UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 2003
/ / Transition Report under 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.
(Exact name of small business issuer as specified in its charter)
Nevada 95-4756822
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
370 Amapola Ave., Suite 202, TORRANCE, CA 90501
(Address of principal executive offices)
Issuer's telephone number including area code: (310) 642-0200
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports;) and (2)
has been subject to such filing requirements for the past 90 Days:
Yes /X/ No / /
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock: $.001 par value 295,731,368 shares outstanding at June 30, 2003.
Documents incorporated by reference: Reports on Form 8K were filed during the
period covered by this report on April 18, 2003 and May 9, 2003.
Total sequentially numbered pages in this document: 24
1
INDEX
NOVA COMMUNICATIONS LTD.
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS JUNE 30, 2003 (UNAUDITED) AND DECEMBER 31, 2002
(AUDITED)
(a) Consolidated Balance Sheets, June 30, 2003 (unaudited) and
December 31, 2002 (audited).
(b) Statements of Operations and Comprehensive Loss for the Six
Months Ended June 2003 and 2002 (unaudited).
(c) Statements of Operations and Comprehensive Loss for the Three
Months Ended June 2003 and 2002 (unaudited).
(c) Notes to Consolidated Financial Statements.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 3. CONTROLS AND PROCEDURES
The Company's President and Chief Executive Officer is satisfied with
the effectiveness of the Company's internal controls and procedures, as defined
in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934 based on
an evaluation of said controls and procedures.
PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
2
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
NOVA COMMUNICATIONS LTD.
Consolidated Balance Sheets
June 30 December 31
2003 2002
(Unaudited) (Audited)
-------------- --------------
ASSETS
Current assets:
Cash $ 79,427 $ 161,129
Accounts receivables, less allowance for uncollectible
accounts of $20,224 in 2003 and $38,015 in 2002 7,334 28,003
Notes receivable 26,873 31,276
Prepaid expenses and deposits 58,123 21,123
Available-for-sale investments 32,625 32,625
-------------- --------------
Total current assets 204,382 274,156
Equipment, net 175,349 194,401
Other assets:
Goodwill, less accumulated amortization of $46,063
in 2003 and $37,688 in 2002 71,187 79,562
Deposits 1,478 3,063
-------------- --------------
Total other assets 72,665 82,625
-------------- --------------
$ 452,396 $ 551,182
============== ==============
See accompanying notes.
3
NOVA COMMUNICATIONS LTD.
Consolidated Balance Sheets (continued)
June 30 December 31
2003 2003
(Unaudited) (Audited)
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
Current liabilities:
Accounts payable $ 322,398 $ 420,427
Payable to related parties 11,611 27,121
Accrued payroll and payroll related liabilities 217,390 255,368
Customer deposits 25,340 24,538
Income taxes payable - 1,600
Other accrued liabilities 144,577 46,859
Other accrued liabilities to related parties - 297,197
Long-term obligations, due within one year 258,610 118,586
-------------- --------------
Total current liabilities 979,926 1,191,696
Long-term obligations 753,927 863,218
Notes payable to related parties - 625,000
Commitments
Net capital deficiency:
Preferred stock; no par value; authorized 10,000,000 shares - -
Common stock; $.001 par value; authorized 500,000,000 shares; outstanding
295,731,368,shares in 2003 and 46,958,180 shares in 2002 295,731 46,958
Additional paid-in capital 16,686,730 13,797,842
Retained deficit (17,798,786) (15,508,400)
Unrealized holding loss from available-for-sale
investments (465,132) (465,132)
-------------- --------------
Net capital deficiency (1,281,457) (2,128,732)
--------------- ---------------
$ 452,396 $ 551,182
=============== ===============
See accompanying notes.
4
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Loss
For The Six Months
Ended June
(Unaudited)
2003 2002
--------------- --------------
Revenues $ 2,982,562 $ 4,172,423
Cost of revenues 2,494,335 3,580,902
--------------- --------------
Gross margin 488,227 591,521
Operating expenses:
Selling 133,930 194,076
Operating 220,109 251,148
General and administrative 557,320 233,170
Consulting Fees (Paid by stock) 1,835,464 587,399
--------------- --------------
Total operating expenses 2,746,823 1,265,793
--------------- --------------
Loss from operations (2,258,596) (674,272)
Other income (expenses):
Loan fees - -
Interest, net (31,790) (53,901)
--------------- --------------
Total other income (expenses) (31,790) (53,901)
--------------- --------------
Loss before provision (benefit) for income taxes (2,290,386) (728,173)
Provision (benefit) for income taxes (-) (-)
--------------- --------------
Net loss of continuing operations (2,290,386) (728,173)
Net loss of discontinued operations - (603,491)
Net loss $ (2,290,386) $ (1,331,664)
=============== ==============
Net loss per common share:
Continuing operations $ (.0145) $ (.0190)
=============== ==============
Discontinued operations $ - $ (.0157)
=============== ==============
See accompanying notes.
