<PAGE>
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, 1999
( ) Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____________ to ______________
Commission file number: 2-98014-D
FIRST COLONIAL VENTURES, LTD.
(Exact name of small business issuer as specified in its charter)
UTAH 87-0421903
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
6033 WEST CENTURY BOULEVARD, SUITE 280, LOS ANGELES, CALIFORNIA 90045
(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 30 days.
Yes No X
----- -----
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 15,216,264 shares outstanding at June 30, 1999
Transitional Small Business Disclosure Format: Yes No X
----- -----
Documents incorporated by reference: None
Total sequentially numbered pages in this document: 17
1
<PAGE>
INDEX
FIRST COLONIAL VENTURES. LTD.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
(a). Balance sheets, First Colonial Ventures, Ltd., June
30, 1999 and December 31, 1998.
(b). Statements of operations, First Colonial Ventures,
Ltd., six months ended June 30, 1999 and 1998.
(c). Statements of operations, First Colonial Ventures,
Ltd., three months ended June 30, 1999 and 1998.
(d). Statements of cash flows, First Colonial Ventures,
Ltd., six months ended June 30, 1999 and 1998
(e). Notes to financial statements
Item 2. Management's discussion and analysis of financial condition
and results of operations
PART II. OTHER INFORMATION
Item 5. Other Information
(a). Incorporation by reference of Schedule 14-C
Information Statement dated September, 1999.
(b). Resolutions adopted by shareholders in June 1999.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE>
FIRST COLONIAL VENTURES, LTD.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Investments at fair value (cost $512,212
at 6/30/99 and $752,208 at 12/31/98) $ 119,039 $ 281,000
Notes receivable 88,380 --
Cash 46,913 --
Other assets 208,699 16,068
----------- -----------
$ 463,031 $ 297,068
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Outstanding checks in excess of cash in bank $ -- $ 3,493
Notes payable 854,253 699,453
Accounts payable and accrued liabilities 450,874 468,274
Management fees payable to officer 427,520 375,220
----------- -----------
Total Liabilities 1,732,647 1,546,440
----------- -----------
Stockholders' Deficit:
Common stock; $.001 par value; authorized
500,000,000 shares; outstanding 15,216,264
shares at 6/30/99 and 15,516,264 at 12/31/98 15,216 15,516
Preferred stock; no par value; authorized
10,000,000 shares; none outstanding -- --
Additional paid in capital 9,758,935 9,758,935
Convertible note payable -- --
Accumulated deficit:
Pre-Business Development Company (3,508,063) (3,508,063)
Net realized investment losses (7,064,496) (7,044,552)
Net unrealized investment losses (471,208) (471,208)
----------- -----------
Total Stockholders' Deficit (net asset
value per share ($.08) at 6/30/99 and
12/31/98) (1,269,616) (1,249,372)
----------- -----------
$ 463,031 $ 297,068
----------- -----------
----------- -----------
</TABLE>
3
<PAGE>
FIRST COLONIAL VENTURES, LTD.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Six Months Ended
-------------------------------
June 30 June 30
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Management fees $ -- $ 90,000
Gain on investments 165,939 --
Interest and other 42,477 --
--------- ---------
Total revenues 208,416 90,000
--------- ---------
Investment expense:
Loss on investments -- 292,953
Salaries and management fee 122,654 195,592
Other general and administrative expenses 33,690 43,743
Legal and accounting fees 48,392 18,750
Loan fees 15,277 --
Depreciation expense 1,575 1,864
Interest expense 5,972 14,333
--------- ---------
Investment expenses 227,560 567,235
--------- ---------
Net investment loss before
provision for income taxes (19,144) (477,235)
Provision for income taxes (800) (800)
--------- ---------
Net investment loss $ (19,944) $(478,035)
--------- ---------
--------- ---------
Net loss per share $ -- $ (.02)
--------- ---------
--------- ---------
</TABLE>
4
<PAGE>
FIRST COLONIAL VENTURES, LTD.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended
------------------------------
June 30 June 30
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Management fees $ -- $ 45,000
Gain on investments 131,939
Interest and other 25,168 --
--------- ---------
Total revenues 157,107 45,000
--------- ---------
Investment expense:
Loss on investments -- 156,321
Salaries, consulting, and management fee 63,248 98,204
Other general and administrative expenses 18,679 20,867
