<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended November 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required) for the transition period from ___________________ to
_____________________.
Commission file number: 0-17371
HYTK INDUSTRIES, INC.
---------------------
(Name of Small Business Issuer in Its Charter)
Nevada 88-0182808
-------- ------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P. O. Box 100 701 East Main, Benedict, Kansas 66714
---------------------------------------------------
(Address of Principal Executive Offices)(Zip Code)
316-698-2250
------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [XX] No [ ]
The number of shares outstanding of Registrant's common stock ($0.001 par value)
as of January 13, 2000 was 5,292,843.
Total of Sequentially Numbered Pages: 12
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .3
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . .3
Consolidated Financial Statements . . . . . . . . . . . . F-1
Item 2. Management's Discussion And Analysis . . . . . . . . . . . .4
Forward Looking Information . . . . . . . . . . . . . . . . 4
Business of Issuer . . . . . . . . . . . . . . . . . . . . .4
Results of Operations . . . . . . . . . . . . . . . . . . . 4
Capital Resources and Liquidity . . . . . . . . . . . . . . 5
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 5
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
Except as otherwise required by the context, references in this quarterly report
to "we," "our" and "us" refer to HYTK Industries, Inc. and our wholly owned
subsidiary, Quest Resource Corporation, and its wholly owned subsidiaries,
Ponderosa Gas Pipeline Company and Quest Energy Service, Inc. Our operations are
conducted through our subsidiaries.
Our unaudited interim financial statements including a balance sheet as of the
fiscal quarter ended November 30, 1999, a statement of operations and a
statement of cash flows for the interim period up to the date of such balance
sheet and the comparable period of the preceding fiscal year are attached hereto
as Pages F-1 through F-6 and are incorporated herein by this reference. We were
essentially dormant of operational activity during the same quarter for the
preceding fiscal year. Therefore, the comparative figures may not be meaningful
because our operations changed materially as a result of our acquisition of
Quest Resource Corporation and its subsidiaries.
The financial statements included herein have been prepared internally, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with the generally accepted
accounting principles have been omitted. However, in our opinion, all
adjustments (which include only normal recurring accruals) necessary to present
fairly the financial position and results of operations for the period presented
have been made. These financial statements should be read in conjunction with
the financial statements and notes thereto included in our annual report on Form
10-KSB for the fiscal year ended May 31, 1999; and should further be read in
conjunction with the financial statements included in our quarterly report on
Form 10-QSB for the quarter ended August 31, 1999.
3
<PAGE> 4
HYTK INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
November 30 May 31
1999 1999
----------- -------------
A S S E T S
<S> <C> <C>
Current Assets
Cash $ 49,351 $ 31,288
Accounts Receivable
397,274 294,301
Notes Receivable
59,998 68,119
Inventory
22,100 22,100
----------- -----------
Total Current Assets $ 528,723 $ 415,808
Fixed Assets
Equipment
543,471 538,662
Office Equipment
21,483 20,369
Buildings
40,159 40,159
Land
5,000 5,000
Less: Allowance for Depreciation (219,034) (197,073)
----------- -----------
391,079 407,117
Pipeline Assets, net 2,589,623 2,549,441
Oil & Gas Leasehold, net 574,977 575,401
Other Assets
Contracts & Right of Way, net 100,912 114,355
Organization Costs, net 109,189 119,475
Deferred Tax Credit
122,987 127,062
----------- -----------
333,088 360,892
----------- -----------
Total Assets $ 4,417,490 $ 4,308,659
=========== ===========
</TABLE>
F-1
<PAGE> 5
HYTK INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
November 30 May 31
1999 1999
----------- -------------
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
<S> <C> <C>
Current Liabilities
Accounts Payable $ 36,484 $ 81,699
Oil & Gas Payable 180,057 118,765
Accrued Interest 92,791 67,496
Notes Payable, Current Portion 330,592 360,097
Accrued Expenses 3,979 3,217
----------- -----------
Total Current Liabilities 643,903 631,274
Non-Current Liabilities
Note Payable 1,257,481 1,346,810
Less Portion Shown as Current (330,592) (360,097)
----------- -----------
926,889 986,713
----------- -----------
Total Liabilities 1,570,792 1,617,987
Commitments and contingencies -- --
----------- -----------
Stockholders' Equity
Preferred stock, 50,000,000 Shares Authorized 5 --
$.001 par value, 5,000 shares issued and outstanding
Common Stock, 950,000,000 Shares Authorized $.001 par value;
5,292,843 and 5,137,843 shares issued and outstanding 5,293 5,138
Paid In Surplus 3,239,623 3,089,783
Retained Earnings (398,223) (404,249)
----------- -----------
2,846,698 2,690,672
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,417,490 $ 4,308,659
