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 March 31, 2003
[ ] 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 April 30, 2003, 4,400,000 shares of the registrant's common stock were
outstanding.
TABLE OF CONTENTS
PART I.
PAGE
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ITEM 1. Balance Sheets as of March 31, 2003
and December 31, 2002 3
Statements of Operations for the Three
Month Periods Ended March 31, 2003 and 2002 4
Statements of Cash Flows for the Three
Month Periods Ended March 31, 2003 and 2002 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 9
PART II.
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Certifications 12
Page 2
PART I.
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS AS OF MARCH 31, 2003
NOVA OIL, INC. AND DECEMBER 31, 2002
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ASSETS
(UNAUDITED),
MARCH 31, DECEMBER 31,
2003 2002
----------------- ------------------
CURRENT ASSETS
Cash $ 6,950 $ 11,479
Accounts receivable 3,810 2,985
Inventory 1,506 978
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Total current assets 12,266 15,442
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FIXED ASSETS
Oil properties (successful efforts method), net 24,724 25,235
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Total assets $ 36,990 $ 40,677
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,113 $ 698
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Total liabilities 3,113 698
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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 (43,623) (37,521)
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Total stockholders' equity 33,877 39,979
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Total liabilities and stockholders' equity $ 36,990 $ 40,677
====================== ===================
The accompanying notes are an integral part of these financial statements.
Page 3
STATEMENTS OF OPERATIONS FOR THE
NOVA OIL, INC. THREE MONTH PERIODS ENDED
(UNAUDITED) MARCH 31, 2003 AND 2002
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MARCH 31, MARCH 31,
2003 2002
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SALES OF OIL $ 3,810 $ 1,879
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OPERATING EXPENSES
Production expenses 1,161 3,212
General and administrative expenses 8,252 8,748
Amortization expense 511 385
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Total operating expenses 9,924 12,345
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OTHER (INCOME)
Interest income (12) (98)
---------------- -----------------
NET LOSS $ 6,102 $ 10,368
================ =================
NET LOSS PER COMMON SHARE $ Nil $ Nil
================ =================
WEIGHTED AVERAGE NUMBER OF SHARES OUSTANDING - BASIC
4,400,000 4,400,000
================ =================
The accompanying notes are an integral part of these financial statements.
Page 4
STATEMENTS OF CASH FLOWS FOR THE
NOVA OIL, INC. THREE MONTH PERIODS ENDED
(UNAUDITED) MARCH 31, 2003 AND 2002
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MARCH 31, MARCH 31,
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,102) $ (10,368)
Adjustments to reconcile net loss to net cash used
by operating activities:
Amortization 511 385
Change in:
Accounts receivable (825) (454)
Inventory (528) (497)
Accrued repair expense (9,000)
Accounts payable 2,415 4,128
--------------- ----------------
Net cash flows used by operating activities (4,529) (15,806)
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NET DECREASE IN CASH (4,529) (15,806)
CASH AT BEGINNING OF PERIOD 11,479 41,903
--------------- ----------------
CASH AT END OF PERIOD $ 6,950 $ 26,097
=============== ================
The accompanying notes are an integral part of these financial statements.
Page 5
NOVA OIL, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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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,
2002 included in Nova Oil, Inc.'s annual report on Form 10-KSB/A1.
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, 2003.
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.
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.
4. REVENUE RECOGNITION:
Nova Oil, Inc. recognizes revenue associated with the sale of its crude oil on
the date when the purchaser accepts title by taking physical delivery of the
oil. The commodity price paid for the Company's crude oil, West Texas/Mexico
Intermediate, is set by Koch's daily average (www.ksandt.com/crude.asp) for the
calendar month immediately prior to the month that the purchaser takes delivery.
Page 6
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 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 March 31, 2003 compared to the three month
period ended March 31, 2002
For the three months ended March 31, 2003, the Company experienced a net loss of
$6,102 compared to a net loss of $10,368 during the comparable period of the
previous year. The decrease in the net loss from 2002 to 2003 was primarily due
to increased oil sales and decreased production expenses.
During the three month period ended March 31, 2003, the Company generated $3,810
from the sale of 132 barrels of oil at an average sales price of approximately
$29 per barrel. During the three month period ended March 31, 2002, the Company
generated $1,879 from the sale of 98 barrels of oil at an average sales price of
approximately $19 per barrel. Oil production expenses were $1,161, excluding
amortization, during the first quarter of 2003, or approximately $9 per barrel
sold, compared to $3,212 or approximately $33 per barrel sold during the first
quarter of 2002. The decrease in per-barrel production costs during the first
quarter of 2003 is primarily due to extensive repair and maintenance expenses
that were incurred during the first quarter of 2002. Amortization expense of the
Company's oil properties was $511, or approximately $4 per barrel of oil sold
during the first quarter of 2003, and was compared to amortization expense of
$385 or $4 per barrel sold during first quarter of 2002.
General and administrative expenses decreased from $8,748 during the first
quarter of 2002, to $8,252 during the comparable quarter of 2003.
Interest income decreased from $98 during the first quarter of 2002 to $12
during the first quarter of 2003. The decrease was due to a corresponding
decrease in interest bearing cash assets.
FINANCIAL CONDITION AND LIQUIDITY
During the three month period ended March 31, 2003, the Company used $4,529 of
cash in operating activities. The Company has incurred operating losses of
$43,623, since its inception (February 25, 2000), which raises substantial doubt
about its ability to continue as a going concern.
