UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to_______________
Commission file number 0-15078
NOVA NATURAL RESOURCES CORPORATION
(Name of small business issuer 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, CO 80246
(Address of principal (Zip Code)
executive offices)
(720) 524-1363
(Registrant's telephone number)
Securities registered under Section 12(b) of the Act:
-None-
Securities registered under Section 12(g) of the Act:
Common Stock, $.10 Par Value
(Title of Class)
Check whether the issuer has (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 .
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year totalled: $21,735.
Documents Incorporated By Reference: None
Transitional Small Business Disclosure Format Yes_____ No X
As of December 5, 2000, the Registrant had outstanding 1,792,267
shares of Convertible Preferred Stock, $1.00 Par value, and
13,254,033 shares of Common Stock, $.10 par value, its only classes of
voting stock.
Aggregate market value of the 5,554,275 shares of Common Stock owned
by Non-affiliates of the Registrant as of December 5, 2000 was
$1,388,569, based on the average of the bid and ask prices on December
5, 2000 as reported on the National Association of Securities Dealers
Electronic Bulletin Board by Bloomberg Financial Services. All
Convertible Preferred Stock is owned by affiliates.
<PAGE>
PART I
Forward-looking Information
This Form 10-KSB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For
this purpose any statements contained in this Form 10-KSB that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may",
"will", "expect", "believe", "anticipate", "estimate", or "continue" or
comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks
and uncertainties and actual results may differ materially depending on
a variety of factors, many of which are not within the Company's
control. These factors include but are not limited to the Company's
decision to limit, if not terminate, its operations, availability of a
merger partner, and value of the Company as a "Public Shell". See also
"Managements Discussion and Analysis of Plan of Operation."
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Nova Natural Resources Corporation (the "Registrant", "Company" or
"Nova") was incorporated under Colorado Law on April 1, 1993 and is the
surviving company in a merger, effective February 1, 1995, of the
Company and Nova Natural Resources Corporation, a Delaware corporation.
The merger was effected to change the Company's domicile from Delaware
to Colorado and caused no change in the Company's capitalization. The
Delaware corporation was the successor to Nova Petroleum Corporation and
Power Resources Corporation, which merged in 1986. Prior to that
merger, Nova Petroleum Corporation and Power Resources Corporation
operated since 1979 and 1972, respectively.
BUSINESS DEVELOPMENT
Operations
In recent years, the Company focused its activities on marketing and
selling kaolin clay from its Minnesota kaolin mine, exploring for paper-
grade kaolin on leases elsewhere in Minnesota, seeking partners for
exploration and development of gold on its properties in Alaska and
Colorado and seeking partners for exploratory drilling on two oil and
gas prospects in Wyoming. In fiscal 1997, the Company sold its kaolin
mine, and put its primary focus on development of its paper-grade kaolin
prospect in Minnesota. In most of fiscal 1999, the Company's primary
focus was on seeking a partner for the paper-grade kaolin prospect,
seeking a drilling partner for its remaining oil & gas prospect in
Wyoming, liquidating its interests in Alaska, and selling its interests
in its producing oil and gas properties on as prudent a basis as
possible.
Toward the close of 1999, in view of the Company's inability to attract
industry partners to fund and operate the Company's principal assets,
the general economic conditions at that time of the industries in which
the Company operated, and management's determination that the Company
could not operate profitably because of a lack of capital from
operations and other sources, management concluded that the Company
would be more valuable, and the interests of its shareholders would be
better served by the sale, reassignment, and abandonment of the
Company's assets and marketing of the Company as a "shell". In this
fashion, management believes that it may obtain for the Company's
shareholders a minority interest in a company with more substantial
assets, operations and prospects. In exchange, such a merger partner
will become a public company, obtain liquidity for its shares, and gain
more ready access to capital markets.
Significant Developments During Fiscal 2000
The Company had possessed a promissory note from the 1997 installment
sale of its kaolin mine in the amount of $275,000. These funds were to
be received in 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 proposed to the purchaser of the mine that the remaining
obligation be satisfied by a single payment. The parties negotiated a
prepayment of $200,000. Management considered the settlement
appropriate based upon the time value of money, the risk inherent in the
receipt of these payments over the remaining installment term, and the
fact that early receipt of these funds would allow the Company to
eliminate its $125,000 in long-term debt and the related interest cost.
Elimination of the debt would enable the Company to obtain a merger
partner and specifically to proceed with a proposed transaction with
Richlink International and comply with the terms of a Letter of Intent
with Richlink, as described in the Company's Annual Report on Form 10-
KSB for the 1999 fiscal year and Current Report on Form 8-K dated
December 29, 1999. The Richlink transaction did not proceed as
described in the Company's Current Reports on Form 8-K dated March 23,
2000. Management believes that elimination of the Company's debt will
be required in any subsequent merger transaction. This payment was
received February 4, 2000, and the Promissory Note associated with the
sale of the Company's kaolin mine was marked 'paid in full' and returned
to the purchaser of the mine.
Redemption of Notes Outstanding
The debt was retired with proceeds from prepayment of the kaolin mine
obligations was represented by Convertible Subordinated Debentures in
the Principal Amount of $250,000. The Company made an offer to all of
the holders of its Convertible Subordinated Debentures to restructure
this debt during the 1999 fiscal year, 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 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 3,125,0000 common
shares, notes for $125,000, and thereupon canceled its Convertible
Subordinated Debentures. The notes had a due date of December 31, 2001,
and paid 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. Interest had been paid on the
notes through December 31, 1999.
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 no later than March 1, 2000, pursuant to the terms of the
notes. A number of the individual noteholders agreed to early
redemption. Those who agreed were paid principal plus interest based on
a redemption date five days following receipt of their written request
for early redemption. Redemption resulted in payments by the Company of
approximately $126,000.
Nova officers and Directors held $23,438 or 18.8% of the principal
amount off these notes, which they acquired on identical terms as those
not affiliated with the Company.
Disposition of Oil and Gas, Kaolin and Gold Operations
During fiscal year 2000, the Company disposed of virtually all of its
oil and gas properties and moved its offices to smaller, less expensive
quarters. The sale of the Company's assets was undertaken in the
ordinary course of its business, which, over time, has included
purchases and sales of such interests and properties. The Company's
remaining oil and gas interests were two small interests in certain oil
and gas leases, which it recently sold to non-affiliated companies for
$1,150.
In addition, the Company owns certain paper grade kaolin mining leases
in Minnesota. The Company offered to transfer those leases to a company
with whom it had a venture agreement which contained an option to own
the mining leases. The venture partner refused the transfer of the
leases and terminated its agreement with the Company. The Company's
lease payment obligations for the kaolin leases are paid through
December 2000. When additional rentals are due, in January 2001, the
Company may not have assets sufficient to make the payments and, if it
has not sold the leases or made other arrangements, such as a venture
agreement, it intends to allow the leases to lapse.
The Company had retained a small overriding royalty interest in a
portion of its former leasehold interest offshore Nome, Alaska, which
was the sole interest retained by the Company when it sold or otherwise
disposed of its Nome leasehold interests during fiscal 1999. This
interest was vacated when the underlying leases were not renewed by the
lessee.
Proposed Acquisition Transactions
On two seperate occasions during fiscal 2000, the Company entered into
letters of intent for transactions by which the Company would issue, in
exchange for the business of another entity, shares sufficient for such
other entity to become the majority shareholder of the Company. In each
case a definitive agreement was not executed, and neither transaction
was finalized. Both transactions contemplated that the Company would
amend its Articles of Incorporation to increase the number of shares of
its Common Stock authorized for issuance. Management believes that,
similarly, an increase in the authorized shares of Common Stock will be
necessary to effectuate any such transaction in the future. As such,
although the Company has not obtained either a letter of intent or
definitive agreement for such a transaction, the Company's Board of
Directors recommended and, on December 15, 2000, the Company's
shareholders approved an amendment of its Articles of Incorporation to
increase the Company's capitalization in order to facilitate any such
merger or acquisition of assets.
Common Stock
At September 30, 2000 the Company was authorized to issue 17,000,000
shares of Common Stock, $.10 per value per share. (See Item 4
"Submission of Matters to a Vote of Security Holders") Holders of
Common Stock are entitled to cast one vote for each share held of record
on all matters submitted to a vote of shareholders and are not entitled
to cumulate votes for the election of directors. Holders of Common
Stock do not have preemptive rights to subscribe for additional shares
of Common Stock issued by the Company.
Holders of Common Stock are entitled to receive dividends as may be
declared by the Company's Board of Directors out of funds legally
available for that purpose, subject to the rights of the holders of the
Company's Preferred Stock. Holders of the Common Stock and Preferred
Stock have equal rights to all dividends declared and paid by the
Company. In the event of liquidation, holders of Common Stock are
entitled to share, pro rata, in any distribution of the Company's assets
remaining after payment of liabilities, subject to the preferences and
rights of the holders of Preferred Stock. The Company has not paid and
has no plan to pay dividends. Any cash obtained in an acquisition
transaction will be paid to the employees and former employees of the
Company as compensation and/or severance. Further, any warrants to
purchase common stock obtained in an acquisition transaction will be
issued to management as part of the transaction.
