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 JUNE 30, 2002.
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 of incorporation or organization) | (IRS Employer Identification No.) |
3000 Richmond, Suite 100, Houston, TX 77098
(Address of principal executive offices, including zip code)
(713) 977-4662
(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 June 30, 2002, based upon the last closing price on the OTCBB on June 28, 2002, was $2,847,883. As of June 30, 2002, there were 142,394,131 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
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ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
JUNE 30, 2002
| PART I - FINANCIAL INFORMATION | ||
| ITEM 1. Financial Statements. | ||
| ||
| ................................... | 2 |
| ||
| ................................... | 3 |
Consolidated Statement of Changes in Shareholders' Equity | ||
| ................................... | 4 |
| ||
| ................................... | 5 |
| ................................... | |
| ITEM 2. Management's Discussion and Analysis of Financial | ||
Condition and Results of Operations | ................................... | |
| PART II - OTHER INFORMATION | ||
| ITEM 1. through ITEM 6. | ................................... | |
| SIGNATURES |
1
PART I - FINANCIAL INFORMATION
Adair International Oil & Gas, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2002 compared to June 30, 2001
| 2002 | 2001 | |
| ASSETS (Unaudited) | ||
| Current Assets: | ||
| $ (12,204) | $ 1,481 |
| 2,000,000 | 35,307 |
| 175,000 | - |
Total Current Assets | 2,162,796 | 36,788 |
Investments: | ||
| 861,826 | 844,286 |
| Property and Equipment: | ||
| 7,794,444 | 7,618,908 |
| 997,981 | 832,643 |
Total Property and Equipment | 8,792,425 | 8,451,551 |
| (349,147) | (178,868) |
| Net Property and Equipment: | 8,443,278 | 8,272,683 |
| Other Assets: | ||
| 1,578,208 | 1,583,362 |
| - | 13,034 |
| Total Other Assets | 1,578,208 | 1,596,396 |
| Total Assets | $ 13,046,108 | $ 10,750,153 |
| LIABILITIES AND SHAREHOLDER'S EQUITY | ||
| Current Liabilities: | ||
| 599,963 | 733,103 |
| 55,000 | - |
| 200,000 | 34,245 |
| - | 161,000 |
| - | 70,000 |
| 2,000,000 | - |
| 187,155 | 27,853 |
| Total Current Liabilities | 3,042,118 | 1,026,201 |
Notes Payable | 367,951 | 341,363 |
| Shareholders Equity: | ||
Common Stock without par 150,000,000 authorized | 24,544,340 | 21,670,975 |
Accumulated deficit | (14,908,301) | (12,288,386) |
| Total Shareholders Equity | 9,636,039 | 9,382,589 |
| Total Liabilities and Shareholder's Equity | $ 13,046,108 | $ 10,750,153 |
* Current management is investigating the validity of this receivable. Please note that the amount has been offset as Unearned Revenue for purposes of reporting on the balance sheet .
2
Adair International Oil & Gas, Inc. and Subsidiaries
Consolidated Statements of Operations
Six Months Ended June 30, 2002 and 2001
(Unaudited)
| 2002 | 2001 | |
| Revenues | ||
| - | $ 179,872 |
| - | 36,000 |
Administrative and other fees | - | 1,757 |
| Total Revenues | - | 217,629 |
| Costs and Expenses | ||
| 793,845 | 955,194 |
| 187,677 | - |
| 27,923 | - |
| 80,000 | 30,250 |
| 12,610 | 13,783 |
| Total Costs and Expenses | 1,102,045 | 999,227 |
| Net Loss From Operations | (1,102,045) | (781,598) |
| Other income (interest) | 11,059 | 3,386 |
| Net income (loss) | $ (1,090,985) | $ (778,212) |
| Net loss per common share: | ||
| $(0.01) | $ ( 0.01) |
See accompanying notes to consolidated financial statements.
3
Adair International Oil & Gas, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
Six months ended June 30, 2002
(Unaudited)
| Common | Stock | Accumulated | ||
| Shares | Amount | Deficit | Total | |
| Issuances of shares: | ||||
| December 31, 2001 | 97,080,295 | $23,548,859 | $ (13,817,316) | $ 9,731,543 |
| For cash | 29,218,765 | 779,891 | - | 779,891 |
| For salaries | 5,553,594 | 187,667 | - | 187,667 |
| Other Company obligations | 558,086 | 27,923 | - | 27,923 |
| Net Loss | - | - | (609,336) | (609,336) |
| Unreconciled Shares | 9,983,391 | |||
| June 30, 2002 | 142,394,131 | $24,544,340 | $ (14,908,301) | $ 9,636,039 |
See accompanying notes to consolidated financial statements.
