10QSB 1 q33102k.txt 3 MONTH PERIOD ENDED MARCH 31, 2002 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT HAVE 1934 For the quarterly period ending March 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT HAVE 1934 Commission File Number: 333-93383 ADRIATIC HOLDINGS LIMITED (Exact name of registrant as specified in charter) Nevada 91-1918326 (State of Incorporation) (I.R.S. Employer Identification No.) 114 W. Magnolia Street, Suite 446, Bellingham, WA 98225 (Address of principal executive offices) Registrant's telephone number, including area code (800) 661-7830 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 issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 2002 7,090,000 $.001 per share Page 2 Part I. Financial Information Item 1. Financial Statements ADRIATIC HOLDINGS CORPORATION BALANCE SHEET March 31, 2002 and December 31, 2001
MARCH 31, December 31, ASSETS 2002 2001 ------ ---------- ------------ (UNAUDITED) (AUDITED) Current Asset-Cash $ 45 $ - Deferred Offering Costs - - Notes Receivable (4) 439,246 439,246 Interest Receivable 18,956 11,269 ---------- ---------- $ 458,247 450,515 ========== ========== LIABILITIES ----------- Current liabilities: Accounts payable $ 14,480 14,481 Bank Overdraft - 35 Due to Shareholder 7,732 4,801 ---------- ---------- Total Current Liabilities $ 22,212 $ 19,317 ---------- ---------- SHAREHOLDERS' DEFICIT -------------------- Common stock, par value $0.001 per share 25,000,000 authorized shares, 7,090,000 shares issued and outstanding 7,090 7,090 Paid-in capital 482,423 482,007 Deficit accumulated during the (53,478) (57,899) ------------- ------------- Total shareholders' equity 436,035 431,198 ------------- ------------ Total liabilities and shareholders' deficit $ 458,247 $ 450,515 ========== ==========
See notes to financial statements. Page 3 ADRIATIC HOLDINGS CORPORATION STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 AND FROM INCEPTION THROUGH MARCH 31, 2002 (UNAUDITED)
Period from Inception For the Three (July 9, 1998) Month through Ended March 31, March 31, 2002 2001 2002 -------- ------- ------------ Revenue $ 0 $ 0 $ 0 Expenses General and Administrative 3,266 12,443 72,434 ------------- ----------- ----------- Total Expenses 3,266 12,443 72,434 ----------- OTHER INCOME Other Income 7,687 - 18,956 -------------- ------------ ----------- Net Income (Loss) $4,421 $(12,443) $ (53,478) ======= ======== ======== Basic and Fully Diluted Loss Per Share $ * $ * ======== ======== Weighted Average Number of Common Shares Outstanding 7,090,000 2,090,000 ======== ======== * Less than $0.01 per share
See notes to financial statements. Page 4 ADRIATIC HOLDINGS LIMITED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 AND FROM INCEPTION THROUGH MARCH 31, 2002 (UNAUDITED)
Period from Inception For the Three Ended (July 9, 1998) Month Period through March 31, March 31, Through March 31 2002 2001 2002 --------------- ------------- ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 4,421 $(12,443) $ (53,478) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: 416 416 6,855 (1) - 14,480 183: 4,801 12,027 32,143 CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Note Receivable - - (439,246) Increase in Interest Receivable ( 7,687) - (18,956) 189: Net cash used in financing activities (7,687) - (458,202) CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Increase (Decrease in due to shareholder 2,931 11,981 41,975 - - 448,415 (Increase) Decrease in offering costs - - - ---------- ----------- ------------- Net cash used in financing activities 2,931 11,981 490,390 Net Increase (Decrease) in Cash 45 (46) 45 Cash at Beginning of Period - 214 - ------------ ----------- ----------- Cash at End of Period 45 168 45 ------------- ------------- ------------- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Conversion of shareholder loan into common stock $ - $ - $ 34,243 ---------- ------------- ------------
See notes to consolidated financial statements. Page 5 ADRIATIC HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS NOTE-1 UNAUDITED FINANCIAL INFORMATION The unaudited financial information included for the three months interim period ended March 31, 2002 and 2001 were taken from the books and records without audit. However, such information reflects all adjustments (consisting only of normal, recurring adjustments) which are in the opinion of management necessary to reflect properly the results of the interim periods presented. The results of operations for the three month period ended March 31, 2002 are not necessarily indicative of the results expected for the fiscal year ended December 31, 2002. NOTE-2 FINANCIAL STATEMENTS For a complete set of footnotes, reference is made to the Company's report on Form 10K-SB for the period from inception through December 31, 2001 as filed with the Securities and Exchange Commission and the audited financial statements included therein. NOTE-3 LICENSE AGREEMENT The Company has the right to manufacture and distribute an underground electrical junction box patented by J.A. Canada. J.A. Canada has settled its lawsuit with regards to its product. The statement of claims, among other things, alleged that the Canadian patent issued on the electrical box is invalid. The plaintiffs were successful in this action, and the patent has been declared invalid and will not provide the Company with protection from competition. Since the patent was declared invalid, the design of the J.A. Canada junction box has reverted to the public domain and no further patents will be able to be issued on such a design. Since the patent is declared invalid, the Company at its option has cancelled the licensing agreement without affecting the manufacturing of the product. Since the patent is declared invalid by the courts, the Company will (a) not assert any exclusive rights to the patent and (b) has canceled its licensing agreement with J.A. Canada. The Company will also be able to manufacture the junction box using the J.A. Canada design without any recourse from or payments to J.A. Canada. As the design will belong to the public domain and no patent will be available on the J.A. Canada junction box