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 September 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 260,731,368 shares outstanding at September 30,
2003.
Documents incorporated by reference: No reports on Form 8K were filed during the
period covered by this report.
Total sequentially numbered pages in this document: 26
1
INDEX
NOVA COMMUNICATIONS LTD.
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements September 30, 2003 (unaudited) and
December 31, 2002 (audited).
(a) Consolidated Balance Sheets, September 30, 2003 (unaudited)
and December 31, 2002 (audited).
(b) Statements of Operations and Comprehensive Loss for the Nine
Months Ended September 2003 and 2002 (unaudited).
(c) Statements of Operations and Comprehensive Loss for the
Three Months Ended September 2003 and 2002 (unaudited).
(c) Notes to Consolidated Financial Statements.
Item 2 Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
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
September 30 December 31
2003 2002
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 86,640 $ 161,129
Accounts receivables, less allowance for uncollectible
accounts of $23,699 in 2003 and $38,015 in 2002 10,227 28,003
Notes receivable 23,873 31,276
Prepaid expenses and deposits 28,123 21,123
Available-for-sale investments 32,625 32,625
-------------- --------------
Total current assets 181,488 274,156
Equipment, net 166,002 194,401
Other assets:
Goodwill, less accumulated amortization of $50,251
in 2003 and $37,688 in 2002 66,999 79,562
Deposits 1,478 3,063
-------------- --------------
Total other assets 68,477 82,625
$ 415,967 $ 551,182
============== ==============
See accompanying notes.
3
NOVA COMMUNICATIONS LTD.
Consolidated Balance Sheets (continued)
September 30 December 31
2003 2002
(Unaudited) (Audited)
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
Current liabilities:
Accounts payable $ 278,734 $ 420,427
Payable to related parties 13,111 27,121
Accrued payroll and payroll related liabilities 221,814 255,368
Customer deposits 17,837 24,538
Income taxes payable - 1,600
Other accrued liabilities 172,227 46,859
Other accrued liabilities to related parties - 297,197
Long-term obligations, due within one year 264,449 118,586
--------------- ---------------
Total current liabilities 968,172 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 260,731,368,shares in 2003 and 46,958,180 shares in
2002 260,731 46,958
Additional paid-in capital 16,721,730 13,797,842
Retained deficit (17,823,461) (15,508,400)
Unrealized holding loss from available-for-sale
investments (465,132) (465,132)
--------------- ---------------
Net capital deficiency (1,306,132) (2,128,732)
--------------- ---------------
$ 415,967 $ 551,182
=============== ===============
See accompanying notes.
4
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Loss
For The Nine Months
Ended September
(Unaudited)
2003 2002
--------------- ------------
Revenues $3,784,818 $ 6,045,370
Cost of revenues 3,158,295 5,098,709
--------------- ------------
Gross margin 626,523 946,661
Operating expenses:
Selling 150,123 287,661
Operating 276,716 389,761
General and administrative 641,678 334,238
Consulting Fees (Paid by stock) 1,835,464 573,169
--------------- ------------
Total operating expenses 2,903,981 1,584,829
--------------- ------------
Loss from operations (2,277,458) (638,168)
Other income (expenses):
Loan fees - -
Interest, net (37,603) (80,237)
--------------- ------------
Total other income (expenses) (37,603) (80,237)
--------------- ------------
Loss before provision (benefit) for income taxes (2,315,061) (718,405)
Provision (benefit) for income taxes (-) (-)
--------------- ------------
Net loss of continuing operations (2,315,061) (718,405)
Net loss of discontinued operations - (775,336)
Gain on sale of discontinued operations 5,522,708
Net income (loss) $ (2,315,061) $ 4,028,967
============== ============
Net income (loss) per common share:
Continuing operations $ (.0115) $ (.0175)
============== ============
Discontinued operations $ - $ .1154
============== ============
See accompanying notes.
