UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended November 30, 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)
316-698-2250
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [XX] No [ ]
The number of shares outstanding of Registrant's common stock ($0.001 par value)
as of January 11, 2001 was 5,626,342.
Total of Sequentially Numbered Pages: 12
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION.................................................3
Item 1. Financial Statements................................3
Consolidated Financial Statements......................... F-1
Item 2. Management's Discussion And Analysis ..............4
Forward Looking Information..................................4
Business of Issuer...........................................4
Results of Operations........................................4
Capital Resources and Liquidity..............................5
SIGNATURES............................................................6
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<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 Quest Resource Corporation and its wholly owned
subsidiaries, Quest Oil & Gas Corporation, Ponderosa Gas Pipeline Company, Inc.
and Quest Energy Service, Inc. Our operations are conducted through our
subsidiaries.
Our unaudited interim financial statements including a balance sheet as of the
fiscal quarter ended November 30, 2000, a statement of operations and a
statement of cash flows for the interim period up to the date of such balance
sheet and the comparable period of the preceding fiscal year are attached hereto
as Pages F-1 through F-6 and are incorporated herein by this reference.
The financial statements included herein have been prepared internally, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with the generally accepted
accounting principles have been omitted. However, in our opinion, all
adjustments (which include only normal recurring accruals) necessary to present
fairly the financial position and results of operations for the period presented
have been made. These financial statements should be read in conjunction with
the financial statements and notes thereto included in our annual report on Form
10-KSB for the fiscal year ended May 31, 2000.
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<TABLE>
Quest Resource Corporation
Consolidated Balance Sheet
<CAPTION>
(Unaudited) (Audited)
November 30 May 31
2000 2000
------------------ -----------------
ASSETS
<S> <C> <C>
Current Assets
Cash $ 93,001 $ 110,562
Accounts Receivable 262,366 159,262
Oil & Gas Production Receivable 407,796 193,349
Notes Receivable 44,760 54,180
Inventory 22,100 22,100
------------------ -----------------
Total Current Assets $ 830,023 $ 539,453
Property & Equipment
Property & Equipment 486,751 440,610
Less: Allowance for Depreciation (229,469) (210,143)
------------------ -----------------
257,282 230,467
Pipeline Assets, net 3,143,335 2,875,212
Oil & Gas Properties
Properties being Amortized 1,080,622 1,080,622
Properties not being Amortized 146,568 10,430
Less: Accumulated depreciation, depletion,
and amortization (65,643) (54,842)
------------------ -----------------
1,161,547 1,036,210
Other Assets
Contracts & Right of Way, net 99,881 101,752
Organization Costs, net 109,711 115,182
Deferred Tax Credit 67,796 124,009
------------------ -----------------
277,388 340,943
------------------ -----------------
Total Assets $ 5,669,575 $ 5,022,285
================= ==============
</TABLE>
F-1
<PAGE>
<TABLE>
Quest Resource Corporation
Consolidated Balance Sheet
<CAPTION>
(Unaudited) (Audited)
November 30 May 31
2000 2000
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts Payable $ 85,323 $ 100,112
Oil & Gas Payable 407,795 115,999
Accrued Interest 44,428 34,413
Notes Payable, Current Portion 558,316 529,284
Accrued Expenses 2,741 3,991
------------------ ----------------
Total Current Liabilities 1,098,603 783,799
Non-Current Liabilities
Note Payable 1,692,105 1,451,983
Less Portion Shown as Current (558,316) (529,284)
------------------ ----------------
1,133,789 922,699
------------------ ----------------
Total Liabilities 2,232,392 1,706,498
Commitments and contingencies - -
Stockholders' Equity
Preferred stock, 50,000,000 Shares Authorized 10 10
$.001 par value, 10,000 shares issued and outstanding
Common Stock, 950,000,000 Shares Authorized 5,626 5,626
$.001 par value, 5,626,342 and 5,626,342 shares
issued and outstanding
Paid In Surplus 3,699,089 3,699,089
Retained Earnings (267,542) (388,938)
------------------ ----------------
3,437,183 3,315,787
------------------ ----------------
Total Liabilities and Stockholders' Equity $ 5,669,575 $ 5,022,285
================= ==============
</TABLE>
F-2
<PAGE>
<TABLE>
Consolidated Balance Sheet
Consolidated Statement of Operations
(Unaudited)
<CAPTION>
For the Three Months Ended For the Six Months Ended
--------------------------------- -----------------------------
November 30 November 30
--------------------------------- -----------------------------
2000 1999 2000 1999
--------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenue
Gas Pipeline Transmission Fees $ 227,131 $ 149,597 $ 384,226 $ 277,595
Oil & Gas Production Revenue 99,410 86,015 249,300 132,363
Oil & Gas Operations 149,204 127,660 240,564 208,719
Pipeline Operations 57,152 50,490 94,398 99,576
Pipeline & Property Development 146,342 33,014 276,605 65,385
Oil Trucking & Marketing 23,771 16,996 44,397 30,536
Other Revenue 58,532 773 64,662 6,551
------------------------------- ------------------------------
Total Revenues 761,542 464,545 1,354,152 820,725