5
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Loss
For The Six Months
Ended June
(Unaudited)
2003 2002
--------------- --------------
Net loss $ (2,290,386) $ (1,331,664)
Unrealized holding gain (loss) on available-for-sale investments - -
--------------- --------------
Comprehensive loss $ (2,290,386) $ (1,331,664)
=============== ==============
Comprehensive loss per common share $ (.0145) $ (0347)
=============== ==============
See accompanying notes.
6
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Loss
For The Three Months
Ended June
(Unaudited)
2003 2002
--------------- --------------
Revenues $ 1,338,005 $ 2,072,894
Cost of revenues 1,140,226 1,764,730
--------------- --------------
Gross margin 197,779 308,164
Operating expenses:
Selling 56,600 100,836
Operating 105,465 217,616
General and administrative 83,975 34,348
Consulting Fees (Paid by stock) 1,835,464 587,399
--------------- --------------
Total operating expenses 2,081,504 940,199
--------------- --------------
Loss from operations (1,883,725) (632,035)
Other income (expenses):
Loan fees - -
Interest, net (6,534) (25,332)
--------------- --------------
Total other income (expenses) (6,534) (25,332)
--------------- --------------
Loss before provision (benefit) for income taxes (1,890,259) (657,357)
Provision (benefit) for income taxes (-) (-)
--------------- --------------
Net loss of continuing operations (1,890,259) (657,357)
Net loss of discontinued operations - (132,690)
Net loss $ (1,890,259) $ (790,057)
=============== ==============
Net loss per common share:
Continuing operations $ (.0071) $ (.0145)
=============== ==============
Discontinued operations $ - $ (.0029)
=============== ==============
See accompanying notes.
7
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Loss
For The Three Months
Ended June
(Unaudited)
2003 2002
--------------- --------------
Net loss $ (1,890,259) $ (790,057)
Unrealized holding gain (loss) on available-for-sale investments - -
--------------- --------------
Comprehensive loss $ (1,890,259) $ (790,067)
=============== ==============
Comprehensive loss per common share $ (.0071) $ (0174)
=============== ==============
See accompanying notes.
8
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
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 it's 100% owned subsidiary Kadfield, Inc. ("Kadfield"). All
intercompany accounts and transactions have been eliminated.
INTERIM REPORTING: The Company's year-end for accounting and tax purposes
is December 31. In the opinion of management of the Company, the
accompanying consolidated financial statements as of June 30, 2003 and for
the six months then ended contain all adjustments, consisting of only
normal recurring adjustments, except as noted elsewhere in the notes to the
consolidated financial statements, necessary to present fairly its
financial position, results of its operations and cash flows. The
consolidated results of operations for the six months ended June 30, 2003
are not necessarily indicative of the results to be expected for the full
year.
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.
9
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
1. Business and summary of significant accounting policies (continued)
-------------------------------------------------------------------
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.
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
$133,930 for the first six months of 2003 ($194,076 for 2002).
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.
10
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
1. Business and summary of significant accounting policies (continued)
-------------------------------------------------------------------
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
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 157,449,063 for the first six months of 2003
(38,423,479 for 2002). The weighted average number of common stock shares
outstanding was 264,407,336 for the 2nd quarter of 2003 (45,340,058 for
2002). Preferred stock is not considered to be a common stock equivalent.
(Also see Note 7 - Common Stock.)
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 June
30, 2003 had a working capital deficit of $775,544 ($917,540 at December
31, 2002) and a net capital deficiency of $1,281,457 ($2,128,732 at
December 31, 2002). 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. On May 2, 2003, the Company entered into a Letter
Of Intent to merge with PowerSki International, Inc., a privately-held
personal watercraft manufacturer. On August 1, 2003, the Company entered
into a Letter Of Intent to sell its wholly-owned subsidiary, Kadfield, Inc.
dba BuyMicro, to Trimfast Group, Inc. (Pink Sheets: TFRG), a
publicly-traded company based in Deerfield Beach, FL for a total price of
$2 million.
