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 June 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-9965
QUESTA OIL & GAS CO.
(Exact name of registrant as specified in its charter)
COLORADO 84-0846588
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7030 South Yale Ave. Suite 700
Tulsa, Oklahoma 74136-5718
(Address of principal executive offices)
Registrant's telephone number are code: (918) 494-6055
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
(Title of class)
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 July 31, 1998, the Company has 1,919,744 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 June 30, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . 3
Consolidated statements of operations for the six
months ended June 30, 1998 and 1997 . . . . . . . . . 4
Consolidated statements of cash flow for
the six months ended June 30, 1998 and 1997 . . . . . 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 . . . . . . . . . . . . . . . . . . . 7
2
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Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
June 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 52,189 $ 490,388
Accounts receivable - Trade 325,345 167,922
- Other 83,901 17,285
- Oil & Gas Sales 276,000 302,097
Notes Receivable 10,000 0
Inventory 9,184 16,793
Prepaid expenses and other assets 10,107 3,495
Total Current Assets 766,726 997,980
Property and equipment, at cost:
Oil and gas properties, successful efforts:
Unproved properties 154,016 190,326
Proved properties 13,981,757 13,045,317
Furniture, fixture and automobiles 149,260 149,260
Total Property and Equipment 14,285,033 13,384,903
Less accumulated depletion and depreciation (5,577,579) (4,956,893)
Net Property and Equipment 8,707,454 8,428,010
Other Assets 0 0
TOTAL ASSETS $9,474,180 $9,425,990
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 300,000 $ 300,000
Accounts Payable - Trade 155,604 230,765
Accounts Payable - Related Parties 0 20,854
Accounts Payable - Oil & Gas 236,862 218,066
Short Term Loans Payable 8,504 8,504
Other Current Liabilities 56,892 103,328
Advances From Drilling Partners 0 13,513
Total Current Liabilities 757,862 895,030
Other Long-term Liabilities $ 66,644 $ 84,137
Long-term debt due after one year $1,223,243 $1,379,963
Deferred income tax $1,115,000 $1,015,000
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 5,892,548 5,892,548
Current earnings 317,552 0
Treasury stock at cost, 796,912 shares at
June 30,1998 and 783,672 shares at
December 31,1997 (1,010,302) (952,321)
Total Stockholders' Equity 6,311,431 6,051,860
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,474,180 $9,425,990
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 SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
REVENUES:
Oil and gas sales $ 866,325 $ 899,346 $1,834,613 $2,086,162
Management fees 14,400 14,400 28,800 28,800
Administrative charges 78,043 68,785 148,521 136,865
958,768 982,531 2,011,934 2,251,827
OPERATING COSTS AND EXPENSES:
Lease operating expenses 247,067 245,431 512,762 484,672
Dry Hole & geological costs 8,937 651 52,575 35,737
Depletion, depreciation,
and amortization 242,938 295,359 615,797 672,451
General & administrative 206,332 169,734 375,405 381,272
705,274 711,175 1,556,539 1,574,132
Income From Operations $ 253,494 $ 271,356 $ 455,395 $ 677,695
OTHER INCOME (EXPENSES):
Dividends $ 0 $ 0 $ 0 $ 0
Interest income 6,211 17,096 11,413 30,051
Interest expense (33,777) (40,013) (70,792) (80,125)
Misc Income 16,718 0 31,536 0
Gain (loss) on sale of
oil & gas properties 0 0 0 0
$ (10,848) $ (22,917) (27,843) (50,074)
Income before provision
for income taxes $ 242,646 $ 248,439 $ 427,552 $ 627,621
Income tax provision
Current (2,000) 0 (10,000) 0
Deferred (60,000) (54,000) (100,000) (152,000)
NET INCOME $ 180,646 $ 194,439 $ 317,552 $ 475,621
EARNINGS PER COMMON SHARE:
Net income per common
share and common equivalent
PRIMARY $ .09 $ .10 $ .16 $ .24
FULLY DILUTED $ .09 $ .10 $ .16 $ .24
Weighted average number of common shares
and common share equivalent outstanding:
PRIMARY 1,944,888 1,969,220 1,944,888 1,969,220
FULLY DILUTED 1,944,888 1,969,220 1,944,888 1,969,220
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 SIX MONTHS ENDED
June 30, June 30,
1998 1997
Cash Flows From Operating Activities:
Operations:
Net Income (Loss) $ 317,552 $ 475,621
Plus Adjustments to Reconcile Net Income
(Loss) to Net Cash Flows From Operating Activities:
Gain (Loss) on Sale of Assets 0 0
Misc Income 31,536
Depreciation,Depletion and Amortization 615,797 672,451
Dry Hole and Exploration 52,575 35,737
Provision for Deferred Income Taxes 100,000 152,000