4
Adair International Oil & Gas, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months ended June 30, 2002 and 2001
(Unaudited)
| 2002 | 2001 | |
| Cash Flows from Operating Activity | ||
| Net income (loss) | $ (1,090,985) | $ (1,113,820) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||
| 80,000 | 55,827 |
| 215,590 | 177,751 |
| Changes in working capital accounts: | ||
| 793 | |
| 13,689 | |
| (5,578) | |
| 29,377 | |
| 77,707 | 626,061 |
| 161,000 | |
| 70,000 | |
| 106,616 | 19,359 |
Other | (173,157) | |
Total Adjustments | 306,756 | 1,148,279 |
| (784,229) | 34,459 |
| Cash flows used in investing activities: | ||
| - | (356,560) |
| - | (543,400) |
| - | (899,960) |
| Cash flows from financing activities: | ||
| (844,286) | |
Increase in long term debt | 330,031 | |
| 776,462 | 1,351,042 |
| (17,397) | |
| Net cash provided by financing activities | 759,065 | |
Net change in cash and cash equivalents | (25,164) | (28,714) |
| Cash and cash equivalents: | ||
| 12,960 | 30,195 |
| $ (12,204) | $ 1,481 |
Supplemental disclosures of cash flow: | ||
| $ 12,610 | $ 13,783 |
See accompanying notes to consolidated financial statements.
5
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements June 30, 2002
NOTE 1. Summary of Significant Accounting Policies
Basis of Presentation -- Adair International Oil and Gas, Inc., ("the Company") was incorporated under the laws of the state of Texas on November 7, 1980. The consolidated financial statements include the accounts of Adair International Oil and Gas, Inc. and its wholly owned subsidiaries, Adair Exploration, Inc., Adair Yemen Exploration Limited, Superior Geophysical Inc, and Adair Colombia Oil and Gas, S.A. ("The Company"). All intercompany balances and transactions have been eliminated, as necessary, in consolidation.
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.
Change of Control -
On August 5, 2002, Adair International Oil & Gas, Inc. (the "Company or "AIGI" ) held it's 2001 Annual Shareholders Meeting. At this meeting, the AIGI shareholders, who had previously been properly noticed and informed by opposing proxy statements distributed by the Company's management and the SCORE Group, Inc.* (" SCORE Group"), voted to select a new Board of Directors for the Company's current calendar year. Judge Richard P. Bianchi, a former Texas State District Judge from the Houston area, was appointed the Inspector of Election by the opposing parties. Herein enclosed is a summary of the "Inspector's Report of the Validity of Proxies and the Canvass of Votes on Proposals" .
1. I, as duly appointed Inspector of Election, authorized to act at the 2001 Annual Shareholders Meeting of Adair International Oil & Gas, Inc., held at Chase Center Auditorium, 601 Travis, Houston, Texas 77002 at 9:00 am local time, on August 5, 2002, (the "Meeting") do hereby certify that:
2. Having examined the list of the holders of the outstanding shares of the Company's Common Stock, $.00 par value per share (the "Shares"), as of June 17, 2002 (the record date fixed by the Board of Directors for determining shareholders entitled to notice of, and to vote at, the Meeting), certified by the transfer agent of the Company, which list was in our custody at the Meeting, that list shows 142,394,131 Shares to have been issued and outstanding on June 17, 2002, and thus, the total number of Shares eligible to vote at the meeting is 142,394,131.
3. Having examined the Company's Articles of Incorporation and By-Laws, each as amended, and finding that each Share entitles the holder thereof to one vote on each item of business listed in the notice of the Meeting, and that a majority of the outstanding Shares constitutes a quorum for the transaction of business at the Meeting.There were submitted at the meeting proxies and ballots for a aggregate of 84,861,913 Shares (representing 59% of the issued and outstanding Shares on June 17, 2002).