Proposed Torita Donghao Transaction
As described in its report on Form 8-K, dated April 24, 2000, the
Company signed a Letter of Intent with TORITA DONGHAO LLC ("Torita
Delaware"), a Delaware Corporation by which Torita Delaware would
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 was 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
contemplated 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 provided that, after the transaction, the existing
Nova shareholders would own 7.23% of the common stock of the Company,
net of a commission paid in stock. The Letter of Intent contemplated
that, prior to or at closing, the entire operating business of the
Company, including all assets and liabilities, would be divested.
Torita Delaware would also make a cash payment to Nova of $75,000, from
which Nova would pay for the costs of the transaction and of termination
of its business. As previously discussed, the Company has completed the
liquidation of virtually all of its assets and liabilities, and expects
to complete the disposition of its remaining operating assets within the
next 60 days. 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 has
taken place (see Transactions with Management).
The Letter of Intent provided that Warrants representing 1.5% of the
total issued and outstanding common stock of the Company after the
transaction would be issued to current Nova management as part of the
transaction.
Torita Delaware has made the following representation 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 U.S. accounting firm has been
engaged to complete an audit of the company resulting from this
transaction pursuant to U.S. GAAP.
Torita Electronics is a profitable company. 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 is expected to 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.
Torita Delaware intends to seek listing for the Company's shares on the
NASDAQ stock market following the closing of the transaction. The
timing of such listing, should the application to so list the shares be
accepted, of which there is no guarantee, cannot be determined at this
time, but will likely take a period of at least several months to
accomplish.
For a period of 60 days from execution of the Letter of Intent, the
Company and Torita Delaware were 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.
The Company extended the expiration date of the Letter of Intent on two
separate occasions (see reports on Form 8-K dated June 21 and July 14,
2000. Finally on August 31, 2000, the Company allowed the Letter of
Intent to expire. Torita Delaware had informed the Company that field
work for its audit had not yet begun. Moreover, a firm completion date
for the audit could not currently be established.
The Company determined to postpone further due diligence activities
until completion of the Torita Delaware audit. When and if that audit
is complete and Company has reviewed audited financial statements and
satisfactorily completed its due diligence activities, the majority of
which must take place in China, it will be able to determine whether to
sign a definitive agreement with Torita Delaware. However, there can be
no assurance that this transaction will be completed, or if completed,
that the terms will be as presently contemplated.
The Company has continued its discussions with Torita Delaware.
However, in view of the uncertain timing of completion of the Torita
Delaware audit and further due diligence by the Company, Nova Management
determined that it is prudent to attempt to locate and initiate
discussions with other potential merger candidates. Accordingly, other
candidates have been contacted, and discussions are currently being held
with those entities. However, such discussions have not at this time
resulted in either a Letter of Intent or a Definitive Agreement.
The Company intends, following the approval by the shareholders of the
increase in authorized shares at the shareholders' meeting to be held
December 15, 2000 (See Item 4 "Submission of Matters to a vote of
Security Holders"), which is probable, to proceed as rapidly as is
prudently possible to effectuate a transaction whereby the Company would
be acquired. Such a transaction would require the issuance of shares to
the acquiring company, following which, such company would hold a
majority interest in the Company, and control of the Company would pass
to the acquiring company. There can be no assurance that such a
transaction will occur, nor can the timing of such a transaction be
predicted with certainty. However, management is committed to this
course of action, and expects that it can be successfully completed.
Business of the Issuer
As previously discussed, management has concluded that the Company would
be more valuable, and the interests of its shareholders would be better
served, by the sale, reassignment, and abandonment of the Company's
assets and marketing of the Company as a "shell". In this fashion,
management believes that it may obtain for the Company's shareholders a
minority interest in a company with more substantial assets, operations
and prospects. In exchange, such a merger partner will become a public
company, obtain liquidity for its shares, and gain more ready access to
the capital markets (see 'General Development of Business").
Accordingly, the business of the Company is to identify an entity with
good growth prospects and a strong balance sheet as well as other
factors such as good capitalization, nature of industry, and a
profitable operating history, by which the Company can be acquired on a
basis favorable to the Nova shareholders, and effectuate such a
transaction in a timely manner.
Environmental Regulations
Inherent in all mining operations is the obligation to comply with
environmental, reclamation, and other applicable state and federal laws
and regulations. The Company has obtained those environmental permits,
licenses or approvals required for its operations. Management is not
aware of any violations of environmental permits, licenses or approvals
issued with respect to the Company's previous operations. In the past,
Nova has been involved in extensive hearings regarding the environmental
impact of its Minnesota kaolin mine and has voluntarily taken steps to
mitigate any environmental impact. While the Company believes it is
currently in compliance with all such laws and regulations and is not
aware of any current violations, the applicability and impact of, and
the Company's obligations under such provisions cannot always be
determined with certainty. However, the Company's liability could
continue after relinquishment of its interest in its properties, even in
the absence of operations. As such, although the Company does not
believe it has any liability in this regard, the Company cannot fully
determine the extent of its liability or potential liability in
connection with these matters.
The Company is not currently subject to any pending administrative or
judicial enforcement proceedings arising under environmental laws or
regulations. Environmental laws and regulations may be adopted in the
future which may have an impact upon the Company's operations.
Oil and Gas Operations
The principal hydrocarbons produced from properties in which Nova had an
interest during the 2000 fiscal year (all of which have been sold) were
crude oil and natural gas. Such products are sold by or on behalf of the
Company to purchasers located near the wellhead. None of the entities
purchasing the Company's production is an affiliate of the Company.
During fiscal 2000, the Company had five customers which accounted for
100% of its total net oil and gas sales.
The Company sold its 50% working interest and a 1.25% overriding royalty
interest during the fiscal year in an undeveloped gas prospect in
Wyoming and a small working interest in the same general area for
$38,000. The other 50% interest was held by the Robert E. McDonald
Trust, which sold its interest for the same price, retaining an
overriding royalty interest. The Trust funded its interest in this
prospect from its own funds, independently of the Company, as it has in
all prospects entered into jointly with the Company. The Company had
previously assigned an overriding royalty interest in this prospect to
the Company's four employees, who had worked on this prospect without
salary or other compensation for several years. The prospect remains
undeveloped and the overriding royalties do not generate any current
income.
Mineral rights which the Company had carried at no value on its books
were sold for a total of $71,658 in the first quarter of the fiscal
year. The Company holds no other mineral rights.
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 was completed in
August 2000, and the Company has received net proceeds of $8,600. No
overriding royalties were retained.
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
agreed to pay the Company 22% more than the offer previously received,
or $4,900 with an effective date of the sale of August 1, 2000. Robert
E. McDonald, a Director of the Company and its largest shareholder, is
the Trustee of the Trust. Sale of this interest disposed of the
Company's sole remaining oil and gas production, and revenues derived
therefrom have ceased. This sale is the only sale of Company assets
which was not made to an unaffiliated third party.
The Company held 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 sold its 50% interest in
this acreage to the holder of the other 50% interest, an unaffiliated
third party, for $2,000.
The Company retains no other oil and gas interests.
Nova has no patents, trademarks, licenses, franchises, or concessions
other than certain oil and gas leasehold interests granted by federal,
state, and other governmental authorities, and private mineral owners.
The Company's oil and gas business is not seasonal except to the extent
that weather and market conditions can affect oil and gas exploration
and production activities.
Employees
At September 30, 2000, Nova had no paid employees. However, the
President of the Company has continued to work full-time, and the
Company's Secretary, Treasurer, its Land Manager and its Controller have
been working part-time for the Company, on an as-needed basis,
essentially without pay, and continue to do so.
ITEM 2. DESCRIPTION OF PROPERTIES
PERSONAL PROPERTY
The Company's personal property consists of furniture and fixtures and
technical equipment, with a total net book value at September 30, 2000
of $2,538.
OFFICE LEASE AND EQUIPMENT
The Company's previous lease terminated February 28, 2000, but was
continued on a month-to-month basis through May. At the end of May, the
Company moved its offices to a much smaller space to reduce costs.
Monthly rent was reduced from approximately $2,000 to $375. So that the
Company could avoid being obligated on a new lease, Brian B. Spillane,
the President of the Company, became the lessee, 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 this 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 and for supplies, with no long-term
commitment to do so, and incurs no other costs in connection with this
machine.
OIL AND GAS PROPERTIES
In accordance with its decision to prepare the Company to be acquired,
as previously discussed, Nova has, over the past twelve months, sold all
of its oil and gas properties, and at September 30, 2000, held no oil
and gas reserves.
Production, Average Sales Price,
and Average Production (Lifting) Costs
The following table sets forth oil and gas production (net of all
royalties, overriding royalties, and other outstanding interests of
other entities) attributable to the Company for the fiscal years ended
September 30, 2000 and 1999 and the average sales prices and production
costs per unit of production.
Years Ended September 30,
2000 1999
Production:
Oil (Bbls) . . . . . . . . . . 773.22 2,233
Gas (Mcf) . . . . . . . . . . 140.44 4,967
Average Sales Prices:
Oil (per Bbl) . . . . . . . . $ 22.16 $11.94
Gas (per Mcf) . . . . . . . . $ 2.37 $ 1.81
Average Production Costs
Per Equivalent Barrel Of Oil*. $ 10.66 $ 6.08
* Equivalent barrels include oil, condensate and gas. Gas is converted
to equivalent barrels on the basis of 6 Mcf per equivalent barrel.
