UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number0-9965
QUESTA OIL & GAS CO.
(Exact name of registrant as specified in its charter)
COLORADO 84-0846588
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
7030 South Yale
Suite 700
Tulsa, Oklahoma 74136-5718
(Address of principal executive offices)
Registrant's telephone number, including area code: (918) 494-6055
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 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 ___
As of November 1, 1997, the Company had 973,748 shares of Common
Stock issued and outstanding.
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QUESTA OIL & GAS CO.
Contents
Page
Part I - Financial Information
Consolidated balance sheets at September 30, 1997
and December 31, 1996 3
Consolidated statements of operations for the nine
months ended September 30, 1997 and 1996 4
Consolidated statements of cash flow for
the nine months ended September 30, 1997 and 1996 5
Consolidated notes to financial statements 6
Management's discussion and analysis of
financial condition and results of operations 6
Part II - Other Information 7
Signature page 8
2
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Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
September 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 677,841 $1,027,793
Accounts receivable - Trade 128,432 170,050
- Other 9,891 8,178
- Oil & Gas Sales 300,000 382,250
Notes Receivable 0 100,000
Inventory 15,199 14,794
Prepaid expenses and other assets 9,204 7,333
Total Current Assets 1,140,567 1,710,398
Property and equipment, at cost:
Oil and gas properties, successful efforts:
Unproved properties 133,512 148,372
Proved properties 12,377,966 10,501,701
Furniture, fixture and automobiles 143,042 132,772
12,654,520 10,782,845
Less accumulated depletion and depreciation (5,123,001) (4,157,726)
Net Property and Equipment 7,531,519 6,625,119
Other Assets 0 0
TOTAL ASSETS $8,672,086 $8,335,517
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 300,000 $ 300,000
Accounts Payable - Trade 183,756 329,740
Accounts Payable - Related Parties 15,877 29,482
Accounts Payable - Oil & Gas 189,723 232,430
Short Term Loans Payable 2,808 14,322
Other Current Liabilities 13,584 86,498
Advances From Drilling Partners 0 33,832
Total Current Liabilities 705,748 1,026,304
Other Long-term Liabilities $ 84,137 $ 84,137
Long-term debt due after one year $1,456,951 $1,655,367
Deferred income tax $ 770,000 $ 550,000
Stockholders' equity:
Common stock, $.01 par value;
Authorized 50,000,000 shares;
Issued 1,358,328 shares 13,583 13,583
Additional paid-in capital 1,098,050 1,098,050
Accumulated earnings 4,741,207 4,741,207
Current earnings 674,953 0
Treasury stock at cost, 384,580 shares at
September 30,1997 and 379,232 shares at
December 31,1996 (872,543) (833,131)
Total Stockholders' Equity 5,655,250 5,019,709
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,672,086 $8,335,517
See accompanying notes to financial statements.
3
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Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Statement of Operations
(UNAUDITED)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
REVENUES:
Oil and gas sales $ 909,282 $ 725,388 $2,995,444 $2,117,444
Management fees 14,400 14,400 43,200 43,200
Administrative charges 70,965 69,831 207,830 209,373
994,647 809,619 3,246,474 2,370,017
OPERATING COSTS AND EXPENSES:
Lease operating expenses 237,410 250,954 722,082 661,792
Dry Hole & geological costs 33,713 26,471 69,450 182,103
Depletion, depreciation,
and amortization 310,877 247,773 983,328 719,977
General & administrative 160,020 138,674 541,292 467,604
742,020 663,872 2,316,152 2,031,476
Income From Operations $ 252,627 $ 145,747 $ 930,322 $ 338,541
OTHER INCOME (EXPENSES):
Dividends $ 0 $ 0 $ 0 $ 0
Interest income 14,768 4,254 44,819 6,328
Interest expense (40,063) (43,156) (120,188) (96,369)
Gain (loss) on sale of
oil & gas properties 0 38,284 0 105,106
$ (25,295) $ (618) $ (75,369) $ 15,065
Income before income taxes and
unusual item $ 227,332 $ 145,129 $ 854,953 $ 353,606
Unusual item 40,000 0 40,000 0
Income before income taxes $ 267,332 $ 145,129 $ 894,953 $ 353,606
Provision for income taxes:
Current 0 0 0 0
Deferred (68,000) 0 (220,000) 0
NET INCOME $ 199,332 $ 145,129 $ 674,953 $ 353,606
EARNINGS PER COMMON SHARE:
Net income per common
share and common equivalent
PRIMARY $ .20 $ .15 $ .69 $ .35
FULLY DILUTED $ .20 $ .15 $ .69 $ .35
Weighted average number of common shares
and common share equivalent outstanding:
PRIMARY 984,596 994,564 984,139 991,679
FULLY DILUTED 984,596 997,449 984,139 997,449
See accompanying notes to financial statements
4
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Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Statement of Cash Flows
(Unaudited)
FOR THE NINE MONTHS ENDED
Sept. 30, Sept. 30,
1997 1996
Cash Flows From Operating Activities:
Operations:
Net Income (Loss) $ 674,953 $ 353,606
Plus Adjustments to Reconcile Net Income
(Loss) to Net Cash Flows From Operating Activities:
Gain (Loss) on Sale of Assets 0 105,106
Depreciation,Depletion and Amortization 983,328 719,977
Dry Hole and Exploration 69,450 182,103
Provision for Deferred Income Taxes 220,000 0
Changes In Operating Assets and Liabilities:
Accounts Receivable 122,155 (55,265)
Notes Receivable 100,000 70,000
Equipment Inventory (405) 10,873
Other Current Assets (1,871) 3,824
Accounts Payable and Accrued Expenses (275,210) 68,957
Advances from Drilling Partners (33,832) 0
Net Cash Provided By Operating Activities 1,858,568 1,459,181
Cash Flows From Investing Activities:
Purchase of Property and Equipment:
Oil and Gas Properties (1,948,908) (1,650,032)
Furniture, Fixtures & Automobiles (10,270) (6,739)
Net Cash Used In Investing Activities (1,959,178) (1,656,771)
Cash Flows From Financing Activities:
Proceeds From Borrowing 0 1,000,000
