10KSB 1 form10ksb103102.txt 10KSB 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, 2002 [ ] 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 Identification organization) Number) 6350 N.E. Campus Drive Vancouver, Washington 98661 (Address of principal (Zip Code) executive offices) Issuer's telephone number, including area code: (360) 737-7700 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 January 15, 2003, the aggregate market value of the Common Stock held by non-affiliates of the Issuer (1,140,125) was approximately $342,000. The number of shares outstanding of the Common Stock ($.00001 par value) of the Issuer as of the close of business on January 15, 2003 was 6,037,000. Documents Incorporated by Reference: None 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. Prior to May 1993, the Company was principally engaged in the business of developing, financing and producing motion pictures for distribution. In January 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. As a result of the closing of the Acquisition Agreement in May 1993 (as described below under "Transfer of Film Business"), the Company has no current business operations and since then has been seeking another business opportunity. See, however, "Recent Developments" below for information on an agreement signed to acquire a 100% ownership interest in Solar Touch Limited. No assurance can be given that the Company will be able to consummate such transaction or, if consummated, that such business opportunity will be successful. This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs and assumptions made by the Company's management as well as information currently available to the management. When used in this document, the words "anticipate", "believe", "estimate", and "expect" and similar expressions, are intended to identify forward- looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward- looking statements. Transfer of Film Business 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 and (iv) the Van Damme Rights. 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. 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. 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". 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. As a result thereof, the Company eliminated its bank indebtedness. As a result of the foregoing, and as stated above, the Company has no current business operations and has been in the process of seeking another business opportunity. Recent Developments In November 2002, the Company signed a Share Exchange Agreement to acquire a 100% ownership interest in Solar Touch Limited ("Solar Touch") in exchange for approximately 49,567,000 (post-split) shares of the Company's common stock. In addition, the Share Exchange Agreement provides for the issuance of approximately 4,761,000 (post-split) shares to certain financial consultants. Solar Touch is a British Virgin Islands corporation which owns a 49% equity interest in Boading Pascali Broadcasting Cable TV Integrated Information Networking, Co., LTD ("Boading"). Boading, a company established in the People's Republic of China, operates a cable TV network in the municipality of Boading, near Beijing, in the People's Republic of China. The completion of the transaction contemplated by the Share Exchange Agreement is subject to a number of factors including, but not limited to, the completion of due diligence to be conducted by the parties of one another and the Company effecting a 1 for 16 reverse stock split (which reverse stock split was effected as of November 22, 2002). In November 2002, the Company granted an option to DSS Associates, Carter Fleming International LTD, Grand Unison LTD, and Emerging Growth Partners Inc. (the "Optionees") to purchase an aggregate of 4,750,000 (post-split) shares of common stock in the Company for a total of $50,000. The Optionees may exercise the option in full only by delivering to the Company, immediately prior to or concurrently with the closing of the acquisition, a duly executed Notice of Exercise. Such a notice shall constitute an irrevocable commitment to purchase the 4,750,000 shares of common stock. Concurrently with the execution of the Notice, the Optionees shall wire transfer the aggregate exercise price for the shares to the Company. In the event that the Optionees fail to deliver the Notice and wire transfer as provided by the terms of the Option Agreement, then the Option Agreement shall terminate and neither party shall have any further rights, obligations or liabilities. Assuming completion of the foregoing transactions, the Company will have approximately 65 million (post-split) shares issued and outstanding. Although the Share Exchange Agreement and Option Agreement have been signed, no assurance can be given that such transactions will be consummated. All share and per share amounts have been retroactively restated in the financial statements to give effect to the reverse stock split. Search for Business Opportunities The procedures and practices described in the following generalized discussion are intended only to provide a background against which the Company's business and its search for a business opportunity may be evaluated. There can be no assurance that the procedures and practices described in the following generalized discussion have or will apply in any particular instances to the Company's business and its search for a business opportunity, including its transaction to acquire a 100% ownership interest in Solar Touch which has not yet been consummated. The Company has no current business operations and no representation is made, nor is any intended, that the Company will be able to carry on future business activities successfully. Further, there can be no assurance that the Company will have the ability to acquire or merge with an operating business, business opportunity or property that will be of material value to the Company. Management anticipates that it may be able to participate in only one potential business venture. The Company may seek a business opportunity in the form of firms which have recently commenced operations, are developing companies in need of additional funds for expansion into new products or markets, are seeking to develop a new product or service, or are established businesses which may be experiencing financial or operating difficulties and are in need of additional capital. In some instances, a business opportunity may involve the acquisition or merger with a