<PAGE>
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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 [NO FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED: OCTOBER 31,1997
[ ] 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.)
110 Cypress Station Drive, Suite 280
Houston, Texas 77090
(Address of principal executive offices, including zip code)
(281) 444-1088
(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 [ ] No [x ]
As of October 31, 1997, there were 20,377,194 shares of Common Stock
outstanding.
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<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1997
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of OCTOBER 31, 1997 (unaudited)
and JANUARY 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations for the Three
Months Ended OCTOBER 31, 1997 and 1996 (unaudited) . . . . . . . . . . 2
Statements of Operations for the Nine
Months Ended OCTOBER 31, 1997 and 1996 (unaudited) . . . . . . . . . . 3
Statement of Stockholders' Equity
for the Nine months Ended OCTOBER 31, 1997 (unaudited) . . . . . . . . 4
Statements of Cash Flows for the
Nine months Ended OCTOBER 31, 1997 and 1996 (unaudited). . . . . . . . 5
Notes to Unaudited Financial Statements. . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . 9
<PAGE>
Arxa International Energy, Inc.
Balance Sheets
as of October 31, 1997 (Unaudited) and January 31, 1997
ASSETS
October 31, 1997 January 31, 1997
---------------- ----------------
CURRENT ASSETS:
Cash And Cash Equivalents $ 147,509 $ 2,667
Accounts Receivable, Trade 206,205 14,627
Other Current Assets 12,302 22,906
----------- -----------
Total Current Assets 366,016 40,200
PROPERTY AND EQUIPMENT:
Successful Efforts Method:
Unproved Oil And Gas Properties 528,843 1,144,159
Proved Oil And Gas Properties 2,585,679 471,682
Furniture And Equipment 150,125 9,609
----------- -----------
3,264,647 1,625,450
Less - Accumulated Depletion,
Depreciation And Amortization (363,350) (9,227)
----------- -----------
Net Property And Equipment 2,901,297 1,616,223
LONG-TERM INVESTMENT: 66,040 -
OTHER ASSETS:
Organization Cost, Net - 663
Covenant Not To Compete, Net - 59,914
Investment in Pipeline Partnership - 20,000
Other 57,833 -
----------- -----------
Total Other Assets 57,833 80,577
----------- -----------
$ 3,391,186 $ 1,737,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable, Trade $ 65,104 $ 29,554
Accrued Expenses 68,750 122,750
Current Liabilities, Long Term Debt 132,055 29,265
----------- -----------
Total Current Liabilities 265,909 181,569
LONG-TERM DEBT, Net Of Current Maturities 50,000 79,770
STOCKHOLDERS' EQUITY:
Preferred Stock - 426,943
Common Stock 20,377 7,306
Additional Paid-In Capital 3,054,900 3,435,488
Accumulated Deficit - (2,394,076)
----------- -----------
Total Stockholders' Equity 3,075,277 1,475,661
$ 3,391,186 $ 1,737,000
The Accompanying Notes Are an Integral Part of These Financial Statements.
-1-
<PAGE>
Arxa International Energy, Inc.
Statements of Operations
for the Three Months Ended
October 31, 1997 and 1996
(Unaudited)
Three Months Ended
October 31,
---------------------------
1997 1996
Revenues, Oil And Gas $ 15,722 $ 4,866
Operating Costs and Expenses:
Production Expenses 5,852 2,167
Exploration Costs - 447,210
Impairment of Oil & Gas Properties 194,712 -
Depletion, Depreciation And
Amortization 28,218 30,972
General And Administrative Expenses (22,448) 95,155
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Total 206,334 575,504
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Operating Loss (190,612) (570,638)
Other Income (Expense):
Interest Income 695 4,011
Interest Expense (1,609) (1,609)
Loss on Sale of Pipeline (9,550) -
----------- ----------
(10,464) 2,402
Income Taxes - -
----------- ----------
Net Loss (201,076) (568,236)
Net Loss Per Common Share $ (.026) $ (.08)
Weighted Average Number Of Shares Outstanding 7,590,884 7,209,903
The Accompanying Notes Are an Integral Part of These Financial Statements.
-2-
<PAGE>
Arxa International Energy, Inc.
