UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 2002
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from _____________to______________
Commission File Number: 2-98014-D
NOVA COMMUNICATIONS LTD.
(formerly First Colonial Ventures, Ltd.)
----------------------------------------
(Name of small business issuer in its charter)
NEVADA 95-4756822
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
370 Amapola Ave., Suite 202, TORRANCE, CA 90501
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(Address of principal executive offices)
Issuer's telephone number (310) 642-0200
Securities registered under Section 12 (b) of the Exchange Act:
NONE
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange during the past 12 months (or for such shorter
period that the Company was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days:
YES /X/ NO / /
1
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB: / /
Issuer's revenues for its most recent fiscal year: $7,890,400
The aggregate market value of the voting common equity held by non-affiliates
computed by reference to the average bid and asked price of such common equity
as of February 28, 2003 was $469,582 based on the average bid and ask prices
during January and February, 2003.
The issuer had 46,958,180 shares of common stock outstanding as of December 31,
2002.
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format: Yes / / No /X/
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
(1) Nova Communications Ltd. (the "Company"), formerly known as First
Colonial Ventures, Ltd., was organized under the laws of the State of Utah in
1985 for the purpose of acquiring a participating interest in one or more
businesses. Through its year ended December 31, 1994, the Company conducted
business through various wholly owned subsidiaries until electing in 1995 to
become a Business Development Company. In January 1995, the Registrant elected
to become an Investment Company pursuant to the Investment Company Act of 1940.
In June 1995, the Registrant terminated its Investment Company election and
elected to become a Business Development Company, as defined in the Small
Business Investment Incentive Act of 1980, which Act is an amendment to the
Investment Company Act of 1940. The election resulted in the Registrant becoming
a specialized type of Investment Company. Consistent with this change in type of
business entity, during the year ended December 31, 1995, the Registrant changed
its method of financial reporting and valuation of investments from cost to fair
value.
Stockholders of the Company met in June 1999 and voted to change the
name of the Company, change its state of incorporation from Utah to Nevada, and
to terminate its status under the Investment Company Act of 1940 as a Business
Development Company. Nova Communications Ltd. was never a Business Development
Company nor an Investment Company. The Company is primarily engaged in the
business of investing in and providing managerial assistance to developing
companies that, in its opinion, would have a significant potential for growth.
The Company's investment objective is to achieve long-term capital appreciation,
rather than current income on its investments. There is no assurance that the
Company's investment objective will be achieved. Effective January 1, 1999, the
Board of Directors resolved to cease its election to report its Financial
Statements as an investment company pursuant to the Investment Company Act of
1940.
(c) Narrative Description of Business
The Company continues to seek a new strategic course, which was begun
during 2000, based on its firm belief that e-commerce and communications will
provide substantial opportunities over the next five years. The Company and its
subsidiaries have been hampered in their operations throughout 2002 and 2001 by
a shortage of working capital. It continues to seek new working capital sources.
When its efforts are successful, it will again focus on expanding the operations
of Kadfield, Inc., a consolidated subsidiary, through strategic alliances.
On October 1, 2000, Communications 2000 acquired Kadfield, Inc. of
Redondo Beach, CA. On December 31, 2001, Kadfield, Inc. became a directly-owned
subsidiary of Nova Communications. Ltd. Kadfield, Inc. engages in the retail
sale of computing equipment and accessories by direct sale and via the Internet
under the trade name of
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"BuyMicro". It markets computers, printers, monitors and networking solutions
manufactured by Apple Computer, Cisco Systems, Compaq, Hewlett Packard, Intel,
IBM, NEC, Nokia, Philips, Sony, SunMicrosystems, Toshiba, Zenith and others.
BuyMicro purchases products to fill each order from Ingram Micro, Tech Data and
other wholesalers. With over 100,000 products and 30,000 customers, BuyMicro
offers same day shipping from 27 wholesaler warehouses located throughout the
U.S.
On October 1, 2000, the Company acquired a 35.02% interest (3,743,568
common shares) in Communications 2000, Inc. of Torrance, California
("Communications 2000") in exchange for 3,000,000 of the Company's newly issued
restricted common shares. On the effective date, the Company's shares reflected
a closing bid price of $.38 per common share on the NASDAQ Over-The-Counter
Bulletin Board. This acquisition was valued at $1,140,000 and was accounted for
as a purchase transaction. The Company and other controlling shareholders owned
55.94% of Communications 2000 on October 1, 2000. On November 6, 2000, the
Company acquired an additional 300,000 Communications 2000 shares in exchange
for 500,000 of the Company's newly issued restricted common shares. On the
previous business day, the Company's shares reflected a closing bid price of
$.20 per common share that resulted in a purchase price of $100,000 for these
additional shares. On December 13, 2000, the Company acquired an additional
1,000,000 Communications 2000 shares in exchange for 1,000,000 of the Company's
newly issued restricted common shares. On the previous business day, the
Company's shares reflected a closing bid price of $.0625 per common share that
resulted in a purchase price of $62,500 for these additional shares. At December
31, 2001, the Company owned a 46.68% interest in this subsidiary. The Company
and other controlling shareholders owned 55.34% of Communications 2000 on
December 31, 2001.
