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 August 31, 2000.
[ ] 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
QUEST RESOURCE CORPORATION
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(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
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(Address of Principal Executive Offices)(Zip Code)
316-698-2250
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(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 August 13, 2000 was 5,626,342.
Total of Sequentially Numbered Pages: 12
1
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TABLE OF CONTENTS
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
SIGNATURES............................................................6
2
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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 Quest Resource Corporation and its wholly owned
subsidiaries, Quest Oil & Gas Corporation, 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 August 31, 2000, 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.
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, 2000.
3
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Quest Resource Corporation
Consolidated Balance Sheet
(Unaudited) (Audited)
August 31 May 31
2000 2000
------------------ --------------
A S S E T S
Current Assets
Cash $ 28,773 $ 110,562
Accounts Receivable 414,118 352,611
Notes Receivable 55,788 54,180
Parts & Supplies 22,100 22,100
--------------------- --------------
Total Current Assets $ 520,779 $ 539,453
Property & Equipment
Property & Equipment 465,023 440,610
Less: Allowance for Depreciation (219,806) (210,143)
------------------ -------------
245,217 230,467
Pipeline Assets, net 3,018,967 2,875,212
Oil & Gas Properties
Properties being Amortized 1,080,622 1,080,622
Properties not being Amortized 41,643 10,430
Less: Accumulated depreciation,
depletion, and amortization (58,011) (54,842)
------------------ -------------
1,064,254 1,036,210
Other Assets
Contracts & Right of Way, net 99,881 101,752
Organization Costs, net 113,382 115,182
Deferred Tax Credit 117,595 124,009
-------------------- -------------
330,858 340,943
------------------ -------------
Total Assets $ 5,180,075 $ 5,022,285
================== ==============
F-1
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<TABLE>
Quest Resource Corporation
Consolidated Balance Sheet
<CAPTION>
(Unaudited) (Audited)
August 31 May 31
2000 2000
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 116,672 $ 100,112
Oil & Gas Payable 193,349 115,999
Accrued Interest 36,809 34,413
Notes Payable, Current Portion 563,755 529,284
Accrued Expenses 4,364 3,991
---------------- --------------
Total Current Liabilities 914,949 783,799
Non-Current Liabilities
Note Payable 1,476,745 1,451,983
Less Portion Shown as Current (563,755) (529,284)
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912,990 922,699
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Total Liabilities 1,827,939 1,706,498
Commitments and contingencies - -
Stockholders' Equity
Preferred stock, 50,000,000 Shares Authorized 10 10
$.001 par value, 10,000 shares issued
and outstanding
Common Stock, 950,000,000 Shares Authorized 5,626 5,626
$.001 par value, 5,626,342 and 5,626,342
shares outstanding issued and outstanding
Paid In Surplus 3,699,089 3,699,089
Retained Earnings (352,589) (388,938)
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3,352,136 3,315,787
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Total Liabilities and Stockholders' Equity $ 5,180,075 $ 5,022,285
============= ==============
</TABLE>
F-2
<PAGE>
Quest Resource Corporation
Consolidated Statement of Operations
(Unaudited)
For the Three Months Ended
-----------------------------------
August 31
-----------------------------------
2000 1999
-----------------------------------
Revenue
Gas Pipeline Transmission Fees $ 157,095 $ 128,002
Oil & Gas Production Revenue 149,890 46,348
Oil & Gas Operations 91,360 81,059
Pipeline Operations 37,246 49,086
Pipeline & Property Development 130,263 32,371
Oil Trucking & Marketing 20,626 13,540
Other Revenue 6,130 5,774
-----------------------------------
Total Revenues 592,610 356,180
Cost of Revenues
Purchases & Outside Services 105,670 47,678
Lease Operating Costs 69,940 33,462
Pipeline Operating Costs 88,642 43,700
Wages 91,779 80,126
Payroll Taxes 7,111 6,129
Utilities-Leases 17,739 14,853
Tags, License, & Equipment Repairs 4,514 1,024
Fuel, Oil, Etc 16,108 10,325
-------------------------------------
Total Cost of Revenues 401,503 237,297
Gross Profit $ 191,107 $ 118,883
F-3
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<TABLE>
Quest Resource Corporation
Consolidated Statement of Operations
(Unaudited)
<CAPTION>
For the Three Months Ended
-----------------------------------
August 31
-----------------------------------
General and Administrative Expenses 2000 1999
-----------------------------------
-----------------------------------
<S> <C> <C>
Interest $ 29,292 $ 26,781
Depreciation, Depletion & Amortization 39,050 58,626
Insurance 20,691 13,130
Repairs 4,789 12,568
Supplies 27,546 3,251
Telephone 2,730 4,106
Utilities 1,981 1,662
Other Expenses 24,066 20,216
-------------------------------
Total General and Administrative Expenses 150,145 140,340
Income (Loss) from continuing operations before 40,962 (21,457)
other income and expenses and income taxes
Other Income
Sale of Assets - -
Interest Income 1,801 1,383
-------------------------------
Total Other Income 1,801 1,383
Net Income (Loss) Before Income Taxes 42,763 (20,074)
Income Tax (Expense) Benefit (6,414) 3,011
--------------------- --------
Provision for Income Taxes (6,414) 3,011
Net Income (Loss) $ 36,349 $ (17,063)
===============================
Net Income (Loss) per share $ 0.00 $ (0.003)
Weighted Average Number of
Shares Outstanding 5,626,342 5,257,565
</TABLE>
F-4
<PAGE>
<TABLE>
Quest Resource Corporation
Consolidated Statement of Cashflows
(Unaudited)
<CAPTION>
For the Three Months Ended August 31
-------------------------------------------
2000 1999
------ -----
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income (Loss) $ 36,349 $ (17,063)
Adjustments to Reconcile Excess Contributions to cash
provided from operations:
Depreciation 32,210 41,985
Amortization 3,671 10,320
Depletion 3,169 6,321
Accounts Receivable (61,507) (87,359)
Organization Costs (480) (4,000)
Accounts Payable 16,560 (48,209)
Oil & Gas Payable 77,350 44,711
Notes Receivable (1,128) 5,259
Deferred Tax Credit 6,414 (3,011)
Accrued Interest Payable 2,396 13,798
Accrued Expenses 373 255