Legal and accounting fees 41,517 11,875
Loan fees 15,277 --
Depreciation expense 700 1,866
Interest expense 5,294 220
--------- ---------
Investment expenses 144,715 289,353
--------- ---------
Net investment income (loss) before
provision for income taxes 12,392 (244,353)
Provision for income taxes -- --
--------- ---------
Net investment income (loss) $ 12,392 $(244,353)
--------- ---------
--------- ---------
Net income (loss) per share $ -- $ (.02)
--------- ----------
--------- ----------
</TABLE>
5
<PAGE>
FIRST COLONIAL VENTURES, LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Six Months Ended
-------------------------------
June 30 June 30
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net investment loss $ (19,944) $(478,035)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 1,575 1,864
Loss on equipment sold 4,268 --
Deposit (851) --
Prepaid expenses (197,623) --
Increase in accounts payable
and accrued liabilities 34,900 187,514
--------- ---------
Net cash (used) in operating activities (177,675) (288,657)
--------- ---------
Cash flows from investing activities:
Sale of STS investment to Auckland 81,000
Receipt of Auckland note receivable (102,000) --
Collection of Auckland note 13,620 --
Sale and disposal of Legal Club stock 88,461 --
Advances to Communications 2000 (7,500) --
Advances to STS -- (96,000)
Purchase of equipment -- (4,793)
--------- ---------
Net cash provided (used) in investing activities 73,581 (100,793)
--------- ---------
Cash flows from financing activities:
Paid in capital -- 265,381
Common stock issued (retired) (300) 3,070
Borrowing 544,800 12,025
Repayment of bank debt (390,000) --
Borrowing - related party -- 109,581
--------- ---------
Net cash provided in financing activities 154,500 390,057
--------- ---------
Net increase in cash 50,406 607
Cash - Beginning of period (3,493) 689
--------- ---------
Cash - End of period $ 46,913 $ 1,296
--------- ---------
--------- ---------
</TABLE>
6
<PAGE>
FIRST COLONIAL VENTURES, LTD
STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
For The Six Months Ended
-------------------------------------------
June 30 June 30
1999 1998
------------------ ----------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information -
Cash paid during the period:
Interest $ -- $ --
------------------ -----------------
------------------ -----------------
Income taxes $ -- $ --
------------------ -----------------
------------------ -----------------
</TABLE>
7
<PAGE>
FIRST COLONIAL VENTURES, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE A - UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements have been prepared in conformity with
generally accepted accounting principles and include all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods presented. All such adjustments are, in the
opinion of management, of a normal recurring nature. Results of operations
for the six-month period ended June 30, 1999 are not necessarily indicative
of the operating results to be expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's annual report on Form 10-KSB for the year ended December 31,
1997 and, when filed, December 31, 1998.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
DESCRIPTION OF THE COMPANY: First Colonial Ventures, Ltd. (the "Company" or
"FCVL"), is a "Business Development Company" (a "BDC") as that term is defined
in the Small Business Investment Incentive Act of 1980, which Act is an
amendment to the Investment Company Act of 1940. The Company acquires ownership
interests in business opportunities.
BUSINESS DEVELOPMENT COMPANY REPORTING: The financial statements include only
the accounts of FCVL because, pursuant to industry practice, an investee of a
business development company is not consolidated unless such investee is a small
business investment company or a wholly owned business development company.
The fair value method of investment valuation provides for FCVL's board of
directors to be responsible for valuation of the Company's investments,
including notes receivable. Fair value is the estimated amount that
reasonably could be expected to be realized in a current arm's length sale.
Investments are carried at fair value using the cost or appraisal methods.
Financial statement account categories such as investments and notes
receivable, which relate to the Company's operations as a BDC, are included
as operating activities in the statement of cash flows.
"Net Asset Value Per Share" is computed by dividing total stockholders'
equity by the number of common shares outstanding at the end of the period.
