UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1 TO
/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
-----------------------------------------------
(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
EXPLANATORY NOTE: THIS AMENDMENT IS FOR THE PURPOSE OF PROVIDING THE COMPANY'S
AUDTED FINANCIAL STSTEMENTS. THE ORIGINAL FORM 10KSB FILED ON APRIL 16, 2003,
CONTAINED UNAUDITED FINANCIAL STATEMENTS WHILE AWAITING COMPLETION OF THE
AUDITED FINANCIAL STATEMENTS.
2
NOVA COMMUNICATIONS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
WITH
REPORT OF INDEPENDENT AUDITOR'S
NOVA COMMUNICATIONS LTD.
Years ended December 31, 2002 and 2001
Contents
Page
------
Report of Independent Auditor's............................... 1
Consolidated Financial Statements:
Balance sheets............................................. 2
Statements of operations................................... 3
Statements of comprehensive loss........................... 4
Statements of changes in stockholders' equity (deficit).... 5
Statements of cash flows................................... 6
Notes to consolidated financial statements................. 7 - 15
REPORT OF INDEPENDENT AUDITOR'S
To the Stockholders
Nova Communications Ltd.
We have audited the accompanying consolidated balance sheet of Nova
Communications Ltd. as of December 31, 2002 and 2001, and the related
consolidated statements of operations, comprehensive loss, changes in
stockholders' equity (deficit), and cash flows for each of the two years in the
period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nova Communications
Ltd. as of December 31, 2002 and 2001 and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2002 in
accordance with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 2 to the
consolidated financial statements, the Company has a working capital deficit, a
net capital deficiency, and recurring net losses that raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 2. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/TIMOTHY L. STEERS
Timothy L. Steers
Certified Public Accountant, LLC
April 28, 2003
Portland, Oregon
NOVA COMMUNICATIONS LTD.
Consolidated Balance Sheets
December 31
-------------------------------------
2002 2001
---------------- ----------------
ASSETS
Current assets:
Cash $ 161,129 $ 101,345
Accounts receivable, less allowance for uncollectible
accounts of $38,015 in 2002 ($6,885 in 2001) 28,003 93,404
Notes receivable 31,276 39,446
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 194,401 241,956
Equipment of discontinued operations, net - 363,277
Other assets:
Goodwill, less accumulated amortization of $37,688
in 2002 ($20,938 in 2001) 79,562 96,312
Deposits 3,063 3,063
Net other assets of discontinued operations - 64,015
-------------- --------------
Total other assets 82,625 163,390
-------------- --------------
$ 551,182 $ 1,039,939
============== ==============
See accompanying notes.
1
December 31
-------------------------------------
2002 2001
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
Current liabilities:
Accounts payable $ 420,427 $ 472,766
Payable to related parties 27,121 24,954
Accrued payroll and payroll related liabilities 255,368 74,085
Customer deposits 24,538 27,337
Income taxes payable 1,600 800
Other accrued liabilities 46,859 21,018
Other accrued liabilities to related parties 297,197 127,090
Long-term obligations, due within one year 118,586 32,582
Net current liabilities of discontinued operations - 4,589,909
-------------- --------------
Total current liabilities 1,191,696 5,370,541
Long-term obligations 863,218 705,966
Long-term obligations of discontinued operations - 407,531
Notes payable to related parties 625,000 625,000
Notes payable to related parties of discontinued operations - 601,596
Net Capital Deficiency:
Preferred stock; no par value; authorized 10,000,000 shares - -
Common stock; $.001 par value; authorized 500,000,000 shares;
outstanding 46,958,181 shares in 2002 (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)
-------------- --------------
Net capital deficiency (2,128,732) (6,670,695)
-------------- --------------
$ 551,182 $ 1,039,939
============== ==============
See accompanying notes.
2
NOVA COMMUNICATIONS LTD.
