U.S. 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, 1995
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE
ACT
For the transition period from N/A to N/A
Commission file number 0-15078
NOVA NATURAL RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
Colorado 84-1227328
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 481388
1900 Wazee Street, Suite 305
Denver, Colorado 80248
(Address of principal executive offices)
(303) 293-2902
(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 X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
6,038,936
Transitional Small Business Disclosure Format (Check One):
Yes ; No X
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
NOVA NATURAL RESOURCES CORPORATION
Condensed Balance Sheets (Note 1)
<CAPTION> June 30,
1995 September 30,
<S> (Unaudited) 1994
ASSETS
Current assets: <C> <C>
Cash and cash equivalents $ 208,796 $ 180,783
Accounts receivable 353,877 434,296
Prepaid expenses 5,194 1,500
Total current assets 567,867 616,579
Deposits 21,411 52,720
Property and equipment, at cost:
Oil and gas properties - full cost
accounting method 6,174,886 6,167,562
Mineral properties 763,860 961,695
Railroad rolling stock -- 495,800
Office and technical equipment 159,603 125,715
7,098,349 7,750,772
Less accumulated depreciation,
depletion, and valuation allowance 6,074,457 6,058,009
Net property and equipment 1,023,892 1,692,763
$ 1,613,170 $ 2,362,062
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 376,740 $ 559,260
Short term portion of notes payable -- 110,056
Total current liabilities 376,740 669,316
Note payable -- 162,016
Total liabilities 376,740 831,332
Stockholders' equity:
Convertible preferred stock 2,687,682 2,687,682
Common stock 632,397 632,397
Paid in capital 6,458,602 6,458,602
Retained deficit (8,542,251) (8,247,951)
Total stockholders' investment 1,236,430 1,530,730
$ 1,613,170 $ 2,362,062
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION> NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Operations
(Unaudited)
<CAPTION> Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
<S>
REVENUES: <C> <C> <C> <C>
Mineral Product Sales $ 499,658 $ 882,600 $ 1,125,217 $ 1,256,244
Oil and gas sales 46,832 62,640 145,499 178,969
Gain on sale of assets -- -- 58,663 --
Railcar rent -- -- 12,203 --
Interest income 3,485 1,891 10,157 74,327
Revenue from property
operations -- -- -- 1,821
Other income 7,153 -- 9,030 720
557,128 945,131 1,360,769 1,512,081
EXPENSES:
Mining costs, including
transportation and royalties 431,534 760,363 950,570 1,085,799
General and administrative 93,774 103,112 331,882 312,621
Mineral property abandonment 213,166 -- 213,166 --
Depletion, depreciation,
and amortization 22,343 41,312 70,910 108,206
Lease operating, including
production taxes 27,115 23,091 76,002 75,562
Interest expense -- 10,433 12,539 25,426
787,932 938,311 1,655,069 1,607,614
NET INCOME (LOSS) $ (230,804) $ 6,820 $ (294,300) $ (95,533)
NET INCOME (LOSS) PER COMMON
SHARE (Note 4) $ (.04) $ .01 $ (.05) $ (.02)
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,323,971 6,038,936 6,323,971 6,031,374
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION> NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Cash Flows (Note 1)
(Unaudited)
<CAPTION> Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
<S>
Cash flows from operating activities: <C> <C> <C> <C>
Net income (loss) $ (230,804) $ 6,820 $ (294,300) $ (95,533)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Mineral property abandonments 213,166 -- 213,166 --
Depletion and depreciation 22,343 41,312 70,910 108,206
Gain on sale of assets -- -- (58,663) --
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (327,535) (356,433) 80,419 (177,526)
(Increase) decrease in prepaid
expenses (215) (558) (3,694) (2,367)
(Decrease) increase in accounts
payable 278,690 424,502 (292,576) 289,790
(Increase) decrease in deposits -- (235) 31,309 (633)
Net cash provided (used) by
operating activities (44,355) 115,408 (253,429 121,937
Cash flows from investing activities:
Proceeds from sale of assets -- -- 500,000 --
Additions to property and
equipment (39,260) (90,070) (56,542) (152,278)
Net cash provided (used) by
investing activities (39,260) (90,070) 443,458 (152,278)
Cash flows from financing activities:
Sale of stock for cash -- -- -- 2,700
Note payable -- 90,000 -- 90,000
Reduction of note payable -- (115,542) (162,016) (165,031)
Net cash provided (used) by
financing activities -- (25,542) (162,016) (72,331)
Increase (decrease) in cash and cash
equivalents (83,615) (204) 28,013 (102,672)
Cash and cash equivalents,
beginning of period 292,411 121,723 180,783 224,191
Cash and cash equivalents,
end of period $ 208,796 $ 121,519 $ 208,796 $ 121,519
<FN>
See accompanying notes to condensed financial statements.
