<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from __________________to______________
Commission File Number: 2-98014-D
NOVA COMMUNICATIONS LTD.
(formerly First Colonial Ventures, Ltd.)
----------------------------------------
(Name of small business issuer in its charter)
NEVADA 95-4756822
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3830 DEL AMO BLVD., TORRANCE, CA 90503
---------------------------------------
(Address of principal executive offices)
Issuer's telephone number (310) 642-0200
6033 WEST CENTURY BOULEVARD, SUITE 280, LOS ANGELES, CA 90045
(Former address, if changed since last report)
Securities registered under Section 12 (b) of the Exchange Act:
NONE
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange during the past 12 months (or for such shorter
period that the Company was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days:
YES /X/ NO / /
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB: / /
Issuer's revenues for its most recent fiscal year: 74,218
The aggregate market value of the voting common equity held by non-affiliates
computed by reference to the average bid and asked price of such common equity
as of February 29, 2000 was $1,815,236 at February 29, 2000, based on the
average bid and ask prices during January and February, 2000.
The issuer had 13,496,182 shares of common stock outstanding as of February 29,
2000.
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format: Yes / / No /X/
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
(1) First Colonial Ventures, Ltd. was organized under the laws of the State of
Utah in 1985 for the purpose of acquiring a participating interest in one or
more businesses. Through its year ended December 31, 1994, the Company conducted
business through various wholly owned subsidiaries until electing in 1995 to
become a Business Development Company. In January 1995, the Registrant elected
to become an Investment Company pursuant to the Investment Company Act of 1940.
In June 1995, the Registrant terminated its Investment Company election and
elected to become a Business Development Company, as defined in the Small
Business Investment Incentive Act of 1980, which Act is an amendment to the
Investment Company Act of 1940. The election resulted in the Registrant becoming
a specialized type of Investment Company. Consistent with this change in type of
business entity, during the year ended December 31, 1995, the Registrant changed
its method of financial reporting and valuation of investments from cost to fair
value.
Nova Communications Ltd. (the "Company") was formerly known as First
Colonial Ventures, Ltd. Stockholders of the Company met in June 1999 and voted
to change the name of the Company, change its state of incorporation from Utah
to Nevada, and to terminate its status under the investment Company Act of 1940
as a Business Development Company. Nova Communications Ltd. was never a
Business Development Company or an Investment Company. The Company primarily is
engaged in the business of investing in and providing managerial assistance to
developing companies that, in its opinion, would have a significant potential
for growth. The Company's investment objective is to achieve long-term capital
appreciation, rather than current income on its investments. There is no
assurance that the Company's investment objective will be achieved. Effective
January 1, 1999, the Board of Directors resolved to cease its election to report
its Financial Statements as an investment company pursuant to the Investment
Company Act of 1940.
(c) Narrative Description of Business
(i-xiii)
Nova Communications Ltd. is a company in transition. Contemporary Resources
Inc., a wholly owned subsidiary, was in the midst of a phenomenal growth curve
when the Federal Deposit Insurance Corporation shut down its bank. The loss of
its line of credit crippled Contemporary Resources' ability to continue its
importing operations. Nova (previously known as First Colonial Ventures, Ltd.)
had already embarked on a business plan that included the acquisition of real
estate in Biloxi, MS; oil and gas leases in West Texas; two post-production
houses in Los Angeles, CA; and a Magnetic Resonance Imaging Center in San Diego,
CA. When the investment bankers that had committed to raise capital fell short
of their objective, the Company was forced to liquidate or otherwise dispose of
its investments. Previous to the current fiscal year, the
1
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Company reported its financial condition in the form required by The Investment
Company Act of 1940. The Business Development Company status was terminated
effective January 1, 1999. However, those assets that were previously carried at
cost, minus a valuation reserve, must be reported on the same basis. Certain
other assets were abandoned because the cost of preserving them outweighed the
benefit of their preservation. Other assets were disposed of for cash or notes
receivable.
Nova does not have equity or management control over any of its active
investments and intends to focus its efforts on acquiring takeover candidates
for Communications 2000. None of its investments is treated as subsidiaries.
Our new strategic course is based on our firm belief that business
communications and e-commerce will provide substantial opportunity over the next
five years.
During 1999, the Company acquired an option to acquire 100% of the capital
stock of Communications 2000, Inc., a company involved in providing business
communications systems, for small and large businesses. Communications 2000
(dba Telephone Equipment Company) provides voice, data and video networking
solutions utilizing relationships with Nortel, Panasonic, Internet Connect,
Sound Advantage and others.
During March 1996, in exchange for 400,000 shares of its common stock, the
Registrant acquired a 10% interest in a non-public Florida corporation, And
Justice For All, Inc., which operates a nation-wide membership organization
providing its members with access to attorney services at discounted rate.
During 1997, the Registrant agreed to increase its investment in And Justice
For All, Inc. to a total of 15%. The agreement required the Registrant to issue
an additional 515,235 shares of its common stock and required And Justice For
All, Inc. to assume the Registrant's convertible debenture payable of $210,000
plus accrued interest of approximately $55,000. The agreement further provides
that And Justice For All, Inc. had the option to reacquire the additional 5%
interest from the Registrant for a fixed price of $266,666 at any time prior to
July 31, 1998. The option was not exercised.
