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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2002
COMMISSION FILE NUMBER 0-21785
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NEW VISUAL CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 95-4545704
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5920 FRIARS ROAD, SUITE 104
SAN DIEGO, CALIFORNIA 92108 (619) 692-0333
(Address of principal executive offices, (Registrant's telephone number,
including zip code) including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the issuer's Common Stock, par value $.001 per
share, outstanding as of March 13, 2002 was 39,998,474.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
CONSOLIDATED BALANCE SHEETS
ASSETS
------
January 31, October 31,
2002 2001
------------- -------------
(Unaudited)
Current Assets:
Cash $ 85,713 $ 294,802
Notes receivable from related party 170,495 100,708
Other receivable from officers 33,798 70,183
Other current assets 103,086 94,416
------------- -------------
Total Current Assets 393,092 560,109
Property and Equipment - Net 263,081 284,896
Other Assets 33,940 33,642
Projects under Development 1,913,451 1,912,650
------------- -------------
Total Assets $ 2,603,564 $ 2,791,297
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Current Liabilities:
Convertible notes payable $ 927,500 $ 615,000
Accounts payable and accrued expenses 1,292,360 1,435,024
Loan payable 145,000 --
------------- -------------
Total Current Liabilities 2,364,860 2,050,024
------------- -------------
Long-Term Debt 256,886 256,886
------------- -------------
Total Liabilities 2,621,746 2,306,910
------------- -------------
Commitments, Contingencies and Other Matters (Notes 6, 7, 8, 9 and 10)
Stockholders' Equity (Deficiency):
Preferred stock - $0.01 par value; 15,000,000 shares authorized;
Series A junior participating preferred stock; -0- shares issued
and outstanding -- --
Common stock - $0.001 par value; 100,000,000 shares authorized;
32,970,696 and 30,003,681 shares issued and outstanding at
January 31, 2002 and October 31, 2001, respectively 32,970 30,003
Additional paid-in capital 39,588,711 38,478,279
Subscription receivable -- (103,500)
Unearned financing fees (456,773) (537,380)
Unearned compensation (340,242) (481,751)
Accumulated deficit at October 31, 1999 (12,300,033) (12,300,033)
Deficit accumulated during the development stage (26,542,815) (24,601,231)
------------- -------------
Total Stockholders' Equity (Deficiency) (18,182) 484,387
------------- -------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 2,603,564 $ 2,791,297
============= =============
See notes to consolidated financial statements
1
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
January 31, For the Period from
--------------------------------- November 1, 1999 to
2002 2001 January 31, 2002
------------- ------------- -------------
REVENUES $ -- $ -- $ 12,200
------------- ------------- -------------
OPERATING EXPENSES:
Cost of sales -- -- 21,403
Projects costs written-off -- -- 114,613
Acquired in-process research and
development expenses -- -- 6,050,000
Compensatory element of stock issuances 702,407 -- 7,519,843
Research and development 329,113 362,702 1,983,877
Selling, general and administrative expenses 671,614 535,352 6,800,351
Litigation settlement in shares of common
stock -- 1,000,000 1,000,000
Loss on disposal of equipment -- -- 7,500
------------- ------------- -------------
TOTAL OPERATING EXPENSES 1,703,134 1,898,054 23,497,587
------------- ------------- -------------
OPERATING LOSS (1,703,134) (1,898,054) (23,485,387)
------------- ------------- -------------
OTHER EXPENSES:
Interest expense 157,843 7,444 514,201
Amortization of unearned financing costs 80,607 250,000 2,543,227
------------- ------------- -------------
TOTAL OTHER EXPENSES 238,450 257,444 3,057,428
------------- ------------- -------------
NET LOSS $ (1,941,584) $ (2,155,498) $(26,542,815)
============= ============= =============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (.06) $ (.09)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 32,479,898 24,247,164
============= =============
See notes to consolidated financial statements.
2
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2002
Common Stock Additional
----------------------------- Paid-in
Shares Amount Capital
------------- ------------- -------------
Three Months Ended January 31, 2002:
-----------------------------------
Balance - October 31, 2001 30,003,681 $ 30,003 $ 38,478,279
Issuance of common stock under consulting agreement
($.40 to $.66 per share) 950,000 950 493,948
Issuance of common stock for cash ($.25 to $.40 per share) 1,445,015 1,445 408,056
Cash received for subscription receivable -- -- --
Issuance of common stock in connection with the exercise of
warrants ($.25 per share) 572,000 572 142,428
Value assigned to warrants issued to consultants -- -- 66,000
Amortization of unearned compensation expense -- -- --
Amortization of unearned financing costs -- -- --
Net loss -- -- --
------------- ------------- -------------
Balance - January 31, 2002 32,970,696 $ 32,970 $ 39,588,711
============= ============= =============
Unearned Unearned
Subscription Financing Compensation
Receivable Costs Expense
------------- ------------- -------------
Three Months Ended January 31, 2002:
------------------------------------
Balance - October 31, 2001 $ (103,500) $ (537,380) $ (481,751)
Issuance of common stock under consulting agreement
($.40 to $.66 per share) -- -- --
Issuance of common stock for cash ($.25 to $.40 per share) -- -- --
Cash received for subscription receivable 103,500 -- --
Issuance of common stock in connection with the exercise of
warrants ($.25 per share) -- -- --
Value assigned to warrants issued to consultants -- -- --
Amortization of unearned compensation expense -- -- 141,509
Amortization of unearned financing costs -- 80,607 --
Net loss -- -- --
------------- ------------- -------------
Balance - January 31, 2002 $ -- $ (456,773) $ (340,242)
============= ============= =============
See notes to consolidated financial statements.