Consolidated Statements of Operations
Years ended December 31
2002 2001
---------------- --------------
Revenues $ 7,890,400 $ 4,097,716
Cost of sales 6,754,486 3,320,223
-------------- -------------
Gross margin 1,135,914 777,493
Operating expenses:
Selling 397,196 237,299
General and administrative 1,560,003 1,312,408
-------------- -------------
Total operating expenses 1,957,199 1,549,707
-------------- -------------
Loss from operations (821,285) (772,214)
Interest and loan fees, net 101,172 104,599
-------------- -------------
Loss before benefit for income taxes (922,457) (876,813)
Provision for income taxes 800 800
-------------- -------------
Net loss from continuing operations (923,257) (877,613)
Discontinued operations:
Net loss, net of benefit for income taxes (775,366) (6,726,546)
Net gain on disposal 5,522,708 -
-------------- -------------
Net income (loss) from discontinued operations 4,747,372 (6,726,546)
-------------- -------------
Net income (loss) $ 3,824,115 $ (7,604,159)
============== =============
Net income (loss) per common share:
Continuing operations $ (.021) $ (.039)
============== =============
Discontinued operations $ .111 $ (.301)
============== =============
See accompanying notes.
3
NOVA COMMUNICATIONS LTD.
Consolidated Statements of Comprehensive Loss
Years ended December 31
2002 2001
----------------- --------------
Net income (loss) $ 3,824,115 $ (7,604,159)
Unrealized holding loss on available-for-sale investments - (54,375)
-------------- -------------
Comprehensive income (loss) $ 3,824,115 $ (7,658,534)
============== =============
Comprehensive income (loss) per common share $ .090 $ (.343)
============== =============
See accompanying notes.
4
NOVA COMMUNICATIONS LTD.
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
January 1, 2001 through December 31, 2002
Unrealized
holding
loss from Total
Common stock Common Additional available- stockholders'
Preferred ------------------- stock to paid-in Retained for-sale equity
stock Shares Amount be issued capital deficit investments (deficit)
-------- ---------- ------- --------- ----------- ------------ --------- ------------
Balance at January 1, 2000 $ - 18,603,622 $18,604 $ 371,953 $11,842,912 $(11,728,356) $(410,757) $ 94,356
Shares issued - 1,250,000 1,250 (371,953) 370,703 - - -
Common stock issued in exchange
for interest and loan fees - 400,000 400 20,000 47,600 - - 68,000
Common stock issued to
employees of Communications
2000, Inc. - 365,000 365 - 58,035 - - 58,400
Common stock issued in exchange
for services - 10,809,836 10,810 - 724,890 - - 735,700
Additional paid-in-capital from sale
of common stock by subsidiary - - - - 31,383 - - 31,383
Comprehensive loss - - - - - (7,604,159) (54,375) (7,658,534)
-------- ---------- ------ --------- ----------- ------------ --------- ----------
Balance at December 31, 2001 - 31,428,458 31,429 20,000 13,075,523 (19,332,515) (465,132) (6,670,695)
Shares issued - - - (20,000) 20,000 - - -
Common stock issued in exchange
for interest and loan fees - 400,000 400 - 69,600 - - 70,000
Common stock issued in exchange
for long-term debt - 143,313 143 - 24,857 - - 25,000
Common stock issued in exchange
for services - 14,986,410 14,986 - 607,862 - 622,848
Comprehensive income - - - - - 3,824,115 - 3,824,115
-------- ---------- ------ --------- ----------- ------------ --------- ----------
Balance at December 31, 2002 $ - 46,958,181 $46,958 $ - $13,797,842 $(15,508,400) $(465,132) $(2,128,732)
======== ========== ====== ========= =========== ============ ========= ===========
See accompanying notes.
5
NOVA COMMUNICATIONS LTD.