4. Upon examination, these proxies and ballots were found to be in all respects regular; the signers of such proxies and ballots were, at the close of business on June 17, 2002, the record holders of such Shares as shown upon the referenced certified list of holders of Shares or the representatives of such holders; and the proxies listed thereon were entitled to vote at the Meeting upon all matters properly before the Meeting, in accordance with said proxies, the number of Shares held of record by the shareholders by for whom such proxies were executed.
The Shares represented by said proxies and ballots constituted a quorum for the transaction of business at the Meeting. A vote of the shareholders was taken with respect to the Election of Directors which was canvassed and tabulated by the Inspector of Election. The following votes were cast for the Election of Directors:
Management For Withhold John W. Adair 36,948,202 534,590 Jalal Alghani 36,951,980 530,812 John Eftekhar Ph.D 36,951,780 531,012 SCORE Group Richard G. Boyce 45,390,465 1,988,656 John A. Brus 45,379,465 1,999,656 Charles R. Close 45,379,465 1,999.656
Upon announcement of the results of the balloting, by the Inspector of Election at approximately 5:00 pm local time, the SCORE Group Nominees were determined to be duly elected by the Company's shareholders to each serve as Directors for a term of one year.
The Inspector of Election has submitted a notarized copy of this report to the duly elected Board of Directors and has signed an Oath stating that "I shall faithfully execute my duties as such Inspector of Election with strict impartiality and according to the best of my ability, and shall faithfully and diligently canvass the votes cast upon the proposal to Elect the Directors and truthfully report the results thereof".
Depreciation and amortization expense for the quarter ended June 30, 2002 and 2001 was $80,000 and $55,827 respectively.
Earnings Per Share -- Basic earnings per share are computed by dividing earnings (loss) by the weighted average number of common shares outstanding adjusted for conversion of common stock equivalents, where applicable, outstanding during the period. The Company had no stock options or other common stock equivalents outstanding as of June 30, 2002 or for the period then ended.
Geophysical data and intellectual property - The carrying value of the geophysical data and intellectual property acquired in the acquisition of Partners In Exploration,Inc. as described in Note 2 below. It is the policy of the Company to carry these as other assets until such time as the Company is engaged in an exploration activity or under contract for geophysical analysis which utilizes specific proprietary data. At such time the asset would be classified as either costs as those incurred under the full cost method of accounting for oil and gas properties or costs incident to geophysical analysis contracts. Change of Control
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 carry-forward.
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 deducted from the capitalized costs to be amortized, and recorded in an impairment expense. In addition, capitalized costs are subject to a "ceiling test" which 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.
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 / office equipment - 7 years; Computer software / equipment 5 - years.
Use of Estimates -- Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from estimates.
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements June 30, 2002
NOTE 2. Oil and Gas Properties
Yemen - The Company's interest in the Republic of Yemen consists of an exploratory working interest in Sabatain Block 20. Occidental Yemen Sabatain, Inc., a wholly owned subsidiary of Occidental Oil and Gas Corporation, is the Operator of the project. The Company has a 30% working interest in the project. During 2001, the work program focused on acquisition of a 545 square kilometer 3D seismic survey. The first $ 4,000,000 of these seismic costs were paid by Occidental under terms of the farmin agreement signed with Occidental in March of 2000. The 2002 work program will focus on drilling of up to two (2) exploratory wells based on the interpretation of the aforementioned 3D seismic data. The Company's share of these drilling costs is estimated to be $ 750,000. In the event of discovery, additional capital will be required to finance development drilling and infrastructure installation. It is anticipated that through agreement with offsetting operators, some existing pipelines and production infrastructure might be utilized to allow for early production exports and timely cash flow.
Columbia - On June 30, 2002, the Company's Chimichagua gas field contained proven non-producing gas reserves as described in the Note titled, "Supplemental Oil and Gas Disclosures on Form 10K SB filed previously by the Company" This prospect has a cost basis of $3,000,000 and was purchased in fiscal 1997 by issuing 6,000,000 common shares valued at $0.50 per share.
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements June 30, 2002
NOTE 2. Oil and Gas Properties (continued):
Options to commercialize this "stranded" gas reserve focus on identifying opportunities for the Company to supply natural gas as fuel to a power plant thereby providing revenues under a long-term gas purchase contract. Realization of the value of these reserves is contingent upon the Company entering an agreement to construct a power plant utilizing gas from the field. The Company may, at any time, also choose to divest of this property receiving another interest in Columbia or cash, trade or other consideration.
