SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2004
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
for the transition period from __________ to __________.
Commission File Number: 000-31451
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ENCOMPASS HOLDINGS, INC.
------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 95-4756822
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1005 Terminal Way, Suite 110, Reno, Nevada 89502
--------------------------------------------------
(Address of principal executive office) (Zip Code)
(775) 324-8531
----------------
(Issuer's telephone number)
NOVA COMMUNICATIONS LTD.
--------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
-------- --------
As of June 30, 2004 , the number of outstanding shares of the issuer's common
stock, $0.001 par value, was 304,931,468 shares.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes [ ] No [X]
1
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS ............................................... 3
Consolidated Unaudited Balance Sheet as of
June 30, 2004 (restated)............................................ 3
Consolidated Unaudited Statements of Operations for the
Quarters ended June 30, 2004 (restated) and March 31, 2003.......... 4
Consolidated Unaudited Statements of Cash Flows for the
Quarters ended June 30, 2004 (restated) and June 30, 2003........... 5
Notes to Consolidated Financial Statements.......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .............................................. 11
ITEM 3. CONTROLS AND PROCEDURES............................................. 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K..................................... 13
SIGNATURES................................................................... 13
2
PART I - FINANCIAL INFORMATION
NOVA COMMUNICATIONS LTD.
Consolidated Balance Sheets
June 30, December 31,
2004 2003
----------------- -----------------
(restated) (restated)
Assets
------
Current assets:
Cash $ 2,255 $ 51,451
Note receivable due within one year - 9,557
Current assets of discontinued operations 51,435 51,435
----------------- -----------------
Total current assets 53,690 112,443
Equipment, net 1,278 1,278
Equipment of discontinued operations, net 140,221 140,221
Other assets:
Note receivable - 15,317
Advances receivables 723,506 513,506
Other assets of discontinue operations, net 62,811 62,811
----------------- -----------------
Total other assets 786,317 591,634
----------------- -----------------
$ 981,506 $ 845,576
================= =================
Liabilities and Net Capital Deficiency
--------------------------------------
Current liabilities:
Accounts payable $ 164,205 $ 159,637
Payable to related parties - 11,593
Accrued payroll and payroll related liabilities 215,772 392,445
Income taxes payable 2,400 2,400
Other accrued liabilities 55,000 39,229
Notes payable and accrued interest subject to conversion
into an indeterminable number of shares of common stock 324,372 308,102
Derivative liabilities 100,475 176,866
Current liabilities of discontinued operations 393,984 393,984
----------------- -----------------
Total current liabilities 1,256,208 1,484,256
Payable to related party 441,232 264,232
Net capital deficiency:
Preferred stock; no par value; authorized 10,000,000 shares - -
Common stock; $.001 par value; authorized 500,000,000
shares; issued and outstanding 343,981,468 shares in
2004 (255,081,368 shares in 2003) 343,981 255,081
Common stock to be issued 10,000 15,000
Additional paid in capital 21,005,771 18,913,171
Retained deficit (22,075,686) (20,086,164)
----------------- -----------------
Net capital deficiency (715,934) (902,912)
----------------- -----------------
$ 981,506 $ 845,576
================= =================
See accompanying notes.
3
NOVA COMMUNICATIONS LTD.
Consolidated Statements of Operations
Three months ended June 30 Six months ended June 30
----------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
(restated) (restated)
Revenues $ 5,550 $ 8 $ 5,550 $ 7,732
Operating expenses 635,922 1,881,588 2,065,976 2,299,119
---------------- ---------------- ---------------- ----------------
Net loss from operations (630,372) (1,881,580) (2,060,426) (2,291,387)
Other income (expenses):
Change in fair value of
derivative liabilities 66,984 - 80,677 -
Interest expense, net (9,773) (16) (9,773) (18,141)
---------------- ---------------- ---------------- ----------------
Other income (expense) 57,211 (16) 70,904 (18,141)
---------------- ---------------- ---------------- ----------------
Net income from continuing
operations before provision
for income taxes (573,161) (1,881,596) (1,989,522) (2,309,528)
Provision for income taxes -
State of California - - - -
---------------- ---------------- ---------------- ----------------
Net loss from continuing
operations (573,161) (1,881,596) (1,989,522) (2,309,528)
Net income (loss) from
discontinued operations - (8,663) - 19,142
---------------- ---------------- ---------------- ----------------
Net loss $ (573,161) $ (1,890,259) $ (1,989,522) $ (2,290,386)
================ ================ ================ ================
Net income (loss) per common share:
Continuing operations $ (.002) $ (.007) $ (.007) $ (.015)
================ ================ ================ ================
Discontinued operations $ - $ - $ - $ -
================ ================ ================ ================
See accompanying notes.