Communications 2000 conducts its business under the trade name of
"TEC-networks". It engages in the sale, installation and service of business
communications systems, including computer networking and voice, data and
voice-over-the-Internet communications. Communications 2000 began its business
during 1995 in Torrance, CA (Los Angeles area). On June 1, 2000, it acquired and
merged the assets and liabilities of The Message On Hold of America, Inc. of
Tampa, FL. During July, 2000, it opened a new branch in Concord, CA (San
Francisco area). Communications 2000 holds a national distributorship agreement
with Nortel Networks in addition to maintaining supplier relationships with
several other major equipment manufacturers and wholesalers, including
Panasonic, Ronco and Sprint North Supply. It competes in a very active
marketplace. Major competitors include Pacific Bell, Verizon, Staples and
others.
On July 22, 2002 the Board of Directors met and approved the sale of
the Company's 46.68% interest in Communications 2000, Inc., which transaction
was effective on July 1, 2002. The financial statements for the year ended
December 31, 2002 include the accounts of Communications 2000, Inc. from January
1 through June 30, 2002 as Loss on Discontinued Operations of $(775,336). The
financial statements for the year ended December 31, 2002 also include a Gain on
Sale of Discontinued Operations of $5,522,708. The financial statements for the
year ended December 31, 2001 have been restated to reflect the accounts of
Communications 2000, Inc. as Loss on Discontinued Operations of
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$(6,727,345). The Company's Balance Sheet at December 31, 2001 has been restated
to present the net liabilities of Communications 2000 as Net Liabilities of
Discontinued Operations of $4,720,840. All significant intercompany transactions
have been eliminated.
During March, 1996, in exchange for 400,000 shares of its common stock,
the Company acquired a 10% interest in a non-public Florida corporation, And
Justice For All, Inc., which operates a nation-wide membership organization
providing its members with access to attorney services at a discounted rate.
During 1997, the Company agreed to increase its investment in And Justice For
All, Inc. to a total of 15%. The agreement required the Company to issue an
additional 515,235 shares of its common stock and required And Justice For All,
Inc. to assume the Company's convertible debenture payable of $210,000 plus
accrued interest of approximately $55,000. On March 24, 1998, the name And
Justice For All, Inc. was changed to Legal Club of America Corporation (Legal
Club).
During 1999, the Company borrowed $525,000 using its Legal Club stock
as collateral. The lender, PFK Development Group, also bought from the Company
287,500 restricted shares of Legal Club stock for $28,750. The Company used the
proceeds of the loan and stock sale to repay the Company's bank loan and for
working capital. During 2000, the note to PFK Development Group was increased to
$608,878, as accrued interest was added to the principal, and was extended until
January 7, 2002. During January, 2001, PFK Development Group was issued 400,000
new restricted common shares of the Company as a payment of interest on its
loan. These were valued at $.12 per share, the closing bid price of the
Company's common stock at the date of issuance. During December 2001, PFK
Development Group agreed to extend the maturity of its note until December 2003,
in exchange for 400,000 additional restricted common shares of the Company.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive and administrative office is located at 370
Amapola Ave., Suite 202, Torrance, California 90501, where the Company utilizes
approximately 800 square feet of 4,000 square feet being leased by Kenneth D.
Owen.
ITEM 3. LEGAL PROCEEDINGS
(a) During the year ended December 31, 2002, neither the Company nor
its subsidiaries were a party to or the subject of any material legal
proceedings. Kadfield, Inc. is defendant in several collection actions. The
Company and its subsidiaries have accrued all known liabilities in accounts
payable and other current liabilities at December 31, 2002.
(b) On October 21, 1997, the Securities Exchange Commission obtained an
order directing a private investigation and designating officers to take
testimony. On February 3, 2000, the Company and Murray W. Goldenberg personally,
submitted an Offer of Settlement in this administrative proceeding. On April 10,
2000 the Commission deemed it appropriate to accept the Offers of Settlement and
ordered that pursuant to Section 9(f) of the Investment Company Act, Section 8A
of the Securities Act and Section 21C of the Exchange Act, the Company cease and
desist from committing or causing any violation and any future violation
5
of Sections 23(b), 31(a) and 55(a) of the Investment Company Act and Rule 31a-1
thereunder, Section 5(a) and 5(c) of the Securities Act and Section 13(a) of the
Exchange Act and Rules 13(a)-1 and 13a-13 hereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security
holders during the fourth quarter of the fiscal year covered by this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information:
The equity securities of the Company are quoted on the NASDAQ
Over-The-Counter Bulletin Board. The following table sets forth the range of
high and low bid prices during each quarter for the Company's common stock for
the years ending December 31, 2002 and December 31, 2001. These over-the-counter
market quotations may reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions. The 2002
information was obtained April 11, 2003, from Allstocks.Com (BigCharts). The
2001 information was obtained on March 12, 2002, from American On-Line (Standard
& Poors Comstock).
2002 SALES PRICES
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COMMON STOCK LOW HIGH
-------------- --- ----
Q1-2002 $.07 $.24
Q2-2002 .018 .08
Q3-2002 .045 .01
Q4-2002 .008 .03
2001 SALES PRICES
-----------------
COMMON STOCK LOW HIGH
-------------- --- ----
Q1-2001 $.09 $.50
Q2-2001 .10 .44
Q3-2001 .045 .32
Q4-2001 .05 .31
(b) Approximate Number
of Record Holders
Title of Class (as of December 31, 2002)
-------------- ------------------------
Common Stock,
$.001 Par Value 850
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(c) Dividends:
The Company has never paid cash dividends on its common stock. The
declaration and payment of dividends is within the discretion of the Company's
board of directors and will depend, among other factors, on earnings and debt
service requirements as well as the operating and financial condition of the
Company. At the present time, the Company's anticipated working capital
requirements are such that it intends to follow a policy of retaining earnings
in order to finance the development of its business. Accordingly, the Company
does not expect to pay a cash dividend within the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The financial statements for the years ended December 31, 2002 and 2001
are filed under Item 8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Management's discussion and analysis should be read in conjunction with
the financial statements and the notes thereto.