8
<PAGE>
BASIS OF PRESENTATION: The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. The Company and
its investees sustained operating losses for several years and require
substantial amounts of working capital in their operations. At June 30, 1999,
liabilities exceed assets by $1,270,000. The Company does not have an
investee with current operations. The Company continues to have difficulty in
meeting its obligations as they become due. The Company's cash flow for the
quarter ended June 30, 1999, was not sufficient to meet current operating
requirements and the Company continues to have difficulty making satisfactory
progress toward liquidating its past due obligations. Creditors have recorded
judgments against the Company. The ability of the Company to acquire
profitable operations and generate sufficient positive cash flow is dependent
upon obtaining additional capital and/or sale of remaining investments. The
Company's financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
CASH: Cash includes only cash in unrestricted bank accounts.
INCOME TAXES: Income taxes are accounted for using an asset and liabilities
approach. Under this method, deferred income tax assets and liabilities are
computed for differences between the financial statement carrying amounts and
their tax bases that will result in taxable or deductible amounts in the
future using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the period
plus or minus the change in deferred tax assets and liabilities.
NET LOSS PER SHARE: Net loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding during the period.
Preferred stock is not considered to be a common stock equivalent.
SIGNIFICANT RISKS AND UNCERTAINTIES: The process of preparing financial
statements in conformity with generally accepted accounting principles
requires the use of estimates and assumptions relating to the reporting of
assets and liabilities and the reported amounts for revenues and expenses.
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.
NOTE C - INVESTMENTS
Investments included the following at June 30, 1999 and December 31, 1998:
9
<PAGE>
<TABLE>
<CAPTION>
Cost and/
Shares or equity Fair Value
------- ---------- -----------
<S> <C> <C> <C>
AT JUNE 30, 1999:
Controlled (50%) portfolio company:
Gulf Coast Hotels, Inc.
Common stock (at cost) 1,875 $ 209,782 $ --
Advances (at cost) 85,000 --
Other portfolio companies:
Communications 2000, Inc.
Advances (at cost) 7,500 7,500
And In Justice For All, Inc.
Common stock (appraised value) 362,500 209,930 111,539
---------- ----------
Investments June 30, 1999 $ 512,212 $ 119,039
---------- ----------
---------- ----------
AT DECEMBER 31, 1998:
Controlled (50%) portfolio company:
Gulf Coast Hotels, Inc.
Common stock (at cost) 1,875 $ 209,782 $ --
Advances (at cost) 85,000 --
Other portfolio companies:
STS Communications
Advances (at cost) 81,000 81,000
And In Justice For All, Inc.
Common stock (appraised value) 650,000 376,426 200,000
---------- ----------
Investments December 31, 1998 $ 752,208 $ 281,000
---------- ----------
---------- ----------
</TABLE>
During 1998 the Company closed its operating investees due to continuing losses.
Closed were Acclaim Studios, Acclaim Productions, and Contemporary Resources.
Also during 1998 the Company wrote off various other investments due to lack of
working capital. For the most part, these other investments had already been
reserved by previous charges to Accumulated Unrealized Losses. Accordingly, the
1998 write offs consisted of reclassification from unrealized losses to realized
losses, plus additional realized losses from 1998 advances made by the Company
to these investees.
At December 31, 1998, the Company's remaining investments included the Gulf
Coast Hotels project, cash advances to STS Communications, and the investment in
And In Justice For All (the "Legal Club") common stock.
10
<PAGE>
Gulf Coast Hotels - In 1994 Gulf Coast Hotels (a non-public Mississippi
corporation) acquired the rights to approximately 1.4 acres in Biloxi,
Mississippi, for the purpose of developing a high-rise condominium on the
site. Negotiations began approximately two years ago for the transfer of
these rights to a development group in exchange for cash plus a minority
interest in the group. Although tentative agreement has been reached several
times, there have been various obstacles including water rights, sewer
limitations, and undisclosed liens against the property, which have prevented
closing the deal. Due to the uncertainties involved, the investment was fully
reserved in 1997 by a charge to unrealized losses. Management believes that
eventually the project will go forward and continues to support resolution of
the obstacles.
