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 February 29, 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
HYTK INDUSTRIES, INC.
----------------------
(Name of Small Business Issuer in Its Charter)
Nevada 88-0182808
-------- ------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P. O. Box 100 701 East Main, Benedict, Kansas 66714
-------------------------------------------------------
(Address of Principal Executive Offices)(Zip Code)
316-698-2250
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [XX] No [ ]
The number of shares outstanding of Registrant's common stock ($0.001 par value)
as of April 13, 2000 was 5,292,843.
Total of Sequentially Numbered Pages: 12
1
<PAGE>
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........................................5
Capital Resources and Liquidity..............................5
SIGNATURES............................................................6
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Except as otherwise required by the context, references in this quarterly report
to "we," "our" and "us" refer to HYTK Industries, Inc. and our wholly owned
subsidiary, Quest Resource Corporation, and its wholly owned subsidiaries,
Ponderosa Gas Pipeline Company and Quest Energy Service, Inc. Our operations are
conducted through our subsidiaries.
Our unaudited interim financial statements including a balance sheet as of the
fiscal quarter ended February 29, 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, 1999; and should further be read in
conjunction with the financial statements included in our quarterly report on
Form 10-QSB for the quarter ended November 30, 1999.
3
<PAGE>
<TABLE>
HYTK Industries Inc.
Consolidated Balance Sheet
<CAPTION>
February 29 May 31
2000 1999
------------------ -----------------
ASSETS
------
<S> <C> <C>
Current Assets
Cash $ 17,842 $ 31,288
Accounts Receivable 306,788 294,301
Notes Receivable 54,919 68,119
Inventory 22,100 22,100
-------------------- ----------------
Total Current Assets $ 401,649 $ 415,808
Fixed Assets
Equipment 574,198 538,662
Office Equipment 23,829 20,369
Buildings 40,159 40,159
Land 5,000 5,000
Less: Allowance for Depreciation (230,015) (197,073)
-------------------- ---------------
413,171 407,117
Pipeline Assets, net 2,560,541 2,549,441
Oil & Gas Leasehold, net 665,211 575,401
Other Assets
Contracts & Right of Way, net 100,912 114,355
Organization Costs, net 114,249 119,475
Deferred Tax Credit 129,307 127,062
-------------------- ---------------
344,468 360,892
------------------- ---------------
Total Assets $ 4,385,040 $ 4,308,659
=================== ===============
</TABLE>
F-1
<PAGE>
<TABLE>
HYTK Industries Inc.
Consolidated Balance Sheet
<CAPTION>
February 29 May 31
2000 1999
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts Payable $ 37,565 $ 81,699
Oil & Gas Payable 174,361 118,765
Accrued Interest 103,548 67,496
Notes Payable, Current Portion 666,728 360,097
Accrued Expenses - 3,217
-------------------- -----------------
Total Current Liabilities 982,202 631,274
Non-Current Liabilities
Note Payable 1,227,328 1,346,810
Less Portion Shown as Current (666,728) (360,097)
------------------ -----------------
560,600 986,713
------------------ -----------------
Total Liabilities 1,542,802 1,617,987
Commitments and contingencies - -
Stockholders' Equity
Preferred stock, 50,000,000 Shares Authorized 5 -
$.001 par value, 5,000 shares issued and outstanding
Common Stock, 950,000,000 Shares Authorized 5,293 5,138
$.001 par value, 5,292,843 and 5,137,843 shares
issued and outstanding
Paid In Surplus 3,239,623 3,089,783
Retained Earnings (402,683) (404,249)
------------------ -----------------
2,842,238 2,690,672
------------------ -----------------
Total Liabilities and Stockholders' Equity $ 4,385,040 $ 4,308,659
================== =================
</TABLE>
F-2
<PAGE>
<TABLE>
HYTK Industries Inc.
