UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended May 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
(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)
Issuer's Telephone Number: 316-698-2250
HYTK Industries, Inc.
(Former name, if changed since last report)
Securities Registered Under Section 12(g) of the Exchange Act:
Title of Class: Common Stock, $0.001 Par Value
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 X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
The issuer's revenues for the year ended May 31, 2000 were $1,899,277. The
aggregate market value of the voting stock held by non-affiliates computed by
reference to the last reported sale of the Company's Common Stock on August 21,
2000 @ $0.687 per share was $645,999. There were 5,581,342 shares outstanding of
the issuer's common stock as of August 21, 2000 that were held by 2,100
shareholders.
Total of Sequentially Numbered Pages: 40
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Exhibit Index on Page: 17
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1
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TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS......................................3
ITEM 2. DESCRIPTION OF PROPERTY......................................4
ITEM 3. LEGAL PROCEEDINGS............................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS......................................................7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....8
ITEM 7. FINANCIAL STATEMENTS........................................11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS...............11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT............................................12
ITEM 10. EXECUTIVE COMPENSATION......................................12
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS.....................13
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................15
SIGNATURES..................................................16
INDEX TO EXHIBITS...........................................17
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business of Issuer
During the fiscal year ended May 31, 2000, HYTK Industries, Inc., a Nevada
corporation, initiated a name change to Quest Resource Corporation. Prior to the
name change, HYTK Industries, Inc. ("HYTK") owned a subsidiary entity named
Quest Resource Corporation, which was a Kansas corporation. On May 3, 2000 a
Plan of Merger was entered into whereby Quest Resource Corporation was merged
into HYTK which caused the termination of Quest Resource Corporation, the Kansas
corporation. Later, on May 17, 2000 holders of a majority of the common stock of
HYTK voted to change the name from HYTK Industries, Inc. to Quest Resource
Corporation. The name change actually became effective on June 25, 2000 when the
amendment to the Articles were filed. Unless the context indicates otherwise,
the terms "Quest" or "Company" shall hereinafter refer to Quest Resource
Corporation, a Nevada corporation, its predecessors and subsidiaries.
Quest is an independent energy company with an emphasis on the production,
transportation and development of natural gas in southeast Kansas in a five
county region that is served by a Company-owned pipeline network. Quest's
management and key personnel have been involved in oil and gas production
activities in southeast Kansas for more than twenty years. Company operations
are conducted through three wholly owned subsidiaries which are all Kansas
corporations: Quest Energy Service, Inc., ("QES"), Ponderosa Gas Pipeline
Company, Inc., ("PGPC") and Quest Oil & Gas Corporation ("QOG"). References to
Quest shall refer to and include its subsidiaries unless otherwise indicated.
The QOG subsidiary entity was acquired as Mogg Energy Services, Inc. on March
31, 2000 in exchange for HYTK common stock and the name was subsequently changed
to Quest Oil &Gas Corporation. Assets gained in this acquisition included a
majority of the gas wells that were producing into the PGPC pipeline system
along with undeveloped gas reserves. This acquisition caused a substantial
increase in Company-owned gas production and reserves.
Significant development activity has also been accomplished during the past
fiscal year. Construction of a new gas compressor station was started in April
and became operational in June 2000. It provides PGPC access to the largest
interstate gas pipeline in the PGPC pipeline region. Also, four new gas wells
have been developed since January and our pace of new well development is
picking up for the remainder of this calendar year. This new development of
pipeline facilities and gas wells has been made possible by a line of credit
provided by a local bank.
The Company's revenue and net cash flow from operations for the fiscal year
ended May 31, 2000 have increased substantially and compare favorably with the
previous fiscal year. We are anticipating on-going financial progress from
increasing pipeline transportation revenues and from the new gas wells being
developed. For detailed information regarding our financial status, see the
enclosed Financial Statements starting at page F-1.
3
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ITEM 2. DESCRIPTION OF PROPERTY
Ponderosa Gas Pipeline Company, Inc. ("PGPC")
Pipelines. PGPC owns approximately 131 miles of gas gathering pipelines in the
counties of Wilson, Woodson, Greenwood, Neosho and Chautauqua counties in
southeast Kansas. This pipeline network provides a market outlet for natural gas
in a region of approximately 500 square miles in size. Included in this pipeline
network are ten gas compressors which are wholly owned by PGPC. The market
outlets available to this gas gathering pipeline network include connections to
both intrastate and interstate delivery pipelines.
On July 1, 2000 PGPC commenced operation at its new gas compressor station
northeast of Altoona, Kansas. This new station is located on the Williams
interstate pipeline and it provides access to the interstate gas market for
approximately ninety miles of the PGPC gas gathering pipeline network that was
previously served by only local gas market outlets.
Quest Oil & Gas Corporation ("QOG")
Producing Wells and Acreage. The following table sets forth certain information
regarding QOG's ownership of productive wells and acreage, as of May 31, 2000.
For purposes of this table, productive wells are producing wells and wells
capable of production.
<TABLE>
PRODUCTIVE WELL AND ACREAGE SUMMARY
<CAPTION>
PRODUCTIVE WELLS LEASEHOLD ACREAGE
---------------- -----------------
Fiscal Year Ended Total
May 31 Oil Natural Gas Total Developed Undeveloped Leased
-------- ------------ -------------- --------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1999 45 8 53 660 4,678 5,338
2000 44 32 76 1,990 9,343 11,333
</TABLE>
QOG has developed four new wells to date during this calendar year and
additional new gas wells are being developed during the remainder of this year.
The natural gas wells, acreage and reserves were also increased substantially by
the acquisition of Mogg Energy Services, Inc. on March 31, 2000 which owned a
majority of the gas wells on the PGPC pipeline network. Furthermore, QOG has
been actively leasing additional land in the vicinity of its pipeline network
for future gas exploration and development.
Oil and natural gas reserves. The following table summarizes the reserve
estimate and analysis of net proved reserves of oil and natural gas as of May
31, 2000 as prepared by Mr. Dwayne McCune of McCune Engineering, a registered
independent petroleum engineering firm. Mr. McCune is a registered petroleum
engineer in Kansas (KS#7034), Colorado and Wyoming. As this is the first such
report prepared for the Company, no previous years are available for comparison.
The Company's estimated proved reserves have not been filed with or included in
reports to any federal agency during the fiscal year ended May 31, 2000.
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<TABLE>
<CAPTION>
Proved Net Reserves Future Net Cash Flow After Operating Expenses
------------------- ---------------------------------------------
Developed Undeveloped Total Net Future Discounted
--------- ----------- -----
Cash Flow FNCF @ 10%
--------- ---------
<S> <C> <C> <C> <C> <C>
Oil (bbls) 137,200 177,264 314,464 $ 3,427,367 $ 1,522,771
Gas (mcf) 1,138,816 507,501 1,646,317 $ 2,523,923 $ 1,862,184
Future Cash Flow Totals $ 5,951,290 $ 3,384,955
</TABLE>
The above calculated gas reserves and estimated cash flow do not include any
provision for gas reserves and revenue attributable to the Company's pipeline
network. Upon production, all of the above gas will be transported through the
PGPC pipeline network which will create significant pipeline transportation
revenue for the Company.
The estimates of the Company's proved reserves and future net revenues are made
using sales prices estimated to be in effect as of the date of such reserve
estimates and are held constant throughout the life of the properties. Estimated
quantities of proved reserves and future net revenues therefrom are affected by
oil and natural gas prices, which have fluctuated widely in recent years. There
are numerous uncertainties inherent in estimating oil and gas reserves and their
values. The reserve data set forth in this report are only estimates. Reservoir
engineering is a subjective process of estimating underground accumulations of
oil and natural gas that cannot be measured in an exact manner. The accuracy of
any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Furthermore, estimates
of reserves are subject to revision based upon actual production, results of
future development and exploration activities, prevailing natural gas and oil
prices, operating costs and other factors, and such revisions can be
substantial. Accordingly, reserve estimates are often different from the
quantities of natural gas and oil that are ultimately recovered and are highly
dependent upon the accuracy of the assumptions upon which they are based.