NOTE 3. Non-monetary Stock Transactions
Included in the Company's consolidated statement of operations for the periods ended June 30, 2002 and 2001, were expenses that were paid with Company stock. Stock issued in lieu of cash is summarized as follows for the periods ended June 30, 2002 and 2001:
| 2002 | 2001 | |||
| Nature of Transaction | Shares | Amount | Shares | Amount |
| 5,553,594 | $ 187,667 | 925,508 | $ 352,167 |
| 558,086 | 27,923 | - | - |
| Total | 6,111,680 | 215,590 | 925,508 | $175,701 |
NOTE 4. Commitments and Contingencies
Exploration of Block 20 in the Republic of Yemen:
On April 3, 2000, Adair Yemen Exploration Limited (Adair Yemen), a wholly owned subsidiary of the Company, together with Saba Yemen Oil Company Limited (Saba), Occidental Yemen Sabatain, Inc. (Occidental), The Yemen Company For Investment In Oil and Minerals (YICOM), and the Ministry of Oil and Mineral Resources (MOMR), entered into a Production Sharing Agreement (PSA) in the Sabatain Area, Block 20, in the Marib-Shabwa Governorates, Republic of Yemen. On September 2, 2000, the President of Yemen signed decree number 21, which passes into law the Production Sharing Agreement for Block 20. This decree establishes the effective date for the PSA among Adair Yemen, Saba, and Occidental (the Parties). In addition to the PSA, the Parties are subject to a Joint Operating Agreement ("JOA") and a Joint Management Agreement ("JMA") and a Participation Agreement which defines certain financial commitments, obligations and operating rules that govern each Parties participation in the project.
The basic financial provisions of the Production Sharing Agreement ("PSA") provides that during the initial three year exploration program, a minimum work program including the acquisition of 100 square kilometers of 3D seismic and the drilling of two (2) wells will be completed by the Parties. This work program is valued by the Yemen government in the amount of $8,300,000 which has been guaranteed by placement of a Letter of Credit by Occidental with the Yemen government on behalf of the Parties. Adair Yemen Exploration, Ltd. in turn, has provided a back up Letter of Credit to Occidental in the amount of $1,290,000 for their proportionate share of the overall work program committment. This letter of credit will be returned to Adair upon completion of the minimum work program. The PSA further provides for the annual payment of a training, institutional, and social bonus in the amount of $250,000, the cost of which is paid annually and shared porportionately by the Parties during the exploration period.
In the event of discovery, oil production derived from the commercial development of the project are subject to a royalty payable to the Yemen government on a sliding percentage scale ranging from 3% on production under 25,000 barrels per day to 10% on production over 100,000 barrels per day. After payment of the government royalty, the remaining oil production is split between "Cost Oil" and "Share Oil". The Block 20 PSA allows for up to 50% of the oil produced after payment of the royalty to be allocated for sale on behalf of the working interest parties for immediate repayment of all investment costs (including exploration, drilling, development, operating costs and general and administrative expenses). The remaining oil not utilized for cost recovery, the "Share Oil", is then allocated on a porportionate basis between the Yemen government and the Working Interest Parties according to each Parties net revenue interest ("NRI"). The Company has a 28.5% NRI in the share oil due to all working interest parties sharing a carried interest to YICOM of 5%.
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements June 30, 2002
NOTE 4. Commitments and Contingencies (continued):
Pace Global Energy Services, LLC v. Adair International Oil & Gas, Inc., Cause No. 02-133-A, United States District Court, Eastern District of Virginia, Alexandria, Virginia. In February 2002, Pace Global sued Adair International Oil & Gas, Inc. in Federal District Court in the Eastern District of Virginia. Adair International Oil and Gas has settled its contractual dispute with Pace Global, LLC by agreeing to pay Place Global, LLC for services previously rendered on the basis of a monthly payment plan.
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
June 30, 2002
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. They are based on assumptions and estimates, which the Company believes are Reasonable. However, actual results could differ materially from anticipated results. Important factors that may impact 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.
