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 September 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 October 30, 2002, 4,400,000 shares of the registrant's common stock
were outstanding.
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TABLE OF CONTENTS
PART I
PAGE
ITEM 1 Balance Sheets as of September 30, 2002
and December 31, 2001............................................... 3
Statements of Operations For the Three and Nine Month
Periods Ended September 30, 2002 and 2001........................... 4
Statements of Cash Flows For the Nine Month Periods
Ended September 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
ITEM 3 Controls and Procedures............................................. 8
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
Certifications...................................................... 11
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PART I
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS AS OF SEPTEMBER 30, 2002
NOVA OIL, INC. AND DECEMBER 31, 2001
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ASSETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2002 2001
CURRENT ASSETS:
Cash $ 16,638 $ 41,903
Accounts receivable 1,627 1,425
Inventory 1,451
Total current assets 19,716 43,328
FIXED ASSETS:
Oil properties (successful efforts method), net 25,764 27,070
Total assets $ 45,480 $ 70,398
LIABILITES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued repair expense $ 9,000
Accounts payable $ 2,962 751
Total current liabilities 2,962 9,751
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 (34,982) (16,853)
Total stockholders' equity 42,518 60,647
Total liabilities and stockholders' equity $ 45,480 $ 70,398
The accompanying notes are an integral part of these financial statements.
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NOVA OIL, INC. STATEMENTS OF OPERATIONS FOR THE THREE AND NINE
(UNAUDITED) MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
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SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
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THREE NINE THREE NINE
MONTHS MONTHS MONTHS MONTHS
------ ------ ------ ------
SALES OF OIL $ 3,071 $ 7,621 $ 5,998 $ 13,532
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Production expenses 2,985 7,828 1,982 5,573
General and administrative expenses 3,707 16,811 1,634 13,125
Amortization expense 422 1,306 861 1,841
Total operating expenses 7,114 25,945 4,477 20,539
OTHER (INCOME) EXPENSES:
Interest income (44) (195) (230) (825)
Total other (income) expenses (44) (195) (230) (825)
NET INCOME (LOSS) $ (3,999) $ (18,129) $ (1,751) $ (6,182)
NET LOSS PER SHARE - BASIC $ Nil $ Nil $ Nil $ Nil
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - BASIC 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 NINE MONTH
(UNAUDITED) PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
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NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(18,129) $ (6,182)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization 1,306 1,841
Change in:
Accounts receivable (202) (789)
Inventory (1,451)
Accrued repair expense (9,000)
Accounts payable 2,211 531
Net cash used by operating activities (25,265) (4,599)
NET CHANGE IN CASH (25,265) (4,599)
CASH AT BEGINNING OF PERIOD 41,903 46,494
CASH AT END OF PERIOD $ 16,638 $ 41,895
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 United States of America. Unless otherwise indicated, amounts
provided in these notes to the financial statements pertain to continuing
operations. The Company's revenues for the nine month period ended September 30,
2002, were from sales to one customer.
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. Prior to the beginning of the third quarter of 2002, the Company
reported as a "development stage company" in accordance with the provisions of
SFAS No. 7. At the beginning of the third quarter of 2002, management determined
that the Company was no longer in the development stage and discontinued
reporting as such.
RESULTS OF OPERATIONS
For the three month period ended September 30, 2002 compared to the three month
period ended September 30, 2001
For the three months ended September 30, 2002, the Company experienced a net
loss of $3,999 compared to a net loss of $1,751 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 third quarter of 2002 as compared to the
third quarter of 2001.
During the three month period ended September 30, 2002, the Company generated
$3,071 from the sale of 132 barrels of oil at an average sales price of
approximately $23 per barrel. During the three month period ended September 30,
2001 the Company generated $5,998 from the sale of 265 barrels of oil at an
average sales price of approximately $22 per barrel. Oil production expenses
were $2,985 during the third quarter of 2002, or approximately $22 per barrel
sold, compared to $1,982 or approximately $7 per barrel sold during the third
quarter of 2001. The increase in per-barrel production costs during the third
quarter of 2002 was primarily due to fewer barrels of oil sold during the third
quarter of 2002 as compared to the comparable quarter of 2001. In addition,
fewer barrels of oil were produced during the third quarter of 2002, as compared
to the same quarter in 2001, due to fewer barrels of oil produced from the
Company's working interest in the Steinbach Unit and an interruption in
production of the Company's working interest in the Smith Boswell #1 Unit due to
repairs during the third quarter of 2002.
Amortization expense was $422 during the third quarter of 2002 as compared to
$861 during the third quarter of 2001. The decrease in amortization expense
during the third quarter of 2002 is due to fewer barrels of oil produced and
sold during the third quarter of 2002 compared to the third quarter of 2001.
General and administrative expenses were $3,707 during the third quarter of
2002, compared to $1,634 during the third quarter of 2001. The increase in
general and administrative expense during the third quarter of 2002 is
principally due to administrative and accounting costs associated with the
review of the Company's Form 10 registration statement filing.
Interest income decreased from $230 during the third quarter of 2001 to $44
during the third quarter of 2002. The decrease was due to a corresponding
decrease in interest bearing cash assets.
Page 7
For the nine month period ended September 30, 2002 compared to the nine month
period ended September 30, 2001
For the nine month period ended September 30, 2002, the Company had a net loss
of $18,129 compared to a net loss of $6,182 during the nine month period ended
September 30, 2001. During both nine month periods, the net losses were
primarily attributable to general and administrative expenses that were in
excess of gross profits received from oil sales.
FINANCIAL CONDITION AND LIQUIDITY
During the nine month period ended September 30, 2002, the Company used $25,265
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.
ITEM 3. CONTROLS AND PROCEDURES
Based on their most recent evaluation, which was completed within 90 days of the
filing of this Form 10-QSB, the Company's treasurer and president believe the
Company's disclosure controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) are effective to ensure that information required to be
disclosed by the Company in this report is accumulated and communicated to the
Company's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. There were no significant changes in the Company's internal controls
or other factors that could significantly affect these controls subsequent to
the date of their evaluation and there were no corrective actions with regard to
significant deficiencies and material weaknesses.
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.
(Registrant)
By: /s/ARTHUR P. DAMMARELL, JR. 10/31/02
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Arthur P. Dammarell, Jr. Date
Treasurer and Principal Financial Officer
By: /s/PAUL E. FREDERICKS 10/31/02
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Paul E. Fredericks Date
President, and Chief Executive Officer
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CERTIFICATIONS
I, Arthur P. Dammarell, Jr. certify that:
1. I have reviewed this report on Form 10-QSB of Nova Oil, Inc.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report.
3. Based on my knowledge the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report.
Date: October 31, 2002
/s/ ARTHUR P. DAMMARELL, JR.
Arthur P. Dammarell, Jr.
Treasurer, and Principal Financial Officer
I, Paul E. Fredericks certify that:
1. I have reviewed this report on Form 10-QSB of Nova Oil, Inc.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report.
3. Based on my knowledge the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report.
Date: October 31, 2002
/s/ PAUL E. FREDERICKS
Paul E. Fredericks
President, and Chief Executive Officer
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