Production volumes, sales prices, and production costs. The following tables set
forth certain information regarding the oil and gas properties owned by QOG in
fiscal year 2000. The gas and oil production figures reflect the net production
attributable to the QOG revenue interest and is not indicative of the total
volumes produced by the wells.
Gas properties were not acquired by the Company until the Fiscal Year ended May
31, 1999. Previous years are shown for comparative purposes. The increase in gas
production for the Fiscal Year ended May 31, 2000 reflects the gas properties in
the Mogg Energy Services, Inc. acquisition, for which production is included for
the entire year.
Gas Production Statistics (per Mcf)
For Fiscal Year Ended
5/00 5/99 5/98 5/97
---- ----- ----- -----
Net gas production (mcf) 154,004 54,386 41,925 43,415
Average wellhead gas price $1.57 $1.32 $1.51 $1.50
Average production cost $1.04 $0.94 $0.89 $0.96
Net revenue $0.53 $0.38 $0.62 $0.54
The Company did not acquire its first oil properties until March, 1997. Twelve
month production figures are reflected for all properties even though many were
acquired mid-year.
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Oil Production Statistics (per bbl)
For Fiscal Year Ended
5/00 5/99 5/98 5/97
------ ----- ----- -----
Net oil production (barrels) 19,703 18,850 13,753 11,990
Average wellhead oil price $22.97 $11.04 $14.50 $19.34
Average production cost $14.03 $11.41 $12.21 $15.25
Net revenue $ 8.94 $ (.37) $ 2.29 $ 4.09
Delivery Commitments
Gas. While the Company does not have formal delivery commitments, its gas is
marketed exclusively by Bonanza Energy Corporation of Kansas ("BECK"), which has
long-term relationships with end users and other purchasers of the Company's
gas. Therefore, while no such assurances can be given, the Company does not
anticipate a problem obtaining ongoing commitments for its gas. Bonanza Energy
Corporation of Kansas is owned by Douglas L. Lamb, the Company's president and
one of its directors, and Marsha K. Lamb who is Mr. Lamb's wife and an officer
in the subsidiary companies.
Oil. The Company's oil has been sold to Plains Marketing, L.P. ("Plains") for
the past several years. QES purchases the oil at the various tank batteries on
the producing properties and delivers the oil to the Plains terminal for a
transportation fee.
Quest Energy Service, Inc. (QES)
The primary property categories within QES are: trucks, well service rigs and
construction equipment; and, a repair and fabrication shop which is located in
Benedict, Kansas. The QES employees represent its most valuable asset category
and five administrative personnel work out of the office facility on the east
edge of Benedict, Kansas at 701 East Main Street. Field operations include five
"pumpers" or employees whose primary duties are to operate the wells and the
pipelines. QES employs additional personnel who are involved in: well servicing,
pipeline maintenance, the development of new wells and associated
infrastructure, and new pipeline construction.
ITEM 3. LEGAL PROCEEDINGS
Management is not aware of any pending or threatened legal proceedings involving
the Company or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 17, 2000 holders of 3,889,429 shares of the common stock of HYTK, or 73%
of the outstanding common stock, voted via written consent without a meeting, to
change the name from HYTK Industries, Inc. to Quest Resource Corporation. Notice
of the majority vote was mailed to all shareholders at least 20 days prior to
the effective date of the name change on June 25, 2000 when the amendment to the
Articles were filed.
6
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock was approved for trading on the OTC Bulletin Board on
June 8, 1999, under the symbol "QRCP." The table set forth below lists the range
of high and low bids of the Company's Common Stock for the fiscal year ended May
31, 2000. The prices in the table reflect inter-dealer prices, without retail
markup, markdown or commission and may not represent actual transactions.
Period High Price Low Price
------ ---------- ---------
Qtr Ending 8/31/99 $10.00 $0.0625
Qtr Ending 11/30/99 $9.50 $3.00
Qtr Ending 02/29/00 $8.75 $5.00
Qtr Ending 05/31/00 $7.125 $1.00
The closing price for QRCP stock on August 21, 2000 was $0.687.
Record Holders
There are 950,000,000 shares of Common Stock authorized for issuance and
50,000,000 shares of Preferred Stock authorized for issuance. 500,000 shares of
the authorized Preferred Stock has been classed as Series A Convertible
Preferred Stock. Holders of Series A Convertible Preferred Stock are entitled to
quarterly dividends at the annual rate of 10% on the purchase price of $10.00
per share and to convert each share into four shares of Common Stock. As of
August 21, 1999, there were 5,581,342 shares of Common Stock issued and
outstanding, held of record by 2,100 shareholders. There were also 10,000 shares
of Series A Convertible Preferred Stock issued to two shareholders.
Dividends
The Company has not declared any cash dividends on its Common Stock for the last
three years and does not anticipate paying any dividends on its Common Stock in
the foreseeable future. The payment of dividends on the Common Stock is within
the discretion of the board of directors and will depend on the Company's
earnings, capital requirements, financial condition and other relevant factors.
Dividends are being paid at the rate of 10% on the Series A Convertible
Preferred Stock in accordance with the Series A Convertible Preferred Stock
terms and conditions.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statements For Purpose Of The "Safe Harbor" Provisions Of The Private
Securities Litigation Reform Act of 1995
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. EXCEPT FOR
HISTORICAL INFORMATION CONTAINED HEREIN, CERTAIN STATEMENTS HEREIN ARE FORWARD
LOOKING STATEMENTS THAT ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
Quest or its representatives may make forward looking statements, oral or
written, including statements in this report, press releases and filings with
the SEC, regarding estimated future net revenues from oil and natural gas
reserves and the present value thereof, planned capital expenditures, increases
in oil and gas production and development activities, and the company's
financial position, business strategy and other plans and objectives for future
operations. Although the company believes that the expectations reflected in
these forward looking statements are reasonable, there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected effects on
its business or operations.
Among the factors that could cause actual results to differ materially from the
Company's expectations are risks inherent in drilling, well completion and other
development activities; changes in commodity prices; engineering and mechanical
or technological difficulties with operational equipment, in well completions
and workovers, and in drilling new wells; land issues; federal and state
regulatory developments; labor problems; environmental related problems;
uncertainty of oil and gas reserve estimates; the substantial capital
requirements involved with development of oil and gas reserves; reserve
replacement risk; dependance upon key personnel; and other factors noted
elsewhere in this report. All subsequent oral and written forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these factors. The Company assumes no
obligation to update any of these statements.
Quest Operations
Quest operations are conducted through three operating subsidiaries. Two of the
Quest subsidiaries, PGPC and QOG, are consistently producing steadily increasing
positive cash flow. PGPC is benefitting from increasing gas volumes in its
pipeline network. These increasing gas volumes are due to the new gas well
development that is being done in the pipeline area by QOG and by other outside
operators. This development of new gas wells by QOG is expected to be the
primary factor affecting QOG revenue during the next year.
QES is the service company which provides operational support for the prime
Quest assets (producing wells and pipelines) owned by its two sister companies.
QES is the operating entity that performs the administrative and field services
involved in: operating the pipeline network and the producing properties;
developing new oil and gas wells; and, constructing new pipeline facilities. QES
personnel have been involved in the southeast Kansas oil and gas industry for
over 20 years and have accomplished the completion of numerous gas wells during
the past several years with a success rate of about 90%.
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Development Plans
Quest believes, from its knowledge and geological study of the pipeline region,
that the drilling of new gas wells is warranted, in addition to the selective
conversion of existing well bores. Therefore, it is management's belief that
significant additional cash flow and gas reserves can be realized from the
development of numerous identified gas development opportunities in the PGPC
pipeline region. Quest intends to maximize its involvement in the development of
these gas reserves as an owner of the producing wells instead of its previous
limited role of contract developer and pipeline gatherer.
Quest has received the support of local bank financing for the gas development
program being conducted by QOG. Quest has identified numerous gas development
opportunities in its pipeline operating region that it believes are low risk
which could add significant cash flow and gas reserves to Quest. The most
significant growth opportunity immediately available to Quest is in the 500
square mile region that is served by Quest's gas gathering pipeline network.