3
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2002
Total
Accumulated Stockholders'
Deficit Deficiency
------------- -------------
Three Months Ended January 31, 2002:
------------------------------------
Balance - October 31, 2001 $(36,901,264) $ 484,387
Issuance of common stock under consulting agreement
($.40 to $.66 per share) -- 494,898
Issuance of common stock for cash ($.25 to $.40 per share) -- 409,501
Cash received for subscription receivable -- 103,500
Issuance of common stock in connection with the exercise
of warrants ($.25 per share) -- 143,000
Value assigned to warrants issued to consultants -- 66,000
Amortization of unearned compensation expense -- 141,509
Amortization of unearned financing costs -- 80,607
Net loss (1,941,584) (1,941,584)
------------- -------------
Balance - January 31, 2002 $(38,842,848) $ (18,182)
============= =============
Accumulated deficit as of October 31, 1999 $(12,300,033)
Accumulated deficit during development stage
(November 1, 1999 to January 31, 2002) (26,542,815)
-------------
Total accumulated deficit as of January 31, 2002 $(38,842,848)
=============
See notes to consolidated financial statements.
4
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001
AND THE PERIOD FROM NOVEMBER 1, 1999 TO JANUARY 31, 2002
For the Three Months Ended
January 31, For the Period from
--------------------------------- November 1, 1999 to
2002 2001 January 31, 2002
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,941,584) $ (2,155,498) $(26,542,815)
Adjustments to reconcile net loss to net cash used
in operating activities:
Consulting fees and other compensatory
elements of stock issuances 702,407 -- 7,519,843
Stock issued for acquired in-process
research and development -- -- 6,050,000
Stock issued for litigation settlement -- 1,000,000 1,000,000
Projects costs written-off -- -- 114,613
Amortization of unearned financing costs 80,607 250,000 2,543,227
Depreciation of property and equipment 20,732 34,880 236,597
Disposal of property and equipment 3,596 -- 3,596
Loss on disposal of equipment -- -- 7,500
(Increase) decrease from changes in:
Other current assets (8,670) 21,833 (103,086)
Due from related parties (33,402) (2,638) (172,871)
Projects under development (801) (300,000) (1,894,319)
Other assets (298) (40,676) (28,940)
Increase (decrease) from changes in:
Accounts payable and accrued expenses (142,664) (187,596) 871,662
------------- ------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (1,320,077) (1,379,695) (10,394,993)
------------- ------------- -------------
CASH USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (2,513) -- (408,548)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 513,001 1,431,880 9,088,996
Proceeds from loan payable 145,000 -- 931,886
Proceeds from exercise of warrants 143,000 -- 378,000
Proceeds from convertible notes payable 312,500 -- 927,500
Repayment of long-term debt -- -- (500,000)
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,113,501 1,431,880 10,826,382
------------- ------------- -------------
(DECREASE) INCREASE IN CASH (209,089) 52,185 22,841
CASH AND CASH EQUIVALENTS - BEGINNING 294,802 189,234 62,872
------------- ------------- -------------
CASH AND CASH EQUIVALENTS - ENDING $ 85,713 $ 241,419 $ 85,713
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ -- $ 526
============= ============= =============
Income taxes $ -- $ 800 $ 800
============= ============= =============
See notes to consolidated financial statements.
5
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BUSINESS AND CONTINUED OPERATIONS
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of New
Visual Corporation and its wholly-owned operating subsidiaries, NV
Entertainment, Inc., Impact Multimedia, Inc. and NV Technology, Inc.
(formerly New Wheel Technology, Inc.) ("New Wheel") (collectively, the
"Company"). All significant intercompany balances and transactions have
been eliminated.
BUSINESS AND CONTINUED OPERATIONS
New Visual Corporation was incorporated under the laws of the State of
Utah on December 5, 1985.
In November of 1999, the Company began to focus its business activities
on the development of new content telecommunications technologies.
Pursuant to such plan, in February of 2000, the Company acquired New
Wheel Technology, Inc., a development stage, California-based,
technology company, which now operates as the Company's wholly-owned
subsidiary, NV Technology, Inc., a Delaware corporation. As a result of
the change in business focus, the Company became a development stage
entity commencing November 1, 1999. The Company also produces and
distributes 2-D and 3-D filmed entertainment.
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company
as a going concern. However, for the three months ended January 31,
2002, the Company incurred a net loss of approximately $1,942,000 and
had a working capital deficiency of approximately $1,972,000. The
Company has limited finances and requires additional funding in order
to accomplish its growth objectives and marketing of its products and
services. There is no assurance that the Company can reverse its
operating losses, or that it can raise additional capital to allow it
to expand its planned operations. There is also no assurance that even
if the Company manages to obtain adequate funding to complete any
contemplated acquisition, such acquisition will succeed in enhancing
the Company's business and will not ultimately have an adverse effect
on the Company's business and operations. These factors raise
substantial doubt about the Company's ability to continue as a going
concern.
The Company operates in two business segments, the production of motion
pictures, films and videos (entertainment segment) and development of
new content telecommunications technologies (telecommunication
segment). The success of the Company's entertainment business is
dependent on future revenues from the Company's current joint venture
production agreement to produce a feature-length film for theatrical
distribution.
6
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BUSINESS AND CONTINUED OPERATIONS
(CONTINUED)
BUSINESS AND CONTINUED OPERATIONS (CONTINUED)
The success of the Company's telecommunication segment is dependent
upon the successful completion of development and testing of its
broadband technology currently under development by its wholly-owned
subsidiary, NV Technology, Inc. No assurance can be given that the
Company can complete development of such technology, or that with
respect to such technology that is fully developed, it can be
commercialized on a large scale basis or at a feasible cost. No
assurance can be given that such technology will receive market
acceptance.
