<PAGE> 1
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
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: November 30, 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 November 30, 1997, 22,382,867 shares of common stock, no par value,
were outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ]
No [x]
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ADAIR INTERNATIONAL OIL AND GAS, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of November 30, 1997 and November 30,
1996 (unaudited)
Condensed Statements of Operations for the three months and six months
ended November 30, 1997 and November 30, 1996 (both unaudited)
Condensed Statements of Cash Flows for the three months and six months
ended November 30, 1997 and November 30, 1996 (both unaudited)
Condensed Statement of changes in Stockholders Equity for the three
and six months ended November 30, 1997 and November 30, 1996
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
2
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PART 1 -- FINANCIAL INFORMATION
Adair International Oil & Gas, Inc.
Condensed Balance Sheets
As of November 30, 1997, and 1996
<TABLE>
<CAPTION>
NOVEMBER 30, 1997 NOVEMBER 30, 1996
(UNAUDITED) *
----------------- -----------------
<S> <C> <C>
Current Assets
Cash $ 28,763 $ (14,334)
Accounts receivable 8,996 172,750
----------- -----------
Total Current Assets 37,759 158,416
----------- -----------
Property and Equipment
Unproved oil and gas properties 370,625 0
Oil and Gas Properties and Equipment 7,877,845 4,311,923
Office and other property and equipment 9,668 2,481
----------- -----------
8,258,138 4,314,404
Less: accumulated depreciation, depletion and amortization (4,137,419) (4,108,680)
----------- -----------
Total Property and Equipment 4,120,719 205,724
----------- -----------
Other assets 375 0
----------- -----------
Total Assets $ 4,158,853 $ 364,140
=========== ===========
Current Liabilities
Accounts payable $ 58,205 $ 112,686
Accrued liabilities 45,967 58,591
Note payable 0 722,530
----------- -----------
Total Current Liabilities 104,172 893,807
Long-term debt 600,000 0
----------- -----------
TOTAL LIABILITIES 704,172 893,807
----------- -----------
Preferred Stock 0 60,000
Commitments and Contingencies 0 0
Common Stockholder's Equity
Common Stock, No Par Value 600,000
Additional paid-in capital 9,990,916 4,696,728
Retained deficit (6,536,235) (5,886,395)
----------- -----------
Total Common Stockholders' Equity 3,454,681 (589,667)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,158,853 $ 364,140
=========== ===========
</TABLE>
*Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements
3
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Adair International Oil & Gas, Inc.
Condensed Statements of Operations
For The Three and Six Months Ended November 30, 1997, and 1996
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
(Unaudited) * (Unaudited) *
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Oil and gas sales $ 27,773 $ 4,112 $ 41,764 $ 28,454
Other income 0 300 0 300
------------ ------------ ------------ ------------
Total Income 27,773 4,412 41,764 28,754
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Lease operating expense 11,422 6,105 19,308 19,726
Depletion, depreciation and amortization 8,966 8,580 17,652 17,161
General and administrative 500,883 17,172 734,091 41,812
------------ ------------ ------------ ------------
Total Costs and Expenses 521,271 31,857 771,051 78,699
------------ ------------ ------------ ------------
Operating loss before income taxes (493,498) (27,445) (729,287) (49,945)
Provision for income taxes 0 0 0 0
------------ ------------ ------------ ------------
Net loss applicable to common stock $ (493,498) $ (27,445) $ (729,287) $ (49,945)
============ ============ ============ ============
NET LOSS PER COMMON SHARE
Primary $ (0.03) $ (0.01) $ (0.04) $ (0.02)
============ ============ ============ ============
Fully Diluted $ (0.03) $ (0.01) $ 0.04 $ (0.02)
============ ============ ============ ============
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements.
4
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Adair International Oil & Gas, Inc.
Condensed Statements of Cash Flow
For The Six Months Ended November 30, 1997, and 1996
<TABLE>
<CAPTION>
NOVEMBER 30, 1997 NOVEMBER 30, 1996
(UNAUDITED) *
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (729,287) $ (49,945)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 17,652 17,161
Stock Commission Expense 267,188 0
Changes in assets and liabilities (149,336) 14,917
--------------- ---------------
Net cash provided by (used in) operating activities (593,783) (17,867)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas property (19,171) 457
Purchase of fixed assets (5,458) (2,481)
--------------- ---------------
Net cash provided by (used in) investing activities (24,629) (2,024)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 517,000 0
--------------- ---------------
Net cash provided by (used in) financing activities 517,000 0
--------------- ---------------
Net increase (decrease) in cash and cash equivalents $ (101,412) $ (19,891)
Cash and cash equivalents at beginning of year $ 130,175 5,557
--------------- ---------------
Cash and cash equivalents at end of year $ 28,763 $ (14,334)
=============== ===============
SUPPLEMENTAL DISCLOSURES
Interest paid $ 0 $ 0
--------------- ---------------
Income taxes paid $ 0 $ 0
--------------- ---------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Issuance of Common Stock $ 267,188 $ -
--------------- ---------------
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
5
<PAGE> 6
Adair International Oil & Gas, Inc.
