-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S1hVxjvdFEMIqMOYQtybHziVQR/wT5b02QGrjYGawH7AQ9HJ5Z6V9N296xOvPKQ5 NkumEZ7E9MfAIZhZP6fOGQ== 0001000096-03-000539.txt : 20031112 0001000096-03-000539.hdr.sgml : 20031112 20031112165408 ACCESSION NUMBER: 0001000096-03-000539 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20031112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHINA CABLE & COMMUNICATION INC CENTRAL INDEX KEY: 0000773394 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 112717273 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 002-98997-NY FILM NUMBER: 03994539 BUSINESS ADDRESS: STREET 1: SUITE 805, ONE PACIFICE PLACE CITY: 88 QUEENSWAY STATE: K3 ZIP: XXXXX BUSINESS PHONE: 852 2591 1221 MAIL ADDRESS: STREET 1: SUITE 805, ONE PACIFICE PLACE CITY: 88 QUEENSWAY STATE: K3 ZIP: XXXXX FORMER COMPANY: FORMER CONFORMED NAME: CHINA CABLE & COMMUNICATIONS INC DATE OF NAME CHANGE: 20030801 FORMER COMPANY: FORMER CONFORMED NAME: NOVA INTERNATIONAL FILMS INC DATE OF NAME CHANGE: 19920703 10QSB/A 1 chinacable3312003.txt AMENDMENT NO. 1 U.S. SECURITIES EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A1 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: Commission File Number: March 31, 2003 2-98997-NY NOVA INTERNATIONAL FILMS, INC. - -------------------------------------------------------------------------------- (Exact name of Company as specified in its charter) DELAWARE 11-2717273 ------------------------------ ---------------------------------- (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) Suite 805, One Pacific Place, 88 Queensway, Hong Kong - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (852) 2591 1221 - -------------------------------------------------------------------------------- (Company's telephone number, including area code) Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports) and (2) has been subject to filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of Common Stock outstanding as of March 31, 2003 was 60,364,933. Transitional Small Business Disclosure Format (check one): Yes No X ----- ----- NOVA INTERNATION FILMS, INC. FORM 10-QSB/A1 INDEX Page EXPLANATORY NOTE PART I - FINANCIAL INFORMATION Item 1. Financial Statements...................................... 1 Item 2. Management's Discussion and Analysis...................... 12 Item 3. Controls and Procedures................................... 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings......................................... 16 Item 2. Changes in Securities and Use of Proceeds................. 16 Item 3. Defaults Upon Senior Security Holders..................... 16 Item 4. Submission of Matters to a Vote of Security Holders....... 16 Item 5. Other Information......................................... 16 Item 6. Exhibits and Reports on Form 8-K.......................... 16 SIGNATURES .......................................................... 17 EXPLANATORY NOTE ---------------- Subsequent to the filing of the Quarterly Report on Form 10-QSB for the quarter ended March 31, 2003, the Company issued certain shares of the Company's common stock that are related to the quarter ended March 31, 2003 and the expenses incurred during this period should have been recorded in the Company's consolidated financial statements for the quarter ended March 31, 2003. The Company is filing this Amendment No. 1 on Form 10-QSB/A1 to restate the previously filed consolidated financial statements on Form 10-QSB for the quarter ended March 31, 2003. The restatements relate to the following: a. On August 8, 2003, the Company approved a director's compensation agreement with Mr. Jun-Tang Zhao, a director of the Company, to compensate him for acting as a director and head of project development in China to co-ordinate the Company's investment in the Baoding cable TV network with the joint venture partner and local government for a period of two years starting from February 28, 2003 by issuing 1,000,000 shares of the Company's common stock. In accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and the Emerging Issues Task Force Consensus in Issue No. 96-18, "Accounting for Equity Instruments that are issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" ("EITF 96-18"), the Company has accounted for the issuance of stock as director's compensation based on the fair market value of the Company's stock as at the date of commencement of this agreement. For the three months ended March 31, 2003, the Company expensed $25,833 associated with this agreement as director's compensation and recorded a liability of $25,833 at March 31, 2003 as the shares were issued subsequent to August 8, 2003. The director compensation agreement with Mr. Zhao was terminated on October 27, 2003 and the remaining expense of $516,668 will be recorded in the third quarter. b. By a