Until the commencement of sales from either segment, the Company will
have no operating revenues, but will continue to incur substantial
operating expenses, capitalized costs and operating losses.
Management's business plan will require additional financing. To
support its operations during the three months ended January 31, 2002,
the Company borrowed $312,500 from three trusts and issued various
convertible promissory notes. The Company received a $145,000
short-term loan from one of its shareholders.
During the three months ended January 31, 2002, the Company received
$409,501 from the sale of 1,445,015 shares of its common stock and
$143,000 from the exercise of 572,000 warrants. The Company is
exploring other financing alternatives, including private placements
and public offerings.
The Company's ability to continue as a going concern is dependent upon
obtaining additional financing. These consolidated financial statements
do not include any adjustments relating to the recoverability of
recorded asset amounts that might be necessary as a result of the above
uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Substantially all revenues are derived from the production of
multimedia content, videos and commercial films. Revenue is recognized
over the shorter of the license term or the expected revenue term.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
Amounts allocated to acquired-in-process research and development costs
from business combinations are charged to earnings at the consummation
of the acquisition.
7
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
Basic earnings per share ("Basic EPS") is computed by dividing net
income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per
share ("Diluted EPS") gives effect to all dilutive potential common
shares outstanding during a period. No effect has been given to
outstanding options, warrants or convertible notes in the diluted
computation, as their effect would be antidilutive.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company accounts for its stock-based compensation
arrangements pursuant to APB Opinion No. 25, "Accounting for Stock
Issued to Employees." In accordance with the provisions of SFAS No.
123, the Company discloses the pro forma effects of accounting for
these arrangements using the Black-Scholes option-pricing model to
determine fair value.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the total amount of an asset may not be recoverable. An
impairment loss is recognized when estimated future cash flows expected
to result from the use of the asset and its eventual disposition are
less than its carrying amount.
SEGMENT REPORTING
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way public
enterprises report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports
issued to stockholders.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued FASB 139,
which requires that all producers or distributors that own or hold
rights to distribute or exploit films follow the guidance in AICPA
Statement of Position 00-2, "Accounting by Producers or Distributors of
Films." FASB 139 shall be effective for financial statements for fiscal
years beginning after December 15, 2000.
8
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
SOP 00-2 requires that film costs be capitalized and reported as a
separate asset on the balance sheet. Film costs include all direct
negative costs incurred in the production of a film, as well as
allocations of production overhead and capitalized interest. Direct
negative costs include cost of scenario, story, compensation of cast,
directors, producers, writers, extras and staff, cost of set
construction, wardrobe, accessories, sound synchronization, rental of
facilities on location and post production costs. SOP 00-2 also
requires that film costs be amortized and participation costs accrued,
using the individual-film-forecast-method-computation method, which
amortizes or accrues such costs in the same ratio that the current
period actual revenue (numerator) bears to the estimated remaining
unrecognized ultimate revenue as of the beginning of the fiscal year
(denominator).
In addition, SOP 00-2 also requires that if an event or change in
circumstances indicates that an entity should assess whether the fair
value of a film is less than its unamortized film costs, then an entity
should determine the fair value of the film and write off to the
statement of operations the amount by which the unamortized capital
costs exceeds the firm's fair value.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations," which supercedes Accounting Principles Board
("APB") Opinion No. 16, "Business Combinations." SFAS No. 141 requires
the purchase method of accounting for business combinations initiated
after June 30, 2001 and eliminates the pooling-of-interests method. The
provisions of SFAS 141 have been adopted as of July 1, 2001. The
adoption of SFAS 141 has not changed the method of accounting used in
previous business combinations initiated prior to July 1, 2001.
In July 2001, the FASB also issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets,"
which is effective for fiscal years beginning after December 15, 2001.
Certain provisions shall also be applied to acquisitions initiated
subsequent to June 30, 2001. SFAS 142 supercedes APB Opinion No. 17,
"Intangible Assets," and requires, among other things, the
discontinuance of amortization related to goodwill and indefinite lived
intangible assets. These assets will then be subject to an impairment
test at least annually. Management believes that the implementation of
this standard will have no impact on the Company's results of
operations and financial position.
9
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or
Disposal of Long-Lived Assets," which supercedes Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" and certain provisions of APB Opinion No. 30, "Reporting
Results of Operations - Reporting the Effects of Disposal of a Segment
of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 144 requires that long-lived assets to
be disposed of by sale, including discontinued operations, be measured
at the lower of carrying amount or fair value, less cost to sell,
whether reported in continuing operations or in discontinued
operations. SFAS 144 also broadens the reporting requirements of
discontinued operations to include all components of an entity that
have operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of
the entity. The provisions of SFAS 144 are effective for fiscal years
beginning after December 15, 2001. Management believes that the
implementation of this standard will have no impact on the Company's
results of operations and financial position.
NOTE 3 - NOTES RECEIVABLE FROM RELATED PARTY
On September 6, 2001, the Company converted advances made to an officer
in the amount of $99,656 into a promissory note, which is payable on
demand and bears an interest rate of 7.0% per annum.
On January 1, 2002, the Company converted advances made to an officer
in the amount of $67,631 into a promissory note, which is payable on
demand and bears an interest rate of 7.0% per annum.
As of January 31, 2002, the outstanding amount from the above notes was
$170,495, of which $3,208 represented accrued interest.
