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, 1999
( ) 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 80203
(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 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: 9,399,131
Transitional Small Business Disclosure Format (Check One):
Yes ; No X
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEET
JUNE 30, 1999
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 152
Accounts receivable:
Oil and gas 2,998
Other 20,658
Current maturities of note receivable 70,200
Prepaid expenses and other 1,550
_________
Total current assets 95,558
OIL AND GAS PROPERTIES, at cost
(using the full
cost method of accounting):
Unproved properties not being amortized 11,806
Properties being amortized 5,973,697
_________
5,985,503
Accumulated depreciation, depletion
and amortization (5,952,306)
___________
Net oil and gas properties 33,197
MINERAL PROPERTIES, at cost 183,302
__________
OTHER ASSETS:
Note receivable, net of current maturities 237,662
Furniture and technical equipment,
net of accumulated depreciation
of $67,128 0
_______
Total other assets 237,662
_______
TOTAL ASSETS $ 549,719
========
See accompanying notes to these financial statements.
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEET, CONTINUED
JUNE 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 85,196
Accrued expenses 57,406
_________
Total current liabilities 142,602
_________
LONG TERM DEBT 125,000
_________
COMMITMENTS AND CONTINGENCIES
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;
9,399,131 shares issued and
outstanding 939,913
Additional paid-in capital 7,082,491
Accumulated deficit (9,532,554)
___________
Total Stockholders' equity 282,117
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 549,719
========
See accompanying notes to these financial statements.
NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
________ ________ ________ ________
REVENUES:
Mineral sales:
Kaolin $ 0 $ 0 $ 0 $ 584
Gravel Royalties 0 0 0 1,320
Oil and gas sales 9,446 13,271 24,737 51,276
________ ________ _______ _______
9,446 13,271 24,737 53,180
EXPENSES:
Oil and gas
production costs 4,565 22,158 12,155 61,843
Depletion, depreciation,
and amortization 1,949 3,756 7,072 12,715
Mineral property abandonments 0 0 0 6,938
General and administrative 25,958 55,963 65,061 214,202
_______ _______ _______ _______
Total costs and expenses 32,472 81,877 84,288 295,698
_______ _______ _______ _______
OPERATING LOSS (23,026) (68,606) (59,551) (242,518)
OTHER INCOME(EXPENSES):
Interest income 7,710 9,308 23,972 30,916
Interest expense (3,786) (8,704) (12,234) (23,056)
Contract income 8,222 0 11,494 0
Other Miscellaneous income 0 0 6,246 410
Debt conversion expense
(Note 7) 0 0 (71,615) 0
________ ________ ________ ________
Total other income 12,146 604 (42,137) 8,270
Loss before
extraordinary item (10,880) (68,002) (101,688) (234,248)
-------- -------- -------- -------
EXTRAORDINARY ITEM:
Gain on forgiveness of
debt(Note 6) 0 0 14,652 0
________ _________ _______ ________
Net loss $ (10,880) $ (68,002) $ (87,036) $ (234,248)
========= ========= ========= =========
Earnings per share
Loss before extraordinary
item $ (.00) $ (.01) $ (.02) $ (.04)
Extraordinary item 0 0 0 0
________ _________ _________ _________
Loss per share(Note 5) $ (.00) $ (.01) $ (.01) $ (.04)
======== ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,308,853 5,788,506 6,291,492 5,788,935
========= ========= ========= =========
See accompanying notes to condensed financial statements.
NOVA NATURAL RESOURCES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30, June 30,
1999 1998
________ ________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (87,036) $ (234,248)
Adjustments to reconcile net
loss to net cash
used by operating activities:
Depletion, depreciation,amortization 7,072 12,715
Gain on forgiveness of debt (14,652) --
Debt conversion expense 71,615 --
Change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable (1,596) 10,800
Prepaid expenses and other 5,985 (1,460)
Increase (decrease) in:
Accounts payable 39,378 (44,996)
Accrued expenses 10,693 55,271
Note Payable 78,348
_______ _______
Net cash provided by (used in)
operating activities 31,459 (123,570)
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 14,645 13,890
Capital expenditures (19,594) (47,184)
Collection of principal on
note receivable 38,425 36,366
_______ _______
Net cash provided by (used in)
investing activities 33,476 3,072
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (63,652) (4,670)
Purchase and retirement of common
and preferred stock -- (16,475)
_______ _______
Net cash provided by (used in)
financing activities (63,652) (21,145)
_______ _______
INCREASE (DECREASE) IN CASH 1,283 (141,643)
CASH, at beginning of period (1,131) 150,485
_______ _______
CASH, at end of period $ 152 $ 8,842
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 2,859 $ 14,077
======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of debt to common stock $ 125,000 $ --
======= =======
See accompanying notes to condensed financial statements.
