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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: APRIL 30,1997
[ ] 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)
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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 [X] No [ ]
As of April 30, 1997, there were 6,236,034 shares of Common Stock
outstanding.
Page 1 of 9
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<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
INDEX
Page
----
PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS(UNAUDITED)
BALANCE SHEETS AT APRIL 30, 1997 AND 1996 3
STATEMENTS OF LOSS AND RETAINED DEFICIT
FOR THE THREE MONTHS ENDED
APRIL 30, 1997 AND 1996 4
STATEMENTS OF CASH FLOWS FOR THE THREE
ENDED APRIL 30, 1997 AND 1996 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-APRIL 30, 1997 AND 1996
ASSETS
(UNAUDITED)
1997 1996
------------ ------------
Current assets:
Cash and cash equivalents ............. $ 455 $ 333,994
Accounts receivable, trade ............ 12,650 --
Prepaid expenses ...................... 7,354 --
------------ ------------
20,459 333,994
------------ ------------
Property and equipment:
Oil and gas properties .................. 1,670,608 390,893
Furniture and equipment ................. 9,609 5,812
------------ ------------
1,680,217 396,705
Less accumulated depreciation ................ 12,160 133
------------ ------------
1,668,057 396,572
------------ ------------
Other assets:
Organization costs, net .................. 617 817
Covenant not to compete, net ............. 12,833 149,787
Investment in pipeline partnership ....... 20,000 --
Deferred taxes ........................... -- --
------------ ------------
33,450 150,604
------------ ------------
$ 1,721,966 $ 881,170
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ................. $ 58,946 $ 30,230
Accrued expenses ........................ 172,892 44,300
Current maturities, long-term debt ...... 181,535 187,285
------------ ------------
413,373 261,815
------------ ------------
Long-term debt, net of current maturities .... 50,000 --
------------ ------------
Shareholders' equity:
Preferred stock ......................... 385,180 426,944
Common stock ............................ 6,236 6,334
Additional paid in capital .............. 3,342,635 1,653,561
Retained deficit ........................ (2,475,458) (1,467,484)
------------ ------------
1,258,593 619,355
------------ ------------
$ 1,721,966 $ 881,170
============ ============
See accompanying notes to financial statements.
Page 3
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
STATEMENTS OF LOSS AND RETAINED DEFICITS
FOR THE THREE MONTHS APRIL 30, 1997 AND 1996
(UNAUDITED)
1997 1996
------------ ------------
Revenues, oil and gas .................. $ 15,332 $ --
------------ ------------
Operating costs and expenses:
Production expenses .................... 5,450 --
Exploration costs ...................... -- --
Depreciation, depletion
and amortization ...................... 24,373 30,074
General and administrative ............. 59,678 92,634
------------ ------------
Total ................................ 89,501 122,708
------------ ------------
Operating loss ......................... (74,169) (224,201)
------------ ------------
Other income(expense):
Interest income ........................ 31 1,316
Interest expense ....................... (2,278) (25,421)
------------ ------------
(2,247) (24,105)
------------ ------------
Income taxes ........................... -- --
------------ ------------
Net loss ............................... (76,416) (146,813)
Retained deficit, beginning ............ (2,394,077) (1,320,671)
Dividends .............................. (4,965) --
------------ ------------
Retained deficit, ending ............... $ (2,475,458) $ (1,467,484)
Net loss per share ..................... $ (.01) $ (.02)
============ ============
Weighted average number of
shares outstanding ..................... 7,089,729 6,333,560
============ ============
See accompanying notes to financial statements.