UNDEVELOPED MINERAL PROPERTY INTERESTS
The Company currently holds a 100% interest in a kaolin prospect
covering approximately 3,664 acres of leases and lease options located
near Redwood Falls, Minnesota. The Company's lease payment obligations
for the kaolin leases are paid through December 2000. When additional
rentals are due, in January 2001, the Company may not have assets
sufficient to make the payments and if it has not sold the leases or
made other arrangements, such as a venture agreement, it intends to
allow the leases to lapse.
DEVELOPED MINERAL PROPERTY INTERESTS
The Company formally owned a 100% working interest in 69.3 acres in
Redwood County, Minnesota which were permitted for the purposes of
mining kaolin clay. This property was sold in July, 1997. The Company
retained a mortgage interest in this property, pending receipt of 100%
of the installment sale proceeds. These proceeds were received in
fiscal 2000 and the mortgage was cancelled (see Significant Developments
During Fiscal 2000').
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no legal proceedings contemplated or threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No shareholder meetings were held in Fiscal 2000. A special meeting of
shareholders was conducted on December 15, 2000 at which time the
Company's shareholders voted to amend the Company's Articles of
Incorporation to increase the authorized capitalization to 300,000,000
shares of common stock, $.10 par value.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the over-the-counter market
and is listed on the Electronic Bulletin Board under the symbol
"NVNU". The following table sets forth the range of high and low
closing bid prices of the Common Stock for the years ended
September 30, 2000 and 1999, as reported by the U.S. Bancorp Piper
Jaffray. These prices are believed to be representative of
inter-dealer prices, without retail markup, markdown, or
commissions, and may not necessarily represent actual transactions.
Bid Price
Fiscal 2000 High Low
First Quarter $0.030 $0.020
Second Quarter 3.050 0.030
Third Quarter 1.0625 0.25
Fourth Quarter 0.9375 0.4688
Bid Price
Fiscal 1999 High Low
First Quarter $ 0.050 $ 0.0313
Second Quarter 0.030 0.030
Third Quarter 0.030 0.030
Fourth Quarter 0.020 0.0325
The bid and asked prices for the Company's Common Stock on
September 29, 2000 were $0.5781 and $0.625 respectively, as
reported by U.S. Bancorp Piper Jaffray.
The number of record holders of the Company's Common Stock as of
September 30, 2000 was 5,211.
As of September 30, 2000, no options were outstanding under the
Company's employee stock option plan.
The Company has not paid any dividends on its Common Stock and does
not expect to do so in the foreseeable future. The Company intends
to employ its cash flow and earnings, if any, to identify and
consummate its acquisition by another entity and for working
capital needs.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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) The Company may not be able to enter into an agreement
for the Company to be acquired on terms acceptable to Nova.
(b) Present and anticipated sources of funds may be
insufficient to meet the Company's working capital needs.
Liquidity and Capital Resources
The Company had possessed a promissory note from the 1997
installment sale of its kaolin mine in the amount of $275,000.
These funds were to be received in 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 offered this receivable to the purchaser of the mine
for prepayment, and a price of $200,000 was agreed upon.
Management felt this to be an appropriate price 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 strengthened the Company's
balance sheet, and will facilitate the Company's ability to enter
into a transaction whereby the Company can be acquired by another
entity (see 'Future Trends'). This payment was received February
4, 2000, and the Promissory Note associated with the sale of the
Company's kaolin mine was marked 'paid in full' and returned to the
purchaser of the mine.
The Company previously had debt outstanding in the form of
Convertible Subordinated Debentures in the Principal Amount of
$250,000. The Company made an offer to all of the holders of its
Convertible Subordinated Debentures to restructure this debt during
the 1999 fiscal year, 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, notes for $125,000, and
thereupon canceled its Convertible Subordinated Debentures. The
notes have a due date of December 31, 2001, and 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. Interest had been paid on the notes through
December 31, 1999.
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 by March 1, 2000, pursuant to the terms
of the notes. Most individual noteholders agreed to early
redemption, in which case those who agreed were paid principal plus
interest based on a redemption date five days following receipt of
their written request for early redemption. The notes were not
convertible into common stock. The Company offered early
redemption since the interest it paid the noteholders was greater
than the interest it was able to earn on the funds. Redemption
result in payments by the Company of approximately $126,000,
including principal and accrued interest.
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.
During the fiscal year, the Company settled debts which resulted in
a net loss on payment of debt of $40,629. This sum reflects the
loss on the early redemption of the note receivable from the sale
of the Kaolin Mine, net of a gain on the forgiveness of debt of
$30,985.
The Company has only sporadically paid its personnel, including the
President and three former employees of the Company, although they
have continued to discharge their duties on behalf of the Company.
The Company intends to make payments to these individuals as its
financial abilities permit, but has not accrued any amounts for
this purpose on its balance sheet.
The Company has experienced a severe cash flow shortage for the
past two years. Since the Company has sold or otherwise disposed
of virtually all of its assets in contemplation of being acquired,
it has no remaining significant source of cash flow. Expenses have
been pared to the bone, there are no remaining long-term
liabilities, and the Company is current in all of its trade and
other accounts. The Company previously indicated that it intended
to explore all avenues whereby it could create value for its
shareholders, including mergers. Accordingly, the Company's
primary focus is on being acquired by a company which has good
prospects for growth (see "Business Development - Operations").
Management believes that the Company's financial position is
adequate to properly complete arrangements for the Company to be
acquired within a reasonable period of time.
The Company has suffered recurring losses and cash flow deficits
from operations due to the inability of operating cash flows to
cover expenses needed to maintain those operations. At September
30, 2000, the Company had an accumulated deficit of $9,869,939.
The Company's working capital was a positive $57,834 as of
September 30, 2000, compared to a working capital of $3,424 as of
September 30, 1999. The improvement in working capital was
primarily attributable to the elimination of virtually all current
liabilities due to a $21,342 deduction in Note Payable and a
$14,550 reduction in Accounts Payable, both resulting from the
Company's improved cash position during the year, which enabled the
Company to eliminate its bank debt and apply cash toward payables
which were at a lower level due to the Company's successful efforts
to reduce expenses.
Total assets decreased to $61,366 as of September 30, 2000, from
$521,768 as of September 30, 1999. The decrease in total assets
was attributable primarily to the collection, on a discounted basis
from its carrying value on the balance sheet, of the note
receivable connected with the 1997 sale of the Kaolin Mine (and the
use of most of that cash to eliminate the Company's long-term debt
of $125,000), the complete write-down of the Company's mineral
properties, and to a lesser extent to the write-down of net oil and
gas properties and lower current assets (the major portion of which
at September 30, 1999 had been current maturities of the note
receivable from the sale of the Kaolin Mine). Since the Company
has sold or otherwise disposed of virtually all of its assets, the
portion of carrying value of those assets which was not converted
to cash has been reduced to zero.
The decrease in total liabilities from $210,360 in 1999 to $994 in
2000 was due primarily to the early collection of the Company's
note receivable connected with the sale of the Kaolin mine -- most
of the proceeds of which were used to pay off the long-term debt,
and the use of the proceeds from asset sales to pay off the
Company's remaining bank debt and virtually all of the Company's
Accounts Payable and Accrued expenses. As a result of the
operating revenue decrease during the year, and the continued Net
Loss, there are uncertainties that may have a significant impact on
the Company's liquidity and which raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's liquidity is primarily dependent on using its limited
cash resources in a prudent manner as it proceeds to market itself
as a "shell" company and negotiates its acquisition by another
entity, as discussed elsewhere in this report.
Results of Operations
The Company realized a net loss of $366,676 for the year ended
September 30, 2000, compared to a net loss in the 1999 fiscal
period of $57,744. Oil and gas sales decreased 42%, reflecting the
sale of the Company's producing oil & gas assets by year-end and
normal production decline. Oil and gas prices increased, but
production volumes, reflecting the producing asset sales, dropped
substantially, more than offsetting the increase in prices. Oil
and gas production costs also declined due to these sales and
because a greater portion of production revenues was accounted for
by royalty interests, which have very low operating costs.
General and administrative costs increased $141,005 or 73% to
$334,471 for the year ended September 30, 2000 compared to the same
period in 1999. This increase was primarily the partial resumption
of salaries during a portion of the fiscal year, the issuance of
stock for services, which resulted in a charge against income, and
increased expenses as the Company proceeded to sell most of its
remaining assets. Since the Company paid no salaries in the 1999
Fiscal Year, even the partial resumption of salaries in fiscal
2000, though far below the levels of 'normal' years, severely
impacted general and administrative costs.
Revenues
The Company's only sources of operating revenues during the 2000
fiscal year were oil and gas sales. These sales decreased $15,451
or 42% for the year ended September 30, 2000 as compared to the
same period in 1999. This decrease is attributable to the sale of
the Company's producing assets. A comparison of production and
prices in 2000 and 1999 is as follows:
2000 1999
Sales Volume
Oil (bbls) 773 2,233
Gas (MCF) 843 4,967
Average Sales Price
Oil (bbls) $22.16 $11.94
Gas (MCF) $ 2.37 $ 1.81
Other income for the year ended September 30, 1999 consisted
primarily of a gain on the sale of assets of $100,523, revenue
received from contract land work for third parties of $31,572, and
'other income' of $41,189 derived from the reclassification of
lease operating expenses.