NOVA NATURAL RESOURCES CORPORATION
Notes to Condensed Financial Statements
Nine Months Ended June 30, 1999 and 1998
(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, 1999 and the results of operations for the
three and nine month periods ended June 30, 1999 and 1998. Certain amounts have
been reclassified for comparability with the 1998 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, 1998,
previously filed with the Securities and Exchange Commission.
(2) During fiscal 1997, the Company offered to purchase common shares from the
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 411,477 shares were purchased for $16,458 and retired. In March
1998, a final 426 shares were purchased for $17 and retired.
(3) In an action effective January 30, 1998 the Board of Directors of the
Company cancelled all outstanding options to purchase shares of the Company's
common stock held by the employees under the Nova Natural Resources Corporation
1989 Incentive Stock Option Plan, and cancelled all options held by the
Directors under the Nova Natural Resources Corporation 1989 Nonqualified Stock
Option Plan. These options had a strike price of $.10 per share. A total of
1,250,000 options were outstanding. In the same action the Board of Directors
granted options to purchase shares of the Company's common stock under the 1998
Nonqualified Stock Option Plan to all Directors and employees. Options were
granted to purchase a total of 3,373,577 shares at $.03 per share.
(4) In March, 1998 the Company secured a short term line of credit from
Foothills Bank of $101,348. The line was to be used to cover operating costs
and had a maturity date of December 30, 1998. The interest rate was 2 points
over prime. Interest was to be paid monthly, with the payment of all
outstanding principal due on December 30, 1998. This loan was guaranteed by the
President and by Robert E. McDonald, a director and large shareholder. This
loan was paid in full in December, 1998 from the proceeds of the sale of the
kaolin mine. In February, 1999 the loan was renewed for another year under the
same terms. At June 30, 1999 the balance on this loan was $38,404.
(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. 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
1999 and 1998.
(6) The Company owed $37,008 to a former Director on a contract payable in
connection with the purchase and retirement of common and convertible preferred
stock, payable in installments of $6,000 in August and December of each year
through August 2001, with a final payment in December 2001 of $1,008. In March,
1999 the Company reached an agreement with the Former Director to accept $18,504
as payment in full of this long term obligation. The Company recognized a gain
of $14,652 on this forgiveness of debt.
(7) On April 1, 1996, the Company issued $250,000 of convertible debentures.
These debentures provide for interest payments at an annual rate of 10%, payable
semi-annually, and are due on April 1, 2001, but are redeemable in common stock
by the Company after March 31, 1998. The debentures are convertible into the
Company's common stock at the rate of one share of stock for each $0.15 of
principal, which would result in the issuance of 1,666,667 common shares if so
converted. In June 1996, holders of $175,000 of the debentures, of which
$40,625 of debentures are held by affiliates, agreed that the Company could
redeem such debentures after September 1, 1996. provided that such early
redemption is effected at $0.10 per common share and the payment of six months
advance interest. No such redemption has been made to date. In January, 1999
the Company offered the debenture holders the following proposal:
1. 50% of the face amount of the debentures will be secured with future
receivables from the installment sale of Nova's cement-grade kaolin mine. An
escrow account will be set up for this purpose. The note will be due no later
than December 31, 2001, and would have the dilution protection contained in the
present debentures. Interest on the note will be paid at a 10% annual rate.
These payments would be made on August 31st and December 31st of each year, to
coincide with receipt of the installment payments from the sale of the mine.
Management agreed to recommend to the shareholders at the next shareholder's
meeting that the notes be convertible into common stock at $0.04 per share and
that sufficient shares be authorized to permit such conversion.