During 1999, the Company borrowed $525,000 using the Legal Club And Justice
For All stock as collateral. The lender also bought 287,500 shares of Legal
Club for $28,750. The Company used the proceeds of the loan to repay the
Company's bank loan and for working capital.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive and administrative office is located at 3830 Del Amo
Boulevard, Torrance, California 90503, where the Company utilizes approximately
900 square feet of 10,000 square feet being leased by Communications 2000.
Currently, the Company's monthly rental is $500.
2
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ITEM 3. LEGAL PROCEEDINGS
(a) During the year ended December 31, 1999, neither the Company nor its
subsidiaries were a party to or the subject of any material legal proceedings.
(b) On October 21, 1997, the Securities Exchange Commission obtained an order
directing a private investigation and designating officers to take testimony. On
February 3, 2000, the Company and Murray W. Goldenberg personally, submitted an
Offer of Settlement in this administrative proceeding. On April 10, 2000 the
Commission deemed it appropriate to accept the Offers of Settlement and ordered
that pursuant to Section 9(f) of the Investment Company Act, Section 8A of the
Securities Act and Section 21C of the Exchange Act, FCVL cease and desist from
committing or causing any violation and any future violation of Sections 23(b),
31(a) and 55(a) of the Investment Company Act and Rule 31a-1thereunder, Section
5(a) and 5(c) of the Securities Act and Section 13(a) of the Exchange Act and
Rules 13(a)-1 and 13a-13 hereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security holders
during the fourth quarter of the fiscal year covered by this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information:
The equity securities of the Company have been quoted on the National
Quotation Service Pink Sheets since January 1986, however the stock was unpriced
from July 1989 to October 1994. On October 18, 1994, the Company completed the
documentation necessary to resume trading.
The following table sets forth the range of high and low bid prices during
each quarter for the Company's common stock for the years ending December 31,
1998 and December 31, 1999. These over-the-counter market quotations may
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not represent actual transactions. The 1999 information was obtained on
April 12, 2000 from American On-Line (Standard & Poors Comstock).
<TABLE>
<CAPTION>
1998 SALES PRICES
-----------------
<S> <C> <C>
COMMON STOCK LOW HIGH
- ------------ --- ----
Q1-98 $.125 $1.50
Q2-98 .01 .30
Q3-98 .05 .125
Q4-98 no price .02
</TABLE>
3
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<TABLE>
<CAPTION>
1999 SALES PRICES
-----------------
LOW HIGH
--- ----
<S> <C> <C>
Q1-99 no price $ .01
Q2-99 .01 .25
Q3-99 .07 .25
Q4-99 .05 .26
</TABLE>
(b) Approximate Number
of Record Holders
Title of Class (as of February 29, 2000)
- -------------- ------------------------
Common Stock,
$.001 Par Value 1600
(c) Dividends:
The Company has never paid cash dividends on its common stock. The declaration
and payment of dividends is within the discretion of the Company's board of
directors and will depend, among other factors, on earnings and debt service
requirements as well as the operating and financial condition of the Company. At
the present time, the Company's anticipated working capital requirements are
such that it intends to follow a policy of retaining earnings in order to
finance the development of its business. Accordingly, the Company does not
expect to pay a cash dividend within the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The financial statements for the years ended December 31, 1998 and 1999 are
filed under Item 8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Management's discussion and analysis should be read in conjunction with the
financial statements and the notes thereto. All amounts for 1998 have been
restated as a result of the Company's change in reporting entity effective
January 1, 1998.
RESULTS OF OPERATIONS
Comprehensive income, net loss and net loss per common share
4
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Comprehensive net income for 1999 was $550, an increase of $596,328 compared
with a loss of $(596,328) for 1998. Net loss for 1999 was $(197,911), a loss
decrease of $(4,065,595) compared with a loss of $(4,262,706) for 1998. As a
result, earnings per share for 1999 was $.000, an increase of $.043 per share
compared with a net loss per share of $(.043) for 1998. These amounts increased
for 1999 compared with 1998 primarily as a result of: (1) an increase in net
revenues of $3,687,601, offset by a decrease in unrealized holding gain on
available-for-sale investments of $3,469,267; (2) a decrease in general and
administrative expenses of $72,140; (3) and an increase in other income of
$157,418.
Net revenues and other comprehensive income
Net revenues for 1999 were $74,218, an increase of $3,687,601 compared with
$(3,761,819) for 1998. Management fee income decreased $90,000 as a result of
the closure in 1998 of the investment company for which the Company provided
management services. Net investment income for 1999 was $74,218 derived from
the sale of shares of And in Justice For All, Inc., dba Legal Club of America,
one of the Company's available-for-sale investments. The Company recognized a
net investment loss for 1998 of $(3,851,819) as a result of the divestiture of
several available-for-sale investments. That loss was partially offset by other
comprehensive income that resulted from a decrease in the unrealized holding
losses on these available-for-sale investments that was provided for by the
Company in 1997. Other comprehensive income in 1998 was a result of a decrease
in the unrealized holding loss on And in Justice For All, Inc., dba Legal Club
of America that was sold during the year.
