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 March 31, 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 (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 o file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ___
As of May 1, 1998, the Company had 1,919,744 shares of Common Stock
issued and outstanding.
<PAGE>
QUESTA OIL & GAS CO.
Contents
Page
Part I - Financial Information
Consolidated balance sheets at March 31, 1998
and December 31, 1997 3
Consolidated statements of operations for the three
months ended March 31, 1998 and 1997 4
Consolidated statements of cash flow for
the three months ended March 31, 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 8
2
<PAGE>
Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
March 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 295,718 $ 490,388
Accounts receivable - Trade 258,786 167,922
- Other 190,698 17,285
- Oil & Gas Sales 285,000 302,097
Notes Receivable 10,000 0
Inventory 17,227 16,793
Prepaid expenses and other assets 8,582 3,495
Total Current Assets 1,066,011 997,980
Property and equipment, at cost:
Oil and gas properties, successful efforts:
Unproved properties 147,024 190,326
Proved properties 13,282,134 13,045,317
Furniture, fixture and automobiles 149,260 149,260
13,578,418 13,384,903
Less accumulated depletion and depreciation (5,332,196) (4,956,893)
Net Property and Equipment 8,246,222 8,428,010
TOTAL ASSETS $9,312,233 $9,425,990
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 300,000 $ 300,000
Accounts Payable - Trade 185,246 230,765
Accounts Payable - Related Parties 0 20,854
Accounts Payable - Oil & Gas 165,413 218,066
Short Term Loans Payable 2,808 2,808
Other Current Liabilities 71,552 109,024
Advances From Drilling Partners 18,373 13,513
Total Current Liabilities 743,392 895,030
Other Long-term Liabilities $ 84,137 $ 84,137
Long-term debt due after one year $1,298,897 $1,379,963
Deferred income tax $1,055,000 $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 136,906 0
Treasury stock at cost, 796,912 shares at
March 31,1998 and 783,672 shares at
December 31,1997 (1,010,280) (952,321)
Total Stockholders' Equity 6,130,807 6,051,860
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,312,233 $9,425,990
See accompanying notes to financial statements.
3
<PAGE>
Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Statement of Operations
(UNAUDITED)
THREE THREE
MONTHS MONTHS
ENDED ENDED
March 31, March 31,
1998 1997
Revenues:
Oil and gas sales $ 968,288 $1,186,816
Management fees 14,400 14,400
Administrative charges 70,478 68,080
1,053,166 1,269,296
Operating costs & expenses:
Lease operating expenses 265,695 239,241
Dry Hole & geological costs 43,638 35,086
Depletion, depreciation,
and amortization 372,859 377,092
General & administrative 169,073 211,538
851,265 862,957
Income From Operations $ 201,901 $ 406,339
Other income ( expenses):
Dividends $ 0 $ 0
Interest income 20,020 12,955
Interest expense (37,015) (40,112)
Gain (loss) on sale of
oil & gas properties 0 0
$ (16,995) $ (27,157)
Income before provision for income
taxes $ 184,906 $ 379,182
Income tax provision
Current (8,000) 0
Deferred (40,000) (98,000)
Net Income $ 136,906 $ 281,182
EARNINGS PER COMMON SHARE:
Net income per common share and common
equivalent
PRIMARY $ .07 $ .14 *
FULLY DILUTED $ .07 $ .14 *
Weighted average number of common shares
and common share equivalent outstanding:
PRIMARY 1,944,888 1,969,220 *
FULLY DILUTED 1,944,888 1,969,220 *
* Adjusted for 2 to 1 stock split February 18, 1998
See accompanying notes to financial statements
4
<PAGE>
Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Statement of Cash Flows
(Unaudited)
FOR THE THREE MONTHS ENDED
March 31, March 31,
1998 1997
Cash Flows From Operating Activities:
Operations:
Net Income (Loss) $ 136,906 $ 281,182
Plus Adjustments to Reconcile Net Income
(Loss) to Net Cash Flows From Operating Activities:
Gain (Loss) on Sale of Assets 0 0
Depreciation,Depletion and Amortization 372,859 377,092
Dry Hole and Exploration 43,638 35,086
Provision for Deferred Income Taxes 40,000 98,000
Changes In Operating Assets and Liabilities:
Accounts Receivable (247,180) 45,761
Notes Receivable (10,000) 80,000
Equipment Inventory (434) 5,967
Other Current Assets (5,087) 629
Accounts Payable and Accrued Expenses (156,498) (303,675)
Advances from Drilling Partners 4,860 (33,832)