company which does not need substantial additional cash but which desires to establish a public trading market for its Common Stock. A company which seeks the Company's participation in attempting to consolidate its operations through a merger, reorganization, asset acquisition, or some other form of combination may desire to do so to avoid what it may deem to be adverse consequences of undertaking a public offering itself. Factors considered may include time delays, significant expense, loss of voting control and the inability or unwillingness to comply with various federal and state laws enacted for the protection of investors. The Company anticipates that the selection of a business opportunity in which to participate will be complex and extremely risky. Because of general economic conditions, rapid technological advances being made in some industries, and shortages of available capital, management believes that there are numerous firms seeking even the limited additional capital which the Company has and/or the benefits of a publicly traded corporation. Such perceived benefits of a publicly traded corporation may include facilities or improving the terms on which additional equity financing may be sought, providing liquidity for the principals of a business, creating a means for providing incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes) for all shareholders, and other factors. Potentially available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. The Company has insufficient capital with which to provide the owners of business opportunities with any significant cash or other assets. However, management believes the Company will offer owners of business opportunities the opportunity to acquire a controlling ownership interest in a public company at substantially less cost than is required to conduct an initial public offering. The owners of the business opportunities will, however, incur significant post-merger or acquisition registration costs in the event they wish to register a portion of their shares for subsequent sale. The Company will also incur significant legal and accounting costs in connection with the acquisition of a business opportunity including the costs of preparing Form 8-K's, agreements and related reports and documents. Nevertheless, Management of the Company has not conducted market research and is not aware of statistical data which would support the perceived benefits of a merger or acquisition transaction for the owners of a business opportunity. The analysis of new business opportunities has been and will continue to be undertaken by or under the supervision of the Company's Chairman of the Board and President. Management intends to concentrate on identifying preliminary prospective business opportunities which may be brought to its attention through present associations. In analyzing prospective business opportunities, management will consider such matters as the available technical, financial, and managerial resources; working capital and other financial requirements; history or operation, if any; prospects for the future; nature of present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development, or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact the proposed activities of the Company; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services, or trades; name identification; and other relevant factors. Management of the Company will meet personally with management and key personnel of the firm sponsoring the business opportunity as part of its investigation. To the extent possible, the Company intends to utilize written reports and personal investigation to evaluate the above factors. It may be anticipated that any opportunity in which the Company participates will present certain risks. Many of these risks cannot be adequately identified prior to selection of the specific opportunity, and shareholders of the Company must, therefore, depend on the ability of management to identify and evaluate such risks. In the case of some of the opportunities available to the Company, it may be anticipated that the promoters thereof have been unable to develop a going concern or that such business is in its development stage in that it has not generated significant revenues from its principal business activity prior to the Company's participation, and there is a risk, even after the Company's participation in the activity and the related expenditure of the Company's funds, that the combined enterprises will still be unable to become a going concern or advance beyond the development stage. Many of the opportunities may involve new and untested products, processes, or market strategies which may not succeed. Such risks will be assumed by the Company and, therefore, its shareholders. In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. It may also purchase stock or assets of an existing business. It should be noted that the Company likely has insufficient capital with which to make any acquisitions. Accordingly, in any of the transactions alluded to herein, it is likely that the consideration utilized to make any acquisitions will consist of equity securities. In the event that an acquisition is made utilizing primarily equity securities (as is expected to be the case), the percentage ownership of present shareholders will be diluted, the extent of dilution depending upon the amount so issued. Persons acquiring shares in connection with any acquisition of a business may obtain an amount of equity securities sufficient to control the Company. In addition, the Company's Directors may, as part of the terms of the acquisition transaction, resign and be replaced by new directors without a vote of the Company's shareholders. Further, if the Company were to issue substantial additional securities in any acquisition, such issuance might have an adverse effect on the trading market in the Company's securities in the future. As part of the Company's investigation, Management of the Company intends to meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis or verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of the Company's limited financial resources and management expertise. The manner in which the Company participates in an opportunity will depend on the nature of the opportunity, the respective needs and desires of the Company and other parties, the management of the opportunity, and the relative negotiating strength of the Company and such other management. With respect to