General and administrative expenses
General and administrative expenses for 1999 were $407,922, a decrease of
15.0% compared with $480,062 for 1998. General and administrative expenses
decreased as a result in a reduction in salaries and consulting fees no longer
required to monitor the Company's available-for-sale investment companies as a
result of the divestiture of those investments over the past two years.
Loan fees and net interest income (expense)
Loan fees were incurred in 1999 from the borrowings under notes payable.
Loan fees income resulted from the gain on the transfer of shares of Company's
investment in And in Justice For All, Inc., dba Legal Club of America to the
holder of the note. Net interest income for 1999 was $21,866 compared with net
interest expense of $20,825 for 1998. The Company began receiving interest
income in 1999 from notes receivable it holds from the sale of certain
available-for-sale investments.
FINANCIAL POSITION
Liquidity and capital resources
5
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The Company had a working capital deficit of $(1,050,547) at December 31, 1999
compared with $(953,661) at December 31, 1998. The Company's primary source of
cash in 1999 consisted of proceeds from short-term debt borrowings of $500,000
and principal repayments on notes receivable of $24,668. The Company used this
cash to satisfy a bank loan it had guaranteed for one of its' investment
companies and to reduce its accounts payable by $436,447 during 1999.
Management of the Company believes that adequate capital resources are
available to satisfy its payables and maintain its current operations. Such
sources of capital would include, but not limited to, debt borrowings,
collection of notes receivable and proceeds for sale of its investments.
Capital expenditures
The Company did not incur any capital expenditures in 1999 and incurred only
$4,793 of capital expenditures in 1998. The Company does not expect to incur
significant capital expenditures in 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE-see attached.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements with accountants during the most recent two
fiscal years.
On April 25, 1999, the Company filed Form 8-K reporting the retirement of
Accountant, J. Paul Kenote, P.C., and the appointment of Accountant, Timothy L.
Steers, LLC.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) (b) The following table and text sets forth the names and ages of all
directors and executive officers of the Company and their positions and offices
with the Company as of December 31, 1999. All of the directors will serve until
the next annual meeting of the shareholders and until their successors are
elected and qualified, or until their earlier death, retirement, resignation or
removal. Officers serve at the discretion of the Board of Directors. A brief
description of the business experience of each director and executive officer
during the past five years, and an indication of directorships held by each
director in other companies subject to the reporting requirements under the
federal securities laws are also provided.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) DIRECTOR SINCE
<S> <C> <C> <C>
Murray W. Goldenberg 60 President, Treasurer,
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION(S) DIRECTOR SINCE
<S> <C> <C> <C>
Secretary, and
Director September 1, 1987
Leslie I. Handler 61 Director August 27, 1991
Kenneth D. Owen 35 Director June 28, 1999
</TABLE>
(d) Family Relationships:
There are no family relationships between any director and executive officer, or
person nominated to become a director or executive officer.
(e) (1) Business Experience:
Murray W. Goldenberg - President, Treasurer, Secretary and Director -
Murray W. Goldenberg has been Secretary, Treasurer and a Director of the Company
since September 1, 1987, and President of the Company since October 1, 1988.
Mr. Goldenberg has been a financial consultant to numerous troubled companies in
various industries, including the garment and heavy equipment manufacturing
industries. Mr. Goldenberg has also acted as a trustee in bankruptcy. Mr.
Goldenberg is a Chartered Accountant under the laws of Canada and the Province
of Manitoba.
Leslie I. Handler - Director -
Leslie I Handler has been a Director of the Company since August 27, 1991. From
1988 to 1992, Mr. Handler was president of Far West Commercial Finance
subsidiary of Far West Federal Bank, Portland, Oregon. Mr. Handler is an
experienced senior manager with more than 30 years of experience with asset-
based lending organizations. Since 1993, Mr. Handler has been a consultant to
the banking industry.
Kenneth D. Owen - Director -
Kenneth D. Owen has been a Director of the Company since June 28, 1999. Mr.
Owen has been in the communications industry for 15 years and was previously
vice president of A T & T Business Systems for Southern California. He
currently is president of Communications 2000, a Panasonic Diamond Dealer and an
authorized Nortel Distributor.
(f) Involvement in Certain Legal Proceedings
(2) The Company's President and Chief Executive Officer, Murray W. Goldenberg,
was convicted on December 20, 1999 in the U.S. District Court for the Southern
District of New York. The convictions were based on violations of title 15 USC
78j(b) and 78ff; 17 CFR Section 240.10b-5; Title 18USC 371, 1343, 1346, 1952
(a)(3). The conviction is presently under appeal.
Pursuant to Section 9(f) of the Investment Company Act, Section 8A of the
Securities Act and 21C of the Exchange Act, the Securities and Exchange
Commission
7
<PAGE>
ordered that Goldenberg cease and desist from (1) causing any violation and any
future violation of Sections 23(b), 31(a) and 55(A) of the Investment Company
Act and Rule 31a-1 there under and Section 13(a) of the Exchange Act and Rules
13a-13 there under; and (2) committing or causing any violation and any future
violation of Sections 5(a) and 5(c) of the Securities Act; and
Pursuant to Section 9(b) of the Investment Company Act, Goldenberg is
prohibited from serving or acting as an employee, officer or director, member of
an advisory board, investment adviser or depositor of, or principal underwriter
for, a registered investment company or affiliated person of such investment
adviser, depositor, or principal underwriter.
