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, 1999
[ ] 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, 1999, the Company had 1,912,822 shares of Common
Stock issued and outstanding.
<PAGE>
QUESTA OIL & GAS CO.
Contents
Page
Part I - Financial Information
Consolidated balance sheets at September 30, 1999
and December 31, 1998 . . . . . . . . . . . . . . . . 3
Consolidated statements of operations for the nine
months ended September 30, 1999 and 1998 . . . . . . . 4
Consolidated statements of cash flow for
the nine months ended September 30, 1999 and 1998 . . .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
September 30, 1999 and December 31, 1998
September 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 1,598,430 $ 241,511
Accounts receivable - Trade 320,562 449,235
- Other 0 27,513
- Oil & Gas Sales 370,000 249,792
Notes Receivable 0 0
Inventory 96 9,499
Prepaid expenses and other assets 1,277 301
Total Current Assets 2,290,365 977,851
Property and equipment, at cost:
Oil and gas properties, successful efforts:
Unproved properties 501,095 701,742
Proved properties 14,959,175 14,809,082
Furniture, fixture and automobiles 159,865 149,260
15,620,135 15,660,084
Less accumulated depletion and depreciation (6,766,921) (6,156,221)
Net Property and Equipment 8,853,214 9,503,863
TOTAL ASSETS $11,143,579 $10,481,714
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 300,000 $ 300,000
Accounts Payable - Trade 283,608 128,957
Accounts Payable - Related Parties 76,282 0
Accounts Payable - Oil & Gas 477,820 326,383
Short Term Loans Payable 2,808 2,808
Other Current Liabilities 130,266 121,731
Advances From Drilling Partners 0 0
Total Current Liabilities 1,270,784 879,879
Other Long-term Liabilities $ 66,644 $ 66,644
Long-term debt due after one year $ 1,915,880 $ 2,147,060
Deferred income tax $ 1,135,000 $ 1,015,000
Stockholders' equity:
Common stock, $.005 par value;
Authorized 50,000,000 shares;
Issued 2,704,024 shares 13,517 13,517
Additional paid-in capital 1,040,157 1,040,157
Accumulated earnings 6,293,881 6,293,881
Current earnings 382,428 0
Treasury stock at cost, 791,180 shares at
September 30,1999 and 789,108 shares at
December 31,1998 (974,712) (974,424)
Total Stockholders' Equity 6,755,271 6,373,131
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,143,579 $10,481,714
See accompanying notes to financial statements.
3
<PAGE>
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,
1999 1998 1999 1998
REVENUES:
Oil and gas sales $1,203,139 $ 893,055 $2,943,704 $2,727,668
Management fees 9,300 14,400 27,900 43,200
Administrative charges 84,334 80,704 244,795 229,225
1,296,773 988,159 3,216,399 3,000,093
OPERATING COSTS AND EXPENSES:
Lease operating expenses 249,265 251,597 782,484 764,359
Dry Hole & geological costs 285,577 58,346 360,849 110,921
Depletion, depreciation,
and amortization 410,216 289,140 945,176 904,937
General & administrative 178,714 216,025 556,419 591,430
1,123,772 815,108 2,644,928 2,371,647
Income From Operations $ 173,001 $ 173,051 $ 571,471 $ 628,446
OTHER INCOME (EXPENSES):
Dividends $ 0 $ 0 $ 0 $ 0
Interest income 11,416 923 36,139 43,872
Interest expense (46,909) (32,389) (139,703) (103,181)
Gain (loss) on sale of
oil & gas properties (3,000) 0 44,521 0
(38,493) (31,466) (59,043) (59,309)
Income before income taxes and
unusual item $ 134,508 $ 141,585 $ 512,428 $ 569,137
Provision for income taxes:
Current (10,000) 0 (10,000) (10,000)
Deferred (60,000) (35,000) (120,000) (135,000)
NET INCOME $ 64,508 $ 106,585 $ 382,428 $ 424,137
EARNINGS PER COMMON SHARE:
Net income per common
share and common equivalent
PRIMARY $ .03 $ .06 $ .20 $ .22
FULLY DILUTED $ .03 $ .06 $ .20 $ .22
Weighted average number of common shares
and common share equivalent outstanding:
PRIMARY 1,921,717 1,944,888 1,921,717 1,944,888