5
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Loss
For The Nine Months
Ended September
(Unaudited)
2003 2002
--------------- -------------
Net income (loss) $ (2,315,061) $ 4,028,967
Unrealized holding gain (loss) on available-for-sale
investments - -
--------------- -------------
Comprehensive income (loss) $ (2,315,061) $ 4,028,967
=============== =============
Comprehensive income (loss) per common share $ (.0115) $ .0980
=============== =============
See accompanying notes.
6
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Loss
For The Three Months
Ended September
(Unaudited)
2003 2002
-------------- -------------
Revenues $ 802,256 $ 1,872,947
Cost of revenues 663,960 1,517,807
-------------- -------------
Gross margin 138,296 355,140
Operating expenses:
Selling 16,193 93,585
Operating 56,607 138,613
General and administrative 84,358 101,068
Consulting Fees (Paid by stock) -
-------------- -------------
(14,230)
Total operating expenses 157,158 319,036
-------------- -------------
Income (loss) from operations (18,862) 36,104
Other income (expenses):
Loan fees - -
Interest, net (5,813) (26,336)
-------------- -------------
Total other income (expenses) (5,813) (26,336)
-------------- -------------
Income (loss) before provision (benefit) for income taxes (24,675) 9,768
Provision (benefit) for income taxes (-) (-)
-------------- -------------
Net income (loss) of continuing operations (24,675) 9,768
Net loss of discontinued operations - (171,845)
Gain on sale of discontinued operations 5,522,708
Net income (loss) $ (24,675) $ 5,360,631
============== =============
Net income (loss) per common share:
Continuing operations $ (.0001) $ .0002
============== =============
Discontinued operations $ - $ .1152
============== =============
See accompanying notes.
7
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Loss
For The Three Months
Ended September
(Unaudited)
2003 2002
-------------- -------------
Net income (loss) $ (24,675) $ 5,360,631
Unrealized holding gain (loss) on available-for-sale
investments - -
-------------- -------------
Comprehensive income (loss) $ (24,675) $ 5,360,631
============== =============
Comprehensive income (loss) per common share $ (.0001) $ .1154
============== =============
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 its 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 September 30,
2003 and for the nine 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 nine months ended September 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 $150,123 for the first nine 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 200,624,785 for the first nine months of
2003 (41,131,144 for 2002). The weighted average number of common stock
shares outstanding was 285,568,325 for the 3rd quarter of 2003
(46,458,181 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
September 30, 2003 had a working capital deficit of $786,684 ($917,540
at December 31, 2002) and a net capital deficiency of $1,306,132
($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 October 5, 2003, the Company announced that it has
executed a binding Memorandum of Understanding to merge with PowerSki.
Per its terms Nova and PowerSki shall enter into an agreement and Plan
of Merger pursuant to which
11
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
2. Operations (continued)
----------------------
PowerSki will be merged into Nova, with Nova being the surviving
corporation. Upon completion of the merger, Nova will change its name
to PowerSki International Corp. In conjunction with executing the
Memorandum of Understanding, management of both companies have
completed due diligence reviews and have determined final terms of the
deal. Subsequent to approval by the PowerSki board of directors and
shareholders, execution of acquisition agreements, and meeting all
terms of the deal, the merger will be consummated.
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 in a stock
transaction. On November 5, 2003, the Company announced that the
estimated closing date of the transaction has been set for December 31,
2003. Trimfast and Nova management have scheduled one of two formal due
diligence review meetings in the California office of Nova
Communications for the week ending Nov. 7, 2003, to move towards
completing the due diligence review process.
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:
September 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
12
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
3. Investments (continued)
-----------------------
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:
September 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 (195,331) (168,183)
-------------- -------------
Equipment, net $ 166,002 $ 194,401
============= =============
5. Long-term obligations
---------------------
Long-term obligations consisted of the following: September 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 264,449 245,377
-------------- -------------
1,018,376 991,804
Less principal due within one year (264,449) (118,586)
-------------- -------------
Long-term obligations $ 753,927 $ 863,218
============== =============
13
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
5. Long-term obligations (continued)
---------------------------------
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 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 third quarter of 2003, Palaut Management, Inc. agreed to
return to the Company for cancellation a total of 90 million shares of
the Company's common stock. A total of 35 million shares were returned
as of September 30, 2003. Palaut Management, Inc. will hold 10 million
shares of common stock after this transaction is completed. (See SEC
Form 8-K filed October 29, 2003.)