ITEM 11. EXECUTIVE COMPENSATION
(a) (1)
Cash Compensation Table
<TABLE>
<CAPTION>
Name & Principal Year Principal Annual All Other Compensation
Position Compensation
<S> <C> <C> <C>
Murray W. Goldenberg 1999 $165,000 Nil
President 1998 165,000 Nil
1997 165,000 Nil
1996 165,000 Nil
Leslie I. Handler 1999 - Nil
Director 1998 - Nil
1997 8,275 Nil
1996 - Nil
</TABLE>
Compensation Arrangements:
During the year ended December 31, 1999, Murray W. Goldenberg was compensated
pursuant to a month-to-month consulting agreement. Compensation to Mr.
Goldenberg pursuant to this consulting agreement will be approximately $165,000
for the year ending December 31, 1999, exclusive of any bonus that may be paid.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared
8
<PAGE>
voting power (including the power to vote or direct the vote) and/or sole or
shared investment power (including the power to dispose of or direct the
disposition of) with respect to a security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws.
As of December 31, 1999, the Company had authorized 500,000,000 shares of its
common stock, $.001 par value (the "common stock"), 13,496,182 shares of which
were issued at December 31, 1999, and 10,000,000 shares of its preferred stock,
no par value, none of which were issued. The Company's Board of Directors has
the authority, without approval of the shareholders, to issue all or any portion
of the authorized shares of preferred stock in one or more series, and to
determine the preferences as to dividends, redemption and liquidation,
conversion rights, and other rights of such series, which may carry rights
superior to those of the common stock. The holders of shares of preferred stock
shall not have any voting rights except as specifically required by law.
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of January 31, 2000. Listed below are (a) the
name and address of each beneficial owner of more than five percent (5%) of the
Company's common stock known to the Company, the number of shares of common
stock beneficially owned by each such person or entity, and the percent of the
Company's common stock so owned; and (b) the number of shares of common stock of
the Company beneficially owned, and the percentage of the Company's common
stock so owned, by each director and by all directors and officers of the
Company as a group. Each such person or entity has sole voting and investment
power with respect to the shares of common stock, except as otherwise indicated.
Beneficial ownership consists of a direct interest in the shares of common
stock, except as otherwise indicated.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Shares of
Common Stock
<S> <C> <C>
Murray W. Goldenberg 23,707 (1) *
President, Treasurer,
Secretary and Director
8515 Falmouth Ave. #315
Playa del Rey
California 90293
Leslie I. Handler 51,622 (2) *
Director
1108 Via Zumaya
Palos Verdes Estates
California 90274
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Shares of
Common Stock
<S> <C> <C>
Kenneth D. Owen 195,000 1.44%
31913 Taylor Road
Thousand Palms
California 92276
All Directors and 270,329 2.00%
Officers as a Group
(3 persons)
YPE, Inc. 1,116,668 8.27%
6151 W Century Blvd. #1018
Los Angeles
California 90045
First Capital Services, Inc. 2,250,000 16.67%
2300 Glades Road, Suite 450
West Tower
Boca Raton, Florida 33431
Contemporary Resources, Inc. 600,000 4.45%
3830 Del Amo Boulevard #101
Torrance California 90503
</TABLE>
. Less than 1%
(1) This does not include 30,000 shares owned by Mr. Goldenberg's three
adult children, and 53,595 shares owned by Mr. Goldenberg's wife, Patricia, as
to which Mr. Goldenberg has neither voting nor investment power and disclaims
beneficial ownership.
(2) This does not include 31,318 shares owned by Mr. Handler's wife, Judy,
as to which Mr. Handler has neither voting nor investment power and disclaims
beneficial ownership.
(c) Changes in Control:
There are no contractual or other arrangements currently in effect or
contemplated that may later result in a change in control of the Company.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
10
<PAGE>
(a) EXHIBITS
Exhibit
Number Description of Document
1. Financial Statements
3(3)(i)(1) FCVL Articles of Incorporation - March 25, 1985 (1)
3(3) (2) FCVL Amendment to Articles of Incorporation - August 12, 1985 (1)
3(3) (3) FCVL Amendment to Articles of Incorporation - September 3, 1985 (1)
3(3) (4) FCVL Amendment to Articles of Incorporation - February 3, 1992 (1)
3(3)(ii)(1) FCVL Bylaws (1)
3(13) Annual Report to security holders and Form 10Q
(b) No reports on Form 8-K where filed during the last quarter of the period
covered by this report.
(c)(1) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1992, and incorporated
herein by reference.
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: May 3, 2000
By: /s/ Murray W. Goldenberg
-------------------------
Murray W. Goldenberg,
President
11
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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:
May 3, 2000
/s/ Murray W. Goldenberg
- -------------------------
Murray W. Goldenberg Chairman, President, Treasurer,
Secretary and Director
(Chief Executive, Financial and
Accounting Officer)
May 3, 2000
/s/ Leslie I. Handler Director
- -----------------------
Leslie I. Handler
May 3, 2000
/s/ Kenneth D. Owen Director
- --------------------
Kenneth D. Owen
12
<PAGE>
NOVA COMMUNICATIONS LTD.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
WITH
REPORT OF INDEPENDENT AUDITORS
<PAGE>
NOVA COMMUNICATIONS LTD.