Interest income declined in fiscal 2000 to $11,538 compared to
$31,329 in the 1999 period. This is due to reduced actual and
imputed interest on the note receivable from Northern Con-Agg, due
to the reduced amount of this receivable and its collection during
the second quarter of the fiscal year, which eliminated any further
accruals of interest on this note.
Expenses
Oil & gas lease production costs including production taxes
declined 48% in fiscal 2000 to $9,742 from $18,625. The decline in
costs paralleled the decline in revenues as the Company's producing
oil and gas properties were sold during the year.
Depreciation, depletion and amortization dropped 60% from $ 6,923
in 1999 to $2,777 in 2000. This primarily resulted from the sale
of oil & gas assets.
General and administrative expenses increased $154,034 or 92% from
$167,918 in fiscal 1999 to $321,952 for the year ended September
30, 2000. Approximately 80% of this increase resulted from the
issuance of stock to management (see "Issuance Of Stock For
Services"), most of which was in lieu of cash salaries. The
majority of this charge against G&A was a non-cash charge.
Additionally, a $10,000 bonus was paid during the year, and some
cash salaries were paid. There were no salaries or bonuses paid in
the 1999 period.
Interest expense decreased 62% or $9,201 to $5,585 in fiscal 2000
compared to $14,786 in fiscal 1999, chiefly because the Company
paid off its line of credit early in fiscal 2000 and retired all of
its long term debt from the proceeds of asset sales, which reduced
the interest paid on that debt.
Impairment and abandonment costs were zero in fiscal 1999, compared
to a total of $192,548 in fiscal 2000. Since the Company sold or
otherwise disposed of all of its oil and gas properties during the
year, and determined that its remaining mineral properties were
likely to have no value, the value of all of these properties on
the Company's books, net of sales proceeds, were reduced to zero.
Commitments
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 this 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, on
an actual cost basis, to maintain the machine and for supplies,
with no long-term commitment to do so.
New Accounting Standards
Statement of Financial Accounting Standards 130 (FAS 130)
"Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, FAS
130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive
income be reported in a financial statement that displays with the
same prominence as other financial statements.
Statement of Financial Accounting Standards 131 (FAS 131)
"Disclosure About Segments of an Enterprise and Related
Information" establishes standards on the way that public companies
report financial information about operating segments in annual
financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures
regarding products and services, geographic areas, and major
customers. FAS 131 defines operating segments as components of a
company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
FAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Management has been
unable to fully evaluate the impact, if any, the standards may have
on the future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Nova Natural Resources Corporation
Denver, Colorado
We have audited the accompanying balance sheet of Nova Natural
Resources Corporation as of September 30, 2000 and 1999, and the
related statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Nova
Natural Resources Corporation as of September 30, 2000 and 1999,
and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Company has disposed of all
its oil and gas properties and mineral properties, which, along
with other factors described in Note 2, raise substantial doubt
about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
November 20, 2000
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEETS
SEPTEMBER 30,
2000 1999
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 58,828 $ 2,363
Accounts receivable:
Oil and gas - 4,647
Other - 2,807
Current maturities of note receivable - 74,874
Prepaid expenses and other - 4,093
__________ _________
Total current assets 58,828 88,784
OIL AND GAS PROPERTIES, at cost
(using the full
cost method of accounting):
Unproved properties not being amortized - 11,806
Properties being amortized - 5,953,179
___________ _________
- 5,964,985
Accumulated depreciation, depletion
and amortization - (5,932,306)
___________ ___________
Net oil and gas properties - 32,679
MINERAL PROPERTIES, at cost - 193,122
___________ __________
OTHER ASSETS:
Note receivable, net of current maturities - 203,485
Deposits and Other - 3,550
Furniture and technical equipment,
net of accumulated depreciation
of $47,855 and $66,029 2,538 148
___________ _______
Total other assets 2,538 207,183
___________ _______
TOTAL ASSETS $ 61,366 $ 521,768
=========== ===========
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Note Payable $ - $ 21,342
Accounts payable 994 15,544
Accrued expenses - 48,474
__________ _________
Total current liabilities 994 85,360
LONG TERM DEBT - 125,000
COMMITMENTS AND CONTINGENCIES (Notes 2 and 7)
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 1,792,267
Common stock, $.10 par value;
17,000,000 shares authorized;
13,254,033 shares issued and
outstanding; 1,325,403 939,913
Additional paid-in capital 6,812,641 7,082,491
Accumulated deficit (9,869,939) (9,503,263)
__________ ___________
Total Stockholders' equity $ 60,372 311,408
__________ ___________
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 61,366 $ 521,768
========== ==========
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
SEPTEMBER 30,
______________________
2000 1999
______ ______
<S> <C> <C>
OIL AND GAS SALES REVENUES: 21,735 37,186
COSTS AND EXPENSES:
Oil and gas production costs 9,742 18,625
Depletion, depreciation, and
amortization 2,777 6,923
Impairment of Mineral Properties 192,548 -
General and administrative 321,952 167,918
_________ _________
Total costs and expenses 527,019 193,466
_________ _________
OPERATING LOSS (505,284) (156,280)
OTHER INCOME (EXPENSES):
Contract income 31,572 19,419
Interest income 11,538 31,329
Interest expense (5,585) (14,786)
Gain on sale of assets 100,523 29,652
Loss on early payment of debt (40,629) -
Other 41,189 32 922
_________ ________
138,608 98,536
_________ _________
NET LOSS $ (366,676) $ ( 57,744)
========== =========
NET LOSS PER SHARE(Basic and diluted) (.03) (.01)
========== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,219,000 8,106,000
========== =========
<FN>
See accompanying notes to these financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
_________ _________ _________ ________
<S> <C> <C> <C> <C>
BALANCES, October 31, 1998 1,792,267 $ 1,792,267 6,274,131 $ 627,413
Debt Conversion -- -- 3,125,000 312,500
Net loss -- -- -- --
_________ _________ _________ ________
BALANCES, September 30, 1999 1,792,267 $ 1,792,267 9,399,131 $939,913
Stock compensation -- -- 3,855,000 385,500
Stock cancellations -- -- (98) (10)
Net Loss -- -- -- --
_________ _________ _________ ________
BALANCES, September 30, 2000 1,792,267 $1,792,267 13,254,033 $1,325,403
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT EQUITY
<S> <C> <C> <C>
BALANCES, October 31, 1998 $7,198,376 $(9,445,519) $ 172,537
Debt Conversion (115,885) -- 196,615
Net loss -- (57,744) (57,744)
_________ _________ _________
BALANCES, September 30, 1999 $7,082,491 $(9,503,263) $ 311,408
Stock compensation (269,850) -- 115,650
Stock cancellations -- -- (10)
Net Loss -- (366,676) (366,676)
_________ _________ _________
BALANCES, September 30, 2000 $6,812,641 $(9,869,939) $ 60,372
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
SEPTEMBER 30,
2000 1999
______ ______
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (366,676) $ (57,744)
Adjustments to reconcile net loss to net cash
from operating activities:
Depletion, depreciation and amortization 2,777 6,923
Induced conversion of debentures -- 71,615
Stock bonus compensation 115,650 --
Gain on sale of oil and gas properties (100,523) --
Impairment of mineral properties 192,548 --
Loss on settlement of note receivable 40,629 --
Gain on forgiveness of debt (14,652) --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 7,454 12,605
Prepaid expenses and other 4,093 1,891
Deposits 3,550 --
Increase (decrease) in:
Accounts payable (14,550) (30,384)
Accrued expenses (48,474) (1,042)
_________ ________
Net cash provided by (used in) operating activities (178,174) 3,864
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas properties 131,649 --
Capital expenditures (3,040) (14,248)
Collection of principal on note receivable 237,730 67,929
_________ _________
Net cash provided by investing activities 366,339 53,681
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable and long term debt (131,690) (136,548)
Purchase and retirement of common and preferred stock (10) --
Proceeds from notes payable -- 80,904
_________ ________
Net cash used in financing activities (131,700) (55,644)
_________ ________
NET INCREASE IN CASH AND EQUIVALENTS 56,465 1,901
CASH AND EQUIVALENTS, at beginning of year 2,363 462
________ ________
CASH AND EQUIVALENTS, at end of year $ 58,828 $ 2,363
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 6,624 $ 15,827
========= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Convertible debentures converted to common stock $ -- 125,000
========= ========
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Nova Natural Resources Corporation (the Company),
has focused on exploring for paper grade kaolin on leases in
Minnesota, seeking partners for exploration and development of gold
on its properties in Alaska and Colorado and seeking partners for
exploratory drilling on two oil and gas prospects in Wyoming.
Management determined that the Company would be more valuable, and
the interests of its shareholders would be better served by the
sale, reassignment, and abandonment of the Company's assets,
utilizing the proceeds of asset sales to pay off the Company's debt
and marketing of the Company as a "shell".
Use of Estimates - The preparation of the Company's financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. The actual results could differ from those
estimates.
Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or
less to be cash equivalents.
Mining Properties - Exploration expenditures are charged to
operations in the period incurred except for expenditures on
specified properties having indicated the presence of a mineral
resource with the potential of being developed into a mine, in
which case the expenditures are capitalized.
Mine development costs incurred to expand the capacity of operating
mines, to develop new orebodies or to develop mine areas
substantially in advance of current production are capitalized and
charged to operations on a units-of-production method based upon
the estimated recoverable reserves of the related deposit.