----------- --------------
Total Adjustments 79,028 (19,930)
Net Cash provided from Operating Activities 115,377 (36,993)
Cash flows from Investing Activities:
Fixed Assets (221,928) (47,925)
------------ ---------------
Net Cash used in Investing Activities (221,928) (47,925)
Cash flows from Financing Activities
Change in Long-Term Debt 24,762 (18,236)
Paid-In-Capital 0 100,000
----------- --------------
Net Cash used in Financing Activities 24,762 81,764
Net Increase (Decrease) in Cash (81,789) (3,154)
Cash Balance, Beginning of Period 110,562 31,288
Cash Balance, End of Period $ 28,773 $ 28,134
=========== ==============
</TABLE>
<TABLE>
Quest Resource Corporation
Consolidated Statement of Stockholders Equity
(Unaudited)
<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, 2000 10,000 5,626,342 $ 10 $ 5,626 $ 3,699,089 $(388,938) $ 3,315,787
Net Income (Loss) 36,349 36,349
------------------------ ------- --------------------------------------------------------------
Balance August 31, 2000 10,000 5,626,342 $ 10 $ 5,626 $ 3,699,089 $(352,589) $ 3,352,136
======================== =========== ===========================================================
</TABLE>
[ THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK ]
F-5
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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
Our primary business is the production and transportation of natural gas in a
five-county region of southeast Kansas which is served by our gas pipeline
network. Our main focus is upon the development of Company-owned gas reserves in
our pipeline region and upon the continued enhancement of the pipeline system.
During this quarter we have added two new gas wells and have completed a new gas
compressor station which provides access to the interstate pipeline network. We
have also been adding new land leases to our inventory of undeveloped acreage.
Additional new gas wells are currently being developed along with ongoing
enhancements to the pipeline system. Revenues and net income have increased
significantly during this quarter and are expected to continue growing as our
gas volumes increase from the on-going gas development program.
This development activity has been fostered primarily by local bank financing.
Our line of credit with this bank was increased again last month in recognition
of our successful development program. The attractive prices for both crude oil
and natural gas are having a very positive impact on all aspects of our
business.
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, 2000; and should further be read in conjunction
with the financial statements included in this report. Comparisons made between
reporting periods herein are for the quarter ended August 31, 2000 as compared
to the quarter ended a year earlier on August 31, 1999 unless otherwise stated.
Results of Operations
Revenue from operations for the quarter ended August 31, 2000 of $592,610
increased 66% when compared to revenue of $356,180 for the quarter ended August
31, 1999. This increase is attributable to a 223% increase in oil and gas
production revenue which resulted from: (1)our acquisition of additional gas and
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<PAGE>
oil properties; (2) the new gas wells developed; and, (3) the increased prices
of both crude oil and natural gas. The total revenue increase is also
attributable to a 23% increase in pipeline transportation revenue which resulted
from both increased gas prices and gas volumes transported. Another significant
revenue event was the 302% increase in pipeline and property development
services which reflects the increased construction and development work being
performed by Quest Energy Service, Inc. on the pipelines and new gas wells.
The costs and expenses for the quarter ended August 31, 2000 totaled $551,648
which is a 46% increase when compared to the total costs and expenses incurred
for the quarter ended August 31, 1999. Increases occurred in the pipeline and
property operating costs due to increased expenses associated with the higher
gas volumes and the increased number of wells operating. Purchases and outside
services also increased significantly as part of our development of new gas
wells and the pipeline improvements accomplished.
The Company reported its best quarterly profit before income taxes to date of
$42,763, as compared to the loss in the quarter a year ago of ($20,074).
Included in the $42,763 quarterly net income figure is $39,050 of non cash
deductions including depreciation, depletion and amortization expenses. This
positive net income reflects beneficial results from the consolidation of
producing oil and gas properties into the Company, the increased profitability
of the gas pipeline network, and the growing gas volume from new wells coming on
line.
Capital Resources and Liquidity
During the quarter ended August 31, 2000 the Company drew $221,928 on its bank
line of credit which was invested primarily in the fixed assets of gas
properties and pipeline facilities. Long term notes payable increased $24,762
from the bank financing which provided the above facility investment less
payments made on the bank notes during the quarter. Net cash provided from
operating activities increased substantially from a deficit of ($36,993) in the
comparable 1999 quarter to a positive $115,377 for this quarter ended August 31,
2000, which reflects the much improved cash flow being generated by the
Company's pipelines and gas wells.
Given the Company's emphasis on investment in its gas reserves and pipelines,
cash reserves are not expected to grow significantly since cash is being re-
invested in these long-term assets. Also, debt incurred for new development has
increased bank payments which has been more than offset by the new revenue
created from gas sales and pipeline transportation. Therefore, growth on our
balance sheet is expected to occur primarily in the gas property and pipeline
asset section instead of in the current asset section.
-5-
<PAGE>
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 October, 2000.
Quest Resource Corporation
/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.
Signature Title Date
/s/ Douglas L. Lamb President and Director October 13, 2000
----------------------------
Douglas L. Lamb
/s/ Richard M. Cornell Secretary and Director October 13, 2000
----------------------------
Richard M. Cornell
/s/ John C. Garrison Treasurer and Director October 13, 2000
----------------------------
John C. Garrison
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