The significance of this growth opportunity available to Quest is that of its
simplicity and its availability. Quest is in the process of substantially
improving its profitability by increasing its development of gas reserves that
are readily available within the area of its gas gathering pipeline network.
Quest has known, undeveloped gas reserves that simply need to be developed. This
is much lower in risk than doing exploratory drilling in the attempt to identify
new gas reserves. Quest has only recently begun to focus on the accelerated
development of its proven and probable gas reserves. Only moderate success in
such development should have a significant impact on the Company. This
development is being conducted by QES personnel, who have gained much expertise
in doing this same type of work over many years in this region. Quest is very
pleased to have begun its campaign of low-risk development of the gas reserves
in its existing pipeline operating area.
Results of Operations
The following information incorporates the operations of its three subsidiaries
with the Company and should be read in conjunction with the actual financial
statements and accompanying notes found herein.
Revenue from operations for the year ended May 31, 2000 of $1,899,277 increased
23% when compared to revenue of $1,540,954 for the fiscal year ended May 31,
1999. The increase is attributable to a 147% increase in oil and gas sales
revenue which resulted from QOG's acquisition of additional gas and oil
properties and the increased prices of both oil and natural gas. The total
revenue increase is also attributable to an 80% increase in pipeline
transportation revenue which resulted from both increased gas prices and gas
volumes transported. Pipeline revenue and gas sales were adversely affected in
the 4th quarter due to the shutdown of a soybean processing plant in Fredonia,
Kansas in mid-March, 2000. This shutdown caused a temporary curtailment of about
40% of the PGPC pipeline transportation revenue and over 50% of its gas sales
until July 1, 2000 when QES personnel achieved operational status on the new
compressor station near Altoona, Kansas. This curtailment had a more serious
impact on 4th quarter earnings than was first anticipated due to the completion
of the new compressor station extending over 30 days beyond the estimated
start-up date and due to the inability of the local gas market to take any gas
after the plant shutdown. However, the new station now provides access to the
interstate pipeline network which greatly reduces the possibility of future
curtailments. The new station has also greatly expanded the growth potential of
the PGPC pipeline network and significant additional gas volumes are expected to
become available to this new facility during the next two quarters.
The costs and expenses for the fiscal year ended May 31, 2000 totaled $1,899,565
which is a 16% increase when compared to the total costs and expenses incurred
for the fiscal year ended May 31, 1999. The largest
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<PAGE>
single increase in costs occurred in the pipeline operating costs due to the
increased costs associated with the higher gas volumes. The Company reported its
first fiscal year profit before income taxes of $18,013, as compared to the loss
in fiscal year 1999 of ($34,241). Included in the $18,013 net income figure for
fiscal year 2000 is $156,197 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 and the increased profitability of the gas pipeline network.
The net income would have been even greater without the interruption in the
production and transportation of gas during the fourth quarter as described in
detail above.
Capital Resources And Liquidity
During the fiscal year ended May 31, 2000 a total of $761,454 was invested in
the Company, primarily in fixed assets including oil and gas properties and
pipeline facilities. Long term notes payable increased $169,146 as part of the
new bank financing that was achieved in order to finance the aforementioned
investments. Net cash provided from operating activities increased substantially
from $12,867 last fiscal year 1999 to $157,213 for this fiscal year ended May
31, 2000, which reflects the improving cash flow being generated by the
Company's pipelines and its oil and gas wells.
The Company continued to have a deficit in working capital of ($244,346) on May
31, 2000 which is primarily comprised of the current portion of notes payable.
This is an increase from the working capital deficit of ($215,466) on May 31,
1999. The current portion of notes payable increased $169,187 due to the
increased monthly payments required by the bank financing that was achieved
during the year. However, these increased bank payments have been more than
offset by increased revenue from gas wells and pipelines. Now that the
development of new gas production has been commenced, the Company is expected to
continue improving its positive cash flow levels from both gas production and
pipeline revenues.
Certain Capital Transactions
During the fiscal year 2000, Quest collectively sold 120,000 restricted shares
of its Common Stock, in exchange for $172,500 which was used as working capital.
Quest also eliminated $43,000 in debt and paid $13,545 of interest by the
issuance of 28,500 restricted shares of Common Stock. $100,000 in working
capital was raised from two sales of 5,000 shares each of preferred stock during
the fiscal year ended May 31, 2000.
Quest issued 260,000 shares of its restricted Common Stock to Richard H. Mogg in
accordance with an Agreement and Plan of Reorganization, effective March 31,
2000, between the Company, Mogg Energy Services, Inc. and Richard H. Mogg dated
as of March 31, 2000 whereby Mogg Energy Services, Inc. was acquired by the
Company.
During the fiscal year ended May 31, 2000, Bonanza Energy Corporation of Kansas
has loaned the Company and its subsidiaries $118,245.28 while having been repaid
$83,456.61 on notes bearing 10% interest which was all used by the Company as
working capital. Bonanza Energy Corporation of Kansas is owned by Douglas L.
Lamb, the Company's president and one of its directors, and Marsha K. Lamb who
is Mr. Lamb's wife and an officer in the subsidiary companies.
Need for the Replacement of Reserves
The proved reserves of the Company will generally decline as they are produced,
except to the extent that the Company conducts revitalization activities, or
acquires properties containing proved reserves, or both. To
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increase reserves and production, the Company intends to continue its
development drilling and re-completion programs, to identify and produce
previously overlooked or bypassed zones in shut-in wells, and to acquire
additional properties or undertake other replacement activities. The Company's
current strategy is to increase its reserve base, production and cash flow
through the development of its existing gas fields and through the selective
acquisition of other promising properties where the Company can utilize its
existing technology and infrastructure. The Company can give no assurance that
its planned development activities will result in significant additional
reserves or that the Company will have success in discovering and producing
reserves at economical exploration and development costs. The drilling of new
wells and conversion of existing wells for gas production is a speculative
activity and the possibility always exists that newly drilled or converted gas
wells will be non-productive or fail to produce enough revenue to be
commercially worthwhile.
Competition
The Company operates in the highly competitive oil and gas areas of acquisition
and exploration in which other competing companies may have substantially larger
financial resources, operations, staffs and facilities. In seeking to acquire
desirable new properties for future exploration the Company faces competition
from other oil and gas companies. Such companies may be able to pay more for
prospective oil and gas properties or prospects and to evaluate, bid for and
purchase a greater number of properties and prospects than the Company's
financial or human resources permit.
Environmental Regulation
The Company is subject to numerous state and federal environmental regulations.
Internal procedures and policies exist within the Company to ensure that its
operations are conducted in full and substantial regulatory compliance and the
Company believes it is currently operating within all such regulations. While
the Company intends to fully comply with such requirements, this compliance can
be very complex, and therefore no assurances can be given that such
environmental regulations will not detrimentally affect the Company in the
future.
Operating Risks
The Company's operations are subject to hazards and risks inherent in producing
and transporting oil and natural gas, such as fires, natural disasters,
explosions, pipeline ruptures, and spills, all of which can result in the loss
of hydrocarbons, environmental pollution, personal injury claims and other
damage to properties of the Company and others. As protection against operating
hazards, the Company maintains insurance coverage against some, but not all,
potential losses. The occurrence of an event that is not covered, or not fully
covered, by insurance could have a material adverse effect on the Company's
business, financial condition and results of operation.
ITEM 7. FINANCIAL STATEMENTS
Please see the accompanying financial statements attached as pages F-1 through
F-21.
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Quest Resource Corporation
Audited Financial Statements
May 31, 2000 and 1999
Clyde Bailey, P.C.
Certified Public Accountant
10924 Vance Jackson #404
San Antonio, Texas 78230
<PAGE>
CLYDE BAILEY P.C.
Certified Public Accountants
10924 Vance Jackson, #404
San Antonio, TX 78230
(210) 699-1287 (ofc.)
