SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934; For the Quarterly Period Ended: February 28, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-10056
ADAIR INTERNATIONAL OIL AND GAS, INC.
(Name of Small Business Issuer in Its Charter)
Texas 74-2142545
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3000 Richmond, Suite 100
Houston, TX 77098
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (713) 621-8241
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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
Common equity, as of the latest practicable date:
Transitional Small Business Disclosure Format (check one); Yes [ ] No [x]
<PAGE>
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
Adair International Oil & Gas, Inc.
Condensed Balance Sheets
As of February 28, 1999, and 1998
28-Feb-99 28-Feb-98
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
Current Assets
Accounts receivable $ 3,864 $ 7,643
Notes receivable 188,500 -
------------ ------------
Total Current Assets 192,364 7,643
------------ ------------
Property and Equipment
Unproved oil and gas properties 55,202 -
Oil and gas properties and equipment 7,287,043 7,287,043
Office and other property and equipment 7,399 7,399
------------ ------------
7,349,644 7,294,442
Less: accumulated depletion, depreciation and amortization (4,253,307) (4,146,200)
------------ ------------
Total Property and Equipment 3,096,337 3,148,242
------------ ------------
Other Assets 375 375
------------ ------------
Total Assets $ 3,289,076 $ 3,156,260
============ ============
Current Liabilities
Bank overdrafts $ 37,969 $ 5,616
Accounts payable 124,575 71,965
Accrued liabilities 157,043 45,654
------------ ------------
Total Current Liabilities 319,587 123,235
------------ ------------
Preferred stock 0 0
Commitments and Contingencies 0 0
Common Stockholder's Equity
Common stock, no par value 11,810,898 10,204,018
Retained deficit (8,841,409) (7,170,993)
------------ ------------
Total Common Stockholder's Equity) 2,969,489 3,033,025
------------ ------------
Total Liabilities and Stockholder's Equity $ 3,289,076 $ 3,156,260
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
Adair International Oil & Gas, Inc.
Condensed Statements of Operations
For the Three and Nine Months Ending February 28, 1999, and 1998
Three Months Three Months Nine Months Nine Months
Ending Ending Ending Ending
28-Feb-99 28-Feb-98 28-Feb-99 28-Feb-98
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue
Oil and gas sales $ 8,788 $ 27,150 $ 33,009 $ 68,911
-------------- -------------- ------------- -------------
Total Income 8,788 27,150 33,009 68,911
-------------- -------------- ------------- -------------
Costs and Expenses
Lease Operating
expense 2,722 16,436 13,966 35,743
Depletion,
depreciation and
amortization 19,078 32,946 57,234 421,224
General and 163,414 238,449 1,027,878 975,989
administrative
Total Costs and
-------------- -------------- ------------- -------------
Expenses 185,214 287,831 1,099,078 1,432,956
-------------- -------------- ------------- -------------
Operating loss
before income taxes (176,426) (260,681) (1,066,069) (1,364,045)
Provision for income
taxes 0 0 0 0
-------------- -------------- ------------- -------------
Net Loss Applicable
to Common Stock ($176,426) ($260,681) ($1,066,069) ($1,364,045)
============== ============== ============= =============
NET LOSS PER
COMMON SHARE
Primary $ 0.00 ($0.01) ($0.03) ($0.06)
============== ============== ============= =============
Fully Diluted $ 0.00 ($0.01) ($0.03) ($0.06)
============== ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
Adair International Oil & Gas, Inc.
Condensed Statements of Cash Flow
For the Nine Months Ended February 28, 1999, and 1998
February-99 February-98
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($1,066,069) ($1,364,045)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization) 57,231 26,433
Changes in assets and liabilities 79,889 237,272
Stock commission expense 490,166 288,263
------------- -------------
Net cash used in operating activities (438,783) (812,077)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas property, net) 0 (29,552)
Purchase of fixed assets) 0 (3,189)
------------- -------------
Net cash used in investing activities) 0 (32,741)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock) 365,184 709,027
------------- -------------
Net cash provided by financing activities 365,184 709,027
------------- -------------
Net decrease in cash and cash equivalents ($73,599) ($135,791)
Cash and cash equivalents at beginning of year $ 35,630 $ 130,175
Cash and cash equivalents at end of year ($37,969) ($5,616)
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 0 $ 0
============= =============
Income taxes paid $ 0 $ 0
============= =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Issuance of common stock for foreign acquisitions $ 0 $ 250,000
============= =============
Issuance of common stock as commissions $ 490,166 $ 288,263
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
Adair International Oil & Gas, Inc.