Consolidated Statements of Cash Flows
Years ended December 31
2002 2001
--------------- --------------
Cash flows from operating activities:
Net loss from continuing operations $ (923,257) $ (877,613)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 64,305 64,305
Common stock issued for services and loan fees 692,848 862,100
Provision (benefit) for uncollectible accounts receivable 31,130 6,885
Changes in assets and liabilities:
Receivables 34,271 (1,964)
Prepaid expenses and deposits (16,627) (4,496)
Accounts payable (52,339) 174,137
Accrued liabilities 375,232 103,324
-------------- -------------
205,563 326,678
Cash flows from discontinued operations (76,888) (673,370)
Cash flows from investing activities:
Principal repayments on notes receivable 8,170 46,186
Net investing activities of discontinued operations - (19,925)
-------------- -------------
8,170 26,261
Cash flows from financing activities:
Proceeds from long-term obligations - 678,386
Principal payments on long-term obligations (79,228) (5,530)
Advances to related parties 2,167 (38,332)
Net financing activities of discontinued operations - (383,517)
-------------- -----------
(77,061) 251,007
Net increase (decrease) in cash 59,784 (69,424)
Cash at beginning of year 101,345 170,769
-------------- -------------
Cash at end of year $ 161,129 $ 101,345
============== =============
Supplemental disclosure of cash flow information -
cash paid for interest $ 36,456 $ 518,760
============== ===========
Non-cash financing activities -
common stock issued in exchange for long-term debt $ 25,000 $ -
============== ===========
See accompanying notes.
6
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
1. Business and summary of significant accounting policies
-------------------------------------------------------
Business: Nova Communications Ltd. (the "Company" or "Nova") is
incorporated under the laws of the State of 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 100% owned subsidiary Kadfield, Inc.
("Kadfield"). All intercompany accounts and transactions have been
eliminated.
Cash and cash concentrations: For purposes of the statement of cash
flows, the Company and its subsidiaries consider cash equivalents to be
highly liquid instruments if, when purchased, their original due dates
were within three months.
The Company and its subsidiary place their cash in financial
institutions. At various times throughout the year, cash held in these
accounts has exceeded Federal Deposit Insurance Corporation limits.
Neither the Company nor its subsidiary has experienced any losses as a
result of these cash concentrations.
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.
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.
7
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
1. Business and summary of significant accounting policies (continued)
-------------------------------------------------------------------
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.
Revenue recognition: Revenue from Nova's managerial assistance services
is recognized when services are rendered. Revenue from Kadfield'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.
Advertising: The Company and its subsidiary expense the cost of
advertising as incurred as selling expenses. Advertising expenses were
approximately $397,200 for 2002 ($142,200 for 2001).
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 results 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 subsidiaries will not
realize tax assets through future operations.
8
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
1. Business and summary of significant accounting policies (continued)
-------------------------------------------------------------------
Segment Reporting: The Company and its subsidiary report information
about operating segments and related disclosures about products and
services, geographic areas and major customers under Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information". Operating segments
are defined as components of an enterprise for which separate financial
information is available that is evaluated regularly by management in
deciding how to allocate resources and in assessing performance.
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 2002 (22,353,319 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 would be
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 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 and a net
capital deficiency of $2,128,732. In addition Kadfield is in default on
various long-term obligations.
During 2002, the Company divested of its investment in Communications
2000, Inc., dba TEC-networks. The Company is also currently in
negotiations to acquire the operations of a division of a publicly
traded company and a data storage facility company.
The Company believes the above actions and along with other plans 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. The consolidated financial
statements do not reflect adjustments relating to the recorded asset
amounts, or the amounts of liabilities that would be necessary should
the Company not be able to continue in existence.
9
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
3. Investments
-----------
The following is a summary of investment securities at December 31:
2002 2001
------------- -------------
U.S. 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
U.S. 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 on December 31, 2002.
