<PAGE> 1
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly Period Ended: August 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 2-73871
ADAIR INTERNATIONAL OIL AND GAS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Texas 74-2142545
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</TABLE>
3000 Richmond, Suite 100
Houston, Texas 77098
(Address of principal executive offices, including zip code)
(713) 621-8241
(Registrant's telephone number, including area code)
_________________
Check whether the issuer (1) has 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
At October 10, 1997, 21,413,700 shares of common stock, no par value,
were outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ]
No [x]
<PAGE> 2
ADAIR INTERNATIONAL OIL AND GAS, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of August 31, 1997 and August
31, 1996 (unaudited)
Condensed Statements of Operations for the three months
ended August 31, 1997 and August 31, 1996 (both
unaudited)
Condensed Statements of Cash Flows for the three months
ended August 31, 1997 and August 31, 1996 (both
unaudited)
Condensed Statement of Stockholders Equity for the three months ended
August 31, 1997 and August 31, 1996 (both unaudited)
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE> 3
PART 1 -- FINANCIAL INFORMATION
Adair International Oil & Gas, Inc.
Condensed Balance Sheets
As of August 31, 1997, and 1996
<TABLE>
<CAPTION>
AUGUST 31, 1997 AUGUST 31, 1996
(UNAUDITED) *
--------------- ---------------
<S> <C> <C>
Current Assets
Cash $ 22,316 $ (11,543)
Accounts receivable 9,796 186,438
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Total Current Assets 32,112 174,895
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Property and Equipment
Unproved oil and gas properties 303,411 0
Proved oil and gas properties and equipment 7,869,406 4,311,923
Office and other property and equipment 7,128 2,481
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8,179,945 4,314,404
Less: accumulated depreciation, depletion and amortization (4,128,453) (4,100,100)
----------- -----------
Total Property and Equipment 4,051,492 214,304
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Other assets 375 0
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TOTAL ASSETS $ 4,083,979 $ 389,199
=========== ===========
Current Liabilities
Accounts payable $ 55,915 $ 110,300
Accrued liabilities 47,073 58,591
Note payable 0 722,530
----------- -----------
Current Liabilities 102,988 891,421
Long-term debt 600,000 0
----------- -----------
TOTAL LIABILITIES 702,988 891,421
----------- -----------
Preferred Stock 60,000 60,000
Commitments and Contingencies 0 0
Common Stockholder's Equity
Common Stock 600,000
Additional paid-in capital 9,363,728 4,696,728
Retained deficit (6,042,737) (5,858,950)
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Total Common Stockholders' Equity 3,320,991 (562,222)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,083,979 $ 389,199
=========== ===========
</TABLE>
*Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements
F-1
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Adair International Oil & Gas, Inc.
Condensed Statements of Operations
For The Quarters Ended August 31, 1997, and 1996
<TABLE>
<CAPTION>
AUGUST 31, 1997 AUGUST 31, 1996
(UNAUDITED) *
--------------- ---------------
<S> <C> <C>
REVENUE
Oil and gas sales $ 13,988 $ 24,342
--------------- ---------------
COSTS AND EXPENSES
Lease operating expense 7,885 13,621
Depreciation, depletion and amortization 8,687 8,581
General and administrative 233,205 24,640
--------------- ---------------
Total costs and expenses 249,777 46,842
--------------- ---------------
Operating loss before income taxes (235,789) (22,500)
Federal income tax expense 0 0
--------------- ---------------
Net loss applicable to common stock $ (235,789) (22,500)
=============== ===============
NET LOSS PER COMMON SHARE
Primary $ (0.01) $ (0.01)
=============== ===============
Fully Diluted $ (0.01) $ (0.01)
=============== ===============
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 5
Adair International Oil & Gas, Inc.
Condensed Statements of Cash Flow
For The Quarters Ended August 31, 1997, and 1996
<TABLE>
<CAPTION>
AUGUST 31, 1997 AUGUST 31, 1996
(UNAUDITED) *
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (235,789) $ (22,500)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, amortization and depletion 8,686 8,581
Changes in assets and liabilities (84,106) (1,157)
--------------- ---------------
Net cash used for operating activities (311,209) (15,076)
--------------- ---------------
Cash flows from investing activities:
Purchase of oil and gas property, net (10,732) 457
Purchase of fixed assets (2,918) (2,481)
--------------- ---------------
Net cash used for investing activities (13,650) (2,024)
--------------- ---------------
Cash flows from financing activities:
Proceeds from sale of common stock 217,000 0
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Net cash provided by financing activities 217,000 0
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NET DECREASE IN CASH $ (107,859) $ (17,100)
CASH, BEGINNING OF QUARTER $ 130,175 5,557
--------------- ---------------
CASH, END OF QUARTER $ 22,316 $ (11,543)
=============== ===============
Supplemental Disclosures:
Interest paid $ 0 $ 0
=============== ===============
Income taxes paid $ 0 $ 0
=============== ===============
Schedule of non-cash investing and financing activities:
Issuance of common stock for foreign acquisitions $ 250,000 $ 0
=============== ===============
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 6
Adair International Oil & Gas, Inc.