Reclamation takes place concurrently with production and such costs
are expensed as mining costs in the period incurred.
The Company periodically reviews the carrying value of its
properties by comparing the net book value with the estimated
undiscounted future cash flow from the property, which is generally
based upon estimated recoverable reserves utilizing current market
prices and costs. If the net book value exceeds the undiscounted
future cash flow, the Company records a provision for impairment.
Changes in the significant estimates and assumptions underlying
future cash flow estimates may have a material effect on the future
carrying value of assets and operating results.
At September 30, 2000 the Company has completely impaired the
mineral properties, as the properties have been deemed worthless.
The impairment amounted to $192,548, which was the approximate
carrying value of the mining properties at the time of impairment.
Oil and Gas Properties - The Company follows the "full cost" method
of accounting for its oil and gas properties, in accordance with
rules promulgated by the Securities and Exchange Commission (the
SEC). All of the Company's properties are located within the
continental United States. All costs associated with property
acquisition, exploration, and development activities are
capitalized in one cost center (the full cost pool), including
costs of unsuccessful exploration. No gains or losses are
recognized on the sale or abandonment of oil and gas properties
unless the transaction involves the sale of significant reserves.
Capitalized costs less related accumulated amortization may not
exceed the sum of (1) the present value of future net revenue from
estimated production of proved oil and gas reserves, calculated
using current prices; plus (2) the cost of properties not being
amortized, if any; plus (3) the lower of cost or estimated fair
value of unproved properties included in the costs being amortized,
if any; less (4) income tax effects related to differences in the
book and tax basis of oil and gas properties.
Amortization of the full cost pool is computed using the
units-of-production method based on proved reserves as determined
annually by the Company and independent petroleum engineers. The
provision for depletion, depreciation, and amortization on an
equivalent barrel basis during fiscal years 2000 and 1999 was $2.83
and $3.07, respectively.
Furniture and Technical Equipment - Furniture and technical
equipment is stated at cost and is depreciated using the
straight-line method over estimated useful lives ranging from three
to eight years.
Income Taxes - The Company accounts for income taxes under the
liability method, which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates.
Earnings Per Share - Net loss per share is presented in accordance
with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share. SFAS No.128 replaces the
presentation of primary and fully diluted earnings per share (EPS),
with a presentation of basic EPS and diluted EPS. Under SFAS
No.128, basic EPS excludes dilution for potential common shares and
is computed by dividing the net loss by the weighted average number
of common shares outstanding for the year. Diluted EPS reflects
the potential dilution that could occur if securities or other
contracts to issue the common stock were exercised or converted
into common stock and resulted in the issuance of common stock.
Basic and diluted EPS are the same in 2000 and 1999 as all
potential common shares were antidilutive.
Stock-Based Compensation - The Company accounts for stock-based
compensation for employees using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation cost for stock options
granted to employees is measured as the excess, if any, of the
quoted market price of the Company's common stock at the
measurement date (generally, the date of grant) over the amount an
employee must pay to acquire the stock.
In October 1995, the Financial Accounting Standards Board issued a
new statement SFAS No.123, "Accounting for Stock-Based
Compensation". SFAS No.123 encourages, but does not require,
companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on
fair value. Companies that do not adopt the fair value accounting
rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be
accounted for by the fair value method. The Company has elected
not to adopt the fair value accounting prescribed by SFAS No.123
for employees, but is subject to the related disclosure
requirements.
(2) UNCERTAINTY OF FUTURE OPERATIONS
The financial statements have been prepared assuming that the
Company will continue as a going concern. Certain factors,
discussed below, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
The Company has disposed of all of its oil and gas properties and
impaired all mineral properties as of September 30, 2000. The
Company's lease rental obligations for its kaolin leases are paid
through December 2000. When additional rentals are due, beginning
in January 2000, the Company will not have assets sufficient to
make the rental payments. Likewise, the Company will not have the
ability to fulfill the officers salaries and office lease
obligations due to not having sufficient assets to make the
payments, coupled with the inability to generate revenues.
Management determined that the Company would be more valuable, and
the interests of its shareholders would be better served by the
sale, reassignment, and abandonment of the Company's assets,
utilizing the proceeds of assets sales to pay off the Company's
debt, and marketing of the Company as a "shell". Management
believes that it may obtain for the Company's shareholders a
minority interest in a company with more substantial assets,
operations and growth prospects. In exchange, such a merger
partner will become a public company, obtain liquidity for its
shares and more ready access to the capital markets.
(3) SALE OF ASSETS:
In July 1997, the Company obtained shareholder approval to close
the sale of its cement-grade Kaolin mine, including certain mineral
leases and technical equipment. The Company received cash at
closing of $125,000 and the purchaser executed a note which
provided for installments of $50,000 in August and December of each
year through August 2001 and a final installment of $125,000 in
December 2001. Payments under the note are collateralized by the
property and equipment conveyed to the purchaser. The Company
imputed interest at 10% to arrive at the present value of the note
of $454,801 on the closing date. The Company recognized a gain of
$83,009 on this transaction. Management estimates that fair value
of the note receivable is approximately equal to the carrying value
at September 30, 1999. This note was settled in full in the year
ended September 30, 2000, for receipt of $200,000 and the Company
wrote off the remaining balance of $40,629.
Throughout fiscal year 2000, the Company sold its entire remaining
interests in the oil and gas properties for $131,649, recognizing
a gain of $100,523. At September 30, 2000, the oil and gas
property balance was zero.
(4) DEBT FINANCING:
Note Payable - At September 30, 1999, the Company had a bank line-
of-credit of $100,500 with an outstanding principal balance of
$21,342. The note provides for interest at prime rate plus 2%
(total of 10.5% at September 30, 1999). This loan is
collateralized by land that is owned by an officer and director of
the Company and is guaranteed by the officer and director. The
note was paid in full as of September 30, 2000.
Long-Term Debt - 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 early redemption has been made to date.
In 1999, the Company converted 50% of the face value of the notes
into 3,125,000 of common at a conversion cost of $71,615.
Management believes the fair value of the convertible debentures
was approximately $125,000 at September 30, 1999. These notes were
paid in full as of September 30, 2000.
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.
(5) INCOME TAXES
The components of the net deferred tax asset and liabilities at
September 30, 2000 and 1999 are as follows:
2000 1999
Deferred tax assets-
Net operating loss carryforward $ 1,302,000 $ 1,650,000
Less valuation allowance (1,302,000) (1,620,000)
__________ __________
Net deferred tax asset -- 30,000
Deferred tax liabilities-
Depletion, depreciation, amortization,
and valuation allowance for income tax
purposes in excess of amounts for
financial statement purposes -- (30,000)
__________ _________
Net deferred tax asset $ -- $ --
=========== =========
The Company has net operating loss carryforwards at September 30, 2000 for
Federal income tax reporting purposes of approximately $3,300,000. These
carryforwards expire in varying amounts through 2019. The valuation
allowance decreased by $452,000 during the current year mainly due to
expiring net operating loss carryforwards. The utilization of the
carryforwards in the future could be limited if there is a change in
control of the Company.
(6) STOCKHOLDERS' EQUITY
Preferred Stock - The Company's preferred stock outstanding is convertible
into 3,584,534 shares of common stock. The preferred shares contain
2-for-1 voting rights, have a $1.00 liquidation preference and have no
stated dividend rate.
Stock Issuances - During the fiscal year the Company issued 3,855,000
shares of common stock to employees and directors in exchange for services
performed.
Stock Options - During 1998, the Board of Directors adopted the 1998
Nonqualified Stock Option Plan (the "1998 Plan") whereby 4,500,000 shares
were reserved for issuance. The 1998 Plan provides that the exercise price
of the options should be equal to the market price of the Company's common
stock on the date of grant and the options expire five years after the date
of grant. No options may be granted under the 1998 Plan after January
2003. No options were outstanding under this plan as of September 30,
2000.
The following is a summary of activity under the 1998 plan for the years
ended September 30, 2000 and 1999:
Weighted
Average
Number of Exercise Price Expiration
Shares Per Share Date
_________ ______________ __________
Outstanding, October 1, 1998 3,473,577 .03
Granted:
Employee 200,000 .03 8/04
_________
Outstanding, September 30, 1999 3,673,577
Cancelled:
Consultants (200,000) .03
Employees (3,473,577) .03
___________
Outstanding, September 30, 2000 - -
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options
which are granted to employees. Accordingly, no compensation cost is
recognized for grants of options to employees if the exercise prices were
not less than the market value of the Company's common stock on the
measurement dates. If compensation cost had been determined based on the
fair value at the measurement dates consistent with the method of SFAS 123,
the Company's net loss and loss per share would have been changed to the
pro forma amounts indicated below.
Year Ended September 30,
2000 1999
_____ ______
Net loss:
As reported $ (366,676) $ (57,744)
Pro forma $ (366,676) (63,288)
Net loss per common share:
As reported (.04) $ (.01)
Pro forma (.04) (.02)
The fair value of each employee option was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions:
Year Ended September 30,
2000 1999
_____ _____
Expected volatility -% 200%
Risk-free interest rate -% 6.0%
Expected dividends -% 0%
Expected terms (in years) - 3.0
(7) COMMITMENTS AND CONTINGENCY
Leases - Future minimum rental payments for office facilities under the
remaining terms of noncancelable leases are $750 for the fiscal year ending
September 30, 2001. Net rental payments charged to expense under all
operating leases amounted to $14,627 and $17,590 in 2000 and 1999,
respectively.
