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, 2005
[ ] 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
------ ----------
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
rule 126-2 of The Exchange Act).
Yes [X] No [ ]
At November 8, 2005, 6,765,000 shares of the registrant's common stock were
outstanding.
TABLE OF CONTENTS
PART I.
PAGE
ITEM 1. Balance Sheet at September 30, 2005 3
Statements of Operations for the Three and Nine
Month Periods Ended September 30, 2005 and 2004 4
Statements of Cash Flows for the Nine
Month Periods Ended September 30, 2005 and 2004 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. Unregistered Sales of Equity Securities and Use of Proceeds 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
Nova Oil, Inc. Balance Sheet at September 30, 2005
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PART I.
ITEM 1: FINANCIAL STATEMENTS
ASSETS
September 30,
2005
------------------
Current assets:
Cash $ 43,369
Accounts receivable 956
------------------
Total current assets 44,325
------------------
Total assets $ 44,325
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 167
------------------
Total current liabilities 167
------------------
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; 5,865,000 shares issued
and outstanding 5,865
Additional paid-in capital 149,746
Accumulated deficit (111,453)
-------------------
Total stockholders' equity 44,158
-------------------
Total liabilities and stockholders' equity $ 44,325
===================
The accompanying notes are an integral part of these financial statements.
Page 3
Statements of Operations for the
Nova Oil, Inc. Three and Nine Month Periods Ended
(Unaudited) September 30, 2005 and 2004
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September 30, 2005 September 30, 2004
Three Nine Three Nine
Months Months Months Months
SALES OF OIL $ 886 $ 18,752 $ 3,396 $ 11,974
-------------- --------------- --------------- --------------
OPERATING EXPENSES:
Production expenses 1,052 10,810 2,407 11,278
Accounting and auditing 1,925 21,191 2,233 11,984
General and administrative
expenses 2,201 8,254 8,537 12,712
Amortization and accretion 1,745 603 1,428
-------------- --------------- --------------- --------------
Total operating expenses 5,178 42,000 13,780 37,402
-------------- --------------- --------------- --------------
OTHER (INCOME) EXPENSE:
Interest income (68) (149) (82) (324)
Gain on sale of oil properties (3,961) (3,961)
-------------- --------------- --------------- --------------
Total other (income) (4,029) (4,110) (82) (324)
-------------- --------------- --------------- --------------
NET LOSS $ 263 $ 19,138 $ 10,302 $ 25,104
============== =============== =============== ==============
NET LOSS PER SHARE $ Nil $ Nil $ Nil $ Nil
============== =============== =============== ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUSTANDING -
BASIC 5,865,000 5,853,718 5,735,000 5,698,358
============== =============== =============== ==============
The accompanying notes are an integral part of these financial statements.
Page 4
Statements of Cash Flows for the
Nova Oil, Inc. Nine Month Periods Ended
(Unaudited) September 30, 2005 and 2004
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September 30, September 30,
2005 2004
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (19,138) $ (25,104)
Adjustments to reconcile net loss to net cash used
by operating activities:
Amortization and accretion 1,745 1,428
Gain on sale of oil properties (3,961)
Stock issued for account payable 4,400
Change in:
Accounts receivable 1,940 350
Inventory 5,295 (2,714)
Accounts payable (5,980) (2,313)
---------------- ----------------
Net cash used by operating activities (15,699) (28,353)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of oil properties 23,477
---------------- ----------------
Net cash provided by investing activities 23,477
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock, net of offering costs 17,102
---------------- ----------------
Net cash provided by financing activities 17,102
---------------- ----------------
NET INCREASE (DECREASE) IN CASH 7,778 (11,251)
CASH AT BEGINNING OF PERIOD 35,591 56,557
---------------- ----------------
CASH AT END OF PERIOD $ 43,369 $ 45,306
================ ================
The accompanying notes are an integral part of these financial statements.
Page 5
Nova Oil, Inc.
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,
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, 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. 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.
4. Net Loss per Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires dual presentation of basic earnings per share ("EPS") and diluted EPS
on the face of income statements for entities with complex capital structures.