2. Shares of Nova common stock would be issued for the remaining 50% of
the face amount of the debentures at $0.04 per share.
3. The offer would expire March 31, 1999 unless extended by the Company.
The offer was accepted by 100% of the debenture holders. As a result the
Company's long term debt was reduced by $125,000 to $125,000. Common stock was
increased by 3,125,000 shares. The Company booked a $71,615 expense in
connection with the conversion due to the difference in the fair value of the
original conversion price and the new conversion price.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
Management's 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 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.
(d) Present and anticipated sources of funds may be insufficient to meet the
Company's working capital needs.
RESULTS OF OPERATIONS
The Company realized net losses for the three month period and nine month
periods ended June 30, 1999 of $10,880 and $87,036, respectively, compared to
net losses of $68,002 and $234,248 for the same periods in 1998. In fiscal 1999,
there was a debt conversion expense of $71,615 and a gain of $14,652 on the
forgiveness of debt. Both items are non-recurring items. The reduction in the
losses are due to the drastic cuts in spending made by the Company.
Mineral product sales were $1,904 for the nine month period ending June 30,
1998 compared to $0 for the same period in 1999. In July, 1997 the Company
obtained shareholder approval for the sale of its cement-grade Kaolin mine,
which sale was effective in July 1997. The sale of the mine was wholly
responsible for the drop in sales.
Oil and gas sales for the three months and nine months ended June 30, 1999
decreased $3,825 and $26,539, respectively, to $9,446 and $24,737 compared to
$13,271 and $51,276 for the three months and nine months ended June 30, 1998.
The Company has been selling its interests in oil and gas wells, which are
nearing the end of their productive lifetimes and are very price-sensitive to
reduce the Company's exposure to price declines, to finance the day to day
activities of the company and to concentrate assets on the Company's paper
kaolin project. The sharp decline in oil and gas sales is primarily
attributable to the lower volume of oil and gas produced net to the Company's
interest as a result of these sales, and to the dramatic decrease in the price
of oil for nine month period ended June 30, 1999. The price of oil in the three
month period ended June 30, 1999 and the price of gas in both the three month
and the nine month periods increased substantially, but these increases were not
sufficient to offset the decline in production volumes in these periods. The
Company's future oil and gas production volumes will be at this substantially
reduced level, less normal production decline, as a result of the sales unless
new production can be brought on stream from as yet undrilled properties, which
is speculative. The sales volumes and average sales prices during the periods
were as follows:
Three Months Ended
June 30, 1999 June 30,1998
Sales
Oil (Bbl) 548 1,066
Gas (MCF) 624 1,526
Average Sales Price
Oil ($/Bbl) $13.94 $10.85
Gas ($/MCF) $ 1.64 $ 1.11
Nine Months Ended
June 30, 1999 June 30, 1998
Sales
Oil (Bbls) 1,645 3,248
Gas (MCF) 3,306 6,575
Average Sales Price
Oil ($/Bbl) $10.21 $12.78
Gas ($/MCF) $ 1.79 $ 1.39
Oil and Gas lease operating expenses including production taxes decreased
$17,593 and $49,688 for the three months and nine months ended June 30, 1999 as
compared to 1998. The decrease is attributable to the lower production volume
in the 1999 period as a result of the reduced holdings of the company due to the
sales of production. These sales have also reduced the Company's interests in
marginal wells which require costly workovers to maintain production levels,
over which the Company, as a non-operator, has little control.
General and administrative expenses decreased $30,005 for the three month
period and $149,141 for the nine month period ending June 30, 1999 compared to
the same periods ending June 30, 1998. This decrease is primarily due to
across-the-board reductions, including the elimination of all salaries.
Depletion, depreciation, and amortization decreased 48% to $1,949 and 44%
to $7,072, respectively, in the three months and nine months ended June 30,
1999, compared to $3,756 and $12,715 in the fiscal 1998 periods. This decrease
was primarily the result of the sale of producing assets, which substantially
reduced the full-cost pool.
Mineral property abandonments were $0 for the three months and nine months
ended June 30, 1999, compared to $0 and $6,938 for the comparable periods in
1998. This is due to the abandonment of the Querida Gold prospect in the 1998
fiscal period.