(210) 699-2911 (fax)
Member:
American Institute of CPA's
Texas Society of CPA's
Report of Independent Certified Public Accountant
To the Board of Directors and Shareholders
Quest Resource Corporation
Benedict Kansas
We have audited the accompanying consolidated balance sheet of Quest Resource
Corporation and subsidiaries (Company) as of May 31, 2000 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years ended May 31, 2000 and 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and
subsidiaries as of May 31, 2000 and 1999, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Clyde Bailey
Clyde Bailey
Certified Public Accountant
July 12, 2000
<PAGE>
<TABLE>
Quest Resource Corporation
Consolidated Balance Sheet
As of May 31, 2000
A S S E T S
<CAPTION>
Current Assets
<S> <C> <C>
Cash $ 110,562
Accounts Receivable 352,611
Notes Receivable 54,180
Inventory 22,100
-----------
Total Current Assets $ 539,453
Property & Equipment, net of depreciation of $210,143 230,467
-----------------------------------------------------
Pipeline Assets, net of depreciation of $718,738 2,875,212
------------------------------------------------
Oil & Gas Properties
Properties being Amortized 1,080,622
Properties not being Amortized 10,430
-----------
1,091,052
Less: Accumulated depreciation, depletion and (54,842) 1,036,210
-----------
amortization
Other Assets
Contracts & Right of Way, net 101,752
Organization Costs, net 115,182
Deferred Tax Credit 124,009
-----------
340,943
-----------
Total Assets $ 5,022,285
===========
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-2
<PAGE>
<TABLE>
Quest Resource Corporation
Consolidated Balance Sheet
As of May 31, 2000
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts Payable $ 100,112
Oil & Gas Payable 115,999
Accrued Interest 34,413
Notes Payable, Current Portion 529,284
Accrued Expenses 3,991
-----------
Total Current Liabilities $ 783,799
Non-Current Liabilities
Note Payable 1,451,983
Less Portion Shown as Current (529,284)
-----------
922,699
------------
Total Liabilities 1,706,498
Commitments and contingencies 0
Stockholders' Equity
Preferred stock, 50,000,000 Shares Authorized 10
$.001 par value, 10,000 shares outstanding
Common Stock, 950,000,000 Shares Authorized
$.001 par value, 5,626,342 shares
issued and outstanding 5,626
Paid In Surplus 3,699,089
Retained Earnings (388,938)
-----------
3,315,787
------------
Total Liabilities and Stockholders' Equity $ 5,022,285
============
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-3
<PAGE>
Quest Resource Corporation
Consolidated Statement of Operations
For the Years Ended May 31
-------------------------------------------
2000 1999
------ -----
Revenue
Gas Pipeline Transmission Fees $ 494,451 $ 274,586
Oil & Gas Production Revenue 408,328 164,968
Oil & Gas Operations 519,227 533,280
Pipeline Operations 206,576 396,002
Pipeline Development 182,831 55,456
Oil & Gas Marketing 79,368 59,848
Other Revenue 8,496 56,814
------------------- ------------------
Total Revenues 1,899,277 1,540,954
Cost of Revenues
Purchases & Outside Services 258,769 250,859
Lease Operating Costs 205,050 200,171
Pipeline Operating Costs 342,914 234,156
Wages 341,504 337,199
Payroll Taxes 26,894 27,763
Utilities-Leases 73,158 79,243
Tags, License, & Equipment Repairs 55,432 17,159
Fuel, Oil, Etc 11,939 36,266
------------------- ------------------
Total Cost of Revenues 1,315,660 1,182,816
Gross Profit $ 583,617 $ 358,138
See accompanying summary of accounting policies and notes to
financial statements.
F-4
<PAGE>
<TABLE>
Quest Resource Corporation
Consolidated Statement of Operations
<CAPTION>
For the Years Ended May 31
------------------------------------------------
General and Administrative Expenses 2000 1999
----------------------------------- ------ -----
<S> <C> <C>
Interest $ 125,712 $ 64,229
Contract Services 28,393 30,424
Depreciation, Depletion & Amortization 156,197 168,857
Insurance 68,853 73,774
Repairs 41,187 27,313
Supplies 70,803 7,335
Telephone 14,732 20,352
Utilities 6,205 4,763
Other Expenses 71,823 49,765
-------------------- ------------------
Total General and Administrative Expenses 583,905 446,812
Income (Loss) from continuing operations before (288) (88,674)
other income and expenses and income taxes
Other Income
Sale of Assets 13,751 54,019
Interest Income 4,550 414
-------------------- ------------------
Total Other Income 18,301 54,433
Net Income (Loss) Before Income Taxes 18,013 (34,241)
Income Tax Benefit (Expense) (2,702) 5,136
-------------------- ------------------
Net Income (Loss) $ 15,311 $ (29,105)
==================== ==================
Net Income (Loss) per share $0.003 ($0.006)
Weighted Average Number of
Shares Outstanding 5,319,926 4,849,135
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-5
<PAGE>
<TABLE>
Quest Resource Corporation
Consolidated Statement of Cashflows
<CAPTION>
For the Years Ended May 31
--------------------------------
2000 1999
------ -----
Cash Flows from Operating Activities:
<S> <C> <C>
Net Loss $ 15,311 $ (29,105)
Adjustments to Reconcile Excess
Contributions to cash provided from operations:
Depreciation 128,838 146,036
Amortization 14,684 9,270
Depletion 12,676 13,550
Accounts Receivable (58,310) 7,429
Inventory - (1,040)
Accounts Payable 28,413 (110,719)
Oil & Gas Payable (2,766) (1,421)
Notes Receivable 13,939 60,994
Deferred Tax Credit 3,053 5,136
Accrued Interest Payable (1,611) (88,245)
Accrued Expenses 2,986 982
------------ -------------
Total Adjustments 141,902 41,972
Net Cash provided from Operating Activities 157,213 12,867
Cash flows from Investing Activities:
Fixed Assets (761,454) (1,631,967)
------------ -------------
Net Cash used in Investing Activities (761,454) (1,631,967)
Cash flows from Financing Activities
Increase in Long-Term Debt 169,146 406,022
Extinguishment of Long-Term Debt 0 (645,130)
Paid-In-Capital 514,369 1,882,936
------------ -------------
Net Cash provided from Financing Activities 683,515 1,643,828
Net Increase (Decrease) in Cash 79,274 24,728
Cash Balance, Beginning of Period 31,288 6,560
Cash Balance, End of Period $ 110,562 $ 31,288
============ =============
</TABLE>
See accompanying summary of accounting policies and notes
to financial statements.
F-6
<PAGE>
<TABLE>
Quest Resource Corporation
Consolidated Statement of Stockholders Equity
<CAPTION>
Common Preferred
Stock Shares
Common Preferred Par Par Paid-In Retained
Shares Shares Value Value Capital Earnings Total
------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 1, 1998 2,052,265 - $ 2,052 $ $ 1,108,846 $(1,254,71) $ (143,813)
Stock Merger 4,776,077 4,776 2,432,817 (246,315) 2,191,278
Stock Cancellation (2,000,000) (2,000) 2,000 0
Close Retained Earnings (1,123,882) 1,123,882 0
Stock Issued 309,500 310 672,007 - 672,317
Net Income 0 - (29,105) $ (29,105)
------------- ------------------------------------ ------------------------------- --------------
Balance May 31, 1999 5,137,842 - 5,138 - 3,089,788 (404,249) 2,690,677
Private Placement Issued 10,000 10 99,990 100,000
Stock Sales 120,000 120 172,380 172,500
Stock Merger 260,000 260 308,459 308,719
Stock Issued for Debt 28,500 28 28,472 28,500
Stock Issued for Services 80,000 80 80
Net Income 15,311 15,311
------------- ------------------------------------ ------------------------------- --------------
Balance May 31, 2000 5,626,342 10,000 $ 5,626 $10 $ 3,699,089 $ (388,938) $ 3,315,787
============= ==================================== =============================== ==============
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-7
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS
On December 31, 1998, a Reorganization Agreement and Plan of Merger (the
"Agreement") was completed between HYTK Industries, Inc., a Nevada corporation,
("HYTK"), HYTK Holding Co. Inc. ("HYTK Holding"), and Quest Resource
Corporation, a Kansas corporation ("QRC"). HYTK had been inactive prior to this
transaction. The nature of the business after the merger is to service and
develop oil and gas wells, and to conduct natural gas gathering operations.