Statements of Operations
for the Nine Months Ended
October 31, 1997 and 1996
(Unaudited)
Nine Months Ended
October 31,
----------------------------
1997 1996
---- ----
Revenues, Oil And Gas $ 40,875 $ 4,866
Operating Costs and Expenses:
Production Expenses 30,897 2,168
Exploration Costs - 458,660
Impairment of Oil & Gas Properties 194,712 -
Depletion, Depreciation And
Amortization 68,604 91,111
General And Administrative Expenses 197,232 313,490
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Total 491,445 865,429
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Operating Loss (450,570) (860,563)
Other Income (Expense):
Interest Income 1,727 11,002
Interest Expense (5,944) (8,682)
Loss on Sale of Pipeline (9,550) -
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(13,767) 2,320
Income Taxes - -
---------- ----------
Net Loss (464,337) (858,243)
Net Loss Per Common Share $ (.061) $ (.12)
Weighted Average Number Of Shares Outstanding 7,590,884 7,209,903
The Accompanying Notes Are an Integral Part of These Financial Statements.
-3-
<PAGE>
Arxa International Energy, Inc.
Statements of Stockholders' Equity
for the Nine Months Ended October 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares Amount
------------------------ ------------------------- Add'l Paid-in Accumulated
Common Preferred Common Preferred Capital Deficit
--------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1997 7,373,873 131,010 $ 7,374 $ 131,010 $ 3,968,667 $ (2,662,303)
Conversion of Preferred to Common 131,010 (131,010) 131 (131,010) 130,879 -
Prior period adjustment 16,001 - 16 - 11,984 -
Issuance of Common Stock for:
Consulting Services 70,000 - 70 - (70) -
Net Loss for the Nine months
Ended October 31, 1997 - - - - - (464,337)
Reverse Acquisition of Arxa International
by Phoenix Energy Group, Inc.
on October 27, 1997 12,786,310 - 12,786 - (1,056,560) 3,126,640
------------ ------------ ------------ ------------ ------------ ------------
Balance, October 31, 1997 20,377,194 - $ 20,377 $ - $ 3,054,900 $ -
</TABLE>
The Accompanying Notes Are an Integral Part of These Financial Statements.
-4-
<PAGE>
Arxa International Energy, Inc.
Statements of Cash Flows
for the Nine Months Ended
October 31, 1997 and 1996
(Unaudited)
Nine Months Ended
October 31,
1997 1996
----------- ----------
Cash Flows from Operating Activities:
Net Loss $ (464,337) $ (858,243)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Loss on Disposition of Oil & Gas Properties 9,550 484,054
Depletion, Depreciation and Amortization 68,604 91,111
Impairment of Oil & Gas Properties 194,712 -
Changes in Working Capital:
Net of Effects of Non-Cash Transactions (204,388) (26,871)
---------- ----------
Net Cash Used in Operating Activities (395,859) (309,949)
Cash Flows used in Investing Activities:
Purchase of Oil & Gas Properties (1,396,812) (1,082,170)
Purchase of Furniture and Equipment (117,242) -
Additions to Long Term Investments (66,040) -
Additions to Other Assets (57,278) -
Buyback of 25,000 Common Shares per agreement (18,750) -
Sale of West Sandy Creek Pipeline 10,450 -
---------- ----------
Net Cash Used in Investing Activities (1,645,672) (1,082,170)
Cash Flows from (used in) Financing Activities:
Sale of Common Stock, Net 350,000 1,569,900
Sale of Stock Options, Net 35,000 -
Proceeds from Notes Payable 25,000 -
Repayment of Notes Payable (61,980) (107,515)
Payment of Syndication Costs (27,000)
Payment of Dividends (11,562)
Reverse Acquisition Equity Adjustment 1,838,353 -
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Net Cash Provided By Financing Activities 2,186,373 1,423,823
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Net Increase (Decrease) in Cash 144,842 31,704
Cash at Beginning of Period 2,667 34,402
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Cash at End of Period $ 147,509 $ 66,106
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The Accompanying Notes Are an Integral Part of These Financial Statements
-5-
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED OCTOBER 31, 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.
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.
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".
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.
