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 AUGUST 31, 2000.
OR
[ ] 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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2142545
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3000 RICHMOND, SUITE 100, HOUSTON, TX 77098
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 621-8241
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
THE AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AT OCTOBER 2, 2000, BASED UPON THE LAST CLOSING PRICE ON THE OTCBB,
WAS $36,418,553. AS OF OCTOBER 2, 2000, THERE WERE 66,590,882 SHARES OF COMMON
STOCK OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT [ ] YES [X]
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Independent Accountants' Report . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets
August 31, 2000 and May 31, 2000 . . . . . . . . . . . . . 4
Consolidated Statements of Operations
Three Months Ended August 31, 2000 and 1999 . . . . . . . . . . 5
Consolidated Statements of Cash Flows
Three Months Ended August 31, 2000 and 1999 . . . . . . . . . . 6
Notes To Consolidated Financial Statements . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 8-9
Part Ii - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 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 . . . . . . . . . . . . 10
SIGNATURES
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Adair International Oil and Gas, Inc.
We have reviewed the accompanying balance sheet of Adair International Oil and
Gas, Inc. and its subsidiaries as of August 31, 2000, and the related statements
of operations and cash flows for the three months then ended. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of analytical procedures applied to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Adair International Oil and Gas, Inc. and its
subsidiaries as of May 31, 2000, and the related statements of operations and
cash flows for the year then ended (not presented separately herein), and in our
report dated September 2, 2000, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of August 31, 2000, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
Jackson & Rhodes P.C.
Dallas, Texas
October 13, 2000
<PAGE>
<TABLE>
<CAPTION>
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
August 31, 2000 and May 31, 2000
ASSETS
August 31, May 31,
2000 2000
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,885 $ 14,854
Accounts receivable 12,000 24,000
Prepaid expenses 4,492 -
-------------- --------------
Total current assets 51,377 38,854
-------------- --------------
Property and equipment:
Oil and gas properties and equipment
under the full cost method of accounting 3,000,000 3,000,000
Furniture and equipment 272,323 268,323
-------------- --------------
3,272,323 3,268,323
Less accumulated depreciation (99,263) (88,345)
-------------- --------------
Net property and equipment 3,173,060 3,179,978
-------------- --------------
Other assets:
Geophysical data and intellectual property 5,124,717 4,984,717
Deposits and other assets 36,980 18,805
-------------- --------------
Total other assets 5,161,697 5,003,522
-------------- --------------
$ 8,386,134 $ 8,222,354
============== ==============
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable $ 176,033 $ 91,992
Taxes payable 44,837 41,832
-------------- --------------
Total current liabilities 220,870 133,824
-------------- --------------
Commitments and contingencies - -
Shareholders' equity:
Common stock, without par value 19,587,097 19,073,136
Accumulated deficit (11,421,833) (10,984,606)
-------------- --------------
Total shareholder equity 8,165,264 8,088,530
-------------- --------------
$ 8,386,134 $ 8,222,354
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended August 31, 2000 and 1999
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
Consulting fees $ 36,000 $ -
Technical services 29,928 -
---------- ----------
65,928 -
---------- ----------
Costs and expenses:
Depreciation and depletion 10,919 1,061
Interest expense - 735
General and administrative 492,237 228,677
---------- ----------
Total costs and expenses 503,156 230,473
---------- ----------
Net loss before income taxes (437,228) (230,473)
---------- ----------
Income taxes - -
---------- ----------
Net loss $(437,228) $(230,473)
========== ==========
Net loss per common share:
Basic and diluted $ (0.01) $ (0.01)
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended August 31, 2000 and 1999
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (437,228) $ (230,473)
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation 10,919 1,061
Issuance of stock for expenses 153,000 171,538
Changes in assets and liabilities: (111,880)
Decrease in accounts receivable 12,000 -
(Increase) in prepaid expenses (4,492) -
Increase in accounts payable 88,541 -
Increase in payroll taxes payable 3,005 -
------------- -------------
Total adjustments 262,973 60,719
------------- -------------
Net cash used in operating activities (174,255) (169,754)
------------- -------------
Cash flows used in investing activities:
Purchase of property and equipment (4,000) -
Purchase of other assets (18,175)
------------- -------------
Net cash provided by investing activities (22,175) -
------------- -------------
Cash flows from financing activities:
Increase in note payable - 735
Common shares issued for cash 216,461 193,604
------------- -------------
Net cash provided by financing activities 216,461 194,339
------------- -------------
Net change in cash equivalents 20,031 24,585
Cash and cash equivalents:
Beginning of the period 14,854 1,739
------------- -------------
End of the period $ 34,885 $ 26,324
============= =============
Supplemental disclosures of cash flow
Cash paid during the period for interest $ - $ 735
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
Note 1. Organization and Business
-------------------------------------
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. During the year ended May 31, 1999,
the Company has changed its focus to the development of natural gas fired power
generation projects. Effective February 1, 2000, the Company acquired all of
the outstanding stock of Partners In Exploration, Inc. (PIE). The acquisition
provided "state of the art" 3-D seismic works stations and technical support not
previously available in house. With this acquisition the Company broadened its
basic objectives to include exploration, evaluation of producing properties for
potential acquisition, and the technical evaluation of oil and gas properties.
Note 2. Basis of Presentation
---------------------------------
Basis of Presentation - The accompanying unaudited consolidated financial
statements of the Company and its wholly-owned subsidiaries have been prepared
in accordance with the instructions and requirements of Form 10-QSB and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, such financial statements reflect all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the results
of operations and financial position for the interim periods presented.