During the fiscal year ended May 31, 2000, HYTK initiated a name change to Quest
Resource Corporation. Prior to the name change, HYTK owned a subsidiary entity
also named Quest Resource Corporation, a Kansas corporation ("QRC"), referred to
in the above paragraph. On May 3, 2000 a Plan of Merger was entered into whereby
QRC was merged into HYTK which caused the termination of Quest Resource
Corporation, the Kansas corporation. Later, on May 17, 2000 holders of a
majority of the common stock of HYTK voted to change the name from HYTK
Industries, Inc. to Quest Resource Corporation. The name change actually became
effective on June 25, 2000 when the amendment to the Articles were filed.
Therefore, the name Quest Resource Corporation ("the Company") now refers to the
Nevada corporation which was formerly named HYTK Industries, Inc.
PRINCIPLES OF CONSOLIDATION AND SUBSIDIARIES
Pursuant to the 1998 Agreement, HYTK Holding merged with and into QRC, which
survived and became a wholly owned subsidiary of HYTK. HYTK Holding was
incorporated for the purpose of facilitating the Merger. QRC agreed to exchange
100% of its issued and outstanding shares of common stock, or 3,421,077 shares,
in exchange for an equal quantity of HYTK shares, par value $.001 ("Common
Stock"). Upon surrender of their stock certificates evidencing their ownership
of QRC, the QRC shareholders were issued a corresponding quantity of shares in
HYTK.
The acquisition was accounted for as a re-capitalization of QRC because the
shareholders of QRC controlled HYTK after the acquisition. Therefore QRC is
treated as the acquiring entity. There were no adjustments to the carrying value
of the assets or liabilities of QRC or HYTK in the exchange. HYTK was the
acquiring entity for legal purposes and QRC was the surviving entity for
accounting purposes.
QRC was incorporated in Kansas on November 3, 1997 to facilitate the
consolidation of a number of related companies. After its incorporation, QRC
integrated the operations of three sister companies, Quest Energy Service, Inc.
("Quest"), Quest Oil and Gas Corporation ("QOG"), and Ponderosa Gas Pipeline
Company, Inc., ("PGPC"), all of which are Kansas corporations. QRC was the
holder of 100% of the outstanding stock of Quest, QOG, and PGPC.
PGPC's primary assets are one hundred and forty miles of gas gathering pipelines
in southeast Kansas. The primary assets of QOG are oil and gas producing
properties and undeveloped oil and gas reserves. Quest provides all of the
service activities required for the operation and development of PGPC's gas
pipelines and QOG's oil and gas properties. Quest derives at least 90% of its
revenue from servicing PGPC and QOG assets.
F-8
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
The QOG subsidiary entity was acquired as Mogg Energy Services, Inc. on March
31, 2000 in exchange for HYTK common stock and the name was subsequently changed
to Quest Oil &Gas Corporation ("QOG"). Assets gained in this acquisition
included a majority of the gas wells that were producing into the PGPC pipeline
system along with undeveloped gas reserves. This acquisition caused a
substantial increase in Company-owned gas production and reserves.
Investments in which the Company does not have a majority voting or financial
controlling interest are accounted for under the equity method of accounting
unless its ownership constitutes less than a 20% interest in such entity for
which such investment would then be included in the consolidated financial
statements on the cost method. All significant inter-company transactions and
balances have been eliminated in consolidation.
OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all cost associated with acquisition, exploration, and
development of oil and gas reserves, including directly related overhead costs
are capitalized.
All capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves are amortized on the unit-of-production method
using estimates of proved reserves. Investments in unproved reserves and major
development projects are not amortized until proved reserves associated with the
projects can be determined or until impairment occurs. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
In addition, the capitalized costs are subject to a "ceiling test", which
basically limits such costs to the aggregate of the "estimated present value",
discounted at a 10-percent interest rate of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower of
cost or fair market value of unproved properties.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between the capitalized costs and proved
reserves of oil and gas, in which case the gain or loss is recognized in income.
Abandonments of properties are accounted for as adjustments of capitalized costs
with no loss recognized.
MARKETABLE SECURITIES
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115),
the Company classifies its investment portfolio according to the provisions of
SFAS 115 as either held to maturity, trading, or available for sale. At May 31,
2000 and 1999, the Company did not have any investments in its investment
portfolio classified as available for sale and held to maturity.
F-9
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
INCOME TAXES
The Company accounts for income taxes pursuant to the provisions of the
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes", which requires an asset and liability approach to calculating deferred
income taxes. The asset and liability approach requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis of assets
and liabilities.
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual method of
accounting. The full cost method of accounting is used for oil & gas property
acquisitions, exploration and production activities as defined by the Securities
and Exchange Commission, whereby all costs incurred in connection with the
properties, productive or nonproductive, are capitalized. Capitalized costs
related to proved properties and estimated future costs to be incurred in the
development of proved reserves are amortized using the unit-of-production
method. Capitalized costs are annually subjected to a test of recoverability by
comparison to the present value of future net revenues from proved reserves,
adjusted for the cost of certain unproved properties, are expensed in the year
in which such an excess occurs. Revenues are recognized when earned and expenses
when incurred. Fixed assets are stated at cost. Depreciation and amortization
using the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes.
The estimated useful lives are as follows:
Buildings 25 years
Equipment 10 years
Vehicles 7 years
Pipelines 40 years
Depreciation expense for the years ended May 31, 2000 and 1999 was $146,036 and
$128,838, respectively.
EARNINGS PER COMMON SHARE
The Company adopted Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which simplifies the computation of earnings per share requiring the
restatement of all prior periods.
Basic earnings per share are computed on the basis of the weighted average
number of common shares outstanding during each year.
Diluted earnings per share are computed on the basis of the weighted average
number of common shares and dilutive securities outstanding. Dilutive securities
having an anti-dilutive effect on diluted earnings per share are excluded from
the calculation.
F-10
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
UNINSURED CASH BALANCES
The Company maintains its cash balances at several financial institutions.
Accounts at the institutions are secured by the Federal Deposit Insurance
Corporation up to $100,000. Periodically, balances may exceed this amount. At
May 31, 2000, there were no uninsured cash balances.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure on
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
YEAR 2000 CONCERNS
The Company has addressed the concerns of potential year 2000 computing
problems, both internally and with external parties and believes that
significant additional costs will not be incurred because of this circumstance.
The Company has performed an evaluation of its computer hardware and software
and has determined that recent enhancements and upgrades have brought it's
systems significantly into compliance with the year 2000 phenomenon and that
existing support agreements are adequate to cope with any remaining issues.
Based upon equipment evaluations and analysis by consulting parties, management
does not believe that significant operational equipment modifications are
necessary.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments including marketable securities,
notes and loans receivables, accounts payable and notes payable approximate
their fair values at May 31, 2000.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121 "Accounting for Impairment
of Long-Lived Assets to be Disposed of " requires, among other things,
impairment loss of assets to be held and gains or losses from assets that are
expected to be disposed of be included as a component of income from continuing
operations before taxes on income.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" SFAS No. 123 established a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company did not adopt the fair value based method but instead discloses the
effects of the calculation required by the statement.
F-11
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No.130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any assets requiring disclosure
of comprehensive income.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
EMPLOYERS' DISCLOSURE ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Statement of Financial Accounting Standards (SFAS) 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits," revises standards for
disclosures regarding pensions and other postretirement benefits. It also
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. This statement
does not change the measurement or recognition of the pension and other
postretirement plans. The financial statements are unaffected by implementation
of this new standard.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for sale security, or a foreign-currency-denominated forecasted
transaction. Because the Company has no derivatives, this accounting
pronouncement has no effect on the Company's financial statements.
F-12
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements in order to conform to the current presentation.
F-13
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. NOTES RECEIVABLE
Notes and loans receivable at May 31, 2000 comprise the following:
On May 25, 1999, the Company executed a note receivable with Aspen Ridge
Corporation in the amount of $70,000. The note bears an interest rate of 8% per
annum, payable monthly in the form of 100% of the net cash revenue after
applicable operating expenses and taxes from the interests in gas wells assigned
to Aspen effective March 1, 1999. This transaction is further explained in Note
10 - Other Income and Expenses. The balance of the note receivable as of May 31,
2000 is $54,180.