Net Cash Provided By Operating Activities $ 179,064 $ 586,210
Cash Flows From Investing Activities:
Purchase of Property and Equipment:
Oil and Gas Properties (234,709) (137,229)
Furniture, Fixtures & Automobiles 0 4,401
Net Cash Used In Investing Activities $ (234,709) $ (132,828)
Cash Flows From Financing Activities:
Proceeds From Borrowing 0 0
Payment of Debt (81,066) (76,501)
Purchase of Treasury Stock (57,959) (24,615)
Net Cash (Used In) Provided By Financing Activities $ (139,025) $ (101,116)
Net Increase (Decrease) In Cash And Cash Equivalent (194,670) 352,266
Cash and Cash Equivalents, Beginning of Year 490,388 1,027,793
Cash and Cash Equivalent, End of Period $ 295,718 $ 1,380,059
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 ($2,100,000 term loan and
$1,000.000 line of credit). Interest on the loans are New York prime. At March
31, 1998 the Company's balance on the term loan was $1,575,000 and zero had been
borrowed on the line of credit. 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. The loan is secured by certain of the
Company's interest 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 at an interest rate of 7.5% and 7.75%, 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 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, 1997, 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
March 31, 1998
Liquidity and Capital Resources
At March 31, 1998,the Company had current assets of $1,066,000 compared
to current liabilities of approximately $ 743,000 resulting in positive working
capital of $ 323,000. As of March 31, 1998 the total outstanding bank loan
balance was $1,575,000 compared to $1,650,000 as of December 31, 1997. The
primary source of liquidity to the Company is oil and gas revenues. 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 three months of 1998 the Company participated in the
drilling of six wells, two dry holes and four gas wells. The Company's working
interest in the six wells is 14 to 96%, with the Company drilling one well and
participating as an outside joint owner in the other five wells.
6
<PAGE>
Results of Operations
1997 to 1998
Oil and gas sales during the first quarter ending March 31, 1998
decreased from $1,187,000 to $ 968,000 over the comparable period last year.This
decrease is due to lower oil and gas prices the first quarter of 1998 compared
to 1997. Oil prices for 1998 were down 23% from 1997 (1998-$15.69/BBL versus
1997-$20.47/BBL) and gas prices were down 27% in 1998 (1998-$2.43/MCF versus
1997-$3.32/MCF).
The lease operating expenses increased from $239,000 to $266,000 over
the same period last year. This increase is the result of increased number of
wells. Changes in the Company's general and administrative expenses was due to
bonuses paid to employees in 1997.
Interest income increased due to larger cash balances in the banks.
Interest expenses decreased due to paying down the loan negotiated in July of
1997.
Net income for the first three month period decreased from $281,000
profit to a $136,000 profit due to decreases in the Company's oil and gas
prices.
Part II Other Information
Item 1 through 3 - Not Applicable.
Item 4- Special Meeting of Stockholders held February 18, 1998 to vote on a
proposal to reverse split outstanding shares 10 to 1. Special Meeting of
Stockholders held February 18, 1998 to vote on a proposal to forward split
outstanding shares 1 to 20. Total number of votes casted for both proposals were
611682, with 609682 For, 1600 Against, and 400 Abstain.
Items 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 May 14, 1998 /s/ Warren L. Meeks
Warren L. Meeks, President
Date May 14, 1998 /s/ Donald A. Towner
Donald A. Towner, Controller
and Chief Financial Officer
7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 295718
<SECURITIES> 0
<RECEIVABLES> 754484
<ALLOWANCES> 10000
<INVENTORY> 17227
<CURRENT-ASSETS> 8582
<PP&E> 13578418
<DEPRECIATION> 5332196
<TOTAL-ASSETS> 9312233
<CURRENT-LIABILITIES> 743392
<BONDS> 0
0
0
<COMMON> 13583
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9312233
<SALES> 968288
<TOTAL-REVENUES> 1053166
<CGS> 265695
<TOTAL-COSTS> 851265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37015
<INCOME-PRETAX> 184906
<INCOME-TAX> 48000
<INCOME-CONTINUING> 136906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136906
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