Operating results and cash flows for the interim periods are not necessarily
indicative of the results that may be expected for the full year. These
consolidated financial statements should be read in conjunction with the
Company's annual report on Form 10-KSB.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, includes certain forward-looking
statements. The forward-looking statements reflect the Company's expectations,
objectives and goals with respect to future events and financial performance,
and are based on assumptions and estimates which the Company believes are
reasonable. However, actual results could differ materially from anticipated
results. Important factors which may affect the actual results include, but are
not limited to, commodity prices, political developments, market and economic
conditions, industry competition, the weather, changes in financial markets and
changing legislation and regulations. The forward-looking statements contained
in this report are intended to qualify for the safe harbor provisions of Section
21E of the Securities Exchange Act of 1934, as amended. The Notes to
Consolidated Financial Statements contain information that is pertinent to the
following analysis.
During the past fiscal year, the Company entered into two major projects,
an exploration program in Block 20, located in the Republic of Yemen and a power
plant located in Southern California. Both of these projects will provide
internally generated funds to apply toward budgeted expenditures during the next
fiscal year.
A participation agreement between Adair Yemen Exploration Limited,
Occidental Yemen Sabatain, Inc. and Saba Yemen Oil Company Limited, dated March
31, 2000 provided for the payment of $750,000 to the Company in September, 2000.
Adair Exploration, Inc., under the terms of a Technical Services Contract with
the project partners, began receiving fees for interpretational services for the
program. It is estimated that fees from this work will total $900,000 and
$1,000,000, respectively, in the first and second program years. The Company,
as operator, is receiving an administrative overhead fee based on varying
percentages of the total work program costs. Based on the current work program
budget, during the same two program periods, these fees are estimated to be
$235,000 and $136,000, respectively. Contractor group working interests in the
block are Occidental 50%, Adair 30%, and Saba 20%. The working interests as a
group are subject to a 5% carried interest held by the Yemen Company For
Investments In Oil and Minerals (YICOM) in the concession area.
The Teayawa Energy Center (TEC) Site Development Agreement, dated Novemer
30, 1999, provides for the payment of a development fee of $1,000,000 payable in
two installments: $500,000 at the financial closing estimated to occur in
quarter one, 2001, and $500,000 upon the commercial operation date estimated to
occur in quarter three, 2002. The Company receives $12,000 per month consulting
fee until the commercial commissioning of the project. Additionally, the
Agreement provides for a royalty payable to the Company upon commercial
operation. The Company also has the option, exercisable at or before financial
closing, to purchase up to 20% of the output of the plant under a long-term
power sales agreement. Company costs during the development phase are included
in budgeted general and administrative costs and the Company has no obligation
for any of the direct development expenditures or capital investment in the
plant.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
As a result of the Company's acquisition of interests in the Teayawa Energy
Center, the Company has been actively engaged in obtaining financing to effect
its plan to develop additional sites for gas-fired power plants and to proceed
with its exploration projects. Future internal revenues from site development
fees, operator fees, and technical services are expected to provide partial
funding of operating expenses and other financial obligations which have
previously been met primarily, by the issuance of Company stock. The revenues
from the Yemen exploration project and the TEC, in combination with the
acquisition of financing or the marketing of a portion of its currently owned
interests, are projected to take the Company to the commercial revenues of both
projects. The Company is active in its efforts to acquire major equity partners
for its site development projects.
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, 2000,
included in the 10-KSB.
Comparison of the three months ending August 31, 2000, and August 31, 1999
Revenues. In the current quarter, total revenues of $65,928 were from
consulting fees in the natural gas site development area ($36,000) and technical
geophysical services ($29,928). This is in contrast to no revenues during the
same period in the prior year.
Depreciation. Depreciation expense increased from $1,061 prior year first
quarter to $10,919 in the current quarter. The increase was attributable to the
acquisition of additional assets of a subsidiary and their related carrying
values.
Interest Expense. The Company incurred no interest expense in the first
quarter compared with $735 in the same period of the prior year.
General and administrative Expenses. The Company experienced a
significant increase in general and administrative expenses during the
quarter of from $228,667 to $492,237, an increase of $263,570. This increase
was attributable to the general and administrative expenses of Adair
Exploration, Inc. from June 1, 2000 through August 31, 2000. The general
increases were proportionate to the inclusion of the subsidiary and no major
variances in general and administrative expenses were incurred.
The net loss for the quarter ended August 31, 2000 was ($437,228) or
($0.01) per share on revenues of $65,928 versus a net loss of ($230,473) or
($0.01) per shares on no revenues in the comparable quarter in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects that its existing cash reserves, cash flows from
operations, partial project farmins, and financing, if available, will be
sufficient to cover the Company's cash requirements for fiscal 2000.
However, there can be no assurance that these sources of cash will cover the
Company's requirements for fiscal 2000.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Part I, Item 3, Legal Proceedings on page 15 of the
Company's Annual Report on Form 10-KSB for the year ended May 31, 2000.
ITEM 2. CHANGES IN SECURITIES
During the quarter 261,300 shares were issued for cash of $216,460 and 259,257
shares were issued in lieu of cash for salaries of $157,500.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Reference is made to Part I, Item 4, Submission of Matters to a Vote of Security
Holders on page 16 of the Company's Annual Report on Form 10-KSB for the year
ended May 31, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
----------- ---------------
27.1 *** Financial Data Schedule.
----------------------
(B) REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the Exchange Act,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on October 13, 2000.
ADAIR INTERNATIONAL OIL AND GAS, INC.
/s/ John W. Adair
------------------------------
John W. Adair
Chairman of the Board, Director and
Chief Executive Officer
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
--------------------
John W. Adair Director October 13, 2000
Chairman of the Board and
Chief Executive Officer
/s/ Earl K. Roberts
----------------------
Earl K. Roberts Director and President October 13, 2000
/s/ Jalal Alghani
-------------------
Jalal Alghani Director and October 13, 2000
Chief Financial Officer
<PAGE>
