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 March 31, 2004
[ ] 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)
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NEVADA 91-2028450
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
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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 April 30, 2004, 5,735,000 shares of the registrant's common stock were
outstanding.
Page 1
TABLE OF CONTENTS
PART I.
PAGE
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ITEM 1. Balance Sheets as of March 31, 2004
and December 31, 2003 3
Statements of Operations for the Three
Month Periods Ended March 31, 2004 and 2003 4
Statements of Cash Flows for the Three
Month Periods Ended March 31, 2004 and 2003 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 MARCH 31, 2004
NOVA OIL, INC. AND DECEMBER 31, 2003
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PART I.
ITEM 1: FINANCIAL STATEMENTS
ASSETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2004 2003
--------------- ----------------
CURRENT ASSETS
Cash $ 76,825 $ 56,557
Accounts receivable 2,046 1,496
Inventory 2,348 2,716
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Total current assets 81,219 60,769
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FIXED ASSETS
Oil properties (successful efforts method), net 22,923 23,358
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Total assets $ 104,142 $ 84,127
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 14,804 $ 6,102
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Total liabilities 14,804 6,102
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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; 5,735,000 and
5,460,000shares issued and outstanding 5,735 5,460
Additional paid-in capital 151,611 127,549
Accumulated deficit (68,008) (54,984)
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Total stockholders' equity 89,338 78,025
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Total liabilities and stockholders' equity $ 104,142 $ 84,127
=============== ================
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, 2004 AND 2003
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MARCH 31, MARCH 31,
2004 2003
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SALES OF OIL $ 4,049 $ 3,810
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OPERATING EXPENSES
Production expenses 6,154 1,161
General and administrative expenses 10,611 8,252
Amortization expense 435 511
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Total operating expenses 17,200 9,924
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OTHER (INCOME)
Interest income (127) (12)
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NET LOSS $ 13,024 $ 6,102
=============== ================
NET LOSS PER COMMON SHARE $ Nil $ Nil
=============== ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUSTANDING - BASIC 5,624,670 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, 2004 AND 2003
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MARCH 31, MARCH 31,
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (13,024) $ (6,102)
Adjustments to reconcile net loss to net cash used
by operating activities:
Amortization 435 511
Change in:
Accounts receivable (550) (825)
Inventory 368 (528)
Accounts payable 8,702 2,415
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Net cash flows used by operating activities (4,069) (4,529)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from private placement sale of common
stock, net of offering sorts 24,337
---------------
Net cash provided by financing activities 24,337
---------------
NET INCREASE (DECREASE) IN CASH 20,268 (4,529)
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CASH AT BEGINNING OF PERIOD 56,557 11,479
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CASH AT END OF PERIOD $ 76,825 $ 6,950
=============== ===============
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. ("the Company") 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, 2003 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, 2004.
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.
RESULTS OF OPERATIONS
For the three-month period ended March 31, 2004 compared to the three-month
period ended March 31, 2003
For the three months ended March 31, 2004, the Company experienced a net loss of
$13,024 compared to a net loss of $6,102 during the comparable period of the
previous year. The increase in the net loss from 2003 to 2004 was due to
extensive repair and maintenance expenses incurred during the first quarter of
2004, and increased general and administrative expenses during the first quarter
of 2004 as compared to the same period of 2003.
During the three-month period ended March 31, 2004, the Company generated $4,049
from the sale of 140 barrels of oil that sold at an average sales price of
approximately $29 per barrel. During the three-month period ended March 31,
2003, the Company generated $3,810 from the sale of 132 barrels of oil that sold
at an average sales price of approximately $29 per barrel.
Direct oil production expenses during the three-month period ended March 31,
2004, were $6,154 or approximately $44 per barrel of oil sold, compared to
$1,161 or approximately $9 per barrel of oil sold for the three-month period
ended March 31, 2003. The increase in per barrel production costs during the
first quarter of 2004, as compared to the first quarter of 2003, was primarily
due to extensive repair expenses incurred for the repair of the Smith-Boswell
Unit #1 well, during the first quarter of 2004.
Amortization expenses during the three-month period ended March 31, 2004, were
$435 or $3 per barrel of oil sold, as compared to $511 or $4 per barrel of oil
sold during the three-month period ended March 31, 2003.
Combined direct oil production and amortization expenses during the three-month
period ended March 31, 2004, were $6,589 or $47 per barrel of oil sold, compared
to $1,672 or $13 per barrel of oil sold during the three-month period ended
March 31, 2003.
General and administrative expenses increased from $8,252 during the first
quarter of 2003, to $10,611 during the comparable quarter of 2004.
Interest income increased from $12 during the first quarter of 2003, to $127
during the first quarter of 2004. The increase was due to a corresponding
increase in interest bearing cash assets.
