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, 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
---------------------------------------------
(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 3, 2003, 5,040,000 shares of the registrant's common stock were
outstanding.
TABLE OF CONTENTS
PART I.
PAGE
----
ITEM 1. Balance Sheets as of June 30, 2003 (unaudited)
and December 31, 2002 3
Statements of Operations for the Three and Six
Month Periods Ended June 30, 2003 and 2002 (unaudited) 4
Statements of Cash Flows for the Six
Month Periods Ended June 30, 2003 and 2002 (unaudited) 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
BALANCE SHEETS AS OF JUNE 30, 2003
NOVA OIL, INC. AND DECEMBER 31, 2002
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PART I.
ITEM 1: FINANCIAL STATEMENTS
ASSETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
----------------- ------------------
CURRENT ASSETS
Cash $ 28,527 $ 11,479
Accounts receivable 3,093 2,985
Inventory 740 978
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Total current assets 32,360 15,442
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FIXED ASSETS
Oil properties (successful efforts method), net 24,263 25,235
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Total assets $ 56,623 $ 40,677
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,369 $ 698
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Total liabilities 1,369 698
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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; 4,880,000 shares
outstanding as of June 30, 2003; 4,400,000
shares issued and outstanding as of December 31, 2002
4,880 4,400
Additional paid-in capital 96,620 73,100
Accumulated deficit (46,246) (37,521)
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Total stockholders' equity 55,254 39,979
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Total liabilities and stockholders' equity $ 56,623 $ 40,677
=================== ===================
The accompanying notes are an integral part of these financial statements.
Page 3
STATEMENTS OF OPERATIONS FOR THE
NOVA OIL, INC. SIX AND THREE MONTH PERIODS ENDED
(UNAUDITED) JUNE 30, 2003 AND 2002
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JUNE 30, 2003 JUNE 30, 2002
--------------------------------- ---------------------------------
THREE SIX THREE SIX
MONTHS MONTHS MONTHS MONTHS
-------------- --------------- --------------- --------------
SALES OF OIL $ 4,479 $ 8,289 $ 2,671 $ 4,550
-------------- --------------- --------------- --------------
OPERATING EXPENSES:
Production expenses 3,656 4,817 1,631 4,843
General and administrative
expenses 2,994 11,247 4,356 13,104
Amortization expense 461 972 499 884
-------------- --------------- --------------- --------------
Total operating expenses 7,111 17,036 6,486 18,831
-------------- --------------- --------------- --------------
OTHER (INCOME):
Interest income 7 19 53 151
-------------- --------------- --------------- --------------
Total other (income) 7 19 53 151
-------------- --------------- --------------- --------------
NET LOSS $ 2,625 $ 8,728 $ 3,762 $ 14,130
============== =============== =============== ==============
NET LOSS PER SHARE $ Nil $ Nil $ Nil $ Nil
============== =============== =============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES
OUSTANDING - BASIC
4,496,000 4,415,912 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. SIX MONTH PERIODS ENDED
(UNAUDITED) JUNE 30, 2003 AND 2002
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JUNE 30, JUNE 30,
2003 2002
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (8,728) $ (14,130)
Adjustments to reconcile net loss to net cash used
by operating activities:
Amortization 972 884
Change in:
Accounts receivable (108) (1,726)
Inventory 240 (759)
Accrued repair expense (9,000)
Accounts payable 672 193
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Net cash flows used by operating activities (6,952) (24,538)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the exercise of common stock options 24,000
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Net cash provided by financing activities 24,000
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NET INCREASE IN CASH 17,048 (24,538)
CASH AT BEGINNING OF PERIOD 11,479 41,903
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CASH AT END OF PERIOD $ 28,527 $ 17,365
=============== ================
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/New 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.
On May 20, 2003, the Board of Directors adopted a Stock Incentive Plan (the
"Plan") for employees, officers, directors, originators, and advisors. The
number of shares proposed to be allocated would be 600,000. The Plan would be
administered by the Company's Compensation Committee. The Plan is subject to
shareholder approval.
On May 20, 2003, the Board of Directors adopted a charter for the Company's
Audit Committee. The Company is unable to secure the services of an independent
financial expert due to budgetary constraints.
RESULTS OF OPERATIONS
For the three month period ended June 30, 2003 compared to the three month
period ended June 30, 2002
For the three months ended June 30, 2003, the Company experienced a net loss of
$2,625 compared to a net loss of $3,762 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 during the second three months of 2003 as compared to the
same period of 2002.
