993 $ (11,291,028) $(3,093,032)
Net Loss from 11/1/93 thru 10/31/94 (247,111) (247,111)
Balance at October 31, 1994 $ (11,538,139) $(3,340,143)
Net Loss From 11/1/94 thru 10/31/95 (16,512) (16,512)
Balance at October 31, 1995 $ (11,554,651) $(3,356,655)
Net Income from 11/1/95 thru 10/31/96 3,366,642 3,366,642
Balance at October 31, 1996 $ (8,188,009) $ 9,987
Net loss from 11/1/96 thru 10/31/97 (3,661) (3,661)
Balance at October 31, 1997 $ (8,191,670) $ 6,326
Net loss from 11/1/97 thru 10/31/98 (4,254) (4,254)
Balance at October 31, 1997 $ (8,195,924) $ (2,072)
The accompanying notes are an integral part of these statements.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
For the Year For the Year For the Year
Nov. 1, 1997 Nov. 1, 1996 Nov. 1, 1995
Through Through Through
Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1996
Cash flows from
operating activities:
Net loss $ (4,254) $ (3,661) $ (8,477)
Adjustments to
reconcile net loss
to net cash provided
by operating activities:
Depreciation and amortization $ - $ 390 $ 391
Net changes in assets and
liabilities:
Accounts payable (1,000) (2,400) (736)
Total adjustments $ 1,000 $ (2,010) $ (345)
Net cash provided (used)
by operating activities $ (5,254) $ (5,671) $ (8,822)
Net (decrease) increase
in cash $ (5,254) $ (5,671) $ (8,822)
Cash at beginning of period 9,126 14,797 23,619
Cash at end of period $ 3,872 $ 9,126 $ 14,797
The accompanying notes are an integral part of these statements.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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
The financial statements for the years ended October 31, 1998 and October
31, 1997 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.
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.
<PAGE>
NOVA INTERNATIONAL FILMS, INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
b. 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 year.
c. Per Share Amounts
Per share amounts are based on the weighted average number of shares
outstanding during the period.
4) 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.
As of November 30, 1995, Nova assigned to Epic and Epic assumed the
remaining $3 million Nonrecourse Obligations plus interest thereon. As
such no interest was accrued for Fiscal Years Ended October 31, 1996.
5) 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 $3,872 as of
October 31, 1998. Accordingly, the Company has significantly reduced its
overhead.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM NOVA INTERNATIONAL FILMS, INC.'S ANNUAL REPORT FOR THE
FISCAL YEAR ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 3,872
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,872
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,872
<CURRENT-LIABILITIES> 1,800
<BONDS> 0
<COMMON> 736
0
0
<OTHER-SE> 8,197,260
<TOTAL-LIABILITY-AND-EQUITY> 3,872
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,254)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,254)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,254)
<EPS-PRIMARY> .000
<EPS-DILUTED> .000
</TABLE>
