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 December 31, 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 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)
December 31,
1995 September 30,
(Unaudited) 1994
ASSETS
Current assets:
Cash and cash equivalents $ 134,403 $ 70,820
Accounts receivable 39,946 268,027
Prepaid expenses 5,203 1,500
Total current assets 179,552 340,347
Deposits 73,469 71,411
Property and equipment, at cost:
Oil and gas properties-full cost
accounting method 6,176,751 6,175,878
Mineral properties 635,612 629,868
Office and technical equipment 168,384 168,384
6,980,747 6,974,130
Less accumulated depreciation,
depletion, and valuation allowance 6,048,344 6,030,197
Net property and equipment 932,403 943,933
$1,185,424 $1,355,691
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 111,473 $ 220,289
Accrued liabilities 645 13,472
Total current liabilities 112,118 233,761
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 (8,718,291) (8,669,667)
Total stockholders' investment 1,073,306 1,121,930
$1,185,424 $1,355,691
See accompanying notes to condensed financial statements.
NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Operations
(Unaudited)
Three Months Ended
December 31, December 31,
1995 1994
REVENUES:
Mineral product sales $ 142,508 $ 625,559
Oil and gas sales 44,638 50,930
Interest income 2,099 3,133
Other income -- 5
189,245 679,627
EXPENSES:
Mining costs, including transportation
and royalties 94,914 506,382
Lease operating, including
production taxes 32,615 24,974
Depletion, depreciation,
and amortization 18,146 36,205
General and administrative 92,193 113,814
Interest expense -- 5,595
237,868 686,970
NET (LOSS) $ (48,623) $ (7,343)
NET (LOSS) PER COMMON SHARE $ (.01) $ (.01)
WEIGHTED AVERAGE SHARES OUTSTANDING 6,496,188 6,323,971
See accompanying notes to condensed financial statements.
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
December 31, December 31,
1995 1994
Cash flows from operating activities:
Net (loss) $ (48,623) $ (7,343)
Adjustments to reconcile net
(loss) to net cash provided
by operating activities:
Depletion and depreciation 18,146 36,205
Change in assets and liabilities:
Decrease in accounts receivable 228,081 414,859
(Increase) in deposits (2,058) (362)
(Increase) in prepaid expenses (3,703) (3,031)
(Decrease) in accounts
payable and accruals (121,643) (291,573)
Net cash provided by operating
activities 70,200 148,755
Cash flows from investing activities:
Additions to property and equipment (6,617) (6,040)
Net cash (used) by
investing activities (6,617) (6,040)
Cash flows from financing activities:
Reduction of note payable -- (26,646)
Net cash (used) by
financing activities -- (26,646)
Increase in cash and cash equivalents 63,583 116,069
Cash and cash equivalents,
beginning of period 70,820 129,135
Cash and cash equivalents,
end of period $ 134,403 $ 245,204
See accompanying notes to condensed financial statements.
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
Notes to Condensed Financial Statements
Three Months Ended December 31, 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 December 31,
1995 and 1994 and the results of operations for the three month period
ended December 31, 1995 and 1994. 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, 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. The Note is
payable in 48 equal installments with an interest rate of 8.5%. The
railcars are used to transport kaolin clay.
(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.
(5) Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes," (SFAS No.
109). There was no impact on these condensed financial statements.
A valuation allowance equal to the net deferred tax asset of the
Company's future deductions and net operating loss carryforward in
excess of its future taxable amounts would be provided because it is
more likely than not that the tax benefits would not be realized.
Accordingly, no amounts have been provided for tax assets or
liabilities.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company realized a net loss for the three month period ended
December 31, 1995 of $48,623 as compared to a net loss of $7,343 for the
same period in 1994. The Company had only one purchaser for its kaolin for
the three months ended December 31, 1995 as compared to two customers in
1994. The decrease in kaolin sales offset other expense reductions and
contributed to the loss for the three months ended December 31, 1995.
Mineral product sales were $142,508 for the three months ended
December 31, 1995 as compared to $625,559 for the same period in 1994 due
to sales of kaolin to two companies in 1994 rather than one in 1995.