10
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
January 31, October 31,
2002 2001
--------- ---------
Furniture and fixtures $ 54,096 $ 51,584
Camera equipment 540,169 544,664
Office equipment 109,430 109,460
--------- ---------
703,695 705,708
Less: Accumulated depreciation 440,614 420,812
--------- ---------
Total $263,081 $284,896
========= =========
For the three months ended January 31, 2002 and 2001, depreciation
expense was $20,732 and $34,880, respectively.
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
January 31, October 31,
2002 2001
----------- -----------
Professional fees $ 391,112 $ 606,807
Interest payable 516,600 356,601
Consulting fees 196,918 204,192
Miscellaneous 187,730 267,424
----------- -----------
$1,292,360 $1,435,024
=========== ===========
NOTE 6 - CONVERTIBLE NOTES PAYABLE
In October 2001, the Company entered into three convertible promissory
note agreements with one individual and two companies, totaling
$615,000. The Company agreed to pay the principal and an amount equal
to 50% of the principal sum if the Company reaches certain milestone
from the distribution of its motion picture, which is currently in
production. The notes may be converted at any time, in whole or in
part, into that number of fully paid and non-assessable shares of
common stock at a conversion price of $.40. The additional payment of
50% of the principal, or $307,500, was recorded as interest expense
during the quarter ended October 31, 2001.
11
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - CONVERTIBLE NOTES PAYABLE (CONTINUED)
In December 2001, the Company entered into six convertible promissory
note agreements with various trusts and individuals, totaling $312,500.
The Company agreed to pay the principal and an amount equal to 50% of
the principal sum if the Company reaches certain milestone from the
distribution of its motion picture, which is currently in production.
The notes may be converted at any time, in whole or in part, into that
number of fully paid and non-assessable shares of common stock at a
conversion price of $.40. The additional payment of 50% of the
principal, or $156,250, was recorded as interest expense during the
quarter ended January 31, 2002.
As of January 31, 2002, the outstanding amount for the above notes was
$927,500.
NOTE 7 - LONG-TERM DEBT
On June 29, 2000, the Company entered into five credit agreements, each
of which granted the Company a credit facility of up to $300,000. As of
October 31, 2000, the Company had borrowed $756,886 under these
facilities, payable on June 29, 2003 in one payment, together with all
accrued and unpaid interest at 6% per annum.
On November 13, 2000, the above five credit agreements were amended,
reducing the Company's credit facility to $756,886 in aggregate. The
credit agreements terminate on June 29, 2003 and all accrued interest
and unpaid interest, along with the principal, is due in full on June
29, 2003.
On July 12, 2001, the Company repaid $500,000 under the above five
credit agreements and reduced the balance to $256,886.
During the three months ended January 31, 2002, no repayment was
required or made under the above five credit agreements.
NOTE 8 - STOCKHOLDERS' EQUITY
SIGNIFICANT COMMON STOCK ISSUANCES DURING THE THREE MONTHS ENDED
JANUARY 31, 2002
As of January 31, 2002, the Company issued 950,000 shares of its common
stock as consideration for consulting services performed by four
consultants at prices ranging from $.40 to $.66 per share, totaling
$494,898.
As of January 31, 2002, the Company issued 1,445,015 shares of
restricted common stock to investors for cash proceeds of $409,501.
12
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS
During 2000, the Board of Directors and the stockholders of the Company
approved the 2000 Omnibus Securities Plan (the "2000 Plan"), which
provides for the granting of incentive and non-statutory options and
restricted stock for up to 2,500,000 shares of common stock to
officers, employees, directors and consultants of the Company.
During August of 2001, the Board of Directors of the Company approved
the 2001 Stock Incentive Plan (the "2001 Plan" and together with the
2000 Plan, the "Plans"), which provides for the granting of incentive
and non-statutory options, restricted stock, dividend equivalent rights
and stock appreciation rights for up to 2,500,000 shares of common
stock to officers, employees, directors and consultants of the Company.
13
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
A summary of the Company's stock option activity and related
information follows:
Weighted Weighted
In the Plan Average Outside the Plan Average
Stock Options Exercise Price Stock Options Exercise Price
------------- -------------- ------------- --------------
Outstanding - October 31, 2001 512,250 $ 3.92 1,938,750 $ 3.96
Options granted - 11/01 - 01/31/02:
In the Plans -- -- -- --
Options granted - 11/01 - 01/31/02:
Outside the Plans -- -- -- --
Options expired/cancelled:
In the Plans (28,500) 3.92 -- --
Outside the Plans -- -- (120,000) 4.86
----------- --------- ----------- ---------
Outstanding - January 31, 2002 483,750 $ 3.92 1,818,750 $ 3.90
=========== ========= =========== =========
Exercisable at January 31:
2002 175,313 $ 3.92 1,256,375 $ 3.95
2003 278,126 $ 3.92 1,494,896 $ 4.02
2004 380,439 $ 3.92 1,802,084 $ 3.92
2005 483,750 $ 3.92 1,818,750 $ 3.90
The exercise price for options outstanding as of January 31, 2002
ranged from $1.07 to $4.40.
At January 31, 2002, 1,984,000 and -0- options are available under the
2000 and 2001 plans, respectively.
EXPIRED OPTIONS
In November 2001, an aggregate of 78,500 options to purchase the
Company's common stock held by four former employees of NV Technology,
Inc. were terminated. Under the terms of the option agreements with
these employees, the options terminated three months after the
employees were terminated.
In January 2002, the Company cancelled its employment agreement with
its Executive Vice President which in turn cancelled 70,000 unvested
options.