directors' resolution dated August 8, 2003, the Company's board of directors approved the issuance of 1,200,000 shares of the Company's common stock to Mr. Yau-Sing Tang, a director of the Company, for his services rendered in connection with the acquisition of Solar Touch Limited in February 2003. In accordance with SFAS 123 and EITF 96-18, the Company expensed $744,000 associated with the issuance of these shares and included this expense in "Merger Costs" for the three months ended March 31, 2003 and recorded a liability of $744,000 at March 31, 2003 as the shares were issued subsequent to August 8, 2003. All the information presented below in the consolidated financial statements and the related notes include the above restatements and Item 2 - Management Discussion and Analysis has been amended accordingly. This Amendment No. 1 on Form 10-QSB/A1 does not reflect events occurring after the filing of the Company's original Quarterly Report on Form 10-QSB for the three months ended March 31, 2003, or modify, amend or update the disclosures therein in any way other than as set forth above. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOVA INTERNATIONAL FILMS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, December 31, 2003 2002 (unaudited) (audited) (restated) CURRENT ASSETS Cash $ 100 $ -- Deferred merger cost -- 20,468 Deferred consulting fees 2,705,796 -- ------------ ------------ Total current assets 2,705,896 20,468 NON-CURRENT ASSETS Equity investment 7,275,383 7,218,860 ------------ ------------ Total assets $ 9,981,279 $ 7,239,328 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 851,036 $ 20,468 ------------ ------------ Total liabilities 851,036 20,468 ------------ ------------ COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY Common Stock, $.00001 par value; 100,000,000 shares authorized, 60,364,933 shares issued and outstanding 604 1,000 Additional paid-in capital 11,772,165 5,874,892 Retained earnings (deficit) (2,642,526) 1,342,968 ------------ ------------ Total stockholders' equity 9,130,243 7,218,860 ------------ ------------ Total liabilities and stockholders' equity $ 9,981,279 $ 7,239,328 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 1
NOVA INTERNATIONAL FILMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) 2003 2002 (restated) REVENUE $ -- $ -- EXPENSES Director's compensation (25,833) -- Professional fees (11,926) -- Consulting fees (245,981) -- ------------ ------------ LOSS FROM OPERATIONS (283,740) -- OTHER INCOME (EXPENSES) Merger costs (3,758,277) -- Equity in earnings of investment 56,523 63,472 ------------ ------------ PROFIT (LOSS) BEFORE TAXES (3,985,494) 63,472 PROVISION FOR INCOME TAXES -- -- ------------ ------------ NET INCOME (LOSS) $ (3,985,494) $ 63,472 ============ ============ Net income (loss) per share - basic and diluted $ (0.07 $ 0.00 ============ ============ Weighted average no. of shares outstanding - basic and diluted 53,286,289 49,567,002 ============ ============ Note: The number of weighted average shares outstanding at March 31, 2002 is the amount of shares issued for the reverse merger and is for comparison purposes only. The accompanying notes are an integral part of these consolidated financial statements. 2 NOVA INTERNATIONAL FILMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) 2003 2002 (restated) Cash flows from operating activities: Net (loss) income $(3,985,494) $ 63,472 Adjustments to reconcile net loss to net cash used in operating activities: Stock issued for consulting fees 245,981 -- Merger costs paid by the issue of shares 2,945,000 -- Equity in earnings of investment (56,523) (63,472) Changes in operating assets and liabilities: Decrease in deferred merger costs 20,468 -- Increase in accounts payable and accrued liabilities 830,568 -- ----------- ----------- Net cash used in operating activities -- -- ----------- ----------- Cash flows from financing activities: Cash received in merger 1,809 Repayment of short term loan from related party (1,709) -- ----------- ----------- Net cash provided by financing activities 100 -- ----------- ----------- Net increase in cash 100 -- Cash at beginning of period -- -- ----------- ----------- Cash at end of period $ 100 $ -- =========== =========== The accompanying notes are an integral part of these condensed statements. 3