Condensed Statement of Changes in Stockholders' Equity
For the Quarters Ended August 31, 1997, and 1996
(Unaudited)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
SHARES STOCK PAID IN CAPITAL DEFICIT
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, May 31, 1996 2,000,000 $ 600,000 $4,696,728 $(5,836,450)
Net loss (22,500)
--------------------------------------------------------
Balance, August 31, 1996 2,000,000 $ 600,000 $4,696,728 $(5,858,950)
========================================================
Balance, May 31, 1997 10,000,000 $ 3,000,000 $5,896,728 $(5,806,948)
Convert common stock to no par value (3,000,000) 3,000,000
Sale of common stock 1,000,000 217,000
Issuance of common stock for Paraguay
and Yemen acquisitions 10,200,000 250,000
Net loss (235,789)
--------------------------------------------------------
Balance, August 31, 1997 21,200,000 $ -- $9,363,728 $(6,042,737)
========================================================
</TABLE>
F-4
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ADAIR INTERNATIONAL OIL AND GAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for interim
periods. The financial information for the quarter ended August 31,
1996, is derived from audited financial statements.
The results for the three months ended August 31, 1997, are
not necessarily indicative of the results to be expected for the full
year.
NOTE 2: LOSS PER SHARE
Loss per share was computed by dividing earnings (loss) by the
weighted average number of common shares (21,200,000 for the quarter
ended August 31, 1997, and 2,000,000 for the quarter ended August 31,
1996) adjusted for conversion of common stock equivalents, where
applicable, during the periods.
NOTE 3: ACQUISITION
On June 16, 1997, the Company acquired a five percent (5%) net
profits interests in exploration acreage totaling 14 million acres in
Paraguay, South America and 3.5 million acres in Yemen from Adair Oil
and Gas International Canada, Inc. ("Adair"), in exchange for
10,200,000 voting shares in common stock. The initial 10,000,000
shares were newly issued and the additional 200,000 came from the
Company treasury stock which, together, represent 51% of the Company's
issued and then outstanding common stock. The Company recorded the
acquisition at $ 250,000 using a stock valuation of $ .02 per share.
The valuation was reduced from the amount previously announced because
financing to fund exploration and development costs has not yet been
obtained by an affiliate. Under the purchase agreement members of the
Board of Directors at May 31, 1997, resigned and were replaced by a
new board headed by the Chairman and the Chief Executive Officer of
Adair. The new board retained the services of Earl K. Roberts, as
President and Chief Operating Officer. On July 9, 1997, the company
changed its name to Adair International Oil and Gas, Inc. and
appointed three new directors.
F-5
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The Company's net profits interest in such properties does not
require it to fund any of the cost of exploration or development of
the Yemen or Paraguay properties.
NOTE 4: COMMITMENTS AND CONTINGENCIES
The Company is subject to extensive federal, state, and local
environmental laws and regulations. These requirements, which change
frequently, regulate the discharge of materials into the environment.
The Company believes that it is in compliance with existing laws and
regulations.
ENVIRONMENTAL CONTINGENCIES
The oil and gas industry is subject to substantial regulation
with respect to the discharge of materials into the environment or
otherwise relating to the protection of the environment. The
exploration, development and production of oil and gas are regulated
by various governmental agencies with respect to the storage and
transportation of the hydrocarbons, the use of facilities for
processing, recovering and treating the hydrocarbons and the clean up
of the sites of the wells. Many of these activities require
governmental approvals before they can be undertaken. The costs
associated with compliance with the applicable laws and regulations
have increased the costs associated with the planning, designing,
drilling, installing, operating and plugging or abandoning of wells.
To the extent that the Company owns an interest in a well it may be
responsible for costs of environmental regulation compliance even
after the plugging or abandonment of that well.
NOTE 5: CHANGES IN STOCKHOLDERS EQUITY
On July 25, 1997, the Board of Directors increased the number
of authorized common shares to 100,000,000 and changed those shares to
no par value. The financial statements at August 31, 1997, reflect
the change to no par value and increase in paid in capital.
In July 1997, the Company sold 1,000,000 restricted common
shares to one of the new directors for $ 200,000.
During August, 1997, the Company offered 6,666 common shares
in redemption of all the remaining preferred stock outstanding at May
31, 1997. At August 31, 1997, the exchange had not been completed.
The Company expects that the transaction will be fully completed
during the quarter ended November 30, 1997.
F-6
<PAGE> 9
MANAGEMENTS' DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
The following summary of the Company's financial position and
results of operation should be read in conjunction with the Condensed
Financial Statements, Notes to Condensed Financial Statements and the
Company's audited financial statements for the year ended August 31,
1997, included in the 10-KSB. Financial results for the quarter ended
August 31, 1996, were restated and reclassified in connection with the
year end audit.
