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, 2000
( ) 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.)
4340 East Kentucky Avenue, Suite 418
Glendale, Colorado 80246
(Address of principal executive offices)
(720) 524-1363
(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: 13,254,033
Transitional Small Business Disclosure Format (Check One):
Yes ; No X
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEET
June 30, 2000
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 60,621
Accounts receivable:
Oil and gas 686
_________
Total current assets 61,307
OIL AND GAS PROPERTIES, at cost
(using the full
cost method of accounting):
Properties being amortized 5,957,860
_________
5,957,860
Accumulated depreciation, depletion
and amortization (5,953,860)
___________
Net oil and gas properties 4,000
MINERAL PROPERTIES, at cost 191,948
OTHER ASSETS:
Furniture and technical equipment,
net of accumulated depreciation
of $47,436 2,958
_______
Total other assets 2,958
_______
TOTAL ASSETS $ 260,213
=======
See accompanying notes to these financial statements.
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEET, CONTINUED
June 30, 2000
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 0
Accrued expenses 3,865
_________
Total current liabilities 3,865
_________
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;
13,254,033 shares issued and
outstanding; 1,325,403
Additional paid-in capital 6,812,640
Accumulated deficit (9,673,962)
___________
Total Stockholders' equity 256,348
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 260,213
=======
See accompanying notes to these financial statements.
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
________ ________ ________ ________ REVENUES:
REVENUES:
Oil and gas sales 837 9,446 20,391 24,737
________ ________ ________ _______
Total Revenues 837 9,446 20,391 24,737
EXPENSES:
Oil and gas
production costs 1,518 4,565 9,580 12,155
Depletion, depreciation,
and amortization 314 1,949 2,358 7,072
General and administrative 56,500 25,958 302,007 65,061
_______ _______ _______ _______
Total costs and expenses 58,332 32,472 313,945 84,288
_______ _______ _______ _______
OPERATING LOSS (57,495) (23,026) (293,554) (59,551)
OTHER INCOME(EXPENSES):
Interest income 743 7,710 10,745 23,972
Interest expense - (3,786) (5,582) (12,234)
Contract income 2,688 8,222 31,572 11,494
Other Miscellaneous income 142 -- 142 6,246
Loss on early Payment of
Note Receivable - - (40,629) -
Gain on Forgiveness of Debt - - 30,985 14,652
Gain on Sale of Assets 25,965 - 25,965 -
Sale of Mineral Rights - - 71,659 -
Debt conversion expense - - - (71,615)
________ ________ ________ ________
Total other income 29,538 12,146 124,857 (27,485)
Net loss $ (27,957) $ (10,880) $ (168,697) $ (87,036)
========= ========= ========= =========
NET LOSS PER SHARE
(Basic and Diluted) $ (.00) $ (.00) $ (.02) $ (.01)
======== ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 13,254,033 6,308,853 11,117,233 6,291,492
========= ========= ========= =========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
______ ______
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $(168,697) $ (87,036)
Adjustments to reconcile net income(loss) to net cash
used by operating activities:
Gain on sale of mineral rights (71,658) --
Gain on forgiveness of debt (30,985) (14,652)
Stock Bonus Expenses 115,650 --
Loss on early payment of note receivable 40,629 --
Write off of accounts receivable and interest (336) --
Depletion, depreciation and amortization 2,357 7,072
Debt Conversion expense - 71,615
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 7,003 (1,596)
Prepaid expenses and other 2,767 5,985
Increase (decrease) in:
Accounts payable (44,476) 39,378
Accrued expenses 15,306 10,693
_________ ________
Net cash provided by (used in) operating activities (132,440) 31,459
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 104,487 14,645
Capital expenditures (8,145) (19,594)
Collection of principal on note receivable 240,696 38,425
_________ _________
Net cash provided by (used in) investing activities 337,038 33,476
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable (168,841) (63,652)
Proceeds from note payable 22,500 --
_________ ________
Net cash provided by (used in) financing activities (146,341) (63,652)
_________ ________
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 58,257 1,283
_________ ________
CASH AND EQUIVALENTS, at beginning of period 2,363 (1,131)
_________ ________
CASH AND EQUIVALENTS, at end of period $ 60,620 $ 152
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 5,582 $ 2,859
========= ========
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
Notes to Condensed Financial Statements
Nine Months Ended June 30, 2000 and 1999
(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, 2000 and the results of operations for the
three and nine month periods ended June 30, 2000 and 1999. Certain amounts have
been reclassified for comparability with the 1999 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, 1999,
previously filed with the Securities and Exchange Commission.