STS Communications - During 1998, the Company made cash advances totaling
$96,000 to STS Communications (a non-public California corporation) in an
agreement whereby the Company would eventually acquire as much as 50% of STS.
Later during 1998, STS was acquired by Auckland Entertainment, LLC, a
non-public California limited liability company. In March 1999, a Settlement
Agreement was reached between the Company and Auckland whereby Auckland would
pay to the Company a total of $130,000, in the form of a note payable, as
complete payment for the Company's interests in STS Communications. Also see
Note D.
Legal Club - During 1996 and 1997, the Company acquired 650,000 shares of
common stock of the Legal Club, a nationwide membership organization
providing access to attorney services at discounted rates. During 1998 the
Legal Club became a public company trading over-the-counter. The Legal Club
shares owned by the Company were issued pursuant to Rule 144 and do not
become "free trading" until December 1999. Although bid and ask prices for
Legal Club common stock are available, financial statements for the Legal
Club are not available. Accordingly, the Company valued its Legal Club
investment based upon management's appraisal. On June 7, 1999, the Company
paid out 250,000 shares of its Legal Club common stock as a loan fee, and
assigned 337,500 shares and pledged an additional 25,000 shares of Legal Club
common stock as collateral for a loan and legal fees. The loan agreement
provides for an "orderly liquidation" of the Legal Club shares held as
collateral commencing December 1999 to repay the loan (also see Note F under
Foothill Bank).
NOTE D - NOTES RECEIVABLE
Notes receivable included the following at June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June December
1999 1998
------------- -------------
<S> <C> <C>
RABO - Installment note dated 1994
for the original amount of $88,000;
secured by assets and personal
guarantee; payable $2,000 monthly
including interest at 10% per annum $ 58,000 $ 60,000
11
<PAGE>
Less: valuation reserve (58,000) (60,000)
AUCKLAND - Installment note
dated 3/16/99 in the original amount
of $130,000; secured by equipment;
payable monthly per schedule; plus
interest at 10% per annum 88,380 --
------------- -------------
Notes Receivable $ 88,380 $ --
------------- -------------
------------- -------------
</TABLE>
Payments made by Rabo or Auckland and received by the Company after June 7,
1999, are to be split 65% to the Company and 35% to a law firm. This Company
agreed to split payments received as part of the terms of the loan negotiated
on June 7, 1999, discussed in greater detail under "Foothill Bank" in Note F.
NOTE E - OTHER ASSETS
At June 30, 1999 and December 31, 1998, other assets included the following:
<TABLE>
<CAPTION>
June December
1999 1998
--------- ---------
<S> <C> <C>
Deposits $ 3,177 $ 2,326
Office equipment (at cost) 21,205 25,998
Accumulated depreciation (13,306) (12,256)
Prepaid consulting contract 18,750 --
Prepaid loan fee 178,873 --
--------- ---------
Other assets $ 208,699 $ 16,068
--------- ---------
--------- ---------
</TABLE>
Prepaid consulting contract - The Company entered into a six-month consulting
contract at a total cost of $25,000 in connection with the loan acquired on
June 7, 1999, discussed in greater detail in Note F under Foothill Bank. The
cost of this contract was recorded as a prepaid expense and is being written
off to expense ratably over the six-month term of the contract from June
through November 1999.
Prepaid loan fee - The Company paid as a loan fee 250,000 shares of its Legal
Club common stock to obtain the loan acquired on June 7, 1999, discussed in
greater detail in Note F under Foothill Bank. The Company determined that
these shares had a fair value of $191,650 and recorded this amount as a
prepaid loan fee. The loan fee is being written off to expense ratably over
the fifteen-month term of the loan from June 1999 through August 2000.