Page 4
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996
(UNAUDITED)
1997 1996
------------ ------------
Increases(decreases) in cash and temporary
investments:
Cash flows from operating activities:
Cash received from interest ................ $ 31 $ 1,316
Cash received from production .............. 17,306 --
Cash paid to suppliers and employees ....... (13,010) (131,660)
Interest paid .............................. (4,265) (25,420)
------------ ------------
Net cash used by operating activities ........ (62) 155,764
Cash flows used in investing activities:
Payment of syndication costs ............... -- (13,500)
Repayment of long-term debt ................ (10,000)
Purchase of property and equipment, net .... (39,214) (19,644)
------------ ------------
Net cash used in investing activities ........ (49,214) (33,144)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt ................ 157,500 488,500
Retirement of preferred and common stock .... (135,687)
Decrease in other assets .................... 25,687
------------
Net cash provided by financing ............... 47,500 488,500
------------ ------------
Increase(decrease) in cash ................... (1,776) 299,592
------------ ------------
Cash, beginning .............................. 2,231 34,402
------------ ------------
Cash, ending ................................. $ 455 $ 333,994
============ ============
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED USED IN OPERATIONS:
Net loss ..................................... $ (76,416) $ (146,813)
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation and amortization ............ 24,373 30,074
(Increase) decrease in:
Accounts receivable ...................... 1,974
Increase(decrease) in:
Accounts payable ......................... 4,831 15,528
Accrued expenses ......................... 45,176 23,497
------------ ------------
Net cash used in operations .................. $ (62) $ (155,764)
============ ============
See accompanying notes to financial statements.
Page 5
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996
(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 MONTHS ENDED APRIL 30, 1997 AND 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. LONG-TERM DEBT
For the three months ended April 30, 1997, the Company borrowed short and
long-term funds for the purposes of retiring common and preferred stock, release
of certain liens on oil and gas properties, and investment in its oil and gas
producing activities. The following summarizes long-term debt at April 30, 1997:
Note payable, J. O. Schofield, dated March 12, 1997,
non-interest bearing (imputed interest at eight
percent), payable at seven percent of net funds
received through March 12, 1999, after March 12,
1999 the note is repaid with the Company's common
stock at the average market price for the five days
preceding March 13, 1999 ...................................... $ 100,000
Note payable, Duke Resources, dated March 12, 1997,
due September 12, 1997, bears interest at eight
percent and is unsecured ...................................... 79,770
Note payable, individual, dated February 28, 1997,
due February 28, 1998, non-interest bearing
(imputed interest at eight percent), unsecured,
repayable in cash or common stock at $1 per share ............. 25,000
Note payable, shareholder and officer, due on demand,
unsecured, interest at variable rates ......................... 26,765
---------
231,535
Current maturities of long-term debt ........................... (181,535)
---------
Long-term debt ................................................. $ 50,000
=========
Current maturities of long-term debt are $181,535 and $50,000 for the years
ended April 30, 1998 and 1999.
Page 7
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
FOR THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
The Companies leases corporate office space under a month to month agreement.
Rent expense for the three months ended April, 1997 was $6,000.
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 April 30, 1997 and 1996, the total outstanding shares of
preferred stock totaled 385,180 and 426,943, respectively. During March, 1997,
the Company entered into an agreement with a shareholder to purchase and
exchange an asset(covenant not to compete) for 1,070,125 shares of common stock
and 41,764 shares of preferred stock. Additionally, certain shareholders
converted 247,606 shares of preferred stock was converted into 247,606 shares of
common stock during May, 1997.
Warrants for the purchase of common stock, $.001 par value, are summarized as
follows:
Exercise Price Expiration Date Number of Warrants
-------------- ----------------- ------------------
$2.00 August 9, 2000 2,025,000
$5.00 February 28, 1998 356,458
No warrants have been exercised during any time period.
Changes in shareholders' equity are as follows:
<TABLE>
<CAPTION>
Shares Amount
----------------------- ------------------------ Additional
February 1,1997 Common Preferred Common Preferred Paid-In Retained
To April 30, 1997 Stock Stock Stock Stock Capital Deficit Total
- ------------------ ---------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
February 1, 1997 7,306,159 426,944 $ 7,306 $ 426,944 $ 3,435,488 $(2,394,076) $ 1,475,662
Retirement of:
Common stock ... (1,070,125) -- (1,070) -- (92,853) -- (93,923)
Preferred stock -- (41,764) -- (41,764) -- -- (41,764)
Issuance of
warrants ....... -- -- -- -- 25,000 -- 25,000
Dividends ....... -- -- -- -- -- (4,966) (4,966)
Syndication costs -- -- -- -- (25,000) -- (25,000)
Net loss ........ -- -- -- -- -- (76,416) (76,416)
---------- --------- --------- ----------- ----------- ----------- -----------
6,236,034 385,180 $ 6,236 $ 375,180 $ 3,342,635 $(2,475,457) $ 1,258,593
---------- --------- --------- ----------- ----------- ----------- -----------
</TABLE>
5. Income taxes
At April 30, 1997 and 1996, the effective tax rate for the Company is
reconcilable to statutory tax rates as follows:
1997 1996
-------- --------
U.S. federal Statutory Tax Rate 34% 34%
Reconciling item .............. (34) (34)
-------- --------
Effective rate ................ -0- -0-
======== ========
For the three months ended April 30, 1997 and 1996, the Company's deferred tax
asset, resulting from net operating losses, totaled $500,000 and $167,000,
respectively. Income tax expense for the three months ended April 30, 1997 and
1996 was zero due a valuation allowance which offset the deferred tax asset and
tax expense at these dates.
