SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2004
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
for the transition period from __________ to __________.
Commission File Number: 000-31451
---------
NOVA COMMUNICATIONS, INC.
------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 95-4756822
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 AMAPOLA AVE. # 202, TORRANCE, CALIFORNIA 90501
--------------------------------------------------
(Address of principal executive office) (Zip Code)
(310) 642-0200
----------------
(Issuer's telephone number)
Check whether the issuer: (1) 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 XX No
-------- --------
As of June 30, 2004 , the number of outstanding shares of the issuer's common
stock, $0.001 par value, was 304,931,468 shares.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes [ ] No [X]
1
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS ............................................... 3
Consolidated Unaudited Balance Sheet as of June 30, 2004............ 3
Consolidated Unaudited Statements of Operations for the
Quarters ended June 30, 2004 and March 31, 2003............ 4
Consolidated Unaudited Statements of Cash Flows for the
Quarters ended June 30, 2004 and June 30, 2003............. 5
Notes to Consolidated Financial Statements.......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .............................................. 10
ITEM 3. CONTROLS AND PROCEDURES............................................. 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K..................................... 12
SIGNATURES................................................................... 12
2
PART I - FINANCIAL INFORMATION
NOVA COMMUNICATIONS LTD.
Consolidated Balance Sheets
June 30, December 31,
2004 2003
----------------- -----------------
Assets
Current assets:
Cash $ 2,255 $ 51,451
Note receivable due within one year - 9,557
Current assets of discontinued operations 51,435 51,435
-------------- --------------
Total current assets 53,690 112,443
Equipment, net 1,278 1,278
Equipment of discontinued operations, net 140,221 140,221
Other assets:
Note receivable - 15,317
Advances receivables 723,506 513,506
Other assets of discontinue operations, net 62,811 62,811
-------------- --------------
Total other assets 786,317 591,634
-------------- --------------
$ 981,506 $ 845,576
============== ==============
Liabilities and Net Capital Deficiency
Current liabilities:
Accounts payable $ 146,205 $ 159,637
Payable to related parties - 11,593
Accrued payroll and payroll related liabilities 215,772 392,445
Income taxes payable 2,400 2,400
Other accrued liabilities 82,229 45,902
Convertible notes payable 490,000 490,000
Current liabilities of discontinued operations 393,984 393,984
-------------- --------------
Total current liabilities 1,348,590 1,495,961
Payable to related party 441,232 264,232
Net capital deficiency:
Preferred stock; no par value; authorized 10,000,000 shares - -
Common stock; $.001 par value; authorized 500,000,000 shares; issued and
outstanding 343,981,468 shares in 2004 (255,081,368 shares in 2003) 343,981 255,081
Common stock to be issued 10,000 15,000
Additional paid in capital 21,005,771 18,913,171
Retained deficit (22,168,068) (20,097,869)
-------------- --------------
Net capital deficiency (808,316) (914,617)
-------------- --------------
$ 981,506 $ 845,576
============== ==============
See accompanying notes.
3
NOVA COMMUNICATIONS LTD.
Consolidated Statements of Operations
Three months ended June 30 Six months ended June 30
----------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- ----------------- ----------------- ----------------
Revenues $ 5,550 $ 8 $ 5,550 $ 7,732
Operating expenses 635,922 1,881,588 2,065,976 2,299,119
----------- ------------- ------------- -------------
Net loss from operations (630,372) (1,881,580) (2,060,426) (2,291,387)
Interest expense, net (9,773) (16) (9,773) (18,141)
----------- ------------- ------------- -------------
Net income from continuing operations
before provision for income taxes (640,145) (1,881,596) (2,070,199) (2,309,528)
Provision for income taxes - State of
California - - - -
----------- ------------- ------------- -------------
Net loss from continuing operations (640,145) (1,881,596) (2,070,199) (2,309,528)
Net income (loss) from discontinued
operations - (8,663) - 19,142
----------- ------------- ------------- -------------
Net loss $ (640,145) $ (1,890,259) $ (2,070,199) $ (2,290,386)
=========== ============= ============= =============
Net income (loss) per common share:
Continuing operations $ (.002) $ (.007) $ (.007) $ (.015)
============ ============= ============= =============
Discontinued operations $ - $ - $ - $ -
============ ============= ============= =============
See accompanying notes.
4
NOVA COMMUNICATIONS LTD.