=========== ===========
</TABLE>
F-2
<PAGE> 6
HYTK INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
----------------------------- ------------------------------
November 30 November 30
----------------------------- ------------------------------
1999 1998 1999 1998
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenue
Gas Pipeline Transmission Fees $ 149,597 $ - $ 277,595 $ -
Oil & Gas Production Revenue 86,015 - 132,363 -
Oil & Gas Operations 127,660 - 208,719 -
Pipeline Operations 50,490 - 99,576 -
Pipeline Development 33,014 - 65,385 -
Oil & Gas Marketing 16,996 - 30,536 -
Other Revenue 773 - 6,551 -
---------- -------- ---------- -------
Total Revenues 464,545 - 820,725
-
Cost of Revenues
Purchases & Outside Services 51,768 - 99,446 -
Lease Operating Costs 52,264 - 85,726 -
Pipeline Operating Costs 58,597 - 102,297 -
Wages 87,563 - 167,689 -
Payroll Taxes 6,699 - 12,828 -
Utilities-Leases 17,512 - 32,365 -
Tags, License, & Equipment Repairs 5,009 - 6,033 -
Fuel, Oil, Etc 10,460 - 20,785 -
---------- -------- ---------- --------
Total Cost of Revenues 289,872 - 527,169 -
Gross Profit $ 174,673 $ - $ 293,556 $ -
</TABLE>
F-3
<PAGE> 7
HYTK INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (CON'T)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
----------------------------- ------------------------------
November 30 November 30
----------------------------- ------------------------------
General and Administrative Expenses 1999 1998 1999 1998
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Interest $ 27,773 $ 29 $ 54,554 $ 29
Depreciation & Amortization 55,429 -- 114,055 --
Insurance 18,089 -- 31,219 --
Repairs 6,650 -- 19,218 --
Supplies 19,236 -- 22,487 --
Telephone 3,930 -- 8,036 --
Utilities 1,568 -- 3,230 --
Other Expenses 16,283 -- 36,499 --
----------- ----------- ----------- -----------
Total General and Administrative Expense 148,958 29 289,298 29
Income (Loss) from continuing operations before
other income and expenses and income taxes 25,715 (29) 4,258 (29)
Other Income
Sale of Assets -- -- -- --
Interest Income 1,449 -- 2,832 --
----------- ----------- ----------- -----------
Total Other Income 1,449 -- 2,832 --
Net Income (Loss) Before Income Taxes 27,164 (29) 7,090 (29)
Income Tax (Expense) Benefit (4,075) -- (1,064) --
----------- ----------- ----------- -----------
Provision for Income Taxes (4,075) -- (1,064) --
Net Income (Loss) $ 23,089 (29) $ 6,026 (29)
=========== =========== =========== ===========
Net Income per share $ 0.004 $ (0.000) $ 0.001 $ (0.000)
Weighted Average Number of
Shares Outstanding 5,292,843 5,257,565 5,292,843 2,052,266
</TABLE>
F-4
<PAGE> 8
HYTK INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASHFLOWS
<TABLE>
<CAPTION>
For the Six Months Ended November 30
------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 23,089 $ (29)
Adjustments to Reconcile Excess Contributions to cash
provided from operations:
Depreciation 83,970 --
Amortization
16,495 --
Depletion
13,590 --
Accounts Receivable (102,973) --
Organization Costs
(9,829) --
Accounts Payable
(45,215) --
Oil & Gas Payable
61,292 --
Notes Receivable
8,121 --
Deferred Tax Credit
4,075 --
Accrued Interest Payable
25,295 29
Accrued Expenses
762 --
--------- ---------
Total Adjustments 55,583 29
Net Cash used in Operating Activities 78,672 --
Cash flows from Investing Activities:
Fixed Assets (121,280) --
--------- ---------
Net Cash used in Investing Activities (121,280) --
Cash flows from Financing Activities
Increase in Long-Term Debt 0 --
Extinguishment of Long-Term Debt (89,329) --
Paid-In-Capital 150,000 --
--------- ---------
Net Cash used in Financing Activities 60,671 --
Net Increase (Decrease) in Cash 18,063 --
Cash Balance, Begin of Period 31,288 --
Cash Balance, End of Period $ 49,351 $ --
========= =========
</TABLE>
F-5
<PAGE> 9
HYTK INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Preferred Common
Shares Shares
Preferred Common Par Par Paid-In Retained
Shares Shares Value Value Capital Earnings Total
------------ ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 1, 1999 -- 5,137,843 0 $ 5,138 $ 3,089,783 $ (404,249) $ 2,690,672
Stock Issuance 155,000 155 99,845 100,000
Net Income (Loss) (17,063) (17,063)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Aug. 31, 1999 -- 5,292,843 0 5,293 $ 3,189,628 $ (421,312) $ 2,773,609
Stock Issuance 5,000 -- 5 0 49,995 50,000
Net Income (Loss) 23,089 23,089
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Nov. 30, 1999 5,000 5,292,843 5 $ 5,293 $ 3,239,623 $ (398,223) $ 2,846,698
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
F-6
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING INFORMATION
This quarterly report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. These statements relate to future
events or to our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. There are a number of factors that could cause our actual
results to differ materially from those indicated by such forward-looking
statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume responsibility
for the accuracy and completeness of such statements. We are under no duty to
update any of the forward-looking statements after the date of this prospectus
to conform such statements to actual results.