14
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
At January 31, 2002, the Company had outstanding warrants to purchase
shares of common stock as follows:
Number of Exercise Expiration
Grant Date Shares Price Date
---------- ------ ----- ----
June 7, 2000 50,000 $ 7.00 June 7, 2003
June 7, 2000 50,000 8.50 June 7, 2003
June 7, 2000 50,000 10.00 June 7, 2003
June 7, 2000 50,000 11.50 June 7, 2003
November 17, 2000 1,000,000 6.00 November 17, 2003
November 17, 2000 2,428,000 Lesser of 6.00 November 17, 2003
or 50% of
market ($0.20
at 01/31/02)
March 12, 2001 67,586 5.10 March 12, 2004
March 12, 2001 87,357 4.02 March 12, 2004
May 3, 2001 500,000 2.50 May 3, 2006
May 3, 2001 250,000 5.00 May 3, 2006
May 3, 2001 250,000 10.00 May 3, 2006
June 14, 2001 50,000 2.50 June 14, 2006
June 14, 2001 25,000 5.00 June 14, 2006
June 14, 2001 25,000 10.00 June 14, 2006
October 31, 2001 1,000,000 .25 October 31, 2006
November 5, 2001 200,000 .51 November 5, 2005
------------- -------------
6,082,943 $0.20-$11.50 June 7, 2003 - October 1, 2006
============= =============
Exercisable at
January 31, 2002 6,082,943
=============
WARRANTS EXERCISED
During January 2002, 572,000 warrants were exercised at $.25 per share,
totaling $143,000.
WARRANTS GRANTED
On November 5, 2001, the Company granted two companies warrants to
purchase 200,000 shares of its common stock at an exercise price of
$.51. The warrants vested immediately and expire on November 5, 2005.
The fair value of stock warrants estimated on the date of grant using
the Black-Scholes option pricing model is $.33, or $66,000.
15
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
NET LOSS PER SHARE
Securities that could potentially dilute basic earnings per share
("EPS") in the future that were not included in the computation of
diluted EPS because to do so would have been anti-dilutive for the
periods presented consist of the following:
Warrants to purchase common stock 6,082,943
Options to purchase common stock 2,302,500
Convertible notes payable and accrued interest 1,391,250
----------
Total as of January 31, 2002 9,776,693
==========
Substantial issuances after January 31, 2002 through
March 14, 2002:
Options granted outside the plan 500,000
==========
Warrants granted in connection with consulting agreement 300,000
==========
Options granted in connection with 2000 stock incentive plan 1,302,500
==========
Sale of common stock for cash 3,674,000
==========
Common stock issued to employees 485,000
==========
Additional shares issued under settlement agreement 1,261,946
==========
NOTE 9 - COMMITMENTS AND CONTINGENCIES
NEW EMPLOYMENT AGREEMENTS
On January 1, 2002, the Company cancelled its employment agreement with
its Executive Vice President and entered into a new one year employment
agreement, whereby the Executive Vice President receives a base salary
of $10,417 per month. In addition, the employment agreement provides
that the Executive Vice President shall receive an annual bonus that
will be applied to two promissory notes he made in favor of the
Company. The Executive Vice President owed $100,708 under the first
promissory note at October 31, 2001. The second note was issued to the
Company on January 1, 2002 for $67,631. All options granted and vested
to the Executive Vice President under the June 20, 2000 agreement were
retained (140,000 options) and all unvested options granted under the
June 20, 2000 agreement were cancelled.
ROYALTY PAYMENTS
The Company's projects under development stipulate royalty payments
that are based on percentages of revenue.
16
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
JOINT VENTURE PRODUCTION AGREEMENT
In April 2000, the Company entered into a joint venture production
agreement to produce a feature length film for theatrical distribution.
The Company will provide the funding for the production in the amount
of $2,250,000 and, in exchange, will receive a 50% share in all net
profits from worldwide distribution and merchandising, after receiving
funds equal to its initial investment of up to $2,250,000. The film is
expected to be completed and ready for a Summer 2002 release. The
Company has agreed to deposit into a separate account, on a monthly
basis, funds to assure a minimum balance of $200,000 at the beginning
of each month, until the total of $2,250,000 has been deposited into
the account. As of January 31, 2002, the Company has funded
approximately $1,857,000 of production and other costs, which was
included in projects under development in the accompanying consolidated
balance sheet.
NOTE 10- SUBSEQUENT EVENTS
COMMON STOCK
On February 25, 2002, the Company issued a restricted stock award of
500,000 shares of common stock to an executive officer in consideration
of his services to the Company. The restricted stock award was granted
pursuant to the Company's 2000 Plan. The executive officer purchased
the shares for $.001 per share, which are subject to a risk of
forfeiture until they vest. The executive officer will not receive
possession of the certificates representing the shares, and may not
sell any of the shares until such shares vest, which will occur
quarterly, 125,000 shares per quarter, beginning April 30, 2002. The
Company has the right, pursuant to the terms of the restricted stock
award, to repurchase any unvested shares issued pursuant to the award
for $.002 per share in the event the executive officer is terminated or
if there is a change of control of the Company. The value assigned to
the common stock totaled $125,000.
On February 25, 2002, the Company issued 485,000 shares of restricted
common stock to two employees in consideration of their past services
to the Company. The value assigned to the common stock totaled
$178,238.
As of March 1, 2002, the Company issued 3,674,000 shares of restricted
common stock to investors. The total cash proceeds were $919,400. (see
private placement below)
17
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10- SUBSEQUENT EVENTS (CONTINUED)
STOCK OPTIONS
On February 25, 2002, the Company granted non-qualified stock options
under its 2000 Plan to purchase 862,500 shares of common stock to
employees and employee directors of the Company at an exercise price of
$.42 per share. The options vest in four equal quarterly installments
starting April 30, 2002. All options expire on February 25, 2012.