2. LONG TERM DEBT
The Company had the following debt obligations at May 31, 2000:
Yates Center Branch Bank - Note Payable secured by oil and $ 947,256
gas properties and certain pipeline assets dated April 18,
2000. Several notes are involved with an initial interest rate
of 9.25% adjusted quarterly. The notes call for monthly payments
of $16,555, $3,200, and $3,477 per month starting July 5, 2000.
The notes mature June 5, 2002.
Bank of Commerce - Chanute KS - Note Payable secured by oil 83,375
and gas properties and other assets provided for working
capital and asset purchases. The note calls for a variable
interest rate that is currently 8.75% with monthly payments of
$3,355 (principal and interest). The note matures in 2003.
Bank of Commerce - Chanute KS - Note Payable secured by oil 71,981
& gas service equipment and other assets provided for working
capital and asset purchases. The note calls for a variable
interest rate that is currently 11.00% with monthly payments of
$3,000 (principal and interest). The note matures in 2001.
Argus Management - Note dated July 9, 1998 to assist in covering 100,000
working capital. The loan matured July 9, 1999 and carries an
interest rate of 15%. The note had been extended to October 9,
1999, but has not been extended to date.
Bonanza Oil Company - Various notes and advances to assist in 69,968
working capital requirements. Stock was issued for some of this
note. Monthly payments in the amount of $ 2,145 are being paid.
Entity is owned by a related party. Interest has been accrued at
the rate of 9%.
Bonanza Energy Corporation of Kansas - Various notes and 101,841
advances to assist in working capital requirements. Entity
is owned by a related party. Interest has been accrued at the
rate of 9%.
F-14
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Harold W Volkman Living Trust - Note dated July 1, 1997 for 27,750
working capital and service equipment. The note calls for
monthly payments of $500 for six months beginning July 31,
1997, six monthly payments of $750 beginning January 31, 1998,
and twenty-four payments of $1,000 beginning July 31, 1998,
and a balloon payment of $10,500 following these thirty-six
payments. There is no provision for interest in the note.
Note payable to an individual secured in May of 1999 for 50,000
working capital. Note is to mature
in May 2001 and carries an interest rate of 9%.
Various other notes from individuals for equipment and 28,312
vehicles that contains various
------
monthly payments and interest rates.
Total Long-Term Debt 1,480,483
Less current maturities (529,284)
-----------
Notes Payable - Long-Term $ 951,199
===========
The following is a summary of annual principal payments due
under these notes:
Year Ended May 31, Amount
2001 $ 305,646
2002 577,092
2003 and Future Years 68,461
------------
$ 951,199
-------------------------------------------- ----------------------------------
The balance of the accrued interest is $ 34,413 as of May 31, 2000.
3. STOCKHOLDERS' EQUITY
The Company has authorized 950,000,000 shares of common stock, and 50,000,000
preferred shares of stock. As of May 31, 2000, there were 5,597,843 shares of
common stock outstanding and 10,000 shares of preferred stock outstanding.
Pursuant to the merger agreement the retained earnings balance of HTYK was
closed to Paid in Surplus as part of consolidation of QRC and HYTK. Also,
2,000,000 shares issued to a consultant was canceled as part of the agreement.
F-15
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Prior to the merger QRC, Quest, and PGPC acquired by issuance of their own
common stock certain assets in anticipation of the merger with HYTK. Details are
as follows:
1)Acquired the Ponderosa Pipeline System for 622,027 shares of common
stock. A twenty- mile pipeline segment of the Ponderosa Pipeline System
was appraised by an independent appraiser and placed on the financial
statements with a value of $845,000. This acquisition included a
segment of pipeline known as the Wilwood Pipeline and placed on the
financial statements at a "net" book value of $142,046.
2)Acquired the balance of some oil and gas producing wells from
individuals known as Silver City Production for common stock. The total
shares issued were 167,500 shares and placed on the financial
statements at net book value.
3)Converted debt and accrued interest to equity by issuing common stock.
Issued 474,000 shares of stock for $325,745 of debt plus accrued
interest.
Subsequent to the merger certain assets were acquired and debt retired with the
issuance of common stock.
The following transactions were recorded in the Company's financial statements
during the current year.
1) Individual - Issued 260,000 share of common stock for the acquisition
of Mogg Energy Services, Inc. valued at $308,719.
2) Individual - Issued 80,000 shares of common stock for consulting
services pursuant to S8 filing.
3) Individual - Issued 45,000 shares of common stock for $72,500 cash.
4) Company - Issued 75,000 shares of common stock for $100,000 cash.
5) Individual - Issued 10,000 shares of preferred stock for $100,000 cash
pursuant to a private placement memorandum issue.
6) Company - Issued 28,500 shares of common stock for $43,000 in debt
reduction.
4. INCOME TAXES
The components of the provision for income taxes are as follows:
Year ended May 31, 2000 1999
Current:
Federal $ 2,702 $ (5,136)
---------------------- -------------------------
State -0- -0-
----------------------- ---------------------- -------------------------
$ 2,702 $ (5,136)
---------------------- -------------------------
F-16
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Such income taxes are included in the accompanying consolidated financial
statements as follows:
Income tax from operations $ 2,702 $ ( 5,136)
Extraordinary Items -0- -0-
$ 2,702 $ ( 5,136)
------------------------------------ ------------------------- --------------
The above provision has been calculated based on Federal and State statutory
rates.
No provision for taxes has been made, due to operating loss carryovers of
approximately $ 463,000 which expire by 2019. The potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.
5. RELATED PARTY TRANSACTIONS
At May 31, 2000, the significant outstanding notes payable from the Company's
major stockholders and officers were:
Bonanza Energy Corporation of Kansas - owned by Doug and Marsha Lamb -
Note payable in the amount of $101,841 for working capital needs in current and
prior years plus Bonanza Energy Corporation of Kansas ("BEC") holds the contract
for natural gas sales and production contracts. BEC subsequently contracts with
PGPC for the transmission of the natural gas.
Bonanza Oil Company - owned by Doug and Marsha Lamb - Note payable in
the amount of $ 69,968 for oil and gas properties acquired by PGPC in 1997.
6. PRIVATE PLACEMENT MEMORANDUM
The Company has introduced a Private Placement Memorandum program to raise
capital for working capital and additional oil and gas wells to increase the
production into existing gas pipelines. The Memorandum calls for a maximum of
500,000 shares of preferred stock to be sold at an offering price of $10.00 per
share. The Memorandum calls for a conversion feature of four shares of common
stock to each share of preferred stock at option of the shareholder. Prior to
conversion the preferred stock carries a 10% cash dividend.
During the current year the Company issued a total of 10,000 shares to two
individuals for a total of $100,000 as part of this program.
F-17
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
7. SUPPLEMENTAL CASH FLOW INFORMATION
Year ended May 31, 2000 1999
-------------------------------------------------------------------------
Cash paid for interest $ 125,712 $ 48,461
Cash paid for income taxes -0- -0-
-------------------------------- ---------------------------- ----------
SUPPLEMENTARY INFORMATION:
During the year ended May 31, 1999, non-cash investing and financing activities
are as follows:
1)Acquired assets for common stock in the amount of $ 1,286,584.
2Converted debt to equity in the amount of $ 596,352.
During the year ended May 31, 2000, non-cash investing and financing activities
are as follows:
1) Acquired assets for common stock valued at $308,719 2) Issued stock for
consulting services valued at par value.
8. CONTINGENCIES
Like other oil and gas producers and marketers, the Company's operation are
subject to extensive and rapidly changing federal and state environmental
regulations governing air emissions, waste water discharges, and solid and
hazardous waste management activities. Therefore it is extremely difficult to
reasonably quantify future environmental related expenditures.