Years ended December 31, 1999 and 1998
Contents
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Auditors..................... F-1
Financial Statements:
Balance sheets.................................... F-2
Statements of operations.......................... F-3
Statements of net capital deficiency.............. F-4
Statements of cash flows.......................... F-5
Notes to financial statements..................... F-6-13
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Nova Communications Ltd.
We have audited the accompanying balance sheet of Nova Communications Ltd. as of
December 31, 1999 and 1998, and the related statements of operations, changes in
net capital deficiency, and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nova Communications Ltd. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1999 in accordance
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2 to the
financial statements, the Company has a working capital deficit, a net capital
deficiency, and recurring net losses that raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 3 to the financial statements, the Company changed its
reporting entity in 1999.
Portland, Oregon
March 24, 2000
F-1
<PAGE>
NOVA COMMUNICATIONS LTD.
Balance Sheets
<TABLE>
<CAPTION>
December 31
----------------------------
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 3,513 $ -
Receivables 29,820 81,000
Notes receivable 48,829 -
Deposits 3,177 2,325
Available-for-sale investments 200,010 200,000
------------ -----------
Total current assets 285,349 283,325
Notes receivable 94,469 -
Equipment, net 28,473 13,743
------------ -----------
$ 408,291 $ 297,068
============ ===========
LIABILITIES AND NET CAPITAL DEFICIENCY
--------------------------------------
Current liabilities:
Outstanding checks in
excess of cash in bank $ - $ 3,492
Notes payable, net of deferred
loan fees of $115,547 438,038 -
Accounts payable 317,880 754,327
Payable to related parties 511,509 375,220
Accrued payroll and payroll
related liabilities 46,379 57,453
Other accrued liabilities 18,661 46,494
Long-term obligations, due
within one year 3,429 -
------------ -----------
Total liabilities 1,335,896 1,236,986
Long-term obligations 321,216 309,453
Net capital deficiency:
Preferred stock; no par value;
authorized 10,000,000 shares - -
Common stock; $.001 par value;
shares authorized 500,000,000 shares;
shares outstanding 13,496,182 in 1999
(15,516,183 shares in 1998) 13,496 15,516
Additional paid-in capital 9,760,955 9,758,935
Retained deficit (10,725,525) (10,527,614)
Unrealized holding loss from
available-for-sale investments (297,747) (496,208)
----------- -----------
Net capital deficiency (1,248,821) (1,249,371)
----------- -----------
$ 408,291 $ 297,068
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
NOVA COMMUNICATIONS LTD.
Statements of Operations and Comprehensive Income (Loss)
<TABLE>
<CAPTION>
Years ended December 31
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Management fees income
$ - $ 90,000
Net investment income (loss) 74,218 (3,851,819)
----------- -----------
Total net revenues 74,218 (3,761,819)
General and administrative expenses 407,922 480,062
----------- -----------
Loss from operations (333,704) (4,241,881)
Other income (expenses):
Loan fees 114,727 -
Interest, net 21,866 (20,825)
----------- -----------
Total other income (expenses) 136,593 (20,825)
----------- -----------
Loss before provision for income taxes (197,111) (4,262,706)
Provision for income taxes 800 800
----------- -----------
Net loss (197,911) (4,263,506)
Other comprehensive income - unrealized holding
gain (loss) on available-for-sale investments 198,461 3,667,728
----------- -----------
Comprehensive income (loss) $ 550 $ (595,778)
=========== ===========
Net loss per common share $ .000 $ (.043)
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NOVA COMMUNICATIONS LTD.
Statement of Net Capital Deficiency
January 1, 1998 through December 31, 1999
<TABLE>
<CAPTION>
Unrealized
holding loss
Additional on available- Net
Preferred Common paid-in Accumulated for-sale capital
stock stock capital deficit investments deficiency
--------- -------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ - $ 11,646 $9,508,554 $ (6,264,108) $(4,163,936) $ (907,844)
Common stock issued in exchange for investments
- 3,870,000 shares - 3,870 120,095 - - 123,965
Collections on notes receivable - - 130,286 - - 130,286
Comprehensive loss - - - (4,263,506) 3,667,728 (595,778)
-------- ------- --------- ----------- ---------- ----------
Balance at December 31, 1998 - 15,516 9,758,935 (10,527,614) (496,208) (1,249,371)
Cancellation of common stock - 2,020,000 shares - (2,020) 2,020 - - -
Comprehensive income - - - (197,911) 198,461 550
-------- ------- --------- ----------- ---------- ----------
Balance at December 31, 1999 $ - $ 13,496 $9,760,955 $(10,725,525) $ (297,747) $(1,248.821)
======== ======= ========= =========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
NOVA COMMUNICATIONS LTD.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Comprehensive income (loss) $ 550 $ (595,778)
Adjustments to reconcile net loss to net cash used in
operating activities:
Benefit for uncollectible notes - (60,000)
Depreciation 5,070 3,730
Changes in assets and liabilities:
Receivables (116,786) (81,000)
Investments (61,972) 184,091
Deposits (852) (2,451)
Outstanding checks in excess of cash in bank (3,492) 3,492
Accounts payable (436,447)
Accounts payable and accrued liabilities 97,382 421,734
--------- ---------
(516,547) (126,182)
Cash flows from investing activities:
Principal repayments on notes receivable 24,668 -
Capital expenditures - (4,793)
--------- ---------
24,668 (4,793)
Cash flows from financing activities:
Proceeds from notes payable 500,000 -
Principal payments on capitalized lease obligations (4,608) -
Collections on notes receivable on sale of
common stock - 130,286
--------- ---------
495,392 130,286
--------- ---------
Net increase (decrease) in cash 3,513 (689)
Cash at beginning of year - 689
--------- ---------
Cash at end of year $ 3,513 $ -
========= =========
Supplemental disclosure of cash flow information -
cash paid for interest $ 1,680 $ 8,800
========= =========
Non-cash investing and financing activities:
Common stock issued in exchange for investments $ - $ 123,965
========= =========
Equipment acquired under capitalized lease obligation $ 19,800 $ -
========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NOVA COMMUNICATIONS LTD.