NOVA INTERNATIONAL FILMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (UNITED STATES DOLLARS) 1. DESCRIPTION OF BUSINESS AND BUSINESS COMBINATION Nova International Films, Inc. (the "Company") was incorporated on November 27, 1984 in the State of Delaware. During February 2003, the Company acquired all of the issued and outstanding shares of Solar Touch Limited ("Solar Touch") from Kingston Global Co. Limited in a reverse merger. As consideration for Solar Touch's shares, the Company issued 49,567,002 shares of its common stock. Solar Touch is a British Virgin Islands corporation which owns a 49% equity interest in Baoding Pascali Broadcasting Cable TV Integrated Information Networking Co., Limited ("Baoding"). Baoding, a company established in the People's Republic of China (the "PRC") and located in the city of Baoding, was formed pursuant to a joint venture agreement dated July 23, 1999 and signed between Baoding Pascali Multimedia Transmission Networking Co. Limited (the "JV partner"), a state-owned enterprise established in the PRC, and Solar Touch. Baoding is to operate for a period of 20 years and is principally engaged in the construction and operation of a cable integrated TV transmission network system in the same area. 2. BASIS OF PRESENTATION The interim consolidated financial statements have been prepared by Nova International Films, Inc. and include all material adjustments which in the opinion of the management are necessary for a fair presentation of financial results for the three months ended March 31, 2003 and 2002. All adjustments and provisions included in these statements are of normal recurring nature. The December 31, 2002 audited balance sheet only includes the balances of Solar Touch Limited and is for comparative purposes only. The information contained herein is condensed from that which would appear in the annual financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the Solar Touch financial statements and related notes thereto included in the Form 8K dated February 28, 2003 filed by the Company with the Securities and Exchange Commission. In addition, the financial statements included herein should be read in conjunction with the financial statements of the Company included in the Form 10-KSB and Form 10-QSB for the year ended October 31, 2002 and the three-month period ended January 31, 2003, respectively. The results of operations for the interim period presented are not necessarily indicative of the results that can be expected for the entire year. 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results. 4 NOVA INTERNATIONAL FILMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (UNITED STATES DOLLARS) 3. RESTATEMENTS Subsequent to the filing of the Quarterly Report on Form 10-QSB for the quarter ended March 31, 2003, the Company issued certain shares of the Company's common stock that are related to the quarter ended March 31, 2003 and the expenses incurred during this period should have been recorded in the Company's consolidated financial statements for the quarter ended March 31, 2003. As a result of issuance of those shares, the Company has restated its previously reported consolidated financial statements for the three months ended March 31, 2003. The restatements relate to the following: a. On August 8, 2003, the Company approved a director's compensation agreement with Mr. Jun-Tang Zhao, a director of the Company, to compensate him for acting as a director and head of project development in China to co-ordinate the Company's investment in the Baoding cable TV network with the joint venture partner and local government for a period of two years starting from February 28, 2003 by issuing 1,000,000 shares of the Company's common stock. In accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and the Emerging Issues Task Force Consensus in Issue No. 96-18, "Accounting for Equity Instruments that are issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" ("EITF 96-18"), the Company has accounted for the issuance of stock as director's compensation based on the fair market value of the Company's stock as at the date of commencement of this agreement. For the three months ended March 31, 2003, the Company expensed $25,833 associated with this agreement as director's compensation and recorded a liability of $25,833 at March 31, 2003 as the shares were issued subsequent to August 8, 2003. The director compensation agreement with Mr. Zhao was terminated on October 27, 2003 and the remaining expense of $516,668 will be recorded in the third quarter. b. By a directors' resolution dated August 8, 2003, the Company's board of directors approved the issuance of 1,200,000 shares of the Company's common stock to Mr. Yau-Sing Tang, a director of the Company, for his services rendered in connection with the acquisition of Solar Touch Limited in February 2003. In accordance with SFAS 123 and EITF 96-18, the Company expensed $744,000 associated with the issuance of these shares and included this expense in "Merger Costs" for the three months ended March 31, 2003 and recorded a liability of $744,000 at March 31, 2003 as the shares were issued subsequent to August 8, 2003. The effect of the restatements discussed above on the consolidated balance sheet at March 31, 2003, the consolidated statement of operations for the three months ended March 31, 2003 and the consolidated statement of cash flow for the three month ended March 31, 2003, is shown in the following tables: 5
