<PAGE>
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 [NO FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED: APRIL 30, 1999
[ ] 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 of (IRS Employer identification No.)
incorporation or organization)
2301 14th Street, Suite 404
Gulfport, Mississippi 39501
----------------------------
(Address of principal executive offices, including zip code)
(228) 864-6667
--------------
(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 [X] No [ ]
As of June 18, 1999, there were 11,241,322 shares of Common Stock outstanding.
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED APRIL 30, 1999
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets April 30, 1999 (unaudited)
and October 31, 1998.............................................. 1
Consolidated Statements of Operations - For the Three months
Ended April 30, 1999 (unaudited) and April 30, 1998 (unaudited)... 2
Consolidated Statements of Operations - For the Six months
Ended April 30, 1999 (unaudited) and April 30, 1998 (unaudited)... 3
Consolidated Statement of Stockholders' Equity - For the Six months
Ended April 30, 1999 (unaudited).................................. 4
Consolidated Statements of Cash Flows - For the Six months
Ended April 30, 1999 (unaudited) and April 30, 1998 (unaudited)... 5
Notes to Unaudited Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 9
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings.......................................... 11
Item 5. Other Information.......................................... 11
</TABLE>
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
---------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,321 $ 167,105
Accounts receivable, net of allowance for doubtful accounts 16,820 119,430
----------- -----------
Total current assets 21,141 286,535
PROPERTY AND EQUIPMENT, (full cost method for oil and gas
properties), net of accumulated depletion, depreciation,
amortization and provision for impairment 1,682,165 1,708,589
OTHER ASSETS 62,625 63,189
----------- -----------
Total assets $ 1,765,931 $ 2,058,313
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to stockholders $ 79,770 $ 157,055
Accounts payable 250,061 25,904
Other current liabilities 48,750 48,750
----------- -----------
Total current liabilities 378,581 231,709
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 2,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $.001 par value; 100,000,000 shares authorized;
5,241,322 and 4,653,918 shares issued and outstanding, respectively 5,241 4,654
Additional paid-in capital 5,527,547 5,296,325
Unearned stock based compensation of consultants and others -- (279,359)
Accumulated deficit 4,145,438) (3,195,016)
----------- -----------
Total stockholders' equity 1,387,350 1,826,604
----------- -----------
Total liabilities and stockholders' equity $ 1,765,931 $ 2,058,313
=========== ===========
</TABLE>
See accompanying notes to these unaudited consolidated financial statements.
1
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three months Ended
----------------------------------------
April 30, 1999 April 30, 1998
------------------- -------------------
<S> <C> <C>
OIL AND GAS REVENUES $ 21,812 $ 47,117
COST AND EXPENSES:
Lease operating expenses 4,991 15,890
Severance taxes 1,476 1,010
Depletion, depreciation, amortization and
provision for impairment 17,983 447,634
General and administrative 163,487 292,614
---------- ----------
Total cost and expenses 187,937 757,148
---------- ----------
LOSS FROM OPERATIONS (166,125) (710,031)
OTHER INCOME (EXPENSE):
Interest income 1,340 270
Interest expense (1,695) (1,611)
Equity in loss of oil and gas venture -- (5,726)
Other 80 33,083
---------- ----------
(275) 26,016
---------- ----------
LOSS BEFORE INCOME TAXES (166,400) (684,015)
INCOME TAX BENEFIT, net -- --
---------- ----------
NET LOSS $ (166,400) $ (684,015)
========== ==========
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE $ (.033) $ (.167)
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES 5,075,951 4,087,500
========== ==========
</TABLE>
See accompanying notes to these unaudited consolidated financial statements.
2
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six months Ended
----------------------------------------
April 30, 1999 April 30, 1998
------------------- -------------------
<S> <C> <C>
OIL AND GAS REVENUES $ 44,893 $ 335,151
COST AND EXPENSES:
Lease operating expenses 60,470 140,846
Severance taxes 4,174 5,090
Depletion, depreciation, amortization and
provision for impairment 34,966 545,456
General and administrative 859,868 695,606
---------- -----------
Total cost and expenses 959,478 1,386,998
---------- -----------
LOSS FROM OPERATIONS (914,585) (1,051,847)
OTHER INCOME (EXPENSE):
Interest income 2,030 1,162
Interest expense (3,146) (6,408)
Equity in loss of oil and gas venture -- (103,516)
Other (34,721) 60,808
---------- -----------
(35,837) (47,954)
---------- -----------
LOSS BEFORE INCOME TAXES (950,422) (1,099,801)
INCOME TAX BENEFIT, net -- --
---------- -----------
NET LOSS $ (950,422) $(1,099,801)
========== ===========
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE $ (.19) $ (.27)
========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES 4,985,746 4,087,500
========== ===========
</TABLE>
See accompanying notes to these unaudited consolidated financial statements.