4
NOVA COMMUNICATIONS LTD.
Consolidated Statements of Cash Flows
Three months ended June 30 Six months ended June 30
----------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- ----------------- ----------------- ----------------
(restated) (restated)
Cash flows from operating activities:
Net loss from continuing
operations $ (573,161) $ (1,881,596) $ (1,989,522) $ (2,309,528)
Adjustment to reconcile net
loss to net cash used in
operating activities:
Provision for uncollectible
note receivable 16,274 - 16,274 -
Shares issued in
exchange for
compensation and
services 591,000 1,835,464 1,996,500 2,215,464
Changes in fair value of
derivative liabilities (66,984) - (80,677) -
Changes in assets and
liabilities:
Receivables - 1,834 - 702
Accounts payable (6,024) (81) (7,025) (25,031)
Accrued liabilities 30,564 39,175 39,654 94,956
---------------- ----------------- ----------------- ----------------
(8,331) (5,204) (24,796) (23,437)
Cash flows from discontinued
operations - 7,944 - 30,759
Cash flows from investing
activities:
Principal repayments on
notes receivable 8,600 3,000 8,600 4,403
Advances paid - - (210,000) -
---------------- ----------------- ----------------- ----------------
8,600 3,000 (201,400) 4,403
Cash flows from financing
activities:
Advances received from
related party 1,000 - 177,000 -
Net financing activities of
discontinued operations - (5,881) - (11,762)
---------------- ----------------- ----------------- ----------------
1,000 (5,881) 177,000 (11,762)
---------------- ----------------- ----------------- ----------------
Net change in cash 1,269 (141) (49,196) (37)
Cash at beginning of period 986 182 51,451 78
---------------- ----------------- ----------------- ----------------
Cash at end of period $ 2,255 $ 41 $ 2,255 $ 41
================ ================= ================= ================
See accompanying notes.
5
NOVA COMMUNICATIONS LTD.
Consolidated Notes to Financial Statements
June 30, 2004
1. Summary of significant accounting policies
------------------------------------------
BUSINESS: Nova Communications Ltd. (the "Company" or "Nova") is
incorporated under the laws of the State of Nevada. The Company invests
in and provides managerial assistance to developing companies.
BASIS OF CONSOLIDATION: The consolidated financial statements include
the accounts of Nova and its 100% owned subsidiary Kadfield, Inc.
("Kadfield"). All intercompany accounts and transactions have been
eliminated.
On July 21, 2003 the Company decided to dispose of Kadfield. Kadfield
has been accounted for as a discontinued operation and the results of
operations have been excluded from continuing operations in the
consolidated statements of operations for all periods presented.
INTERIM REPORTING: The Company's year-end for accounting and tax
purposes is December 31. In the opinion of Management, the accompanying
consolidated financial statements as of June 30, 2004 and 2003 and for
the three and six months then ended, consisting of only normal
recurring adjustments, except as noted elsewhere in the notes to the
consolidated financial statements, necessary to present fairly its
financial position, results of its operations and cash flows. The
results of operations for the three and six months ended June 30, 2004
and 2003 are not necessarily indicative of the results to be expected
for the full year.
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS TO REFLECT DERIVATIVE
ACCOUNTING: The Company has restated its previously issued interim
financial statements to reflect additional non-operating gains related
to the classification of and accounting for certain financial
instruments with embedded derivative features.
The Company determined that it had not accounted for the embedded
conversion feature of its convertible notes payable as a derivative
instrument pursuant to SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, and Financial
Accounting Standards Board's Emerging Issues Task Force ("EITF") Issue
No. 00-19, "Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in A Company's Own Stock".
