SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: OCTOBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER: 2-99565
ARXA INTERNATIONAL ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3784149
(State or other jurisdiction) (IRS Employer
of incorporation or organization Identification No.)
1331 Lamar, Suite 1375
Houston, Texas 77010
(Address of principal executive offices, including zip code)
(713) 652-2792
(Registrant's telephone number, including area code)
-------------
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.001 par value
OTC / ELECTRONIC BULLETIN BOARD
Indicate by check mark whether the registrant (I) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (ii) has been subject to such filing requirements for the
past 90 days. Yes [ ] No [x ]
As of October 31, 1996, there were 7,046,159 shares of Common Stock
outstanding.
Page 1 of 9
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
INDEX
PAGE
PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS(UNAUDITED)
BALANCE SHEETS AT OCTOBER 31, 1996 AND 1995 ........................ 3
STATEMENTS OF LOSS AND RETAINED DEFICIT
FOR THE THREE AND NINE MONTHS ENDED
OCTOBER 31, 1996 AND 1995 .......................................... 4
STATEMENTS OF CASH FLOWS FOR THE THREE
AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995 .................... 5
NOTES TO FINANCIAL STATEMENTS ...................................... 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ....................................................... 8
SIGNATURES
Page 2
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
BALANCE SHEETS-OCTOBER 31, 1996 AND 1995
ASSETS
(UNAUDITED)
1996 1995
----------- -----------
Current assets:
Cash and cash equivalents .............. $ 66,106 $ 12,925
Accounts receivable, trade ............. 6,258 --
----------- -----------
72,364 12,925
----------- -----------
Property and equipment:
Oil and gas properties .................. 1,540,889 376,380
Furniture and equipment ................. 9,609 217
----------- -----------
1,150,498 376,597
Less accumulated depreciation ................ 1,203 --
----------- -----------
1,149,296 376,597
----------- -----------
Other assets:
Organization costs, net .................. 709 879
Covenant not to compete, net ............. 89,872 207,702
Investment in pipeline partnership ....... 20,000
Deferred taxes ........................... -- --
----------- -----------
110,581 210,580
----------- -----------
$ 1,332,241 $ 600,102
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ................. $ 18,889 $ 47,282
Accrued expenses ........................ 74,321 11,443
Current maturities, long-term debt ...... 79,770 494,400
----------- -----------
172,980 553,124
----------- -----------
Long-term debt, net of current maturities .... -- 119,829
----------- -----------
Shareholders' equity:
Preferred stock ......................... 426,944 --
Common stock ............................ 7,046 5,806
Additional paid in capital .............. 2,915,748 (1,122,583)
Retained deficit ........................ (2,190,477) (1,201,240)
----------- -----------
1,159,261 (72,851)
----------- -----------
$ 1,332,241 $ 600,102
=========== ===========
See accompanying notes to financial statements.
Page 3
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ARXA INTERNATIONAL ENERGY, INC.
STATEMENTS OF LOSS AND RETAINED DEFICITS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE THREE NINE THREE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
OCTOBER 31 OCTOBER 31
-------------------------- --------------------------
1996 1996 1995 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, oil and gas ....... $ 4,866 $ 4,866 $ -- $ --
----------- ----------- ----------- -----------
Operating costs and expenses:
Production expenses ......... 2,168 2,167 -- --
Exploration costs ........... 458,660 447,210 -- --
Depreciation, depletion
and amortization ........... 91,111 30,972 30,003 30,003
General and administrative .. 313,490 95,155 194,198 194,198
----------- ----------- ----------- -----------
Total ..................... 865,429 575,504 224,201 224,201
----------- ----------- ----------- -----------
Operating loss .............. (860,563) (570,638) (224,201) (224,201)
----------- ----------- ----------- -----------
Other income(expense):
Interest income ............. 11,002 4,011 -- --
Interest expense ............ (8,682) (1,609) -- --
----------- ----------- ----------- -----------
2,320 2,402 -- --
----------- ----------- ----------- -----------
Income taxes ................ -- -- -- --
----------- ----------- ----------- -----------
Net loss .................... (858,243) (568,236) (224,201) (224,201)
Retained deficit, beginning . (1,320,671) (1,610,678) (977,039) 977,039)
Dividends ................... (11,563) (11,563) -- --
----------- ----------- ----------- -----------
Retained deficit, ending .... $(2,190,477) $(2,190,476) $(1,201,240) $(1,201,240)
=========== =========== =========== ===========
Net loss per share .......... $ (.12) $ (.08) $ (.04) $ (.04)
=========== =========== =========== ===========
Weighted average number of
shares outstanding .......... 7,209,903 7,209,903 5,806,890 5,806,890
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(UNAUDITED)
NINE THREE NINE AND
MONTHS MONTHS THREE MONTHS
ENDED ENDED ENDED
OCTOBER 31 OCTOBER 31
------------------------ ---------
1996 1996 1995
----------- --------- ---------
Increases(decreases) in cash and
temporary investments:
Cash flows from operating activities:
Cash received from interest .......... $ 11,002 5,989 $ --
Cash paid to suppliers and employees . (312,269) (98,142) (165,000)
Interest paid ........................ (8,682) (1,601) --