3
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six months Ended April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stock
------------------------------ Paid-In Unearned Accumulated holders'
Shares Amount Capital Compensation deficit Equity
------------- ------------- ------------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, October 31, 1998 4,653,918 $4,654 $5,296,325 (279,359) $(3,195,016) $1,826,604
Issuance of common stock for
consulting services, previously
issued and earned this quarter -- -- -- 279,359 -- 279,359
Issuance of common stock for
consulting services 300,000 300 149,700 -- -- 150,000
Conversion of note payable into
common stock 278,004 278 77,007 -- -- 77,285
Issuance of common stock for
consulting services 9,400 9 4,515 -- -- 4,524
Net loss -- -- -- -- (950,422) (950,422)
--------- ------ ---------- --------- ----------- ----------
BALANCES, April 30, 1999 5,241,322 $5,241 $5,527,547 $ -- $(4,145,438) $1,387,350
========= ====== ========== ========= =========== ==========
</TABLE>
See accompanying notes to these unaudited consolidated financial statements.
4
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six months Ended
---------------------------------------
April 30, 1999 April 30, 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(950,422) $(1,099,801)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depletion, depreciation, amortization and provision for
impairment 34,966 545,456
Bad debt expense 77,039 --
Equity in loss of oil and gas venture -- 103,516
Consulting services paid with common stock 433,883 --
Changes in operating assets and liabilities:
Accounts receivable 25,571 116,183
Oil and gas property held for sale -- 466,343
Other current assets -- (31,198)
Accounts payable 224,157 166,425
Other current liabilities -- (117,243)
--------- -----------
Net cash provided by (used in) operating activities (154,806) 149,681
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of oil and gas property held for sale -- (5,777)
Additions to office equipment -- (11,830)
Additions to oil and gas property (7,978) --
Purchase of oil and gas property -- (345,801)
Purchase of investment in oil and gas venture -- (103,516)
Proceeds from sale of oil and gas property, net -- 74,099
--------- -----------
Net cash used in investing activities (7,978) (392,825)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder notes -- 134,027
Payment of stockholder notes -- (25,000)
--------- -----------
Net cash provided by financing activities -- 109,027
--------- -----------
INCREASE (DECREASE) IN CASH (162,784) (134,117)
CASH, beginning of period 167,105 152,883
--------- -----------
CASH, end of period $ 4,321 $ 18,766
========= ===========
</TABLE>
See accompanying notes to these unaudited consolidated financial statements.
5
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization - ARXA International Energy, Inc. ("ARXA" or "the Company") was
incorporated in Delaware and is engaged in oil and gas exploration and
development in Utah, Louisiana and Texas. ARXA USA, Inc., a wholly owned
subsidiary, was incorporated in Delaware. All significant intercompany
accounts and transactions have been eliminated in consolidation. On October
27, 1997, the Company acquired substantially all of the assets and
liabilities of Phoenix Energy Group, Inc. ("Phoenix"). The Company exchanged
approximately 63% of its issued and outstanding common stock plus warrants
to purchase additional shares to Phoenix, which therefore, obtained a
controlling interest in the Company, which it held until May 7, 1999.
On May 7, 1999, the Company sold 6,000,000 (post-split) shares of its Common
Stock to Gulfport Oil & Gas Inc. ("Gulfport"), a private company, for $.20
per share. Gulfport holds approximately 53.4% of the 11,241,322 (post-
split) issued and outstanding shares of the Company's common stock following
such transaction and thus acquired control of the Company from Phoenix.
Gulfport is controlled by Norris R. Harris, its President and CEO.
Additionally, Phoenix granted Norris R. Harris, an exclusive and irrevocable
proxy to vote all of the common stock of the Company held by Phoenix
(approximately 23%) for a period of one year. (See the Company's Form 8-K
filed with the Securities and Exchange Commission on May 24, 1999)
REVERSE STOCK SPLIT - Effective October 26, 1998, the Company declared a one
to five reverse common stock split. Under the terms of the reverse stock
split, one new, post-split share was issued for five pre-split shares, with
fractional shares rounded up to a full share. Accordingly, the financial
statements have been restated to reflect this reverse stock split for all
periods presented.