Consolidated Statement of Operations
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-----------------------------------------------------------------
February 29 February 29
-----------------------------------------------------------------
2000 1999 2000 1999
-------------- --------------------------------------------------
Revenue
<S> <C> <C> <C> <C>
Gas Pipeline Transmission Fees $ 133,476 $ 66,143 $ 411,071 $ 185,392
Oil & Gas Production Revenue 123,744 98,472 256,108 169,111
Oil & Gas Operations 129,855 59,501 338,575 328,986
Pipeline Operations 66,971 107,070 166,547 295,133
Pipeline and Property Development 15,585 - 80,970 -
Oil Trucking & Marketing 22,362 10,854 52,899 41,765
Other Revenue 751 750 7,300 8,260
------------------------------------------------------------------
Total Revenues 492,744 342,790 1,313,470 1,028,647
Cost of Revenues
Purchases & Outside Services 55,595 78,333 129,321 225,953
Lease Operating Costs 61,409 60,678 172,856 106,298
Pipeline Operating Costs 84,263 33,808 186,560 151,213
Wages 87,555 81,473 255,245 251,142
Payroll Taxes 7,468 7,149 20,296 21,248
Utilities-Leases 20,083 18,306 52,449 57,897
Tags, License, & Equipment Repairs 2,571 - 8,60 16,015
Fuel, Oil, Etc 14,802 - 35,587 33,277
------------------------------------------------------------------
Total Cost of Revenues 333,746 279,747 860,916 863,043
Gross Profit $ 158,998 $ 63,043 $ 452,554 $ 165,604
</TABLE>
F-3
<PAGE>
<TABLE>
HYTK Industries Inc.
Consolidated Statement of Operations (con't)
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-----------------------------------------------------------------
February 29 February 29
-----------------------------------------------------------------
General and Administrative Expenses 2000 1999 2000 1999
- -----------------------------------
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 24,646 $ 49,277 $ 79,200 $ 125,754
Depreciation & Amortization 48,090 38,984 125,885 116,952
Depletion 7,269 - 13,590 22,239
Insurance 17,104 13,827 48,323 55,843
Legal & Professional 4,635 24,786 10,153 33,973
Repairs 7,326 8,400 26,545 20,101
Supplies 2,950 - 24,859 4,464
Telephone 3,474 - 11,510 14,446
Utilities 1,491 - 4,721 5,436
Other Expenses 22,574 36,260 84,070 30,572
-------------------------------------------------------------------
Total General and Administrative Expenses 139,559 171,534 428,856 429,780
Income loss)from continuing operations before 19,439 (108,491) 23,698 (264,176)
other income and expenses and income taxes
Other Income
Sale of Assets - - - 15,286
Interest Income 2,477 108 5,307 259
-----------------------------------------------------------------
Total Other Income 2,477 108 5,307 15,545
Net Income (Loss) Before Income Taxes 21,916 (108,383) 29,005 (248,631)
Income Tax (Expense) Benefit (3,287) 25,520 (4,351) 61,453
-------------------------------------------------------------------
Provision for Income Taxes (3,287) 25,520 (4,351) 61,453
Net Income (Loss) $ 18,629 $ (82,863) $ 24,654 $ (187,178)
===================================================================
Net Income (Loss) per share $ 0.004 $ (0.017) $ 0.005 $ (0.039)
Weighted Average Number of
Shares Outstanding 5,292,843 4,823,343 5,292,843 4,823,343
</TABLE>
F-4
<PAGE>
<TABLE>
HYTK Industries Inc.