----------- --------- ---------
Net cash used by operating activities .. (309,949) (93,754) (165,000)
----------- --------- ---------
Cash flows used in investing activities:
Payment of dividends ................. (11,562) (11,562) --
Payment of syndication costs ......... (27,000) -- --
Repayment of long-term debt .......... (107,515) -- --
Purchase of property and equipment,net (1,082,170) (772,508) (587,000)
----------- --------- ---------
Net cash used in investing activities .. (1,228,247) (784,070) (587,000)
----------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt ........... -- -- 614,000
Sale of common stock ................. 1,569,900 623,999 151,000
----------- --------- ---------
Net cash provided by financing ......... 1,569,900 623,999 765,000
----------- --------- ---------
Net increase (decrease) in cash ........ 31,704 (253,825) 13,000
----------- --------- ---------
Cash, beginning ........................ 34,402 319,931 --
----------- --------- ---------
Cash, ending ........................... $ 66,106 $ 66,106 $ 13,000
=========== ========= =========
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED USED IN OPERATIONS:
Net loss ............................... $ (858,243) $(568,236) $(224,000)
Adjustments to reconcile net loss
to net cash used in operations:
Loss on disposition of oil and gas
properties .......................... 487,054 487,054 --
Depreciation and amortization ........ 91,111 30,972 --
(Increase) decrease in:
Accounts receivable ................ (6,258) (6,258) --
Accounts payable ................... 26,867 9,205 (48,000)
Accrued expenses ................... (6,254) 28,081 (11,000)
----------- --------- ---------
Net cash used in operations ............ $ (306,949) $ (93,754) $(165,000)
=========== ========= =========
See accompanying notes to financial statements.
Page 5
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ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(UNAUDITED)
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
ARXA International Energy, Inc.(the Company) is engaged in crude oil and natural
gas exploration, development, and production. The Company was inactive prior to
August 8, 1995.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Companies consider all
short-term securities purchased with a maturity of three months or less to be
cash equivalents.
ORGANIZATION COSTS
Organization costs are amortized on a straight line basis over sixty months for
both financial and income tax reporting purposes.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed by the
straight-line methods for financial and federal income tax reporting over their
useful lives which are generally five to seven years.
COVENANTS NOT TO COMPETE
Covenants not to compete are amortized on a straight line basis over two years
for financial reporting purposes and fifteen years for income tax reporting
purposes.
INCOME TAXES
Deferred income taxes are provided for temporary differences between financial
statement and income tax reporting, principally from the recognition of tax loss
carry forwards as a deferred tax asset. Because the utilization of the net
operating loss carry forward cannot be determined at this time, the Company has
provided a valuation allowance for the entire deferred tax asset in accordance
with the provisions of Financial Accounting Standards Board No. 109 "Accounting
for Income Taxes".
Page 6
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ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
OIL AND GAS PROPERTIES
The Company accounts for its exploration and production activities under the
successful efforts method of accounting. Under this method, oil and gas lease
acquisitions costs are capitalized when incurred. Unproved properties are
assessed on a property-by-property basis and any impairment in value is
recognized. If the unproved properties are determined to be productive, the
appropriate related costs are transferred to proved oil and gas properties.
Lease rentals are expensed as incurred.
Oil and gas exploration costs, other than the costs of drilling exploratory
wells, are charged to expense as incurred. The costs of drilling exploratory
wells are capitalized pending determination of whether proved reserves are
discovered. If proved reserves are not discovered, such drilling costs are
expensed. The costs of all development well and related equipment used in the
production of crude oil and natural gas are capitalized.
The Company amortizes capitalized costs, including gas gathering systems, using
a unit-of-production method based on proved oil and gas reserves as estimated by
independent petroleum engineers. Depreciation of other property, plant and
equipment is computed using principally the straight-line method over estimated
useful lives of three to thirty years.
NET LOSS PER COMMON SHARE
Net loss per common share is determined by dividing the weighted average number
of common shares outstanding during the period into net loss. Common share
equivalents in the form of warrants are excluded from the calculation since they
have a anti-dilutive effect on per share calculation.
2. NOTES PAYABLE, SHAREHOLDERS
The Company entered into various oil and gas lease arrangements which were
primarily funded through cash and issuance of notes to shareholders. These notes
total $79,770, bear interest at eight percent and are due January, 1997. These
notes are collateralized by certain oil and gas leases in Michigan and North
Dakota.
Page 7
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ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
The Companies leases corporate office space under a month to month agreement.