FULLY DILUTED 1,921,717 1,944,888 1,921,717 1,944,888
See accompanying notes to financial statements
4
<PAGE>
Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Statement of Cash Flows
(Unaudited)
FOR THE NINE MONTHS ENDED
Sept. 30, Sept. 30,
1999 1998
Cash Flows From Operating Activities:
Operations:
Net Income (Loss) $ 382,428 $ 424,137
Plus Adjustments to Reconcile Net Income
(Loss) to Net Cash Flows From Operating Activities:
Gain (Loss) on Sale of Assets 44,521 0
Depreciation,Depletion and Amortization 945,176 904,937
Dry Hole and Exploration 360,849 110,921
Provision for Deferred Income Taxes 120,000 135,000
Changes In Operating Assets and Liabilities:
Accounts Receivable 35,978 15,852
Notes Receivable 0 0
Equipment Inventory 9,403 7,135
Other Current Assets (976) 1,088
Accounts Payable and Accrued Expenses 390,905 (23,426)
Advances from Drilling Partners 0 (13,513)
Net Cash Provided By Operating Activities 2,288,284 1,562,131
Cash Flows From Investing Activities:
Purchase of Property and Equipment:
Oil and Gas Properties (689,292) (1,535,380)
Furniture, Fixtures & Automobiles (10,605) 0
Net Cash Used In Investing Activities (699,897) (1,535,380)
Cash Flows From Financing Activities:
Proceeds From Borrowing 0 0
Payment of Debt (231,180) (232,380)
Purchase of Treasury Stock (288) (58,221)
Net Cash (Used In) Provided By Financing Activities (231,468) (290,601)
Net Increase (Decrease) In Cash And Cash Equivalent 1,356,919 (263,850)
Cash and Cash Equivalents, Beginning of Year 241,511 490,388
Cash and Cash Equivalent, End of Period $1,598,430 $ 226,538
5
<PAGE>
Part I Financial Information
QUESTA OIL & GAS CO.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Preparation and Presentation
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position of
Questa Oil & Gas Co. as of September 30, 1999 and the results of their
operations for the three and nine month periods ended September 30, 1999 and
1998 and cash flows for the nine months ended September 30, 1999 and 1998.
Results for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results to be realized during the full year. 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. These statements should be read in conjunction with the
Questa Oil & Gas Co. financial statements and notes thereto as of December 31,
1998, which are included in the Company's annual report and Form 10-K.
(2) Note Payable
The Company has a term loan with a local bank. The aggregate borrowing of the
loan is $2,500,000. The term loan is $2,500,000 with quarterly installments of
$75,000 plus accrued interest with the final payment due September 30, 2001. For
the first nine months of 1999 the interest rate on the term loan was at New York
prime,8.25%. As of September 30, 1999, the outstanding principal amount of the
term loan was $2,200,000. The loan is 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.
QUESTA OIL & GAS CO.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1999
Liquidity and Capital Resources
At September 30, 1999, the Company had current assets of $2,290,000 compared
to current liabilities of approximately $1,270,000 resulting in positive working
capital of $1,020,000. As of September 30, 1999 the total outstanding bank loan
balance was $2,200,000 compared to $2,425,000 as of December 31, 1998. The
Company is in a positive position to participate in new acquisitions and offset
drilling through its current line of credit and cash flows from operations.
Working capital will continue to fluctuate during the year as the Company wells
are drilled, completed and connected to a sales outlet.
Average oil prices received during the first nine months of 1999 were higher
than during the same period in 1998. Average natural gas prices received during
the first nine months of 1999 were lower than during the same period in 1998.