RESULTS OF OPERATIONS
These results include the operations of the Company and its
consolidated subsidiaries for the years 2002 and 2001. The Company sold one of
its two principal operating subsidiaries at mid-year 2002. The financial
statements for the year ended December 31, 2002 include the accounts of
Communications 2000, Inc. from January 1 through June 30, 2002 as Loss on
Discontinued Operations of $(775,336). The financial statements for the year
ended December 31, 2002 also include a Gain on Sale of Discontinued Operations
of $5,522,708. The financial statements for the year ended December 31, 2001
have been restated to reflect the accounts of Communications 2000, Inc. as Loss
on Discontinued Operations of $(6,727,345). The Company's Balance Sheet at
December 31, 2001 has been restated to present the net liabilities of
Communications 2000 as Net Liabilities of Discontinued Operations of $4,720,840.
The Company has experienced recurring losses from operations and as of December
31, 2002 had a working capital deficit of $914,540 and a net capital deficiency
of $2,128,732.
Comprehensive net income and comprehensive net income per common share
Comprehensive net income for 2002 was $3,824,115, an increase of
$11,482,648 compared with a net loss of ($7,658,533) for 2001. As a result,
comprehensive net income per share for 2002 was $.0898, an increase of $.4328
per share compared with a comprehensive net loss per share of ($.3430) for 2001.
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Net revenues
Net revenues from continuing operations for 2002 were $7,890,400, an
increase of $3,792,684 compared with $4,097,716 for 2001. Net revenues increased
as a result of increased revenues of Kadfield, Inc..
Cost of sales and gross margin
Cost of sales of continuing operations for 2002 was $6,754,486, or
85.6% of net revenues. Cost of sales of continuing operations for 2001 was
$3,320,223, or 81.0% of net revenues. Gross margin for 2002 was $1,135,914 an
increase of $358,421 compared with $777,493 for 2001.
Operating expenses
Operating expenses of continuing operations for 2002 were $1,957,999,
an increase of $408,292 compared with $1,549,707 for 2001. Operating expenses
increased as a result of consulting fees paid by stock issuance of $573,169.
Depreciation and amortization, components of operating expenses, for 2002 and
2001 were $64,305.
Net interest expense
Net interest expense of continuing operations for 2002 was $101,172, a
decrease of $3,427 compared $104,599 for 2001.
OPERATING STRATEGIES AND COST REDUCTIONS
The Company and its subsidiaries have been hampered in their operations
during 2002 and 2001 by a shortage of working capital. Despite engaging the
services of several investment bankers and professional fundraisers, only
$92,000 has been raised from the sale of shares during 2002 to outside parties
($31,383 during 2001). The Company's growth and strategic operating plans for
TEC-networks were predicated upon raising $2,000,000 to $4,000,000 in working
capital during the first half of 2001. Without adequate working capital,
TEC-networks was not able to expand its sales presence as planned. It was also
not able to sponsor levels of advertising programs necessary to create a
significant number of leads for its existing sales force.
Decisions were made in late 2001 to close the Tampa, FL and Concord, CA
offices of Communications 2000, as cost reduction measures. The Tampa, FL
location was closed on February 15, 2002, and the Concord, CA office was closed
on February 28, 2002. Lease agreements on these locations were simultaneously
cancelled. Compensation agreements with remaining sales agents have been
converted to a modest base salary with performance-based incentives. During the
first half of 2002, Communications 2000 retained its ability to sell and install
telecommunications systems on a nationwide basis from its Torrance, CA location.
Equipment is shipped to a customer's location where it is installed by
Torrance-based technicians or outside contractors.
8
On July 22, 2002 the Board of Directors met and approved the sale of
the Company's 46.68% interest in Communications 2000, Inc., which transaction
was effective on July 1, 2002. The financial statements for the year ended
December 31, 2002 include the accounts of Communications 2000, Inc. from January
1 through June 30, 2002 as Loss on Discontinued Operations of $(775,336). The
financial statements for the year ended December 31, 2002 also include a Gain on
Sale of Discontinued Operations of $5,522,708. The financial statements for the
year ended December 31, 2001 have been restated to reflect the accounts of
Communications 2000, Inc. as Loss on Discontinued Operations of $(6,727,345).
The Company's Balance Sheet at December 31, 2001 has been restated to present
the net liabilities of Communications 2000 as Net Liabilities of Discontinued
Operations of $4,720,840.
Kadfield, Inc., operating as BuyMicro, was successful in increasing its
lines of credit with its suppliers during 2002and 2001. It also has focused a
portion of its business in large systems that are financed under capital lease
arrangements for its customers. Its operations have been profitable since the
fourth quarter of 2001.