</TABLE>
NOVA NATURAL RESOURCES CORPORATION
Notes to Condensed Financial Statements
Nine Months Ended June 30, 1995 and 1994
(1) The condensed financial statements included herein are
unaudited. In the opinion of management, all adjustments,
consisting of normal recurring accruals, have been made which
are necessary for a fair presentation of the financial
position of the Company at June 30, 1995 and 1994 and the
results of operations for the three and nine month periods
ended June 30, 1995 and 1994. Quarterly results are not
necessarily indicative of expected annual results because of
fluctuations in the price received for oil and gas products,
demand for natural gas, kaolin and other factors. For a more
complete understanding of the Company's operations and
financial position, reference is made to Management's
Discussion and Analysis of Financial Condition and Results of
Operations herein and the financial statements of the Company,
and related notes thereto, filed with the Company's annual
report on Form 10-KSB for the year ended September 30, 1994,
previously filed with the Securities and Exchange Commission.
(2) In February, 1993, the Company secured a note payable (the
"Note") with a commercial lending facility (the "Lender")
whereby the Lender provided $436,000 to purchase forty gondola
railcars to be used to transport kaolin clay. The Note was
payable in 48 equal installments with an interest rate of
8.5%. In February, 1995, the railcars were sold to an
unaffiliated third party and the Note was paid off.
(3) In December, 1986 the Company issued 2,687,682 shares of
Convertible Preferred Stock to the Company's Chairman and to
a principal shareholder in settlement of $1,700,000 in
convertible debentures plus related accrued interest of
$426,682 and $561,000 in bank debt repaid by the Chairman and
the principal shareholder on behalf of the Company. The
Preferred Stock is convertible into 5,375,364 shares of the
Company's Common Stock. The Preferred Shares contain 2 for 1
voting privileges, have a $1.00 liquidation preference and
have no stated dividend rate.
(4) Net loss per common share is determined by dividing net loss
attributable to common stock by the weighted average number of
common shares outstanding during each period. A fully diluted
loss per share is not computed because conversion of the
Preferred Shares mentioned above, and outstanding options
would be antidilutive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company realized net losses of $230,804 and $294,300 for
the three and nine months ended June 30, 1995, respectively, as
compared to net income of $6,820 and a net loss of $95,533 for the
same periods in 1994, respectively.
Mineral product sales decreased $382,942 and $131,027 for the
three and nine months ended June 30, 1995 as compared to the same
periods in 1994. In 1994, the Company had two customers to whom it
sold kaolin clay whereas the Company has only one customer in 1995.
In February 1994, the Company received $21,767 from Chevron in
settlement of adjustments from 1983 to 1992. Factoring out this
$21,767 for the nine month period, total oil and gas sales
decreased $13,808 for the three months ended June 30, 1995 as
compared to 1994, and $11,703 for the nine months ended June 30,
1995 as compared to 1994. Sales volumes and average sales price
received during the periods were as follows:
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
Oil (bbls) 2,114 3,244 6,733 8,059
Gas (MCF) 11,762 12,000 35,416 35,290
Average Sales Price
Oil $ 16.28 $ 13.63 $ 15.35 $ 12.53
Gas $ .84 $ 1.21 $ 1.00 $ 1.42
Higher oil prices in 1995 were offset by decreases in the
amount of oil sold as compared to 1994. Sharply lower gas prices
in 1995 offset slight increases in the amount of gas sold as
compared to 1994.
