UNITED STATES 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 QUARTER ENDED NOVEMBER 30, 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.
(A TEXAS CORPORATION)
I.R.S. EMPLOYER IDENTIFICATION NO. 74-2142545
3000 RICHMOND, SUITE 100
HOUSTON, TEXAS 77098
TELEPHONE: (713) 621-8241
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: with no par value Common Stock
55,735,368 shares outstanding on November 30, 1999.
Transitional small business disclosure format: Yes [ ] No [ X ]
<PAGE>
ADAIR INTERNATIONAL OIL AND GAS, INC.
REPORT ON FORM 10-QSB
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999
INDEX
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. Financial Statements
Consolidated Balance Sheets
November 30, 1999 and 1998......................................... 3
Consolidated Statements of Operations
Six Months Ended November 30, 1999 and 1998........................ 4
Consolidated Statements of Cash Flows
Six Months Ended November 30, 1999 and 1998 ....................... 5
Notes to Consolidated Financial Statements ........................ 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 8
PART II..OTHER INFORMATION
ITEM 1. Legal Proceedings ........................................ 10
ITEM 2. Change in Securities ..................................... 10
ITEM 3. Quantitative and Qualitative Disclosures
about Market Risk......................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders ...... 10
ITEM 5. Other Information ........................................ 10
ITEM 6. Exhibits and Reports on Form 8-K ......................... 11
Signatures ................................................................. 11
<PAGE>
<TABLE>
<CAPTION>
PART I.
ITEM 1. FINANCIAL STATEMENTS
ADAIR INTERNATIONAL OIL AND GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, 1999 and 1998
(unaudited)
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 27,249 $ --
Accounts receivable ................................ -- 3,776
Note receivable, net ............................... -- 188,500
----------- -----------
Total current assets ....................... 27,249 192,276
----------- -----------
Property and equipment
Oil and gas properties and equipment ............... 3,000,000 7,287,043
Unproved oil and gas properties .................... -- 55,202
Office furniture and equipment ..................... 27,399 7,399
----------- -----------
3,027,399 7,349,644
Less accumulated depreciation and depletion ........ (8,539) (4,234,230)
----------- -----------
Total assets ............................... 3,018,860 3,115,414
----------- -----------
Other assets:
Deposits ........................................... 6,726 375
----------- -----------
Total assets ............................... $ 3,052,835 $ 3,308,065
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts ................................. .. $ -- $ 26,495
Note payable ................................... 31,767 --
Accounts payable ................................... 61,853 142,867
Accrued liabilities ................................ 295,123 137,037
Taxes payable ...................................... 8,022 --
----------- -----------
Total current liabilities .................. 396,765 306,399
----------- -----------
Stockholders' equity:
Common stock, with no par value per share .......... 12,614,509 11,666,649
Retained deficit ................................... (9,958,439) (8,664,983)
----------- -----------
Total stockholders' equity ................. 2,656,070 3,001,666
----------- -----------
Total liabilities and stockholders' equity . $ 3,052,835 $ 3,308,065
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ADAIR INTERNATIONAL OIL AND GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended November 30, 1999 and 1998
(unaudited)
Three Months Three Months Six Months Six Months
Ending Ending Ending Ending
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales .......$ -- $ 7,873.. $ -- $ 24,221
Costs and expenses
Lease operating expense .$ -- $ 6,344 -- 11,244
Depreciation, depletion,
and amortization ....... 1,061 19,078 2,122 38,156
Interest expense ........ 652 -- 1,387 --
General and
Administrative expenses. 441,456 481,436 670,134 864,464
----------- ----------- ----------- -----------
Total costs and
expenses ....... 443,169... 506,858... 673,643 913,864
----------- ----------- ----------- -----------
Operating loss before
income taxes ............. (443,169) (498,985) (673,643) (889,643)
Federal income tax expense -- -- -- --
----------- ----------- ----------- -----------
Net loss ..................$..(443,169)..$..(498,985). $ (673,643) $ (889,643)
=========== =========== =========== ===========
Net loss per common share:
Basic and diluted .........$ (.01)..$ (.01). $ (.01) $ (.03)
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ADAIR INTERNATIONAL OIL AND GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $ (673,643) $ (889,643)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ..................... 1,061 38,154
Change in operating assets and liabilities ........ 210,729 78,263
Issuance of stock for expenses and obligations .... 264,686 408,390
----------- -----------
Net used by operating activities ............. (197,167) (364,836)
----------- -----------
Cash flows from investing activities ................ -- --
----------- -----------
Net cash flows from investing activities ..... -- --
----------- -----------
Cash flows from financing activities:
Increase in note payable .......................... 653
Proceeds from the sale of common stock ............ 222,024 302,711
----------- -----------
Net cash provided by financing activities .... 222,677 302,711
----------- -----------
Net change in cash and cash equivalents ............. 25,510 (62,125)
Cash and cash equivalents, beginning of period ...... 1,739 35,630
----------- -----------
Cash and cash equivalents, end of period ............ $ 27,249 $ (26,495)
=========== ===========
Cash paid during the period for:
Interest .......................................... $ 1,388 $ --
Income taxes ...................................... $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ADAIR INTERNATIONAL OIL AND GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1999
Note 1. Summary of Significant Accounting Policies
- ------------------------------------------------------
Basis of Interim Presentation -- The consolidated financial statements include
the accounts of Adair International Oil and Gas, Inc. and its wholly owned
subsidiary, Adair Colombia Oil and Gas, S.A. All material intercompany balances
and transactions have been eliminated in consolidation.