(9) INDUSTRY SEGMENTS AND MAJOR CUSTOMER
Segment Information - The Company conducts all of its operations within the
United States, which consist principally of oil and gas exploration and
production and mining. There are no sales or other transactions between
these two business segments. Presented below is information concerning the
Company's business segments for the years ended September 30, 2000 and
1999:
2000 1999
REVENUE:
Oil and gas $ 21,735 $ 37,186
________ _________
$ 21,735 $ 37,186
======== =========
OPERATING INCOME (LOSS):
Oil and gas $ 10,439 $ 12,589
General corporate activities (323,175) (168,869)
_________ _________
$ (312,736) $ (156,280)
========= ==========
DEPRECIATION AND DEPLETION:
Oil and gas $ 1,554 $ 5,972
General corporate activities 1,223 951
________ _______
$ 2,777 $ 6,923
========= =======
IDENTIFIABLE ASSETS, net:
Oil and gas $ - $ 32,679
Mining - 474,969
General corporate activities 2,538 14,120
_________ _________
$ 2,538 $ 521,768
========= =========
CAPITAL EXPENDITURES INCURRED:
Oil and gas $ - $ 13,460
Mining - 27,465
General corporate activities 3,614 243
_________ _________
$ 3,614 $ 41,168
========= =========
(9) DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES:
All oil and gas operations of the Company and its subsidiaries are
conducted in the United States. Capitalized costs relating to oil and gas
producing activities are as follows:
September 30,
2000 1999
Unproved properties not being amortized $ - $ 11,806
Properties being amortized:
Unproved properties - 118,602
Proved properties - 5,834,577
_________ _________
5,964,985
Accumulated depreciation, depletion and
amortization (5,932,306)
__________ _________
$ $ 32,679
========== =========
There were no costs incurred in oil and gas producing activities for the
years ended September 30, 2000 and 1999. At September 30, 2000, the
Company had sold all of its oil and gas properties, resulting in a gain of
$28,865 for the year.
Estimated Quantities of Proved Oil and Gas Reserves (Unaudited) - Proved
oil and gas reserves are the estimated quantities of crude oil and natural
gas, which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed oil and gas
reserves are those expected to be recovered through existing wells with
existing equipment and operating methods. However, reserve information
should not be construed as the current market value of the Company's oil
and gas reserves or the costs that would be incurred to obtain equivalent
reserves. Reserve calculations involve the estimation of future net
recoverable reserves of oil and gas and the timing and amount of future net
revenues to be received therefrom. These estimates are based on numerous
factors, many of which are variable and uncertain. Accordingly, it is
common for the actual production and revenues to vary from earlier
estimates.
Reserve estimates for recently drilled wells and undeveloped properties are
subject to substantial upward or downward revisions after drilling is
completed and a production history obtained. Hence, reserve estimates and
estimates of future net revenues from production may be subject to
substantial revision from year to year. Reserve information presented
herein is based on reports prepared by independent petroleum engineers.
There was no reserve information available at September 30, 2000, as the
Company had sold all of its oil and gas properties during the year.
Set forth below is the unaudited summary of the changes in the net
quantities of the Company's proved oil (bbls) and natural gas (mcf)
reserves for the years ended September 30, 2000 and 1999:
2000 1999
________________ _________________
(bbls) (mcf) (bbls) (mcf)
______ ______ ______ ______
Proved reserves-beginning of year 11,152 16,733 11,934 30,247
Revisions of previous estimates - - 1,451 (8,547)
Sales of reserves-in-place (10,381) (15,221) - -
Production (771) (1,512) (2,233) (4,967)
______ ______ ______ ______
Proved reserves-end of year - - 11,152 16,733
====== ======= ====== =======
Proved developed reserves:
Beginning of year - - 11,934 30,247
====== ======= ====== =======
End of year - - 11,152 16,733
====== ====== ====== =======
Standardized Measure of Discounted Future Net Cash Flows (Unaudited) - The
following presentations contain no provision for estimated future income tax
expenses due primarily to net operating loss carryforwards and tax credits. The
standardized measure of discounted future net cash flows relating to proved oil
and gas reserves at September 30, 2000 and 1999, is as follows:
2000 1999
Future cash in-flows $ - $ 243,819
Future production costs - (137,058)
Future development costs - -
_________ _________
Future net cash flows - 106,761
10% annual discount for estimated
timing of cash flows - (32,093)
_________ _________
Standardized measure of discounted
future net cash flows $ - $ 74,668
========= =========
The following are the principal sources of change in the standardized measure
of discounted future net cash flows during 2000 and 1999:
2000 1999
Standardized measure of discounted future
net cash flows at beginning of year $ 74,668 $ 40,305
Sales of oil and gas produced,
net of production costs (11,993) (18,560)
Sales of reserves-in-place (62,675) -
Net changes in prices and production costs - 50,425
Revisions of previous quantity estimates - (1,532)
Accretion of discount - 4,030
________ _______
Standardized measures of discounted future
net cash flows at end of year $ - $ 74,668
======== =======
The Company estimates net quantities of proved reserves of oil and gas and
calculates the standardized measure of discounted future net cash flows using
current prices in effect at the end of each fiscal year.
PART III
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
Directors
The directors of the Company are set forth in the following table:
Name and Positions Served as
Held With the Company Age Director Since
John R. Parker, Chairman of the
Board (1) 54 April 22, 1986
Robert E. McDonald,(2) 72 April 22, 1986
Brian B. Spillane, President and
Chief Executive Officer (3) 64 April 22, 1986
Milton O. Childers
Exploration Manager 72 April 22, 1986
Robert W. Meier (2) 64 April 22, 1986
(1) Chairman of the Board since February 17, 1997.
(2) Member of the Executive Committee.
(3) President and Chief Executive Officer since April 1, 1989.
All directors are elected to serve until the next annual meeting or until
retirement or resignation. There is no family relationship between any director
of the Company and any other director or executive officer. The following
paragraphs set forth an account of the business experience of each of the
Company's directors and executive officers, including his principal occupation
and employment.
Mr. McDonald is currently a consulting geologist and oil and gas
explorationist. He is also engaged in agricultural and real estate pursuits.
He was President of Nova Natural Resources Corporation from its inception
until his resignation on April 1, 1989. He served as Chairman of the Board
from inception until February 17, 1997. He continues to serve as a member
of the Board of Directors. From January 1, 1984 to September, 1986, he was
President and Chairman of the Board of Nova Petroleum Corporation, a
predecessor to the Company. He graduated from the University of Kansas in
1951 with a B.S. degree in Geology. Mr. McDonald has published several
papers relating to oil and gas geology in the Rocky Mountain area.
Mr. Spillane became President and Chief Executive Officer of the Company
effective April 1, 1989. Prior to that time he was an independent consultant
to the oil, gas and minerals industry. From February, 1982 to November, 1987,
he was employed as Executive Vice President of Barrett Resources Corporation,
a publicly held oil and gas exploration company, where his duties primarily
involved mergers, acquisitions, and capital financing in addition to involvement
in other operations. He graduated from the University of Detroit in 1961 with
a B.S. in Mechanical Engineering and holds a M.S. in Mechanical Engineering from
San Diego State University. He is a Registered Professional Engineer
(mechanical) in California.
Dr. Childers was President, Treasurer, and Director of Power Resources
Corporation until the merger in 1986 of Power Resources Corporation into Nova
Natural Resources Corporation, and holds B.S. and M.A. degrees in geology from
the University of Wyoming and a Ph.D. degree in geology from Princeton
University. Dr. Childers was an independent consulting geologist in the Denver,
Colorado area from 1986 to 1992 when he became the Company's Exploration
Manager. He became the Vice President of Exploration of the Company in January,
1993, and in August 2000, took on the additional duties of Secretary and
Treasurer.
Mr. Meier served as President and Chairman of the Board of Nova Petroleum
Corporation from May 1979 to January 1, 1984. From 1984 to 1989 he was an
independent consulting geologist. From 1989 to 1994 he was Project Geologist
for Dames & Moore, specializing in the disposal of hazardous waste materials.
He is currently retired, but occasionally works as a consulting geologist. He
graduated from Northern Illinois University in 1961 with a B.S. degree in
Geology and in 1964 received an M.S. degree in Geology from Southern Methodist
University. Mr. Meier is a member of the American Association of Petroleum
Geologists and is a certified member of the Association of Professional
Geological Scientists.
Mr. Parker is currently a real estate developer in Vermont. Prior to this
activity he was a registered investment councilor with McRae Capital Management
in Morristown, New Jersey. Prior to joining McRae, Mr. Parker worked as an
independent financial consultant to various companies and as a general partner
in an investment banking firm. Mr. Parker is also a director of several
investment companies associated with the Capstone Group in Houston, Texas. He
graduated from St. Lawrence University in 1969 with a B.S. in Psychology and
holds a P.M.D. from Harvard Graduate School of Business Administration. Mr.
Parker has served as Chairman of the Board since February 17, 1997.