11
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
2. Operations (continued)
----------------------
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.
3. 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:
June 30 December 31
2003 2002
-------------- -------------
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 on December 31, 2002.
12
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
4. Equipment
---------
Equipment consisted of the following:
June 30 December 31
2003 2002
-------------- -------------
Office furniture and equipment $ 99,583 $ 100,834
Computer software 261,750 261,750
-------------- -------------
361,333 362,584
Less accumulated depreciation (185,984) (168,183)
-------------- -------------
Equipment, net $ 175,349 $ 194,401
============== =============
5. Long-term obligations
---------------------
Long-term obligations consisted of the following:
June 30 December 31
2003 2002
-------------- -------------
Note payable and accrued interest payable to
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, borrowings and
accrued interest are due December 2004. $ 753,927 $ 736,427
Capitalized lease obligations 258,610 245,377
-------------- -------------
1,012,537 991,804
Less principal due within one year (258,610) (118,586)
-------------- -------------
Long-term obligations $ 753,927 $ 863,218
============== =============
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
=============
13
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
6. Notes payable to related parties
--------------------------------
Notes payable to related parties was due to Palaut Management, Inc. in
exchange for management consulting services. The note was unsecured,
non-interest bearing, and due June 2004. Close family members of a
stockholder of Nova control Palaut Management, Inc. This debt was exchanged
for common shares of the Company as of March 31, 2003. (See note 8 below.)
7. Common stock
------------
During the second quarter of 2003, the Board of Directors authorized the
issuance of an aggregate of 76,773,188 shares of its common stock of the
Company in exchange professional services. The weighted average issuance
price of the shares was $.0239 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 $1,835,464
during the quarter ended June 30, 2003 as a result of these grants.
On April 10, 2003 and effective as of March 31, 2003, the Company entered
into an Agreement To Convert Debt with Palaut Management, Inc. Under the
terms of this agreement the Company will issue to Palaut Management, Inc.
one hundred million (100,000,000) shares of the Company's common stock. in
exchange for its related party note payable of $625,000, accrued management
fee payable of $297,197 and accrued related party payable of $20,000. The
value of these shares to be issued was in excess on the closing bid price
($700,000) of the Company's shares as quoted on the NASD OTC Bulletin Board
as of the effective date of the agreement.
On April 10, 2003 and effective as of January 1, 2003, the Company entered
into an Employment Agreement with Kenneth D. Owen to serve as its President
and Chief Executive Officer for a period of twelve months at the base
compensation of $180,000 per annum. The Company acknowledged that Mr.Owen
had acted as President and Chief Executive Officer of the Company for the
past twenty-four (24) months without an employment agreement and without
any compensation. In consideration of such past uncompensated services, the
Company agreed to issue to Mr. Owen seventy-two million (72,000,000) shares
of the Company's common stock. This number of shares to be issued was based
on the closing bid price of the Company's shares as quoted on the NASD OTC
Bulletin Board as of the effective date of the agreement.
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
14
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
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.
8. Income taxes
------------
Deferred income taxes consisted of the following:
December 31
2002
-------------
Deferred tax assets
Net operating loss carryover $ 3,828,800
Unrealized losses on investments 158,100
Allowance for uncollectible accounts 12,900
-------------
$ 3,999,800
Valuation allowance for deferred tax assets (3,999,800)
Net deferred income taxes $ -
=============
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
15
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
8. Income taxes (continued)
------------------------
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 March 31, 2003 and December 31, 2002.