Condensed Statement of Changes in Stockholders' Equity
For the Six Months Ended November 30, 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)
Net loss (27,445)
--------------------------------------------------------
Balance, November 30, 1996 2,000,000 $ 600,000 $4,696,728 $(5,886,395)
========================================================
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)
========================================================
Sales of Common Stock 600,000 300,000
Conversion of Preferred Stock to Common 6,667 60,000
Issuance of common stock 250,000 267,188
Redemption of common shares (850,000)
Issuance of restricted common shares 1,176,200
Net loss (493,498)
--------------------------------------------------------
Balance, November 30, 1997 22,382,867 $ -- $9,990,916 $(6,536,235)
========================================================
</TABLE>
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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
November 30, 1997, is derived from audited financial statements.
The results for the three months ended November 30, 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 (21,581,387 for the quarter
ended November 30, 1997, and 2,006,667 for the quarter ended
November 30, 1996) 20,164,515 for the six months ended November 30,
1997 and 2,006,667 for the six months ended November 30, 1996
adjusted for conversion of common stock equivalents, where applicable,
during the periods.
7
<PAGE> 8
NOTE 3: 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 4: 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 November 30, 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 October and November 30, 1997, the Company converted
all remaining preferred shares to common stock at a rate of 11.11
shares of common stock for each preferred share. A total of 6,667
shares were issued in connection with the conversion
During October and November 1997, the Company exchanged 850,000
shares of common stock for 1,176,200 shares of common stock. 326,200
additional common shares were issued as a result of this exchange.
During the quarter, 600,000 common shares were sold in private
transactions for $300,000.
In addition, on November 4, 1997 the Company issued 250,000
common shares to a stock brokerage firm as a commission and for
public relation services. The stock was valued at its market value at
the date of issuance. A charge to commission expense of $267,188 was
made during the quarter.
8
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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 May 31, 1997,
included in the 10-KSB. Financial results for the quarter ended
November 30, 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 quarter and six months ended November 30, 1997 and
1996:
<TABLE>
<CAPTION>
Six Months ended November 30, Quarters ended November 30,
----------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Oil and Gas Sales $41,764 $28,454 $27,773 $ 4,112
Lease Operating Expenses 19,308 19,726 11,442 6,105
------- ------- ------- -------
Operating Income $22,456 $ 8,728 $16,351 $(1,993)
======= ======= ======= =======
</TABLE>
The following reflects the Company's cumulative costs in oil
and gas properties:
<TABLE>
<CAPTION>
Six Months ended November 30,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Oil and Gas Properties at Full Cost:
Unproved Oil and Gas
Properties $ 370,625 $ -0-
Proved Properties Being Amortized 7,877,845 4,311,923
Less Accumulated Depletion
and Depreciation (4,137,419) (4,108,680)
----------- -----------
$ 4,111,051 $ 203,243
=========== ===========
</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. In addition, the Company
capitalized $67,214 of acquisition costs on other unproved oil and gas
prospects, domestic and foreign, during the quarter ended November 30,
1997.
9
<PAGE> 10
Oil and Gas Sales - The increase from $ 28,454 to $ 41,764 reflects
additional revenues which were suspended in fiscal 1996 from wells in
the United States. During the first six months the Company experienced
a decline in the Company's domestic production and the Company intends
to focus plans on exploring and developing foreign reserves and the
acquisition of domestic production in the future. Future revenues from
the Company's existing domestic oil and gas properties at November 30,
1997, are expected to be minimal Revenues during the quarter ended
November 30, 1997 increased to $27,773 versus $4,112 in the same
quarter of last year because revenues in second quarter of 1996 were
suspended.
Operating Expenses - Lease operating expenses increased from $6,105
to $11,422 due to the increase in domestic revenues described above.
Lease operating expenses for the six months decreased from $19,726 to
$19,308 due to lower workover expenses. At November 30, 1997 the
Company had no foreign production.