Consolidated Statements of Cash Flows
Three months ended June 30 Six months ended June 30
----------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- ----------------- ----------------- ----------------
Cash flows from operating activities:
Net loss from continuing operations $ (640,145) $ (1,881,596) $ (2,070,199) $ (2,309,528)
Adjustment to reconcile net loss to
net cash used in operating
activities:
Provision for uncollectible note
receivable 16,274 - 16,274 -
Shares issued in exchange for
compensation and services 591,000 1,835,464 1,996,500 2,215,464
Changes in assets and liabilities:
Receivables - 1,834 - 702
Accounts payable (6,024) (81) (7,025) (25,031)
Accrued liabilities 30,564 39,175 39,654 94,956
----------- ------------- ------------- -------------
(8,331) (5,204) (24,796) (23,437)
Cash flows from discontinued
operations - 7,944 - 30,759
Cash flows from investing activities:
Principal repayments on notes
receivable 8,600 3,000 8,600 4,403
Advances paid - - (210,000) -
----------- ------------- ------------- -------------
8,600 3,000 (201,400) 4,403
Cash flows from financing activities:
Advances received from related party 1,000 - 177,000 -
Net financing activities of
discontinued operations - (5,881) - (11,762)
----------- ------------- ------------- -------------
1,000 (5,881) 177,000 (11,762)
----------- ------------- ------------- -------------
Net change in cash 1,269 (141) (49,196) (37)
Cash at beginning of period 986 182 51,451 78
----------- ------------- ------------- -------------
Cash at end of period $ 2,255 $ 41 $ 2,255 $ 41
=========== ============= ============= =============
See accompanying notes.
5
NOVA COMMUNICATIONS LTD.
Consolidated Notes to Financial Statements
June 30, 2004
1. 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.
On July 21, 2003 the Company decided to dispose of Kadfield. Kadfield
has been accounted for as a discontinued operation and the results of
operations have been excluded from continuing operations in the
consolidated statements of operations for all periods presented.
Interim reporting: The Company's year-end for accounting and tax
purposes is December 31. In the opinion of Management, the accompanying
consolidated financial statements as of June 30, 2004 and 2003 and for
the three and six months then ended, 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
results of operations for the three and six months ended June 30, 2004
and 2003 are not necessarily indicative of the results to be expected
for the full year.
Cash flows: 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.
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.
Stock options and warrants: The Company uses a fair value based method
of accounting for stock based compensation to employees.
The Company also accounts for stock options and warrants issued to
non-employees for services under the fair value method of accounting.
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 322,785,864 for the three months ended
June 30, 2004 (264,407,336 for the three months ended June 30, 2003)
and 305,948,501 for the six months ended June 30, 2004 (157,449,063 for
the six months ended June 31, 2003). Common stock to be
6
NOVA COMMUNICATIONS LTD.
Consolidated Notes to Financial Statements
June 30, 2004
1. Summary of significant accounting policies (continued)
Net loss per common share (continued): issued and convertible notes
payable are not considered to be a common stock equivalent as the
effect on net loss per common share would be anti-dilutive.
Use of estimates: 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 collectability of notes
receivable. 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
During 2003, the Company announced their intentions to divest of its
investment in Kadfield, Inc. Also, the Company is currently negotiating
with several companies in which to invest or acquire.
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 as of June 30, 2004 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. Cash flow information
Supplemental schedule of noncash financing activities are as follows:
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Common stock
issued in exchange
for accrued payroll $ 90,000 $ - $ 180,000 $ -
========= ========= ========= =========
Common stock
issued for long-term
obligations to
related parties $ - $ 625,000 $ - $ 625,000
========= ========= ========= =========
4. Advances receivable
The Company has advanced funds to a company for cash flow purposes. The
advances are unsecured, non-interest bearing, and due on demand.
7
NOVA COMMUNICATIONS LTD.
Consolidated Notes to Financial Statements
June 30, 2004
5. Convertible notes payable
The notes payable are due one year from the date of borrowings plus
interest at a rate of 8% per annum and are unsecured. The notes and any
unpaid interest may be convertible into shares of common stock of the
Company at a rate of 75% of the closing bid price of the Company's
common stock on the date of conversion. The notes may be converted at
the option of the Company, but not before six months, and at the option
of the holder, but not before one year, from the date of the notes and
only if certain events have occurred.
6. Payable to related party
The payable to related party is due to a company controlled by the
president of the Company. The advances are unsecured, non-interest
bearing, and due on demand however, this company has agreed not to
demand repayment before June 2005.
7. Preferred stock
The Company's preferred stock may be voting or have other rights and
preferences as determined from time to time by the Board of Directors.
8. Common stock
On January 21, 2004, the Board of Directors authorized the issuance of
6,000,000 shares of common stock of the Company in exchange for
$180,000 of accrued payroll. Management of the Company valued the
shares issued at $.03 per share, the closing bid price of the Company's
common stock on 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.
During the three months ended March 31, 2004, the Company issued an
aggregate of 27,350,000 shares of its common stock in exchange for
consulting and management services aggregating $820,500. Management of
the Company valued the shares issued at $.03 per share, the closing bid
price of the Company's common stock on 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.