9. 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 segments
---------------- ---------------- ----------------
Six Months Ended June 30, 2003
----------------------------------------------------
Revenues $ 7,732 $ 2,974,830 $ 2,982,562
Income (loss) from operations (2,309,528) 27,517 (2,282,011)
Identifiable assets 77,652 303,557 381,209
Capital expenditures - - -
Depreciation and
amortization 354 27,072 27,426
Computer
and
Managerial electronic Total
assistance equipment segments
---------------- ---------------- ----------------
Six Months Ended June 30, 2002
----------------------------------------------------
Revenues $ - $ 4,172,423 $ 4,172,423
Loss from operations (747,854) 21,621 (726,227)
Identifiable assets 90,170 368,222 458,392
Capital expenditures - - -
Depreciation and
amortization 2,525 29,628 32.153
16
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
9. Segment information (continued)
-------------------------------
Reconciliation of the segment information to the consolidated balances for
loss from operations, total assets, and depreciation and amortization are
as follows:
For The Six Months
Ended June 30
2003 2002
--------------- --------------
Segment loss from operations $ (2,282,011) $ (726,227)
Amortization of goodwill (8,375) (1,946)
--------------- --------------
Consolidated loss from operations $ (2,290,386) $ (728,173)
=============== ==============
June 30 June 30
2003 2002
--------------- --------------
Segment identifiable assets $ 381,209 $ 458,392
Goodwill, net 71,187 87,916
--------------- --------------
Consolidated total assets $ 452,396 $ 546,308
=============== ==============
For The Six Months
Ended June 30
2003 2002
--------------- --------------
Segment depreciation and amortization $ 19,051 $ 23,778
Amortization of goodwill 8,375 8,375
--------------- --------------
Consolidated depreciation and amortization $ 27,426 $ 32,153
=============== ==============
17
Item 2 Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
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 six months ended June 30, 2003 and June 30, 2002.
Net loss from continuing operations, comprehensive loss, net loss from
continuing operations per common share and comprehensive loss per common share
Net loss from continuing operations for the six months ended June 30, 2003
was $(2,290,386), a loss increase of ($1,562,213) compared with a loss of
$(728,173) for the same six months of 2002. As a result, net loss from
continuing operations per share for the six months ended June 30, 2003 was
$(.0145), a loss decrease of $.0045 per share compared with a loss of $(.0190)
for the same six months of 2002.
Net loss from continuing operations for the three months ended June 30,
2003 was $(1,890,259), a loss increase of ($1,232,902) compared with a loss of
$(657,357) for the same three months of 2002. As a result, net loss from
continuing operations per share for the three months ended June 30, 2003 was
$(.0071), a loss decrease of $.0074 per share compared with a loss of $(.0145)
for the same three months of 2002.
Comprehensive loss for the six months ended June 30, 2003 was $(2,290,386),
a loss increase of ($958,722) compared with a loss of $(1,331,664) for the same
six months of 2002. As a result, comprehensive loss per share for the six months
ended June 30, 2003 was $(.0145), a loss decrease of $.0202 per share compared
with a loss of $(.0347) for the same six months of 2002.
Comprehensive loss for the three months ended June 30, 2003 was
$(1,890,259), a loss increase of ($1,100,202) compared with a loss of $(790,057)
for the same three months of 2002. As a result, comprehensive loss per share for
the three months ended June 30, 2003 was $(.0071), a loss decrease of $.0103 per
share compared with a loss of $(.0174) for the same three months of 2002.
Revenues, cost of revenues and gross margin
Net revenues for the six months ended June 30, 2003 were $2,982,562, a
decrease of ($1,189,861) compared with $4,172,423 for the same six months of
2002. Cost of revenues for the six months ended June 30, 2003 was $2,494,335, or
83.63% of net revenues. Gross margin for the six months ended June 30, 2003 was
$488,227, a decrease of ($103,294) compared with $591,521 for the same six
months of 2002.
18
Net revenues for the three months ended June 30, 2003 were $1,338,005, a
decrease of ($734,889) compared with $2,072,894 for the same three months of
2002. Cost of revenues for the three months ended June 30, 2003 was $1,140,226,
or 85.22% of net revenues. Gross margin for the three months ended June 30, 2003
was $197,779, a decrease of ($110,385) compared with $308,164 for the same three
months of 2002.
Operating expenses
Operating expenses for the six months ended June 30, 2003 were $2,746,823,
an increase of $1,481,030 compared with $1,265,793 for the same six months of
2002. During 2003 $1,835,464 was recorded as consulting fees that were paid by
share issuance (compared with $587,399 in 2002.) In 2003, operating expenses
included $450,000 in executive salary under an employment agreement with the
Company's President of which $360,000 was in recognition of prior years service.
Without these items, other operating expenses for the six months decreased
($217,035) from 2002 to 2003, as a result of cost reduction efforts.
Operating expenses for the three months ended June 30, 2003 were
$2,081,504, an increase of $1,141,305 compared with $940,199 for the same three
months of 2002. During 2003 $1,835,464 was recorded as consulting fees that were
paid by share issuance (compared with $587,399 in 2002.) In 2003, operating
expenses included $45,000 in executive salary under an employment agreement with
the Company's President. Without these items, other operating expenses for the
2nd quarter decreased ($151,760) from 2002 to 2003, as a result of cost
reduction efforts.