On February 25, 2002, the Company granted two directors options under
its 2000 Plan to purchase 400,000 shares of its common stock at an
exercise price of $.42. The options vest in four equal quarterly
installments starting April 30, 2002. These options also expire on
February 25, 2012.
On February 25, 2002, the Company granted to a director and consultant
to the Company options outside the Company's stock option plans to
purchase 500,000 shares of its common stock at $.39. The options vest
in four equal quarterly installments starting April 30, 2002. These
options expire on February 25, 2012.
On March 4, 2002, the Company granted an advisory board member options
under the Company's 2000 Omnibus Securities Plan to purchase 40,000
shares of its common stock at $.42. The options vest immediately and
expire ten years from the grant date. The fair value of stock options
estimated on the date of grant using the Black-Scholes option pricing
model was $.44, or $17,600.
CONSULTING AGREEMENT
On February 11, 2002, the Company entered into a one-year consulting
agreement for financial communications services, pursuant to which the
Company agreed to pay the consultant $10,000 in cash per month. The
consulting agreement provides that the Company may terminate the
consulting services at any time following 90 consecutive days of
representation by the consultant. Pursuant to the agreement, the
Company granted the consultant warrants to purchase 300,000 shares of
its common stock at exercise prices ranging from $.75 to $2.25. All of
the warrants are exercisable immediately, hold piggy-back registration
rights and expire two years from the grant date. The fair value of
stock options estimated on the date of grant using the Black-Scholes
option pricing model is $8,000.
18
NEW VISUAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10- SUBSEQUENT EVENTS (CONTINUED)
EMPLOYMENT AGREEMENT
On February 25, 2002, the Company entered into a one year employment
agreement with its Vice President and Secretary. The agreement provides
for the Company to pay a base salary of $13,383.33 per month, plus
other fringe benefits, including medical and health insurance and auto
allowance. The employee shall receive an annual bonus to be determined
at the sole discretion of the Board of Directors.
SETTLEMENT AGREEMENT
In February 2002, the Company issued an aggregate of 1,261,946
restricted shares of its common stock to nine individuals who purchased
common stock of the Company in a private placement completed in March
2001 and contended that they were entitled to receive these additional
shares in connection with their initial purchase agreements. The
parties reached an amicable resolution of the matter and the Company
received a full and complete release from each investor.
PRIVATE PLACEMENT
In February 2002, the Company entered into a private placement
agreement with an investor under which the Company agreed to sell
3,000,000 of its restricted common shares for $.25 per share. As part
of this agreement, the underlining restricted shares have certain
registration rights. This private placement was completed in March
2002.
LEGAL PROCEEDINGS
On February 4, 2002, a lawsuit was filed against the Company by
Creditors Adjustment Bureau, Inc., a California corporation, who was
allegedly assigned rights to any judgement collected on amounts
allegedly owed to Arter & Hadden, LLP, the Company's former legal
counsel. The plaintiff seeks damages in the amount of $110,559.86, plus
10% interest, costs of the suit and reasonable attorney's fees. The
Company is currently investigating the merits of this lawsuit and does
not believe the resolution of this matter will have a material adverse
effect on the Company's financial position or results of operation.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of our financial condition
and results of operations and should be read in conjunction with the financial
statements and related notes contained in this Form 10-Q.
RESULTS OF OPERATIONS.
FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND THE THREE MONTHS ENDED JANUARY
31, 2001.
REVENUES. The Company is a development stage company. There were no
revenues for the three months ended January 31, 2002 or for the three months
ended January 31, 2001.
OPERATING EXPENSES. Operating expenses included compensatory element of
stock issuances, research and development expenses, selling, general and
administrative costs and the costs of a litigation settlement in shares of
common stock. Total operating expenses decreased to approximately $1,703,000 for
the three months ended January 31, 2002, from approximately $1,898,000 for the
three months ended January 31, 2001. The decrease resulted primarily from the
costs of a litigation settlement in shares of common stock in the three month
period ended January 31, 2001. The Company issued 250,000 shares of common stock
valued at $1,000,000 in a February 2001 settlement reached with Astounding.com,
Inc. and Jack Robinson in connection with certain disputes arising from a
non-consummated merger between the Company and Astounding.com, Inc. In addition,
research and development expenses decreased approximately $34,000, from $362,702
for the three months ended January 31, 2001 to $329,113 for the three months
ended January 31, 2001, as the Company shifted from employee-based research and
development to consultant-based research and development. These reductions were
offset by increases from 2001 to 2002 in the compensatory element of stock
issuances and selling general and administrative expenses. During the first
quarter of 2002, there were stock issuances valued at approximately $702,000 for
consulting expenses, compared to $-0- during the first quarter of 2001. Selling,
general and administrative expenses increased over these periods by
approximately $136,000, from $535,352 for the three months ended January 31,
2001 to $671,614 for the same period of 2002.
OTHER EXPENSES. Other expenses included amortization of unearned
financing costs and interest expense. Total other expenses decreased to
approximately $238,000 for the three months ended January 31, 2002 from
approximately $257,000 for the three months ended January 31, 2001. The decrease
primarily resulted from a decrease in amortization of unearned financing costs
of approximately $169,000 in connection with a financing arrangement. During the
year ended October, 31, 2001 the Company paid down long-term debt in connection
with this financing arrangement amounting to $500,000. The decrease in
amortization of unearned financing costs was offset by an increase in interest
expense of approximately $156,000 resulting from an interest obligation
associated with a convertible note payable transaction during the three month
period ended January 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $1,302,000 for
the three months ended January 31, 2002 and $1,380,000 for the three months
ended January 31, 2001. Cash balances totaled approximately $86,000 as of
January 31, 2002, compared to approximately $241,000 as of January 31, 2001.