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
14
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
5. Common stock (continued)
------------------------
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 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.
15
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
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 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.
16
NOVA COMMUNICATIONS LTD.
Notes To Financial Statements
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
--------------- ------------- --------------
Nine Months Ended September 30, 2003
-----------------------------------------------
Revenues $ 7,767 $ 3,777,051 $ 3,784,818
Income (loss) from operations (2,355,292) 52,794 (2,302,498)
Identifiable assets 74,641 274,327 348,968
Capital expenditures - - -
Depreciation and
amortization 354 40,608 40,962
Computer
and
Managerial electronic Total
assistance equipment segments
--------------- ------------- --------------
Nine Months Ended September 30, 2003
-----------------------------------------------
Revenues $ 120,000 $ 5,925,370 $ 6,045,370
Loss from operations (683,343) (22,139) (705,482)
Identifiable assets 89,666 471,819 561,485
Capital expenditures - - -
Depreciation and
amortization 3,787 31,876 35,663
17
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 Nine Months
Ended September 30
2003 2002
------------- ------------
Segment loss from operations $ (2,302,498) $ (705,482)
Amortization of goodwill (12,563) (12,563)
------------- ------------
Consolidated loss from operations $ (2,315,061) $ (718,045)
============= ============
September 30 September 30
2003 2002
------------- ------------
Segment identifiable assets $ 348,968 $ 561,485
Goodwill, net 66,999 83,750
------------- ------------
Consolidated total assets $ 415,967 $ 645,235
============= ============
For The Nine Months
Ended September 30
2003 2002
------------- ------------
Segment depreciation and amortization $ 28,399 $ 35,663
Amortization of goodwill 12,563 12,563
------------- ------------
Consolidated depreciation and amortization $ 40,962 $ 48,226
============= ============
18
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 nine months ended September 30, 2003 and
September 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 nine months ended September
30, 2003 was $(2,315,061), a loss increase of $(1,596,656) compared with a loss
of $(718,405) for the same nine months of 2002. As a result, net loss from
continuing operations per share for the nine months ended September 30, 2003 was
$(.0115), a loss decrease of $.006 per share compared with a loss of $(.0175)
for the same nine months of 2002.
Net loss from continuing operations for the three months ended
September 30, 2003 was $(24,675), a loss increase of $(34,443) compared with
income of $9,768 for the same three months of 2002. As a result, net loss from
continuing operations per share for the three months ended September 30, 2003
was $(.0001), a loss increase of $(.0003) per share compared with income of
$.0002 for the same three months of 2002.
Comprehensive loss for the nine months ended September 30, 2003 was
$(2,315,061), a loss increase of $(6,344,028) compared with income of $4,028,967
for the same nine months of 2002. As a result, comprehensive loss per share for
the nine months ended September 30, 2003 was $(.0115), a loss increase of
$(.1095) per share compared with income of $.0980 for the same nine months of
2002.
Comprehensive loss for the three months ended September 30, 2003 was
$(24,675), a loss increase of $(5,385,306) compared with income of $5,360,631
for the same three months of 2002. As a result, comprehensive loss per share for
the three months ended September 30, 2003 was $(.0001), a loss increase of
$(.1155) per share compared with income of $.1154 for the same three months of
2002.
Revenues, cost of revenues and gross margin
Net revenues for the nine months ended September 30, 2003 were
$3,784,818, a decrease of $(2,260,552) compared with $6,045,370 for the same
nine months of 2002. Cost of revenues for the nine months ended September 30,
2003 was $3,158,259, or 83.45% of net revenues. Gross margin for the nine months
ended September 30, 2003
19
was $626,523, a decrease of $(320,138) compared with $946,661 for the same nine
months of 2002.