-6-
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
2. LONG-TERM DEBT
For the nine months ended October 31, 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 October 31, 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 $ 77,285
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
---------
182,055
Current maturities of long-term debt (132,055)
---------
Long Term-debt $ 50,000
---------
---------
Current maturities of long-term debt are $132,055 and $50,000 for the years
ended October 31, 1998 and 1999.
3. COMMITMENTS AND CONTINGENCIES
The Companies leases corporate office space under a month to month
agreement. Rent expense for the nine months ended October 31, 1997 was
$24,560.
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, 1997 and January 31, 1997, the
total outstanding shares of preferred stock totaled -0- and 426,944,
respectively.
During the period ending October 31, 1997, the Company under the terms of
an agreement with a shareholder retired a portion of a covenant not to
compete and retired 1,070,125 shares of common stock and 41,764 shares of
preferred stock in exchange for a note payable of $110,000.
During the period ending October 31, 1997 certain shareholders converted
385,180 shares of preferred stock into 385,180 shares of common stock.
In mid-June 1997 an investment banking group that was granted a stock
option to sell 1,000,000 shares of common stock for $700,000 sold 500,000
shares of common stock and delivered $350,000 to the Company.
During the nine months ended October 31, 1997 the Company issued 470,000
shares of common in exchange for investment banking and consulting
services.
-7-
<PAGE>
ARXA INTERNATIONAL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
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.
5. INCOME TAXES
At October 31, 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 nine months ended October 31, 1997 and 1996, the Company's deferred
tax asset, resulting from net operating losses, totaled $686,845 and
$313,812, respectively. Income tax expense for the nine months ended
October 31, 1997 and 1996 was zero due to a valuation allowance which
offset the deferred tax asset and tax expense at these dates.
6. SUBSEQUENT EVENTS
-----
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
On October 27, 1997 the Company executed a Purchase and Sale Agreement with
Phoenix Energy Group, Inc., culminating the previously announced
negotiations. Under the Agreement, the Company has acquired substantially
all of the assets of Phoenix Energy Group, Inc. in exchange for 12,786,310
shares of the Company's Common Stock, representing approximately 63% of
the issued and outstanding shares of Common Stock following the
transaction. This type of transaction is generally regarded by the
financial community as a "reverse acquisition" or "reverse merger".
The assets acquired consisted of leasehold rights to properties associated
with the oil & gas rights acquired, ownership of oil & gas reserves, the
working and net revenue mineral interests in oil & gas properties, and the
proportionate interests in the plant and equipment associated with such
properties. Additionally, the assets consisted of all accounts receivable,
all bank accounts, credits due and debts owed, seller's corporate offices
and all related fixtures, office space, furniture, automobiles, computers,
and leasehold improvements.
Following the transaction, changes were made in the officers and directors
of the Company:
William J. Bippus, formerly President and CEO, resigned those positions,
and was replaced by L. Craig Ford.
Gregory A. Stephens, formerly Treasurer, resigned and was replaced by L.
Craig Ford.
William J. Bippus and Gregory A. Stephens remained as directors
Thomas A. Abate and Umberto Brovedani resigned as directors, creating two
vacancies.
The vacancies were filled by the election of L. Craig Ford, President of
Phoenix Energy Group, Inc. and John Moran, both directors of Phoenix Energy
Group, Inc.
The financial statements required in connection with this asset acquisition
will be filed on or before January 11, 1998.
-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: December 20, 1997 /s/ L. CRAIG FORD
-----------------------------------
President
Date: December 20, 1997 /s/ DENNIS P. McGRATH
-----------------------------------
Vice President and Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM OCTOBER 31, 1997 FORM 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 147,509
<SECURITIES> 0
<RECEIVABLES> 206,205
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 366,016
<PP&E> 3,264,647
<DEPRECIATION> (363,350)
<TOTAL-ASSETS> 3,391,186
<CURRENT-LIABILITIES> 265,909
<BONDS> 0
0
0
<COMMON> 20,377
<OTHER-SE> 3,054,900
<TOTAL-LIABILITY-AND-EQUITY> 3,391,186
<SALES> 40,875
<TOTAL-REVENUES> 40,875
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 491,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,944
<INCOME-PRETAX> (464,337)
<INCOME-TAX> 0
<INCOME-CONTINUING> (464,337)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (464,337)
<EPS-PRIMARY> (0.061)
<EPS-DILUTED> (0.061)
</TABLE>
