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, 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 January 12, 2000, based upon the last closing price on the OTCBB,
was $20,354,053. As of January 12, 2000 there were 68,073,757 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
November 30, 2000 and May 31, 2000 4
Consolidated Statements of Operations
Six Months Ended November 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
Six Months Ended November 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
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
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INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Adair International Oil and Gas, Inc.
We have reviewed the accompanying balance sheets of Adair International Oil and
Gas, Inc. and its subsidiaries as of November 30, 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 November 30, 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 May 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
January 16, 2000
3
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<TABLE>
<CAPTION>
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 2000 and May 31, 2000
Assets
November 30, May 31,
2000 2000
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 149,184 $ 14,854
Accounts receivable 24,000 24,000
Prepaid expenses 28,642 -
-------------- -------------
Total current assets 201,826 38,854
-------------- -------------
Property and equipment:
Oil and gas properties and equipment
under the full cost method of accounting 7,147,106 3,000,000
Furniture and equipment 272,323 268,323
-------------- -------------
7,419,429 3,268,323
Less accumulated depreciation (110,182) (88,345)
-------------- -------------
Net property and equipment 7,309,247 3,179,978
-------------- -------------
Other assets:
Geophysical data and intellectual property 1,584,718 4,984,717
Deposits and other assets 6,726 18,805
-------------- -------------
Total other assets 1,591,444 5,003,522
-------------- -------------
$ 9,102,517 $ 8,222,354
============== =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 143,976 $ 91,992
Taxes payable 1,428 41,832
-------------- -------------
Total current liabilities 145,404 133,824
-------------- -------------
Commitments and contingencies - -
Shareholders' equity:
Common stock, without par value 19,883,864 19,073,136
Accumulated deficit (10,926,751) (10,984,606)
-------------- -------------
Total shareholder's equity 8,957,113 8,088,530
-------------- -------------
$ 9,102,517 $ 8,222,354
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended November 30, 2000 and 1999
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
Prospect bonus $ 750,000 $ -
Technical services 269,545 -
Consulting fees 72,000 -
Administrative fees and other income 24,600 -
---------- ----------
1,116,145 -
---------- ----------
Costs and expenses:
Depreciation and depletion 21,837 2,122
Interest expense 598 1,387
General and Administrative 1,040,002 670,134
---------- ----------
Total costs and expenses 1,062,437 673,643
---------- ----------
Net income (loss) from operations 53,708 (673,643)
Other income (interest) 4,147 -
---------- ----------
Net loss before income taxes 57,855 1,387
Income taxes - -
---------- ----------
Net income (loss) $ 57,855 $(673,643)
========== ==========
Net loss per common share:
Basic and diluted $ 0.00 $ (0.01)
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended November 30, 2000 and 1999
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 57,855 $(673,643)
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and depletion 21,837 2,122
Issuance of stock for expenses 491,317 264,686
Changes in assets and liabilities: 209,668
(Increase) in accounts receivable (24,000) -
(Increase) in prepaid expenses (24,492) -
Increase in accounts payable 51,984 -
(Decrease) in payroll taxes payable (40,404) -
---------- ----------
Total adjustments 476,242 476,476
---------- ----------
Net cash provided by operating activities 534,097 (197,167)
---------- ----------
Cash flows used in investing activities:
Purchase of property and equipment and
Net cash used in investing activities (719,178) -
---------- ----------
Cash flows from financing activities:
Increase in note payable - 653
Common shares issued for cash 319,411 222,024
---------- ----------
Net cash provided by financing activities 319,411 222,677
---------- ----------
Net change in cash and cash equivalents 134,330 25,510
Cash and cash equivalents:
Beginning of the period 14,854 1,739
---------- ----------
End of the period $ 149,184 $ 27,249
========== ==========
Supplemental disclosures of cash flow
Cash paid during the period for interest $ 598 $ 735
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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.
7
<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.
Progress on the Teayawa Energy Center (TEC), our 640 megawatt power project
with CALPINE CORPORATION of San Jose, California, is progressing on schedule and
will be of great value to the Company when it is on line in the scheduled 2003.
Our power project is located in the middle of this situation and the demand for
power has caused intensified efforts on our part to accelerate all of our site
development activities. The California Independent System Operator declared a
stage three electrical emergency and the Energy Secretary invoked emergency
powers to effect the shipment of desperately needed power. The Power situation
in California is unfortunate for many consumers and utilities, but emphasizes
the tremendous underlying needs in the power development industry. We believe
that we have structured our efforts in power site development into an effective
plan to add the greatest value to the Company. We are in contact with other
major power development companies at this time and have received very positive
feedback. The Company has been contacted by a number of companies to buy our
position in the Teayawa Plant which we continue to evaluate but at this time
feel it is in the best interest of our stockholders to hold our present
position.
The Company, as operator, and its partners, OCCIDENTAL PETROLEUM and SABA
YEMEN OIL COMPANY, have made good progress on the Block 20 project since the
Production Sharing Agreement was ratified by the Yemen Parliament on September
2, 2000. In September, an office was opened in Sana'a, the capital city and Mr.