Consolidated Statement of Cashflows
<CAPTION>
For the Nine Months Ended February 29
--------------------------------------------------
2000 1999
------ -----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 24,654 $ (187,178)
Adjustments to Reconcile Excess Contributions to cash
provided from operations:
Depreciation 41,915 110,482
Amortization 6,175 (6,470)
Depletion 7,269 -
Accounts Receivable (12,487) -
Organization Costs 18,669 -
Accounts Payable (56,462) (13,895)
Oil & Gas Payable 55,596 9,335
Notes Receivable 13,200 -
Deferred Tax Credit (2,245) -
Accrued Interest Payable 36,052 (77,379)
Accrued Expenses (3,217) -
------------------- -----------------
Total Adjustments 104,465 22,073
Net Cash used in Operating Activities 129,119 (165,105)
Cash flows from Investing Activities:
Fixed Assets (54,434) (699,288)
------------------ -----------------
Net Cash used in Investing Activities (54,434) (699,288)
Cash flows from Financing Activities
Increase in Long-Term Debt 0 58,127
Extinguishment of Long-Term Debt (88,130) -
Paid-In-Capital 0 794,670
------------------ -----------------
Net Cash used in Financing Activities (88,130) 852,797
Net Increase (Decrease) in Cash (13,445) (11,596)
Cash Balance, Begin of Period 31,288 6,561
Cash Balance, End of Period $ 17,843 $ (5,035)
================== =================
</TABLE>
F-5
<PAGE>
<TABLE>
HYTK Industries Inc.
Consolidated Statement of Stockholders Equity
<CAPTION>
Preferred Common
Shares Shares
Preferred Common Par Par Paid-In Retained
Shares Shares Value Value Capital Earnings Total
----------- --------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 1, 1999 - 5,137,843 $ 0 $ 5,138 $ 3,089,783 $ (404,249) $ 2,690,672
Stock Issuance 155,000 155 99,845 100,000
Net Income (Loss) (17,063) (17,063)
----------- --------------- -------------------------------------------------------------------------
Balance August 31, 1999 - 5,292,843 0 5,293 3,189,628 (421,312) 2,773,609
Stock Issuance 5,000 - 5 0 49,995 50,000
Net Income (Loss) 23,089 23,089
----------- --------------- -------------------------------------------------------------------------
Balance November 30, 1999 5,000 5,292,843 5 5,293 3,239,623 (398,223) 2,846,698
Net Income (Loss) 18,629 18,629
----------- --------------- -------------------------------------------------------------------------
Balance February 29, 2000 5,000 5,292,843 $ 5 $ 5,293 $ 3,239,623 $ (402,683) $ 2,842,238
=====================================================================================================
</TABLE>
[ THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK ]
------------------------------------------------
F-6
<PAGE>
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. We expect to accomplish significant growth in our revenue and in our
gas reserves during the year 2000 through the development of new gas reserves in
our pipeline region and by the acquisition of gas producing properties. Our goal
is to add twenty new gas wells to our pipeline network prior to December 31,
2000. As a typical gas well in our pipeline region produces approximately $2,500
per month in gross revenue, if our development program is even partially
successful, we will significantly improve our financial condition.
In order to facilitate this development, we have received a line of credit from
a local bank. A portion of these funds have already been successfully used to
complete two new gas wells during the first three months of this calendar year.
The recovery in crude oil prices has made it worthwhile for us to reactivate our
oil production. After having more than half of our oil wells shut down during
most of 1998 and the first half of 1999, we now have almost all of our oil wells
back into production which consumed a considerable amount of our manpower
resources during this fiscal quarter. However, by restarting these oil wells, we
have been able to increase our revenue with a relatively small investment in
start up costs. If the price of a barrel of oil stays in the mid-$20's, we
expect to keep our oil production assets operating at or near the full potential
of those existing facilities.
We began operating at a profit during the previous quarter ended November 30,
1999. Our cash flow continued to be positive this quarter while benefitting from
the increased oil sales. However, our efforts to grow this company will continue
to be focused upon the development of new gas reserves in our pipeline region.
-4-
<PAGE>
Results of Operations
The following discussion is based on the consolidated operations of all of our
subsidiaries and should be read in conjunction with the audited financial
statements and notes thereto included in our annual report on Form 10-KSB for
the fiscal year ended May 31, 1999; and should further be read in conjunction
with the financial statements included in this report.