The Company and its principal subsidiary, Kadfield, Inc , continue to
suffer from a working capital shortage. The effort to raise additional working
capital continues. Although Kadfield, Inc. is operating profitably, additional
capital is required to enable it to attain its business plan. New product lines
are being added to its business plan and an active effort is underway to acquire
additional lines and or other business that will be synergistic with Kadfield's
plan. The Company believes the above actions, events and other factors will
allow them to continue operations and ultimately achieve profitability. Until
then, the Company is dependent upon its ability to obtain additional capital and
debt financing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-see attached.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no disagreements with accountants during the most
recent two fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) (b) The following table and text sets forth the names and ages of all
directors and executive officers of the Company and their positions and offices
with the Company as of December 31, 2002. All of the directors will serve until
the next annual meeting of the shareholders and until their successors are
elected and qualified, or until their earlier death, retirement, resignation or
removal. Officers serve at the discretion of the Board of Directors. A brief
description of the business experience of each director and executive officer
during the past five years, and an indication of directorships held by each
director in other
9
companies subject to the reporting requirements under the federal securities
laws are also provided.
NAME AGE POSITION(S) DIRECTOR SINCE
Kenneth D. Owen 39 President and June 28, 1999
Director
Leslie I. Handler 65 Assistant Secretary August 27, 1991
and Director
Bryce Sherwood 50 Director September 30, 2000
(d) Family Relationships:
There are no family relationships between any director and executive
officer, or person nominated to become a director or executive officer.
(e) (1) Business Experience:
Kenneth D. Owen - President and Director -
Kenneth D. Owen has been a Director of the Company since June 28, 1999. Mr.
Owen has been in the communications industry for over 15 years and was
previously vice president of A T & T Business Systems for Southern California.
Leslie I. Handler - Treasurer and Director -
Leslie I Handler has been a Director of the Company since August 27, 1991. From
1988 to 1992, Mr. Handler was president of Far West Commercial Finance
subsidiary of Far West Federal Bank, Portland, Oregon. Mr. Handler is an
experienced senior manager with more than 30 years of experience with
asset-based lending organizations. Since 1993, Mr. Handler has been a consultant
to the banking industry.
Bryce Sherwood - Director -
Bryce Sherwood has been a Director of the Company since September 30, 2000. Mr.
Sherwood is now retired, though he previously was a Securities Broker with A.G.
Edwards and Company.
(f) Resignation of Officer and Director
The Company's former President and Chief Executive Officer, Murray W.
Goldenberg resigned as an officer and director of the Company as of September
30, 2000. Mr. Goldenberg continues an association with the Company as a
management consultant.
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ITEM 11. EXECUTIVE COMPENSATION
(a) (1) Cash Compensation Table
Name & Principal Year Principal Annual All Other Compensation
Position Compensation
Kenneth D. Owen 2002 $ 90,000 $ Nil
President & Director 2001 180,000 6,875 (1)
2000 48,306 Nil
Murray W. Goldenberg 2002 $ - Nil
Former President 2001 - 9,625 (3)
2000 123,750 Nil
1999 165,000 Nil
1998 165,000 Nil
1997 165,000 Nil
Leslie I. Handler 2002 Nil
Treasurer & Director 2001 - 16,500 (1 & 2)
2000 - 111,350 (4)
1999 - Nil
1998 - Nil
1997 8,275 Nil
Bryce Sherwood 2002 - Nil
Director 2001 - 6,875 (1)
2000 - Nil
(1) During November, 2001, Messrs. Owen, Handler and Sherwood were each issued
125,000 new restricted common shares of the Company in payment of Directors'
Fees. These were valued at $.055 per share, the closing bid price of the
Company's common stock at the date of issuance.
(2) During November, 2001, Mr. Handler was issued 175,000 new restricted common
shares of the Company in exchange for prior personal guarantees of Company
long-term obligations. These were valued at $.055 per share, the closing bid
price of the Company's common stock at the date of issuance.
(3) During November, 2001, Mr. Goldenberg was issued 175,000 new restricted
common shares of the Company in exchange for consulting services. These were
valued at $.055 per share, the closing bid price of the Company's common stock
at the date of issuance.
(4) During March, 2000, Mr. Handler was issued 927,914 new restricted common
shares of the Company in exchange for prior personal guarantees of Company
long-term obligations. These were valued at $.12 per share, the closing bid
price of the Company's common stock at the date of issuance.
11
Compensation Arrangements:
Mr. Owen was employed by Communications 2000 under the terms of a
three-year employment agreement effective June 1, 2000. The agreement provided
for an annual base compensation of $180,000 plus an annual bonus equal to 1% of
the gross revenue of Communications 2000, provided that this bonus can not
exceed the entity's net pre-tax income as computed before calculating and
accruing the bonus. Mr. Owen earned $90,000 during the first half of 2002,
$180,000 during 2001 and $48,306 between October 1 and December 31, 2000 under
this agreement. Mr. Owen was paid $49,440 during the first half of 2002 and the
balance of $41,560 was accrued to his note payable account. Mr. Owen was paid
$120,000 during 2001 and the balance of $60,000 was accrued to his note payable
account.
During the periods 1997 through June 14, 2000, the services of Murray
W. Goldenberg were compensated pursuant to a month-to-month consulting agreement
with Palaut Management Ltd. ("Palaut"). On June 15, 2000, the Company entered
into a three-year agreement with Palaut that requires Palaut to provide the
Company with the services of personnel to act in the capacities of Chief
Executive Officer, Chief Financial Officer and Administrative Assistant.