Payment of Debt (209,930) (229,503)
Purchase of Treasury Stock (39,412) (110,266)
Net Cash (Used In) Provided By Financing Activities (249,342) 660,231
Net Increase (Decrease) In Cash And Cash Equivalent (349,952) 462,641
Cash and Cash Equivalents, Beginning of Year 1,027,793 143,532
Cash and Cash Equivalent, End of Period $ 677,841 $ 606,173
5
<PAGE>
Part I Financial Information
QUESTA OIL & GAS CO.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Note Payable
The Company has a line of credit and a term loan with a local bank. For the
first nine months of 1997 the interest rate on both the line and the term loan
was at New York prime, 8.5%. As of September 30, 1997, the outstanding principal
amount of the term loan was $1,725,000 and zero on the line of credit. The
aggregate borrowing limits were $3,100,000. The term loan was $2,100,000 with
quarterly installments of $75,000 plus accrued interest with the final payment
due September 30, 1999. The line of credit is $1,000,000 with interest of one
quarter of one percent on the amount not used. Loans are secured by certain of
the Company's interests in oil and gas properties. The Company is not required
by the loan agreement to maintain a certain balance in our demand accounts with
the bank. The Company also has two automobile loans with the bank. The loans are
for 60 months, 7.25% rate, with final payments due September, 2002.
(2) Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the info
rmation and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of only normal reoccurring items) considered necessary for a fair
presentation have been included. These statements should be read in conjunction
with the Questa Oil & Gas Co. financial statements and notes thereto as of Dece
mber 31, 1996, which are included in the Company's annual report and Form 10-K.
QUESTA OIL & GAS CO.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1997
Liquidity and Capital Resources
At September 30, 1997, the Company had current assets of $1,141,000 compared
to current liabilities of approximately $706,000 resulting in positive working
capital of $435,000. As of September 30, 1997 the total outstanding bank loan
balance was $1,725,000 compared to $1,950,000 as of December 31, 1996. The
Company is in a positive position to participate in new acquisitions and offset
drilling available through current cash flows and the line of credit of
$1,000,000. Working capital will continue to fluctuate during the year as the
Company acquires interest in additional wells and wells that are drilled are
completed and connected to a sales outlet.
During the first nine months of 1997 the Company participated in the
drilling of nine wells, two dry holes, five gas wells and two oil wells. The
Company's working interest in the nine wells is 2.5 to 30% with the Company
participating as an outside joint owner in all the wells. Expenditures for
drilling for the three quarters ending September 30, 1997 was $285,000. In
October, 1997 The Company has elected to participate in the drilling of two
wells in West Texas for a working interest of 32% and 45%, with estimated costs
for completed well to Questa of $183,000.
In the first three quarters of 1997 the Company purchased additional units
in six drilling partnerships managed by the Company. Questa is the general
partner of eight drilling partnerships. The Company spent $1,000,000 in
acquiring an additional 25 to 75 percent in the six programs.
6
<PAGE>
The Company spent approximately $560,000 in acquiring working interests and
over-riding royalty interests in 24 producing properties.Questa expects to drill
several offset wells to these producing properties.
In the third quarter of 1997 the Company repurchased 785 shares of Questa's
common stock from shareholders holding 99 shares or less. The offering price was
$11 per share and closed September 19, 1997.
Results of Operations
1996 to 1997
Oil and gas sales during the three quarters ending September 30, 1997
increased from $2,117,000 to $2,995,000 over the comparable period last year due
to increases in the volume produced (oil volume increased by 8% and gas volume
increased by 26%) and higher prices (oil prices have increased by 3% and gas
prices have increased by 25%).
The lease operating expenses for the three quarters increased from $662,000
to $722,000 over the same period last year. This increase is the result of the
increase in the number of producing wells. The increase in depletion,
depreciation, and amortization from $720,000 to $983,000 for the first three
quarters is due to the increase volume sold and higher prices. Changes in the
Company's general and administrative expenses was due to bonuses paid to
employees.
Interest income increased due to larger cash balances in the bank accounts.
Interest expenses increased due to the larger principal balance on the new loan
negotiated in July of 1996.
The Company had received $40,000 from a factoring company note that was
written off in a previous period. In 1995 Questa decided to reserve $190,000 of
a note from a local factoring company, the factoring company has continued to
make payments on the principal outstanding. The Company has recorded this as an
unusual item, due to the receivable not occurring from Questa's normal course of
business.
Net income for the first nine month period increased from a $354,000 profit
to a $675,000 profit, due to increases in the Company's oil and gas prices,
production volume and the payments on the factoring company note reserved in
1995.
Part II Other Information
Item 1 - Not Applicable.
Item 2 - Not Applicable.
Items 3 through 5 - Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUESTA OIL & GAS CO.
Date November 5, 1997 /s/ Warren L. Meeks
Warren L. Meeks, President
Date November 5, 1997 /s/ Donald A. Towner
Donald A. Towner, Controller
and Chief Financial Officer
8
<PAGE>
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