Basic EPS is computed as net income divided by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants, and other convertible securities. For the three and nine month periods
ended September 30, 2005 and 2004, the effect of the Company's outstanding
options and common stock equivalents would have been anti-dilutive. Accordingly,
only basic EPS is presented.
5. Sale of Oil Properties
On June 30, 2005, the Company entered into Assignments of Working Interests,
with the operator of the Company's two oil wells, D-Mil Production, Inc. The
Assignments provide for the sale of the Company's working interests in its two
oil wells, Smith-Boswell #1 and Steinbach Unit #1. Under the terms of the
Assignments, the Company received $23,477 upon execution of the documents on
July 19, 2005. The sale was ratified by shareholders on October 19, 2005.
6. Reclassifications
Certain prior period amounts have been reclassified to conform to the 2005
statement of operations presentation. These reclassifications have no effect on
net loss as previously reported.
Page 6
7. Subsequent Event
On October 19, 2005, the shareholders of the Company, at their annual meeting,
ratified and approved the 2005 Nova Oil Stock Incentive Plan. Subsequent to such
ratification and approval, the Company issued, in the aggregate, 900,000 shares
of stock-based compensation to the following individuals for services rendered.
Management's estimate of the fair value of the shares at the date of issuance on
October 20, 2005, was $0.10 per share, for total compensation of $90,000.
- ---------------------------------------- ----------------------------------- ------------------------------------
NAME Position NUMBER OF SHARES ISSUED
- ---------------------------------------- ----------------------------------- ------------------------------------
Paul E. Fredericks President, Principal Executive 275,000
Officer and Director
- ---------------------------------------- ----------------------------------- ------------------------------------
Arthur P. Dammarell, Jr. Treasurer, Principal Financial 405,000
Officer and Director
- ---------------------------------------- ----------------------------------- ------------------------------------
Bruce E. Cox Secretary and Director 110,000
- ---------------------------------------- ----------------------------------- ------------------------------------
Terrence J. Dunne Advisor 110,000
- ---------------------------------------- ----------------------------------- ------------------------------------
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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.
RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2005 COMPARED TO THE THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 2004
For the three months ended September 30, 2005, the Company experienced a net
loss of $263 compared to a net loss of $10,302 during the comparable period of
the previous year. The decrease in the net loss from 2004 to 2005 primarily
resulted from no legal expenses during the current quarter as compared to the
same period of 2004.
During the three-month period ended September 30, 2005, the Company generated
$886 from the sale of 20 barrels of oil that sold at an average sales price of
approximately $44 per barrel. During the three-month period ended September 30,
2004, the Company generated $3,396 from the sale of 92 barrels of oil that sold
at an average sales price of approximately $37 per barrel.
Direct oil production expenses during the three-month period ended September 30,
2005 were $1,052, compared to $2,407 for the three-month period ended September
30, 2004. This decrease was primarily due to the sale of the Company's working
interests in its two oil wells at the end of the second quarter of 2005.
Accordingly, amortization and accretion expenses during the three-month period
ended September 30, 2005, were nil or $0, as compared to $603 or $7 per barrel
of oil sold during the three-month period ended September 30, 2004.
General and administrative expenses decreased from $8,537 during the third
quarter of 2004, to $2,201 during the comparable quarter of 2005. The decrease
in general and administrative expenses during the third quarter of 2005 was
primarily due to a decrease in expenditures related to legal services.
Accounting and auditing expenses decreased from $2,233 during the third quarter
of 2004, to $1,925 during the comparable quarter of 2005.
Interest income decreased from $82 during the third quarter of 2004, to $68
during the third quarter of 2005. The decrease was due to a corresponding
decrease in interest bearing cash assets.
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2005 COMPARED TO THE NINE-MONTH
PERIOD ENDED SEPTEMBER 30, 2004
For the nine months ended September 30, 2005, the Company experienced a net loss
of $19,138 compared to a net loss of $25,104 during the comparable period of the
previous year. The decrease in the net loss from 2004 to 2005 was primarily due
to the gain on the sale of the Company's working interests in its two oil wells
at the end of the second quarter of 2005.