any mergers or acquisitions, negotiations with target company management will be expected to focus on the percentage of the Company which target company shareholders would acquire in exchange for their shareholdings in the target company. Depending upon, among other things, the target company's assets and liabilities, the Company's shareholders will in all likelihood hold a lesser percentage ownership interest in the Company following any merger or acquisition. The percentage ownership may be subject to significant reduction in the event the Company acquires a target company with substantial assets. Any merger or acquisition effected by the Company can be expected to have a significant dilutive effect on the percentage of shares held by the Company's shareholders. The Company will participate in a business opportunity only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to such closing, will outline the manner of bearing costs if the transaction is not closed, will set forth remedies on default, and will include miscellaneous other terms. Employees Other than its two officers, the Company currently has no employees. Competition In connection with its search for another business opportunity, the Company has been and 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. The Company also expects to face significant competition in the event the Company completes the transaction to acquire Solar Touch, which is a company involved in the cable TV industry which is a highly competitive industry. Uncertainties and Risk Factors In addition to other information and financial data set forth elsewhere in this report, the following risk factors should be considered carefully in evaluating the Company. In addition to the following risks, in the event the Company consummates the transaction to acquire Solar Touch, the Company anticipates that it will face additional risks related to the business of Solar Touch and the industry within which it competes, which risks are likely to be substantial and which are not addressed below. NO CURRENT BUSINESS OPERATIONS. Since May 1993, the Company has no current business operations. With no current business operations, the Company can now be defined as a "shell" corporation, whose principal business purpose at this time is to locate and consummate a merger or acquisition with a private entity. There is no assurance the Company's intended merger or acquisition activities will be successful or result in revenue or profit to the Company. The likelihood of success of the Company must be considered in light of the risks, expenses, difficulties and delays frequently encountered in connection with the operation and development of a new business. There is nothing at this time upon which to base an assumption that any business or business opportunity the Company acquires will prove successful, and there is no assurance that it will be able to operate profitably. EXTREMELY LIMITED CAPITALIZATION. The Company has insufficient capital with which to make any significant asset acquisitions. Accordingly, in any of the transactions alluded to herein, it is likely that the consideration utilized to make any acquisitions will consist of equity securities. In addition, inasmuch as the Company's capitalization is limited and the issuance of additional Common Stock will result in a dilution of interest for present shareholders, it is unlikely the Company will be capable of negotiating more than one merger or acquisition. Consequently, the Company's lack of diversification may subject the Company to economic fluctuation within a particular industry in which a target company conducts business. LACK OF REVENUES AND BUSINESS OPERATIONS; DOUBTFUL ABILITY TO CONTINUE AS A GOING CONCERN. As a result of the Company's lack of revenues and business operations, a net loss of $2,357, working capital and stockholders deficiency of $17,905, the Company's independent auditor's report, dated January 14, 2003, for the year ended October 31, 2002, states that these conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company has no current business operations and is in the process of seeking a 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. Management has indicated that for the foreseeable future it will cover those costs necessary to retain the Company's corporate charter, file necessary tax returns, report to the Securities and Exchange Commission, and cover certain expenses in seeking business opportunities. COMPETITION FOR BUSINESS OPPORTUNITIES. The Company is aware that there are many other public companies with only nominal assets that are also searching for operating businesses and other business opportunities as potential acquisition or merger candidates. The Company will be in direct competition with these other public companies in its search for business opportunities. In addition, the Company expects to encounter substantial competition in its efforts to attract business opportunities from business development companies, venture capital partnerships and corporations, venture capital affiliates of large industrial and financial institutions, small business investment companies and wealthy individuals. Competition in the search for business opportunities is principally based upon experience in connection with identifying and effecting business acquisitions, financial and personnel resources and technical expertise. Many of these entities have significantly greater experience, financial and personnel resources, and managerial and technical capabilities than the Company and in all likelihood will be in a better position than the Company to obtain access to attractive business opportunities. In view of the Company's limited financial resources and personnel, the Company will continue to be at a significant competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. LACK OF MARKET RESEARCH OR IDENTIFICATION OF ACQUISITION OR MERGER CANDIDATE. The Company has neither conducted nor have others made available to it results of market research concerning the availability of potential business opportunities. Therefore, management has no assurance that market demand exists for a merger or acquisition as contemplated by the Company. Although the Company has determined to initially limit its search for a potential business or business opportunity to firms involved or intending to be involved in the telecommunications and/or internet industries, there is no assurance the Company will be able to acquire a business opportunity on terms