The Company is currently unable to maintain appropriate liquidity levels to
adequately fund its 2003 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
Page 7
unless additional working capital is obtained.
To accommodate for an expected shortfall in operating capital during the first
half of 2003, management plans to fund the Company's short-term operating needs
through revenue from its oil producing properties, existing cash reserves and
unsecured loans from the Company's officers, directors and originators. During
fiscal year 2002, the Board of Directors reviewed the Company's financial
condition. It was the consensus of the Board that it would be prudent to raise
additional working capital for fiscal year 2003. To accommodate for the
longer-term capital needs the Board of Directors granted stock Option
Certificates totaling 960,000 options to the six originators of Nova Oil, Inc.,
with an exercise price of $0.05 per share. In December 2002, the Company filed
SEC Form 8-K reporting the granting of the Option Certificates, which will
become exercisable on May 25, 2003.
In the event the Company is unable to access the capital markets through private
placements, the Company may become illiquid by the end of 2003. 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. Management has not undertaken any reorganization of the Company.
Management estimates fiscal year 2003 income of $16,060, expenditures of $33,105
and a net operating loss of $17,045, as shown in the following table. No
expenditures for capital projects have been budgeted for fiscal year 2003.
[The balance of this page has been intentionally left blank.]
Page 8
Income, Expenditures & Timing of Work Scheduled
Fiscal Year 2003
(Estimated)
2003 1stQtr 2ndQtr 3rdQtr 4thQtr
Income (estimated)
Sale of oil $16,000 $4,000 $4,000 $4,000 $4,000
Interest income 60 15 15 15 15
------- ------- ------- ------- -------
Total income (estimated): 16,060 4,015 4,015 4,015 4,015
Capital expenditures (Projects) 0 0 0 0 0
Operating expenses (estimated)
Oil production expenses (monthly) 8,300 2,075 2,075 2,075 2,075
General & administrative expenses (G&A)
Printing & copying 100 25 25 25 25
Postage 100 25 25 25 25
Telephone & fax 1,500 375 375 375 375
Office supplies 150 38 37 38 37
Accounting & auditing 14,000 5,000 3,000 3,000 3,000
Legal fees 3,000 750 750 750 750
Taxes and licensing fees 100 25 25 25 25
Transfer agent 500 0 250 250 0
Bank fees 96 24 24 24 24
Registered agent - Texas 139 139 0 0 0
Registered agent - Nevada 135 0 0 0 135
Nevada Secretary of State 85 0 0 0 85
SEC filings - EDGAR 4,500 1,500 1,000 1,000 1,000
CUSIP 100 0 0 100 0
Stock quotation service 300 0 0 300 0
------- ------- ------- ------- -------
Total operating expenses (estimated): 33,105 9,976 7,586 7,987 7,556
------- ------- ------- ------- -------
Net loss (estimated): $(17,045) $(5,961) $(3,571) $(3,972) $(3,541)
======== ======== ======== ======== ========
ITEM 3. CONTROLS AND PROCEDURES
Based on their most recent evaluation, which was completed with 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.
Page 9
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
Page 10
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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/PAUL E. FREDERICKS May 2, 2003
--------------------------------- -----------
Paul E. Fredericks Date
President, Director and Principal Executive Officer
By: /s/ARTHUR P. DAMMARELL, JR. May 2, 2003
--------------------------------- -----------
Arthur P. Dammarell, Jr. Date
Treasurer, Director and Principal Financial Officer
Page 11
CERTIFICATIONS
I, Paul E. Fredericks, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Nova Oil, Inc.
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared; b. evaluated the effectiveness
of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and c. presented in this quarterly
report our conclusions about the effectiveness of disclosure
controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions);
a. all significant deficiencies in the design or operations of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and b. any fraud, whether or not
material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 2, 2003
/s/PAUL E. FREDERICKS
Paul E. Fredericks
President, Director and Principal Executive Officer
Page 12
CERTIFICATIONS
I, Arthur P. Dammarell, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Nova Oil, Inc.
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared; b. evaluated the effectiveness
of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and c. presented in this quarterly
report our conclusions about the effectiveness of disclosure
controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions);
a. all significant deficiencies in the design or operations of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and b. any fraud, whether or not
material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 2, 2003
/s/ARTHUR P. DAMMARELL, JR.
- ------------------------------------
Arthur P. Dammarell, Jr.
Treasurer, Director and Principal Financial Officer
Page 13
CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Paul E. Fredericks, President and Principal Executive Officer of Nova Oil,
Inc. (the "Registrant") do hereby certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
my knowledge:
1. This Quarterly Report on Form 10-QSB of the Registrant for the
period ended March 31, 2003, as filed with the Securities and
Exchange Commission (the "report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. The information contained in the report fairly presents, in
all material respects, the financial condition and results of
operations of the Registrant.
Date: May 2, 2003
/s/PAUL E. FREDERICKS
Paul E. Fredericks
President, Director and Principal Executive Officer
CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Arthur P. Dammarell, Jr., Treasurer and Principal Financial Officer of Nova
Oil, Inc. (the "Registrant"), do hereby certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to my knowledge:
1. This Quarterly Report on Form 10-QSB of the Registrant for the
period ended March 31, 2003, as filed with the Securities and
Exchange Commission (the "report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. The information contained in the report fairly presents, in
all material respects, the financial condition and results of
operations of the Registrant.
Date: May 2, 2003
/s/ARTHUR P. DAMMARELL, JR.
- ------------------------------------
Arthur P. Dammarell, Jr.
Treasurer, Director and Principal Financial Officer
Page 14