RESULTS OF OPERATIONS - 1996 VS 1997
The following summarizes oil and gas revenues and operating
expenses for the first quarter of fiscal 1996 and fiscal 1997:
<TABLE>
<CAPTION>
Quarters ended August 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Oil and Gas Sales $ 13,988 $ 24,342
Lease Operating Expenses 7,885 13,621
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Operating Income $ 6,103 $ 10,721
============ ============
</TABLE>
The following reflects the Company's cumulative costs in oil
and gas properties:
<TABLE>
<CAPTION>
Quarters ended August 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Oil and Gas Properties at Full Cost:
Unproved Oil and Gas
Properties $ 303,411 $ -0-
Proved Properties Being Amortized 7,869,406 4,311,923
Less Accumulated Depletion
and Depreciation (4,128,453) (4,100,100)
--------------- -------------
$ 4,044,364 $ 211,823
============== =============
</TABLE>
The increase in oil and gas property costs includes
$3,610,184 from the acquisition of foreign oil and gas properties in
Columbia during the quarter ended May 31, 1997, and $ 250,000 from the
acquisition of unapproved oil and gas properties in Yemen and Paraguay
during the quarter ended August 31, 1997. In addition, the Company
capitalized $ 53,411 of acquisition costs on other unproved oil and
gas prospects, domestic and foreign, during the quarter ended August
31, 1997.
F-7
<PAGE> 10
Oil and Gas Sales - The decrease from $ 24,342 to $ 13,988 reflects
declining production from wells in the United States. Further
declines in the Company's domestic production is anticipated and the
Company intends to focus future plans on exploring and developing
foreign reserves in Columbia and the acquisition of domestic
production. Future revenues from the Company's domestic oil and gas
properties at August 31, 1997, is expected to be minimal.
Operating Expenses - Lease operating expenses decreased from $
13,621 to $ 7,885 due to declining domestic production. At August 31,
1997, the Company had no foreign production.
General and administrative expenses increased to $ 233,205 during the
quarter ended August 31, 1997, versus $ 24,640 the same period of last
year. The increase is attributable to approximately $ 74,000 of
non-recurring legal expenses associated with the acquisition of
revenue interests in Yemen and Paraguay, $ 75,382 of payroll expenses
attributable to personnel associated with the acquisition, and $
16,284 of public relations expense.
The net loss for the quarter ended August 31, 1997 was
($235,789) or $ (.01) per share on revenues of $ 13,988 versus a net
loss of $ (22,500) or $ (.01) per share on revenues of $ 24,342.
In 1996 results of the company were insignificant because the
Company had not conducted any oil and gas exploration or development
activities since May 31, 1989.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations during the quarter ended August 31,
1997 was $ 311,209 and oil and gas revenues were not adequate to cover
expenses which included certain non-recurring legal fees and
professional costs described above. Therefore, the company sold
additional common shares to raise working capital. In the future,
cash provided from the oil and gas properties at August 31, 1997, will
not be adequate to cover projected operating and overhead expenses.
Therefore the Company is concentrating its efforts on raising
additional capital from debt and/or equity placements and from bank
lines of credit. Financing for foreign oil and gas exploration is
dependent on obtaining joint venture partners through farm-out
arrangements. The Company is attempting to increase domestic oil and
gas production through the acquisition of proved producing oil and gas
properties. Given the present economic conditions in the industry, no
assurances can be made that the Company will be successful in its
efforts.
F-8
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION SB
(1) Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
(1) On August 21, 1997, the Company filed a current report
dated July 28, 1997 on Form 8-K reporting a change in the Company's certifying
accountant.
(2) On September 8, 1997, the Company filed a current report
dated August 1, 1997 on Form 8-K relating to changes in control of the
Registrant, the acquisition of assets, and other events.
3
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADAIR INTERNATIONAL OIL AND GAS, INC.
Date: October 13, 1997 By: /s/ John W. Adair
--------------------------------------
John W. Adair, Chairman of the Board
By: /s/ Jalal Alghani
--------------------------------------
Jalal Alghani, Chief Financial Officer
4
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-1-1997
<PERIOD-END> AUG-31-1997
<CASH> 22,316
<SECURITIES> 0
<RECEIVABLES> 9,796
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,112
<PP&E> 4,051,492
<DEPRECIATION> 4,128,453
<TOTAL-ASSETS> 4,083,979
<CURRENT-LIABILITIES> 102,988
<BONDS> 600,000
0
0
<COMMON> 0
<OTHER-SE> 3,320,991
<TOTAL-LIABILITY-AND-EQUITY> 4,083,979
<SALES> 13,988
<TOTAL-REVENUES> 13,988
<CGS> 0
<TOTAL-COSTS> 249,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (235,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235,789)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)<F1>
<FN>
<F1>The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