BUSINESS OF ISSUER
We acquired Quest Resource Corporation, a Kansas corporation ("Quest"), on
December 31, 1998. Since this date, we have focused on Quest's oil and gas
operations. Specifically, we have focused on reducing our debt and continuing
our consolidation of oil and gas properties and pipeline assets.
We began operating at a profit during the quarter ended November 30, 1999. The
positive nature of our cash flow has been increasing since the Merger as we
continue to increase the productivity of certain pipeline assets and as the
increased price of oil has allowed us to resume full scale oil producing
operations resulting in greater oil sales.
We now intend to intensify our efforts to develop additional gas reserves,
especially those within our existing pipeline region.
RESULTS OF OPERATIONS
The following discussion is based on the consolidated operations of all of our
subsidiaries and should be read in conjunction with the audited financial
statements and notes thereto included in our annual report on Form 10-KSB for
the fiscal year ended May 31, 1999; and should further be read in conjunction
with the financial statements included in this report. We were essentially
dormant of operational activity until the Merger in December, 1998 and therefore
no comparative results of operation are provided herein.
Revenue from operations for the quarter ended November 30, 1999 was $464,545
which resulted in net income after provision for income taxes of $23,089.
Included in this net income calculation were non-cash deductions including
depreciation, amortization and depletion expenses which totaled $55,429.
-4-
<PAGE> 11
Revenue from operations for the six month period ended November 30, 1999 was
$820,725 which resulted in net income after provision for income taxes of
$6,026. Included in this net income calculation were non-cash deductions
including depreciation, amortization and depletion expenses which totaled
$114,055.
CAPITAL RESOURCES AND LIQUIDITY
During the six month period ended November 30, 1999 a total of $121,280 was
invested in fixed assets; long term notes payable decreased by $89,329, net cash
from operating activities was $78,672, and the ending cash balance was $49,351.
The increased investment in fixed assets was a result of ongoing improvements to
the gas pipeline assets, while the decrease in notes payable reflects debt
reduction from routine monthly debt service payments.
Our operating cash flows are closely aligned with revenues and costs of our oil
and gas operations. Our cash flow remains at near breakeven status and there are
currently no significant cash reserves available. The most significant cash
obligations in our operations are payroll, operating costs for the oil and gas
wells and pipelines, and debt service.
If we are able to develop the gas reserves in our pipeline region, we expect our
cash flow to improve in two ways. First, additional wellhead revenue would occur
from any new gas wells. Second, cash flow would be increased from the greater
utilization of our pipelines caused by additional gas volumes from any new
wells. This increased development of gas reserves is our top priority. However,
no assurance can be given that we will be successful in obtaining the additional
funding required for the development of such gas reserves or that any gas
development efforts will be successful if the additional funding is attained.
We had a deficit in working capital of $115,180 on November 30, 1999, which is
primarily comprised of accrued interest and the current portion of notes
payable. This is a slight improvement from the working capital deficit of
$132,734 on August 31, 1999 and is due primarily to the continued reduction in
notes payable which we have been able to accomplish as a result of improved cash
flow. Until the anticipated development of area gas reserves is realized, we
expect to continue operating at the near break even cash flow levels evidenced
by our $28,134 cash balance at the beginning of the fiscal quarter ended
November 30, 1999 and by our closing cash balance of $49,351.
PART II - OTHER INFORMATION
ITEM 2.USE OF PROCEEDS
During November 1999, we sold 5,000 shares of our Series A Convertible Preferred
Stock at $10 per share. This sale was made pursuant to exemptions from
registration under the Securities Act of 1933, as amended, including Section
(4)2 thereunder.
-5-
<PAGE> 12
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized this 13th day of January, 2000.
HYTK Industries, Inc.
/s/ Douglas L. Lamb
-------------------------------
Douglas L. Lamb, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Douglas L. Lamb President and Director January 13, 2000
- ----------------------------
Douglas L. Lamb
/s/ Richard M. Cornell Secretary and Director January 13, 2000
- ----------------------------
Richard M. Cornell
/s/ John C. Garrison Treasurer and Director January 13, 2000
- ----------------------------
John C. Garrison
</TABLE>
-6-
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1999
<CASH> 49,351
<SECURITIES> 0
<RECEIVABLES> 397,274
<ALLOWANCES> 0
<INVENTORY> 22,100
<CURRENT-ASSETS> 468,725
<PP&E> 3,199,736
<DEPRECIATION> (219,034)
<TOTAL-ASSETS> 4,417,490
<CURRENT-LIABILITIES> 643,903
<BONDS> 926,889
0
5
<COMMON> 5,293
<OTHER-SE> 3,239,623
<TOTAL-LIABILITY-AND-EQUITY> 4,417,490
<SALES> 814,174
<TOTAL-REVENUES> 820,725
<CGS> 528,169
<TOTAL-COSTS> 817,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,554
<INCOME-PRETAX> 7,090
<INCOME-TAX> 1,064
<INCOME-CONTINUING> 6,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,026
<EPS-BASIC> 0.001
<EPS-DILUTED> 0.001
</TABLE>