9. EARNINGS PER SHARE
<TABLE>
The following reconciles the components of the earnings per share (EPS) computation:
<CAPTION>
2000 1999
Earning per common Income Shares Per-Share Loss Shares Per-Share
Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------- ----------------- ------------------- ---------------- ----------------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Loss $ 15,311 5,319,926 $.003 ($ 29,105) 4,849,135 ($.006)
</TABLE>
There are no options granted or outstanding at the present time.
F-18
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
10. OTHER INCOME AND EXPENSE ITEMS
In March of 1999 the Company sold some of its gas production interests in "Coal
Gas Wells" in Southern Kansas. The total sales price noted in the Bill of Sale
is $120,000 comprised of the following:
1) Cash down payment of $50,000.
2) Deferred payment of $70,000 to be paid from the net proceeds from the
sale of gas from the Coal Gas Wells.
3) Payment in an amount equal to 50% of the dollar amount of the IRC
Section 29 credits generated by the Coal Gas Wells during the period
March 1, 1999 through December 31, 2002.
The resulting transaction produced a gain on the sale of $ 54,019 recorded in
the year ended May 31, 1999.
During the current fiscal year the Company sold various assets resulting in a
net gain of $13,751.
11. ACQUISITION
On March 31, 2000 the Company acquired 100% of the outstanding stock of Mogg
Energy Services, Inc.("Mogg") (a Kansas corporation) for 260,000 shares of the
Company's common stock. Subsequent to the acquisition, the name of Mogg was
changed to Quest Oil and Gas Corporation. Mogg was organized in 1996 and owns
several oil and gas properties in South East Kansas. The transaction has been
valued at $308,719 as a fair market value of the stock given and the assets
acquired. The transaction is being accounted as a purchase transaction for
accounting purposes and the total value of $308,719 is being recorded as Oil and
Gas Properties being amortized.
As part of this transaction, the Company entered into a well management
agreement with GN Resources, Inc. ("GNRI") on some of the Mogg oil & gas wells
to manage and operate the wells in return for 50% of the Section 29 tax credits
being applied to the Company's debt at the Yates Center Branch Bank. The
agreement will remain in force until the final tax credits are received for the
year 2002.
12. SUBSEQUENT EVENTS
No other material subsequent events have occurred that warrants disclosure since
the balance sheet date.
13. - SFAS 69 SUPPLEMENTAL DISCLOSURES (Un-audited)
F-19
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1)
Capitalized Costs Relating to
Oil & Gas Producing Activities
Proved oil and gas properties and related lease equipment:
Developed $ 1,080,662
Non-developed 10,430
Accumulated depreciation and depletion (54,842)
------------
Net Capitalized Costs $ 1,036,250
===========
(2)
Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
Acquisition of Properties
Proved and Unproved $ 308,719
Exploration Costs -0-
Development Costs 271,808
-------
Total $580,527
=======
(3)
Results of Operations for
Producing Activities
May 31, 2000 May 31, 1999
------------ ------------
Production revenues $ 387,476 $ 164,968
Production Costs 231,976 120,839
Depreciation and depletion 12,676 18,569
---------- -----------
Results of operations for producing activities $ 142,824 25,560
(excluding corporate overhead and interest costs) =========== ==========
F-20
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(4)
Reserve Quantity Information
The following schedule contains estimates of proved oil and natural gas
reserves attributable to the Company. Proved reserves are estimated quantities
of oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved - developed reserves
are those which are expected to be recovered through existing wells with
existing equipment and operating methods. Reserves are stated in barrels of oil
(Bbls) and thousands of cubic feet of natural gas (Mcf). Geological and
engineering estimates of proved oil and natural gas reserves at one point in
time are highly interpretive, inherently imprecise and subject to ongoing
revisions that maybe substantial in amount. Although every reasonable effort is
made to ensure that the reserve estimates are accurate, but by their nature
generally less precise that other estimates presented in connection with
financial statement disclosures.
Oil
(Bbls)
Proved developed reserves:
Balance May 31, 1999 225,005
Acquisition of proved reserves 108,348
Revision of previous estimates 16,913
Production ( 23,263)
---------
Balance May 31, 2000 327,003
=======
In addition, to the proved developed producing oil and gas reserves
reported in the geological and engineering reports, the Company holds ownership
interest in various proved - undeveloped properties. The reserve and engineering
reports performed for the Company by an independent engineering consulting firm
reflect additional proved reserves equal to approximately 262,000 BBLS of oil
for these undeveloped properties. During the year ended May 31, 2000 a total of
14,916 Mcf was produced.
The following schedule present the standardized measure of estimated
discounted future net cash flows from the Company's proved developed reserves
for the years ended May 31, 2000 and 1999. Estimated future cash flows were
based on an independent reserve data. Because the standardized measure of future
net cash flows was prepared using the prevailing economic conditions existing at
May 31, 2000 and 1999, it should be emphasized that such conditions continually
change. Accordingly, such information should not serve as a basis in making any
judgment on the potential value of the Company's recoverable reserves or in
estimating future results to operations.
F-21
<PAGE>
QUEST RESOURCE CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Standardized measures of discounted future net cash flows:
May 31, 2000 May 31, 1999
------------ ------------
Future production revenues $12,209,537 $ 4,306,232
Less: future production costs (6,258,247) (3,154,315)
------------- ------------
Future cash flows before income taxes 5,951,290 1,151,917
Future income tax (benefits) (2,023,439) (345,575)
------------- ------------
Future net cash flows 3, 927,851 806,342
Effect of discounting future
Annual net cash flows at 10% (981,963) (268,673)
------------- ------------
Standardized measure of discounted $ 2,945,888 $ 537,669
============= ============
Net cash flows
F-22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
Douglas L. Lamb, age 49, Director and President since January 1998. Mr. Lamb has
been highly involved in gas gathering pipeline operations and construction in
the southeast Kansas region since 1984. He has fostered pipeline construction
and consolidation activities that have resulted in the 150 mile pipeline network
which is operated out of Benedict. He is also responsible for the operation of
about 100 oil and gas wells and has much experience in the drilling and
completion of oil and gas wells in southeast Kansas. Mr. Lamb earned his
Bachelor of Business Administration degree from Wichita State University in
1972.
John C. Garrison, age 48, Director and Treasurer since January 1998. Mr.
Garrison brings to the Quest team expertise in public company activities and
issues. Mr. Garrison has been a Certified Public Accountant in public practice
providing financial management and accounting services to a variety of
businesses for over twenty years. Mr. Garrison holds a Bachelor degree in
Accounting from Kansas State University.
Richard M. Cornell, age 63, Director and Secretary since January 1998. Mr.
Cornell has been involved in the oil and gas business in southeast Kansas as an
independent oil and gas producer and as a regional manager for an international
energy company. He is a full time employee of the company and is responsible for
the acquisition of oil & gas leaseholds and for regulatory compliance. Mr.
Cornell also participates in the analysis and qualification of development
projects.
Compliance with Section 16(a) of the Exchange Act
The Company is not aware of any person who was a director, officer, or
beneficial owner of more than ten percent of the Company's Common Stock and who
failed to file reports required by Section 16(a) of the Securities Exchange Act
of 1934 in a timely manner except those listed in this subsection.
Douglas L. Lamb had five transactions involving Company common stock from 05/99
through 03/00 which are reported on three Form 4 filings that were made on
August 29, 2000. Marsha K. Lamb, Richard M. Cornell and John C. Garrison
effected two sales of the Company's common stock during the months of 12/99 and
02/00 which were reported on Form 4 filings made on August 29, 2000. Henry F.
Mogg had nine transactions involving Company common stock from 8/99 through 5/00
which were reported on Form 4 filings made on August 29, 2000.
ITEM 10. EXECUTIVE COMPENSATION
No compensation in excess of $100,000 was awarded to, earned by, or paid to any
executive officer of the Company during the fiscal years 2,000, 1999, 1998 and
1997. The following table provides summary information for the years 2000, 1999
and 1998 concerning cash and noncash compensation paid or accrued by the Company
to or on behalf of its chief executive officer. Mr. Lamb's compensation has been
paid by
12
<PAGE>
QES and PGPC as more fully described in Note (1) below. Mr. Lamb is the
president and a director of the Company, QES, PGPC, and QOG.