Compensation to Palaut pursuant to this agreement will be $205,000 annually. The
services of Mr. Goldenberg are provided as a management consultant to the
Company under the terms of this agreement. Palaut was paid $34,894 during 2002
and the balance of $170,106 was accrued in accounts payable Palaut was paid
$105,500 during 2001 and the balance of $99,500 was accrued in accounts payable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As used in this section, the term beneficial ownership with respect to
a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
of or direct the disposition of) with respect to a security through any
contract, arrangement, understanding, relationship or otherwise, subject to
community property laws.
As of December 31, 2002, the Company had authorized 500,000,000 shares
of its common stock, $.001 par value (the "common stock"), 46,958,180 shares of
which were issued at December 31, 2002, and 10,000,000 shares of its preferred
stock, no par value, none of which were issued. The Company's Board of Directors
has the authority, without approval of the shareholders, to issue all or any
portion of the authorized shares of preferred stock in one or more series, and
to determine the preferences as to dividends, redemption and liquidation,
conversion rights, and other rights of such series, which may carry rights
superior to those of the common stock. The holders of shares of preferred stock
shall not have any voting rights except as specifically required by law.
The following table sets forth certain information regarding the
beneficial ownership of the common stock as of December 31, 2002. Listed below
are (a) the name and address of
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each beneficial owner of more than five percent (5%) of the Company's common
stock known to the Company, the number of shares of common stock beneficially
owned by each such person or entity, and the percent of the Company's common
stock so owned; and (b) the number of shares of common stock of the Company
beneficially owned, and the percentage of the Company's common stock so owned,
by each director and by all directors and officers of the Company as a group.
Each such person or entity has sole voting and investment power with respect to
the shares of common stock, except as otherwise indicated. Beneficial ownership
consists of a direct interest in the shares of common stock, except as otherwise
indicated.
Name and Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Shares of
Common Stock
Kenneth D. Owen None -
President and Director
31913 Taylor Road
Thousand Palms, CA 92276
Leslie I. Handler 1,640,000 (1) 3.49%
Treasurer and Director
382 Running Springs Drive
Palm Desert, CA 92276
Bryce Sherwood 125,000 Less than 1%
Director
7517 Taylor Trace
Battle Creek, MI 49017
All Directors and 1,765,000 3.76%
Officers as a Group
(3 persons)
Cede & Co. 27,074,162 57.66%
P.O. Box 222
New York, NY 10274
Scot Hart 3,000,000 6.39%
915 Terminal Way
San Carlos, CA 94070
Penson Financial Services 3,000,000 6.39%
1700 Pacific Ave., Suite 1400
Dallas, TX 75201
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(1) This does not include 31,318 shares owned by Mr. Handler's wife, Judy, as to
which Mr. Handler has neither voting nor investment power and disclaims
beneficial ownership.
(c) Changes in Control:
There are no contractual or other arrangements currently in effect or
contemplated that may later result in a change in control of the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description of Document
1. Financial Statements
3(3)(i)(1) First Colonial Ventures, Ltd. Articles of Incorporation -
March 25, 1985 (Incorporated by reference)
3(3) (2) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation - August 12, 1985 (Incorporated by reference)
3(3) (3) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation - September 3, 1985 (Incorporated by reference)
3(3) (4) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation - February 3, 1992 (Incorporated by reference)
3(3)(ii)(1) Bylaws (Incorporated by reference)
3(13) Form 10QSB - March 31, 2002, June 30, 2002 and September 30, 2002
(Incorporated by reference)
(b) No reports on Form 8-K where filed during the last quarter of
the period covered by this report.
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SIGNATURES:
In accordance with Section 13 or 15 (d) of the Exchange Act, the company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NOVA COMMUNICATIONS LTD.
(Company)
Date: April 15, 2003
By: /s/KENNETH D. OWEN
------------------
Kenneth D. Owen,
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Company in the capacities and on the dates
indicated:
April 15, 2003
/s/ KENNETH D. OWEN President and Director
--------------------------
Kenneth D. Owen
April 15, 2003
/s/ LESLIE I. HANDLER Treasurer and Director
--------------------------
Leslie I. Handler
April 15, 2003
/s/ BRYCE SHERWOOD Director
-----------------------
Bryce Sherwood
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FORM 10-KSB CERTIFICATION
I, Kenneth D. Owen, certify that:
1. I have reviewed this annual report on Form 10-KSB of Nova
Communications Ltd.
2. Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures ( as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors ( or person
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial date and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there are significant changes in
internal controls or other factors that
16
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 15, 2003
By: /s/KENNETH D. OWEN
--------------------
Kenneth D. Owen,
President
STATEMENT OF CHIEF EXECUTIVE OFFICER REGARDING
FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS
I, Kenneth D. Owen, state and certify as follows:
The financial statements filed with the report on Form 10-KSB for the
period ended December 31, 2002 fully comply with the requirements of Sections
13(a) and 15(d) of the Securities Exchange Act of 1934 and that the information
contained in said periodic report fairly presents, in all material respects, the
financial condition and results of operations of Nova Communications Ltd.