Other income (expenses)
Net interest expense for the six months ended June 30, 2003 was $31,790, a
decrease of ($22,111) compared with $53,901 for the same six months of 2002. Net
interest expense for the three months ended June 30, 2003 was $6,534, a decrease
of ($18,798) compared with $25,332 for the same three months of 2002.
OPERATING STRATEGIES AND COST REDUCTIONS
The Company and its subsidiaries have been hampered in their operations
during 2003 and 2002 by a shortage of working capital. As of March 31, 2003,
172,000 000 shares of the Company's common stock were exchanged for $1,302,197
indebtedness. These shares were issued to parties related to the Company.
Despite engaging the services of several investment bankers and professional
fundraisers during 2002 and 2003, no funds have been raised from the sale of
shares during 2003 to outside parties ($92,000 during 2002). 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 2002 and 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.
19
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 six months ended
June 30, 2002 include the accounts of Communications 2000, Inc. as Net Loss of
Discontinued Operations of $(603,491).
Kadfield, Inc., operating as BuyMicro, was successful in increasing its
lines of credit with its suppliers during 2002. It also has focused a portion of
its business in large systems that are financed under capital lease arrangements
for its customers.
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.
On May 2, 2003, the Company entered into a Letter of Intent with PowerSki
International Corporation regarding a proposed merger between them, whereby, if
consummated, PowerSki International Corporation would merge into the Registrant.
PowerSki International Corporation, a non-reporting company based in San
Clemente, California, manufactures and distributes its own proprietary PowerSki
JetBoard,(TM) a personal lightweight surfboard shaped, motorized watercraft. In
addition, PowerSki International Corporation manufactures its patented
SuperTorque XT (TM) marine engine for use in a variety of engine applications,
including inflatables, catamarans, ultralights, amphibious ATV, kayaks and
military vehicles. Under the Letter of Intent, the parties, among other things,
will be permitted to undertake a due diligence investigation of each others
business, proprieties, customers, financial statements and books and records for
a period of 180 days from the date of the Letter of Intent. Any merger that may
occur will be subject to the terms and conditions of a definitive Merger
Agreement.
On August 1, 2003 the Company announced that it had entered into a Letter
Of Intent to sell its wholly-owned subsidiary, Kadfield, Inc. dba BuyMicro, to
Trimfast Group, Inc. (Pink Sheets: TFRG), a publicly traded company based in
Deerfield Beach, FL for a total price of $2 million. The Letter of Intent calls
for execution of a definitive acquisition agreement once mutual due diligence
reviews are completed, which management expects to take place within 90 days.
20
PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Document
2 Articles and Agreement of Merger Between Nova Communications
Ltd. and First Colonial Ventures, Ltd. - July 21, 1999
(Incorporated by reference)
3(3)(i)(1) First Colonial Ventures, Ltd. Articles of Incorporation - March
25, 1985 (Incorporated by reference)
3(3)(i)(2) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation - August 12, 1985 (Incorporated by reference)
3(3)(i)(3) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation -September 3, 1985 (Incorporated by reference)
3(3)(i)(4) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation -February 3, 1992 (Incorporated by reference)
3(3)(i)(5) Nova Communications Ltd Articles of Incorporation - July 13.
1999 (Incorporated by reference)
3(3)(ii)(1) Bylaws (Incorporated by reference)
(b) Reports on Form 8K were filed during the period covered by this
report on April 18, 2003 and May 9, 2003. (Incorporated by
reference)
21
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: August 18, 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:
August 18, 2003
/s/ KENNETH D. OWEN
-------------------
Kenneth D. Owen President and Director
August 18, 2003
/s/ LESLIE I. HANDLER Treasurer and Director
---------------------
Leslie I. Handler
August 18, 2003
/s/ BRYCE SHERWOOD Director
------------------
Bryce Sherwood
22
FORM 10-QSB CERTIFICATION
I, Kenneth D. Owen, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of June 30, 2003.
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures ( as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date); and
c) presented in this quarterly 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
23
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
quarterly report whether or not there are significant changes in internal
controls or other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 18, 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-QSB for the
period ended June 30, 2003 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: August 18, 2003
By: /s/ KENNETH D. OWEN
----------------------
Kenneth D. Owen,
Chief Executive Officer
24