In March 1999 the Company made an offer to the debenture holders in which
50% of the face amount of the debentures will be secured with future receivables
from the installment sale of Nova's cement-grade kaolin mine. Shares of Nova
common stock will be issued for the remaining 50% of the face amount of the
debentures at $0.04 per share. The Company booked a $71,615 expense in
connection with the conversion due to the difference in the fair value of the
original conversion price and the new conversion price.
Interest income decreased to $7,710 and $23,972 in the three months and
nine months ended June 30, 1999, respectively, compared to $9,308 and $30,916
in the 1998 periods. The decrease is due to the maintenance of very low cash
balances in the 1999 periods, and to the reduced interest imputed on the
receivable from the cement-grade kaolin mine sale, the amount of which decreases
as periodic proceeds are collected. Interest expense decreased from $8,704 to
$3,786 for the three month period, and decreased to $12,234 from $23,056 for
the nine month period. This decrease is due to the reduction in interest
expense in the conversion of $125,000 in long term debt to stock. As a
result of the conversion, the February interest payment on the $125,000 that
was converted into stock was cancelled. Interest accrued on only $125,000
for the 1999 period.
Contract income of $8,222 and $11,494 was collected in the 1999 three month
and nine month periods compared to $0 in the comparable periods in 1998. Other
income consisted of $6,246 in proceeds collected from the settlement of a
lawsuit in the 1999 nine month period. In 1998 other income consisted of $410.
CAPITAL RESOURCES-SOURCES OF CAPITAL
The Company's primary sources of cash flow during the three months and nine
months ended June 30, 1998 were the conversion of debt, collection of accounts
receivable, proceeds from oil and gas sales, income of $6,246 from the
settlement of a lawsuit, collection of principal on the note receivable
associated with the sale of the kaolin mine, and from proceeds of a note payable
to a bank. Cash provided by operations totaled $31,459 for the nine month
period ended June 30, 1999, as compared to cash used by operations of $123,570
for the same period in 1998. The increase in cash and cash equivalents for the
nine month period was $1,283, resulting in cash on hand at June 30, 1999 of
$152. Cash decreased $141,643 in the 1998 period, resulting in cash on hand at
June 30. 1998 of $8,842.
CAPITAL RESOURCES-UTILIZATION OF CAPITAL
For the nine month period ended June 30, 1999 the Company increased
accounts payable by $39,378. Collection of principal on note receivable and
proceeds from sale of assets provided cash from investing activities of $33,476
for the nine month period ended June 30, 1999. Capital expenditures were
$19,594 in 1999 compared to $47,184 in 1998 resulting in only $3,072 provided
by investing activities in 1998. 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 loan against future accounts receivable from the mine sale.
LIQUIDITY
At June 30, 1999, the Company's working capital deficit totaled $47,044
as compared to $55,343 at September 30, 1998. Liquidity for the nine months
ended June 30, 1999 was provided by the collection of principal on a note
receivable, the receipt of proceeds from the settlement of a lawsuit, and
proceeds from the sale of assets.
Based on cash flow projections through 1999 it is anticipated that the
Company will be required to borrow against its receivable from the mine sale.
However, the Company anticipates that this loan will be fully repaid in December
1999.
DEBT RESTRUCTURING
The Company had debt outstanding in the form of Convertible Subordinated
Debentures in the Principal Amount of $250,000. Interest was payable semi-
annually on these debentures at the rate of 10% per annum. They were convertible
into common shares at a conversion price of $.15 per share, and were due and
payable, unless redeemed sooner by the Corporation, on April 1, 2001. An
interest payment in the amount of $12,500 was due on February 28, 1999. The
Company did not have sufficient funds to make this interest payment, which, if
not made, would cause the debentures to be in default, upon which event the
entire unpaid and unredeemed balance of the Principal Amount and all interest
accrued and unpaid, at the election of the holder, would become immediately due
and payable, subject to a curative period and other provisions.