This Statement is submitted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Date: April 15, 2003
By: /s/KENNETH D. OWEN
--------------------
Kenneth D. Owen,
Chief Executive Officer and President
17
NOVA COMMUNICATIONS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
NOTE: THE COMPANY IS INCLUDING UNAUDITED, INTERNALLY-PREPARED
FINANCIAL STATEMENTS FOR 2002 IN ORDER TO ACHIEVE A TIMELY FILING.
THIS FILNG WILL BE AMENDED AFTER THE COMPANY'S OUTSIDE AUDITOR
COMPLETES HIS REVIEW AND REPORT.
NOVA COMMUNICATIONS LTD.
Consolidated Balance Sheets
(UNAUDITED)
December 31 December 31
2002 2001
---------------- ----------------
ASSETS
Current assets:
Cash $ 161,129 $ 101,345
Accounts receivables, less allowance for uncollectible
accounts of $38,015 in 2002 and $6,885 in 2001 28,003 93,404
Notes receivable 31,276 39,446
Inventories - -
Prepaid expenses and deposits 21,123 4,496
Available-for-sale investments 32,625 32,625
-------------- --------------
Total current assets 274,156 271,316
Equipment, net 255,472 315,884
Other assets:
Goodwill, less accumulated amortization of $8,789 in
2002 and $4,866 in 2001 18,491 22,384
Deposits 3,063 3,063
-------------- --------------
Total other assets 21,554 25,447
$ 551,182 $ 612,647
============== ==============
See accompanying notes.
NOVA COMMUNICATIONS LTD.
Consolidated Balance Sheets (continued)
(UNAUDITED)
December 31 December 31
2002 2001
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
Current liabilities:
Accounts payable $ 771,037 $ 508,866
Payable to related parties 22,167 20,000
Accrued payroll and payroll related liabilities 255,368 80,526
Customer deposits 24,538 27,337
Income taxes payable - -
Other accrued liabilities - -
Long-term obligations, due within one year 118,586 7,582
Net liabilities of discontinued operations - 4,720,840
-------------- --------------
Total current liabilities 1,191,696 5,365,151
Long-term obligations 863,218 843,191
Notes payable to related parties 625,000 1,075,000
Commitments
Stockholders' equity (deficit):
Preferred stock; no par value; authorized 10,000,000
shares - -
Common stock; $.001 par value; authorized
500,000,000 shares; outstanding 46,958,180,shares in
2002 and 31,428,458 shares in 2001 46,958 31,429
Common stock to be issued - 20,000
Additional paid-in capital 13,797,842 13,075,523
Retained deficit (15,508,400) (19,332,515)
Unrealized holding loss from available-for-sale
investments (465,132) (465,132)
-------------- --------------
Total stockholders equity (deficit) (2,128,732) (6,670,695)
--------------- ---------------
$ 551,182 $ 612,647
=============== ===============
See accompanying notes.
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Income (Loss)
(UNAUDITED)
For The Year Ended
Ended December 31
2002 2001
----------- -----------
Revenues $ 7,890,400 $ 4,097,716
Cost of revenues 6,754,486 3,320,223
----------- -----------
Gross margin 1,135,914 777,493
Operating expenses:
Selling 397,196 237,299
Operating 504,166 411,340
General and administrative 483,468 901,068
Consulting fees (paid by stock issuance) 573,169 -
----------- -----------
Total operating expenses 1,957,999 1,549,707
----------- -----------
Loss from operations (822,085) (772,214)
Other income (expenses):
Interest, net (101,172) (104,599)
----------- -----------
Total other income (expenses) (101,172) (104,599)
----------- -----------
Loss before provision (benefit) for income taxes (923,257) (876,813)
Provision (benefit) for income taxes - -
----------- -----------
Net loss of continuing operations (923,257) (876,813)
Net loss of discontinued operations (775,336) (6,727,345)
Gain on sale of discontinued operations 5,522,708 -
Net income (loss) $ 3,824,115 $(7,604,158)
=========== ===========
Net income (loss) per common share $ .0898 $ (.3400)
=========== ===========
Unrealized holding gain (loss) on available-for-sale investments - (54,375)
=========== ===========
Comprehensive income (loss) $ 3,824,115 $(7,658,533)
=========== ===========
Comprehensive income (loss) per common share $ .0898 $ (.3430)
=========== ===========
See accompanying notes.
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Income (Loss)
(UNAUDITED)
For The Three Months
Ended December 31
2002 2001
----------- -----------
Revenues $ 1,845,030 $ 1,971,116
Cost of revenues 1,655,777 1,394,998
----------- -----------
Gross margin 189,253 576,118
Operating expenses:
Selling 109,535 80,150
Operating 114,405 152,165
General and administrative 149,230 411,400
Consulting fees (paid by stock issuance) - -
----------- -----------
Total operating expenses 373,170 643,715
----------- -----------
Income (loss) from operations (183,917) (67,597)
Other income (expenses):
Interest, net (20,935) (10,991)
----------- -----------
Total other income (expenses) (20,935) (10,991)
----------- -----------
Income (loss) before provision (benefit) for income taxes (204,852) (78,588)
Provision (benefit) for income taxes - -
----------- -----------
Net income (loss) of continuing operations (204,852) (78,588)
Net loss of discontinued operations - (4,855,466)
Gain on sale of discontinued operations - -
----------- -----------
Net income (loss) $ (204,852) $(4,934,054)
=========== ===========
Net income (loss) per common share $ .0044 $ (.1770)
=========== ===========
Unrealized holding gain (loss) on available-for-sale investments - -
----------- -----------
Comprehensive income (loss) $ (204,852) $(4,934,054)
Comprehensive income (loss) per common share $ .0044 $ (.1770)
=========== ===========
See accompanying notes.
