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: November 30, 1998
[ ] 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 November 30, 1998, and 1997
November 30, 1998 November 30, 1997
(Unaudited) (Unaudited)
------------------- -------------------
<S> <C> <C>
Current Assets
Cash $ 0 $ 28,763
Accounts receivable 3,776 8,996
Notes receivable 188,500 -
------------------- -------------------
Total Current Assets 192,276 37,759
------------------- -------------------
Property and Equipment
Unproved oil and gas properties 55,202 0
Oil and gas properties and equipment 7,287,043 7,276,662
Office and other property and equipment 7,399 7,399
------------------- -------------------
7,349,644 7,284,061
Less: accumulated depletion, depreciation and amortization (4,234,230) (4,137,419)
------------------- -------------------
Total Property and Equipment 3,115,414 3,146,642
------------------- -------------------
Other Assets 375 375
------------------- -------------------
Total Assets $ 3,308,065 $ 3,184,776
=================== ===================
Current Liabilities
Bank overdrafts $ 26,495 $ 0
Accounts payable 142,867 58,205
Accrued liabilities 137,037 45,967
------------------- -------------------
Total Current Liabilities 306,399 104,172
------------------- -------------------
Preferred stock 0 0
Commitments and Contingencies 0 0
Common Stockholder's Equity
Common stock, no par value 11,666,649 9,990,916
Retained deficit (8,664,983) (6,910,312)
------------------- -------------------
Total Common Stockholder's Equity) 3,001,666 3,080,604
------------------- -------------------
Total Liabilities and Stockholder's Equity $ 3,308,065 $ 3,184,776
=================== ===================
</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 Six Months Ending November 30, 1998, and 1997
Three Months Three Months Six Months Six Months
Ending Ending Ending Ending
November 30, 1998 November 30, 1997 November 30, 1998 November 30, 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenue
Oil and gas sales $ 7,873 $ 27,773 $ 24,221 $ 41,761
------------------- ------------------- ------------------- -------------------
Total Income 7,873 27,773 24,221 41,761
------------------- ------------------- ------------------- -------------------
Costs and Expenses
Lease Operating
expense 6,344 11,422 11,244 19,307
Depletion,
depreciation and
amortization 19,078 76,180 38,156 388,278
General and 481,436 502,730 864,464 737,540
administrative
Total Costs and
------------------- ------------------- ------------------- -------------------
Expenses 506,858 590,332 913,864 1,145,125
------------------- ------------------- ------------------- -------------------
Operating loss
before income taxes (498,985) (562,559) (889,643) (1,103,364)
Provision for income
taxes 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Loss Applicable
to Common Stock ($498,985) ($562,559) ($889,643) ($1,103,364)
=================== =================== =================== ===================
NET LOSS PER
COMMON SHARE
Primary ($0.01) ($0.03) ($0.03) ($0.05)
=================== =================== =================== ===================
Fully Diluted ($0.01) ($0.03) ($0.03) ($0.05)
=================== =================== =================== ===================
</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 Six Months Ended November 30, 1998, and 1997
November-98 November-97
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($889,643) ($1,103,364)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization) 38,154 17,652
Changes in assets and liabilities 78,263 222,472
Stock commission expense 408,390 267,188
------------- -------------
Net cash used in operating activities (364,836) (596,052)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas property, net) 0 (19,171)
Purchase of fixed assets) 0 (3,189)
------------- -------------
Net cash used in investing activities 0 (22,360)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 302,711 517,000
Net cash provided by financing activities 302,711 517,000
------------- -------------
Net decrease in cash and cash equivalents ($62,125) ($101,412)
Cash and cash equivalents at beginning of year) $ 35,630 $ 130,175
------------- -------------
Cash and cash equivalents at end of year ($26,495) $ 28,763
============= =============
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 $ 408,390 $ 267,188
------------- -------------
</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 Six Months Ended November 30, 1998, and 1997
(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)
=========== =========== ======== ============
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)
=========== =========== ======== ============
The accompanying notes are an integral part of these financial statements
</TABLE>
<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 three months ended November 30, 1998, 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 (34,275,685 for the quarter ended November 30,
1998; 21,581,387 for the quarter ended November 30, 1997; 31,432,554 for the six
months ended November 30, 1998; and 20,164,515 for the six months ended November
30, 1997) 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.