The Company made an offer to all of the holders of its Convertible
Subordinated Debentures to restructure this debt. The Company offered to
exchange restricted common shares of the Corporation for 50% of the Principal
Amount (i.e. $125,000), at a price per share of $.04, and to replace the other
50% of the Principal Amount with notes secured by a portion of a $125,000
installment payment relating to the sale of its kaolin mine to be received in
December 2001. This offer was accepted by all of the Debenture holders. The
notes will have a due date of December 31, 2001, and will pay interest at 10%
per annum, with payments to be made on August 31 and December 31 of each year,
to coincide with the receipt of installment payments from the mine sale. No
interest payment was be made on February 28, 1999. However the August 31, 1999
interest payment will include interest computed at an annual rate of 10% on the
notes, as if the note had been outstanding from September 1, 1998.
Management will recommend to the shareholders at the next shareholders
meeting that shares sufficient to allow conversion of these notes to common
shares at a conversion price of $.04 per share be authorized. The Company would
have the right to call the notes prior to the due date, and the holders of such
notes would have the right to either be paid cash and accrued interest or
convert the notes to common shares. The holders would also have the right to
exercise this conversion privilege at any time subsequent to approval of such
conversion rights and prior to the due date of the note.
This exchange has been accepted by all of the holders of the debentures.
Nova will issue 3,125,000 authorized but unissued common shares, and another
3,125,000 such shares would be issuable should 1) shareholders authorize
sufficient shares to provide for conversion of the $125,000 principal amount of
the notes into common stock, and 2) should all of the holders of the notes elect
to so convert. In addition, the Company's debt has been reduced by $125,000 and
the annual interest cost will be reduced to $12,500 from $25,000. The
acceptance of this offer has resulted in substantial dilution. Common shares
outstanding on a fully-diluted basis have increased from approximately
15,000,000 shares to approximately 16,460,000 shares, and if the all of the
notes are converted, will increase to approximately 19,581,000 shares.
Nova's officers and Directors hold $46,875 or 18.8% of the Principal Amount
of these debentures, which they acquired on identical terms as those not
affiliated with the Company. All of the officers and directors holding such
debentures have agreed to accept the Company's offer.
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 Company and its partner have expended in
excess of $3.3 Million on this project. The further cost of reaching final
feasibility has been estimated by the Company at an additional $4.4 Million,
which it is contemplated would be expended over the next 2-3 years. The Company
now controls 100% of the interest in the project, but must make a $300,000
future payment to its former partner by December 31, 2001 to retain that
interest or the properties will revert to its former partner. It is
anticipated, but cannot be assured, that this payment can be re-negotiated on
more favorable terms.
Nova 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 $41 Million in addition to the
$4.4 Million to reach final feasibility. 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 reasonable terms, 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, or additional funding
for this project if obtained, the Company expects a continuing decline in
working capital.
The Company is evaluating the creation of a wholly-owned subsidiary,
tentatively to be called Minnesota Kaolin Corporation (MINKA), into which it
would transfer all of its paper kaolin assets. The Company would then seek
investments in this entity within the State of Minnesota, selling stock in MINKA
on a private basis to provide interim funding for the paper kaolin project.
These funds would be used to complete the drilling necessary to convert
sufficient of the Company's large kaolin resource base to proven reserves to
provide an adequate proven reserve for the processing plant, as well as to
conduct other work which will move the project forward toward commercial
feasibility. Although an industry partner would still be sought, the
feasibility of downstream public financing would also be considered, which would
reduce the Company's ownership of the paper kaolin project in exchange for
funding to develop it.
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 industry partner has agreed
to grant Nova an overriding royalty interest in the expired leases should they
be reacquired. A portion of these leases have been so reacquired. 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 August
1999 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 appears unlikely at
this time that these efforts will be successful.
NOME PROSPECT
The Company has reduced its lease position offshore Nome, Alaska, and has
entered 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. No
royalties have been received to date, and there is no certainty that royalty
income will result from these arrangements, nor as to the amount should the
Company realize income from them. In August 1999, the Company sold its royalty
in the majority of the leases, which carried a potential maximum royalty amount
of $360,000 for $15,000. 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 1998.
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: August 13, 1999 By: /s/ Brian B. Spillane
Brian B. Spillane,
President, Director, and
Chief Executive Officer
Date: August 13, 1999 By: /s/ James R. Schaff
James R. Schaff,
Secretary-Treasurer
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