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, 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
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 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, 1999, the Company had 1,914,396 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 March 31, 1999
and December 31, 1998 . . . . . . . . . . . . . . 3
Consolidated statements of operations for the nine
months ended March 31, 1999 and 1998 . . . . . . . 4
Consolidated statements of cash flow for
the nine months ended March 31, 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
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Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
March 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 519,056 $ 241,511
Accounts receivable - Trade 224,973 449,235
- Other 63,537 27,513
- Oil & Gas Sales 270,000 249,792
Notes Receivable 0 0
Inventory 9,374 9,499
Prepaid expenses and other assets 301 301
Total Current Assets 1,087,241 977,851
Property and equipment, at cost:
Oil and gas properties, successful efforts:
Unproved properties 810,572 701,742
Proved properties 14,698,375 14,809,082
Furniture, fixture and automobiles 153,269 149,260
15,662,227 15,660,084
Less accumulated depletion and depreciation (6,208,270) (6,156,221)
Net Property and Equipment 9,453,957 9,503,863
TOTAL ASSETS $10,541,198 $10,481,714
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 300,000 $ 300,000
Accounts Payable - Trade 91,182 128,957
Accounts Payable - Related Parties 18,036 0
Accounts Payable - Oil & Gas 288,827 326,383
Short Term Loans Payable 2,808 2,808
Other Current Liabilities 146,751 121,731
Advances From Drilling Partners 0 0
Total Current Liabilities 847,604 879,879
Other Long-term Liabilities $ 66,644 $ 66,644
Long-term debt due after one year $ 2,070,463 $ 2,147,060
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 13,517 13,517
Additional paid-in capital 1,040,157 1,040,157
Accumulated earnings 6,293,881 6,293,881
Current earnings 128,356 0
Treasury stock at cost, 794,368 shares at
March 31,1999 and 794,368 shares at
December 31, 1998 (974,424) (974,424)
Total Stockholders' Equity 6,417,776 6,051,860
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,541,198 $10,481,714
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
MONTHS MONTHS
ENDED ENDED
March 31, March 31,
1999 1998
REVENUES:
Oil and gas sales $ 831,432 $ 968,288
Management fees 9,300 14,400
Administrative charges 79,955 70,478
920,687 1,053,166
OPERATING COSTS AND EXPENSES:
Lease operating expenses 289,699 265,695
Dry Hole & geological costs 250 43,638
Depletion, depreciation,
and amortization 256,448 372,859
General & administrative 163,312 169,073
709,709 851,265
Income From Operations $ 210,978 $ 201,901
OTHER INCOME (EXPENSES):
Dividends $ 0 $ 0
Interest/misc income 8,112 20,020
Interest expense (46,734) (37,015)
Gain (loss) on sale of
oil & gas properties 0 0
(38,622) (16,995)
Income before income taxes and
unusual item $ 172,356 $ 184,906
Unusual item 0 0
Income before income taxes $ 172,356 $ 184,906
Provision for income taxes:
Current (4,000) (8,000)
Deferred (40,000) (40,000)
NET INCOME $ 128,356 $ 136,906
EARNINGS PER COMMON SHARE:
Net income per common
share and common equivalent
PRIMARY $ .07 $ .07
FULLY DILUTED $ .07 $ .07
Weighted average number of common shares
and common share equivalent outstanding:
PRIMARY 1,921,717 1,944,888
FULLY DILUTED 1,921,717 1,944,888
See accompanying notes to financial statements
4
<PAGE>
art I Financial Information
QUESTA OIL & GAS CO.