General and administrative expenses increased to $734,091 during the
six months ended November 30, 1997, versus $41,812 the same period of
last year. The increase is attributable to approximately $80,000 of
non-recurring legal expenses associated with reorganization of the
Company in June 1997, $85,000 of payroll expenses attributable to
personnel associated with the acquisition, and $303,295 of public
relations expense and non-recurring commission expenses in connection
with the sale of common stock. During the three months ended November
30, 1997 general and administrative expenses were $500,883 versus
$17,172 during the same period of last year. The second quarter of
1997 includes $35,000 in non-recurring private placement fees and
$10,000 in commissions for the private sale of common stock. The
second quarter of 1997 also included a $267,188 non-recurring charge to
commission expense for brokerage services and public relations.
The net loss for the quarter ended November 30, 1997 was
($493,498) or $(.03) per share on revenues of $27,773 versus a net
loss of $(27,445) or $(.01) per share on revenues of $4,112 in the
same period of last year.
The net loss for the six months ended November 30, 1997
was $(729,287) or $.04 per share on revenues of $41,674 versus
a net loss of $49,945 or $(.02) per share on revenues of
$28,454 last year.
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 six months ended
November 30, 1997 was $593,783 and oil and gas revenues were not
adequate to cover expenses which included certain non-recurring
legal fees and other costs described above. Therefore, the Company
sold additional common
10
<PAGE> 11
shares to raise working capital. In the future, cash provided from the existing
oil and gas properties at November 30, 1997, will not be adequate to cover
projected operating and overhead expenses. Financing for foreign oil and gas
exploration is dependent upon the Company obtaining additional capital.
Therefore, the Company is concentrating its efforts on raising additional
capital through the private placement of $15,000,000 of preferred shares. The
Company is attempting to increase domestic oil and gas production through the
drilling of additional domestic wells and from acquiring cash producing oil and
gas properties from the proceeds of the anticipated placement. It is anticipated
that the private placement will be completed during the first quarter of 1998.
Given the present economic conditions in the industry, no assurances can be made
that the Company will be successful in its efforts to raise additional capital
or to increase revenues through exploration.
Except for historical information contained herein the statements in this
filing are forward-looking. Forward-looking statements involve known and unknown
risks and uncertainties which may cause the Company's actual results in future
periods to differ from those forecasted. Such risks and uncertainties include,
among other things, volatility of oil prices, product demand, market
competition, risks inherent in the Company's international operations,
imprecision of reserve estimates, the availability of additional oil and gas
assets for acquisition on commercially reasonable terms, and the Company's
ability to replace and exploit its existing oil and gas reserves.
11
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 1, 1997, the Company held it Annual Meeting of
Stockholders. At that meeting the only order of business was the election of
the Board of Directors for the coming fiscal year. John W. Adair, Earl K.
Roberts, Jalal Alghani and Abdul Aziz M. Al-Abdulkader who were all of the
members of the Board of Directors prior to the Annual Meeting were elected to
continue as members of the Board of Directors of the Company after the Annual
Meeting. The number of votes cast for, against or withheld and the number of
abstentions for each Director is as follows:
Votes Against
Name Votes For or Withheld Abstentions
- ---- ---------- ------------- -----------
John W. Adair 17,752,706 76 -0-
Earl K. Roberts 17,752,706 76 -0-
Jalal Alghani 17,752,706 76 -0-
Abdul Aziz M. Al-Abdulkader 17,752,706 76 -0-
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 October 28, 1997, the Company filed a current report
on Form 8-K reporting that Mr. Abdul Aziz M. Al-Abdulkader resigned as a
Director of Adair International Oil & Gas, Inc. on October 2, 1997 to
concentrate on other business opportunities.
12
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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: January 13, 1997 By: /s/ John W. Adair
--------------------------------------
John W. Adair, Chairman of the Board
By: /s/ Jalal Alghani
--------------------------------------
Jalal Alghani, Chief Financial Officer
13
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> SEP-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 28,763
<SECURITIES> 0
<RECEIVABLES> 8,996
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,759
<PP&E> 8,258,138
<DEPRECIATION> (4,137,419)
<TOTAL-ASSETS> 4,158,853
<CURRENT-LIABILITIES> 104,172
<BONDS> 600,000
0
0
<COMMON> 0
<OTHER-SE> 3,454,681
<TOTAL-LIABILITY-AND-EQUITY> 4,158,853
<SALES> 41,764
<TOTAL-REVENUES> 41,764
<CGS> 19,308
<TOTAL-COSTS> 19,308
<OTHER-EXPENSES> 751,743
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (729,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> (729,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (729,287)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