6. Subsequent events
Subsequent to April 30, 1997, 247,606 preferred shares were converted into
247,606 shares of common stock.
Under the terms of an six month agreement with an investment banking group, the
Company granted a stock option to sell 1,000,000 shares of common stock for
$700,000. Subsequent to April 30, 1997, the Company received $50,000 for this
stock option. The investment banking company has notified the Company that it
has successfully sold the stock and has remitted $350,000 of the $700,000 to the
Company.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
For the three months ended April 30, 1997 the Company continued its successful
drilling program in West Sandy Creek, Lavaca County, Texas. During the period
Company in conjunction with the operator Moose Oil and Gas successfully drilled
new discoveries. The Ashbacher "B" 1I was drilled to a total depth of 1,850 feet
on February 9, 1997. The well penetrated five feet of net gas pay at a depth of
1,686 feet, and penetrated a second nine foot thick gas pay at a depth of 1,779
feet. The well was completed and converted to sales during April at a rate of
190,000 cubic feet of gas per day. ARXA has a 2.4% working interest in the well.
The Company continued a series of successful discoveries in West Lavaca River,
Lavaca County Texas. The Denny #1 discovery well drilled in December 1996 and
converted to sales during April 1997 at an initial rate of 130,000 cubic feet of
gas per day. ARXA has a 2% working interest in the Denny #1. First production
was established in during March when the Debord #1 was converted to sales at an
initial rate of 120,000 cubic feet per day. ARXA has a 2% working interest in
the well. During the period the Company made three additional discoveries in the
area. The Barnes #1 was drilled and completed at an initial production rate of
120,000 cubic feet per day. ARXA has a 2% interest in the well. The Ferguson #1
was drilled and completed at an initial production rate of 140,000 cubic feet of
gas per day. ARXA has a 2% working interest in the well. The Renger Gas Unit #1
was drilled and completed at an initial rate of 130,000 cubic feet of gas per
day.
Additionally the Company in conjunction with the operator participated in the
drilling of the Smothers #1 well in West Lavaca River, Lavaca County, Texas. The
well reached a depth of 13,500 feet during the period, and is currently
suspended waiting on testing equipment.
In Cameron Parish Louisiana the Company in conjunction with the operator
continued evaluation of the Hansen #3 discovery. Rehabilitation work is
scheduled on the well for late June, 1997.
The principal revenues for the three months ended April 30, 1997 were from the
sale of oil and gas and interest income. The Company is evaluating acquisition
of additional producing oil and gas properties. Additionally, the Company
engaged an investment banking firm to raise additional funds for drilling
prospects, payment of general and administrative expenses and settlement of
short term debt.
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: 6-15-97 By: /s/ WILLIAM J. BIPPUS
William J. Bippus
President
Date: 6-15-97 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 APRIL 30, 1997 FORM 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 455
<SECURITIES> 0
<RECEIVABLES> 12,650
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,459
<PP&E> 1,680,217
<DEPRECIATION> (12,160)
<TOTAL-ASSETS> 1,721,966
<CURRENT-LIABILITIES> 413,373
<BONDS> 0
0
385,180
<COMMON> 6,236
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,721,966
<SALES> 15,332
<TOTAL-REVENUES> 15,332
<CGS> 0
<TOTAL-COSTS> 89,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,278
<INCOME-PRETAX> (76,416)
<INCOME-TAX> 0
<INCOME-CONTINUING> (76,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,416)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