Changes In Operating Assets and Liabilities:
Accounts Receivable (197,942) 134,939
Notes Receivable (10,000) 100,000
Equipment Inventory 7,609 890
Other Current Assets (6,612) (1,871)
Accounts Payable and Accrued Expenses (123,655) (349,736)
Advances from Drilling Partners (13,513) (33,832)
Net Cash Provided By Operating Activities $ 773,347 $1,186,199
Cash Flows From Investing Activities:
Purchase of Property and Equipment:
Oil and Gas Properties (996,845) (934,692)
Furniture, Fixtures & Automobiles 0 (2,896)
Net Cash Used In Investing Activities $ (996,845) $ (837,588)
Cash Flows From Financing Activities:
Proceeds From Borrowing 0 0
Payment of Debt (156,720) (141,351)
Purchase of Treasury Stock (57,981) (24,727)
Net Cash (Used In) Provided By Financing Activities $ (214,701) $ (166,078)
Net Increase (Decrease) In Cash And Cash Equivalent (438,199) 182,533
Cash and Cash Equivalents, Beginning of Year 490,388 1,027,793
Cash and Cash Equivalent, End of Period $ 52,189 $1,210,326
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. The
aggregate borrowing of the loans are $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. For the first half of 1998
the interest rate on both the line and the term loan was at New York prime,
8.5%. As of June 30, 1998, the outstanding principal amount of the term loan was
$1,500,000 and zero on the line of credit. 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, 7.5% and 7.75% rates, with final payment 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
information 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
December 31, 1997, which are included in the Company's annual report and
Form 10-K.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 1998
Liquidity and Capital Resources
At June 30, 1998, the Company had current assets of $ 767,000 compared
to current liabilities of approximately $ 758,000 resulting in positive working
capital of $ 9,000. As of June 30, 1998 the total outstanding bank loan balance
was $1,500,000 compared to $1,650,000 as of December 31, 1997.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. Work
ing capital will continue to fluctuate during the year as the Company acquires
interest in additional wells and wells that are drilled are completed and conn
ected to a sales outlet.
During the first six months of 1998 the Company participated in the
drilling of eleven wells, four dry holes and seven gas wells.The Company's
working interest in the eleven wells is 6 to 97% with the Company participating
as operator in four wells and as an outside joint owner in the other seven
wells.
The Company is the operator of the new Case well that came on
production in April, 1998. The well is averaging 500 MCF per day, the Company
has a 72% net revenue interest in the well and should add an additional $20,000
per month to our cash flow. Also, the Company operates two new Henderson wells
that came on production in June, 1998 with a combined monthly production of 900
MCF per day. These wells should add an additional $10,000 per month to our cash
flow, Questa has a 19% net revenue interest in the two wells. All three wells
are located in the West Texas area.
6
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Results of Operations
1997 to 1998
Oil and gas sales during the two quarters ending June 30, 1998
decreased from $2,086,000 to $1,835,000 over the comparable period last year
due to decreases in oil and gas prices (oil prices decreased by 31% and gas
prices decreased by 17% for this same period in 1997). Oil and gas volumes
remained stable for the period.
The lease operating expenses for the two quarters increased from
$485,000 to $513,000 over the same period last year.This increase is the result
of the increase in the number of wells producing and operating costs remaining
constant.The decrease in depletion, depreciation,and amortization from $672,000
to $616,000 for the first half is due to the decreases in product price.
Interest income decreased due to larger cash balances available in
1997. Interest expenses decreased due to smaller principal balance on the term
loan.Miscellaneous income comes from settlement of outstanding payables and
other non oil and gas items.
Net income for the first six month period decreased from a $476,000
profit to a $318,000 profit due to decreases in the Company's oil and gas
prices.
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.
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 August 5, 1998 /s/ Warren Meeks
Warren L. Meeks, President
Date August 5, 1998 /s/ Donald A Towner
Donald A. Towner, Controller
and Chief Financial Officer
7
<PAGE>
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