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, 1997
( ) 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.)
789 Sherman Street, Suite 550
Denver, Colorado 80248
(Address of principal executive offices)
(303) 863-1997
(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 No X
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: 5,788,932
Transitional Small Business Disclosure Format (Check One):
Yes ; No X
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEET
DECEMBER 31, 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 89,783
Accounts receivable:
Oil and gas 5,875
Other 10,958
Current maturities of note receivable 63,689
Prepaid expenses and other 5,139
_________
Total current assets 175,444
OIL AND GAS PROPERTIES, at cost
(using the full
cost method of accounting):
Unproved properties not being amortized 19,860
Properties being amortized 5,982,998
_________
6,002,858
Accumulated depreciation, depletion
and amortization (5,918,673)
___________
Net oil and gas properties 84,185
MINERAL PROPERTIES, at cost 126,929
OTHER ASSETS:
Note receivable, net of current maturities 307,862
Investment in and advances to NovaChek 4,000
Furniture and technical equipment,
net of accumulated depreciation
of $127,399 2,336
_______
Total other assets 314,198
_______
TOTAL ASSETS $ 700,756
=======
See accompanying notes to these financial statements.
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEET, CONTINUED
DECEMBER 31, 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,612
Accounts payable 35,575
Accrued expenses 56,172
_________
Total current liabilities 100,359
_________
LONG TERM DEBT, less current maturities 276,494
_________
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1.00
par value; 3,000,000 shares
authorized; 1,792,267 shares
issued and outstanding,
liquidation preference $1,792,267 1,792,267
Common stock, $.10 par value;
17,000,000 shares authorized;
5,788,932 shares issued and
outstanding; 578,893
Additional paid-in capital 7,217,775
Accumulated deficit (9,265,032)
___________
Total Stockholders' equity 323,903
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 700,756
=======
See accompanying notes to these financial statements.
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
______ ______
REVENUES:
Mineral sales:
Kaolin $ 584 $ 191,556
Gravel Royalties 1,320 -
Oil and gas sales 20,767 41,616
_________ _________
Total revenues 22,671 233,172
_________ _________
COSTS AND EXPENSES:
Mining costs:
Kaolin operations - 153,584
Gravel royalties - 983
Oil and gas production costs 21,165 30,415
Depletion, depreciation, and
amortization 4,384 9,492
Mining property abandonments 5,813 60
General and administrative 86,993 112,220
_________ _________
Total costs and expenses 118,355 306,754
_________ _________
OPERATING LOSS (95,684) (73,582)
OTHER INCOME (EXPENSES):
Equity in losses of NovaChek LLC - (6,290)
Interest income 11,817 3,176
Interest expense (7,226) (8,333)
Gain on sale of assets - 76,557
_________ ________
4,591 65,110
_________ _________
NET LOSS $ (91,093) $ (8,472)
========== =========
NET LOSS PER SHARE (.02) (.00)
========== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,788,939 6,496,188
========= =========
See accompanying notes to these financial statements
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
______ ______
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (91,093) $ (8,472)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depletion, depreciation and amortization 4,384 9,492
Gain on sale of assets -- (76,557)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 15,318 385,572
Prepaid expenses and other (1,640) (2,089)
Deposits -- (550)
Increase (decrease) in:
Accounts payable (53,132) (216,178)
Accrued expenses 53,324 (25,159)
_________ ________
Net cash provided by (used in) operating activities (72,839) 66,059
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 13,890 229,957
Investment in and advances to NovaChek LLC -- (52,226)
Capital expenditures (16,991) 5,836
Collection of principal on note receivable 36,366 --
_________ _________
Net cash provided by (used in) investing activities 33,265 183,567
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (4,670) --
Purchase and retirement of common and preferred stock (16,458) --
_________ ________
Net cash provided by (used in) financing activities (21,128) --
_________ ________
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (60,702) 249,626
_________ ________
CASH AND EQUIVALENTS, at beginning of year 150,485 79,827
_________ ________
CASH AND EQUIVALENTS, at end of year $ 89,783 $ 329,453
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ -- $ 16,292
========= ========
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
Notes to Condensed Financial Statements
Three Months Ended December 31, 1997 and 1996
(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, 1997 and the results of operations for
the three month period ended December 31, 1997 and 1996. Certain amounts have
been reclassified for comparability with the 1997 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, 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, 1997,
previously filed with the Securities and Exchange Commission.