Gain on the sale of assets for the three and nine month
periods ended June 30, 1995 was the gain on the sale of the
Company's railcars as described below. Prior to the sale, from
December 1, 1994 to the closing date of the sale of the railcars,
the railcars were leased out to the Burlington Northern Railroad.
Railcar rent for the three and nine months ended June 30, 1995
consists of the proceeds from this leasing arrangement.
As mentioned above, the Company received a settlement in
February, 1994, from Chevron for production from 1983 to 1992.
Over $68,000 of the interest received for the nine month period
ended June 30, 1994 consisted of interest on the settlement
proceeds.
Mining costs, including transportation and royalties, for the
three and nine months ended June 30, 1995 were $328,829 and
$135,229 less than the comparable periods in 1994 because the
Company had only one customer in 1995 rather than two customers as
in 1994.
The Company has been unable to secure parties interested in
financing the further development of its Nome Gold Project or in
the exploration of the Querida Gold Prospect. It therefore reduced
the carrying value of these projects at June 30, 1995, by 75%. If
partners cannot be found by year-end, the carrying values of these
two projects will be further reduced.
General and administrative expenses ("G&A") decreased $9,338
for the three months ended June 30, 1995 as compared to 1994 but
increased $19,261 for the nine months ended June 30, 1995 as
compared to the same period in 1994. The three month decrease was
due to decreased salaries and employee benefits as salaries and
benefits were cut in 1995. The increase for the nine months ended
June 30, 1995 as compared to 1994 was due to added salary and
benefits as the Company added an employee in 1994, the costs of
printing and mailing a report to shareholders and increased legal
and accounting fees incurred in the filing of a Form S-4
Registration Statement. Increases in travel and travel related
costs also contributed to higher G&A costs. Increases in travel
were incurred in the attempted development of additional cash flow.
Depletion, depreciation and amortization ("DD&A") decreased
$18,969 and $37,296 for the three and nine month periods ended June
30, 1995 as compared to 1994 due to the sale of the railcars and
due to reduced oil and gas and mineral property depletion.
Interest expense was incurred on the debt used to purchase the
railcars.
CAPITAL RESOURCES-SOURCES OF CAPITAL
Sources of capital for the three and nine months ended June
30, 1995 came from the sale of the railcars and from operations.
In February, 1995 the Company sold its railcars to an unaffiliated
third party. This sale increased the Company's cash reserves while
reducing short term liabilities and long term notes payable.
CAPITAL RESOURCES-UTILIZATION OF CAPITAL
For the nine month period ended June 30, 1995, the Company
reduced accounts and short term notes payable $292,576 and notes
payable $162,016. The Company made further additions to property
and equipment totalling $39,260 and $56,542 for the three and nine
months ended June 30, 1995, respectively. It is anticipated that
funds for capital expenditures for the remainder of the year will
be provided by operating cash flow, sales of properties, if any,
and existing cash balances.
LIQUIDITY
In September, 1994, the Company was notified by one of its
kaolin purchasers, Holnam, Inc. ("Holnam"), that Holnam would not
be purchasing kaolin clay from Nova in 1995. Due to the loss of
Holnam's business and in order to alleviate a growing working
capital deficit, the Company decided to sell its 40 railcars. The
Company finalized the sale of these railcars to an unaffiliated
third party in February, 1995.
Based on cash flow projection through 1996, it is anticipated
that the Company will experience severe cash deficits if it
continues to operate at current levels. The Company has been
invited by Holnam, Inc. ("Holnam") to submit a bid to provide
kaolin clay to Holnam in 1996. If the Company is the successful
bidder for Holnam's business, it is anticipated that the cash flow
generated by the additional kaolin sales will be sufficient to
sustain operations through 1996 and into 1997. If the Company is
not the successful bidder, significant austerity measures will be
implemented in order for the Company to remain in operation. These
measures may include further salary reductions, staff reductions,
and any other expense reductions the Company's management deem
necessary.