Net revenues for the three months ended September 30, 2003 were
$802,256, a decrease of $(1,070,691) compared with $1,872,947 for the same three
months of 2002. Cost of revenues for the three months ended September 30, 2003
was $663,960, or 82.76% of net revenues. Gross margin for the three months ended
September 30, 2003 was $138,296, a decrease of $(216,844) compared with $355,140
for the same three months of 2002.
Operating expenses
Operating expenses for the nine months ended September 30, 2003 were
$2,903,981, an increase of $1,319,152 compared with $1,584,829 for the same nine
months of 2002. During 2003 $1,835,464 was recorded as consulting fees that were
paid by share issuance (compared with $573,169 in 2002.) In 2003, operating
expenses included $495,000 in executive salary under an employment agreement
with the Company's President of which $360,000 was in recognition of prior
year's service. Without these items, other operating expenses for the nine
months decreased ($438,143) from 2002 to 2003, as a result of cost reduction
efforts.
Operating expenses for the three months ended September 30, 2003 were
$157,158, a decrease of $(161,878) compared with $319,036 for the same three
months of 2002. In 2003, operating expenses included $45,000 in executive salary
under an employment agreement with the Company's President. Without this item,
operating expenses for the 3rd quarter decreased $(206,878) from 2002 to 2003,
as a result of cost reduction efforts.
Other income (expenses)
Net interest expense for the nine months ended September 30, 2003 was
$37,603, a decrease of $(42,634) compared with $80,237 for the same nine months
of 2002. Net interest expense for the three months ended September 30, 2003 was
$5,813, a decrease of $(20,523) compared with $26,336 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
20
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.
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 nine months
ended September 30, 2002 include the accounts of Communications 2000, Inc. as
Net Loss of Discontinued Operations of $(775,336). These statements also include
a Gain on Sale of Discontinued Operations of $5,522,708.
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. In mid-2003, Kadfield, Inc. discontinued its sales under
capital lease arrangements activities as a result of competitive pressures in
the marketplace.
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.
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 October 5, 2003, the Company announced that it has executed a
binding Memorandum of Understanding to merge with PowerSki International, the
designer and manufacturer of the patented PowerSki Jetboard. Per its terms Nova
and PowerSki shall enter into an agreement and Plan of Merger pursuant to which
PowerSki will be merged into Nova, with Nova being the surviving corporation.
Upon completion of the merger, Nova will change its name to PowerSki
International Corp. Prior to execution of the merger, Nova shall provide to
PowerSki working capital funding up to an aggregate amount of $2,000,000, which
will be used to grow the Company and move into high-volume manufacturing of the
PowerSki Jetboard. In conjunction with executing the Memorandum of
Understanding, management of both companies have completed due
21
diligence reviews and have determined final terms of the deal. Subsequent to
approval by the PowerSki board of directors and shareholders, execution of
acquisition agreements, and meeting all terms of the deal, the merger will be
consummated.
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 in a stock
transaction. The Letter of Intent calls for execution of a definitive
acquisition agreement once mutual due diligence reviews are completed. On
November 5, 2003, the Company announced that the estimated closing date of the
transaction has been set for December 31, 2003. Trimfast and Nova management
have scheduled one of two formal due diligence review meetings in the California
office of Nova Communications for the week ending Nov. 7, 2003, to move towards
completing the due diligence review process.
22
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) No reports on Form 8K were filed during the period covered by
this report.
23
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: November 12, 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:
November 12, 2003
/s/ KENNETH D. OWEN President and Director
-------------------
Kenneth D. Owen
November 12, 2003
/s/ LESLIE I. HANDLER Treasurer and Director
---------------------
Leslie I. Handler
November 12, 2003
/s/ BRYCE SHERWOOD Director
------------------
Bryce Sherwood
24
FORM 10-QSB CERTIFICATION
I, Kenneth D. Owen, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of September
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
25
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: November 12, 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 September 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: November 12, 2003
By: /s/ KENNETH D. OWEN
------------------------
Kenneth D. Owen,
Chief Executive Officer
26