================================================================================
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 [FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED: JULY 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 July 31, 1996, there were 6,768,820 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 JULY 31, 1996 AND 1995 3
STATEMENTS OF LOSS AND RETAINED DEFICIT
FOR THE THREE AND SIX MONTHS ENDED
JULY 31, 1996 AND 1995 4
STATEMENTS OF CASH FLOWS FOR THE THREE
AND SIX MONTHS ENDED JULY 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-JULY 31, 1996 AND 1995
ASSETS
(UNAUDITED)
1996 1995
----------- ---------
Current assets:
Cash and cash equivalents .............. $ 319,931 $ --
Other receivables ...................... 195,000
----------- ---------
514,931 --
----------- ---------
Property and equipment:
Oil and gas properties .................. 617,104 --
Furniture and equipment ................. 9,609 --
----------- ---------
626,713 --
Less accumulated depreciation ................ 234 --
----------- ---------
626,479 --
----------- ---------
Other assets:
Organization costs, net .................. 771 --
Covenant not to compete, net ............. 119,830 --
Deferred taxes ........................... -- --
----------- ---------
120,601 --
----------- ---------
$ 1,262,011 $ --
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ................. $ 9,685 $ --
Accrued expenses ........................ 57,495 --
Notes payable, shareholders ............. 79,770 --
----------- ---------
146,950 --
----------- ---------
Shareholders' equity:
Preferred stock ......................... 426,944 --
Common stock ............................ 6,769 307
Additional paid in capital .............. 2,292,026 976,732
Retained deficit ........................ (1,610,678) (977,039)
----------- ---------
1,115,061 --
----------- ---------
$ 1,262,011 $ --
=========== =========
See accompanying notes to financial statements.
Page 3
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
STATEMENTS OF LOSS AND RETAINED DEFICITS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 1996 AND 1995
(UNAUDITED)
Six Three Six and
Months Months Three
Ended Ended Months
Ended
July 31 July 31,
-------------------------- -----------
1996 1996 1995
----------- ----------- -----------
Revenues, interest income ......... $ 6,991 $ 5,674 $ --
----------- ----------- -----------
Costs and expenses:
Oil and gas costs ................. 11,450 11,450 --
General and administrative ........ 206,773 92,424 --
Depreciation and amortization ..... 60,139 30,104 --
Interest .......................... 7,073 3,328 --
----------- ----------- -----------
285,435 137,306 --
----------- ----------- -----------
Income taxes ...................... -- -- --
----------- ----------- -----------
Net loss .......................... (278,444) (131,632) --
Retained deficit, beginning ....... (1,320,671) (1,467,483) (977,039)
----------- ----------- -----------
Dividends ......................... (11,563) (11,563) --
----------- ----------- -----------
Retained deficit, ending .......... $(1,610,678) $(1,610,678) $ (977,039)
=========== =========== ===========
Net loss per share ................ $ (.04) $ (.02) $(Nil)
=========== =========== ===========
Weighted average number of
shares outstanding ............... 6,335,012 6,666,638 3,078,900
=========== =========== ===========
See accompanying notes to financial statements.
Page 4
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JULY 31 1996 AND 1995
(UNAUDITED)
Six Months Three Months Six and Three
Ended Ended Ended
July 31
----------------------------------
1996 1996 1995
--------- --------- ---------
Increases(decreases) in cash
and temporary investments:
Cash flows from operating activities:
Cash received from interest ............ $ 6,991 $ 5,674 $ --
Cash paid to suppliers and employees ... (276,122) (122,786) --
Interest paid .......................... (7,073) (3,328) --
--------- --------- ---------
Net cash used by operating activities .... (276,204) (120,440) --
--------- --------- ---------
Cash flows used in investing activities:
Payment of syndication costs ........... (27,000) (13,500) --
Repayment of long-term debt ............ (107,515) (107,515) --
Purchase of property and equipment, net (249,653) (230,009) --
--------- --------- ---------
Net cash used in investing activities .... (384,168 (351,024) --
--------- --------- ---------
Cash flows from financing activities:
Sale of common stock, net .............. 945,901 457,401 --
--------- --------- ---------
Net cash provided by financing activities 945,901 457,401 --
--------- --------- ---------
Net increase (decrease) in cash .......... 285,529 (14,063) --
--------- --------- ---------
Cash, beginning .......................... 34,402 209,609 --
--------- --------- ---------
Cash, ending ............................. $ 319,931 $ 319,931 $ --
========= ========= =========
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED USED IN OPERATIONS:
Net loss ................................. $(278,444) $(131,631) $ --
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation and amortization .......... 60,139 30,104 --
(Increase) decrease in:
Accounts payable ..................... 36,072 20,544 --
Accrued expenses ..................... 21,827 (1,631) --
--------- --------- ---------
Net cash used in operations .............. $(276,204) $(120,440) $ --
========= ========= =========
See accompanying notes to financial statements.
Page 5
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 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
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 1996 AND 1995
(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 $187,285 notes to shareholders.
During the three months ended July, 1996, the Company repaid $107,515 of these
notes. At July 31, 1996, the note balance totaled $79,770, bears interest at
eight percent and is due on November 15, 1996. This note is collateralized by
certain oil and gas leases.
Page 7
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 1996 AND 1995
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
The Companies leases corporate office space under a month to month agreement.
Rent expense for the three and six months ended April and July, 1996 was $9,000
and $18,000, respectively.
4. SHAREHOLDERS' EQUITY
The Company has authorized 100,000,000 shares of common stock, par value $.001
of which 6,768,820 are issued and outstanding.
The Company has authorized 2,000,000 shares of preferred stock, $1 par value, 5%
cumulative, convertible into 426,943 shares of common stock. At July 31, 1996,
the issued and outstanding shares of preferred stock totaled 426,943.
On August 9, 1995, the Company issued 2,000,000 stock purchase warrants which
expire on August 9, 2000. The warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.001 per share at a
purchase price of $2.00 per share.
On August 18, 1995, the Company issued 393,302 stock purchase warrants which
expire on March 1, 1997. The warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.001 per share at a
purchase price of $5.00 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
For the three and six months ended July 31, 1996, the Company commenced oil and
gas operations as well as completing its offering of common stock under the
terms of a private placement memorandum. The principal revenue generated was
interest income. The Company drilled two exploratory wells in its Michigan
properties and is evaluating the feasibility of completing these wells.
Additionally, the Company is negotiating the acquisition of proved producing oil
and gas properties and related lease acreage.
PAGE 8
<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 9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ARXA INTERNATIONAL ENERGY, INC. FORM 10-QSB FOR JULY 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 319,931
<SECURITIES> 0
<RECEIVABLES> 195,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 514,931
<PP&E> 626,713
<DEPRECIATION> 234
<TOTAL-ASSETS> 1,262,011
<CURRENT-LIABILITIES> 146,950
<BONDS> 0
0
426,944
<COMMON> 6,769
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,262,011
<SALES> 6,991
<TOTAL-REVENUES> 6,991
<CGS> 0
<TOTAL-COSTS> 14,450
<OTHER-EXPENSES> 266,912
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,073
<INCOME-PRETAX> (278,444)
<INCOME-TAX> 0
<INCOME-CONTINUING> (278,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (278,444)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