(2) 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. Potential common shares attributable to convertible
preferred stock were not included in the computation of diluted earnings per
share as their effect was anti-dilutive for 2000 and 1999.
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, but are not
limited to, the following:
(a) Present and anticipated sources of funds may be insufficient to meet
the Company's working capital needs.
(b) The Company may not be able to complete its contemplated transaction
with Torita Donghao LLC ("Torita Delaware"), as described in the Company's
report on Form 8-K, filed April 24, 2000, and July 14, 2000 with the
Securities and Exchange Commission.
(f) If the contemplated transaction with Torita Delaware is not completed,
there is no assurance that the Company can complete a similar transaction
with another entity.
RESULTS OF OPERATIONS
The Company realized net losses for the three month period and nine
month period ended June 30, 2000 of $27,957 and $168,697, respectively,
compared to net losses of $10,880 and $87,036 for the same periods in 1999.
Oil and gas sales for the three months ended June 30, 2000 decreased
$8,609 to $837 compared to $9,446 for the three months ended June 30, 1999.
For the nine month period ended June 30, 2000, oil and gas sales decreased
$4,346 to $20,391 compared to $24,737 for the nine months ended June 30,
1999. Oil and gas sales decreased in the three and nine month periods
compared to the comparable periods due primarily to production sales.
These sales, which mainly took place in the three months ended June 30,
2000, have eliminated the Company's working interest production. A
dramatic increase in the price of oil and a substantial increase in the
price of gas in the nine month period partially offset the substantial
decrease in production in the nine month period. The production decline
was also attributable to generally expected declines in production as the
wells in which the Company holds interests draw closer to the end of their
production lifetimes. As discussed elsewhere, the Company is in the
process of selling all of its remaining production, and accordingly, the
Company's future oil and gas production volumes and oil and gas sales will
be below even the three months levels, and it is anticipated that, by the
end of the current fiscal year, such sales will cease. The sales volumes
and average sales prices during these periods were as follows:
Three Months Ended
June 30, June 30,
2000 1999
Sales
Oil (bbls) 3 548
Gas (MCF) 257 624
Average Sales Price
Oil $ 21.15 $ 13.94
Gas $ 2.72 $ 1.64
Nine month Ended
June 30, June 30,
2000 1999
Sales
Oil (bbls) 776 1,645
Gas (MCF) 1,172 3,306
Average Sales Price
Oil $ 21.96 $ 10.21
Gas $ 2.52 $ 1.79
Oil and Gas lease operating expenses including production taxes
decreased $3,047 and $2,575 for the three months and nine month ended June
30, 2000 as compared to 1999. The decrease is attributable to the
production sales.
General and administrative expenses increased $30,542 to $56,500 for the
three month period and increased $236,946 to $302,007 for the nine month
period ending June 30, 2000 compared to the same periods ending June 30,
1999, in which these expenses were $25,958 and $65,061, respectively. This
increase is the result of several factors. In January 2000, the Board of
Directors agreed to issue a total of 3,855,000 shares of stock to the
employees, directors, and two consultants, which individuals in turn agreed
to the cancellation of their stock options in their entirety. The Company
was required to take a charge against general and administrative expense in
connection with the issuance of these shares, based on the value of the
stock at the effective date of this transaction of 3 cents per share,
resulting in a charge of $115,650, all of which was non-cash. The Company
resumed the payment of salaries on a limited basis, after a two-year
hiatus, which resulted in $32,005 in salaries and payroll taxes in the
three month period, $2,688 of which was offset by contract income. In
addition, the Company incurred legal expenses of $30,376, in connection
with a proposed, but abandoned, transaction with Richlink International
Holdings, Limited and the proposed transaction with Torita Donghao, LLC, as
well as those steps necessary to wind down the Company's business and
prepare for a transaction wherein another entity will acquire control of
the Company. Accounting fees of $13,403 were paid in the nine month
period, in connection with the audit of fiscal year 1999 financial
statements and the now-required review of the Company's unaudited quarterly
filings. The Company moved its offices May 31, 2000, incurring moving
expenses of $2,192. Other miscellaneous expenses were higher in the 2000
period due to the move, and also due to the increased cost of doing
business in a vigorous economy.