No directors of the Company receive compensation as directors, although certain
expenses incurred for Company business may be reimbursed. In January 2000, the
Directors agreed to cancel their stock options and were issued stock for
services to the Company (see "Executive Compensation").
Executive Officers
The following table sets forth the executive officers of the Company:
Name and Officer Age Served as Officer Since
Brian B. Spillane
President and Chief
Executive Officer 64 April 1, 1989
Milton O. Childers
Exploration Manager,
Secretary and Treasurer 72 January 22, 1993
For an account of the business experience during at least the past five years
for Messrs. Spillane and Childers, see "Directors".
ITEM 9. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of the
Chief Executive Officer, the Exploration Manager, Secretary and Treasurer and
the former Land Manager of the Company as of September 30, 2000, 1999, and 1998
for services in all capacities to the Company.
Summary Compensation Table
Long Term Compensation
Annual
Compensation Awards
Name and Salary Restricted Stock Options
Principal Position Year $ Award ($)* #
Brian B. Spillane 2000 29,800 4,050 0
CEO 1999 0 0 0
1998 32,250 8,063 600,000
Milton O. Childers 2000 19,300 20,250 0
Exploration V.P. 1999 0 0 0
1998 31,500 7,875 473,577
James R. Schaff 2000 17,661 22,650 0
Secretary/Treasurer 1999 0 0 0
Manager of Lands 1998 31,125 7,781 550,000
*ESOP contribution
** Mr Schaff resigned as Secretary and Treasurer in August 2000, and Dr.
Childers assumed those duties.
*** All officers and directors of the Company agreed to cancel their
options in January 2000. None had been exercised.
Issuance of Stock for Services
The Company had not paid or otherwise compensated its employees since mid-
1998, except for bonuses totaling $10,000 and salary to one employee who
performed work for a third party, for which the Company was paid, and then in
turn paid the employee.
Nonetheless, all of the employees continued to discharge their duties. ESOP
contributions cannot be made in the absence of such salaries. In January
2000, 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, 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.
Option Grants in Last Fiscal Year
There were no options granted in Fiscal year 2000. All employees agreed to
cancel their options.
Employee Stock Option Plans
The Company had two stock option plans for the benefit of Company employees
and key personnel. The first plan was the Nova Natural Resources Corporation
1989 Non-qualified Stock Option Plan (the "Non-qualified Plan") and the
second plan was the Nova Natural Resources Corporation 1989 Incentive Stock
Option Plan, a qualified plan (the "Incentive Plan"). Both plans expired in
1994. In February 1996, the Company granted nonqualified options for 50,000
shares to an officer. These options were exercisable at $.05 per share for
five years and were not granted pursuant to either of the stock option plans
discussed above. In December 1997, the Board of Directors and the officer
agreed to cancel these options.
In January, 1998 the Board of Directors approved the Nova Natural Resources
Corporation Nonqualified Stock Option Plan. A total of 4,500,000 shares of
the Company's Common Stock have been reserved for issuance under the terms of
the two Plans. In January 2000, all option holders agreed to cancel their
options. There are none outstanding.
Employee Stock Ownership Plans
The Board of Directors and the stockholders of the Company have also adopted
the Nova Natural Resources Corporation Employee Stock Ownership Plan ("ESOP")
for the benefit of its full-time employees, including its officers and
directors.
Only employees who have reached the age of 21 and have completed one year of
Company service are eligible to participate in this plan. With respect to
each plan year, the Company may contribute cash or Common Stock of the
Company to a trust in such amounts as the Board of Directors deems advisable.
Contributions may not exceed the lesser of 25% of the participant's total
annual compensation or $30,000. Any cash contributions are to be used
primarily by the trustee to purchase shares of Common Stock of the Company,
which, in addition to shares of Common Stock of the Company contributed by
the Company, are allocated to the accounts of all participants in the ratio
that the total annual compensation (not in excess of $150,000) of each
participant bears to the total compensation of all participants in such year.
The plan does not allow contributions by participants.
Each participant's right to the stock allocated to his account is fully
vested after three years of service. Nonetheless, a participant's benefits
will be fully vested if his employment terminates by reason of death or upon
his reaching 65. If a participant incurs a break in service (passage of one
plan year in which the employee works 500 or fewer hours), his benefits are
forfeited to the extent they have not vested. All forfeitures are allocated
among the remaining participants in the same manner as the annual
contribution.
Distributions under the plan are to commence no later than 60 days after the
last day of the year in which the participant reaches age 65 or, if later,
the plan year in which the participant terminates employment with the
Company. The distribution will consist of the Company's Common Stock. Any
distributions are payable in a lump sum or, if the participant elects, in
annual or monthly installments.
Each participant is entitled to direct the trustee as to the manner in which
any stock allocated to his account is voted. The trustee is empowered to
vote any stock which has not been allocated in a manner which, in the
judgement of the Board of Directors, represents the participants' best
interests.
As of September 30, 1999, 597,086, 254,030 and 395,747 shares have been
allocated to accounts of Messrs. Spillane, Schaff, and Childers,
respectively. No other current officers or directors of Nova are currently
eligible to participate in the plan. The Board of Directors directed
management to terminate the plan in fiscal year 2000, and accordingly, no
shares were contributed to the plan in 2000. Since there were no salaries
paid in fiscal 1999, no shares were contributed to the plan in 1999. A total
of 485,625 shares were contributed to the plan in 1998.
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Shareholders
The following table sets forth the only persons known to the Company, as of
September 30, 2000, to own beneficially more than 5% of the Company's Common
Stock, $.10 par value, or the Company's Convertible Preferred Stock, $1.00
par value, the Company's only classes of issued and outstanding voting
securities. Except as otherwise noted in the footnotes to the table, each
person named has sole voting and investment powers relating to his shares.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
Preferred Stock
Robert E. McDonald 794,421 (1) 44.3%
P.O. Box 1022
585 North 300 West
Beaver, Utah 84713
Karen McDonald 794,420 (2) 44.3%
2575 Corte Casitas
Carlsbad, CA 92009
Brian B. Spillane 203,426 (5) 11.4%
PO Box 460748
Glendale, CO 80246-0748
Common Stock
Robert E. McDonald 967,038 (1) 7.3%
P.O. Box 1022
585 North 300 West
Beaver, Utah 84713
Karen McDonald 602,037 (2) 4.5%
2575 Corte Casitas
Carlsbad, CA 92009
James R. Schaff 1,108,400 (3) 8.4%
PO Box 460748
Glendale, CO 80246-0748
Milton O. Childers 1,417,931 (4) 10.7%
17939 E. Brown Place
Aurora, CO 80013
Brian B. Spillane 1,704,276 (5) 12.9%
PO Box 460748
Glendale, CO 80246-0748
(1) The preferred and common shares are held by the REM Family Trust, in
which Mr. McDonald is the Trustee. Includes options held by two officers and
directors and one director of the Company to purchase an aggregate of 561,788
shares of common stock directly from Mr. McDonald, all exercisable at $.10
per share at any time on or before April 3, 2003. Includes 117,187 shares
which were issued to Mr. McDonald in August 1999 upon his acceptance of an
offer by the Company to cancel $9,375 of convertible subordinated debentures,
and replace them with 117,187 shares of common stock and a secured note in
the amount of $4,687.50. The note has been paid in full. Includes 365,000
shares issued to Mr. McDonald 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. The
options to purchase 300,000 shares of common stock from the Company formerly
held by Mr. McDonald have been cancelled.
(2) The preferred and common shares are held by the Karen McDonald Trust, in
which Ms. McDonald is Trustee. Includes options held by two officers and one
director of the Company to purchase an aggregate of 561,787 shares of common
stock directly from Ms. McDonald, all exercisable at $.10 per share at any
time on or before April 3, 2003. Includes 117,187 shares which were issued
to Ms. McDonald in August 1999 upon her acceptance of an offer by the Company
to cancel $9,375 of convertible subordinated debentures, and replace them
with 117,187 shares of common stock and a secured note in the amount of
$4,687.50. The note has been paid in full.
(3) Consists of 254,030 shares vested in his account under the ESOP plan.
Includes 39,063 shares which were issued to Mr. Schaff in August 1999 upon
his acceptance of an offer by the Company to cancel $3,125 of convertible
subordinated debentures, and replace them with 39,063 shares of common stock
and a secured note in the amount of $1,562.50. The note has been paid in
full. Includes 755,000 shares issued to Mr. Schaff January 6, 2000 in
exchange for services for which he received no compensation. The options to
purchase 750,000 shares of common stock from the Company formerly held by Mr.
Schaff have been cancelled.
(4) Consists of 225,154 shares owned by Mr. Childers, 4,843 shares held by
Mr. Childers' wife and 395,747 shares vested under the ESOP, but does not
include options to purchase 186,789 shares directly from Mr. McDonald, and
options to purchase 186,788 shares from Ms. McDonald. Includes 117,187
shares which were issued to Mr. Childers in August 1999 upon his acceptance
of an offer by the Company to cancel $9,375 of convertible subordinated
debentures, and replace them with 117,187 shares of common stock and a
secured note in the amount of $4,687.50. The note has been paid in full.
Includes 675,000 shares issued to Mr. Childers January 6, 2000 in exchange
for services for which he received no compensation. The options to purchase
673,577 shares of common stock from the Company formerly held by Mr. Childers
have been cancelled.