The Company estimated the fair value of the conversion feature of its
notes payable to be $100,475 as of June 30, 2004 and is reported in the
accompanying balance sheet as derivative liabilities. Under EITF No.
00-19, this amount is reported separate from the convertible notes
payable as derivative liabilities. Further, under SFAS No. 133, any
change in fair value of derivative liabilities during the period is
reported as other income or expense in the statement of operations. The
Company recognized other income for the change in fair value of
derivative liabilities in the consolidated statement of operations of
$66,984 for the three months ended June 30, 2004 and $80,677 for the
six months ended June 30, 2004.
6
1. Summary of significant accounting policies (continued)
------------------------------------------------------
CASH FLOWS: For purposes of the statement of cash flows, the Company
and its subsidiaries consider cash equivalents to be highly liquid
instruments if, when purchased, their original due dates were within
three months.
EQUIPMENT: Equipment is carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the
depreciable assets, which range from five to fifteen years.
STOCK OPTIONS AND WARRANTS: The Company uses a fair value based method
of accounting for stock based compensation to employees.
The Company also accounts for stock options and warrants issued to
non-employees for services under the fair value method of accounting.
DERIVATIVE INSTRUMENTS: In connection with the issuance of convertible
notes payable, the terms of certain notes payable provide for principal
and interest to be converted into an indeterminable number of shares of
the Company's common stock. This variable conversion feature is
determined to be an embedded derivative instrument and the Company has
accounted for these derivatives pursuant to SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended and
Financial Accounting Standards Board's Emerging Issues Task Force
("EITF") Issue No. 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in A Company's Own
Stock". Under EITF No. 00-19, the estimated fair value of the embedded
derivative instrument is reported separate from the notes payable on
the date of issuance as derivative liabilities.
Derivative liabilities are reported at fair value as of the balance
sheet date and any change in fair value during the period is reported
as other income or expense in the statement of operations.
The Company recognized other income of approximately $67,000 during the
three months ended June 30, 2004 and $80,700 during the six months
ended June 30, 2004 relating to the change in fair value of its
derivative liabilities.
NET LOSS PER COMMON SHARE: Net loss per common share is computed by
dividing net loss by the weighted average number of common shares
outstanding during the period. The weighted average number of common
stock shares outstanding was 322,785,864 for the three months ended
June 30, 2004 (264,407,336 for the three months ended June 30, 2003)
and 305,948,501 for the six months ended June 30, 2004 (157,449,063 for
the six months ended June 31, 2003). Common stock to be issued and
convertible notes payable are not considered to be a common stock
equivalent as the effect on net loss per common share would be
anti-dilutive.
7
1. Summary of significant accounting policies (continued)
------------------------------------------------------
USE OF ESTIMATES: The process of preparing financial statements in
conformity with generally accepted accounting principles requires the
use of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Management of the Company has made
certain estimates and assumptions regarding the collectability of notes
receivable. Such estimates and assumptions primarily relate to
unsettled transactions and events as of the date of the financial
statements. Accordingly, upon settlement, actual results may differ
from estimated amounts.
2. Operations
----------
During 2003, the Company announced their intentions to divest of its
investment in Kadfield, Inc. Also, the Company is currently negotiating
with several companies in which to invest or acquire.
The Company believes the above actions and along with other plans will
allow them to continue operations and ultimately achieve profitability.
Until then, the Company is dependent upon its ability to obtain
additional capital and debt financing. The consolidated financial
statements as of June 30, 2004 do not reflect adjustments relating to
the recorded asset amounts, or the amounts of liabilities that would be
necessary should the Company not be able to continue in existence.
3. Cash flow information
---------------------
Supplemental schedule of noncash financing activities are as follows:
Three months ended June 30 Six months ended June 30
----------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- ----------------- ----------------- ----------------
Common stock
issued in exchange
for accrued payroll $ 90,000 $ - $ 180,000 $ -
================ ================= ================= ================
Common stock
issued for long-
term obligations to
related parties $ - $ 625,000 $ - $ 625,000
================ ================= ================= ================
4. Advances receivable
-------------------
The Company has advanced funds to a company for cash flow purposes. The
advances are unsecured, non-interest bearing, and due on demand.