Oil and gas sales for the three months ended December 31, 1995
decreased $6,292 to $44,638 from $50,930 for the three months ended
December 31, 1994. Lower average gas prices and decreased production
volumes for the three months ended December 31,1995 as compared to 1994
were only slightly offset by higher oil prices. The sales volumes and
average sales prices during the periods were as follows:
Three Months Ended
December 31, December 31,
1995 1994
Sales
Oil (bbls) 2,040 2,410
Gas (MCF) 9,711 10,299
Average Sales Price
Oil $ 15.39 $ 14.45
Gas $ 1.01 $ 1.36
Workovers in the North Rainbow Ranch Field contributed to the 370
barrel decline in oil sales. While the wells were worked over, they were
taken off production. Lower gas sales in the Whitney Canyon Field
contributed to the 588 MCF decline in gas sales.
Mining costs including transportation and royalties were $94,914 for
the three months ended December 31, 1995 as compared to $506,382 for the
same period in 1994. The decrease is due to costs associated with sales to
one customer in 1995 as compared to two customers in 1994.
Lease operating expenses including production taxes increased $7,641
for the three months ended December 31, 1995 as compared to 1994. The
increase is due primarily to workover expenses incurred in the North
Rainbow Ranch Field.
General and administrative ("G & A") expenses decreased $21,621 for,
he three months ended December 31, 1995 as compared to the same period in
1994. The decrease was due to legal, accounting and reproduction expenses
associated with a Form S-4 Registration Statement filed with the Securities
and Exchange Commission in 1994. Also, management salaries were further
reduced during late fiscal 1995. This reduction is reflected in G & A
costs at December 31, 1995.
Interest expense of $5,595 was incurred during the three months ended
December 31, 1994. The note on which interest was incurred was paid in
full in February, 1995.
CAPITAL RESOURCES-SOURCES OF CAPITAL
The Company's primary source of cash flow was from operations,
primarily from the collection of accounts receivable. Cash provided by
operations totalled $70,200 for the three month period ended December 31,
1995 as compared to cash provided by operations of $148,755 for the same
period in 1994.
CAPITAL RESOURCES-UTILIZATION OF CAPITAL
For the three month period ended December 31, 1995, the Company
reduced accounts payable by $121,643 and made additions to property and
equipment of $6,617. All funds for capital expenditures for the remainder
of the year are expected to be provided by operating cash flow, from
property or asset sales, if any, and from existing cash balances.
LIQUIDITY
At December 31, 1995, the Company's working capital surplus totalled
$67,434 as compared to a surplus of $106,586 at September 30, 1995.
Liquidity for the three months ended December 31, 1995 was provided by
operations; however, liquidity was reduced by reductions in accounts
payable and by investment in oil and gas and mineral properties.
Based on cash flow projections through 1996, it is anticipated that
the Company will experience severe cash deficits if it continues to operate
at current levels. Because oil and gas sales continue to decline, and the
Company has only one customer for its kaolin, the cash flow generated by
oil, gas and kaolin sales is not sufficient to generate positive cash flow.
In an attempt to reduce negative cash flow, management has taken, and may
be forced to take additional, salary reductions. Further, staff has been
reduced and other cost saving measures have been implemented. These
measures may reduce negative cash flow but additional sources of cash
and/or further expense reductions will be necessary to allow the Company to
continue its operate at current levels.
The Company continues to seek other such sources of cash flow
including opening a permitted gravel pit on two leases in Minnesota. A
local contractor mined and marketed the gravel in late 1995 and will pay
the Company a royalty based on gravel sold. Further, the Company is
contemplating the sale of certain of its overriding royalty interests. If
the Company decides to sell these interests, it is anticipated that the
proceeds will be sufficient to allow the Company to continue operations at
current levels.
FUTURE TRENDS
The prices the Company receives for its oil and gas products continue
to fluctuate. The Company's largest producing oil field, the North Rainbow
Ranch Unit, produces a heavy, sour crude. The price paid for this crude is
significantly less than from a higher quality crude. Since most of the
Company's oil sales are from this field, it takes a significant increase in
oil prices for oil sales to increase. In addition, much of the company's
gas is sold on the spot market and such sales are subject to both price and
market demand fluctuations.
Kaolin sales are seasonal 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. The fact that the Company has only one purchaser for its
kaolin has had and will continue to have a significant negative impact on
the Company's cash flow and operations.
<PAGE>
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 December 31, 1995.
<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: February 8, 1996 By: /s/ Brian B. Spillane
Brian B. Spillane,
President, Director, and
Chief Executive Officer
Date: February 8, 1996 By: /s/ James E. Taets
James E. Taets, Vice President,
Secretary, Treasurer and Chief
Accounting Officer
<PAGE>
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