Gene L. Ackerman was named our resident General Manager. Gene is a veteran
expatriate General Manager, having operated exploration projects for HUNT, ARCO,
and SHELL Pecten in countries such as Guyana, Ethiopia, Niger, Senegal and
Ecuador. Gene went right to work building out the new office space located in
the ultra modern facilities of the Sana'a Trade Center and setting up Adair
Yemen Exploration Limited to conduct business. A staff of four are currently
employed in the Sana'a office including the general manager, accountant,
expediter and domestic help. Mr. Dick Boyce, President of ADAIR Exploration
traveled to Yemen in September and again in November and held joint partner
meetings in Sana'a to present the 2000 and 2001 Work Program and Budget
documents. The Company, together with its partners, approved both Work Program
Budgets and are now awaiting approval of the budgets by the Oil Ministry.
Operationally, the reprocessing of approximately 1,800 kilometers of the
existing 2D seismic data has begun. This reprocessing, which will be completed
in the first quarter of 2001, will allow us to test the "state of the art"
in seismic data processing techniques and seismic reservoir characterization
technology to determine if this technology will be applicable to our 3D seismic
data. Reservoir Characterization technology has been used in other areas of the
world to map the oil and gas reservoirs directly from the seismic data and to
specifically guide the drilling and production of fields.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Additionally we have awarded a major 3D seismic acquisition contract to
WESTERN GECO who will be mobilizing a seismic crew in Yemen beginning in
January, 2001. The 3D project is currently scheduled to begin recording in
March and will acquire a minimum of 300 square kilometers of new data centered
over the two areas where the Company has already mapped seven high quality
prospect leads at the Alif reservoir level. These prospects directly offset
Alif sand production already established and operated by Hunt Oil Company and
produce approximately 160,000 barrels per day of marib light oil. The 3D
seismic program is scheduled to take approximately six (6) months to complete.
The Work Program currently calls for the drilling of two (2) exploratory wells
during 2001, which will be based on the results of the 3D seismic. These wells
are currently scheduled for the fourth quarter of 2001, with possible follow up
wells to be drilled during the first quarter of 2002. An expatriate drilling
manager has been hired to be brought on board in the Sana'a office during the
first quarter of this year. He will begin the process of planning, bidding and
contracting all of the services to support the drilling effort.
Earlier this year, Vintage Petroleum Yemen, Inc. announced a gas discovery
in their An Naeem #1 well which tested 40 million cubic feet per day of gas and
1,020 barrels of condensate from the Alif sand. This well was drilled in Block
S-1, but directly offsets Block 20 by approximately 1000 meters. While little
information has been released by Vintage, our interpretation is that this well
has established a new structure that is completely independent from the Halewah
Field (operated by Hunt) and that the first well encountered a significant gas
cap in a good quality reservoir. Additionally, this new structure may exist
both on Block 20 and Block S-1. The question now remains if there is a liquid
oil column trapped on this structure, as is the case on Halewah Field. Vintage
subsequently drilled the An Naeem #2 well which was targeted to intersect the
reservoir downdip of the #1 well to explore for the oil column. Upon drilling,
the An Naeem #2 indeed intersected the reservoir downdip from the #1 well, but
encountered a full gas column which tested at a rate of 27.7 million cubic feet
of gas and 880 barrels of condensate with no water production. The results of
this second well seem to indicate that the gas cap is larger than originally
thought by Vintage and that any potential oil leg still would remain downdip of
the #2 well - again suggesting larger oil potential for the structure. No
additional drilling on this structure has been announced by Vintage. Portions
of our new 3D seismic program are designed to map how much of this proven
feature might exist on Block 20. While it is premature to fully assess the
impact that these facts have on our own exploration program, these drilling
results are very encouraging to the Block 20 partners.
Power projects and major exploration programs are, by nature, long term,
and require time and capital to develop. In the same manner that projects and
major industry partners were brought to the Company in 2000, management has been
vigorously positioning itself to acquire the financing to execute the total
business plan. We are confident that the year 2001 will see the acquisition of
all elements to attain the company's goals, including the acquisition of
domestic cash producing oil and gas properties with upside infield drilling
potential.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
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 six months ending November 30, 2000, and November 30, 1999
Revenues. In the current quarter, total revenues of $1,116,145 were
largely the prospect bonus of $750,000 and the technical services fees of
$269,545, both in connection with the exploration program in Block 20. This is
in contrast to no revenues during the same period in the prior year.
Depreciation. Depreciation expense increased from $2,122 in the prior year
six month period to $21,837 in the same period of 2000. The increase was
attributable to the acquisition of additional assets of a subsidiary and their
related carrying values.
Interest Expense. The Company incurred $598 interest expense in the
current period compared with $1,387 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 six
months of from $670,134 to $1,040,002, an increase of $369,868. This increase
was attributable to the general and administrative expenses of Adair
Exploration, Inc. from June 1, 2000 through November 30, 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 income of $57,855 or $0.00 per share on revenues of $1,116,145
for the six ended November 30, 2000 was in sharp contrast to the net loss of
($673,643) or ($0.01) per shares on no revenues in the comparable period 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 the next year.
However, there can be no assurance that these sources of cash will cover those
requirements. The company has no bank debt.
10
<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 197,653 shares were issued for cash of $102,950 and 484,731
shares were issued in lieu of cash for salaries and other expenses totaling
$193,817.
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.
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 January 16, 2001.
ADAIR INTERNATIONAL OIL AND GAS, INC.
/s/ Jalal Alghani
------------------------------
Jalal Alghani
Chief Financial Officer
11
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