NOVA INTERNATIONAL FILMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (UNITED STATES DOLLARS) 3. RESTATEMENTS (Continued) Consolidated Balance Sheet at March 31, 2003 -------------------------------------------- As previously reported Restatements As restated CURRENT ASSETS Cash $ 100 $ 100 Deferred consulting fees 2,705,796 2,705,796 ------------ ------------ Total current assets 2,705,896 2,705,896 NON-CURRENT ASSETS Equity investment 7,275,383 7,275,383 ------------ ------------ Total assets $ 9,981,279 $ 9,981,279 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 81,203 $ 769,833 $ 851,036 ------------ ------------ Total liabilities 81,203 851,036 ------------ ------------ STOCKHOLDERS' EQUITY Common stocks 604 604 Additional paid-in capital 11,772,165 11,772,165 Retained deficit (1,872,693) (769,833) (2,642,526) ------------ ------------ Total stockholders' equity 9,900,076 9,130,243 ------------ ------------ Total liabilities and stockholders' equity $ 9,981,279 $ 9,981,279 ============ ============ 6 NOVA INTERNATIONAL FILMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (UNITED STATES DOLLARS) 3. RESTATEMENTS (Continued) Consolidated Statement of Operations For the three months ended March 31, 2003 As previously reported Restatements As restated REVENUE $ -- $ -- EXPENSES Director's compensation -- (25,833) (25,833) Professional fees (11,926) (11,926) Consulting fees (245,981) (245,981) ------------ ------------ LOSS FROM OPERATIONS (257,907) (283,740) OTHER INCOME (EXPENSES) Merger costs (3,014,277) (744,000) (3,758,277) Equity in earnings of investment 56,523 56,523 ------------ ------------ LOSS BEFORE TAXES (3,215,661) (3,985,494) PROVISION FOR INCOME TAXES -- -- ------------ ------------ NET LOSS $ (3,215,661) $ (3,985,494) ------------ ------------ Net loss per share - basic and diluted $ (0.06) $ (0.07) ============ ============ Weighted average no. of shares outstanding basic and diluted $ 53,286,289 $ 53,286,289 ============ ============ 7 NOVA INTERNATIONAL FILMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (UNITED STATES DOLLARS) 3. RESTATEMENTS (Continued) Consolidated Statement of Operations ------------------------------------ For the three months ended March 31, 2003 ----------------------------------------- As previously reported Restatements As restated Cash flows from operating activities: Net loss $(3,215,661) (769,833) $(3,985,494) Adjustments to reconcile net loss to net cash used in operating activities: Stock issued for consulting fees 245,981 245,981 Merger costs paid by the issue of shares 2,945,000 2,945,000 Equity in earnings of investment (56,523) (56,523) Changes in operating assets and liabilities: Decrease in deferred merger costs 20,468 20,468 Increase in accounts payable and accrued liabilities 60,735 769,833 830,568 ----------- ----------- Net cash used in operating activities -- -- ----------- ----------- Cash flows from financing activities: Cash received in merger 1,809 1,809 Repayment of short term loan from related party (1,709) (1,709) ----------- ----------- Net cash provided by financing activities 100 100 ----------- ----------- Net increase in cash 100 100 Cash at beginning of period -- -- ----------- ----------- Cash at end of period $ 100 $ 100 =========== =========== 8
NOVA INTERNATIONAL FILMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (UNITED STATES DOLLARS) 4. EQUITY INVESTMENT The equity investment represents a 49% equity interest in Baoding, a company established in the PRC and principally engaged in the construction and operation of a cable integrated TV transmission network system in Baoding, the PRC. Baoding maintains its books and records in Renminbi ("RMB") the PRC's currency. Translation of amounts in United States dollars ("US$") has been made at the single rate of exchange of US$1.00:RMB8.3. No representation is made that RMB amounts have been or could be, converted into US$ at that rate. On January 1, 1994, the PRC government introduced a single rate of exchange as quoted daily by the People's Bank of China (the "Unified Exchange Rate"). This quotation of exchange rates does not imply free convertibility of RMB to other foreign currencies. All foreign exchange transactions continue to take place either through the Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rate quoted by the People's Bank of China. Approval of foreign currency payments by the Bank of China or other institutions requires submitting a payment application form together with suppliers' invoices, shipping documents and signed contracts. As of March 31, 2003, the unaudited condensed balance sheet of Baoding was as follows: Current assets $ 1,639,994 Non-current assets 17,024,198 ----------- Total assets $18,664,192 ----------- Current liabilities $ 3,760,860 Non-current liabilities -- Capital and reserves 14,903,332 ----------- Total liabilities and equity $18,664,192 ----------- The unaudited results of operations of Baoding for the three months ended March 31, 2003 and 2002 are summarized as follows: 2003 2002 Net sales $ 820,548 $ 844,388 --------- --------- Income from operations $ 115,409 $ 131,183 Other income (expenses) (56) (1,649) --------- --------- Income before tax provision 115,353 129,534 --------- --------- Income tax -- -- --------- --------- Net income $ 115,353 $ 129,534 --------- --------- The Company's equity in earnings of Baoding (49%) $ 56,523 $ 63,472 ========= ========= 9 NOVA INTERNATIONAL FILMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (UNITED STATES DOLLARS) 5. INCOME TAXES The Company is a British Virgin Islands investment holding company and does not carry on any business and does not maintain any offices in the United States of America. No provision for income taxes or tax benefits for the Company has been made. The Company provides for deferred income taxes using the liability method, by which deferred income taxes are recognized for al significant temporary differences between the tax and financial statement bases of assets and liabilities. The tax consequences off those differences are classified as current or non-current based upon the classification of the related asset and liabilities in the financial statements. No provision for deferred taxation has been made, as there is no temporary difference at the balance sheet date. 6. EARNINGS (LOSS) PER COMMON SHARE Basic EPS amounts are based on the weighted average shares of common stock outstanding. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. For presentation and comparative purposes, the Company has assumed 49,567,002 shares were outstanding during 2002 to the date of the reverse merger of the Company and Solar Touch Limited. 7. CONSULTING AGREEMENTS On February 28, 2003, the Company entered into one-year consulting agreements with GCA Consulting Limited ("GCA") and Orient Financial Services, Inc. ("Orient"). The services to be rendered include consultation and advisory services relating to administrative and corporate development of the Company and other managerial assistance as mutually agreed upon between the parties hereto. As consideration for the services to be rendered, the Company issued 2,960,931 and 1,800,000 shares of common stock to GCA and Orient, respectively. In accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and the Emerging Issues Task Force Consensus in Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" ("EITF 96-18"), the Company has accounted for the consulting agreement based on the fair market value of the Company's stock at the commencement date of the agreement. For the three months ended March 31, 2003, the Company expensed $245,981 associated with these agreements and recorded deferred consulting fees of $2,705,796 at March 31, 2003. 8. OPTION AGREEMENT On February 28, 2003, the Company granted an option to DSS Associates, Carter Fleming International Ltd., Grand Unison Limited, and Emerging Growth Partners, Inc. (the "Optionees") to purchase an aggregate of 4,750,000 shares of common stock of the Company for $50,000. The optionees facilitated the acquisition of the Company and Solar Touch. In accordance with SFAS 123 and EITF 96-18, the Company expensed $2,945,000 associated with these options and included this expense in "Merger Costs" for the three months ended March 31, 2003. On April 30, 2003, the optionees exercised the 4,750,000 options. 10 NOVA INTERNATIONAL FILMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (UNITED STATES DOLLARS) 9. DIRECTOR'S COMPENSATION AGREEMENT On August 8, 2003, the Company approved a director's compensation agreement with Mr. Jun-Tang Zhao, a director of the Company, to compensate him for acting as a director and head of project development in China to co-ordinate the Company's investment in Baoding with the joint venture partner and local government for a period of two years starting from February 28, 2003 by issuing 1,000,000 shares of common stock in the Company. In accordance with SFAS 123 and EITF 96-18, the Company has accounted for the issuance of stocks as a director's remuneration based on the fair market value of the Company's stock as at the date of commencement of this agreement. For the three months ended March 31, 2003, the Company expensed $25,833 associated with this agreement and recorded a liability of $25,833 at March 31, 2003. Subsequent to August 8, 2003, the Company issued the relevant shares to Mr. Zhao. The director compensation agreement with Mr. Zhao was terminated on October 27, 2003 and the remaining expense of $516,668 will be recorded in the third quarter. 