Operations have been financed principally through sales of common
stock, the exercise of warrants to purchase common stock, loans and the issuance
of convertible notes payable. Net proceeds from financing activities amounted to
approximately $1,114,000 for the three months ended January 31, 2002, including
sales of common stock amounting to approximately $513,000, exercise of warrants
resulting in proceeds of approximately $143,000, loans amounting to $145,000 and
convertible notes payable amounting to approximately $313,000. Net proceeds from
financing activities amounted to approximately $1,432,000 for the three months
ended January 31, 2001 and were solely the result of sales of common stock.
20
Stock was issued in payment of expenses amounting to approximately
$702,000 for the three month period ended January 31, 2002 and in settlement of
litigation in the amount of $1,000,000 during the three months ended January 31,
2001.
Research and development expenses related to the Company's NV
Technology (previously New Wheel Technology) subsidiary totaled approximately
$329,000 and $363,000 for the three months ended January 31, 2002 and the three
months ended January 31, 2001, respectively.
In April 2000, the Company entered into a joint venture production
agreement to produce a feature length film for theatrical distribution. Under
the agreement, the Company agreed to provide the funding for the production in
the amount of $2,250,000 and, in exchange, it will receive a 50% share in all
net profits from worldwide distribution and merchandising, after receiving funds
equal to its initial investment of up to $2,250,000. The film is to be completed
and a Summer 2002 release is contemplated. As of January 31, 2001, the Company
had funded approximately $2,127,000 of the production costs towards this
project, which included the purchase of camera equipment in the amount of
$266,004.
In October 2001, we raised a total of $615,000 through the issuance of
convertible promissory notes. During the three months ended January, 31, 2002,
the Company issued convertible promissory notes totaling approximately $313,000.
The Company agreed to pay the principal and an amount equal to 50% of the
principal if certain milestones are reached from the distribution of the feature
length film currently in production. The promissory notes are convertible at any
time, in whole or in part, into shares of common stock at a conversion price of
$0.40 per share.
In June 2000, we entered into five credit facilities, pursuant to which
we borrowed $756,886. We repaid $500,000 of these borrowings during fiscal 2001.
The remaining principal and interest at 6% per annum will be due in June 2003.
In February 2002, the Company entered into a private placement
agreement with an investor under which the Company agreed to sell 3,000,000 of
its restricted common shares for a purchase price of $750,000. As part of this
agreement, the underlining restricted shares have certain registration rights.
The private placement was completed in March 2002.
Management believes funds on hand and available sources of financing
will enable the Company to meet its liquidity needs for at least the next three
months. Additional cash, however, must be raised in order to continue to meet
liquidity needs, satisfy the Company's proposed business plan and expand
operations. Management is presently investigating potential financing
transactions that management believes can provide additional cash for operations
and be profitable in both the short and long-term. Management also intends to
attempt to raise funds through private sales of common stock and borrowings.
Although management believes these efforts will enable the Company to meet
liquidity needs in the future, there can be no assurance that these efforts will
be successful.
GOING CONCERN CONSIDERATION
The Company has continued losses in each of its years of operation,
negative cash flow and liquidity problems. These conditions raise substantial
doubt about its ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments relating to the
recoverability of reported assets or liabilities should the Company be unable to
continue as a going concern.
The Company has been able to continue based upon its receipt of funds
from the issuance of equity securities and borrowings, and by acquiring assets
or paying expenses by issuing stock. Its continued existence is dependent upon
the Company's continued ability to raise funds through the issuance of its
securities or borrowings, and its ability to acquire assets or satisfy
liabilities by the issuance of stock. Management's plans in this regard are to
obtain other debt and equity financing until profitable operation and positive
cash flow are achieved and maintained. Although management believes, based on
the fact that it raised approximately $8,576,000 through sales of common stock
and $1,372,000 from borrowings in the last two fiscal years, that it will be
able to secure suitable additional financing for the Company's operations, there
can be no guarantee that such financing will continue to be available on
reasonable terms, or at all.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes to the Company's market risk for
the three months ended January 31, 2002. See the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 2001 for additional discussions
regarding quantitative and qualitative disclosures about market risk.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 4, 2002, a lawsuit was filed against the Company by
Creditors Adjustment Bureau, Inc., a California corporation, who was allegedly
assigned rights to any judgment collected on amounts allegedly owed to Arter &
Hadden, LLP, the Company's former legal counsel. The suit, which was filed in
the Los Angeles Superior Court, is styled CREDITORS ADJUSTMENT BUREAU, INC., A
CALIFORNIA CORPORATION V. NEW VISUAL ENTERTAINMENT, INC., ASTOUNDING GROUP, LLC
DBA ASTOUNDING.COM, INC.; DOES I THROUGH X , INCLUSIVE (Case no. BC267550) and
seeks damages in the amount of $110,559.88, plus 10% interest, costs of the suit
and reasonable attorneys' fees. The Company is currently investigating the
merits of this lawsuit and does not believe the resolution of this matter will
have a material adverse effect on the Company's financial position or results of
operation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) During the three months ended January 31, 2002, the Company issued
unregistered securities as follows:
1. During November 2001, the Company issued 100,000 shares of
common stock to Rogallo Management, valued at $66,000, as
payment for services rendered.
