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: August 31, 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 August 31, 1998, and 1997
August 31, 1998 August 31, 1997
(Unaudited) (Unaudited)
----------------- -----------------
<S> <C> <C>
Current Assets
Cash $ 0 $ 22,316.00
Accounts receivable 3,075 9,796
Notes receivable 188,500 0
----------------- -----------------
Total Current Assets 191,575 32,112
----------------- -----------------
Property and Equipment
Unproved oil and gas properties 55,202 -
Oil and gas properties and equipment 7,287,043 7,268,223
Office and other property and equipment 7,399 6,706
----------------- -----------------
7,349,644 7,274,929
Less: accumulated depletion, depreciation and amortization (4,215,153) (4,128,453)
----------------- -----------------
Total Property and Equipment) 3,134,491 3,146,476
----------------- -----------------
Other Assets 375 375
----------------- -----------------
Total Assets $ 3,326,441 $ 3,178,963
================= =================
Current Liabilities
Bank overdrafts $ 20,868 $ 0
Accounts payable 131,768 55,915
Accrued liabilities 100,198 47,073
----------------- -----------------
Total Current Liabilities 252,834 102,988
----------------- -----------------
Preferred stock 0 60,000
Commitments and Contingencies 0 0
Common Stockholder's Equity
Common stock, no par value 11,239,605 9,363,728
Retained deficit (8,165,998) (6,347,753)
----------------- -----------------
Total Common Stockholder's Equity) 3,073,607 3,015,975
----------------- -----------------
Total Liabilities and Stockholder's Equity $ 3,326,441 $ 3,178,963
================= =================
</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 Quarters Ended August 31, 1998, and 1997
August, 1998 August, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Sales Revenue
Oil and gas sales $ 16,348 $ 13,988
-------------- --------------
Costs and Expenses
Lease operating expense 4,900 7,885
Depreciation, depletion and amortization 19,078 312,098
General and administrative 383,028 234,810
-------------- --------------
Total costs and expenses 407,006 554,793
-------------- --------------
Operating loss before income taxes (390,658) (540,805)
Federal income tax expense 0 0
-------------- --------------
Net loss applicable to common stock ($390,658) (540,805)
============== ==============
Net Loss per Common Share
Primary ($0.01) ($0.03)
============== ==============
Fully diluted ($0.01) ($0.03)
============== ==============
</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 Quarters Ended August 31, 1998, and 1997
August-98 August-97
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (390,658) $ (540,805)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization) 19,077 8,686
Changes in assets and liabilities 31,026.00 220,488.00
Stock commission expense 86,022.00 -
Net cash used in operating activities (254,533.00) (311,631.00)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas property, net 0 (10,732.00)
Purchase of fixed assets 0 (2,496.00)
Net cash used in investing activities) 0 (13,228.00)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 198,035.00 217,000.00
Net cash provided by financing activities 198,035.00 217,000.00
------------- -------------
Net decrease in cash and cash equivalents (56,498.00) (107,859.00)
Cash and cash equivalents at beginning of year 35,630.00 130,175.00
Cash and cash equivalents at end of year (20,868.00) 22,316.00
------------- -------------
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 $ 86,022 $ 0
============= =============
</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 Three Months Ended August 31, 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)
========== =========== ======== ============
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)
========== =========== ======== ============
</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 three months ended August 31, 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 (28,620,325 for the quarter ended August 31,
1998, and 18,769,710 for the quarter ended August 31, 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, 1,210,000 shares were sold in private transactions for
$198,035.
<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.
RESULTS OF OPERATIONS - 1997 VS 1998
- ------------------------------------------
The following summarizes oil and gas revenues and operating expenses for
the quarter ending August 31, 1998, and 1997.
Quarters ended August 31,
--------------------------
1998 1997
---------- -----------
Oil and Gas Sales $ 16,348 $ 13,988
Lease Operating Expenses 4,900 7,885
---------- -----------
Operating Income $ 11,448 $ 6,103
========== ============
The following reflects the Company's cumulative costs in oil and gas
properties:
Quarters ended August 31,
----------------------------
1998 1997
------------- ------------
Oil and Gas Properties at Full Cost:
Unproved Oil and Gas
Properties $ 55,202 $ 0
Proved Properties Being Amortized 7,287,043 7,268,223
Less Accumulated Depletion
and Depreciation (4,215,153) (4,128,453)
------------- ------------
$ 3,127,092 $ 3,139,770
============= ============
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 August 31, 1998, is expected to be minimal.
Operating Expenses - Lease operating expenses decreased from $ 7,885 to
- -------------------
$4,900 due to declining domestic production. At August 31, 1998, the Company
had no foreign production.
General and administrative expenses - General and administrative expenses
- --------------------------------------
increased to $ 383,028 during the quarter ended August 31, 1998, versus $
234,810 the same period of last year. The increase is attributable to
approximately $ 38,000 of non-recurring accounting fees associated with the May,
1998, audited financial statements, $ 19,000 of commissions attributable ongoing
business development, $ 10,000 of insurance expense, and $ 86,022 of
non-recurring commission expenses.
The net loss for the quarter ended August 31, 1998, was ($390,658) or $
(0.01) per share on revenues of $ 16,348 versus a net loss of $ (540,805) or $
(0.03) per share on revenues of $ 13,988 for the quarter ended August 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
Cash used by operations during the quarter ended August 31, 1998, was $
254,533 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, 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> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> (20868)
<SECURITIES> 0
<RECEIVABLES> 191575
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 191575
<PP&E> 7349644
<DEPRECIATION> (4215153)
<TOTAL-ASSETS> 3326441
<CURRENT-LIABILITIES> 252834
<BONDS> 0
<COMMON> 11239605
0
0
<OTHER-SE> (8165998)
<TOTAL-LIABILITY-AND-EQUITY> 3326441
<SALES> 16348
<TOTAL-REVENUES> 16348
<CGS> 4900
<TOTAL-COSTS> 4900
<OTHER-EXPENSES> 402106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (390658)
<INCOME-TAX> 0
<INCOME-CONTINUING> (390658)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (390658)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