On May 14, 2004, the Board of Directors authorized the issuance of
4,500,000 shares of common stock of the Company in exchange for $90,000
of accrued payroll. Management of the Company valued the shares issued
at $.02 per share, the closing bid price of the Company's common stock
on 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.
8
NOVA COMMUNICATIONS LTD.
Consolidated Notes to Financial Statements
June 30, 2004
8. Common stock (continued)
During the three months ended June 30, 2004, the Company issued an
aggregate of 22,550,000 shares of its common stock in exchange for
consulting and management services aggregating $451,000. Management of
the Company valued the shares issued at $.02 per share, the closing bid
price of the Company's common stock on 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.
9. Stock based compensation
During the three months ended March 31, 2004, the Company issued
16,000,000 shares of its common stock to its president and 500,000 to
an employee as compensation for services aggregating $495,000.
Management of the Company valued the shares issued at $.03 per share,
the closing bid price of the Company's common stock on 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.
During the three months ended June 30, 2004, the Company issued
5,500,000 shares of its common stock to its president and 1,500,000 to
an employee as compensation for services aggregating $140,000.
Management of the Company valued the shares issued at $.02 per share,
the closing bid price of the Company's common stock on 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.
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis contains various forward-looking statements
within the meaning of the Securities and Exchange Act of 1934. These statements
consist of any statement other than a recitation of historical fact and can be
identified by the use of forward looking terminology such as "may", "expect",
"anticipate", "estimates", or "continue" or use of negative or other variations
of comparable terminology. We caution that these statements are further
qualified by important factors that could cause actual results to differ
materially from those contained in our forward looking statements, that these
forward looking statements are necessarily speculative, and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in our forward looking statements.
Management's discussion and analysis should be read in conjunction with the
financial statements and the notes thereto.
RESULTS OF OPERATIONS
---------------------
Six months ended June 30, 2004 compared to the six months ended June 30, 2003
-----------------------------------------------------------------------------
and three months ended June 30, 2004 compared to the three months ended June 30,
--------------------------------------------------------------------------------
2003:
On July 21, 2003 the Company decided to dispose of Kadfield. Kadfield has been
accounted for as a discontinued operation and the results of operations have
been excluded from continuing operations in the consolidated statements of
operations for all periods presented. During the three and six months ended June
30, 2004, management has been devoting its efforts toward identifying business
investment and acquisition opportunities. The Company is currently providing
working capital advances to a business opportunity.
Revenues were $5,550 for the six months ended June 30, 2004 compared to $7,732
for the six months ended June 30, 2003. The decrease of $2,182 is a result of
providing more overall management services in 2003.
Revenues were $5,550 for the three months ended June 30, 2004 compared to $8 for
the three months ended June 30, 2003. The increase is a result of providing more
management services during the three months ended June 30, 2004 then during the
three months ended June 30, 2003.
Operating expenses were $2,065,976 for the six months ended June 30, 2004
compared to $2,299,119 for the six months ended June 30, 2003. The decrease of
$233,143 is a result of incurring less outside consulting services during the
six months ended June 30, 2004 by $218,964.
Operating expenses were $635,922 for the three months ended June 30, 2004
compared to $1,881,588 for the three months ended June 30, 2003. The decrease of
$1,245,666 is a result of incurring less outside consulting services during the
three months ended June 30, 2004 by $1,244,464.
10
FINANCIAL POSITION & LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
As of June 30, 2004 compared to December 31, 2003:
-------------------------------------------------
The Company's total assets of $981,506 as of June 30, 2004 increased by $135,930
from those as of December 31, 2003 primarily as a result of two factors. The
Company negotiated a final payment on its notes receivable by reducing the
amount to $8,600 that was received during the three months ended June 30, 2004.
The Company has advanced a business opportunity an aggregate of $210,000 during
the six months ended June 30, 2004.
Payable to related party increased $177,000 during the six months ended June 30,
2004 aggregating $441,232 as of that date. This related party has agreed not to
demand repayment of the advances before August 2005 and unless cash is available
from operations or from a merger, capital stock exchange, asset acquisition, or
other business combination. There can be no assurances that this related party
will continue to provide advances to the Company.
ITEM 3. CONTROLS AND PROCEDURES
As of June 30, 2004 the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and President, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon
that eva1uation, these principal executive officers and principal financial
officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company, including its consolidated subsidiaries, required to be included in the
Company's periodic SEC filings. There have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(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)
31 Rule 13a-14(a)/15d-14(a) Certification
32 Section 1350 Certification
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the period covered by
this report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 16, 2004 NOVA COMMUNICATIONS, INC.
By: /s/ KENNETH D. OWEN
--------------------------
Kenneth D. Owen, President
12