UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2005
[ ] TRANSITION REPORT UNDER 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 Identification Number)
incorporation or organization)
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17922 N. Hatch Road, Colbert, WA 99005-9377
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(Address of principal executive offices)
Issuer's Telephone Number, Including Area Code: (509) 466-0576
Common Stock (None)
Title of each class Name and exchange on which registered
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
At May 13, 2005, 5,865,000 shares of the registrant's common stock were
outstanding.
TABLE OF CONTENTS
PART I.
PAGE
----
ITEM 1. Balance Sheet at March 31, 2005 3
Statements of Operations for the Three
Month Periods Ended March 31, 2005 and 2004 4
Statements of Cash Flows for the Three
Month Periods Ended March 31, 2005 and 2004 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 3. Controls and Procedures 10
PART II.
ITEM 1. Legal Proceedings 11
ITEM 2. Changes in Securities 11
ITEM 3. Defaults Upon Senior Securities 11
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Certifications 13
Page 2
PART I.
ITEM 1: FINANCIAL STATEMENTS
Nova Oil, Inc.
Balance Sheet at March 31, 2005 (Unaudited)
ASSETS
Current assets:
Cash $ 29,175
Accounts receivable 2,484
Inventory 1,337
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Total current assets 32,996
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Fixed assets:
Oil properties (successful efforts
method), net 21,037
Asset retirement obligation, net 6,055
------------------
27,092
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Total assets $ 60,088
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,852
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Total current liabilities 7,852
Asset retirement obligation, net 6,745
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Total liabilities 14,597
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Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.0001 par value;
5,000,000 shares authorized;
no shares issued or outstanding
Common stock; $0.001 par value;
100,000,000 shares authorized;
5,865,000 shares issued and
outstanding 5,865
Additional paid-in capital 149,746
Accumulated deficit (110,120)
-------------------
Total stockholders' equity 45,491
-------------------
Total liabilities and stockholders'
equity $ 60,088
===================
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, 2005 and 2004
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March 31, March 31,
2005 2004
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Sales of oil $ 7,933 $ 4,049
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Operating expenses:
Production expenses 6,029 6,154
General and administrative expenses 18,835 10,611
Amortization expense 790 435
Accretion expense 124 -
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Total operating expenses 25,778 17,200
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Other Income:
Interest income 40 127
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Net loss $ 17,805 $ 13,024
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Net loss per common share $ Nil $ Nil
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Weighted average common shares
outstanding-basic 5,830,778 5,624,670
================ =================
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, 2005 and 2004
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March 31, March 31,
2005 2004
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Cash flows from operating activities:
Net loss $ (17,805) $ (13,024)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Amortization and accretion 914 435
Stock issued for account payable 4,400
Change in:
Accounts receivable 412 (550)
Inventory 3,958 368
Accounts payable 1,705 8,702
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Net cash flows used by operating activities (6,416) (4,069)
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Cash flows from financing activities:
Proceeds from private placement sale
of common stock, net of offering costs 24,337
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Net cash provided by financing activities 24,337
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Net change in cash (6,416) 20,268
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Cash, beginning of period 35,591 56,557
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Cash, end of period $ 29,175 $ 76,825
=============== ==================
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, 2004, 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, 2005.
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, accretion, and
amortization ("DD&AA") expenses, and corporate general and administrative
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. Asset Retirement Obligation:
The Company has adopted Statement of Financial Accounting Standards 143,
"Accounting for Asset Retirement Obligations," which establishes a uniform
methodology for accounting for estimated reclamation and abandonment costs.
During 2004 the Company recorded an asset retirement cost related to costs
associated with closing its oil wells at retirement in approximately twelve
years. An asset retirement obligation representing the present value of
estimated closure costs was also recorded in the amount of $6,381. The asset
retirement obligation is adjusted for the accretion of the present value
discount, which is charged to operations. The asset retirement cost is amortized
to operations over the life of the related oil wells. Accretion expense of $124
and amortization expense of $144 relating to
Page 6
Nova Oil, Inc.
Notes to Financial Statements, continued
(Unaudited)
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4. Asset Retirement Obligation, continued
the asset retirement obligation and asset retirement cost, respectively, were
recorded during the first quarter of 2005.
5. 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.
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Page 7
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, 2005 compared to the three-month
period ended March 31, 2004
For the three months ended March 31, 2005, the Company experienced a net loss of
$17,805 compared to a net loss of $13,024 during the comparable period of the
previous year. The increase in the net loss from 2004 to 2005 was primarily due
to increased auditing and accounting costs during the first quarter of 2005.
During the three-month period ended March 31, 2005, the Company generated $7,933
from the sale of 183 barrels of oil that sold at an average sales price of
approximately $43 per barrel. 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.
