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 March 31, 1996
( ) 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 33-81944
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:
6,496,188
Transitional Small Business Disclosure Format (Check One):
Yes ; No X
<PAGE>
PART I. FINANCIAL INFORMATION
NOVA NATURAL RESOURCES CORPORATION
Condensed Balance Sheets (Note 1)
March 31,
1996 September 30,
(Unaudited) 1995
ASSETS
Current assets:
Cash and cash equivalents $ 321,977 $ 70,820
Accounts receivable 117,348 268,027
Prepaid expenses 4,686 1,500
Total current assets 444,011 340,347
Deposits 71,411 71,411
Investment in Limited Liability
Company (Note 2) 150,000 --
Total other assets 221,411 71,411
Property and equipment, at cost:
Oil and gas properties - full cost
accounting method 6,177,893 6,175,878
Mineral properties 637,161 629,868
Office and technical equipment 168,384 168,384
6,983,438 6,974,130
Less accumulated depreciation,
depletion, and valuation allowance 6,064,815 6,030,197
Net property and equipment 918,623 943,933
$ 1,584,045 $ 1,355,691
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 278,111 $ 220,289
Short term note payable (Note 3)) 100,000 --
Accrued liabilities 13,472
Total current liabilities 378,111 233,761
Debentures (Note 2) 203,125 --
Total liabilities 581,236 233,761
Stockholders' equity:
Convertible preferred stock 2,687,682 2,687,682
Common stock 649,619 649,619
Paid in capital 6,454,296 6,454,296
Retained deficit (8,788,788) (8,669,667)
Total stockholders' investment 1,002,809 1,121,930
$ 1,584,045 $ 1,355,691
See accompanying notes to condensed financial statements.
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Mineral Product Sales $ 19,583 $ -- $ 162,091 $ 625,559
Oil and gas sales 58,366 47,737 103,004 98,667
Gain on sale of assets -- 58,663 58,663
Railcar rent -- 12,203 -- 12,203
Interest income 1,402 3,539 3,501 6,672
Other income -- 1,872 -- 1,877
79,351 124,014 268,596 803,641
EXPENSES:
Mining costs, including
transportation and royalties 6,119 12,654 101,033 519,036
General and administrative 103,012 124,294 195,205 238,108
Depletion, depreciation,
and amortization 16,471 12,362 34,617 48,567
Lease operating, including
production taxes 24,247 23,913 56,862 48,887
Interest expense -- 6,944 -- 12,539
149,849 180,167 387,717 867,137
NET INCOME (LOSS) $ ( 70,498) $ (56,153) $ (119,121) $ (63,496)
NET INCOME (LOSS) PER COMMON
SHARE (Note 4) $ (.01) $ (.01) $ (.02) $ (.01)
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,496,188 6,323,971 6,496,188 6,323,971
See accompanying notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Cash Flows (Note 1)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ ( 70,498) $ (56,153) $ (119,121) $ (63,496)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depletion and depreciation 16,471 12,362 34,618 48,567
Gain on sale of assets -- (58,663) -- (58,663)
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (77,401) (6,905) 150,679 407,954
(Increase) decrease in prepaid
expenses 517 (448) (3,186) (3,479)
(Decrease) increase in accounts
payable 165,993 (281,258) 44,350 (571,266)
(Increase) decrease in deposits 2,058 31,671 -- 31,309
Net cash provided (used) by
operating activities 37,140 (359,394) 154,153 (207,340)
Cash flows from investing activities:
Proceeds from sale of assets -- 500,000 -- 500,000
Investment in Limited Liability Co. (150,000) (150,000)
Additions to property and
equipment (2,691) (11,242) (9,308) (17,282)
Net cash provided (used) by
investing activities (152,691) 488,758 (159,308) 482,718
Cash flows from financing activities:
Issuance of debentures 203,125 -- 203,125 --
Issuance of short tern note 100,000 100,000
Reduction of note payable -- (133,805) -- (162,016)
Net cash provided (used) by
financing activities 303,125 (133,805) 303,125 (162,016)
Increase (decrease) in cash and cash
equivalents 187,574 (4,441) 251,157 111,628
Cash and cash equivalents,
beginning of period 134,403 296,852 70,820 180,783
Cash and cash equivalents,
end of period $ 321,977 $ 292,411 $ 321,977 $ 292,411
See accompanying notes to condensed financial statements.
</TABLE>
NOVA NATURAL RESOURCES CORPORATION
Notes to Condensed Financial Statements
Six Months Ended March 31, 1996 and 1995
(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 March 31, 1996 and 1995 and the
results of operations for the three and six month periods
ended March 31, 1996 and 1995. Certain amounts have been
reclassified for comparability with the 1995 presentation.
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, 1995, previously filed with the Securities and
Exchange Commission.
(2) In connection with the formation of NovaChek Limited Liability
Company, "NovaChek" as more fully described in management's
discussion and analysis of financial condition and results of
operations which follows, at March 31, 1996 Nova was obligated
to invest $150,000 in NovaChek. Nova's investment is composed
of $118,750 in cash which is included in accounts payable and
$31,250 in debentures issued to Chek Technologies for 5 units
discussed below.