(2) During fiscal 1997, the Company offered to purchase common shares from
shareholders desiring to sell for $.04 per share. Through September 30, 1997
the Company purchased and retired 13,700 shares for $548. In October 1997, an
additional 411,447 shares were purchased for $16,458 and retired.
(3) 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. Common share equivalents including convertible preferred
stock, stock options, and convertible debentures were not included in the
computation of diluted earnings per share as their effect was anti-dilutive for
1997 and 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Managements discussion of anticipated future operations contains
predictions and projections which may constitute forward looking
statements. The Private Securities Litigation Reform Act of 1995,
including provisions contained in Section 21E of the Securities Exchange
Act of 1934, provides a safe harbor for forward-looking statements. In
order to comply with the terms of the safe harbor, the Company notes that
a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include, but are not
limited to, the following:
(a) The Company may not be able to enter into an agreement with a new
partner to assist the Company in carrying its paper-grade kaolin project to
the commercial feasibility stage on terms acceptable to Nova.
(b) The paper-grade kaolin project may encounter difficulties, currently
unforeseen, which will prevent attainment of commercial feasibility.
(c) The Company may not be able to find industry partners to evaluate its
oil & gas prospects.
(d) Present and anticipated sources of funds may be insufficient to meet
the Company's working capital needs.
RESULTS OF OPERATIONS
The Company realized an operating loss for the three month period
ended December 31, 1997 of $95,684 compared to an operating loss of $73,582
for the same period in 1996. A one-time gain on the sale of oil and gas
assets of $76,557 was chiefly responsible for reducing the net loss for the
1996 period to $8,472.
Mineral product sales decreased $190,972 to $584 for the three months
ended December 31, 1997 compared to mineral sales of $191,556 for the same
period in 1996. In July, 1997 the Company obtained shareholder approval to
close the sale of its cement-grade Kaolin mine. This accounted for the
severe drop in sales.
Oil and gas sales for the three months ended December 31, 1997
decreased $20,849 to $20,767 compared to $41,616 for the three months ended
December 31, 1996. The Company sold several oil & gas producing assets as
of November 1, 1996, primarily overriding royalty interests in producing
oil & gas wells in the Wyoming Overthrust Belt. The decrease in oil and
gas sales is primarily attributable to the lower volume of oil and gas
produced net to the Company's interest as a result of this sale, and to the
decrease in the price for oil during the three months ended December 31,
1997, which more than offset a slight increase in gas sales due to higher
gas prices. The Company's future oil and gas production volumes will be at
this substantially reduced level, less normal production decline, as a
result of this sale unless new production can be brought on stream from as
yet undrilled properties, which is speculative. The sales volumes and
average sales prices during the periods were as follows:
Three Months Ended
December 31, December 31,
1997 1996
Sales
Oil (bbls) 1,015 1,283
Gas (MCF) 435 615
Average Sales Price
Oil $ 15.77 $ 19.41
Gas $ 1.70 $ 1.17
Mining costs including transportation and royalties were $154,567 for
the three months ended December 31, 1996 as compared to $0 for the same
period in 1997. The decline is due to the sale of the cement-grade kaolin
mine in July, 1997 and no payments of gravel royalties were incurred during
the fiscal 1997 quarter.
Oil and gas production costs decreased $9,250 for the three months
ended December 31, 1997 as compared to 1996. The decrease is primarily
attributable to the lower production volume in the 1996 period as a result
of the production sale. Since the sale involved primarily royalties, which
are free of most production costs, production costs did not decline as
sharply as oil and gas sales, since the remaining properties held are
primarily working interests.
General and administrative expenses decreased $25,227 for the three
months ended December 31, 1997 as compared to the same period in 1996.
