UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 000-32531
NOVA OIL, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 91-2028450
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
17922 N. Hatch Road, Colbert, WA 99005-9377
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(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (509) 466-0576
Common Stock (None)
Title of each class Name and exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period as the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes [X] No [ ]
At August 1, 2002, 4,400,000 shares of the registrant's common stock
were outstanding.
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TABLE OF CONTENTS
PART I
PAGE
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ITEM 1. Balance Sheets as of June 30, 2002
and December 31, 2001............................................. 3
Statements of Operations For the Three and Six Month
Periods Ended June 30, 2002 and 2001.............................. 4
Statements of Cash Flows For the Six Month Periods
Ended June 30, 2002 and 2001 .................................... 5
Notes to Financial Statements..................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 7
PART II
ITEM 1. Legal Proceedings................................................. 9
ITEM 2. Changes in Securities............................................. 9
ITEM 3. Defaults Upon Senior Securities................................... 9
ITEM 4. Submission of Matters to a Vote of Security Holders............... 9
ITEM 5. Other Information................................................. 9
ITEM 6. Exhibits and Reports on Form 8-K.................................. 9
Signatures....................................................... 10
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Balance Sheets as of June 30, 2002
Nova Oil, Inc. and December 31, 2001
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PART I
ITEM 1. FINANCIAL STATEMENTS
ASSETS
(Unaudited)
June 30, December 31,
2002 2001
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CURRENT ASSETS:
Cash $ 17,365 $ 41,903
Accounts receivable 3,151 1,425
Inventory 759
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Total current assets 21,275 43,328
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FIXED ASSETS:
Oil properties (successful efforts method), net 26,186 27,070
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Total assets $ 47,461 $ 70,398
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LIABILITES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued repair expense $ 9,000
Accounts payable $ 944 751
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Total current liabilities 944 9,751
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Commitments and Contingencies
STOCKHOLDERS' EQUITY:
Preferred stock; $0.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding
Common stock; $0.001 par value; 100,000,000 shares
authorized; 4,400,000 shares issued and outstanding 4,400 4,400
Additional paid-in capital 73,100 73,100
Accumulated deficit incurred during the developmental stage (30,983) (16,853)
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Total stockholders' equity 46,517 60,647
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Total liabilities and stockholders' equity $ 47,461 $ 70,398
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The accompanying notes are an integral part of these financial statements.
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Nova Oil, Inc. Statements of Operationsfor the Three and Six
(Unaudited) Month Periods Ended June 30, 2002 and 2001
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June 30, 2002 June 30, 2001
Date of Inception ----------------------- -----------------------
Through Three Six Three Six
June 30, 2002 Months Months Months Months
----------------- ---------- ---------- ---------- ----------
SALES OF OIL $ 22,635 $ 2,671 $ 4,550 $ 4,806 $ 7,534
OPERATING EXPENSES:
Repair expense 9,000
Production expenses 12,619 1,631 4,843 1,938 3,591
General and administrative expenses 29,216 4,356 13,104 4,302 11,490
Amortization expense 3,514 499 884 661 980
Total operating expenses 54,349 6,486 18,831 6,901 16,061
OTHER (INCOME) EXPENSES:
Start-up expense 1,325
Interest income (2,056) (53) (151) (273) (594)
Total other (income) expenses (731) (53) (151) (273) (594)
NET LOSS $ (30,983) $ (3,762) $ (14,130) $ (1,822) $ (7,933)
NET LOSS PER SHARE - BASIC $ (0.01) $ Nil $ Nil $ Nil $ Nil
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - BASIC 3,700,796 4,400,000 4,400,000 4,400,000 4,400,000
The accompanying notes are an integral part of these financial statements.
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Nova Oil, Inc. Statements of Cash Flows for the Six Month
(Unaudited) Periods Ended June 30, 2002 and 2001
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Six Months Ended
Date of Inception June 30,
Through -----------------------------
June 30, 2002 2002 2001
----------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (30,983) $ (14,130) $ (7,933)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization 3,514 884 980
Change in:
Accounts receivable (3,151) (1,726) 223
Inventory (759) (759)
Accrued repair expense (9,000)
Accounts payable 944 193 (72)
Net cash used by operating activities (30,435) (24,538) (6,802)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of oil and gas properties (29,700)
Net cash used by investing activities (29,700)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock for cash 77,500
Net cash provided by financing activities 77,500
NET CHANGE IN CASH 17,365 (24,538) (6,802)
CASH AT BEGINNING OF PERIOD 41,903 46,494
CASH AT END OF PERIOD $ 17,365 $ 17,365 $ 39,692
The accompanying notes are an integral part of these financial statements.
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Nova Oil, Inc.
(Undaudited) Notes to Financial Statements
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1. Basis of Presentation:
The financial statements of Nova Oil, Inc. included herein have been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Although certain information normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America has been condensed or omitted, Nova Oil, Inc.
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto for the fiscal year ended December 31,
2001 included in Nova Oil, Inc.'s annual report on Form 10-KSB.
The financial statements included herein reflect all normal recurring
adjustments that, in the opinion of management, are necessary for a fair
presentation. The results for interim periods are not necessarily indicative of
trends or of results to be expected for the full year ending December 31, 2002.