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
(UNAUDITED)
1. Business and summary of significant accounting policies
-------------------------------------------------------
Business: Nova Communications Ltd. (the "Company" or "Nova") was
incorporated under the laws of the State of Utah on March 25, 1985.
Effective June 28, 1999, the Company changed its name from First
Colonial Ventures, Ltd. to Nova Communications Ltd. and changed its
state of incorporation from Utah to Nevada. The Company invests in and
provides managerial assistance to developing companies.
Basis of consolidation: The consolidated financial statements include
the accounts of Nova and its subsidiary, Kadfield, Inc. All
intercompany accounts and transactions have been eliminated. As of
December 31, 2002 and 2001, the Company owned 100% of Kadfield.
On July 22, 2002 the Board of Directors met and approved the sale of
the Company's 46.68% interest in Communications 2000, Inc., which
transaction was effective on July 1, 2002. The financial statements for
the year ended December 31, 2002 include the accounts of Communications
2000, Inc. from January 1 through June 30, 2002 as Loss on Discontinued
Operations of $(775,336). The financial statements for the year ended
December 31, 2002 also include a Gain on Sale of Discontinued
Operations of $5,522,708. The financial statements for the year ended
December 31, 2001 have been restated to reflect the accounts of
Communications 2000, Inc. as Loss on Discontinued Operations of
$(6,727,345). The Company's Balance Sheet at December 31, 2001 has been
restated to present the net liabilities of Communications 2000 as Net
Liabilities of Discontinued Operations of $4,720,840. All significant
intercompany transactions have been eliminated.
Cash and cash concentrations: For purposes of the statement of cash
flows, the Company and its subsidiary consider cash equivalents to be
highly liquid instruments with original due dates within three months
of the date purchased.
The Company and its subsidiary place their cash in financial
institutions and, at various times throughout the year, cash held in
these accounts has exceeded Federal Deposit Insurance Corporation
limits. Neither the Company nor its subsidiary have experienced any
losses as a result of these cash concentrations.
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
(UNAUDITED)
1. Business and summary of significant accounting policies (continued)
-------------------------------------------------------------------
Investments: Investments are accounted for under the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS
115 requires that all applicable investments be classified as trading
securities, available-for-sale securities, or hold-to-maturity
securities. The statement further requires that hold-to-maturity
securities be reported at amortized cost and available-for-sale
securities be reported at fair market value, with unrealized gains and
losses excluded from earnings but reported in a separate component of
shareholders' equity (net of the effects of income taxes) until they
are disposed of or sold. At the time of disposal or sale, any gains or
losses, calculated by the specific identification method, are
recognized as a component of operating results.
Equipment: Equipment is carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the
depreciable assets, which range from five to fifteen years.
Computer software obtained or developed for internal use is capitalized
in accordance with Statement of Position 98-1, "Accounting for the Cost
of Computer Software Developed for Internal Use". Amortization is
computed using the straight-line method over seven years.
Equipment under capitalized lease obligations is carried at estimated
fair market value determined at the inception of the lease.
Amortization is computed using the straight-line method over the
original term of the lease or the estimated useful lives of the assets,
whichever is shorter.
Goodwill: Goodwill represents the excess purchase price over the
estimated fair value of the net assets of its subsidiary. Amortization
is computed using the straight-line method over seven years.
Impairment of long-lived assets: The Company and its subsidiary assess
the recoverability of long-lived assets by determining whether the
depreciation and amortization of the asset's balance over its remaining
life can be recovered through projected undiscounted future cash flows.
The amount of impairment, if any, is measured based on fair value and
charged to operations in the period in which the impairment is
determined by management.
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
(UNAUDITED)
1. Business and summary of significant accounting policies (continued)
----------------------------------------------------------------------
Revenue recognition: Revenue from Nova's managerial assistance services
is recognized when services are rendered. Revenue from service of
business communications systems is recognized when services are
rendered. Revenue from Kadfield, Inc.'s computer and electronic
equipment sales is recognized when equipment is shipped to customers.
Stock based compensation: The Company and its subsidiary account for
stock based compensation under Statement of Financial Accounting
Standards No. 123 ("SFAS 123). SFAS 123 defines a fair value based
method of accounting for stock based compensation. However, SFAS 123
allows an entity to continue to measure compensation cost related to
stock and stock options issued to employees using the intrinsic method
of accounting prescribed by Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock issued to Employees". Entities
electing to remain with the accounting method of APB 25 must make pro
forma disclosures of net income and earnings per share, as if the fair
value method of accounting defined in SFAS 123 had been applied. The
Company has elected to account for its stock based compensation to
employees under APB 25. The Company reflects each stock based
compensation certificate as of its issue date in weighted average
number of common stock shares outstanding calculations.
Reporting comprehensive income: The Company and its subsidiary report
and display comprehensive income and its components as separate amounts
in the consolidated financial statements. Comprehensive income includes
all changes in equity during a period that result from recognized
transactions and other economic events other than transactions with
owners.