Depletion, depreciation, and amortization decreased 84% to $314 and
67% to $2,358, respectively, in the three months and nine months ended June
30, 2000, compared to $1,949 and $7,072 in the fiscal 1999 periods. This
decrease was primarily the result of the sale of producing assets, which
substantially reduced the full-cost pool.
As discussed in the Company's report on Form 10-QSB for the period
ended December 31, 1999, the Company negotiated the prepayment of a
promissory note received in 1997 in payment for the Company's Minnesota
kaolin mine. The agreed-upon price of $200,000 was discounted from the
face value of the note, and accordingly, a loss of $40,629 on the early
payment of this receivable was expensed in the three month period ended
March 31, 2000. The Company used a portion of these funds to completely
retire its outstanding promissory notes, on which it was paying 10%
interest, at a total cost of $126,769, including accrued interest.
Interest income decreased to $743 and $10,745 in the three months and
nine months ended June 30, 2000, respectively, compared to $7,710 and
$23,972 in the 1999 periods. The decrease is due primarily to a reduction
in accrued interest on the note receivable from the sale of the kaolin
mine. Interest expense decreased from $3,786 to $0 for the three month
period, and decreased to $5,582 from $12,234 for the nine month period.
The decrease was due to the reduction in interest expense resultant from
the conversion of $125,000 in long term debt to stock, and the payment of
the balance of $125,000 in notes plus accrued interest from the proceeds of
the prepayment of the promissory note received in payment for the Company's
Minnesota kaolin mine, which eliminated the further payment of interest on
the Company's notes.
In the nine months ended June 30, 2000, the Company settled debts
which resulted in a gain on forgiveness of debt of $30,985, compared to a
gain on forgiveness of debt in the comparable nine month period of $14,652.
These gains are non-recurring, since the Company has paid or settled all of
its debts except for current accruals arising in the ordinary course of
business.
Mineral rights which the Company had carried at no value on its books
were sold for a total of $71,658 in the nine month ended June 30, 2000. No
such sale was made in the comparable period.
During the three months and nine month ended June 30, 2000, the
Company realized income from outside contract work by one of its employees
in the amount of $2,688 and $31,572 respectively, compared to $8,222 and
$11,494 in the comparable periods in 1999. In the nine months ended June
30, 1999, $6,246 in proceeds was collected from the settlement of a
lawsuit, another non-recurring event.
The Company recorded a gain of $25,965 on the sale of assets in the
nine months ended June 30, 2000. This was a sale in which the proceeds
exceeded the book value of the assets. There was no comparable sale in the
1999 period.
In the nine months ended June 30, 1999, a debt conversion expense of
$71,615 was recorded. This resulted from the restructuring of the
Company's long-term debt, and resulted from the difference in the fair
value of the original conversion price and the new conversion price. This
was a non-recurring event. There was no such event in the nine months
ended June 30, 2000.
CAPITAL RESOURCES-SOURCES OF CAPITAL
The Company's primary sources of cash flow during the nine months
ended June 30, 2000 were proceeds from the prepayment of the note
receivable from the sale of the kaolin mine, proceeds from the sale of
assets, and a gain on the forgiveness of debt. Cash used by operations
totaled $132,440 for the nine months ended June 30, 2000 as compared to
cash provided by operations of $31,459 for the same period in 1999. Cash
and cash equivalents for the period increased $58,257, resulting in cash on
hand at June 30, 2000 of $60,620 compared to cash on hand at June 30, 1999
of $152.
CAPITAL RESOURCES-UTILIZATION OF CAPITAL
For the nine months ended June 30, 2000 the Company decreased accounts
payable by $44,476. Collection of principal on the note receivable was
$240,696 and proceeds from asset sales were $104,487, resulting in cash
provided by investing activities of $337,038. In the comparable period,
net cash provided by investing activities was $33,476. All funds for
capital expenditures for the remainder of the year are expected to be
provided from existing cash balances, from property or assets sales, and
from merger fees.
LIQUIDITY
At June 30, 2000, the Company's working capital totaled $57,442 as
compared to working capital of $3,424 at September 30, 1999. Liquidity for
the nine months ended June 30, 2000 was provided by the prepayment of
principal on a note receivable, the sale of mineral rights, and the
forgiveness of debt, however, liquidity was reduced by the redemption of
the Company's promissory notes, payment of the Company's bank debt and a
reduction in accounts payable.
Based on current cash flow projections, and in view of the Board of
Director's decision to sell the Company's assets and cease its minerals
operations, it is not anticipated that the Company will be required to
borrow funds in fiscal 2000.