10. SHARES ISSUED TO MR. YAU-SING TANG By a directors' resolution dated August 8, 2003, the Company's board of directors approved the issuance of 1,200,000 shares of common stock of the Company to Mr. Yau-Sing Tang, a director of the Company, for his services rendered in connection with the acquisition of Solar Touch Limited in February 2003. In accordance with SFAS 123 and EITF 96-18, the Company expensed $744,000 associated with the issuance of these stocks and included this expense in "Merger Costs" for the three months ended March 31, 2003 and recorded a liability of $744,000 at March 31, 2003. Subsequent to August 8, 2003, the Company issued the relevant shares to Mr. Tang. (See Note 3.) 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS This quarterly report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company's future financial performance. The Company has attempted to identity forward-looking statements by terminology including "anticipates," "believes," "expects," "can," "continue," "could," estimates," "intends," "may," "plans," "potential," "predict," "should" or "will" or the negative of these terms or other comparable terminology. Although the Company believes that the expectation reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, level of activity, performance or achievements. The Company expectations are as of the date this Form 10-QSB is filed, and the Company does not intend to update any of the forward-looking statements after the date this quarterly report on Form 10-QSB is filed to confirm these statements to actual results, unless required by law. Overview Nova International Films, Inc. (the "Company") was incorporated on November 27, 1984 in the State of Delaware. 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 had had no current business operations until on November 1, 2002, the Company signed a Share Exchange Agreement (the "Exchange Agreement") to acquire a 100% ownership interest in Solar Touch Limited ("Solar Touch") in exchange for 49,567,002 (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 Baoding Pascali Broadcasting Cable TV Integrated Information Networking, Co., Ltd. ("Baoding"). Baoding, a company established in the People's Republic of China, operates a cable TV network in the municipality of Baoding, near Beijing, in the People's Republic of China. Pursuant to the Exchange Agreement, on February 28, 2003 (the "Closing Date"), the Company acquired (the "Acquisition") from Kingston Global Co. Limited ("Kingston") all of the issued and outstanding equity interests of Solar Touch (the "Solar Touch Shares"). As consideration for the Solar Touch Shares, the Company issued 49,567,002 shares of its common stock to Kingston and Sino Concept Enterprises Limited (the "Sellers"). In addition to the common stock issued to the Sellers, the Company also issued 4,760,931 shares to the Seller's financial consultants. The consideration for the Acquisition was determined through arms length negotiations between the management of the Company and the Sellers. On the Closing Date, Mr. Martin Rifkin resigned as President, Treasurer and a Director of the Company. On the same day, Mr. William Rifkin resigned as Chairman of the Board, Secretary and a Director of the Company. Effective March 1, 2003, Messrs. Jun-Tang Zhao, Raymond Ying-Wai Kwan, Yau-Sing Tang and George Raney began serving their terms as members of the Board of Directors of the Company. The newly elected directors appointed Mr. Raymond Ying-Wai Kwan as Chief Executive Officer and Mr. Yau-Sing Tang as Chairman of the Board of Directors and Chief Financial Officer. On February 28, 2003, 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. On April 30, 2003, the Optionees exercised the option in full by delivering to the Company a duly executed Notice of Exercise and by wire transferring the aggregate exercise price for the shares to the Company. 12 Results of operations Revenue The Company had no revenue for the three months ended March 31, 2003 and 2002 respectively. Loss from operations For the three months ended March 31, 2003, the Company had a loss from operations of $283,740 as compared to a loss from operation of $0 for the three months ended March 31, 2002. The loss is primarily attributable to the director's compensation of $25,833, the professional fees of $11,926 and the consulting fees of $245,981. Merger costs For the three months ended March 31, 2003, the Company incurred merger costs of $3,758,277 as a result of the Company's acquisition of Solar Touch in a reverse merger whereas there was no such expense for the three months ended March 31, 2002. Equity in earnings of investment This represents the Company's 49% share of undistributed earnings of its investment in Baoding. For the three months ended March 31, 2003, the Company's 49% share