During the three month period ended June 30, 2003, the Company generated $4,479
from the sale of 184 barrels of oil at an average sales price of approximately
$24 per barrel. 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. Oil production expenses were $3,656, excluding
amortization, during the second quarter of 2003, or approximately $20 per barrel
sold, compared to $1,631 or approximately $14 per barrel sold during the second
quarter of 2002. The decrease in per-barrel production costs during 2003 is
primarily due to extensive repair and maintenance expenses that were incurred
during the second quarter of 2002 that were not incurred during the second
quarter of 2003. Amortization expense of the Company's investments in its oil
properties was $461, or approximately $3 per barrel of oil sold during the
second quarter of 2003, and was comparable to amortization expense of $499 or $4
per barrel sold during second quarter of 2002.
General and administrative expenses decreased from $4,356 during the second
quarter of 2002, to $2,994 during the comparable quarter of 2003, the decrease
in general and administrative expenses during the second quarter of 2003 was due
to filing fees associated with the Company's Form 10SB during the second quarter
of 2002 that were not incurred during 2003.
Interest income decreased from $53 during the second quarter of 2002 to $7
during the second quarter of 2003. The decrease was due to a corresponding
decrease in interest bearing cash assets and the corresponding decline in
interest rates related to interest bearing accounts.
For the six month period ended June 30, 2003 compared to the six month period
ended June 30, 2002
For the six months ended June 30, 2003, the Company experienced a net loss of
$8,728 compared to a net loss of $14,130 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 during the first six months of 2003, as compared to the
same period of 2002.
Page 7
FINANCIAL CONDITION AND LIQUIDITY
During the six month period ended June 30, 2003, the Company used $6,952 of cash
in operating activities. The Company has incurred operating losses of $46,246,
since its inception (February 25, 2000), which raises substantial doubt about
its ability to continue as a going concern.
During the second quarter of 2003, the Company issued 480,000 shares of its
common stock to two directors and a shareholder for $24,000 or $0.05 per share.
The issuance resulted from the exercise of common stock options that were
granted to the Company's directors and originators pursuant to a motion adopted
on November 18, 2002 by the Company's board of directors. The proceeds from the
issuance are anticipated to enable the Company to meet its financing obligations
for the remainder of 2003.
Management currently, estimates fiscal year 2003 cash inflows from oil sales and
financing activities of $48,231, and cash outflows from operating expenditures
of $41,612, that will yeild net operating capital of $6,619 at the end of the
fiscal year, 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
Cash Inflows and outflows & Timing of Work Scheduled
Fiscal Year 2003
(Estimated)
2003 1stQtr 2ndQtr 3rdQtr 4thQtr
(Actual) (Actual)
Cash Inflows (estimated)
Sale of oil $16,182 $2,985 $5,197 $4,000 $4,000
Exercise of stock options 32,000 24,000 8,000
Interest income 49 12 7 15 15
----------- ---------- ---------- --------- ----------
Total (estimated): 48,231 2,997 29,204 12,015 4,015
Cash Outflows (estimated)
Capital expenditures (Projects) 0 0 0 0 0
Operating expenses (estimated)
Oil production expenses 9,510 1,754 2,271 3,010 2,475
General & administrative expenses (G&A)
Printing & copying 550 0 110 240 200
Postage 528 10 18 300 200
Telephone & fax 1,089 15 74 500 500
Office supplies 271 0 71 100 100
Accounting & auditing 14,000 5,000 2,422 3,289 3,289
Legal fees 8,500 0 0 5,500 3,000
Taxes and licensing fees 100 0 0 50 50
Transfer agent 1,660 0 160 0 1,500
Bank fees 125 24 41 30 30
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 4,500 584 398 1,500 2,018
CUSIP 120 0 120 0 0
Stock quotation service 300 0 0 300 0
----------- ---------- ---------- --------- ----------
Total operating expenses (estimated): 41,612 7,526 5,685 14,819 13,582
----------- ---------- ---------- --------- ----------
Net cash inflows (outflows) (estimated): $6,619 $(4,529) $23,519 $(2,804) $(9,567)
----------- ---------- ---------- --------- ----------
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
- --------------------------------------------------------------------------------
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 August 18, 2003
----------------------------------------- --------------------------
Paul E. Fredericks Date
President, Director and Principal Executive Officer
By: /s/ ARTHUR P. DAMMARELL, JR. August 18, 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: August 18, 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: August 18, 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 June 30, 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: August 18, 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 June 30, 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: August 18, 2003
-----------------------------------------------
/s/ ARTHUR P. DAMMARELL, JR.
- -----------------------------------------------------
Arthur P. Dammarell, Jr.
Treasurer, Director and Principal Financial Officer
Page 14