Organization -- Adair International Oil and Gas, Inc., (formerly Roberts Oil and
Gas, Inc.)("the Company") was incorporated under the laws of the state of
Texas on November 7, 1980. On June 16, 1997, a 51% interest in the Company's
outstanding common stock was acquired by Adair Oil and Gas International
of Canada, a Bahamian Corporation, and the Company name was changed to Adair
International Oil and Gas, Inc. The 51% common stock of Adair Oil and Gas
International of Canada was subsequently reissued to the individual
shareholders. Since inception the Company's primary purpose has been the
exploration, development and production of oil and gas properties in the
United States. During the year ended May 31, 1997, as described in Note 2, the
Company acquired properties located in Colombia. With that acquisition, the
primary focus of the Company has shifted to the development of natural gas fired
power generation projects.
Cash and cash equivalents -- The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
Accounts receivable -- Accounts receivable resulted from revenues attributable
to non-operating interests in domestic oil and gas properties which were sold
in the year ending May 31, 1999.
Note receivable -- The note receivable is the result of the sale of stock
for a note and is due from a financial advisory company. The note is in
default and has been placed with a collection agency. Management elected to
write off the note in the previous fiscal year.
Oil and Gas Properties -- The Company follows the full cost method of
accounting for its oil and gas properties. Accordingly, all costs associated
with acquisition, exploration and development of oil and gas reserves,
including directly related overhead costs, are capitalized. All capitalized
costs of oil and gas properties, including the estimated future costs to develop
proved reserves, are amortized on the unit-of-production method using estimates
of proved reserves. Investments in unproved properties and major
development projects are not amortized until impairment occurs. If the
results of an assessment indicate that the properties are impaired, the
amount of the impairment is added to the capitalized costs to be amortized.
In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present value,"
discounted at a 10-percent interest rate of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower of
cost or fair market value of unproved properties. Depletion of oil and
gas properties is computed using all capitalized costs and estimated future
development and abandonment costs, exclusive of oil and gas properties not
yet evaluated, on a unit of production method based on estimated proved
reserves.
<PAGE>
ADAIR INTERNATIONAL OIL AND GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
November 30, 1999
Property and equipment -- The cost of other categories of property and
equipment are capitalized at cost and depreciated using the "straight-line"
method over their estimated useful lives for financial statement purposes
as follows:
Furniture and office equipment 7 years
Computer software and equipment 5 years
Depreciation and amortization expense for the six months ending November 30,
1999 and 1998 were $2,122 and $38,154, respectively.
Income Taxes -- The Company accounts for income taxes pursuant to the asset and
liability method of computing deferred income taxes. Deferred tax assets
and liabilities are established for the temporary differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled. When necessary, valuation allowances are established to
reduce deferred tax assets to the amount expected to be realized. No
provision is made for current or deferred income taxes because the Company has
an excess net operating loss carryforward.
Note 2. Commitments and Contingencies
- -------- -------------------------------
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 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 cost 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 well after the plugging or abandonment of that well. Management
believes that the effect of any environmental contingency will not have a
material impact on the Company's financial position.