design, the Company may have to compete directly with other manufacturers of the J.A. Canada junction box design. NOTE-4 PROMISSORY NOTE The note receivable on the accompanying balance sheet in the amount of $439,246 was issued in July 2001, bears interest at 7% annually and is due June 30, 2004. The Company accrued $18,956 of interest on this note for the period since the issuance of the note to March 31, 2002. NOTE-5 SUBSEQUENT EVENTS On April 10, 2002 the Company announced that it had entered into a letter of intent to acquire all of the shares of Heartland Oil & Gas. Heartland is an oil & Gas exploration company with a land base of 120,000 acres in central Kansas where they have drilled three successful exploratory gas wells. Page 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION The information contained below includes statements of Adriatic management's beliefs, expectations, hopes, goals and plans that are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially form those anticipated in the forward-looking statements. For a description of such risks and uncertainties, see the information set forth under the caption "Forward-Looking Statements," which information is incorporated herein by reference. The following discussion and analysis should be read in conjunction with the information set forth in the financial statements and notes. Plan of Operation Since our inception on July 9, 1998, we have not been engaged in any significant operations nor have we had any revenues other than interest income, as we are in the development stage. Our only recent activities subsequent to March 31, 2002 was the signing of a letter of intent to acquire all of the shares of Heartland Oil & Gas. Heartland is an oil and gas exploration company that has 120,000 acres in central Kansas where they have drilled 3 successful gas wells. The closing of the transaction is subject to certain conditions including the execution of a definitve purchase agreement. We plan to augment our manufacturing business by diversifying into the gas production industry. We have determined that with the slow down in economic growth in North America the timing to enter industrial manufacturing is not good and we should wait until a more robust economy develops before starting this part of our business plan. In the interim, we feel that the gas exploration industry offers some very good potential for the Company and we feel the acquisition of Heartland is a good strategic move for shareholders. Heartland with its large land base, three successful wells and good management will be a good acquisition for us for future growth of the Company. We have the authority to issue 25,000,000 shares of common stock, $0.001 par value. Prior to this filing, we have raised all funds through private placements. In July 1998, we issued 1,000,000 shares of common stock to one of our founders for $1,000 and 50,000 shares of common stock to another founder for $50. In September 1998, we issued 1,000,000 shares of common stock in connection with an additional private offering for $10,000. In February 1999, we issued 40,000 shares of common stock in connection with an additional private placement offering for $2,000. In September 2001 the Company issued 5,000,000 shares of common stock in connection with a private placement offering for $500,000. We will require additional funds to implement our growth strategy both in the manufacturing operations and the gas exploration operations. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurrance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable. At the current time, we have not begun manufacturing any junction boxes, but expect to do so when the additional funds have been made available. Currently we have $22,212 in liabilities. Our financial statements report a loss of $19,698 for the fiscal period ended December 31, 2000. For this period, we paid $1,666 in office expenses and $400 in management fees to the original founding shareholders. We had additional operating expenses for this period of $9,492 and license fees of $8,140. For the period ended December 31, 2001, we report a loss of $14,023. We paid $1,666 in office expenses to the found shareholders and had additional operating expenses of $23,626. We paid no licensing fees as we cancelled our licensing agreement with J.A. Industries (Canada). For the three month period ended March 31, 2002 we report net income of $4,421. The revenue came solely from interest income on the funds we have invested at 7%. We anticipate an increase in the number of employees to five this year. Once we feel that the economy has become more robust we plan to use $220,000 to purchase the plant equipment for the manufacturing of junction boxes. It is evident that the production process will use an above normal amount of electricity and we will require facility upgrades and improvements to electrical sources. We anticipate spending a further $50,000 on such facility upgrades in the first year of production. We do not anticipate any further need for Research and Development at this time. The Company anticipates first year production costs to be $200,000 for supplies and $60,000 for labor. We are currently negotiating further funding for Adriatic to ensure we are well capitalized to expand our operations. No assurance, though, may be given that such funding will occur on a timely basis. The Company has suffered recurring losses from operations. The continuation of the Company as a going concern is dependent upon the Company attaining and maintaining profitable operations and raising additional capital. Management's plans in this regard is to raise additional capital through an equity offering. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company discontinue operations. Our functional currency is the United States Dollar and our consolidated financial statements are reported in United States Dollars unless otherwise stated. Page 8 ADRIATIC HOLDINGS LIMITED SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. ADRIATIC HOLDINGS LIMITED (Registrant) DATE: May 1 , 2002 BY: /s/ Robert Knight/ ---------------------------- --------------------------------