favorable to the Company. CONFLICTS OF INTEREST - POSSIBLE NEGOTIATION OR OTHERWISE GRANT OF CONSENT BY MANAGEMENT TO PURCHASE OF MANAGEMENT'S COMMON STOCK. As a condition to or in connection with a proposed merger or acquisition transaction, management may actively negotiate or otherwise consent to the purchase of all or a portion of its shares of Common Stock. In connection with any such stock purchase transaction, it is possible that a premium may be paid for management's shares of Common Stock and that the other shareholders in the Company may not receive any portion thereof in the event such premium may be paid. Any transaction structured in such manner may present management with conflicts of interest and as a result of such conflicts, may possibly compromise management's fiduciary duties to the Company's shareholders, as the potential would therefore exist for management to consider its own personal pecuniary benefit rather than the best interests of the Company's other shareholders. In this regard, management and control shareholders, if any, generally have a fiduciary obligation under Delaware law to not effect transactions which are not in good faith furtherance of rational corporate purposes or are unfair to unaffiliated stockholders. Further, the Company's other shareholders may not be afforded an opportunity to otherwise participate in any particular stock buy-out transaction. Additionally, in any such transaction, it is possible, although not presently intended, that the Company may borrow funds to be used directly or indirectly to purchase management's shares. POSSIBLE CHANGE IN CONTROL AND MANAGEMENT. The successful completion of a merger or acquisition may result in a change of control of the Company. Any such change in control may also result in the resignation or removal of the Company's present management. REGULATION. Although the Company is subject to regulation under the Exchange Act, management believes the Company will not be subject to regulation under the Investment Company Act of 1940, insofar that the Company will not be engaged in the business of investing or trading in securities. Such Act defines an "investment company" as an issuer which is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading of securities. Although management believes that the Company will not be subject to regulation under such Act insofar that the Company does not intend to engage in such activities, the Company has obtained no formal determination as to the status of the Company under such Act. The Company could be expected to incur significant registration and compliance costs if required to register under the Investment Company Act of 1940. Accordingly, management will continue to review the Company's activities from time to time with a view toward reducing the likelihood the Company could be classified as an "investment company". TAXATION. In the course of any acquisition or merger the Company may undertake, a substantial amount of attention will be focused upon federal and state tax consequences to both the Company and the "target" company. Presently, under Section 368 of the Internal Revenue Code of 1986, as amended, a statutory merger or consolidation is an exempt transaction and may be tax-free if effected in accordance with State law. While the Company expects to undertake any merger or acquisition so as to minimize federal and state tax consequences to both the Company and the "target" company, there is no assurance that such business combination will meet the statutory requirements of a reorganization or that the parties will obtain the intended tax-free treatment upon a transfer of stock or assets. A nonqualifying reorganization could result in the imposition of both federal and state taxes which may have substantial adverse effect on the Company. LIMITATION ON LIABILITY OF DIRECTORS. The Company's Certificate of Incorporation provides that a director of the Company will not be personally liable to the Company or its shareholders for monetary damages resulting from breaches of his fiduciary duty of care as a director, including breaches which constitute gross negligence. As a result, the rights of the Company and its shareholders to obtain monetary damages for acts or omissions of directors will be more limited than they would be in the absence of such provision. The provision would not apply to a violation of a director's responsibility under the Federal securities laws. POSSIBLE USE OF DEBT FINANCING; DEBT OF AN ACQUIRED BUSINESS. There are currently no limitations relating to the Company's ability to borrow funds to increase the amount of capital available to the Company to effect a business combination or otherwise finance the operations of an acquired business. The amount and nature of any borrowings by the Company will depend on numerous considerations, including the Company's capital requirements, the Company's perceived ability to meet debt service on such borrowings, and then-prevailing conditions in the financial markets, as well as general economic conditions. There can be no assurance that debt financing, if required or otherwise sought, will be available on terms deemed to be commercially acceptable and in the best interest of the Company. The inability of the Company to borrow funds required to effect or facilitate a business combination, or to provide funds for an additional infusion of capital into an acquired business, may have a material adverse effect on the Company's financial condition and future prospects. Additionally, to the extent that debt financing ultimately proves to be available, any borrowings may subject the Company to various risks traditionally associated with incurring of indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest. Furthermore, an acquired business may already have previously- incurred debt financing and, therefore, the risks inherent thereto, as discussed above. CUMULATIVE VOTING AND PRE-EMPTIVE RIGHTS. There are no pre- emptive rights in connection with the Company's Common Stock. Therefore, current shareholders of the Company will be in all likelihood significantly diluted in their percentage ownership of the Company in the event the Company issues shares of stock in connection with an acquisition of a business or business opportunity. Cumulative voting in the election of directors is not allowed. Accordingly, the holders of a majority of the shares of Common Stock, present in person or by proxy, will be able to elect all of the Company's Board of