Condensed Statement of Changes in Stockholders' Equity
For the Nine Months Ended February 28, 1999, and 1998
(Unaudited)
Common Paid In Retained
Shares Stock Capital Deficit
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Balance, May 31, 1997 10,000,000 $ 8,896,728 $ - $(5,806,948)
Sale of common stock 1,000,000 217,000
Issuance of common stock for merger of
Adair International and Roberts Oil & Gas 10,200,000 250,000
Net loss (540,805)
----------- ----------- -------- ------------
Balance, August 31, 1997 21,200,000 $ 9,363,728 $ - $(6,347,753)
=========== =========== ======== ============
Sale 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 (562,559)
----------- ----------- -------- ------------
Balance, November 30, 1997 22,382,867 $ 9,990,916 $ - $(6,910,312)
=========== =========== ======== ============
Issuance of common stock 1,141,000 192,027
Issuance of common stock for services 21,075 21,075
Redemption of common shares (2,100,000)
Issuance of restricted common shares 2,625,000
Net Loss (260,681)
----------- ----------- -------- ------------
Balance, February 28, 1998 24,069,942 $10,204,018 $ - $(7,170,993)
=========== =========== ======== ============
Balance, May 31, 1998 27,939,847 $10,955,548 $ - $(7,775,340)
Sale of common stock 1,210,200 198,035
Issuance of common stock 436,266 86,022
Net loss (390,658)
----------- ----------- -------- ------------
Balance, August 31, 1998 29,586,313 $11,239,605 $ - $(8,165,998)
=========== =========== ======== ============
Sale of common stock 2,390,000 104,676
Issuance of common stock 6,885,412 322,368
Net loss (498,985)
----------- ----------- -------- ------------
Balance, November 30, 1998 38,861,725 $11,666,649 $ - $(8,664,983)
=========== =========== ======== ============
Sale of common stock 1,182,300 62,473
Issuance of common stock 1,623,123 81,776
Net loss (176,426)
----------- ----------- -------- ------------
Balance, February 28, 1999 41,667,148 $11,810,898 $ - $(8,841,409)
=========== =========== ======== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
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 results for the nine months ended February 28, 1999, 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 (40,362,798 for the quarter ended February 28,
1999; 23,139,158 for the quarter ended February 28, 1998; 34,376,592 for the
nine months ended February 28, 1999; and 21,137,836 for the nine months ended
February 28, 1998) adjusted for conversion of common stock equivalents, where
applicable, during the periods.
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
- -------------------------------------------
During July and August, 1998, the company issued 436,266 shares valued at
$86,022 to ten individuals as compensation for services rendered. Included in
these shares are 250,660 shares valued at $50,132 that were issued to three
officers and directors of the company.
During the quarter ended August 31, 1998, 1,210,000 shares were sold in
private transactions for $198,035.
<PAGE>
ADAIR INTERNATIONAL OIL AND GAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
During the quarter ended November 30, 1998, the company issued 6,885,412
shares valued at $322,368 to seventeen individuals as compensation for services
rendered. Included in these shares are 3,015,382 shares that were issued to
three officers and directors of the company.
During the quarter ended November 30, 1998, 2,390,000 shares were sold in
private transactions for $104,676.
During the quarter ended February 28, 1999, the company issued 1,623,123
shares valued at $81,776 to three officers and directors of the company as
compensation for services rendered.
During the quarter ended February 28, 1999, 1,182,300 shares were sold in
private transactions for $62,473.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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, 1998, included in the 10-KSB. Financial
results for the quarter ended February 28, 1998, were restated and reclassified
in connection with the year end audit.
RESULTS OF OPERATIONS - 1998 VS 1999
- ------------------------------------------
The following summarizes oil and gas revenues and operating expenses for
the quarter and nine months ending February 28, 1999, and 1998.