Notes to Financial Statements
December 31, 1999
1. Business and summary of significant accounting policies
Business: Nova Communications Ltd. (the "Company" or "Nova") was
--------
incorporated under the laws of the State of Utah on March 25, 1985. On
June 28, 1999, the Company changed its name from First Colonial Ventures,
Ltd. to Nova Communications Ltd. The Company advances funds to and
acquires ownership interests in business opportunities.
Cash and cash concentrations: For purposes of the statement of cash flows,
----------------------------
the Company considers cash equivalents to be highly liquid instruments with
original due dates within three months of the date purchased.
The Company places their cash in financial institutions and, at various
times throughout the year, cash held in these accounts has exceeded Federal
Deposit Insurance Corporation limits. The Company has not experienced any
losses as a result of these cash concentrations.
Reporting comprehensive income: The Company reports and displays
------------------------------
comprehensive income and its components as separate amounts in the
financial statements. Comprehensive income includes all changes in equity
during a period that results from recognized transactions and other
economic events other than transactions with owners.
Income Taxes: Income taxes are provided on the liability method whereby
------------
deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases and reported
amounts of assets and liabilities. Deferred tax assets and liabilities are
computed using enacted tax rates expected to apply to taxable income in the
years in which temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities from a change
in tax rates is recognized in income in the period that includes the
enactment date. The Company provides a valuation allowance for certain
deferred tax assets, if it is more likely than not that the Company will
not realize tax assets through future operations.
Segment Reporting: The Company adopted Statement of Financial Accounting
-----------------
Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise
and Related Information," during fiscal 1999. SFAS 131 establishes
standards for the way that public companies report information about
operating segments and related disclosures about product and services,
geographic areas and major customers in annual financial statements. The
Company views its operations and manages its business as principally one
segment.
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.
The weighted average number of common stock shares outstanding was
14,373,059 for 1999 (13,724,128 for 1998). Preferred stock is not
considered to be a common stock equivalent.
F-6
<PAGE>
NOVA COMMUNICATIONS LTD.
Notes to Financial Statements
December 31, 1999
1. Business and summary of significant accounting policies (continued)
------------------------------------------------------------------
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 valuation 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's continued existence is dependent upon its ability to obtain
profitable operations from its investments or additional capital. The
Company's investments have experienced recurring losses and negative
working capital.
In June 1999, the Company was successful in obtaining a $525,000 note
payable which becomes due in August 2000. The proceeds of the note were
used to satisfy a $390,000 obligation of Contemporary Resources, Inc. which
Nova had guaranteed. The remaining proceeds of the note are being used for
working capital.
The Company owns 362,500 shares of common stock of And In Justice For All,
Inc., dba Legal Club of America ("Legal Club"). The shares are pledged as
collateral against the note payable described above. The Company intends
to sell some or all of the Legal Club shares and believes, based on current
trading prices, the proceeds will be sufficient to repay the note payable
and provide working capital for the next fiscal year.
The 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. Change in basis of presentation
-------------------------------
Effective January 1, 1999, the Board of Directors of the Company resolved
to cease its' election to report its' financial statements as an Investment
Company pursuant to the Investment Company Act of 1940. Under those
industry practices, an investee of an Investment Company was not
consolidated unless such investee was a small business investment company
or a wholly-owned business development company.
With the change in reporting, the Company also adopted Emerging Issues Task
Force Issue No. 96-16 (EITF 96-16), "Investor's Accounting for an Investee
When the Investor Has a Majority of the Voting Interest but the Minority
Shareholder of Shareholders Have Certain Approved Veto Rights." The change
from reporting as an Investment Company and the adoption of EITF 96-16
resulted in a change in the method of accounting for the Company's
investments. Except for the Company's investments subject to the
provisions of EITF 96-16, investments are accounted for
F-7
<PAGE>
NOVA COMMUNICATIONS LTD.