This decrease was primarily due to higher legal expenses associated with
the possible sale of the Company's kaolin mine, as well as legal costs
incurred in connection with the repurchase of common and preferred stock
from a major shareholder, both one-time events occurring in 1996.
Accounting expenses were also higher in 1996, due to the fact that the
company engaged a new accounting firm in fiscal 1997 which had a lower
level of fees and to the extra accounting work associated with both the
pending sale of the kaolin mine and the stock repurchase in 1996.
Depletion, depreciation, and amortization decreased 53% to $4,384 in
the three months ended December 31, 1997 as compared to $9,492 in 1996.
This decrease was primarily the result of the sale of producing assets,
which substantially reduced the full-cost pool, and to the sale of the
cement-grade kaolin mine which eliminated mineral depletion.
The Company's share of losses of NovaChek in the three months ended
December 31, 1996 were $6,290 as compared to $0 in 1997. During fiscal
1997, NovaChek LLC commenced dredging operations but management determined
that it was not possible to operate economically. In December 1997, the
managers of NovaChek LLC decided to liquidate the LLC by the end of 1997
and they determined that the net realizable value of NovaChek LLC's assets
would not be sufficient to satisfy all of the liabilities. In September
1997, the Company wrote its investment in NovaChek down to $4,000, which it
received in February, 1998.
Interest income increased to $11,817 in the three months ended
December 31, 1997, compared to $3,176 in 1996. The increase is due to the
accrued interest on the note receivable from the sale of the cement grade
kaolin mine. Interest expense in the quarter decreased to $7,226 in the
three months ended December 31, 1997, compared to $8,333 in 1996.
A gain of $76,557 on the one-time sale of producing assets was
recorded in the 1996 period. There was no such gain in the 1997 quarter.
CAPITAL RESOURCES-SOURCES OF CAPITAL
The Company's primary sources of cash flow during the three months
ended December 31, 1997 were the collection of accounts receivable,
proceeds from the non-recurring sale of an oil & gas prospect, and
collection of principal on the note receivable associated with the sale of
the kaolin mine. Cash used by operations totaled $72,839 for the three
month period ended December 31, 1997 as compared to cash provided by
operations of $66,059 for the same period in 1996. The decrease in cash
and cash equivalents for the period was $60,702 resulting in cash on hand
at December 31, 1997 of $89,783, compared to cash on hand at December 31,
1996 of $329,453. In the 1996 period, cash on hand was enhanced by the
proceeds from the asset sales. Much of this cash was subsequently expended
in the stock repurchase.
CAPITAL RESOURCES-UTILIZATION OF CAPITAL
For the three month period ended December 31, 1997 the Company reduced
accounts payable by $53,132. Proceeds from the sale of properties were
$13,890, and collection of principal on the note receivable was $36,366
resulting in cash provided by investing activities of $33,265. In the
comparable period, net cash provided by investing activities was $183,567.
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, from existing cash balances, and from the proceeds of a
contemplated loan against future accounts receivable from the mine sale.
LIQUIDITY
At December 31, 1997, the Company's working capital totaled $75,085 as
compared to $147,876 at September 30, 1997. Liquidity for the three months
ended December 31, 1997 was provided by the sale of an oil & gas prospect
and by collection of principal on note receivable; however, liquidity was
reduced by reductions in accounts payable, purchase and retirement of
common stock, and capital expenditures.
Based on cash flow projections through 1998, it is anticipated that
the Company will be required to borrow against its receivable from the mine
sale.