Included in the Company's production expenses as presented are all direct
expenses of oil production, including severance taxes and royalties, not
included in production expenses are depreciation, depletion, and amortization
("DD&A") expenses and corporate administration expenses. All information is
presented on the accrual basis of accounting.
2. Nature of Business:
Nova Oil, Inc. is a Nevada Corporation that was formed on February 25, 2000. The
Company was organized to acquire and develop working interests in oil and gas
properties in the Untied States of America. Unless otherwise indicated, amounts
provided in these notes to the financial statements pertain to continuing
operations. All of the Company's revenues for the period from inception on
February 25, 2000 to June 30, 2002, were from sales to two customers.
3. Commitments and Contingencies:
In connection with the purchase of working interests in two oil and gas wells,
the Company entered into an operating agreement with the seller of the interests
and operator of the wells. The agreement, modeled after agreements standard and
customary to the oil industry, commits the Company to pay its share of joint
interest operating costs incurred in the operation, maintenance and potential
future development of the wells. The joint interest payments are billed monthly
by the operator and are due fifteen days after receipt. Oil prices are extremely
volatile and instances may occur where the Company's revenues received from oil
sales are less than its corresponding production expenses. In addition, oil well
repair and maintenance activities may interrupt oil sales revenue and add to
overall operation costs.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This report contains both historical and prospective statements concerning the
Company and its operations. Prospective statements (known as "forward-looking
statements") may or may not prove true with the passage of time because of
future risks and uncertainties. The Company cannot predict what factors might
cause actual results to differ materially from those indicated by prospective
statements.
Results of Operations
For the three month period ended June 30, 2002 compared to the three month
period ended June 30, 2001
For the three months ended June 30, 2002, the Company experienced a net loss of
$3,762 compared to a net loss of $1,822 during the comparable period of the
previous year. The increase in net loss from 2001 to 2002 was primarily due to
decreased sales of oil during the second quarter of 2002 as compared to the
second quarter of 2001.
During the three month period ended June 30, 2002, the Company generated $2,671
from the sale of 117 barrels of oil at an average sales price of approximately
$23 per barrel. During the three month period ended June 30, 2001, the Company
generated $4,806 from the sale of 203 barrels of oil at an average sales price
of approximately $24 per barrel. Oil production expenses were $1,631 during the
second quarter of 2002, or approximately $14 per barrel sold, compared to $1,938
or approximately $10 per barrel sold during the second quarter of 2001. The
increase in per-barrel production costs during the second quarter of 2002 was
primarily due to fewer barrels of oil sold during the second quarter of 2002 as
compared to the comparable quarter of 2001.
Amortization expense was $499 during the second quarter of 2002 as compared to
$661 during the second quarter of 2001. The decrease in amortization expense
during the second quarter of 2002 is due to fewer barrels of oil produced and
sold during the second quarter of 2002 compared to the second quarter of 2001.
General and administrative expenses were $4,356 during the second quarter of
2002, and were comparable to $4,302 during the second quarter of 2001
Interest income decreased from $273 during the second quarter of 2001 to $53
during the second quarter of 2002. The decrease was due to a corresponding
decrease in interest bearing cash assets.
For the six month period ended June 30, 2002 compared to the six month period
ended June 30, 2001
For the six month period ended June 30, 2002, the Company had a net loss of
$14,130 compared to a net loss of $7,933 during the six month period ended June
30, 2001. During both six month periods, the net losses were primarily
attributable to general and administrative expenses that were in excess of gross
profits received from oil sales.
Page 7
Financial Condition and Liquidity
During the six month period ended June 30, 2002, the Company used $24,538 of
cash in operating activities. Management plans to fund future short-term
operating needs through profits from its oil producing properties, existing cash
reserves, and, if necessary, sales of the Company's common stock. There
currently is no market for the Company's common stock, however, and there are no
assurances that management will be successful in its plans.
The Company is currently unable to maintain appropriate liquidity levels to
adequately fund its 2002 expenditure programs and has reason to believe that
this will continue to be the case in the near term.
Management has determined that because of the deficiency in working capital,
significant operating losses and lack of liquidity, there is doubt about the
ability of the Company to continue in existence unless additional working
capital is obtained. The Company has incurred operating losses since its
inception (February 25, 2000) that raise substantial doubt about its ability to
continue as a going concern. The Company anticipates that current cash reserves
and projected revenues will not provide adequate cash flow to meet expected 2002
expenditures. In the event the Company is unable to access the capital markets
through private placements, the Company may become illiquid by the end of 2002.
Consequently such trends or conditions could have a material adverse effect on
the Company's financial position, future results of operations, or liquidity.
The Company currently has plans to raise sufficient working capital through
equity financing or reorganization of the Company. A reorganization of the
Company may include, but not be limited to, reduction in expenditures, disposal
of assets, reducing ownership interest in the oil wells, a reverse stock split,
seeking out a larger oil company for merger, and/or developing strategic
alliances with other companies.
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PART II
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
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SIGNATURES
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Pursuant to the requirements of Section 13 or 15(b) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Nova Oil, Inc.
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(Registrant)
By: /s/ ARTHUR P. DAMMARELL, JR. 8/1/02
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Arthur P. Dammarell, Jr. Date
Treasurer and Principal Financial Officer
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