Consolidated Statement of Cash Flows
(Unaudited)
FOR THE THREE MONTHS ENDED
March 31, March 31,
1999 1998
Cash Flows From Operating Activities:
Operations:
Net Income (Loss) $ 128,356 $ 136,906
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 256,448 372,859
Dry Hole and Exploration 250 43,638
Provision for Deferred Income Taxes 40,000 40,000
Changes In Operating Assets and Liabilities:
Accounts Receivable 168,030 (247,180)
Notes Receivable 0 (10,000)
Equipment Inventory 125 (434)
Other Current Assets 0 (5,087)
Accounts Payable and Accrued Expenses (32,275) (156,498)
Advances from Drilling Partners 0 4,860
Net Cash Provided By Operating Activities $ 560,934 $ 179,064
Cash Flows From Investing Activities:
Purchase of Property and Equipment:
Oil and Gas Properties (202,772) (234,709)
Furniture, Fixtures & Automobiles (4,020) 0
Net Cash Used In Investing Activities $ (206,792) $ (234,709)
Cash Flows From Financing Activities:
Proceeds From Borrowing 0 0
Payment of Debt (76,597) (81,066)
Purchase of Treasury Stock 0 (57,959)
Net Cash (Used In) Provided By Financing Activities $ (76,597) $ (139,025)
Net Increase (Decrease) In Cash And Cash Equivalent 277,545 (194,670)
Cash and Cash Equivalents, Beginning of Year 241,511 490,388
Cash and Cash Equivalent, End of Period $ 519,056 $ 295,718
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 March 31, 1999 and the results of their
operations for the three month periods ended March 31, 1999 and 1998 and cash
flows for the three months ended March 31, 1999 and 1998. Results for the three
months ended March 31, 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 line of credit and a term loan with a local bank. The
aggregate borrowing of the loans are $3,500,000. The term loan was $2,500,000
with quarterly installments of $75,000 plus accrued interest with the final
payment due June 30, 2001. The line of credit is $1,000,000 with interest of one
quarter of one percent on the amount not used. For the first three months of
1999 the interest rate on both the line and the term loan was at New York prime,
7.75%. As of March 31, 1999, the outstanding principal amount of the term loan
was $2,350,000 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 at 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
March 31, 1999
Liquidity and Capital Resources
At March 31, 1999, the Company had current assets of $1,087,000
compared to current liabilities of approximately $847,000 resulting in positive
working capital of $240,000. As of March 31, 1999 the total outstanding bank
loan balance was $2,350,000 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 and natural gas prices received during the first three
months of 1999 were lower than during the same period in 1998. The average oil
price received by the Company during the first three months of 1999 was $10.27
per barrel as compared to a price of $15.69 in 1998. Average natural gas prices
decreased to $1.83 per MCF, a $.60 per MCF decrease 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 86 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 three months of 1998 the Company participated in the
drilling of two wells, both were producing gas wells. The Company's working
interest in the two wells range from .5% to 1% with the Company participating as
an outside joint owner in the wells. The new wells are expected to come on line
in the second quarter of 1999.
The Company currently anticipates that its information system and
equipment will be Year 2000 compliant by the end of the third quarter of 1999
and that the associated costs will not have a 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 its Year 2000 compliance.
In the fourth quarter of 1998, the Company's Board of Directors
authorized the Company to purchase up to 30,000 shares of its outstanding common
stock on the open market. The Company will periodically make these purchases,
based upon terms determined by management. If the maximum number of shares are
purchased, it will represent four (4) percent of the public float of Questa's
common stock.
The Company has an active exploration and development program planned
for 1999. Budgeted for 1999 is an exploration budget of $1,500,000 and $500,000
budgeted for acquiring producing properties. Currently, the Company is
participating in the drilling of three wells in Texas, Oklahoma and Colorado,
with an interest ranging from 6% to 44%. The Company feels that the current
upward swing in oil and gas prices will open up some exciting prospects for the
future.
Results of Operations
1999 to 1998
Oil and gas sales during the three quarters ending March 31, 1999
decreased from $968,000 to $831,000 over the comparable period last year as the
result of lower oil and gas prices (oil prices have dropped 35% and gas prices
dropped 25%).
The lease operating expenses for the three quarters increased from
$266,000 to $290,000 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 decreased from $44,000 in 1998 to $250 in 1999,
due to successful drilling. Decreases in depletion, depreciation, and
amortization from $373,000 to $256,000 are due to the drop in oil and gas
prices.Changes in the Company's general and administrative expenses was minimal.
Interest income decreased due to smaller cash balances in the bank
accounts. Interest expenses increased due to the larger principal balance on the
term loan, new loan effective December, 1998.
Net income for the first three month period decreased from a $137,000
profit to a $128,000 profit, due to the 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.
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 May 14, 1999 /s/ Warren L. Meeks
Warren L. Meeks
Chief Executive Officer
Date May 14, 1999 /s/ Donald A. Towner
Donald A. Towner
Chief Financial Officer
8
<PAGE>
<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 three months ended March 31, 1999 and is qualified in its
entiretl by reference to such financial statements.
</LEGEND>
<CIK> 0000352511
<NAME> Questa Oil & Gas Co.
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