8
5. Notes payable subject to conversion into an indeterminable number of
-----------------------------------------------------------------------
shares of common stock
----------------------
Notes payable are due one year from the issuance date of the note with
interest at a rate of 8% per annum. The notes, including unpaid
interest, are convertible, in whole or in part, at any time after six
months from the date of the note at the option of the holder. The notes
are convertible at the option of the Company upon ten days written
notice after six months from the date of the note or at the time of any
public offering by the Company in an aggregate amount of no less than
$10,000,000, or upon any merger or acquisition to which the Company is
a party. The notes may be converted at a price per share equal to 70%
of the closing bid price of the Company's common stock on the date of
the notice of conversion. There is no limit on the number of shares of
common stock that would be required to by issued upon conversion of the
notes payable and the number of shares required to be issued could
exceed the number of shares of the Company's common stock currently
authorized. The Company would have been required to issue 49,259,922
shares of its common stock if the principal and accrued interest of the
notes were converted as of March 31, 2004.
6. Payable to related party
------------------------
The payable to related party is due to a company controlled by the
president of the Company. The advances are unsecured, non-interest
bearing, and due on demand however, this company has agreed not to
demand repayment before June 2005.
7. Preferred stock
---------------
The Company's preferred stock may be voting or have other rights and
preferences as determined from time to time by the Board of Directors.
8. Common stock
------------
On January 21, 2004, the Board of Directors authorized the issuance of
6,000,000 shares of common stock of the Company in exchange for
$180,000 of accrued payroll. Management of the Company valued the
shares issued at $.03 per share, the closing bid price of the Company's
common stock on the date of issuance. Management of the Company
estimated the value of the Company's shares granted after considering
the historical trend of the trading prices for its common stock and the
limited volume of shares being traded.
During the three months ended March 31, 2004, the Company issued an
aggregate of 27,350,000 shares of its common stock in exchange for
consulting and management services aggregating $820,500. Management of
the Company valued the shares issued at $.03 per share, the closing bid
price of the Company's common stock on the date of issuance. Management
of the Company estimated the value of the Company's shares granted
after considering the historical trend of the trading prices for its
common stock and the limited volume of shares being traded.
9
8. Common stock
------------
On May 14, 2004, the Board of Directors authorized the issuance of
4,500,000 shares of common stock of the Company in exchange for $90,000
of accrued payroll. Management of the Company valued the shares issued
at $.02 per share, the closing bid price of the Company's common stock
on the date of issuance. Management of the Company estimated the value
of the Company's shares granted after considering the historical trend
of the trading prices for its common stock and the limited volume of
shares being traded.
During the three months ended June 30, 2004, the Company issued an
aggregate of 22,550,000 shares of its common stock in exchange for
consulting and management services aggregating $451,000. Management of
the Company valued the shares issued at $.02 per share, the closing bid
price of the Company's common stock on the date of issuance. Management
of the Company estimated the value of the Company's shares granted
after considering the historical trend of the trading prices for its
common stock and the limited volume of shares being traded.
9. Stock based compensation
------------------------
During the three months ended March 31, 2004, the Company issued
16,000,000 shares of its common stock to its president and 500,000 to
an employee as compensation for services aggregating $495,000.
Management of the Company valued the shares issued at $.03 per share,
the closing bid price of the Company's common stock on the date of
issuance. Management of the Company estimated the value of the
Company's shares granted after considering the historical trend of the
trading prices for its common stock and the limited volume of shares
being traded.
During the three months ended June 30, 2004, the Company issued
5,500,000 shares of its common stock to its president and 1,500,000 to
an employee as compensation for services aggregating $140,000.
Management of the Company valued the shares issued at $.02 per share,
the closing bid price of the Company's common stock on the date of
issuance. Management of the Company estimated the value of the
Company's shares granted after considering the historical trend of the
trading prices for its common stock and the limited volume of shares
being traded.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis contains various forward-looking statements
within the meaning of the Securities and Exchange Act of 1934. These statements
consist of any statement other than a recitation of historical fact and can be
identified by the use of forward looking terminology such as "may", "expect",
"anticipate", "estimates", or "continue" or use of negative or other variations
of comparable terminology. We caution that these statements are further
qualified by important factors that could cause actual results to differ
materially from those contained in our forward looking statements, that these
forward looking statements are necessarily speculative, and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in our forward looking statements.