FUTURE TRENDS
The Company asked its partner in its Minnesota paper kaolin
exploration project to withdraw from the project, and an agreement of
termination was signed on January 9, 1998. It is the Company's intent to
replace its former partner with a new partner who will financially support
the work needed to bring the project to final feasibility. The cost of
reaching final feasibility has been estimated by the Company at $4.1
Million, which it is contemplated would be expended over the next 2-3
years. The Company and its partner have expended in excess of $3 Million
on this project. The Company now controls 100% of the interest in the
project, but must make a future payment to its former partner in four years
to retain that interest or the properties will revert to its former
partner. The Company is proposing a program of development to potential
industry partners, which proposal includes overhead and management fees
which the Company would receive in return for operating the program. It is
proposed that an industry partner would earn a majority interest in the
project by expending these funds, and would either finance or arrange
financing for a processing plant which would be required to initiate
production on the properties committed to the project, which would require
an estimated investment of $50 Million. It is the Company's goal to enter
into an agreement with a new partner and profitably put the properties into
production. While the Company believes it will be successful in entering
into an agreement with a new partner on terms favorable to the Company,
that the project will prove to be economically feasible, and that it will
be put into profitable production, there can be no assurance that any of
these events will occur. It is contemplated that the Company's efforts
will be concentrated primarily on this project over the next several years,
and that overhead and management fees connected with this project will be
adequate to cover the Company's costs and prevent any further deterioration
in its working capital. However, until an acceptable industry partner is
located, the Company expects a continuing decline in working capital.
The Company has reduced its overhead substantially over the past two
years, and further reductions would be difficult to achieve without
impairing the Company's ability to operate efficiently, manage its assets
and pursue its growth objectives. Nova Natural Resources Corporation
intends to explore all avenues whereby it can strengthen its balance sheet,
develop its assets, acquire additional assets and add to its ability to
generate revenues, achieve profitability, and create value for its
shareholders, including the acquisition of assets or of other companies,
mergers, and private and/or public financing.
OIL & GAS PROSPECTS
The Company holds a 50% interest in the Luman prospect, an exploratory
gas prospect in the State of Wyoming. The other 50% interest is held by
the Robert E. McDonald Family Trust. Robert E. McDonald is the Company's
largest shareholder and a Director. The Company and the Trust are seeking
an industry partner to drill this prospect, and while the Company believes
such a partner will be found, there is no certainty that one will be found,
nor can it be determined at this time when this prospect will be drilled.
A second prospect, also in Wyoming, was sold to an industry partner, but
the leases expired on December 31, 1997, before it could be drilled. The
Luman prospect leases have considerable time remaining before they are
subject to expiration.
The Company holds a similar interest in leases in the Great Salt Lake
in Utah, also jointly owned with the Trust. These leases will expire in
one and one-half years if not held by production or extended prior to
expiration. Significant effort has been expended with third parties to
sell this lease position to an industry partner with the capability to
develop them. It cannot be determined at this time whether these efforts
will be successful.
NOME PROSPECT
The Company has reduced its lease position offshore Nome, Alaska, and
intends to enter into royalty arrangements on all of the remaining leases
whereby an unaffiliated third party will pay the rentals and other costs
associated with these leases, and attempt to establish commercial gold
production on them. The Company intends to retain a royalty interest in
any gold production from these leases, with a maximum royalty amount of
$360,000. However, there is no certainty that royalty income will result
from these arrangements, nor as to the amount should the Company realize
income from them. The Company intends to incur no further costs in
connection with these leases.
A more complete description of these prospects is contained in the
Company's report on Form 10-KSB for fiscal 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibit 27, Financial Data Schedule (Submitted only in
electronic format.
(b) Reports on Form 8-K. None
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 17, 1998 By: /s/ Brian B. Spillane
Brian B. Spillane,
President, Director, and
Chief Executive Officer
Date: February 17, 1998 By: /s/ James R. Schaff
James R. Schaff,
Secretary-Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 89,783
<SECURITIES> 0
<RECEIVABLES> 80,522
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 175,444
<PP&E> 6,259,522
<DEPRECIATION> 6,046,072
<TOTAL-ASSETS> 700,756
<CURRENT-LIABILITIES> 100,359
<BONDS> 250,000
0
1,792,267
<COMMON> 578,893
<OTHER-SE> (2,047,257)
<TOTAL-LIABILITY-AND-EQUITY> 700,756
<SALES> 22,671
<TOTAL-REVENUES> 34,488
<CGS> 0
<TOTAL-COSTS> 118,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,226)
<INCOME-PRETAX> (91,093)
<INCOME-TAX> (91,093)
<INCOME-CONTINUING> (91,093)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (91,093)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