Conditional to the formation of NovaChek was the sale of a
minimum of 25 and maximum of 40 investment units of $10,000
each including 5 units to Chek Technologies in exchange for
services in designing and constructing NovaChek's mining
equipment. Each unit included $6,250 for a Nova debenture
which bears interest at 10%; may be converted into Nova common
stock at the rate of one share for each $.15 of principal; may
be redeemed by Nova after March 31, 1998; and is due April 1,
2001. The remaining $3,750 per unit is allocated to purchase
a membership in NovaChek. At March 31, 32 1/2 units had been
sold and an additional 4 1/2 units were sold subsequent to the
date of the financial statements.
The table Following summarizes the Nova/NovaChek/Investor
transactions included in the March 31, 1996 financial
statements:
Cash Accounts Amount of Due to
Received Receivable Debentures NovaChek
22 Units
Issued for
Cash $220,000 $137,500 $82,500
5 1/2 Units
Paid in April 55,000 34,375 20,625
Issued for
Services 31,250
$220,000 $55,000 $203,125 $103,125
(3) On March 21, 1996 the Company received a short term working
capital loan for $100,000 which is payable September 28, 1996.
The loan bears interest at the rate of 10% annually, payable
June 28 and September 28, 1996 and is unsecured.
(4) 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.
(5) 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 $70,498 and $119,121 for
the three and six months ended March 31, 1996, respectively, as
compared to net losses of $56,153 and $63,496 for the same periods
in 1995. Oil and gas sales increased in the 1996 periods while
interest income and other income both declined compared to the 1995
periods.
The Company sold its railcars during the three month period
ended March 31, 1995, realizing a one-time gain on the sale of
$58,663. In addition, revenue from railcar rent of $12,203 was
received in the 1995 period. These items strongly impacted
revenues in both the three month and six month periods ended March
31, 1995. Since the Company no longer owns any railcars, no
railcar rental income was received in the comparable 1996 periods.
Mineral product sales of $19,583 were higher for the three
months ended March 31, 1996 than in the comparable 1995 period,
when no such sales were recorded. For the six month period ended
March 31, 1996, however, mineral product sales dropped sharply to
$162,091 from the $625,559 recorded in the 1995 six month period.
The Company had two customers for its kaolin in the 1995 period,and
sales were made to both customers during the first three month and
six month periods of fiscal 1995, whereas the Company had only one
customer in the 1996 period, and its first three months sales were
substantially less. A further factor in the lower sales in the
1996 first quarter, and thus the six months ended March 31, 1996
was a deterioration in performance by the railroads which transport
kaolin from the Company's mine to its customer. This resulted in
lost sales in the first quarter of 1996, ended December 31, 1995,
since the Company was unable to achieve the level of shipments
desired by the customer before the onset of cold weather, which
ended the shipment season.
Oil & gas sales increased $10,629 in the three month period
ended March 31, 1996 compared to the 1995 period. Oil prices were
slightly lower, averaging $14.61/bbl compared to $15.44/bbl in
1995, but oil volume increased 23%, more than offsetting the lower
price. Both oil volumes and average prices were higher for the six
month period. Volumes increased 3% and prices increased 5%. Gas
prices increased 26% in the three months ended March 31, and gas
volumes were up 31%. For the six month period, gas prices
decreased 10%, but gas volumes increased 15%, more than offsetting
the decrease in gas prices.
As a result of the above cited factors, revenues in the three
month and six month periods ended March 31, 1996 declined to
$79,351 and $268,596 respectively, compared to revenues of $124,014
and $803,641 in the 1995 periods.
Mining costs, including transportation and royalties,
decreased $6,535 in the three month period ended March 31, 1996 to
$6,119 compared to $12,654 in the 1995 period. This was the result
of timing differences in the receipt of billings and payments for
these services. These costs decreased $418,003 to $101,033 from
$519,036 in the six month periods ended March 31, 1996 and 1995
respectively, due to a much lower level of mineral product
production and sales in the 1996 period for the reasons previously
cited.
General and Administrative costs decreased $21,282 and $42,903
for the three and six month periods ended March 31, 1996 compared
to 1995. This resulted from reduced staff, lower staff salaries,
and the implementation of other cost-reduction measures in the 1996
periods.
Depletion, depreciation and amortization increased $4,109 in
the three month period ended March 31, 1996 compared to the 1995
period, and decreased $13,950 in the six month period ended March
31, 1996 compared to the 1995 period. The decrease in the six
month period was due to the sale of the Company's railcars. The
increase in the three month period resulted from higher oil & gas
production in the 1996 period as compared to the 1995 period.
No interest expense was incurred in the 1996 three month and
six month periods. The 1995 interest expense was incurred on the
debt used to purchase the railcars. These cars were sold and the
debt paid in fiscal 1995.