(5) Consists of 597,086 shares vested in his account under the ESOP, but
does not include options owned by Mr. Spillane to purchase 250,000 shares
directly from Mr. McDonald, and options to purchase 250,000 shares directly
from Ms. McDonald. Includes 156,248 shares which were issued to Mr. Spillane
in August 1999 upon his acceptance of an offer by the Company to cancel
$12,500 of convertible subordinated debentures, and replace them with 117,187
shares of common stock and a secured note in the amount of $6,250. The note
has been paid in full. Includes 835,000 shares issued to Mr. Spillane
January 6, 2000 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, and for services, for which he received no
compensation. The options to purchase 800,000 shares of common stock from
the Company formerly held by Mr. Spillane have been cancelled.
The following table shows, at September 30, 1999, the shares of the
Company's outstanding Common Stock, $.10 par value (13,254,033
shares), beneficially owned by each of the officers and directors
of the Company and the shares beneficially owned by all of the
officers and directors as a group. Except as otherwise noted in
the footnotes to the table, each person named has sole voting and
investment powers related to his shares.
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Robert E. McDonald 967,038 (1) 7.3%
Brian B. Spillane 1,704,276 (2) 12.9%
Milton O. Childers 1,417,931 (3) 10.7%
Robert W. Meier 586,303 (4) 4.4%
John R. Parker 423,125 (5) 3.2%
All Directors and Officers
as a group (5 persons) 5,098,673 38.5%
(1) See note (1) of the preceding table.
(2) See note (5) of the preceding table.
(3) See note (4) of the preceding table.
(4) Includes 78,125 shares which were issued to Mr. Meier in
August 1999 upon his acceptance of an offer by the Company to
cancel $6,250 of convertible subordinated debentures, and replace
them with 78,125 shares of common stock and a secured note in the
amount of $3,125. The note has been paid in full. Includes
315,000 shares issued to Mr. Meier January 6, 2000 in exchange for
services for which he received no compensation. The options to
purchase 300,000 shares of common stock from the Company formerly
held by Mr. Meier have been cancelled.
(5) Does not include options owned by Mr. Parker to purchase
125,000 shares directly from Mr. McDonald, and options to purchase
125,000 shares directly from Ms. McDonald. Includes 78,125 shares
which were issued to Mr. Parker in August 1999 upon his acceptance
of an offer by the Company to cancel $6,250 of convertible
subordinated debentures, and replace them with 78,125 shares of
common stock and a secured note in the amount of $3,125. The note
has been paid in full. Includes 345,000 shares issued to Mr.
Parker January 6, 2000 in return for services to the Company,
including assistance in obtaining drilling participants and
participants in a financing, for which he received no compensation.
The options to purchase 300,000 shares of common stock from the
Company formerly held by Mr. Parker have been cancelled.
The following table shows as of September 30, 2000, the shares of
the Company's Common Stock which would be held by Officers and
Directors, $.10 par value, assuming full conversion of the
Preferred Stock, and full exercise of all options. There are no
outstanding Company options. The only options held are personal
options held by Messrs. Childers, Parker and Spillane from Mr.
McDonald and Ms. McDonald.
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Robert E. McDonald 1,994,091 11.8%
Brian B. Spillane 2,611,128 15.5%
Milton O. Childers 1,791,508 10.6%
Robert W. Meier 586,303 4.4%
John R. Parker 673,125 4.0%
All Directors and Officers
as a group (5 persons) 7,656,155 46.3%
If full conversion of all outstanding shares of convertible
preferred stock, options, and convertible subordinated debentures
occurred, the Company would have outstanding 16,838,655 shares of
its Common Stock.
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the Company's directors and officers have participated
directly or indirectly in the past and may continue to participate,
from time to time in the future, in oil, gas and mineral prospects
in which the Company has an interest. All such participation has
been and will continue to be on terms no less favorable to the
Company than it can obtain from unaffiliated persons.
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 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 disposed of the Company's
remaining oil and gas production.
The Company previously had debt outstanding in the form of
Convertible Subordinated Debentures in the Principal amount of
$250,000. The Company made an offer to all of the holders of its
Convertible Subordinated Debentures to restructure this debt during
the 1999 fiscal year, 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, notes for $125,000, and
thereupon canceled its Convertible Subordinated Debentures. 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. 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 (see
"Significant Developments During Fiscal 2000 - Redemption of Notes
Outstanding").
In October 1997, the Company sold an oil and gas prospect in
Wyoming to North American Resources, a subsidiary of Montana Power
Company for $25,000 (55.56% of which was Nova"s interest, the
balance being the interest of the Robert E. McDonald Trust. Robert
E. McDonald, a Director of the Company and its largest shareholder,
is the Trustee of the Trust.) and retained an overriding Royalty
interest. The prospect was not drilled, and the leases expired in
December, 1997. The property was put up for auction in 1998, and
North American Resources was the successful bidder for the
property. Nova was granted a 4% overriding royalty interest,
proportionately reduced, in any production from the property. This
interest was assigned to the Robert E. McDonald Trust (1.5554% of
8/8ths) and to Nova's four employees at that time: Milton O.
Childers (0.60% of 8/8ths), Brian B. Spillane ().5473% of 8/8ths),
James R. Schaff (0.5473% of 8/8ths) and Mary Mernah (0.25% of
8/8ths), in recognition of the fact they had worked without salary
or other compensation to make the sale to North American Resources.
The property remains undeveloped, and the overrides do not generate
any current income.
The Company sold its 50% working interest in a 1.25% overriding
royalty interest during the fiscal year in an undeveloped gas
prospect in Wyoming and a small working interest in the same
general area for $38,000. The other 50% interest was held by the
Robert E. McDonald Trust, which sold its interest for the same
price, retaining a 1.5% of 8/8ths overriding royalty interest. The
Trust funded its interest in this prospect from its own funds,
independently of the Company, as it has in all prospects entered
into jointly with the Company. The Company had previously assigned
an overriding royalty interest in this prospect to the Company's
four employees, who had worked on this prospect without salary or
other compensation for several years: Milton O. Childers (1% of
8/8ths), Brian B. Spillane (0.5% of 8/8ths), James R. Schaff (0.5%
of 8/8ths) and Mary Mernah (0.25% of 8/8ths). The prospect remains
undeveloped and the overriding royalties do not generate any
current income.
Messrs. McDonald and Spillane guaranteed and collateralized a line
of credit in the amount of $100,500 on behalf of the Company during
fiscal years 1999 and 2000. The Company paid the fees and interest
on this loan, and it was repaid from the proceeds of the
installment payments from the sale of the Company's kaolin mine
received by the Company in August 1999 and in full from the
proceeds of the sale of a net mineral interest in December 1999.
The load facility matured on January 30, 2000, and was not renewed
by the Company. Messrs. McDonald and Spillane had previously
received no consideration of any kind in return for guaranteeing
and collateralizing this loan facility. In January 2000, the Board
granted Messrs. McDonald and Spillane shares of restricted stock as
compensation for guaranteeing and collateralizing this loan
facility (see "Item 9 - Executive Compensation - Issuance of Stock
for Services"0.
There have been no other significant transactions between the
Company and officers or directors of the Company during the fiscal
year ended September 30, 2000.
PART IV
ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K
(a) (3) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601
of the Regulation S-K or are incorporated by reference to previous
filings.
Exhibit
Table No. Document Reference
(2) Articles of Incorporation and By-Laws (a)
(3) Instruments defining the right of
security holders, including indentures N/A
(5) Voting trust agreement N/A
(6) Material contracts not in ordinary
course of business N/A
(7) Material foreign patents N/A
(a) Filed with Registration Statement No. 33-5520 (under the
Securities Act of 1933) and incorporated herein by this reference.
(b) The following documents were filed and are incorporated
herein:
Description of
Document and Filing
(i) Convertible Preferred Stock Purchase Agreement filed
with Form 10-Q dated December 31, 1986.
(ii) Nova Natural Resources Corporation 1987 Non-qualified
Stock Option Plan and 1987 Incentive Stock Option Plan.
(iii) Report on Form 8-K date of report March 4, 1997.
(iv) Report on Form 8-K, date of report May 5, 1997.
(v) Report SC 13E4, date of report June 13, 1997.
(vi) Report on Form 8-K, date of report October 9, 1997.
(vii) Report on Form 8-K, date of report December 29, 1999.
(viii) Reports on Form 8-K dated March 23, 2000; April 24,
2000, June 21, 2000; July 14, 2000 and August 31, 2000.
(ix) Reports filed on Form 10-QSB for the quarterly periods
ended December 31, March 31, and June 30, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Nova Natural Resources Corporation
has duly caused this Annual Report on Form 10-KSB to be signed on
its behalf by the undersigned, thereunto duly authorized, in
Denver, Colorado on this 15th day of December, 2000.
NOVA NATURAL RESOURCES CORPORATION
(Registrant)
By:/s/ Brian B. Spillane
Brian B. Spillane, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
Signature Title Date
/s/ Robert E. McDonald Director 12-15-00
Robert E. McDonald
/s/ Brian B. Spillane President, Chief 12-15-00
Brian B. Spillane Executive Officer
/s/ Milton O. Childers Director 12-15-00
Milton O. Childers
/s/ John R. Parker Chairman of 12-15-00
John R. Parker the Board
/s/ Robert W. Meier Director 12-15-00
Robert W. Meier