Adair International Oil & Gas, Inc. and its affiliated companies ("the Company") are a dynamic and growing energy company. The Company's business plan strategy is to participate in three sectors of the energy industry: 1) Oil and gas exploration and production, 2) power plant development, acquisition, ownership, operation of power generation facilities, and 3) sale of electricity.
GENERAL
The Company and Calpine Corporation of San Jose, California signed a development agreement in July 1999. The development agreement was with respect to a site located on the Torres Martinez Indian reservation near Palm Springs, California.
Located half way between the major population centers of Los Angeles and San Diego, the $275 million Teawaya Energy Center (TEC) will be sited on reservation land belonging to the Torres Martinez Desert Cahuilla Indians. The TEC will produce 600 megawatts of electricity providing power for approximately 600,000 households, which represents a significant contribution toward meeting the power reliability needs of the rapidly growing Coachella Valley and Southern California. Construction of the project is anticipated to begin in 2003 with commercial operations projected to start in 2004.
The Teawaya plant will use two advanced technology 501F combustion turbines, supplied by Siemens-Westinghouse, operated in a highly efficient combined-cycle with a single steam turbine. The plant will be fueled by clean-burning natural gas utilizing an advanced emissions control system. As a result, the TEC will be an environmentally responsible source of electric power that will help address the growing electricity demand throughout all of Southern California.
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
June 30, 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued):
As a power project located on Native American land, the permitting process is being pursued with the federal Bureau of Indian Affairs (BIA). Activities are underway to insure that the TEC is in full compliance with the National Environmental Policy Act. The BIA further insures that the development agreement meets the cultural, environmental, and economic considerations of the Torres Martinez Indians. As such, the tribe will receive significant economic benefits resulting from a long-term lease agreement, job creation, and the sale of water. During the negotiation process Adair helped to secure investment to improve roads on the reservation and to restore several historical buildings on the reservation thereby insuring the preservation of an important part of the history of the Torres Martinez tribal culture.
The TEC Site Development Agreement, dated November 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, 2003, and $500,000 upon the commercial operation date estimated to occur in quarter three, 2003.
Additionally, the Agreement provides for a royalty payable to the Company on the basis of a sliding scale between 3% and 4% of the earnings before interest, taxes, depreciation, and amortization for a period of 20 years. Current economic models project annual royalties of from $1,100,000 to $1,800,000 per year from commercial operation. These models are based on assumptions and estimates, which the Company believes are reasonable. However, actual results could differ materially from anticipated results.
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
June 30, 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued):
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. The purchase price of this power shall be negotiated at a discount to prevailing market prices and shall approximate the fuel, operations and maintenance, financing and management expenses for the project. The Company many assign its rights to the power sales agreement and is subject to a right of first refusal in favor of Calpine.
In addition, the Company has identified eighteen other sites on Native American lands throughout the United States for potential development agreements.
RESULTS OF OPERATIONS
The following summary of the Company's financial position and results of operations should be read in conjunction with the interim consolidated financial statements included herein and the Company's audited financial statements for the period ended December 31, 2001, included in the Company's 2001 annual report on Form 10-KSB.
COMPARISION OF THREE MONTHS ENDED JUNE 30, 2002 and 2001:
For the three months ended June 30, 2002, no revenue was recorded. This compares to revenue of $236,319 for the quarter ended June 30, 2001, an decrease of $236,569. This decrease is primarily the result non-recurring revenues in 2001 for technical fees earned by the Company's geophysical subsidiary as well as revenues from the Company's equipment sales division.
For the three months ended June 30, 2002, general and administrative expenses were $353,436 compared to $540,024 for the quarter ended June 30, 2001, a decrease of $186,588. This decrease is primarily the result of closing the Company's Dallas office in June 2001, closing the Company's Superior Geophysical operations in September 2001. These decreases were offset by an increase in legal expenses incurred by the Company in 2002 versus 2001.
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
June 30, 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued):
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no cash reserves, cash flow from operations, or financing.