Note 3. Nonmonetary Transactions
- -------- -------------------------
During the six months ended November 30, 1999, the Company issued 5,094,644
shares of common stock valued at $451,710. Included in these shares were
394,224 shares valued at $45,000 which were issued to three officers and
directors of the Company as compensation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
condensed consolidated financial statements and related notes mentioned
elsewhere in this report.
Information Regarding Factors Affecting Forward-looking Statements
- -----------------------------------------------------------------------
The Company is including the following cautionary statement in this Form 10-QSB
to make applicable and take advantage of the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, the Company. Forward-looking statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than statements
of historical facts. Certain statements in this Form 10-QSB are forward-looking
statements. Words such as "expects," "anticipates," "estimates" and similar
expressions are intended to indentify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
are set forth below. The Company's expectations, beliefs and projections are
expressed in good faith and are believed by the Company to have a reasonable
basis, including without limitation, management's examination of historical
operating trends, data contained in the Company's records and other data
available from third parties, but there can be no assurance that management's
expectation, believes or projections will result, be achieved, or be
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in the view of the Company,
could cause material adverse affects on the Company's financial condition and
results of operations: the ability of the Company to maintain its rights in its
oil and gas interests and properties; the ability of the Company to obtain
acceptable forms and amounts of financing to fund planned prospect acquisition,
exploration, development, production, marketing and other expansion efforts; the
market for electrical power under de-regulation; the global market for oil and
gas; the political climate in nations where the Company may have interests and
properties; the ability to engage the services of suitable energy industry
service providers; competitive factors; and the effect of business interruption
due to political unrest. The Company has no obligation to update or revise
these forward-looking statements to reflect the occurrence of future events or
circumstances.
Liquidity and Capital Resources
- -------------------------------
Cash used by operations during the six months ended November 30, 1999 was
$197,167. The Company sold additional common shares to raise working capital.
As indicated below, the plan of the Company is to concentrate its efforts on the
projects that are currently in process. Management believes these efforts will
generate working capital sufficient to continue operations and develop all
ongoing projects. There is no assurance that the Company will be successful in
these efforts.
The Company incurred net operating losses for the years ending May 31, 1999
and 1998 and currently has negative working capital. Operating expenses and
other financial obligations have been met, primarily, by the issuance of Company
stock. There is no assurance that the Company will be able to continue to sell
stock to fund operations. Management of the Company has a plan to reverse these
conditions. The ability of the Company to continue as a going concern is
dependent upon their ability to carry out the plan described below.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Company has responded to losses incurred in the past two years by adopting a
new business strategy to diversify its markets. With the decline in the oil and
gas market in the past two years and the deregulation of the natural gas
industry, management has proceeded with the development of natural gas fired
power generation projects. The Company looks for the availability of land,
power grid, accessibility of water and natural gas when analyzing potential
sites. The Company has identified four sites located on Native American
Reservations in the Western United States. If successful in developing sites,
the Company expects to receive developer fees, carried royalty interests, and
the right to invest as an equity partner.
On July 8, 1999 the Company and a major power developer signed an agreement with
the Torres Martinez tribe for one of the sites mentioned above for an exclusive
option to develop a 540 megawatt facility. The agreement calls for the option
to lease property and to conduct a due diligence and feasibility study on the
project. The Company is in the final phases of negotiating the terms and
conditions regarding this facility.
The Company has positioned itself to participate in the resurgence of oil and
gas exploration, consistent with a diversified energy company. On October 26,
1999, the Company and Partners in Exploration, Inc. (P.I.E.) signed a memorandum
of understanding with the Ministry of Oil and Mineral Resources of the Republic
of Yemen to explore for oil on Block 20. The agreement provides for the
acquisition, processing, and interpretation of additional seismic data and the
drilling of two exploratory wells. The agreement represents the culmination of
months of extensive geological evaluation in the area and is consistent with the
joint venture agreement signed by the Company and P.I.E. on July 28, 1999.
The Company and P.I.E. signed a letter of intent on November 17, 1999 whereby
the Company would acquire P.I.E. and operate it as a wholly owned subsidiary.
This acquisition would provide the Company with "state of the art" 3-D seismic
capabilities in house. Management believes this acquisition, coupled with
current activities in Yemen and appropriate financing, will provide a major
revenue center for the Company.