<TABLE>
<CAPTION>
Nine Months Quarters
Ended February 28, ended February 28,
-------------------------- ---------------------
1999 1998 1999 1998
------------ ------------ --------- ----------
<S> <C> <C> <C> <C>
Oil and Gas Sales. . . . . . . . . . $ 33,009 $ 68,911 $ 8,788 $ 27,150
Lease Operating Expenses . . . . . . 13,966 35,743 2,722 16,436
------------ ------------ --------- ----------
Operating Income. . . . . . . . . . $ 19,043 $ 33,168 $ 6,066 $ 10,714
============ ============ ========= ==========
The following reflects the Company's cumulative costs in oil and gas properties:
Nine Months ended February 28,
------------------------------
1999 1998
------------ ------------
Oil and Gas Properties at Full Cost:
Unproved Oil and Gas
Properties. . . . . . . . . . . . $ 55,202 $ 0
Proved Properties Being Amortized . 7,287,043 7,287,043
Less Accumulated Depletion
and Depreciation. . . . . . . . . (4,253,307) (4,146,200)
------------ ------------
$ 3,088,938 $ 3,140,843
============ ============
</TABLE>
The decrease in oil and gas property costs relates to adjustments made
during the audit of the May 31, 1998, financial statements.
Oil and Gas Sales - The Company expects further declines in the Company's
- --------------------
domestic production, and the Company intends to focus future plans on exploring
and developing foreign reserves. The company plans to sell all of its domestic
oil and gas properties. Future revenues from the Company's domestic oil and gas
properties at February 28, 1999, are expected to be minimal.
Operating Expenses - Lease operating expenses for the quarter ending
- -------------------
February 28, 1999, decreased from $16,436 to $2,722 due to declining domestic
production. Lease operating expenses for the nine months ended February 28,
1999, decreased from $35,743 to $13,966 due to declining domestic production.
At February 28, 1999, the Company had no foreign production.
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
General and administrative expenses - General and administrative expenses
- --------------------------------------
increased to $1,027,878 during the nine months ended February 28, 1999, versus
$975,989 for the nine months ended February 28, 1998. The increase is
attributable to an increase of approximately $49,000 in rent expense. During
the three months ended February 28, 1999, general and administrative expenses
were $163,414 versus $238,449 for the three months ended February 28, 1998.
This decrease is attributable to decreases in contract services ($38,000),
payroll ($30,000) and payroll tax ($8,000).
The net loss for the quarter ended February 28, 1999, was $(176,426) or
$(0.00) per share on revenues of $8,788 versus a net loss of $(260,681) or
$(0.01) per share on revenues of $27,150 in the same period of last year.
The net loss for the nine months ended February 28, 1999, was $(1,066,069)
or $ (0.03) per share on revenues of $33,009 versus a net loss of $(1,364,045)
or $(0.06) per share on revenues of $68,911 last year.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
Cash used by operations during the nine months ended February 28, 1999, was
$438,783 and oil and gas revenues were not adequate to cover expenses which
included certain 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 February 28, 1999, 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 evaluating its domestic properties for
the purpose of disposition during the last quarter of the fiscal year. Given
the present economic conditions in the industry, no assurances can be made that
the Company will be successful in its efforts.
In addition to oil and gas producing activities, the company plans to
participate in the development of power generation facilities, both domestic and
foreign, through joint venture agreements with industry partners. Concurrent
with the development of power projects, the company is continuing to pursue the
acquisition of producing oil and gas properties with additional development
potential.
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.
<PAGE>
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.
By /s/ John W. Adair
----------------------
John W. Adair, Chairman and Director
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------- ------------------------ ------------
<S> <C> <C>
/s/ John W. Adair Chairman of the Board, July 6, 1999
- ----------------------
John W. Adair Chief Executive Officer,
and Director
/s/ Earl K. Roberts President and Director July 6, 1999
- ----------------------
Earl K. Roberts
/s/ Jalal Alghani Chief Financial Officer July 6, 1999
- ----------------------
Jalal Alghani and Director
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> (37969)
<SECURITIES> 0
<RECEIVABLES> 192364
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 192364
<PP&E> 7349644
<DEPRECIATION> (4253307)
<TOTAL-ASSETS> 3289076
<CURRENT-LIABILITIES> 319587
<BONDS> 0
<COMMON> 11810898
0
0
<OTHER-SE> (8841409)
<TOTAL-LIABILITY-AND-EQUITY> 3289076
<SALES> 33009
<TOTAL-REVENUES> 33009
<CGS> 13966
<TOTAL-COSTS> 13966
<OTHER-EXPENSES> 1085112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1066069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1066069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1066069)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