Revenue from operations for the quarter ended February 29, 2000 was $492,744
which resulted in net income after provision for income taxes of $18,629. For
the comparable quarterly period ended February 28, 1999 our revenue from
operations was $342,790 with a resulting net loss of $(82,863). Included in
these net income calculations were non-cash deductions including depreciation,
amortization and depletion expenses totaling $55,359 for the quarter just ended
and $38,984 for the comparable quarter ended February 28, 1999.
Revenue from operations for the nine month period ended February 29, 2000 was
$1,313,470 which resulted in net income after provision for income taxes of
$24,654. Included in this net income calculation were non-cash deductions
including depreciation, amortization and depletion expenses which totaled
$139,475. For the previous comparable nine month period ended February 28, 1999
revenue from operations was $1,028,646 with a net loss of $(175,155).
These revenue comparisons represent a significant improvement in profitability
which is due to several factors. Revenues from assets which were consolidated
during the fiscal year ended May 31, 1999, are now being fully utilized. Our
ongoing improvements to the pipeline facilities have enhanced operating
efficiencies somewhat. And, as previously mentioned, the improved oil prices
have also been a positive factor for our revenues.
Capital Resources and Liquidity
During the nine month period ended February 29, 2000 net cash from operating
activities was $129,119 and the ending cash balance was $17,483. We expect our
cash flow to continue improving as our gas production increases. The
availability of bank financing for new development has eliminated the question
of whether new development will occur. However, there is still risk involved in
such development and no assurances can be given as to the level of success that
will be achieved.
We had a deficit in working capital of $(580,553) on February 29, 2000, which is
primarily comprised of the current portion of notes payable. This is a
significant increase over the working capital deficit of $(115,180) on November
30, 1999 and is due primarily to the maturities on our notes payable causing a
higher portion to be classified as current instead of long term. This
classification will be reversed when approved bank funding allows the
refinancing of the majority of our existing debt, which is scheduled to occur
before April 30, 2000. Until the anticipated development of additional area gas
reserves is realized, we expect to continue operating at the near break even
cash flow levels evidenced by our $31,288 cash balance at the beginning of the
fiscal quarter ended February 29, 2000 and by our closing cash balance of
$17,843.
-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 January, 2000.
HYTK Industries, Inc.
/s/ Douglas L. Lamb
-------------------------------
Douglas L. Lamb, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Douglas L. Lamb President and Director April 13, 2000
- ----------------------------
Douglas L. Lamb
/s/ Richard M. Cornell Secretary and Director April 13, 2000
- ----------------------------
Richard M. Cornell
/s/ John C. Garrison Treasurer and Director April 13, 2000
- ----------------------------
John C. Garrison
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED FEBRUARY 29, 2000 THAT
WERE FILED WITH THE COMPANY'S REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000775351
<NAME> HYTK Industries, Inc.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> May-31-1999
<PERIOD-START> Jun-01-1999
<PERIOD-END> Feb-29-2000
<EXCHANGE-RATE> 1
<CASH> 17,842
<SECURITIES> 0
<RECEIVABLES> 361,707
<ALLOWANCES> 0
<INVENTORY> 22,100
<CURRENT-ASSETS> 401,649
<PP&E> 4,213,406
<DEPRECIATION> (230,015)
<TOTAL-ASSETS> 4,385,040
<CURRENT-LIABILITIES> 982,202
<BONDS> 560,600
0
5
<COMMON> 5,293
<OTHER-SE> 2,836,940
<TOTAL-LIABILITY-AND-EQUITY> 4,385,040
<SALES> 1,306,170
<TOTAL-REVENUES> 1,318,777
<CGS> 860,916
<TOTAL-COSTS> 1,289,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,200
<INCOME-PRETAX> 29,005
<INCOME-TAX> 4,351
<INCOME-CONTINUING> 24,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,654
<EPS-BASIC> 0.005
<EPS-DILUTED> 0.005
</TABLE>