CAPITAL RESOURCES-SOURCES OF CAPITAL
The sources of capital for the six month period ended March
31, 1996 were primarily the sale of Convertible Debentures,
$203,125, (refer also to OTHER INFORMATION) and from issuance of a
short term note, $100,000. Accounts payable also increased $44,350
during the six month period.
CAPITAL RESOURCES-UTILIZATION OF CAPITAL
For the six month period ended March 31, 1996, the Company
invested $150,000 in NovaChek Limited Liabiity Company, a Company
formed to conduct gold mining operations on a portion of Nova's
Nome, Alaska State of Alaska leases (see also OTHER INFORMATION).
The Company made further additions to Property and Equipment
totaling $2,691 and $9,308 for the three months and six months
ended March 31, 1996 respectively. It is anticipated that funds
for capital expenditures for the remainder of the year will be
provided by operating cash flow, sales of debentures, sales of
properties, if any, and existing cash balances.
LIQUIDITY
At March 31, 1996, the Company's working capital surplus
totaled $65,900 as compared to a working capital surplus at
September 30, 1995 of $106,586.
FUTURE TRENDS
The prices the Company receives for its oil & gas products
continue to fluctuate, and this situation is unlikely to change.
The Company plans to sell most of the overriding royalty interests
it holds in the Wyoming Overthurust Belt to raise cash for working
capital purposes. Such a sale will be consummated only if the
Company receives an offer by a purchaser which the Company believes
to be a fair market value price.
Kaolin sales are cyclical in nature and the mining and sale of
kaolin is dependent on favorable weather conditions, demand by
cement companies, the adequacy of rail transportation and the cost
of that transportation, 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. The amount of kaolin
purchased by this customer during the 1996 season - which extends
into the 1997 fiscal first quarter - is dependent on that
customer's demand, as well as the Company's ability to ship kaolin
in the quantities desired prior to the onset of cold weather, which
makes unloading of the kaolin costly and difficult due to freezing
of the kaolin clay in the railcars.
The Company is a member of a Limited Liability Company which
has been formed to mine a portion of the Company's offshore Nome,
Alaska properties. It is anticipated that mining operations will
begin in June 1996, and continue for approximately three months.
If these mining operations are successful, and the Company's
expectations are met, Nova will realize a substantial increase in
cash flow during fiscal 1996 resultant from these operations, and
the continuation of successful mining operations during future
years could establish a cash flow stream which could persist for a
number of years. There can be no assurance that these operations
will be successful, nor that the Company's expectations as to cash
flow will be realized.
OTHER INFORMATION
Nova Natural Resources Corporation holds six State of Alaska
leases offshore Nome, Alaska. Refer to the report on Form 10-KSB
and the Exhibits thereto for the fiscal year ended September 30,
1995 for a detailed description of these holdings.
Nova recently completed an offering pursuant to Regulation D
under the Securities Act of 1933, as amended, and state securities
laws, principally for the purpose of funding operations to recover
placer gold and related minerals on a portion of these leases.
Please refer to Nova's report on Form 8-K, dated April 12, 1996 for
a detailed description of this event. As of May 10, 1996, Nova had
received offering proceeds aggregating $320,000 in cash and $50,000
in services from the issuance of 37 Units in this Offering at
$10,000 per Unit. Each Unit is composed of one membership interest
in an Idaho Limited Liability Company known as NovaChek Limited
Liability Company ("NovaChek") and a convertible debenture issued
by Nova. The purchase price of each Unit was allocated at $3,750
for each NovaCheck interest and $6,250 for each debenture. Each
debenture provides for interest payments at an annual rate of 10%
on the face value of the debenture, payable semi-annually; may be
converted into Nova common stock at the rate of one share of stock
for each $0.15 of principal; may be redeemed by the Company after
March 31, 1998; and is due on April 1, 2001.
The Company has three more Units to sell to reach the maximum
Unit sales of forty Units. Sales efforts will continue until the
earlier of the sale of all forty Units or the close of business on
May 15, 1996, whichever is earlier.
NovaChek currently expects to begin mining operations offshore
Nome in the summer of 1996.
<PAGE>
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: May 11, 1996 By: /s/ Brian B. Spillane
Brian B. Spillane,
President, Director, and
Chief Executive Officer
Date: May 11, 1996 By: /s/ James R. Schaff
James R. Schaff,
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-END> MAR-31-1996 MAR-31-1996
<CASH> 321977 321977
<SECURITIES> 0 0
<RECEIVABLES> 117348 117348
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 444011 444011
<PP&E> 6983438 6983438
<DEPRECIATION> 6064815 6064815
<TOTAL-ASSETS> 1584045 1584045
<CURRENT-LIABILITIES> 378111 378111
<BONDS> 0 0
<COMMON> 649619 649619
0 0
2687682 26987682
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1584045 1584045
<SALES> 79351 268596
<TOTAL-REVENUES> 79351 268596
<CGS> 30366 157895
<TOTAL-COSTS> 149849 387717
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (70498) (119121)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (70498) (119121)
<EPS-PRIMARY> (.01) (.02)
<EPS-DILUTED> (.01) (.02)
</TABLE>