Direct oil production expenses during the three-month period ended March 31,
2005, were $6,029 or approximately $33 per barrel of oil sold, compared to
$6,154 or approximately $44 per barrel of oil sold for the three-month period
ended March 31, 2004. The decrease in per barrel production costs during the
first quarter of 2005, as compared to the first quarter of 2004, was primarily
due to fewer oil well repair expenses incurred during the first quarter of 2005.
Amortization and accretion expenses during the three-month period ended March
31, 2005, were $914 or $5 per barrel of oil sold, as compared to $435 or $3 per
barrel of oil sold during the three-month period ended March 31, 2004.
General and administrative expenses increased from $10,611 during the first
quarter of 2004, to $18,835 during the comparable quarter of 2005, primarily due
to increased auditing and accounting costs.
Interest income decreased from $127 during the first quarter of 2004, to $40
during the first quarter of 2005. 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, 2005, the Company used $6,416 of
cash in operating activities. The Company has incurred operating losses of
$110,120, since its inception (February 25, 2000), which raises substantial
doubt about its ability to continue as a going concern.
Management plans to fund future short-term operating needs through revenues from
its oil producing properties, existing cash reserves, possibly loans from its
officer, directors and originators, and, if necessary, sales of the Company's
common stock. There are no assurances that management will be successful in its
plans.
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
Page 8
FINANCIAL CONDITION AND LIQUIDITY, continued
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, cash-on-hand at year-end December 31, 2004, loans from
officers, directors and originators, and proceeds from the exercise of options
granted during 2002, should provide sufficient operating capital for the
upcoming twelve months.
Management currently estimates fiscal year 2005 cash inflows from oil sales,
interest earned from interest bearing accounts, and sale of common stock to
equal $39,150, and cash outflows from operating expenditures to be $47,355,
which will result in a projected net cash inflow/outflow operating loss of
$8,205 at the end of the fiscal year, as shown in the following table. Our cash
inflow/outflow estimate for fiscal year 2005 does not take into consideration
our cash on-hand, current assets, and current liabilities at year ended December
31, 2004. No expenditures for capital projects are budgeted for fiscal year
2005.
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Page 9
Cash Inflows and Outflows & Timing of Work Scheduled
Fiscal Year 2005
(Estimated)
2005 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
(Actual)
Cash Inflows (estimated)
Sale of oil $ 24,000 $ 7,846 $ 5,385 $ 5,385 $ 5,384
Exercise of stock options 15,000 0 7,000 8,000 0
Interest income 150 40 20 50 40
-------- -------- -------- -------- --------
Total $ 39,150 $ 7,886 $ 12,405 $ 13,435 $ 5,424
Cash Outflows (estimated)
Capital expenditures (Projects) 0 0 0 0 0
Operating expenses (estimated)
Oil production expenses $ 15,500 $ 2,834 $ 4,222 $ 4,222 $ 4,222
General & administrative expenses
(G&A)
Printing & copying 400 0 150 150 100
Postage 300 0 100 125 75
Telephone & fax 200 73 42 42 43
Office supplies 400 70 110 110 110
Accounting & auditing 22,500 9,043 4,486 4,486 4,485
Legal fees 1,000 0 0 500 500
Transfer agent fees 500 15 285 200 0
Bank fees 96 24 24 24 24
Registered agent - Texas 149 149 0 0 0
Registered agent - Nevada 135 135 0 0 0
CUSIP 100 0 100 0 0
Nevada Secretary of State 175 175 0 0 0
SEC filings - EDGAR 5,500 1,784 1,716 1,000 1,000
Stock quotation service 300 0 300 0 0
Miscellaneous 100 0 0 0 100
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Total operating expenses (est): $ 47,355 $ 14,302 $ 11,535 $ 10,859 $ 10,659
-------- -------- -------- -------- --------
Net cash inflows(outflows)(est): $ (8,205) $ (6,416) $ 870 $ 2,576 $ (5,235)
ITEM 3. CONTROLS AND PROCEDURES
An evaluation was performed by the Company's principal executive officer and
principal financial officer of the effectiveness of the design and operation of
the Company's disclosure controls and procedures. And on that evaluation, the
Company's principal executive officer and principal financial officer concluded
that disclosure controls and procedures were effective as of March 31, 2005, in
ensuring that all material information required to be filed in this quarterly
report has been made known to them in a timely fashion.
There has been no change in the Company's internal controls over financial
reporting during the quarter ended March 31, 2005 that will materially affect or
is likely to materially affect, the Company's internal controls over financial
reporting.
Page 10
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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Page 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Nova Oil, Inc.
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(Registrant)
Date: May 13, 2005 /s/ PAUL E. FREDERICKS
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Paul E. Fredericks
President and Principal Executive Officer
Date: May 13, 2005 /s/ ARTHUR P. DAMMARELL, JR.
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Arthur P. Dammarell, Jr.
Treasurer and Principal Financial Officer
Page 12