In its continuing efforts to acquire equity partners, to make private
placements, and to seek both private and government funding for its projects,
the Company has concluded two agreements. On August 31, 1999, the Company
obtained a listing on the Frankfurt Stock Exchange. Management believes that
this market is more conservative than some others. It is anticipated that this
market will decrease the number of day traders and short term speculative
investors and, thereby, bring increased stability to the Company's stock.
On December 14, 1999, the Company obtained approval for a $500,000 grant by the
Trade Development Authority of the U. S. Government. The grant is to conduct
the feasibility study for a sugar refinery and co-generation facility in the
Aden Free Trade Zone, Republic of Yemen. Arkel Sugar International will
complete the final feasibility study on behalf of the Company and its Yemen
joint venture partner, Alfao Establishment
Management believes that these activities are positioning the Company for rapid
growth through oil and gas exploration and power generation projects in this
millennium. Such growth is intended to provide financial stability for the
Company and its stockholders.
<PAGE>
Results of Operations
- ---------------------
The following summary of the Company's financial position and results of
operations should be read in conjunction with the Condensed Consolidated
Financial Statements, the Notes to Condensed Consolidated Financial Statements,
and the Company's audited financial statements for the year ended May 31, 1999,
included in the 10-KSB.
The following summarizes oil and gas revenues and operating expense for the six
and three month periods ended November 30, 1999 and 1998:
Six Month Period Three Month Period
1999 1998 1999 1998
----------- ----------- ----------- -----------
Oil and gas sales..........$ -- $ 24,221 $ -- $ 7,873
Lease operating expense -- 11,244 -- 6,344
----------- ----------- ----------- -----------
Operating Income...........$ -- $ 12,977...$ -- $ 1,529
=========== =========== =========== ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The following reflects the Company's cumulative costs in oil and gas properties
at November 30, 1999 and 1998:
1999 1998
----------- -----------
Oil and Gas Properties at Full Cost:
Oil and gas properties and equipment .............. $ 3,000,000 $ 7,287,043
Unproved oil and gas properties ................... -- 55,202
Less accumulated depreciation and depletion ....... -- (4,234,230)
----------- -----------
$ 3,000,000 $ 3,108,015
=========== ===========
The decrease in oil and gas revenues, expenses, and oil and gas properties is a
result of the Company's sale of its domestic production in March, 1999. The
reduction in total depreciation, depletion, and amortization from $38,156 to
$2,122 as indicated in the Condensed Consolidated Statement of Operations was,
also, due to the disposition of the domestic production.
Interest expense was incurred in the past six months as a result of an interest
bearing obligation which occurred subsequent to the same period in the prior
year.
General and Administrative expenses declined from $864,464 to $670,134 or a net
of $194,330 compared to the same period for the previous year. The decrease
occurred, primarily, due to decreases in consulting and professional fees and
travel expense.
The net loss for the quarter ended Novemer 30, 1999 was ($673,643) or ($0.01)
per share with no revenues compared to a loss of ($889,643) or ($0.02) per share
on revenues of $24,221 for the same period in the previous year.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Reference is made to Part II, Item 7, Note 9, Commitments and Contingencies,
Legal Proceedings, on page F15 of the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1999.
ITEM 2. Change in Securities.
None.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
Reference is made to Part I, Item 1, Risk Factors, on pages 3-5 of the Company's
Annual Report on Form 10-KSB for the year ended May 31, 1999.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
Reference is made to the Company's Report on Form 8-K filed August 24, 1999 and
related Amendment No. 1 dated July 2, 1999 and filed August 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto 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:
Signature Title Date
- -------------------------- ------------------------- -----------------
/s/ John W. Adair Chairman of the Board January 13, 2000
- --------------------------
John W. Adair Chief Executive Officer,
and Director
/s/ Earl K. Roberts President and Director January 13, 2000
- --------------------------
Earl K. Roberts
/s/ Jalal Alghani Chief Financial Officer January 13, 2000
- --------------------------
Jalal Alghani
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 27249
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27249
<PP&E> 3027399
<DEPRECIATION> (8539)
<TOTAL-ASSETS> 3052835
<CURRENT-LIABILITIES> 396765
<BONDS> 0
0
0
<COMMON> 12614509
<OTHER-SE> (9958439)
<TOTAL-LIABILITY-AND-EQUITY> 3052835
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 673643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (673643)
<INCOME-TAX> 0
<INCOME-CONTINUING> (673643)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (673643)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