Directors. DIVIDENDS. At the present time the Company does not anticipate paying dividends on its Common Stock in the foreseeable future. Any future dividends will depend on earnings, if any, of the Company, its financial requirements and other factors. POTENTIAL FUTURE SALES PURSUANT TO RULE 144. Certain shares of Common Stock presently held by management and others are "restricted securities" as that term is defined in Rule 144, promulgated under the Securities Act. Under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a one-year holding period, may, under certain circumstances sell within any three-month period a number of shares which does not exceed the greater of 1% of the then outstanding shares of Common Stock, or the average weekly trading volume during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity limitation by a person who is not an affiliate of the Company and who has satisfied a two-year holding period. Such holding periods have already been satisfied in many instances. Therefore, actual sales or the prospect of sales of such shares under Rule 144 in the future may depress the prices of the Company's securities. ISSUANCE OF SHARES IN MERGER OR ACQUISITION. Any acquisition effected by the Company may result in the issuance of additional Common Stock without shareholder approval and may result in substantial dilution in the percentage of the Company's securities held by the Company's then-shareholders. Moreover, the Common Stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non arm's-length basis by management of the Company, resulting in an additional reduction in the percentage of securities held by the Company's then- shareholders. PENNY STOCK RULES. The Company's Common Stock is covered by a Securities and Exchange Commission rule that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the rule, the broker/dealer must make a special suitability determination for the purchaser and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of shareholders in this offering to sell their shares in the secondary market. In addition, Securities and Exchange Commission rules impose additional sales practice requirements on broker/dealers who sell penny securities. These rules require a summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to an understanding of the function of the penny stock market, such as "bid" and "offer" quotes, a dealers "spread" and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in cases of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Securities Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons. The additional burdens imposed upon broker/dealers by such requirements may discourage broker/dealers from effecting transactions in the Common Stock, which could severely limit the market of the Company's Common Stock. RESTRICTIONS ON TRANSFERABILITY; LIMITED TRADING MARKET. Only a limited trading market for the Common Stock currently exists. The market price of the Common Stock, which currently is listed on the OTC Bulletin Board under the symbol NIFL, has and may in the future be highly volatile. In addition, the Company believes that relatively few market makers make a market in the Company's Common Stock. The actions of any of these market makers could substantially impact the volatility of the Company's Common Stock. 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. PART II Item 5. Market for Common Equity and Related Stockholder Matters. The Company's Common Stock is traded in the over-the-counter market and is listed on the OTC Bulletin Board. Since November 22, 2002 (the effective date of the 1 for 16 reverse stock split), the symbol for the Common Stock has been "NIFL". Prior thereto, the symbol was "NIFI". The high and low bid quotations for the Company's Common Stock tabulated below (adjusted to give effect for the 1 for 16 reverse stock split) 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, 2001: Nov. 1, 2000 to Jan. 31, 2001 $0.48 $0.32 Feb. 1, 2001 to April 30, 2001 $1.00 $0.48 May 1, 2001 to July 31, 2001 $0.32 $0.32 Aug. 1, 2001 to Oct. 31, 2001 $0.16 $0.16 Fiscal Year Ended October 31, 2002: Nov. 1, 2001 to Jan. 31, 2002 $0.16 $0.16 Feb. 1, 2002 to April 30, 2002 $0.16 $0.16 May 1, 2002 to July 31, 2002 $0.00 $0.00 Aug. 1, 2002 to Oct. 31, 2002 $0.00 $0.00 As of January 15, 2003, there were approximately 625 record holders of the Company's Common Stock. 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. Overview Nova International Films, Inc. (the "Company") was incorporated in the State of Delaware on November 27, 1984. Prior to May 1993, the Company was principally engaged in the business of developing, financing and producing motion pictures for distribution. Since May 1993, however, the Company has had no current business operations and since then has been seeking another business opportunity. Plan of Operation The Company had no revenues for the fiscal years ended October 31, 2001 and 2002. During the fiscal year ended October 31, 2002, the Company had a net loss of $(2,359) as compared to a net loss of $(4,369) during the fiscal year ended October 31, 2001. On October 31, 2002, the Company had a working capital deficit and stockholders' deficit of $(17,905), $2,419 in cash, total assets of $2,419 and total liabilities of $20,324. The working capital deficit and stockholders' deficit is principally due to short term loans made by the President of the Company in order to allow the Company to meet certain working capital needs. At the current time, the Company's sole means to pay for its overhead operations is its existing cash in the total amount of $2,419 as of October 31, 2002. Accordingly, in recent years, 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. As mentioned above, since May 1993, the Company has had no current business operations and since then has been seeking another business opportunity. In November 2002, the Company signed a Share Exchange Agreement to acquire a 100% ownership interest in Solar Touch Limited ("Solar Touch") in exchange for approximately 49,567,000 (post-split) shares of the Company's common stock. In addition, the Share Exchange Agreement provides for the issuance of approximately 4,761,000 (post-split) shares to certain financial consultants. Solar Touch is a British Virgin Islands corporation which owns a 49% equity interest in Boading Pascali Broadcasting Cable TV Integrated Information Networking, Co., LTD ("Boading"). Boading, a company established in the People's Republic of China, operates a cable