4. Equipment
---------
Equipment consisted of the following at December 31:
2002 2001
-------------- --------------
Office furniture and equipment $ 100,834 $ 100,834
Computer software 261,750 261,750
------------ ------------
362,584 362,584
Less accumulated depreciation (168,183) (120,628)
------------- ------------
Equipment, net $ 194,401 $ 241,956
============ ============
10
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
5. Long-term obligations
---------------------
Long-term obligations consisted of the following at December 31:
2002 2001
--------------- --------------
Note payable and accrued interest payable to a PFK
Development Group, secured by 337,500 shares of
Legal Club stock and Nova has pledged 35% of its
cash receipts from collections of its notes
receivable, borrowings bear interest at 10% per
annum, due December 2004. $ 736,427 $ 666,427
Note payable to an individual - 25,000
Capitalized lease obligations 245,377 47,121
------------- ------------
981,804 738,548
Less principal due within one year (118,586) (32,582)
-------------- ------------
Long-term obligations $ 863,218 $ 705,966
============= ============
Aggregate minimum future lease payments under capitalized leases are as
follows for the years ending subsequent to December 31, 2002:
Years ending December 31:
2003 $ 162,465
2004 68,985
2005 51,566
2006 6,240
----------
Total minimum lease payment 289,256
Less amount representing interest 43,879
----------
Present value of minimum future lease payments $ 245,377
==========
6. Notes payable to related parties
--------------------------------
Notes payable to related parties is due to Palaut Management, Inc. in
exchange for management consulting services. The note is unsecured,
non-interest bearing, and due June 2004. Close family members of a
stockholder of Nova control Palaut Management, Inc.
7. Common stock
------------
In March 2002, the Board of Directors authorized the issuance of
143,313 shares of common stock of the Company to an in exchange for
long-term obligations. Management of the Company valued the shares
issued at $.175 per share, the closing bid price of the Company's
common stock at the date of issuance. Management of the Company
estimated the value of the Company's shares granted
11
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
7. Common stock (continued)
------------------------
after considering the historical trend of the trading prices for its
common stock and the limited volume of shares being traded.
In June 2002, the Board of Directors authorized the issuance of 400,000
shares of common stock of the Company to PFK Development Group as loan
fees to extend the due date of a note payable to them from December
2003 to December 2004. Management of the Company valued the shares
issued at $.175 per share, the closing bid price of the Company's
common stock at the date of issuance, and recorded loan fees expense of
$70,000. Management of the Company estimated the value of the Company's
shares granted after considering the historical trend of the trading
prices for its common stock and the limited volume of shares being
traded.
During 2002, the Board of Directors authorized the issuance of an
aggregate of 14,986,410 shares of common stock of the Company in
exchange professional services. The weighted average issuance price of
the shares was $.04 per share. Management of the Company valued the
shares issued at the closing bid price of the Company's common stock at
the date of issuance. Management of the Company estimated the value of
the Company's shares granted after considering the historical trend of
the trading prices for its common stock and the limited volume of
shares being traded. The Company recorded professional fees aggregating
$622,848 during the year ended December 31, 2002 as a result of these
grants.
In June 2001, the Board of Directors authorized the issuance of 400,000
shares of common stock of the Company to PFK Development Group as loan
fees to extend the due date of a note payable to them from December
2002 to December 2003. Management of the Company valued the shares
issued at $.12 per share, the closing bid price of the Company's common
stock at the date of issuance, and recorded loan fees expense of
$48,600. Management of the Company estimated the value of the Company's
shares granted after considering the historical trend of the trading
prices for its common stock and the limited volume of shares being
traded.
In June 2001, the Board of Directors authorized the issuance of 365,000
shares of common stock of the Company to key employees of TEC-networks.
Management of the Company valued the shares issued at $.16 per share,
the closing bid price of the Company's common stock at the date of
issuance, and recorded compensation expense of $58,400. Management of
the Company estimated the value of the Company's shares granted after
considering the historical trend of the trading prices for its common
stock and the limited volume of shares being traded.
During 2001, the Board of Directors authorized the issuance of an
aggregate of 10,809,836 shares of common stock of the Company in
exchange professional services. The weighted average issuance price of
the shares was $.06 per share. Management of the Company valued the
shares issued at the closing bid price of the
12
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
7. Common stock (continued)
------------------------
Company's common stock at the date of issuance. Management of the
Company estimated the value of the Company's shares granted after
considering the historical trend of the trading prices for its common
stock and the limited volume of shares being traded. The Company
recorded professional fees aggregating $735,700 during the year ended
December 31, 2001 as a result of these grants.