<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 November 30, 1997, were restated and reclassified
in connection with the year end audit.
RESULTS OF OPERATIONS - 1997 VS 1998
- ------------------------------------------
The following summarizes oil and gas revenues and operating expenses for
the quarter and six months ending November 30, 1998, and 1997.
<TABLE>
<CAPTION>
Six Months Quarters
Ended November 30 ended August 31,
-------------------------- --------------------
1998 1997 1998 1997
------------ ------------ --------- ----------
<S> <C> <C> <C> <C>
Oil and Gas Sales. . . . . . . . . . $ 24,221 $ 41,761 $ 7,873 $ 27,773
Lease Operating Expenses . . . . . . 11,244 19,307 6,344 11,422
------------ ------------ --------- ----------
Operating Income. . . . . . . . . . $ 12,977 22,454 $ 1,529 $ 16,351
============ ============ ========= ==========
The following reflects the Company's cumulative costs in oil and gas properties:
Six Months ended November 30,
---------------------------------
1998 1997
------------ ------------
Oil and Gas Properties at Full Cost:
Unproved Oil and Gas
Properties. . . . . . . . . . . . $ 55,202 $ 0
Proved Properties Being Amortized . 7,287,043 7,276,662
Less Accumulated Depletion
and Depreciation. . . . . . . . . (4,234,230) (4,137,419)
------------ ------------
$ 3,108,015 $ 3,139,243
============ ============
</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. Future revenues from the Company's domestic
oil and gas properties at November 30, 1998, are expected to be minimal.
OPERATING EXPENSES - Lease operating expenses decreased from $11,422 to
- -------------------
$6,344 due to declining domestic production. Lease operating expenses for the
six months ended November 30 decreased from $19,307 to $11,244 due to declining
domestic production. At November 30, 1998, 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 $864,464 during the six months ended November 30, 1998, versus
$737,540 for the six months ended November 30, 1997. The increase is
attributable to an increase of approximately $159,000 in commission expense
related to the issuance of common stock for services rendered. During the three
months ended November 30, 1998, general and administrative expenses were
$481,436 versus $502,730 for the three months ended November 30, 1997. This
decrease is attributable to decreases in entertainment ($20,828) and other
expenses.
The net loss for the quarter ended November 30, 1998, was $(498,985) or
$(0.01) per share on revenues of $7,873 versus a net loss of $(562,559) or
$(0.03) per share on revenues of $27,773 in the same period of last year.
The net loss for the six months ended November 30, 1998, was $(889,643) or
$ (0.03) per share on revenues of $24,221 versus a net loss of $(1,103,364) or
$(0.05) per share on revenues of $41,761 last year.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
Cash used by operations during the six months ended November 30, 1998, was
$364,836 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 November 30, 1998, 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.
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> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> (26495)
<SECURITIES> 0
<RECEIVABLES> 192276
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 192276
<PP&E> 7349644
<DEPRECIATION> (4234230)
<TOTAL-ASSETS> 3308065
<CURRENT-LIABILITIES> 306399
<BONDS> 0
<COMMON> 11666649
0
0
<OTHER-SE> (8664983)
<TOTAL-LIABILITY-AND-EQUITY> 3308065
<SALES> 24221
<TOTAL-REVENUES> 24221
<CGS> 11244
<TOTAL-COSTS> 11244
<OTHER-EXPENSES> 902620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (889643)
<INCOME-TAX> 0
<INCOME-CONTINUING> (889643)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (889643)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