Cost of Revenues
Purchases & Outside Services 134,559 51,768 240,229 99,446
Lease Operating Costs 103,470 52,264 173,410 85,726
Pipeline Operating Costs 102,531 58,597 191,173 102,297
Wages 104,440 87,563 196,219 167,689
Payroll Taxes 8,040 6,699 15,151 12,828
Utilities-Leases 14,797 17,512 32,536 32,365
Tags, License, & Equipment Repairs 5,638 5,009 10,152 6,033
Fuel, Oil, Etc 16,147 10,460 32,255 20,785
------------------------------- ------------------------------
Total Cost of Revenues 489,622 289,872 891,125 527,169
Gross Profit $ 271,920 $ 174,673 $ 463,027 $ 293,556
</TABLE>
F-3
<PAGE>
<TABLE>
Consolidated Statement of Operations
Consolidated Statement of Operations (con't)
(Unaudited)
<CAPTION>
For the Three Months Ended For the Six Months Ended
--------------------------------- --------------------------------
November 30 November 30
--------------------------------- --------------------------------
General and Administrative Expenses 2000 1999 2000 1999
-----------------------------------
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Interest $ 36,826 $ 27,773 $ 66,118 $ 54,554
Depreciation, Depletion & Amortization 43,513 55,429 82,563 114,055
Insurance 22,741 18,089 43,432 31,219
Repairs 8,626 6,650 13,415 19,218
Supplies 12,819 19,236 40,365 22,487
Telephone 2,958 3,930 5,688 8,036
Utilities 1,483 1,568 3,464 3,230
Other Expenses 14,923 16,283 38,989 36,499
-----------------------------------------------------------------
Total General and Administrative Expenses 143,889 148,958 294,034 289,298
Income (Loss) from continuing operations before 128,031 25,715 168,993 4,258
other income and expenses and income taxes
Other Income
Sale of Assets - - -
Interest Income 6,815 1,449 8,616 2,832
-----------------------------------------------------------------
Total Other Income 6,815 1,449 8,616 2,832
Net Income (Loss) Before Income Taxes 134,846 27,164 177,609 7,090
Income Tax (Expense) Benefit (49,799) (4,075) (56,213) (1,064)
-----------------------------------------------------------------
Net Income (Loss) $ 85,047 $ 23,089 $ 121,396 $ 6,026
=================================================================
Net Income (Loss) per share $ 0.015 $ 0.004 $ 0.022 $ 0.001
Weighted Average Number of
Shares Outstanding 5,626,342 5,292,843 5,626,342 5,292,843
</TABLE>
F-4
<PAGE>
<TABLE>
Consolidated Statement of Operations (con't)
Consolidated Statement of Cashflows
(Unaudited)
<CAPTION>
For the Six Months Ended November 30
---------------------------------------------
2000 1999
------------------ -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 121,396 $ 23,089
Adjustments to Reconcile Excess Contributions to cash
provided from operations:
Depreciation 64,420 83,970
Amortization 7,342 16,495
Depletion 10,801 13,590
Accounts Receivable (103,104) (102,973)
Oil & Gas Receivable (214,447)
Organization Costs - (9,829)
Accounts Payable (14,789) (45,215)
Oil & Gas Payable 291,796 61,292
Notes Receivable 9,420 8,121
Deferred Tax Credit 56,213 4,075
Accrued Interest Payable 10,015 25,295
Accrued Expenses (1,250) 762
---------------- -----------------
Total Adjustments 116,417 55,583
Net Cash provided from Operating Activities 237,813 78,672
Cash flows from Investing Activities:
Oil & Gas Properties (136,138) -
Pipeline Assets (342,249) -
Fixed Assets (46,141) (121,280)
---------------- -----------------
Net Cash used in Investing Activities (524,528) (121,280)
Cash flows from Financing Activities
Increase in Current Portion of Long-Term Debt 29,032 -
Increase (Decrease) in Long-Term Debt 240,122 (89,329)
Paid-In-Capital 0 150,000
---------------- -----------------
Net Cash used in Financing Activities 269,154 60,671
Net Increase (Decrease) in Cash (17,561) 18,063
Cash Balance, Begin of Period 110,562 31,288
Cash Balance, End of Period $ 93,001 $ 49,351
================ =================
</TABLE>
F-5
<PAGE>
<TABLE>
Quest Resource Corporation
Consolidated Statement of Stockholders Equity
(Unaudited)
<CAPTION>
Preferred Common
Shares Shares
Preferred Common Par Par Paid-In Retained
Shares Shares Value Value Capital Earnings Total
------------ --------------------------- --------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 1, 2000 10,000 5,626,342 $ 10 $ 5,626 $ 3,699,089 $ (388,938) $ 3,315,787
Net Income (Loss) 36,349 36,349
----------------------------------------------------------------------------------------------------
Balance August 31, 2000 - 5,626,342 10 5,626 3,699,089 (352,589) 3,352,136
Net Income (Loss) 85,047 85,047
----------------------------------------------------------------------------------------------------
Balance November 30, 2000 10,000 5,626,342 $ 10 $ 5,626 $ 3,699,089 $ (267,542) $ 3,437,183
======================================================================================================
</TABLE>
[ THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK ]
F-6
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Item 2. Management's Discussion And Analysis
Forward-looking information
This quarterly report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. These statements relate to future
events or to our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. There are a number of factors that could cause our actual
results to differ materially from those indicated by such forward-looking
statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume responsibility
for the accuracy and completeness of such statements. We are under no duty to
update any of the forward-looking statements after the date of this prospectus
to conform such statements to actual results.