of earnings of its investment in Baoding was $56,523 which was a $6,949 or 11% decrease from $63,472 for the three months ended March 31, 2002. This is primarily due to the decrease in net sales of Baoding by $23,840 or 3% from $844,388 for the three months ended March 31, 2002 to $820,548 for the three months ended March 31, 2003 and accordingly, the decrease in net income of Baoding by $14,181 or 11% from $129,534 for the three months ended March 31, 2002 to $115,353 for the three months ended March 31, 2003. Net income (loss) The Company recorded a net loss of $3,985,494 for the three months ended March 31, 2003 as compared to a net profit of $63,472 for the three months ended March 31, 2002. This is primarily due to the merger costs of $3,758,277 incurred in relation to the Company's acquisition of Solar Touch in a reverse merger, the director's compensation of $25,833, the professional fees of $11,926 and the consulting fees of $245,981. Financial condition, liquidity, capital resources As of March 31, 2003, we had cash of $100. As of March 31, 2003, our current assets include deferred consulting fees of $2,705,796. As of March 31, 2003, our current liabilities include accrued merger expense of $813,277, accrued directors' compensation of $25,833, and accrued professional fees of $11,926. We had no significant capital expenditure commitment outstanding as of March 31, 2003. Plan of Operation In view of the absence of working capital to finance the Company's operations and working captial requirements, the Company is looking for the opportunity of raising necessary capital by private placement of new shares or issuance of debentures. In the meantime, the Company's sole means to pay for its overhead is its existing cash in total amount of $100 as of March 31, 2003. Accordingly, the Company does not pay any officer salaries and rent. The 13 Company's costs mainly include only those costs necessary to retain its corporate charter, file necessary tax returns and report to the Securities and Exchange Commission, and certain professional expenses such as accountants' and attorney's fees to maintain the corporate compliance. We believe that we have access to sufficient working capital to provide for these costs. Exchange rate Fluctuations of currency exchange rates between Renminbi and United States dollar could adversely affect our business since our sole investment conducts its business primarily in China, and its revenue from operations is settled in Renminbi. The Chinese government controls its foreign reserves through restrictions on imports and conversion of Renminbi into foreign currency. Although the Renminbi to United States dollar exchange rate has been stable since January 1, 1994 and the Chinese government has stated its intention to maintain the stability of the value of Renminbi, there can be no assurance that exchange rates will remain stable. The Renminbi could devalue against the United States dollar. Exchange rate fluctuations may adversely affect our revenue arising from the sales of products in China and denominated in Renminbi and our financial performance when measured in United States dollar. Recent accounting pronouncements In April 2002, The Financial Accounting Standards Board (FASB) issued SFAS Statement No. 145, "Recission of FASB Statements No. 4, 22 and 64. Amendment of FASB Statement No. 13, and Technical Corrections." The Statement addresses the accounting for extinguishment of debt, sale-leaseback transactions and certain lease modifications. The Statement is effective for transactions occurring after May 15, 2002. The Company does not expect the adoption of Statement No. 15 to have a material impact on the Company's future results of operations or financial position. In July 2002, the FASB issued SFAS Statement No. 146, "Accounting for Cost Associated with Exit or Diposal Activities." The Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes Emergin Issues Task Force Issue No. 94-3, "Liabilitiy Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (Including Certain Costs Incurred in a Restructing)." The provisions of Statement No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect the adoption of Statement No. 146 to have a material impact on the Company's future results of operations or financial position. In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Acquisitions of Financial Institutions, except Transactions between Two or More Mutual Enterprises." The Company does not expect this standard will have any effect on its financial statements. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 is not expected to have a material effect on the Company's financial position, results of operations, or cash flows. 