Unaudited Interim Information - The accompanying financial information for
the quarterly periods ended April 30, 1998 and 1999 has been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments, consisting of normal recurring accruals, which are, in the
opinion of management, necessary to fairly present such information in
accordance with generally accepted accounting principles.
6
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company had a net loss of
$950,422 and negative cash flow from operations of $154,806 for the six
months ended April 30, 1999 and had an accumulated deficit of $4,145,438 as
of April 30, 1999, which raises substantial doubt about its ability to
continue as a going concern at that date.
On May 7, 1999, the Company sold 6,000,000 (post-split) shares of its Common
Stock to Gulfport at $.20 per share for a total consideration of $1,200,000
(See Note 1 above).
3. NOTES PAYABLE TO STOCKHOLDERS:
Notes payable to stockholders at April 30, 1999 and October 31, 1998
includes an unsecured note payable to a company affiliated with a
stockholder of the Company in the amount of $79,770. The note bears
interest at 8% and is payable in quarterly installments. To the extent that
the interest is paid at each quarter end, the due date is automatically
extended until March 12, 1999. The Company is in default in paying this
note. The management of Gulfport, the new control party of the Company, is
having on-going discussions with the noteholder to work out a future payment
plan (See Note 1 above).
4. YEAR 2000:
The Company has begun to address possible remedial efforts in connection
with computer software that could be affected by the Year 2000 problem,
which is the result of computer programs being written using two digits
rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. The Year 2000 problem may impact the Company and/or other
entities with which the Company transacts business. The Company has not
determined the impact of the Year 2000 problem on their future operations or
the costs they may incur to remedial the problem.
7
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. STOCK OPTION PLAN:
The Company has a stock option plan under which options to purchase a
maximum of 200,000 shares of common stock may be issued to employees,
consultants and non-employee directors of the Company. The stock option
plan provides both for the grant of options intended to qualify as
"incentive stock options" under the Internal Revenue Code of 1986, as
amended, as well as options that do not so qualify. As of April 30, 1999,
no options have been granted under the Plan.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
Oil and gas revenues for the three months ended April 30, 1999 were $21,812,
which is a $25,305 decrease from the $47,117 for the three months ended April
30, 1998 and is primarily attributed to the sale of the Flowella and Colson
Fields, effective June 1, 1998. Lease operating expense, which includes
workover costs, decreased from $15,890 for the three months ended April 30,
1998 to $4,991 for the three months ended April 30, 1999, a decrease of
$10,899. The decrease is primarily due to the Garcia #1 well, located in
Brooks County, Texas, which was re-worked, in the quarter ended April 30,
1998.
General and administrative costs decreased from $292,614 for the three months
ended April 30, 1998 to $163,487 for the three months ended April 30, 1999.
The decrease of $129,127, comes from the down-sizing instituted by the Company
beginning in October 1998, in order to maximize its available working capital.
B. LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operating activities was a negative $154,806 for the six
months ended April 30, 1999 as compared to a positive of $149,681 for the six
months ended April 30, 1998.
The principal source of cash for the six months ended April 30, 1999 was
$25,571 from accounts receivable collections and $224,157 from increased
accounts payable.
The primary source of cash for the six months ended April 30, 1998 was from 1)
the sale of the Sayre Ranch Prospect in Oklahoma for $468,700 plus commission
income of $18,750, 2) the sale of the West Sandy Creek property for a net of
$48,526 and 3) proceeds of shareholder notes of $134,027
Net cash was used in investing activities in the six months ended April 30,
1999 for well costs of $7,978 on the West Lavaca River property.
Net cash was used in investing activities in the six months ended April 30,
1998 primarily on 1) costs to drill and complete the Vesley #1 well for
$200,875, 2) costs to drill and complete the Taylor #1 well for $53,750, 3)
acquisition of the Naconiche Creek Prospect for $40,000, 4) acquisition and
development costs in the Michigan Basin for $63,000 and 5) funding of the IPX
oil and gas venture for $103,516, (the agreement was terminated March 1,
1998).
9
<PAGE>
At April 30, 1999, the Company's current liabilities of $378,581 exceeds its
current assets of $21,141 by $357,440. The Company had a net loss of $950,422
and negative cash flow from operations of $154,806 for the six months ended
April 30, 1999 and had an accumulated deficit of $4,145,438 at that date,
which raises substantial doubt about the Company's ability to continue as a
going concern.