PREPAYMENT OF RECEIVABLE FROM SALE OF KAOLIN MINE
The Company received a promissory note as part consideration for the
1997 sale of its kaolin mine. The remaining unpaid principal amount of
this note was $275,000. The note was to be fully paid with three payments
of $50,000 each in August and December of 2000, and in August of 2001. The
final payment in the amount of $125,000 was due in December 2001.
The Company suggested prepayment of the note at a discount, and after
negotiations, the parties agreed upon a prepayment amount of $200,000.
Management felt this to be an acceptable amount in consideration of the
time value of money, the risk inherent in the receipt of these payments
over the remaining installment term, and the fact that receipt of these
funds would allow the Company to eliminate its $125,000 in long-term debt
and the interest cost associated with this debt. Elimination of the debt
will position the Company to proceed with the Torita Donghao LLC
transaction and comply with the terms of the Letter of Intent pursuant to
that transaction, as described in the Company's filing on Form 8-K and
herein. Should the Company not proceed with the transaction, this step
will facilitate the Company's ability to enter into a similar transaction
(see 'Future Trends"). This payment was received February 4, 2000, and the
Promissory Note was cancelled.
REDEMPTION OF NOTES OUTSTANDING
The Company previously had debt outstanding in the form of Convertible
Subordinated Debentures in the Principal Amount of $250,000. During the
1999 fiscal year, the Company made an offer to all of the holders of its
Convertible Subordinated Debentures to restructure this debt, offering 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
$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 holders
of the Debentures. During fiscal 1999, Nova issued to the Debentureholders
3,125,000 common shares, and notes for $125,000, and thereupon cancelled
its Convertible Subordinated Debentures. The notes were due on December
31, 2001, and accrued 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.
Having negotiated the prepayment of the promissory note whose proceeds
secured payments of these notes, on January 31, 2000, the Company exercised
its right to call the notes for redemption. All of the notes were redeemed
on or before March 1, 2000, for an aggregate payment of $126,769.
Nova's officers and Directors held $23,438 or 18.8% of the principal
amount of these notes, which they acquired on identical terms as those not
affiliated with the Company.
ISSUANCE OF STOCK FOR SERVICES
The Company had not paid or otherwise compensated its employees since
mid-1998, except for bonuses totalling $10,000 and salary for one employee
who performed work for a third party, for which the Company was paid, and
then in turn paid the employee.
Nevertheless, all of the employees continued to discharge their
duties. ESOP contributions cannot be made in the absence of such salaries.
The Board of Directors issued restricted common shares to Brian B.
Spillane, President, in the amount of 835,000 shares, for services and in
recognition of Mr. Spillane's personal guarantee of the Company's line of
credit and his providing collateral for such line of credit over the past
2 years, for which he received no compensation. Milton O. Childers, Vice
President of Exploration, Assistant Secretary and Director was issued
675,000 shares of restricted common stock; James R. Schaff, Secretary,
Treasurer and Manager of Lands, was issued 755,000 shares, and Mary Mernah,
Controller, was issued 355,000 shares. Robert E. McDonald, Director, for
services and in recognition of Mr. McDonald's personal guarantee of the
Company's line of credit along with Mr. Spillane over the past 2 years, for
which he received no compensation, was issued 365,000 shares. John R.
Parker, Chairman and Director, in return for services to the Company,
including assistance in obtaining drilling participants and participants in
a financing, for which he received no compensation, was issued 345,000
shares. Robert W. Meier, Director, in return for services to the Company
for which he received no compensation, was issued 315,000 shares. The
Board also granted 105,000 shares to two consultants to the Company who
have worked only for out-of-pocket expenses. All of these individuals
agreed to cancel the options which had been granted to them under the
Company's 1998 Nonqualified Stock Option Plan. A total of 3,855,000 shares
were issued, effective January 6, 2000, and a total of 3,673,577 shares
underlying stock options were canceled. The Company has no stock options
outstanding. Total Shares outstanding on a fully diluted basis, including
the effect of conversion of the Company's Convertible Preferred stock into
common stock, are 16,838,655.
FUTURE TRENDS
The Company 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 objectives. Management previously stated its objective to
pursue those avenues which offered the best value for its shareholders,
including mergers or acquisitions.
As discussed in the Company's report on Form 10-KSB for the fiscal
year ended September, 30, 1999, the Company had signed a Letter of Intent
with Richlink International Holdings, Limited which outlined the terms of
a transaction by which Richlink would have acquired control of the Company.