TV network in the municipality of Boading, near Beijing, in the People's Republic of China. The completion of the transaction contemplated by the Share Exchange Agreement is subject to a number of factors including, but not limited to, the completion of due diligence to be conducted by the parties of one another and the Company effecting a 1 for 16 reverse stock split (which reverse stock split was effected as of November 22, 2002). In November 2002, the Company granted an option to DSS Associates, Carter Fleming International LTD, Grand Unison LTD, and Emerging Growth Partners Inc. (the "Optionees") to purchase an aggregate of 4,750,000 (post-split) shares of common stock in the Company for a total of $50,000. The Optionees may exercise the option in full only by delivering to the Company, immediately prior to or concurrently with the closing of the acquisition, a duly executed Notice of Exercise. Such a notice shall constitute an irrevocable commitment to purchase the 4,750,000 shares of common stock. Concurrently with the execution of the Notice, the Optionees shall wire transfer the aggregate exercise price for the shares to the Company. In the event that the Optionees fail to deliver the Notice and wire transfer as provided by the terms of the Option Agreement, then the Option Agreement shall terminate and neither party shall have any further rights, obligations or liabilities. Assuming completion of the foregoing transactions, the Company will have approximately 65 million (post-split) shares issued and outstanding. Although the Share Exchange Agreement and Option Agreement have been signed, no assurance can be given that such transactions will be consummated. All share and per share amounts have been retroactively restated in the financial statements to give effect to the reverse stock split. Recently Issued Accounting Standards In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement addresses the diverse accounting practices for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company will be required to adopt this statement effective November 1, 2002. The Company does not expect that the adoption of SFAS No. 143 will have any effect on the Company's financial statement presentation or disclosures. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective January 1, 2002. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of", and a portion of APB Opinion No. 30, "Reporting the Results of Operations". This statement provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for- sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This statement also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. The adoption of SFAS No. 144 did not have any effect on the Company's financial statement presentation or disclosures. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized at the date the liability is incurred and is measured and recorded at fair value. SFAS No. 146 replaces the previous accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not anticipate that the adoption of SFAS No. 146 will have any effect on the Company's financial statement presentation or disclosures. 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. See Current Report on Form 8-K (Date of Report: January 10, 2003). 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 82 Chairman of the Board, December 1984 Secretary and Director Martin Rifkin 41 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. 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., which distributes 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. Since February 1994, Mr. Rifkin has been a Director of Cyberia Holdings, Inc. 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, 2002, 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 January 15, 2002 (which information reflects the 1 for 16 reverse stock split effected in November 2002), 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 executive officers; and (iii) directors and officers of the Company as a group: Number Percent of Shares of Name and Address Owned Class William Rifkin 2,490,625(1) 41.2% 6350 N.E. Campus Drive Vancouver, WA Martin Rifkin 2,406,250(2) 39.9% 6350 N.E. Campus Drive Vancouver, WA All Officers and 4,896,875(1)(2) 81.1% Directors as a Group (consisting of 2 persons) (1) Includes 125,000 shares owned of record by the wife of William Rifkin, which shares may be deemed to be beneficially owned by him. (2) Includes 259,375 shares owned of record by the wife of Martin Rifkin, which shares may be deemed to be beneficially owned by him, and 412,500 shares held by Martin Rifkin as custodian for his children under the Uniform Gifts to Minors Act. Item 12. Certain Relationships and Related Transactions. During the fiscal years ended October 31, 2001 and October 31, 2002, Martin Rifkin made short term loans to the Company in order to allow the Company to meet certain working capital needs. As of October 31, 2002, the principal balance owing was in the amount of $18,524. Such loans are without interest and payable on demand. 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) 99.1 Certification pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (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. (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. Item 14. Controls and Procedures. The Company's Chief Executive Officer and Principal Financial Officer has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the filing date of this annual report. Based on such evaluation, such officer has concluded that the Company's disclosure controls and procedures are effective in alerting him on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings under the Exchange Act. There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect such controls subsequent to the date of this evaluation. 