Notes to Financial Statements
December 31, 1999
3. Change in basis of presentation (continued)
------------------------------------------
under the provisions of Statement of Financial Accounting Standards No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and Equity
Securities". SFAS 115 requires that all applicable investments be
classified as trading securities, available-for-for sale securities, or
held-to-maturity securities. The statement further requires that held-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, will be recognized as a
component of operating results.
As a result of the accounting change and the restatement of prior periods
for comparison purposes, all of the Company's investments are reported as
available-for-sale securities for all periods presented. The change had no
effect on the Company's comprehensive income (loss) or common shareholders'
deficiency, but changed certain components of revenues, costs, assets,
liabilities, net capital deficiency and cash flows.
4. 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:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
U.S. corporate securities:
Amortized cost $ 497,757 $ 696,208
Gross unrealized losses (297,747) (496,208)
-------- --------
Estimated fair value $ 200,010 $ 200,000
======== ========
</TABLE>
The Company's available-for-sale investments consist of the following U.S.
Corporate Securities:
Gulf Coast Hotels, Inc. ("Gulf Coast"): In December 1994, the Company
--------------------------------------
purchased the rights to 50% of Gulf Coast, a company incorporated under
the laws of the State of Nevada. Gulf Coast was formed to purchase the
rights to approximately 1.4 acres in Biloxi, Mississippi and to develop a
high-rise condominium hotel on that site. Gulf Coast has been unable to
raise the approximately $1,000,000 necessary to complete the down
payment. The seller has provided extensions to Gulf Coast, however, the
agreement is in default. During 1997, Gulf Coast entered into agreements
to sell its interest in the property and to become a minority partner in
the development project subject to the majority partners obtaining
financing.
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.
F-8
<PAGE>
NOVA COMMUNICATIONS LTD.
Notes to Financial Statements
December 31, 1999
4. Investments (continued)
----------------------
Legal Club: During March 1996, the Company acquired an interest in Legal
----------
Club, which was incorporated under the laws of the State of Florida.
Legal Club started a new nationwide membership organization providing
access to attorney services at discounted rates. In September 1998, Legal
Club became a publicly traded company.
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, 1999.
5. Equipment
---------
Equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Office furniture and equipment $ 25,999 $ 25,999
Equipment reported under capitalized leases,
less accumulated amortization of $2,970 16,830 -
------- -------
42,829 25,999
Less accumulated depreciation (14,356) (12,256)
------- -------
Equipment, net $ 28,473 $ 13,743
======= =======
</TABLE>
6. Notes payable
-------------
Notes payable consists of borrowing under a loan agreement with borrowings
bearing interest at 10% per annum. Principal on the note is due on August
31, 2000. The note is secured with the Company's investment in Legal Club
and the Company has pledged 35% of its cash receipts from collections of
its' notes receivable.
Proceeds of the note were used to satisfy a bank loan the Company had
guaranteed for one of its' investment companies, reduce accounts payable,
and for working capital in 1999.
7. Long-term obligations
---------------------
Long-term obligations consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Note payable and accrued interest payable to a
private investor, unsecured and bears interest
per annum at 2% over Bank of America prime rate. $309,453 $309,453
Capitalized lease obligations 15,192 -
------- -------
324,645 309,453
Less principal due within one year (3,429) -
------- -------
Long-term obligations $321,216 $309,453
======= =======
</TABLE>
F-9
<PAGE>
NOVA COMMUNICATIONS LTD.
Notes to Financial Statements
December 31, 1999
7. Long-term obligations (continued)
--------------------------------
Aggregate minimum future lease payments under capitalized leases are as
follows for the years ending subsequent to December 31, 1999:
<TABLE>
<CAPTION>
Year ending December 31:
-----------------------
<S> <C>
2000 $ 5,109
2001 5,109
2002 5,108
2003 5,108
------
Total minimum lease payment 20,434
Less amount representing interest (at an annual interest
rate of 11.3%) 5,242
------
Present value of minimum future lease payments $15,192
======
</TABLE>
The Company has offered the holder of the note payable a minimum of 150,000
shares of its' common stock in exchange for all or a portion of the
principal and unpaid interest of the note. The holder of the note has not
yet accepted the Company's offer. The note has been classified as long-
term as the Company expects the note to be refinanced with the issuance of
common stock.
8. Common stock
------------
In September 1998, the Company issued an aggregate of 3,870,000 shares of
its common stock for the purchase of available-for-sale investments.
Management of the Company valued the shares at a weighted-average per share
price of $.032 per share, which represented 64% of 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 issued after
considering the historical trend of the trading prices for its common stock
and the limited volume of shares being traded.
9. Income taxes
------------
The Company files a consolidated tax return in the name of Contemporary
Resources, Inc. as a result of the original reverse purchase of the assets
of Nova by Contemporary Resources, Inc.
The components of the provision for income taxes are as follows for the
years ended December 31:
1999 1998
---- ----
State of California -
Currently payable $800 $800
=== ===
F-10
<PAGE>
NOVA COMMUNICATIONS LTD.