14 In December 2002, the FASB issued SFAS No.148, "Accounting for Stock-Based Compensation. Transition and Disclosure" SFAS No. 148 amends SFAS No. 123 "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company does not expect the adoption of SFAS No. 148 to have a material effect on our financial position, results of operations, or cash flows. ITEM 3. CONTROLS AND PROCEDURES 1) Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act of 1934 is accumulated and communicated to the Company's management, including its principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Within the 90 days prior to the filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its principal executive and financial officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon and as of the date of that evaluation, the Company's principal executive and financial officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that Company files and submits under the Exchange Act of 1934 is recorded, processed, summarized and reported as and when required. 2) Changes in Internal Control There were no changes in the Company's internal controls or in other factors that could have significantly affected those controls subsequent to the date of the Company's most recent evaluation. 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds. On February 28, 2003, we issued 49,567,002 shares of our common stock as consideration for the acquisition of all of the issued and outstanding equity interests of Solar Touch Limited. These shares were issued to two parties located in the People's Republic of China pursuant to Section 4(2) of the Securities Act of 1933, as amended. In addition, we also issued 4,760,931 shares to the Sellers' financial consultants. The consideration for the acquisition was determined through arms length negotiations between the management of the Company and the Sellers. Subsequent to March 31, 2003, we issued 1,000,000 shares of common stock to Mr. Jun-Tang Zhao, a director of the Company, as compensation for services to the Company. A portion of these services related to the three months ended March 31, 2003 (see Note 9 to the consolidated financial statements). Also subsequent to March 31, 2003, we issued 1,200,000 shares of common stock to Mr. Yau-Sing Tang, a director of the Company, for services rendered in connection with the acquisition of Solar Touch Limited in February 2003 (see Note 10 to the consolidated financial statements). These issuances were made pursuant to Section 4(2) of the Securities Act of 1933, as amended, and pursuant to Regulation D promulgated thereunder. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit number Description 31 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 16 (b) Reports on Form 8-K: During the three months ended March 31, 2003, the Company filed the following report on the Form 8-K: Form Filing date Event reported 8-K January 10, 2003 A report on Form 8-K (item 4), which announced the change in the Company's certifying accountant 8-K February 28, 2003 A report on Form 8-K (items 1, 2 and 5) which announced the changes in control of the Company, the Company's acquisition of Solar Touch and the change in the address of the Company's principal executive office SIGNATURES In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NOVA INTERNATIONAL FILMS, INC. Date: November 12 , 2003 /s/ Raymond Ying-Wai Kwan ------------------------------------- Name: Raymond Ying-Wai Kwan Title: Chief Executive Officer Date: November 12, 2003 /s/ Yau-Sing Tang ------------------------------------- Name: Yau-Sing Tang Title: Chief Financial Officer 17 EX-31 3 chinacable3312003exh31.txt CERTIFICATION Exhibit 31 CERTIFICATION I, Raymond Ying-Wai Kwan, certify that: 1. I have reviewed this quarterly report on Form 10-QSB/A1 of Nova International Films, Inc.: 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2003 /s/ Raymond Ying-Wai Kwan ------------------------- Raymond Ying-Wai Kwan Chief Executive Officer I, Yau Sing Tang certify that: 1. I have reviewed this quarterly report on Form 10-QSB/A1 of Nova International Films, Inc.: 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2003 /s/ Yau-Sing Tang --------------------------- Yau-Sing Tang Chief Financial Officer EX-32 4 chinacable3312003exh32.txt CERTIFICATION Exhibit 32 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Nova International Films, Inc. (the Company), does hereby certify, to such officer's knowledge, that: The Quarterly Report on Form 10-QSB/A1 for the quarter ended March 31, 2003 of the Company fully complies, in all material respects, with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-QSB/A1 fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 12, 2003 /s/ Raymond Ying-Wai Kwan ---------------------------- Raymond Ying-Wai Kwan Chief Executive Officer Date: November 12, 2003 /s/ Yau-Sing Tang ---------------------------- Yau-Sing Tang Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----