FINANCIAL CONDITION AND LIQUIDITY
During the three-month period ended March 31, 2004, the Company used $4,069 of
cash in operating activities. Management plans to fund future short-term
operating needs through profits from its oil producing properties, existing cash
reserves, possibly loans from shareholders, 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.
For the three months ended March 31, 2004, the Company realized a net gain of
$20,268 in cash compared to a net loss of $4,529 during the comparable period in
the previous year. The gain in cash during the first quarter of 2004 is the
result of $27,500 generated from the sale of 275,000 shares of common stock in
the Company's private placement offering during January and February, 2004.
Page 7
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
The Company has incurred operating losses of $68,008, since its inception
(February 25, 2000), which raises substantial doubt about its ability to
continue as a going concern.
The Company had initiated a private placement offering in September, 2003. Nova
Oil terminated the offering on February 27, 2004. The offering generated $27,500
from the sale of the Company's common stock during the first quarter of 2004.
Gross proceeds of the offering during 2003-2004 were $69,500. Proceeds of the
offering are being used for working capital.
Management has not undertaken any 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 anticipates that revenue derived from the Company's on-going oil
production and sales, and proceeds from the sale of its common stock through a
private placement offering of its securities, should provide sufficient
operating capital for the upcoming nine months.
Management estimates fiscal year 2004 cash inflows from oil sales, interest
earned from interest bearing accounts, and sale of common stock to equal
$43,489, and cash outflows from operating expenditures to be $77,128, which will
result in a projected net cash inflow/outflow operating loss of $33,639 at the
end of the fiscal year, as shown in the following table. The cash inflow
estimate for fiscal year 2004 does not take into consideration any income that
was generated from the sale of the Company's common stock during the fourth
quarter of 2003. No expenditures for capital projects have been budgeted for
fiscal year 2004.
[The balance of this page has been intentionally left blank.]
Page 8
Cash Inflows and Outflows & Timing of Work Scheduled
Fiscal Year 2004
(Estimated)
2004 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
(Actual)
Cash Inflows (estimated)
Sale of oil $ 16,377 $ 4,4049 $ 4,110 $ 4,109 $ 4,109
Proceeds from private placement offering 27,500 27,500 0 0 0
Interest income 163 127 12 12 12
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Total $ 44,040 $ 31,676 $ 4,122 $ 4,121 $ 4,121
Cash Outflows (estimated)
Capital expenditures (Projects) 0 0 0 0 0
Operating expenses
Oil production expenses $ 15,500 $ 2,056 $ 4,482 $ 4,481 $ 4,481
General & administrative expenses (G&A)
Printing & copying 900 4 700 98 98
Postage 450 25 370 28 27
Telephone & fax 350 51 200 50 49
Office supplies 150 26 50 37 37
Accounting & auditing 16,200 8,052 5,800 1,174 1,174
Legal fees 12,500 0 12,500 0 0
Consulting services fees 10,000 0 5,000 0 5,000
Underwriter - sales commission 6,950 0 6,950 0 0
Underwriter - accountable 283 0 283 0 0
Underwriter - nonaccountable 1,390 0 1,390 0 0
Transfer agent fees 2,000 25 1,675 200 100
Taxes and licensing fees 100 0 50 0 50
Bank fees 96 24 24 24 24
Registered agent - Texas 149 149 0 0 0
Registered agent - Nevada 135 135 0 0 0
Nevada Secretary of State 175 175 0 0 0
SEC filings - EDGAR 9,500 136 5,500 2,000 1,864
Stock quotation service 300 0 0 300 0
-------- -------- -------- -------- --------
Total operating expenses (estimated): $ 77,128 $ 10,858 $ 44,974 $ 8,392 $ 12,904
-------- -------- -------- -------- --------
Net cash inflows (outflows) (estimated): $(33,088) $ 20,818 $(40,852) $ (4,271) $ (8,783)
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 president and principal financial
officer 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, 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
(a) Exhibits
31.1 Certification Required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. (filed herewith)
31.2 Certification Required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. (filed herewith)
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished
herewith)
(b) Reports on Form 8-K
Item 5. "Other events and regulation FD disclosure" dated March 10,
2004, reporting that during the fourth quarter of 2003, a private
placement offering with a maximum of 2,000,000 Shares of Common Stock
offered, was initiated by the Company. The Board of Directors' closed
the private placement offering, effective at the end of business on
February 27, 2004. The amount raised was $69,500.
[The balance of this page has been intentionally left blank.]
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.
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(Registrant)
By: /s/ PAUL E. FREDERICKS May 11, 2004
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Paul E. Fredericks Date
President and Principal Executive Officer
By: /s/ ARTHUR P. DAMMARELL, JR. May 11, 2004
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Arthur P. Dammarell, Jr. Date
Treasurer and Principal Financial Officer
Page 11