NOTE F - NOTES PAYABLE
12
<PAGE>
Notes payable consisted of the following at June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June December
1999 1998
---------- ----------
<S> <C> <C>
Private Investor - demand note dated
4/29/94 plus interest at 2% over Bank
of America prime rate $ 309,453 $ 309,453
Investment Group - note dated 6/07/99
due 8/31/00 plus interest at 10% per
annum secured by assets of the Company 525,000 --
Note secured by equipment dated 4/11/99
payable $461 monthly including
interest due March 2004 19,800 --
Foothill Bank - guarantee of loan
to Contemporary Resources -- 390,000
---------- ----------
Notes payable $ 854,253 $ 699,453
---------- ----------
---------- ----------
</TABLE>
Private Investor Demand Note - In December 1997, the Company issued 150,000
shares of its common stock to the private investor under an agreement whereby
the Company would payoff the note with shares of its stock. The Company
guaranteed the private investor that proceeds received from future sale of
the investor's FCVL stock would be sufficient to payoff the note in full. The
private investor accepted the shares of FCVL common stock but did not sign
the agreement.
Foothill Bank/Investment Group - The Company guaranteed the asset based line
of credit extended by Foothill Independent Bank to Contemporary Resources.
Since the closure of Contemporary, the bank has looked to the Company to
honor its guarantee and payoff the line of credit. On June 7, 1999, the
Company arranged for a loan in the amount of $525,000 and used the proceeds
to payoff the Foothill Bank line of credit, to pay certain legal and
consulting fees, and for working capital. Terms of the new loan included a
loan fee of 250,000 shares of Legal Club common stock that was tendered to
the lender. Also, the Company assigned 337,500 shares and pledged an
additional 25,000 shares of Legal Club common stock as collateral for the
loan and legal fees. The loan plus interest at 10% per annum is due August
31, 2000. Notwithstanding the loan due date, the loan agreement provides for
an "orderly liquidation" of the Legal Club shares commencing December 1999 to
repay the loan.
NOTE G - MANAGEMENT FEE PAYABLE TO OFFICER
The Company pays a monthly management fee of $13,750 to its president pursuant
to a month-to-month management agreement. For the past several years, the
Company has
13
<PAGE>
been unable to pay the fee in full. Accordingly, this accrued liability
represents amounts earned, but not yet paid to the Company's president.
NOTE H - COMMON STOCK
On January 1, 1999, the Company entered into an agreement to acquire 100% of
the outstanding shares of Communications 2000, a non-public California
corporation that sells and installs telephone and other communication
equipment and systems. The Company will exchange a note convertible into
2,000,000 shares of FCVL common stock for all of the outstanding shares of
Communications 2000. The note is convertible on or after March 31, 2000. The
Company may rescinded the agreement if Communications 2000 does not meet
certain financial goals, and Communications 2000 may rescind the agreement if
the Company's common stock is not trading at or above one dollar by March 31,
2000.
The Company cancelled 300,000 shares of common stock during the first quarter
of 1999. These shares had been issued to TND Medical in connection with the
Company's acquisition of TND, and were cancelled due to the Company's
termination of its investment in TND.
NOTE I - INCOME TAXES
Deferred income taxes consisted of the following at June 30, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
June December
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers $ 2,230,000 $ 2,220,000
Unrealized losses 165,000 165,000
----------- -----------
2,395,000 2,385,000
Valuation allowance (2,395,000) (2,385,000)
----------- -----------
Net deferred income taxes $ -- $ --
----------- -----------
----------- -----------
</TABLE>
The Company had net operating loss carryovers as of December 31, 1998 of
approximately $ 6,800,000 available to offset future taxable income, if any.
In the event of ownership changes aggregating 50% or more in any three-year
period, the amount of loss carryovers that become available for utilization
in any year may be limited. If not utilized against future taxable income,
the tax loss carryovers will expire in the years 1999 through 2010. The
consolidated tax returns of the Company are filed in the name of Contemporary
Resources as a result of the original reverse purchase of the assets of FCVL
in 1987 by Contemporary Resources.
NOTE J - LEGAL MATTERS
14
<PAGE>
The president of the Company, along with several other individuals, has been
indicted by the United States District Court, Southern District of New York,
alleging conspiracy, securities fraud, and wire fraud. The president denies
the allegations and is vigorously defending the matter.
In addition during 1997, the United States Securities and Exchange Commission
began a private investigation of the Company in connection with its financial
reporting practices. The investigation has not yet been completed and no
formal allegations have been charged. The Company does not believe it has
violated any securities rules and regulations.
Item 2. Management's discussion and analysis of financial condition
and results of operations.