As of June 30, 2002, the Company had a working capital deficit and has depended on investing activities involving the sale of its common stock to obtain working capital. There are no assurances, however, that the Company can raise the necessary capital to enable it to continue to develop it's business plan or that it will be able to generate sufficient revenue growth and improvements in working capital. To the extent that funds generated from operations are insufficient, the Company will have to raise additional working capital. No assurance can be given that funds will be available from any source when needed by the Company or, if available upon terms and conditions reasonably acceptable to the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various claims and litigation. On August 5, 2002 at the Annual Meeting, the shareholders of Adair International Oil and Gas, Inc. elected an entirely new board of directors for the Company. On August ??, 2002 the Board of Directors appointed a special committee who has engaged independent legal counsel to review the merits and allegations of all curent and pending litigation. This committee has been charged with the duty to ascertain what legal actions are in the best interest of the Corporation and to make recommendations to the Board of Directors for their review and implementation. Due to the circumstances of being named as a party adverse to the Corporation in some of this pending litigation, Director Richard G. Boyce, has recused himself from this Committee and it's deliberations. Although no assurances can be given, the Company believes that resolution of many of the outstanding legal problems can be reached by direct negotiation with the parties involved.
Adair Exploration, Inc. and Adair Yemen Exploration, Ltd. v. Occidental Oil and Gas Corporation, Richard G. Boyce, Gene L. Ackerman, and David C. Crandall. Adair's wholly owned subsidiaries, Adair Exploration, Inc. ("AEI") and Adair Yemen Exploration, Limited ("AYEL") filed a lawsuit in a Texas State District Court in Houston, Texas against Occidental Oil and Gas Corporation ("Occidental"), and several former employees: Richard G. Boyce, Gene L. Ackerman, and David C. Crandall. The lawsuit alleges breaches of fiduciary duties and usurpation of corporate opportunities as well as other civil wrongs were committed by the former employees. This lawsuit was removed to Federal Court in the Southern District of Texas by defendants and has been stayed pending the outcome of the arbitration proceedings discussed below.
Occidental Yemen Sabtain, Inc. and Saba Yemen Oil Company v. Adair Yemen Exploration, Ltd. Adair Yemen Exploration, Ltd. (a wholly owned subsidiary of the Company), was named as the Respondent in the matter of Occidental Yemen Sabatain, Inc. ("OXY") and Saba Yemen Oil Company Ltd. ("SABA") v. Adair Yemen Exploration, Ltd. ("AYEL") in a Request for Arbitration filed with the International Chamber of Commerce in Paris, France on July 10, 2001. The Claimants, OXY and SABA, are claiming that AYEL breached various agreements to which OXY, SABA and AYEL are parties. AYEL responded to the Request for Arbitration and presented a vigorous defense and presented counter-claims against OXY and SABA for their breaches of the agreements in dispute.
Briar Patch Partners, Ltd. v. Adair International Oil & Gas, Inc., Adair Exploration, Inc., Partners In Exploration, Inc., Partners In Exploration, L.L.C., and Richard G. Boyce. The Company was named as a defendant in the matter of Briar Patch Partners, Ltd. v. Adair International Oil & Gas, Inc., CAUSE NO. 01-06351, 95th Judicial District Court, Dallas County, Texas. The landlord holding the lease on the property in Dallas, Texas where Adair Exploration, Inc. formerly maintained an office, has filed a lawsuit against the Company regarding the failure of the lessee to pay the rent as well as other related claims.
Adair International Oil & Gas, Inc. v. Richard G. Boyce and Larry Swift. The Company filed a lawsuit against Messrs. Boyce and Swift in the 55th Judicial District Court in Harris County, Texas, Cause No. 2001-63909. The Company sued Messrs. Boyce and Swift for defamation, tortious interference, conversion, breach of fiduciary duty and conspiracy. Messrs. Boyce and Swift have filed answers denying the Company's allegations. Mr. Boyce filed a counterclaim claiming defamation by the Company against Mr. Boyce.
3000 Richmond Limited Partnership v. Superior Geophysical, Inc. - Adair International Oil & Gas, Inc., John W. Adair, Jalal Alghani, Bill Wiseman, and Gary Tolar, Cause No. 2002-15641, in the 333rd Judicial District Court in Harris County, Texas. Superior's landlord, 3000 Richmond Limited Partnership sued Superior and AIGI as co-tenants for breach of the lease agreement and for back rent owed on Superior's leasehold.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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
None.
ADAIR INTERNATIONAL OIL AND GAS, INC. AND SUBSIDIARIES
FORM 10-QSB
June 30, 2002
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 August 19, 2002.
ADAIR INTERNATIONAL OIL AND GAS, INC.
/s/ Richard G. Boyce
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Richard G. Boyce
President