2. In December 2001, the Company:
o issued an aggregate of $250,000 principal amount of
convertible promissory notes to three investors,
which notes are convertible into the Company's common
stock at a conversion price of $0.40 per share, and
are due and payable upon the receipt by the Company
of certain proceeds from its motion picture currently
in production; and
o sold 250,000 shares of common stock to one investor
at $0.40 per share for aggregate proceeds of
$100,000.
3. In January 2002, the Company:
o sold 1,195,015 shares of common stock to 11 investors
for aggregate proceeds of $309,500; and
o issued an aggregate of $62,500 principal amount of
convertible promissory notes to three investors,
which notes are convertible into the Company's common
stock at a conversion price of $0.40 per share, and
are due and payable upon the receipt by the Company
of certain proceeds from its motion picture currently
in production. Subsequent to January 31, 2002, the
Company issued the following unregistered securities:
In February 2002, the Company:
o issued an aggregate of 1,261,946 restricted shares of
its common stock to nine individuals who purchased
common stock of the Company in a private placement
completed in March 2001 and contended that they were
entitled to receive these additional shares in
connection with their initial purchase agreements.
The Company reached an amicable resolution of the
matter and received a full and complete release from
each investor;
o sold an aggregate 504,000 shares of common stock to
10 investors for aggregate proceeds of $126,000;
o issued 150,000 shares of common stock, valued at
$69,000 to one individual in connection with services
provided to the Company; and
o sold 10,000 shares of common stock to one investor
for aggregate proceeds of $3,400.
22
In March 2002, the Company:
o completed the private placement of 3,160,000 shares
of its common stock to five investors for total
proceeds of $790,000; and
o issued an aggregate 485,000 shares of its common
stock to two executive officers of the Company in
consideration of past services rendered.
All of the securities issued in the transactions described above were
issued without registration under the Securities Act in reliance upon the
exemption provided in Section 4(2) of such Securities Act. The recipients of
securities in each such transaction acquired the securities for investment only
and not with a view to or for sale in connection with any distribution thereof
and appropriate legends were affixed to the share certificates issued in such
transactions. The Company believes the recipients were all "accredited
investors" within the meaning of Rule 501(a) of Regulation D under the
Securities Act, or had such knowledge and experience in financial and business
matters as to be able to evaluate the merits and risks of an investment in its
common stock. All recipients had adequate access, through their relationships
with the Company and its officers and directors, to information about the
Company. None of the transactions described above involved general solicitation
or advertising.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
---------- ------------------------------------------------------------
Exhibit Description
---------- ------------------------------------------------------------
3.1 Bylaws of New Visual Corporation, as amended.
---------- ------------------------------------------------------------
10.1 Convertible Promissory Note dated December 14, 2001 by New
Visual Corporation in favor of the Gerald and Judith Handler
Living Trust (incorporated by reference to Exhibit 10.21 of
the Company's Annual Report on Form 10-K for the year ended
October 31, 2001 (the "2001 10-K")
---------- ------------------------------------------------------------
10.2 Convertible Promissory Note dated December 14, 2001 by New
Visual Corporation in favor of W.P. Lill Jr. Trust dated
12/22/99 (incorporated by reference to Exhibit 10.22 of the
2001 10-K).
---------- ------------------------------------------------------------
10.3 Convertible Promissory Note dated December 14, 2001 by New
Visual Corporation in favor of the Handler Children Trust
(incorporated by reference to Exhibit 10.23 of the 2001
10-K).
---------- ------------------------------------------------------------
10.4 Employment Agreement dated as of January 1, 2002 by and
between New Visual Corporation and John Howell (incorporated
by reference to Exhibit 10.24 of the 2001 10-K).
---------- ------------------------------------------------------------
10.5 Promissory Note dated as of January 1, 2002, by John Howell
in favor of New Visual Corporation (incorporated by
reference to Exhibit 10.25 of the 2001 10-K).
---------- ------------------------------------------------------------
10.6 Warrant Agreement dated February 11, 2002, by and between
New Visual Corporation and Elite Financial Communications,
LLC
---------- ------------------------------------------------------------
10.7 Stock Option Agreement dated February 25, 2002, by and
between New Visual Corporation and Ray Willenberg, Jr.
---------- ------------------------------------------------------------
10.8 Stock Option Agreement dated February 25, 2002, by and
between New Visual Corporation and C. Rich Wilson III
---------- ------------------------------------------------------------
10.9 Stock Option Agreement dated February 25, 2002, by and
between New Visual Corporation and Ivan Berkowitz
---------- ------------------------------------------------------------
10.10 Stock Option Agreement dated February 25, 2002, by and
between New Visual Corporation and Bruce Brown
---------- ------------------------------------------------------------
10.11 Employment Agreement dated February 25, 2002, by and between
New Visual Corporation and C. Rich Wilson III
---------- ------------------------------------------------------------
10.12 Restricted Stock Award Agreement dated as of February 25,
2002, by and between New Visual Corporation and John Howell
---------- ------------------------------------------------------------
10.13 Consulting Agreement dated February 26, 2002, by and between
New Visual Corporation and Thomas J. Cooper
---------- ------------------------------------------------------------
10.14 Stock Option Agreement dated February 26, 2002, by and
between New Visual Corporation and Thomas J. Cooper
---------- ------------------------------------------------------------
(b) Reports on Form 8-K:
Form 8-K dated November 27, 2001, was filed pursuant to Item 5 (Other
Events).
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW VISUAL CORPORATION
(Registrant)
Dated: March 18, 2002 By: /s/ RAY WILLENBERG, JR.
-------------------------------------
RAY WILLENBERG, JR.
President and Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
Dated: March 18, 2002 By: /s/ THOMAS J. SWEENEY
-------------------------------------
THOMAS J. SWEENEY
Chief Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
24