GENERAL
The Company was formed for the purpose of acquiring ownership interests in
business opportunities. During 1998, the Company closed its operating
investees, Acclaim Studios, Acclaim Productions, and Contemporary Resources,
and currently owns only passive investments.
The following discussion is based on the unaudited financial statements
contained elsewhere in this report. The unaudited financial statements have
been prepared in conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going concern. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classifications of the liabilities that may result from the
possible inability of the Company to continue as a going concern. See Note B
of Notes to the Financial Statements.
RESULTS OF OPERATIONS
REVENUES -
Management fees - The Company received revenues in the form of
management fees charged to its operating investees for whom the company
provided management, clerical, and accounting services. The Company charged
such management fees to investees during the first and second quarters of
1998. However, during the third quarter 1998 the Company discontinued
charging its management fees as it became apparent operations at the subject
investees would cease. No management fees have been changed in 1999.
Gain on investments - Gain on investments totaled $165,939 for the
six months ended June 30, 1999. The gain was $34,000 from settlement of the
STS investment, $17,212 from the sale of 25,000 shares of the Legal Club
common stock, plus $114,727
15
<PAGE>
gain on the 250,000 shares of Legal Club common stock exchanged as a loan fee
(see Note F under Foothill Bank). As also discussed in Note E, the Company
determined the Legal Club shares tendered as a loan fee had a fair value of
$191,650. These shares had a book value of $76,923. The Company recorded the
difference as a gain on the investment and recorded the loan fee of $191,650
to prepaid expenses subject to write off to expense over the fifteen-month
term of the loan.
Interest and other - Recoveries of advances to Contemporary
Resources and Acclaim in the amount of $40,097 plus interest of $2,380 were
recorded as revenues for the six months ended June 30, 1999.
LOSS ON INVESTMENTS - For 1998 this loss represents the write-off of advances
made principally to Acclaim and Contemporary Resources. Since the operating
investees were closed by December 31, 1998, no additional advances were made
during 1999, thus no additional loss occurred.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES - Other administrative expenses
declined for the quarter and six months ended June 30, 1999 compared with the
prior periods. Expenses declined because employees were discharged and
expenses cut back in conjunction with closure of the Company's operating
investees.
LEGAL AND ACCOUNTING FEES - For the quarter and six months ended June 30,
1999, legal fees were higher than the prior periods. The Company incurred
such legal fees in connection with the stockholders' meeting and in
connection with documentation of the new loan and payoff of Foothill Bank.
LIQUIDITY AND CAPITAL RESOURCES - Currently, the Company's principle sources
of liquidity are from collection on the Rabo and Auckland notes receivable,
and from collection of old trade receivables from Acclaim and Contemporary
Resources. The Company's long-term strategy is to seek acquisitions in the
communications and internet industries that will provide cash flow and a
capital base.
CENTURY DATE CHANGE COMPLIANCE
The century date change (CDC) issue results from computer programs that
cannot differentiate between the year 1900 and the year 2000 because they
were written using two digits rather than four to define the applicable year;
accordingly computer systems that have time-sensitive calculations may not
properly recognize the year 2000. The Company has conducted an initial review
of its computer systems to identify whether the system is CDC compliant. The
computer equipment and software currently used by the Company is an older
generation and will be affected by the CDC problem. The Company purchased a
current generation system and new software, and will replace the existing
system before December 31, 1999.
PART II. OTHER INFORMATION
16
<PAGE>
Item 5. Other Information.
(a) Information statement pursuant to 14(c) of the Securities Exchange Act of
1934 was filed September 1999 and is hereby incorporated by reference.
(b) Stockholders of the Company met in June 1999 and adopted all resolutions
proposed by the board of directors as set forth in the Information Statement.
Pursuant to this meeting of stockholders, the Company changed its name to Nova
Communications, Ltd., changed its state of incorporation to Nevada, changed its
federal identification number to 95-4756822, and terminated its Business
Development Company status.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 512212
<INVESTMENTS-AT-VALUE> 119039
<RECEIVABLES> 88380
<ASSETS-OTHER> 255612
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 463031
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</TABLE>