Rent expense for the nine months ended October, 1996 was $27,000.
4. SHAREHOLDERS' EQUITY
The Company has authorized 100,000,000 shares of common stock, par value $.001.
The Company has authorized 2,000,000 shares of preferred stock, $1 par value, 5%
cumulative, convertible into $1 per common share; redeemable at $2 per share,
plus arrears. At October 31, 1996, the total outstanding shares of preferred
stock totaled 426,943.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
For the three and nine months ended October 31, 1996, the Company acquired
interests in producing and exploration acreage within the United States,
commenced oil and gas operations in Texas and Louisiana, and evaluated Company
acreage in Michigan. The principal revenues were from the sale of oil and gas
and interest income. The Company is evaluating acquisition of additional
producing oil and gas properties.
In Michigan the Company plugged and abandoned two exploratory wells it drilled
on Company leases after determining from electric logs the wells contained
non-commercial quantities of gas. Subsequently on November 20th, 1996 the
Company signed an agreement with Murphy Oil, a private oil company located in
Los Angeles California, in which Murphy will earn 50% of the Company's Michigan
acreage on a checkerboard arrangement upon drilling an exploration well in the
area. The Company will pay no cost for drilling the well and receive no revenue
if the well is successful. The Company will interpret the results of the well to
determine whether or not additional potential exists in the area. The Company
has yet to receive notice from Murphy of the intended drilling date for the
well. As a result of expenditures for the two dry holes and expiration of a
portion of the leases in Michigan the Company reported a write down of $487,054
for the period ended October 31 on the Michigan properties.
On October 1, 1996 the Company acquired a 2% working interest in 19 producing
oil and gas wells located in Lavaca County, Texas for $458,171. The acquisition
includes a 2% working interest in a 30,000 acre exploitation area in West Sandy
Creek, a nearby area known as West Lavaca River, the associated 3D seismic data,
and the West Sandy Creek pipeline system within the acreage. The Company plans
to participate in the drilling of approximately 30 wells in the area during the
next 12 months. The Company is evaluating the option it has to acquire an
additional 8% interest in the West Sandy Creek Area.
The Company acquired from Integrity Financial of Los Angeles California a 50%
interest in a gas field development program located in Emery County, Utah, with
preferential rights to acquire an interest in approximately 8,000 additional
acres held by Integrity. In exchange for the interest in the Company paid
Integrity 277,333 shares of Company restricted common stock valued at $623,999.
The 600 acre acquisition includes the #12-17 Federal Well which tested 1.9
Mmcf/d (million cubic feet per day) of gas from a depth of 2,579 feet during a
flow test. The test zone is estimated to contain 0.945 Bcf (billion cubic feet)
of proven reserves. Interpretation of conventional electric logs indicates a
second zone at a depth of 2,478 feet that is estimated to contain an additional
1 Bcf of probable reserves. The well is suspended, waiting on completion. On
November 5th, 1996 the Company paid Integrity an additional 260,000 shares of
Company restricted common valued at approximately $520,000 in exchange for a 50%
interest in the additional acreage. The area contains numerous gas discoveries,
and the Company is evaluating the best method to develop the property.
On October 29, 1996 the Company paid $57,000 for a 10% working interest in
approximately
Page 8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(CONTINUED)
146 acres known as the Northwest Hackberry and West Hackberry producing areas of
Cameron Parish. The interest was acquired from Rio Bravo Exploration, a private
oil and gas company located in Houston, Texas. The area is currently producing
approximately 30 barrels of oil per day from 3 wells, but is expected to
increase the Hansen #3 well drilled and completed in early 1997 reaches maximum
producing rates. The effective date of this agreement was November 1, 1996 and
consequently revenue from this area will be generated in the next quarters
financial statement.
Page 9
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to signed on its behalf by the
undersigned thereunto duly authorized.
ARXA INTERNATIONAL ENERGY, INC.
(Registrant)
Date: 11-14-96 By: /S/ WILLIAM J. BIPPUS
William J. Bippus
President
Date: 11-14-96 By: /S/ RICHARD R. ROYALL
Richard R. Royall
Chief Financial Officer
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ARXA INTERNATIONAL ENERGY, INC. FORM 10-QSB FOR OCTOBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 66,106
<SECURITIES> 0
<RECEIVABLES> 6,258
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,364
<PP&E> 1,150,498
<DEPRECIATION> 1,203
<TOTAL-ASSETS> 1,332,241
<CURRENT-LIABILITIES> 172,980
<BONDS> 0
0
426,944
<COMMON> 7,046
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,332,241
<SALES> 4,866
<TOTAL-REVENUES> 15,868
<CGS> 0
<TOTAL-COSTS> 551,939
<OTHER-EXPENSES> 313,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,682
<INCOME-PRETAX> (858,243)
<INCOME-TAX> 0
<INCOME-CONTINUING> (858,243)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (858,243)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