<TABLE>
SUMMARY COMPENSATION TABLES
<CAPTION>
Annual Compensation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation ($)
-------------------------------------------------------------------------------------------------------------------
Douglas L. Lamb, 2000 $60,000(1) -0-(1) -0-
President
-------------------------------------------------------------------------------------------------------------------
Douglas L. Lamb, 1999 $36,000 - 0-(2) - 0-
President
-------------------------------------------------------------------------------------------------------------------
Ken W. Kurtz, 1998 - 0- - 0 - - 0-
President
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Long Term Compensation
------------------------------------------------------------
Awards Payouts
------------------------------------------------------------
<CAPTION>
Restricted Securities Underlying LTIP All Other
Name and Principal Stock Options/ Payouts Compensation
Position Year Award(s)($) SARs(#) ($) ($)
---------------------------------------------------- ----------------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Douglas L. Lamb, 2000 - 0- - 0- - 0- - 0-
President
---------------------------------------------------- ----------------------------------------- --------------------
Douglas L. Lamb, 1999 $20,192 - 0- - 0- - 0-
President
---------------------------------------------------- ----------------------------------------- --------------------
Ken W. Kurtz, 1998 - 0- - 0- - 0- - 0-
President
---------------------------------------------------- ----------------------------------------- --------------------
</TABLE>
(1) Douglas L. Lamb has received a salary from QES and PGPC while serving
as the president of those entities. As of May 31, 2000, his annual salary from
both QES and PGPC totaled $60,000, while his annual compensation in 1999 and
1998 was $36,000 and in the years 1997 and 1996 was $33,000. Mr. Lamb also
received 80,766 shares of Common Stock on January 7, 1999 for services he
rendered to the Company. There was no trading market for the Company's stock at
that time. A stock value of $0.25 per share is used for the valuation of this
stock which approximates the stockholder's equity per share at the time the
stock was issued to Mr. Lamb.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of August 21, 2000, by each
shareholder who is known by the Company to beneficially own more than 5% of the
outstanding Common Stock, by each director and by all executive officers and
directors as a group. The table also sets forth the number and percentage of the
outstanding shares to be owned by each such person or group. The percentages of
ownership and the number of shares beneficially owned are disproportionate due
to joint beneficial ownership making the notes following the table essential for
a complete understanding of the Company's ownership structure.
13
<PAGE>
The table below only contains information relating to the Company's Common
Stock, as no shares of Preferred Stock have been issued or are owned by any of
the parties listed in the table below.
<TABLE>
<CAPTION>
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned (1) Percent of Class
---------------- ------------------ ----------------
<S> <C> <C>
Marsha K. Lamb (2)
703 East Main Street 1,619,471 29.0%
Benedict, KS 66714
The Henry F. Mogg M&M Trust (3)
1999 London Town Lane 776,852 19.9%
Titusville, FL 23796
Crown Properties, LC (4)
701 East Main Street 975,000 17.5%
Benedict, KS 66714
Bonanza Energy Corporation of Kansas (5)
701 East Main Street 508,527 9.1%
Benedict, KS 66714
Executive Officers and Directors
--------------------------------
Douglas L. Lamb (6)
703 East Main Street 1,619,471 29.0%
Benedict, KS 66714
John C. Garrison
701 East Main Street 45,372 (7)
Benedict, KS 66714
Richard M. Cornell
701 East Main Street 16,000 (7)
Benedict, KS 66714
All Executive Officers & Directors
as a Group (Three persons) 1,680,843 30.1%
--------------------------
</TABLE>
(1) The number of shares beneficially owned by the entities above is determined
under rules promulgated by the SEC and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual has sole or
shared voting power or investment power and also any shares which the individual
has the right to acquire within 60 days through the exercise of any stock option
or other right. The inclusion herein of such shares, however, does not
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of such shares. Unless otherwise indicated, each person or
entity named in the table has sole voting power and investment power (or shares
such power with his or her spouse) with respect to all shares of capital stock
listed as owned by such person or entity.
14
<PAGE>
(2) Includes (i) 14,400 shares held by Marsha K. Lamb; (ii) 975,000 shares held
by Crown Properties LC, which is 100% owned by Marsha K. Lamb; (iii) 508,527
shares held by Bonanza Energy Corporation of Kansas, which is jointly owned by
Douglas L. Lamb and Marsha K. Lamb; (iv) 67,000 shares held by Bonanza Oil & Gas
Corporation, which is jointly owned by Douglas L. Lamb and Marsha K. Lamb; and
(v) 54,544 shares held by Douglas L. Lamb. Marsha K. Lamb disclaims beneficial
ownership of the shares specified in clause (v) above.
(3) The Henry F. Mogg M&M Trust is controlled by Henry F. Mogg as its settlor
and trustee with full and exclusive personal power of revocation and amendment
over the Trust as long as he is alive.
(4) Crown Properties, LC is wholly owned by Marsha K. Lamb.
(5) Bonanza Energy Corporation of Kansas is jointly owned by Douglas L. Lamb and
Marsha K. Lamb.
(6) Includes (i) 54,544 shares held by Douglas L. Lamb; (ii) 975,000 shares held
by Crown Properties LC, which is 100% owned by Marsha K. Lamb; (iii) 14,400
shares held by Marsha K. Lamb;(iv) 508,527 shares held by Bonanza Energy
Corporation of Kansas, which is jointly owned by Douglas L. Lamb and Marsha K.
Lamb; and (v) 67,000 shares held by Bonanza Oil & Gas Corporation, which is
jointly owned by Douglas L. Lamb and Marsha K. Lamb. Douglas L. Lamb disclaims
beneficial ownership of the shares specified in clauses (ii) and (iii) above.
(7) Does not exceed 1% of the referenced class of securities.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bonanza Energy Corporation of Kansas, a Kansas corporation ("BECK") has been the
sole marketer of gas transported by the gas gathering pipelines owned by PGPC.
BECK is owned by Douglas and Marsha Lamb and BECK earns a fee for the gas
marketing services that it provides. BECK has never failed to sell all of the
gas that is available each month and at sales prices that are competitive.
Bonanza Energy Corporation of Kansas is owned by Douglas L. Lamb, the Company's
president and one of its directors, and Marsha K. Lamb who is Mr. Lamb's wife
and an officer in the subsidiary companies.
During the fiscal year ended May 31, 2000, Bonanza Energy Corporation of Kansas
has loaned the Company and its subsidiaries $118,245.28 while having been repaid
$83,456.61 on notes bearing 10% interest which was all used by the Company as
working capital. Bonanza Energy Corporation of Kansas is owned by Douglas L.
Lamb, the Company's president and one of its directors, and Marsha K. Lamb who
is Mr. Lamb's wife and an officer in the subsidiary companies.
The office facility for the Company and its subsidiaries is leased from Crown
Properties, LC for $500 per month. Crown Properties, LC is owned by Marsha K.
Lamb who is also an officer of QES, PGPC, and QOG and is the wife of Douglas L.
Lamb.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits. Exhibits required to be attached by Item 601 of
Regulation S-B are listed in the Index to Exhibits beginning on page 18 of this
Form 10-KSB, which is incorporated herein by reference.
15
<PAGE>
(b) Reports on Form 8-K. The Company did not make any filings on Form 8-K during
the fourth quarter of the fiscal year ended May 31, 2000.
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 21st day of August, 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/Director August 29, 2000
--------------------------
Douglas L. Lamb
/s/ Richard M. Cornell Secretary/Director August 29, 2000
--------------------------
Richard M. Cornell
/s/ John C. Garrison Treasurer/Director August 29, 2000
---------------------------
John C. Garrison
16
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
No. No. Description
3(i) * The Company's Articles of Incorporation (incorporated herein
by reference to the Exhibits to the Company's Registration
Statement on Form S-18, Registration No. 2-99737-LA ).
3(ii) * The Company's Bylaws, as amended (incorporated herein by
reference to the Exhibits to the Company's Registration
Statement on Form S-18, Registration No. 2-99737-LA).
27(i) 34 Financial Data Schedule
17