The Company continues to seek other sources of cash flow
including opening a permitted gravel pit on two leases in
Minnesota. It has proposed an agreement with a local contractor
whereby the contractor will mine and market the gravel and pay the
Company a royalty. Terms of the agreement are under negotiation
and the Company cannot project how much, if any, revenue will be
realized from gravel sales. The Company is also attempting to find
a source of calcium carbonate which could be sold for, among other
things, decorative rock, swimming pool coping and as an additive in
the production of paper. The Company does not anticipate that cash
flow, if any, generated by these two projects will be sufficient in
the short term to continue to allow the Company to operate at its
current level. Therefore the reductions described above may still
need to be implemented.
FUTURE TRENDS
Kaolin sales are cyclical in nature and the mining of kaolin
is dependent on favorable weather conditions, demand by cement
companies for this product, and other factors over which the
Company has no control. The Company has a sales contract with a
cement company which expires in December, 1997. In addition, a
customer the Company had in 1994 is not be purchasing kaolin from
the Company in 1995. The loss of this customer has had a
significant negative effect on sales and cash flow.
OTHER INFORMATION
In July, 1994 the Company's wholly owned Colorado subsidiary,
NNRC, Inc. ("NNRC") filed a Registration Statement on Form S-4
("the S-4") to register common stock to be issued to Nova
shareholders in effectuation of a merger between Nova and NNRC.
The sole reason for the merger was to change Nova's State of
incorporation from Delaware to Colorado in order to save the
significant filing fees charged by Delaware. State laws require
that a change in domicile must be accomplished by this type of
procedure. For 1994, Nova paid a fee to Delaware of $3,820. This
annual fee, based on the number of Nova's authorized shares, is
expected to increase. Colorado charges a fee of $25 every other
year. The merger was approved by the written consent of those
shareholders controlling 72.7% of Nova's stock. The approval by
written consent alleviates the need for a shareholders meeting,
solicitation of proxies and formal vote by all shareholders.
The S-4 became effective on February 1, 1995. Appropriate Articles
of Merger were filed with the Secretaries of State of the states of
Colorado and Delaware. Each shareholder of Nova will receive an
equivalent number of shares of NNRC common and preferred stock. In
all respects other than domicile, NNRC will be identical to Nova.
NNRC has subsequently changed its name to Nova Natural Resources
Corporation. Filings will now be made by Nova Natural Resources
Corporation, a Colorado corporation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None
(b) Form 8-K. No reports on Form 8-K were filed during the
Company's fiscal quarter ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf of the undersigned thereunto duly authorized.
NOVA NATURAL RESOURCES CORPORATION
Date: August 11, 1995 By: /s/ Brian B. Spillane
Brian B. Spillane,
President, Director, and
Chief Executive Officer
Date: August 11, 1995 By: /s/ James E. Taets
James E. Taets, Vice President,
Secretary, Treasurer and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 208796 208796
<SECURITIES> 0 0
<RECEIVABLES> 353877 353877
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 567867 567867
<PP&E> 7098349 7098349
<DEPRECIATION> 6074457 6074457
<TOTAL-ASSETS> 1613170 1613170
<CURRENT-LIABILITIES> 376740 376740
<BONDS> 0 0
<COMMON> 632397 632397
0 0
2687682 2687682
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1613170 1613170
<SALES> 121520 546490
<TOTAL-REVENUES> 557128 1360769
<CGS> 0 0
<TOTAL-COSTS> 458649 1026572
<OTHER-EXPENSES> 329283 3615958
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 12539
<INCOME-PRETAX> (230804) (294300)
<INCOME-TAX> (230804) (294300)
<INCOME-CONTINUING> (230804) (294300)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (230804) (294300)
<EPS-PRIMARY> (.04) (.05)
<EPS-DILUTED> (.04) (.05)
</TABLE>