Business of Issuer
Our primary business is the production and transportation of natural gas in a
five-county region of southeast Kansas which is served by our gas pipeline
network. Our main focus is upon the development of Company-owned gas reserves in
our pipeline region and upon the continued enhancement of the pipeline system.
During the quarter ended November 30, 2000, we have continued to make
significant enhancements to our gas gathering pipeline network which include the
installation of a new gas compressor station near Thayer, Kansas. We also
expended considerable effort during the quarter on the acquisition of over
11,000 acres of new land leases which has added significantly to our inventory
of undeveloped acreage. Currently, we are drilling numerous additional gas wells
and we are making additional enhancements to our pipeline system. Revenues and
net income have increased significantly during this quarter and are expected to
continue growing as our gas volumes increase from the on-going gas development
program.
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, 2000; and should further be read in conjunction
with the financial statements included in this report. Comparisons made between
reporting periods herein are for the quarter ended November 30, 2000 as compared
to the quarter ended a year earlier on November 30, 1999 unless otherwise
stated.
Total revenue for the quarter ended November 30, 2000 was $768,357 which
resulted in net income before income taxes of $134,846. For the comparable
quarterly period ended November 30, 1999 our total revenue was $465,994 with
resulting net income before income taxes of $27,164. Therefore, net income
before income taxes increased 396% for the quarter ended November 30, 2000 as
compared to the year- earlier quarter.
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<PAGE>
Revenue from operations for the six month period ended November 30, 2000 was
$1,354,152 which resulted in net income before income taxes of $177,609. For the
comparable six month period ended November 30, 1999 our revenue from operations
was $820,725 with resulting net income before income taxes of $7,090. Therefore,
net income before income taxes increased 2,405% for the six month period ended
November 30, 2000 as compared to the year-earlier period.
These increases in revenue and net income are attributable to significant
increases in pipeline transportation revenue which resulted from both increased
gas prices and gas volumes transported. Another significant revenue event was
the large increase in pipeline development services which reflects the increased
construction and development work being performed by Quest Energy Service, Inc.
on the various gas pipelines.
These revenue and net income figures for the previous quarter and six-month
period represent the highest ever reported by the Company to date. Furthermore,
we expect this trend of increasing revenues to continue because of the growth in
the revenue categories of (1) gas pipeline transmission fees, (2) gas production
revenue, and (3) pipeline and property development. The growing revenue in these
three categories are being generated by the increased development of gas
production in the Company-owned pipeline region.
Capital Resources and Liquidity
During the six month period ended November 30, 2000 the Company invested
$524,528, primarily in the fixed assets of gas properties and pipeline
facilities. Long term notes payable increased $240,122 from the bank financing
which provided the above facility investment less payments made on the bank
notes during the period. Net cash provided from operating activities increased
substantially from $78,672 in the comparable 1999 period to a $237,813 for the
six-month period ended November 30, 2000, which reflects the continued
improvement in the amount of cash being generated by the Company's pipelines and
gas wells.
The Company has a line of credit with a local bank for the development of new
gas wells and pipeline improvements. We also expect to supplement the bank line
of credit with other capital raised privately in order to fund a more aggressive
gas well drilling program. We expect to adequately fund on-going drilling of new
gas wells from a combination of the bank financing, privately raised capital,
and internally generated cash flow.
Given the Company's emphasis on investment in its gas reserves and pipelines,
cash reserves are not expected to grow significantly since cash is being re-
invested in these long-term assets. Also, debt incurred for new development has
increased bank payments which has been more than offset by the new revenue
created from gas sales and pipeline transportation. Therefore, growth on our
balance sheet is expected to occur primarily in the gas property and pipeline
asset section instead of in the current asset section.
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<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 11th day of January, 2001.
Quest Resource Corporation
/s/ Douglas L. Lamb
-------------------------------
Douglas L. Lamb, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Douglas L. Lamb President and Director January 11, 2001
------------------------
Douglas L. Lamb
/s/ Richard M. Cornell Secretary and Director January 11, 2001
------------------------
Richard M. Cornell
/s/ John C. Garrison Treasurer and Director January 11, 2001
------------------------
John C. Garrison
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