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: February 10, 2003 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, 2/10/03 William Rifkin Secretary and Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) /s/ Martin Rifkin President, Treasurer 2/10/03 Martin Rifkin and Director CERTIFICATIONS I, William Rifkin, certify that: 1. I have reviewed this annual report on Form 10-KSB of Nova International Films, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicted in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 10, 2003 /s/ William Rifkin William Rifkin Chairman of the Board and Principal Executive Officer I, William Rifkin, certify that: 1. I have reviewed this annual report on Form 10-KSB of Nova International Films, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicted in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 10, 2003 /s/ William Rifkin William Rifkin Principal Financial Officer TABLE OF CONTENTS PAGE NO. INDEPENDENT AUDITORS' REPORT F-1, F-2 FINANCIAL STATEMENTS Balance Sheets F-3 Statements of Operations F-4 Statement of Changes in Stockholders' Deficiency F-5 Statements of Cash Flows F-6 NOTES TO FINANCIAL STATEMENTS F-7 to F-11 INDEPENDENT AUDITORS' REPORT To the board of directors Nova International Films, Inc. We have audited the accompanying balance sheet of Nova International Films, Inc. as of October 31, 2002 and the related statements of operations, changes in stockholders' deficiency, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nova International Films, Inc. as of October 31, 2002 and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company has no revenues and business operations, a net loss of $2,359, working capital and stockholders deficiency of $17,905 which raise substantial doubts about its ability to continue as a going concern, Management's plans in regard to these matters are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. WEINBERG & COMPANY, P.A. Los Angeles, California January 14, 2003 F-1 REPORT OF CERTIFIED PUBLIC ACCOUNTANTS THE BOARD OF DIRECTORS NOVA INTERNATIONAL FILMS, INC. We have audited the accompanying balance sheet of Nova International Films, Inc. as of October 31, 2001 and the related statements of operations, stockholders' deficiency, and cash flows for the period November 1, 2000 through October 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evi- dence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nova International Films, Inc. as of October 31, 2001 and the results of its operations and cash flows for the period indicated above in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company has no revenues and business operations which raise substantial doubts about its ability to continue as a going concern, Management's plans in regard to these matters are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. GLASSER & HAIMS, P.C. Valley Stream, New York November 21, 2001 F-2 NOVA INTERNATIONAL FILMS, INC. BALANCE SHEETS 0CTOBER 31, 2002 2001 ASSETS Cash $ 2,419 $ 2,878 Total Assets $ 2,419 $ 2,878 LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 1,800 $ 1,800 Short term loan - related party 18,524 16,624 Total Current Liabilities 20,324 18,424 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' DEFICIENCY: Common Stock, $.00001 par value; 100,000,000 shares authorized, 6,037,000 shares issued and outstanding, respectively. 60 60 Additional paid-in capital 8,198,166 8,198,166 Accumulated deficit (8,216,131) (8,213,772) Total Stockholders' Deficiency (17,905) (15,546) Total Liabilities and Stockholders' Deficiency $ 2,419 $ 2,878 See Notes to Financial Statements F-3 NOVA INTERNATIONAL FILMS, INC. STATEMENTS OF OPERATIONS YEARS ENDED OCTOBER 31, 2002 AND 2001 2002 2001 REVENUES $ - $ - COSTS AND EXPENSES: Selling, general and administration expenses 2,359 4,375 OPERATING LOSS (2,359) (4,375) OTHER INCOME Interest income - 6 LOSS BEFORE PROVISION FOR INCOME TAXES (2,359) (4,369) PROVISION FOR INCOME TAXES - - NET (LOSS) (2,359) (4,369) Net (loss) per share, basic and diluted $ - $ - Average number of shares outstanding, basic and diluted 6,037,000 6,037,000 See Notes to Financial Statements F-4
NOVA INTERNATIONAL FILMS, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY YEARS ENDED OCTOBER 31, 2002 AND 2001 Common Stock $.00001 Par Value Additional No. of Paid-in Accumulated Shares Amount Capital Deficit Total Balance at November 1, 2000 6,037,000 $ 60 $ 8,198,166 $ (8,209,403) $(11,177) Net (Loss) (4,369) (4,369) Balance at October 31, 2001 6,037,000 60 8,198,166 (8,213,772) (15,546) Net (Loss) (2,359) (2,359) Balance at October 31, 2002 6,037,000 $ 60 $ 8,198,166 $ (8,216,131) $(17,905) See Notes to Financial Statements F-5
NOVA INTERNATIONAL FILMS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2002 AND 2001 2002 2001 Cash flows from operating activities: Net loss $ (2,359) $ (4,369) Net cash (used) by operating activities (2,359) (4,369) Cash flows from investing activities: Advances from short term loan 1,900 6,000 Net cash provided by investing activities 1,900 6,000 Net increase (decrease) in cash (459) 1,631 Cash at beginning of year 2,878 1,247 Cash at end of year $ 2,419 $ 2,878 See Notes to Financial Statements F-6 NOVA INTERNATIONAL FILMS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 2002 AND 2001 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. During the late eighties and early nineties the Company was involved in the production and co-production of various films and motion pictures. As of May 1993, the Company had no current business operations and since then has been seeking another business opportunity. See Note 6 for information on an agreement signed to acquire a 100% ownership interest in Solar Touch Limited. No assurance can be given that the Company will be able to consummate such transaction or, if consummated, that such business opportunity will be successful. 2) Summary of Significant Accounting Policies a. Use of 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, disclosure 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. b. Income Taxes The Company accounts for income taxes using the liability method whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying statutory tax rates applicable to future years to difference between the financial statement carrying amounts and the tax bases of certain assets and liabilities. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year. F-7 NOVA INTERNATIONAL FILMS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 2002 AND 2001 c. Earnings (Loss) Per Common Share Basic earnings (loss) per share is calculated by dividing the earnings net (loss) available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated assuming the issuance of common shares resulting from the exercise of stock options and warrants. Dilutive securities are not included in the calculation of loss per share because their effect would have been anti-dilutive. As the company has no outstanding options or warrants, basic, and diluted earnings (loss) per share are the same for the fiscal years ended October 31, 2002 and 2001. On November 22, 2002, the Company effected a 1 for 16 reverse stock split (See Note 6). Loss per common share calculations for the fiscal years ended October 31, 2002 and 2001 give retro-active effect to the 1-for-16 reverse split as if it occurred on November 1, 2000. d. New Accounting Pronouncements In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement addresses the diverse accounting practices for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company will be required to adopt this statement effective January 1, 2003. The Company does not expect that the adoption of SFAS No. 143 will have any effect on the Company's financial statement presentation or disclosures. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective January 1, 2002. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", and a portion of APB Opinion No. 30, "Reporting the Results of Operations". This statement provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This statement also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. The adoption of SFAS No. 144 did not have any affect on the Company's financial statement presentation or disclosures. F-8 NOVA INTERNATIONAL FILMS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 2002 AND 2001 In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Such costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 replaces the previous accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not anticipate that the adoption of SFAS No. 146 will have any effect on the Company's financial statement presentation or disclosures. 3) Income Taxes As of October 31, 2002, the Company had federal net operating loss carryforwards of approximately $6,394,000 expiring in various years through 2022, which can be used to offset future taxable income, if any. No deferred asset benefit for these operating losses has been recognized in the financial statements due to the uncertainty as to their realizability in future periods. The Company's net deferred tax assets (using a federal corporate income rate of 34%) consisted of the following at October 31, 2002 and 2001: October 31, 2002 2001 Deferred tax assets Operating loss carryforward $ 2,174,000 $ 2,173,000 2,174,000 2,173,000 Less: Valuation allowance (2,174,000) (2,173,000) Net deferred tax assets $ - $ - As a result of the Company's significant operating loss carryforward and the corresponding valuation allowance, no income tax expense (benefit) has been recorded at October 31, 2002 and 2001. F-9 NOVA INTERNATIONAL FILMS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 2002 AND 2001 4) Short Term Loan - Related Party During the fiscal year ended October 31, 2001, and October 31, 2002 an officer of the Company made short term loans to the Company in order to allow the Company to meet certain working capital needs. Such loan is without interest and payable on demand. 5) Going Concern The accompanying financial statements have been prepared assuming that the Company can continue as a going concern. The Company currently has no revenue, business operations, a net loss of $2,359 a working capital deficiency and stockholders deficiency of $17,905 which raises substantial doubts about its ability to continue as a going concern. The financial statements do not include and adjustments that might result from the outcome of this uncertainly. At the current time, the Company's sole means to pay for its overhead operations is its existing cash in the total amount of $2,419 as of October 31, 2002. Accordingly, the Company has significantly reduced its overhead. The Company has no current business operations and is in the process of seeking a business opportunity (See Note 6). 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. Management has indicated that for the foreseeable future it will cover those costs necessary to retain the Company's corporate charter, file necessary tax returns, report to the Securities and Exchange Commission, and cover certain expenses in seeking business opportunities. F-10 NOVA INTERNATIONAL FILMS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 2002 AND 2001 6) Subsequent Events In November 2002, the Company signed a Share Exchange Agreement to acquire a 100% ownership interest in Solar Touch Limited ("Solar Touch") in exchange for approximately 49,567,000 (post-split ) shares of the Company's common stock. In addition, the Share Exchange Agreement provides for the issuance of approximately 4,761,000 (post-split) shares to certain financial consultants. Solar Touch is a British Virgin Islands corporation which owns a 49% equity interest in Boading Pascali Broadcasting Cable TV Integrated Information Networking, Co., LTD ("Boading"). Boading, a company established in the People's Republic of China, operates a cable TV network in the municipality of Boading, near Beijing, in the People's Republic of China. The completion of the transaction contemplated by the Share Exchange Agreement is subject to a number of factors including, but not limited to, the completion of due diligence to be conducted by the parties of one another and the Company effecting a 1 for 16 reverse stock split (which reverse split was effected as of November 22, 2002). In November 2002, the Company granted an option to DSS Associates, Carter Fleming International LTD, Grand Unison LTD, and Emerging Growth Partners Inc. (the "Optionees") to purchase an aggregate of 4,750,000 (post-split) shares of common stock in the Company for a total of $50,000. The Optionees may exercise the option in full only by delivering to the Company, immediately prior to or concurrently with the closing of the acquisition, a duly executed Notice of Exercise. Such a notice shall constitute an irrevocable commitment to purchase the 4,750,000 shares of common stock. Concurrently with the execution of the Notice, the Optionees shall wire transfer the aggregate exercise price for the shares to the Company. In the event that the Optionees fail to deliver the Notice and wire transfer as provided by the terms of the Option Agreement, then the Option Agreement shall terminate and neither party shall have any further rights, obligations' or liabilities. Assuming completion of the transactions discussed in paragraphs 1 and 2, the Company will have approximately 65 million (post-split) shares issued and outstanding. Although the Share Exchange Agreement and Option Agreement have been signed, no assurance can be given that such transactions will be consummated. All share and per share amounts have been retroactively restated in the financial statements to give effect to the reverse stock split. F-11