The average oil price received by the Company during the first nine months of
1999 was $14.04 per barrel which was a $.90 per barrel increase when compared to
1998. Average natural gas prices decreased to $2.02 per MCF, a $.31 per MCF drop
when compared to 1998. Oil prices within the industry remain largely dependent
upon world markets for crude oil. Prices for natural gas are influenced by
weather conditions and supply imbalances. Natural gas comprises approximately 81
percent of the Company's revenues. A large drop in the natural gas prices will
have a significant effect on the earning potential of the Company. Such
decreases, if sustained, will adversely effect the Company's cash flow in future
quarters.
6
<PAGE>
During the first nine months of 1999 the Company participated in the drilling
of ten wells; two dry holes and eight producing gas wells. The Company's working
interest in the ten wells range from .5% to 43% with the Company acting as
operator on three of the wells and an outside joint owner in the other seven.
All of the new wells drilled are on line and will provide additional net cash
flow. The Company is currently participating in the drilling three wells and
have signed AFEs for the drilling of two more wells before the end of the year.
Expenditures for drilling during the first nine months of 1999 were $612,000
and $70,000 written off as dry hole expense. Additional drilling is projected
for the last quarter of 1999. The Company's exploration budget for 1999 was
$1,500,000 with an additional $500,000 slated for acquisitions. The Company
feels the continued upswing in oil and gas prices will open new prospects for
drilling. The Company wrote off $225,000 relating to an acreage acquisition made
in 1998 in Kiowa and Caddo Counties. Questa participated in the drilling of
three wells in this area with two successful wells. The Company will be
participating in another well in this area and anticipate a successful gas well.
The Company's information system and equipment is Year 2000 compliant and that
the associated costs had no material adverse effect on the Company's financial
condition. The Company cannot currently determine the impact third parties will
have on the Company's Year 2000 exposure, but intends to continue to evaluate
their Year 2000 compliance.
Results of Operations
1998 to 1999
Oil and gas sales during the first nine moths of 1999 increased from
$2,728,000 to $2,944,000 over the comparable period last year as the result of
higher oil and gas production (oil production increased by 12% and gas
production increased by 19%). Oil prices increased by 7% and gas prices
decreased by 13%.
The lease operating expenses for the first nine months increased from $764,000
to $782,000 over the same period last year. This increase is the result of the
increase in the number of producing wells and workovers of existing wells. Dry
hole expense increased $250,000 in 1999. Increases in depletion, depreciation,
and amortization from $905,000 to $945,000 are due to the increase in oil and
gas production. Changes in the Company's general and administrative expenses was
due to no bonuses being paid in 1999.
Interest income decreased due to smaller cash balances in the bank accounts
the first six months of 1999, but larger balances the last half of 1999 should
be expected. Interest expenses increased due to the renegotiated term loan in
December, 1998. Questa sold its interest in a producing property resulting in a
gain of $47,000 in September,1999, offset by various miscellaneous expenditures.
Net income for the first nine month period of 1999 was lower when compared
with 1998 due to the acreage cost write off. First nine months net income for
1999 was $382,428 and $424,137 for 1998.
Part II Other Information
Item 1 - Not Applicable.
Item 2 - Not Applicable.
Items 3 through 5 - Not Applicable.
7
<PAGE>
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
or 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 November 12, 1999 /s/ Warren L. Meeks
Warren L. Meeks, CEO
Date November 12, 1999 /s/ Donald A. Towner
Donald A. Towner, CFO
8
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
the Financial Statements of Questa Oil & Gas Co. under cover of Form 10-Q
for the nine months ended September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 000035251
<NAME> Questa Oil & Gas Co.
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 1598430
<SECURITIES> 0
<RECEIVABLES> 700562
<ALLOWANCES> 10000
<INVENTORY> 96
<CURRENT-ASSETS> 1277
<PP&E> 15620135
<DEPRECIATION> 6766921
<TOTAL-ASSETS> 11143579
<CURRENT-LIABILITIES> 1270784
<BONDS> 0
0
0
<COMMON> 13517
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11143579
<SALES> 2943704
<TOTAL-REVENUES> 3216399
<CGS> 782484
<TOTAL-COSTS> 2644928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139703
<INCOME-PRETAX> 512428
<INCOME-TAX> 130000
<INCOME-CONTINUING> 382428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 382428
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