FINANCIAL CONDITION AND LIQUIDITY
During the nine-month period ended September 30, 2005, the Company used $15,699
of cash in operating activities. The Company has incurred operating losses of
$111,453 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 from existing cash
reserves, possibly loans from shareholders, and, if necessary, sales of the
Company's common stock. There are no assurances that management will be
successful in its plans.
Management anticipates that existing cash reserves, proceeds from the sale of
the Company's common stock, and the proceeds derived from the sale of the
Company's
Page 8
working interests in its two oil wells should provide sufficient operating
capital for the next twelve months.
Management estimates fiscal year 2005 cash inflows from oil sales, interest
earned from interest bearing accounts, the sale of common stock, and the sale of
the Company's working interests in its two oil wells to equal $54,289, and cash
outflows from operating expenditures to be $41,643, which will result in a
projected net cash inflow of $12,646 at the end of the fiscal year, as shown in
the following table. No expenditures for capital projects have been 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) (Actual) (Actual)
-------- -------- --------- -------- --------
Cash Inflows (estimated)
Sale of oil $ 20,612 $ 7,846 $ 5,511 $ 6,299 $ 956
Exercise of stock options 10,000 0 0 0 10,000
Sale of working interests in wells 23,477 0 0 23,477 0
Interest income 200 40 40 68 52
-------- -------- --------- -------- --------
Total $ 54,289 $ 7,886 $ 5,551 $ 29,844 $ 11,008
Cash Outflows (estimated)
Capital expenditures (Projects) $ 0 $ 0 $ 0 $ 0 $ 0
Operating expenses (estimated)
Oil production expenses $ 6,151 $ 2,834 $ 2,446 $ 871 $ 0
General & administrative expenses
(G&A)
Printing & copying 500 0 141 244 115
Postage 450 0 132 201 117
Telephone & fax 450 73 73 160 144
Office supplies 285 70 100 0 115
Accounting & auditing 23,117 9,043 10,224 1,925 1,925
Legal fees 1,000 0 0 0 1,000
Transfer agent fees 370 15 250 5 100
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 8,224 1,784 2,564 1,376 2,500
Stock quotation service 300 0 300 0 0
ADP proxy service 141 0 0 141 0
Miscellaneous 100 0 0 0 100
-------- -------- --------- -------- --------
Total operating expenses (est): $ 41,643 $ 14,302 $ 16,254 $ 4,947 $ 6,140
-------- -------- --------- -------- --------
Net cash inflows(outflows)(est): $ 12,646 $(6,416) $(10,703) $ 24,897 $ 4,868
ITEM 3. CONTROLS AND PROCEDURES
An evaluation was performed by the Company's president and treasurer of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the president and treasurer concluded
that disclosure controls and procedures were effective as of September 30, 2005,
in ensuring that all material information required to be filed in this annual
report has been made known to them in a timely fashion.
There has been no change in the Company's internal control over financial
reporting during the three and nine month periods ended September 30, 2005.
Page 10
PART II.
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Incorporated by reference to the Company's current report: Form PRE
14A, Preliminary Proxy Statement for Annual Shareholders Meeting, filed
on August 25, 2005.
Incorporated by reference to the Company's current report: Form DEF
14A, Definitive Proxy Statement for Annual shareholders Meeting, filed
on September 21, 2005.
ITEM 5. OTHER INFORMATION
Incorporated by reference to the Company's current report: Reporting on
Form 8-K, Item 5.03 Amendments to Articles of Incorporation or Bylaws
and Item 8.01 Other Events, filed on October 26, 2005
Incorporated by reference to the Company's current report: Reporting on
Form 8-K, Item 8.01 Other Events, filed on November 7, 2005.
ITEM 6. EXHIBITS
(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 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(furnished herewith)
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Page 11
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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 November 8, 2005
- ------------------------------------ ---------------------------
Paul E. Fredericks Date
President and Principal Executive Officer
By: /s/ ARTHUR P. DAMMARELL, JR. November 8, 2005
- ------------------------------------ ---------------------------
Arthur P. Dammarell, Jr. Date
Treasurer and Principal Financial Officer
Page 12