Notes to Financial Statements
December 31, 1999
9. Income taxes (continued)
-----------------------
Deferred income taxes consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers $ 2,266,300 $ 2,266,300
Unrealized losses on investments 126,500 164,900
Allowance for uncollectible notes - 21,000
---------- ----------
2,392,800 2,452,200
Valuation allowance for deferred tax assets (2,392,800) (2,452,200)
---------- ----------
Net deferred income taxes $ - $ -
========== ==========
</TABLE>
Reconciliation of income taxes computed at the federal statutory rate of
34% to the provision for income taxes is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Tax at statutory rates $ 187 $ (202,293)
Differences resulting from:
State tax, net of federal tax benefit 528 528
Non-deductible and other items 59,485 (48,535)
Change in deferred tax valuation allowance (59,400) 251,100
---------- ----------
Provision for income taxes $ 800 $ 800
========== ==========
</TABLE>
The Company has approximately $6,475,100 in federal net operating losses
which, if not utilized, expire through 2013. The Company has approximately
$6,475,100 in State of California net operating losses, which if not
utilized, expire through 2003.
The utilization of the net operating loss carryforwards could be limited
due to restrictions imposed under federal and state laws upon a change in
ownership. The amount of the limitation, if any, has not been determined
at this time. A valuation allowance is provided when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. As a result of the Company's continued losses and uncertainties
surrounding the realization of the net operating loss carryforwards,
management has determined that the realization of deferred tax assets is
uncertain. Accordingly, a valuation allowance equal to the net deferred
tax asset amount has been recorded as of December 31, 1999 and 1998.
10. Other related party transactions
--------------------------------
The Company pays a monthly fee of $13,750 to its president under a month-
to-month consulting agreement. Consulting expenses charged to operations
was $176,667 for 1999 ($165,000 for 1998).
F-11
<PAGE>
NOVA COMMUNICATIONS LTD.
Notes to Financial Statements
December 31, 1999
11. Commitments
-----------
In January 1999, the Company entered into an agreement to acquire 100% of
the outstanding shares of Communications 2000; dba Telephone Equipment
Company, a non-public California corporation that sells and installs
telephone and other communication equipment and systems. Under the
agreement, the Company would exchange a note payable convertible into
2,000,000 shares of its common stock for all of the outstanding shares of
Communications 2000. The note would be convertible on or after March 31,
2000. The Company may rescind 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 $1 per
share by March 31, 2000.
12. Other recently adopted accounting pronouncements:
------------------------------------------------
Derivative instruments and hedging activities: In June 1998, SFAS No. 133,
---------------------------------------------
"Accounting for Derivative Instruments and Hedging Activities" was issued.
The Statement requires that all derivatives be carried on the balance sheet
at fair value and changes in the fair value of derivatives be recognized in
income when they occur, unless the derivatives qualify as hedges in
accordance with the Standard. If a derivative qualifies as a hedge, the
Company can elect to use hedge accounting. The type of accounting to be
applied varies depending on the nature of the exposure that is being
hedged, and the Standard defines three hedge risks: change in fair value,
change in cash flows and change in foreign currency.
A fair-value hedge represents the hedge of an exposure to changes in the
fair value of an asset, liability or an unrecognized firm commitment.
Changes in fair value hedges are recognized in earnings, as well as the
gain or loss on the hedged item attributable to the hedged risk. Certain
criteria must be met in order for a hedging relationship to qualify as a
fair-value hedge.
A cash-flow hedge is a hedge of an exposure to variability in cash flows
that is attributable to a particular risk. That exposure may be associated
with an existing recognized asset or liability or a forecasted transaction.
The effective portion of a hedging instrument's gain or loss is initially
reported as a component of other comprehensive income and is reclassified
as a component of income in the same period or periods during which the
hedge forecasted transaction affects earnings. As in fair-value hedges,
certain criteria must be met in order for a hedging relationship to qualify
as a cash-flow hedge.
A foreign-currency hedge can be a fair-value hedge or a cash-flow hedge of
the foreign currency exposure; therefore it follows the same principles as
those that apply to the accounting for non-foreign hedges with some
particularities defined in the Standard.
This Standard is effective for fiscal years beginning after June 15, 1999
and cannot be applied retroactively. Management believes that the adoption
of this Standard will not have a material effect on the Company's financial
position or results of operations.
F-12
<PAGE>
NOVA COMMUNICATIONS LTD.
Notes to Financial Statements
December 31, 1999
12. Recently issued accounting pronouncements (continued)
----------------------------------------------------
Cost of computer software developed for internal use: In March 1998, the
----------------------------------------------------
American Institute of Certified Public Accountants issued Statement of
Position 98-1, "Accounting for the Cost of Computer Software Developed for
Internal Use" ("SOP 98-1"). SOP 98-1 became effective for the Company's
financial statements beginning January 1, 1999. SOP 98-1 requires the
capitalization of eligible costs of specified activities related to
computer software developed or obtained for internal use. The adoption of
SOP 98-1 had no effect on the Company's financial position or results of
operations.
F-13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,513
<SECURITIES> 200,010
<RECEIVABLES> 176,295
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 285,349
<PP&E> 28,473
<DEPRECIATION> 0
<TOTAL-ASSETS> 408,291
<CURRENT-LIABILITIES> 1,335,896
<BONDS> 0
0
0
<COMMON> 13,496
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 408,291
<SALES> 0
<TOTAL-REVENUES> 210,811
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 407,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 550
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