8. Income taxes
------------
Deferred income taxes consisted of the following at December 31:
2002 2001
------------ ------------
eferred tax assets:
Net operating loss carryovers $ 3,828,800 $ 5,193,700
Unrealized losses on investments 158,100 158,100
Allowance for uncollectible accounts 12,900 20,000
---------- ----------
3,999,800 5,371,800
aluation allowance for deferred tax assets (3,999,800) (5,371,800)
---------- ----------
Net deferred income taxes $ - $ -
========== ==========
The components of the provision (benefit) for income taxes are as
follows for the years ended December 31:
2002 2001
---------- ---------
State of California -
Currently payable (refundable) $ 800 $ (3,045)
========== ==========
The provision (benefit) for income taxes is included in the
accompanying income statements under the following captions for the
years ended December 31:
2002 2001
----------- -----------
Continuing operations $ 800 $ 800
Discontinued operations - (3,845)
--------- --------
$ 800 $ (3,045)
========== ==========
Reconciliation of income taxes computed at the Federal statutory rate
of 34% to the benefit for income taxes is as follows for the years
ended December 31:
2002 2001
---------- ------------
Tax at statutory rates $1,300,471 $(2,586,449)
Differences resulting from:
State tax, net of Federal tax benefit 528 528
Non-deductible and other items 71,801 (10,024)
13
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
8. Income taxes (continued)
------------------------
2002 2001
----------- ------------
Change in deferred tax valuation allowance (1,372,000) 2,592,900
----------- ----------
Benefit for income taxes $ 800 $ (3,045)
=========== ===========
The Company has approximately $11,261,000 in Federal and State of
California net operating losses, which, if not utilized, expire through
2022.
The utilization of the net operating loss carryforwards could be
limited due to restrictions imposed under Federal and state laws upon a
change in ownership. The amount of the limitation, if any, has not been
determined at this time. A valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax
assets will not be realized. As a result of the Company's continued
losses and uncertainties surrounding the realization of the net
operating loss carryforwards, management has determined that the
realization of deferred tax assets is uncertain. Accordingly, a
valuation allowance equal to the net deferred tax asset amount has been
recorded as of December 31, 2002 and 2001.
9. Other related party transactions
--------------------------------
The Company has entered into an agreement with a company for management
consulting services. A close family member of a stockholder of Nova
controls the management company. The agreement expires in June 2003
with renewal provisions. Under the terms of the agreement, the Company
is obligated to pay the management company $205,000 per year.
10. Segment information
-------------------
The Company considers its operations to be in two segments, each of
which are strategic businesses that are managed separately because each
business sells or provides distinct products and services. The segments
are as follows: managerial assistance to developing companies and sale
of computer and electronic equipment.
Financial information by business segment is as follows:
Computer
and
Managerial electronic Total
assistance equipment segment
-------------- --------------- ---------------
2002
-------------- --------------- ---------------
Revenues $ 120,000 $ 7,770,400 $ 7,890,400
Loss from operations (741,286) (79,999) (821,285)
Identifiable assets 81,314 408,797 490,111
Depreciation and amortization 5,050 59,255 64,305
14
NOVA COMMUNICATIONS LTD.
Notes to Consolidated Financial Statements
December 31, 2002
10. Segment information (continued)
-------------------------------
2001
-------------- --------------- ---------------
Revenues $ 243,252 $ 3,854,464 $ 4,097,716
Loss from operations (516,497) (255,717) (772,214)
Identifiable assets 95,765 442,954 538,719
Depreciation and amortization 5,050 59,255 64,305
Reconciliation of the segment information to consolidated total assets
is as follows as of December 31:
2002 2001
------------ ------------
Segment identifiable assets $ 490,111 $ 538,719
Goodwill, net 61,071 73,928
Net assets of discontinued operations - 427,292
----------- ----------
Consolidated total assets $ 551,182 $ 1,039,939
=========== ==========
11. Discontinued operations
-----------------------
In June 2002, the Company completed the divestiture of Communications
2000, Inc., dba TEC-networks. Communications 2000, Inc. had annual
sales in 2001 of approximately $3,900,000 and a loss from operations of
approximately $3,300,000. The Company recorded a gain on the
divestiture of Communications 2000, Inc. of $5,522,708.
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