Management's discussion and analysis should be read in conjunction with the
financial statements and the notes thereto.
RESULTS OF OPERATIONS
---------------------
Six months ended June 30, 2004 compared to the six months ended June 30, 2003
-----------------------------------------------------------------------------
and three months ended June 30, 2004 compared to the three months ended June 30,
--------------------------------------------------------------------------------
2003:
On July 21, 2003 the Company decided to dispose of Kadfield. Kadfield has been
accounted for as a discontinued operation and the results of operations have
been excluded from continuing operations in the consolidated statements of
operations for all periods presented. During the three and six months ended June
30, 2004, management has been devoting its efforts toward identifying business
investment and acquisition opportunities. The Company is currently providing
working capital advances to a business opportunity.
Revenues were $5,550 for the six months ended June 30, 2004 compared to $7,732
for the six months ended June 30, 2003. The decrease of $2,182 is a result of
providing more overall management services in 2003.
Revenues were $5,550 for the three months ended June 30, 2004 compared to $8 for
the three months ended June 30, 2003. The increase is a result of providing more
management services during the three months ended June 30, 2004 then during the
three months ended June 30, 2003.
Operating expenses were $2,065,976 for the six months ended June 30, 2004
compared to $2,299,119 for the six months ended June 30, 2003. The decrease of
$233,143 is a result of incurring less outside consulting services during the
six months ended June 30, 2004 by $218,964.
Operating expenses were $635,922 for the three months ended June 30, 2004
compared to $1,881,588 for the three months ended June 30, 2003. The decrease of
$1,245,666 is a result of incurring less outside consulting services during the
three months ended June 30, 2004 by $1,244,464.
11
FINANCIAL POSITION & LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
As of June 30, 2004 compared to December 31, 2003:
-------------------------------------------------
The Company's total assets of $981,506 as of June 30, 2004 increased by $135,930
from those as of December 31, 2003 primarily as a result of two factors. The
Company negotiated a final payment on its notes receivable by reducing the
amount to $8,600 that was received during the three months ended June 30, 2004.
The Company has advanced a business opportunity an aggregate of $210,000 during
the six months ended June 30, 2004.
Payable to related party increased $177,000 during the six months ended June 30,
2004 aggregating $441,232 as of that date. This related party has agreed not to
demand repayment of the advances before August 2005 and unless cash is available
from operations or from a merger, capital stock exchange, asset acquisition, or
other business combination. There can be no assurances that this related party
will continue to provide advances to the Company.
ITEM 3. CONTROLS AND PROCEDURES
As of June 30, 2004 the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and President, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon
that eva1uation, these principal executive officers and principal financial
officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company, including its consolidated subsidiaries, required to be included in the
Company's periodic SEC filings. There have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation.
12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits.
--------
Exhibit
Number Description of Document
2 Articles and Agreement of Merger Between Nova Communications
Ltd. and First Colonial Ventures, Ltd. - July 21, 1999
(Incorporated by reference)
3(3)(i)(1) First Colonial Ventures, Ltd. Articles of Incorporation - March
25, 1985 (Incorporated by reference)
3(3)(i)(2) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation - August 12, 1985 (Incorporated by reference)
3(3)(i)(3) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation -September 3, 1985 (Incorporated by reference)
3(3)(i)(4) First Colonial Ventures, Ltd. Amendment to Articles of
Incorporation -February 3, 1992 (Incorporated by reference)
3(3)(i)(5) Nova Communications Ltd Articles of Incorporation - July 13.
1999 (Incorporated by reference)
3(3)(ii)(1) Bylaws (Incorporated by reference)
31.1 Rule 13a-14(a)/15d-14(a) Certification
31.2 Rule 13a-14(a)/15d-14(a) Certification
32.1 Section 1350 Certification
32.2 Section 1350 Certification
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the period covered by
this report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
May 30, 2006 ENCOMPASS HOLDINGS, INC.
By: /s/ ARTHUR N. ROBINS
--------------------------
Arthur N. Robins
Chief Executive Officer
By: /s/ LESLIE I. HANDLER
--------------------------
Leslie I. Handler, President
13