The Company dramatically increased is its working capital position with the
sale of 6,000,000 shares of its common stock to Gulfport Oil and Gas Inc. on
May 7, 1999. The total consideration of $1,200,000 was comprised of cash of
$600,000 and a Promissory Note for $600,000, due August 1, 1999. ( See Part
II, Item 5, Other Information)
Accordingly, the Company now expects that there will be sufficient cash flow
from operations to continue to operate the business for the next year.
C. MANAGEMENT'S RESPONSE AND PLAN OF OPERATIONS
Norris R. Harris, the new President/CEO and Chairman of the Board of Arxa,
through his forty plus years of experience in the industry, with both majors
and independents, has access to oil and gas deals and the requisite financing
sources to close them. He intends to work aggressively to increase the equity
value of the Company by providing a fully professional management team of
industry experienced technicians, who are expert at evaluating and exploiting
the numerous opportunities that currently exist in the oil and gas
marketplace.
10
<PAGE>
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
The Company, in 1998, had filed suit against a former employee, Kenneth
Koepke, who was formerly the Vice President of Corporate Communications. On
March 3, 1999, a full and complete settlement was reached and a negotiated
payment of $15,000 was made by the Company.
ITEM 5. OTHER INFORMATION
CHANGES IN CONTROL OF REGISTRANT
On May 7, 1999, Registrant sold 6,000,000 shares of its Common Stock to
Gulfport Oil & Gas Inc. ("Gulfport"), a private company, for $.20 per share.
Gulfport holds approximately 53.4% of the 11,231,922 issued and outstanding
shares of the Registrant's Common Stock following such transaction and thus
acquired control of the Registrant from Phoenix Energy Group, Inc.
("Phoenix"), also a private company. The total consideration of $1,200,000,
for the which the shares were issued, was comprised of cash of $600,000 and a
Promissory Note from Gulfport for $600,000, due August 1, 1999.
In addition, Gulfport has the right to acquire an additional 15,000,000 shares
of the Registrant's Common Stock at $.20 per share for a total consideration
of $3,000,000 within 180 days from May 7, 1999. Further, Gulfport has the
right to contribute assets for stock. Any exchange would be based upon the
ratio of the discounted value of the oil and gas assets as determined by
independent petroleum engineers vs. the average stock price for five business
days prior to the closing.
Prior to the Gulfport sale transaction, Phoenix, controlled by its President
and CEO, L. Craig Ford, held 2,557,262 shares or approximately 48.9% of the
Registrant.. Following the transaction, Phoenix holds approximately 22.8% of
the Registrant's Common Stock. Phoenix granted Norris R. Harris, the
President of Gulfport, an exclusive and irrevocable proxy to vote all of the
Common Stock of the Registrant held by Phoenix for a period of one year.
Gulfport Oil & Gas Inc. is controlled by Norris R. Harris, its President and
CEO.
Gulfport intends to hold the shares received and to function as a holding
company of Registrant.
The re-located corporate offices of the Registrant are:
Arxa International Energy, Inc
2301 14th Street, Suite 404
Gulfport, Mississippi, 39501
228-864-6667 (fax) 228-864-6267
(See the Registrant's Form 8-K filed with the Securities and Exchange
Commission on May 24, 1999)
CHANGE IN FISCAL YEAR END
The Board of Directors of the Registrant, in a press release dated June 1,
1999, disclosed that the Registrant's Fiscal Year End will be changed from
October 31, 1999 to September 30, 1999, in order to align its 10-KSB annual
reporting and 10-QSB reporting quarters with a majority of the oil and gas
industry.
11
<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: 6-18-99 NORRIS R. HARRIS
/s/ Norris R. Harris
---------------------
President/CEO
Date: 6-18-99 DENNIS P. McGRATH
/s/ Dennis P. McGrath
----------------------
Vice President - Finance
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM APRIL 30, 1999 FORM 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> APR-30-1999
<CASH> 21,141
<SECURITIES> 0
<RECEIVABLES> 16,820
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,141
<PP&E> 2,604,837
<DEPRECIATION> (922,672)
<TOTAL-ASSETS> 1,765,931
<CURRENT-LIABILITIES> 378,581
<BONDS> 0
0
0
<COMMON> 5,241
<OTHER-SE> 1,382,109
<TOTAL-LIABILITY-AND-EQUITY> 1,765,931
<SALES> 0
<TOTAL-REVENUES> 44,893
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 959,478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,146
<INCOME-PRETAX> (950,422)
<INCOME-TAX> 0
<INCOME-CONTINUING> (950,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (950,422)
<EPS-BASIC> 000
<EPS-DILUTED> 000
</TABLE>