The Letter of Intent was subject to the negotiation, preparation and
execution of a definitive agreement and the completion of satisfactory due
diligence. The Company and Richlink were unable to agree on the terms of
the definitive agreement, and on March 23, 2000 Richlink advised the
Company that it was no longer interested in proceeding with the proposed
transaction, and the Company immediately filed a report on Form 8-K to this
effect.
The Board of Directors had previously determined that it was in the
best interests of the shareholders to cease operations and complete the
Richlink transaction, or should that transaction not be completed, to seek
to complete a similar transaction on the best possible terms. Accordingly,
Management immediately sought another suitor and on April 23, 2000, signed
a Letter of Intent with Torita Donghao LLC.
PROPOSED TRANSACTION WITH TORITA DONGHAO LLC
The Company has signed a Letter of Intent with Torita Donghao LLC
("Torita Delaware"), a Delaware Corporation by which Torita Delaware will
acquire control of the Company. Torita Delaware is a wholly-owned
subsidiary of Torita Group of the People's Republic of China ("PRC").
Torita Group has represented that it has many years of operating history in
China.
The Letter of Intent is non-binding, and completion of the transaction
depends on execution of a definitive acquisition agreement and the
completion of satisfactory due diligence. The Letter of Intent
contemplates the acquisition by the Company of 100% of the business and
operating assets of Torita Delaware in exchange for that number of shares
of common stock of the Company which will afford Torita ownership of 91.5%
of the Company's common stock after completion of the transaction.
The Letter of Intent provides that, after the transaction, the
existing Nova shareholders will own 7.23% of the common stock of the
Company, net of a commission paid in stock. The Letter of Intent
contemplates that, prior to or at closing, the entire operating business of
the Company, including all assets and liabilities, will be divested.
Torita Delaware will also make a cash payment to Nova of $75,000 from which
Nova will pay for the costs of the transaction and of termination of its
business. The Company has already completed the liquidation of most of its
assets and liabilities, and expects to complete the disposition of its
remaining operating assets by the end of August. Members of management may
bid on the purchase of such assets, but such bids will only be accepted if
they exceed those of other unrelated parties. Only one such transaction
with management is contemplated, as described herein.
The Letter of Intent provides that warrants with an 18-month term
representing 1.5% of the total issued and outstanding common stock of the
Company after the transaction will be issued to current Nova management as
part of the transaction.
Torita Delaware has made the following representations to the Company,
which has not obtained independent verification of such matters:
Torita Group has transferred the assets of its "Computer Tech" arm - Torita
Electronics Hong Kong ("Torita Electronics"), incorporated in Hong Kong,
into Torita Delaware. A major U.S. accounting firm will be engaged to
complete an audit of the company resulting from this transaction pursuant
to U.S. GAAP.
Torita Electronics is profitable. It occupies an area in the Electrical
Industrial City of Torita Group of 128,000 square feet. Torita Group
invested $6.4 million into a total of 6 manufacturing lines capable of
producing computer monitors, television sets, computer harddrives and other
Original Equipment Manufacturer ("OEM") products. Its production capacity
exceeds 1 million personal computer units, 200,000 television sets and 1
million sets of Digital Video Devices ("DVD") per annum.
Torita Electronics has a contract with the State Planning Authority for
Agriculture of the PRC to exclusively manufacture, supply and manage what
will be the largest Intranet service in China, ultimately reaching
1,100,000 farming communities, representing approximately 25% of the
population of the PRC. It is estimated this contract will be fully
completed over a seven-year period, in approximately equal increments each
year.
Torita Electronics will act as business manager and advisor to build the
network, and will supply the hardware. Torita Electronics also has a right
of first refusal to acquire an interest in the Intranet itself. This
project is intended to establish a mammoth information database for
agricultural commodities, technologies, and distribution. It will also
promote popularization of agricultural technical knowledge and general
education, and facilitate the exchange of agricultural goods and raw
materials through the Intranet. Torita Electronics has licensing
agreements with IPC Corporation LTD (a Singapore-listed Corporation) and
Infomatec AG of Germany, both of which will provide technical support.
Infomatec will also provide access to the JAVA Network Technology developed
by Infomatec. Torita Electronics has begun to manufacture the equipment
and is commencing implementation of the network in the initial sites
selected. Torita Electronics goal is to have approximately 150,000 sites
fully operational within 12 months. There can be no guarantee that this
goal will be attained.