Income taxes: Income taxes are provided on the liability method whereby
deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases and
reported amounts of assets and liabilities. Deferred tax assets and
liabilities are computed using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities from a change in tax rates is recognized in income in the
period that includes the enactment date. The Company and its subsidiary
provide a valuation allowance for certain deferred tax assets, if it is
more likely than not that the Company or its subsidiary will not
realize tax assets through future operations.
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
(UNAUDITED)
1. Business and summary of significant accounting policies (continued)
-------------------------------------------------------------------
Net loss per common share: Net loss per common share is computed by
dividing net loss by the weighted average number of common shares
outstanding during the period. The weighted average number of common
stock shares outstanding was 42,599,877 for the year ended December 31,
2002 (22,328,085 for 2001). The weighted average number of common stock
shares outstanding was 46,958,180 for the quarter ended December 31,
2002 (27,883,621 for 2001). Preferred stock is not considered to be a
common stock equivalent. Common stock to be issued is not considered to
be a common stock equivalent as the effect on net loss per common share
is anti-dilutive.
Significant risks and uncertainties: The process of preparing financial
statements in conformity with generally accepted accounting principles
requires the use of estimates and assumptions regarding certain types
of assets, liabilities, revenues and expenses. Management of the
Company has made certain estimates and assumptions regarding the
collectibility of notes receivable, net realizable value of inventories
and estimated fair value of investments. Such estimates and assumptions
primarily relate to unsettled transactions and events as of the date of
the financial statements. Accordingly, upon settlement, actual results
may differ from estimated amounts.
2. Operations
----------
The Company has experienced recurring losses from operations and as of
December 31, 2002 had a working capital deficit of $917,540 ($5,093,835
at December 31, 2001) and a net capital deficiency of $2,128,732
($6,670,695 at December 31, 2001).
The Company and its principal subsidiary, Kadfield, Inc , continue to
suffer from a working capital shortage. The effort to raise additional
working capital continues. Although Kadfield, Inc. is operating
profitably, additional capital is required to enable it to attain its
business plan. New product lines are being added to its business plan
and an active effort is underway to acquire additional lines and or
other business that will be synergistic with Kadfield's plan. The
Company believes the above actions, events and other factors will allow
them to continue operations and ultimately achieve profitability. Until
then, the Company is dependent upon its ability to obtain additional
capital and debt financing.
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
(UNAUDITED)
3. Business combinations
---------------------
Effective October 1, 2000, Communications 2000 acquired Kadfield, Inc.
of Redondo Beach, CA. On December 31, 2001, Kadfield, Inc. became a
directly-owned subsidiary of Nova Communications. Ltd. Kadfield, Inc.
engages in the retail sale of computer and electronic equipment by
direct sale and via the Internet under the trade name of "BuyMicro".
Its customers are located nationwide.
Also effective October 1, 2000, Nova acquired Communications 2000,
Inc., dba TEC-networks, in a business combination accounted for as a
purchase. TEC-networks engages in the sale, installation and service of
business communications systems, including computer networking and
voice, data and voice-over-the-Internet communications. TEC-networks
began its business during 1995 in Torrance, CA (Los Angeles area) and
holds a national distributorship agreement with Nortel Networks, in
addition to maintaining supplier relationships with several other major
equipment manufacturers and wholesalers Prior to the business
combination, the principal stockholder of TEC-networks was a
stockholder of Nova and Nova was providing management services to
TEC-networks.
On July 22, 2002 the Board of Directors met and approved the sale of
the Company's 46.68% interest in Communications 2000, Inc., which
transaction was effective on July 1, 2002. The financial statements for
the year ended December 31, 2002 include the accounts of Communications
2000, Inc. from January 1 through June 30, 2002 as Loss on Discontinued
Operations of $(775,336). The financial statements for the year ended
December 31, 2002 also include a Gain on Sale of Discontinued
Operations of $5,522,708. The financial statements for the year ended
December 31, 2001 have been restated to reflect the accounts of
Communications 2000, Inc. as Loss on Discontinued Operations of
$(6,727,345). The Company's Balance Sheet at December 31, 2001 has been
restated to present the net liabilities of Communications 2000 as Net
Liabilities of Discontinued Operations of $4,720,840.
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
(UNAUDITED)
4. Investments
-----------
All of the Company's investments are considered by Management to be
available-for-sale investments. The following is a summary of
investment securities:
December31
2002 2001
------------ ------------
Corporate securities:
Amortized cost $ 497,757 $ 497,757
Gross unrealized losses (465,132) (465,132)
----------- -----------
Estimated fair value $ 32,625 $ 32,625
=========== ===========
The Company's available-for-sale investments consist of the following
Corporate Securities:
Gulf Coast Hotels, Inc. ("Gulf Coast"): The Company is a
minority partner in Gulf Coast that was formed to purchase the rights
to approximately 1.4 acres in Biloxi, Mississippi and to develop a
high-rise condominium hotel on that site. Gulf Coast has been unable
to raise the approximately $1,000,000 necessary to complete the down
payment. The seller has provided extensions to Gulf Coast, however
the agreement is in default. Management of Nova has determined that
its investment in Gulf Coast had no value based upon the uncertainty
of the outcome of Gulf Coast's default.
Legal Club: The Company owns 337,500 shares of common stock
of Legal Club, a publicly traded, nationwide membership organization
providing access to attorney services at discounted rates. The value
of the Company's investment in Legal Club was determined based upon
the closing bid price of their common stock.