The Letter of Intent provides that the definitive agreement require
Torita Delaware to seek listing for the Company's shares on the NASDAQ
stock market following the closing of the transaction.
For a period of 60 days from execution of the Letter of Intent, the
Company and Torita Delaware are precluded from soliciting or entering into
any discussions with any other party with respect to the sale of the
Company or the merger of Torita Delaware with, or the purchase of any other
U.S. company by Torita Delaware, respectively.
In order to complete the transaction contemplated by the Letter of
Intent, the Company will be required to amend its Articles of Incorporation
to increase its authorized capital, change its name and complete a post-
acquisition reverse stock split. The Company will seek shareholder
approval of these actions. Shareholders will be asked to approve all of
the steps needed to effect this transaction at a shareholders' meeting
contemplated to be held as soon as practicable following execution of the
definitive agreement and completion of appropriate due diligence.
Torita Delaware and the Company have reached agreement on the terms of
the definitive agreement. Torita Delaware signed the definitive agreement
on July 9 and made an initial cash payment to the Company of $10,000 toward
its total cash payment of $75,000. The Company requires additional time to
complete its due diligence, which is contemplated to include a review of
Torita Delaware's audited financial statements for the two years ended
December 31, 1999 and 1998, and a visit to Torita Delaware's production
facilities in China. The audit, currently underway, is not yet completed.
The Letter of Intent was to expire 60 days following June 21, 2000. In
order to provide time for the parties to complete appropriate due diligence
activities, Torita Delaware and Nova agreed to extend the date of
expiration of the Letter of Intent to August 31, 2000. The Company
contemplates that it will sign the definitive agreement upon successful
completion of its due diligence activities.
Although Nova has every intent to successfully complete this
transaction, there can be no assurance that this transaction will be
completed, or if completed, that the terms will be as presently
contemplated.
The Letter of Intent contemplates that the entire operating business
of the Company, including all assets and liabilities, will be divested
prior to or at the closing of the transaction. As disclosed in the
Company's report on Form 10-KSB for fiscal 1999, report on Form 10-QSB for
the three months ended December 31, 1999, sale of the Company's assets and
discharge of its liabilities has been proceeding. The Company has
completed the sale of its 50% working interest in an undeveloped gas
prospect in Wyoming and a small working interest in the same general area.
Proceeds of $38,000 from this sale have been received. The Company entered
into an agreement with the operator of its sole remaining working interest
in oil production to sell that interest for $10,000, less unpaid operating
expenses. This sale has been completed, and the Company has received net
proceeds of $8,600.
The Company received an offer from an unaffiliated third party to
purchase its overriding royalty interest in the Whitney Canyon field for
$4,000. The Company felt the interest was worth more, and negotiated a
competing bid with the Robert E. McDonald Family Trust. The Trust has
agreed to pay the Company $4,900 with an effective date of the sale of
August 1. Robert E. McDonald, a Director of the Company and its largest
shareholder, is the Trustee of the Trust. Sale of this interest will
dispose of the Company's remaining oil and gas production, and revenues
derived therefrom will cease. The Company holds a 50% interest in 360
acres of land, including surface and mineral rights in Weld County,
Colorado. The acreage is under lease, but no hydrocarbons or other
valuable minerals have been developed on the acreage to date. The Company
recently agreed to sell its 50% interest in this acreage to the holder of
the other 50% interest, an unaffiliated third party, of $2,000.
The Company moved its offices to smaller space at the end of May to
reduce costs. Monthly rent was reduced from approximately $2,000 to $375.
So that the Company could avoid signing a new lease, Brian B. Spillane, the
President of the Company, took out the lease, and rents the space to the
Company at cost on a month-to-month basis. The Company had leased a
copying machine for the past three years. When the lease ran out, the
leasing company suggested extending the lease at the same rate the Company
had been paying. It was not deemed prudent for the Company to buy this
machine, nor commit itself to a new lease. Mr. Spillane purchased the
copying machine from the leasing company. The Company pays to maintain the
machine for supplies, with no long-term commitment to do so.
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 dated December 29, 1999; March 23, 2000;
April 24, 2000; June 21, 2000; and July 14, 2000.
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 14, 2000 By: /s/ Brian B. Spillane
Brian B. Spillane,
President, Director, and
Chief Executive Officer
Date: August 14, 2000 By: /s/ James R. Schaff
James R. Schaff,
Secretary-Treasurer
