<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: July 31, 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 July 31, 1999, there were 34,839,804 shares of Common Stock
outstanding.
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED JULY 31, 1999
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets July 31, 1999 (unaudited)
and October 31, 1998.................................................................. 1
Consolidated Statements of Operations - For the Three months Ended July 31,
1999 (unaudited) and July 31, 1998 (unaudited)........................................ 2
Consolidated Statements of Operations - For the Nine months Ended July 31,
1999 (unaudited) and July 31, 1998 (unaudited)........................................ 3
Consolidated Statement of Stockholders' Equity - For the Nine months
Ended July 31, 1999 (unaudited)....................................................... 4
Consolidated Statements of Cash Flows - For the Nine months Ended July 31,
1999 (unaudited) and July 31, 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>
July 31, October 31,
1999 1998
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 272,984 $ 167,105
Accounts receivable, net of allowance for doubtful accounts 16,820 119,430
----------- -----------
Total current assets 289,804 286,535
PROPERTY AND EQUIPMENT, (full cost method for oil and gas
properties), net of accumulated depletion, depreciation,
amortization and provision for impairment 11,644,343 1,708,589
OTHER ASSETS 62,625 63,189
----------- -----------
Total assets $11,996,772 $ 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;
34,839,804 and 4,653,918 shares issued and outstanding, respectively 34,839 4,654
Additional paid-in capital 16,072,189 5,296,325
Unearned stock based compensation of consultants and others -- (279,359)
Accumulated deficit (4,488,837) (3,195,016)
----------- -----------
Total stockholders' equity 11,618,191 1,826,604
----------- -----------
Total liabilities and stockholders' equity $11,996,772 $ 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
-------------------------------
July 31, 1999 July 31, 1998
--------------- -------------
<S> <C> <C>
OIL AND GAS REVENUES $ 6,536 $ 43,320
COST AND EXPENSES:
Lease operating expenses 148,736 64,185
Severance taxes 3,475 817
Depletion, depreciation, amortization 12,812 290,983
and provision for impairment
General and administrative 184,912 613,992
------------ -----------
Total cost and expenses 349,935 969,977
------------ -----------
LOSS FROM OPERATIONS (343,399) (926,657)
OTHER INCOME (EXPENSE):
Interest income -0- 82
Interest expense -0- (242)
Equity in loss of oil and gas venture -0- 8,462
Other -0- (5,581)
------------ -----------
-0- 2,721
------------ -----------
LOSS BEFORE INCOME TAXES (343,399) (923,936)
INCOME TAX BENEFIT, net - -
------------ -----------
NET LOSS $ (343,399) $ (923,936)
============ ===========
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE $ (.012) $ (.042)
============ ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES 29,598,482 22,166,368
============ ============
</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 Nine months Ended
-----------------------------
July 31, 1999 July 31, 1998
------------- -------------
<S> <C> <C>
OIL AND GAS REVENUES $ 51,429 $ 43,320
COST AND EXPENSES:
Lease operating expenses 209,206 64,185
Severance taxes 7,649 817
Depletion, depreciation, amortization 47,778 290,983
and provision for impairment
General and administrative 1,044,780 613,992
------------ -----------
Total cost and expenses 1,309,413 969,977
------------ -----------
LOSS FROM OPERATIONS (1,257,984) (926,657)
OTHER INCOME (EXPENSE):
Interest income 2,030 82
Interest expense (3,146) (242)
Equity in loss of oil and gas venture - 8,462
Other (34,721) (5,581)
------------ -----------
(35,837) 2,721
------------ -----------
LOSS BEFORE INCOME TAXES (1,293,821) (923,936)
INCOME TAX BENEFIT, net - -
------------ -----------
NET LOSS $ (1,293,821) $ (923,936)
============ ===========
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE $ (.037) $ (.042)
============ ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES 34,839,804 22,166,368
============ ===========
</TABLE>
See accompanying notes to these unaudited consolidated financial statements.
3
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine months Ended
July 31, 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
Issuance of common 6,000,000 6,000 594,000 600,000
To Gulfport
Pelahatchie acquisition 15,000,000 15,000 2,985,000 3,000,000
Pelahatchie acquisition 8,598,482 8,598 6,965,642 6,974,239
Net Loss -- -- -- -- (1,293,821) (1,293,821)
---------- ------- ----------- --------- ----------- -----------
BALANCES, July 31, 1999 34,839,804 $34,839 $16,072,189 $ -- $(4,488,837) $11,618,190
========== ======= =========== ========= =========== ===========
</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 Nine months Ended
---------------------------------------
July 31, 1999 July 31, 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,293,821) $(2,023,737)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depletion, depreciation, amortization and provision for
impairment 47,778 836,439
Bad debt expense -- --
Equity in loss of oil and gas venture -- 95,054
Consulting services paid with common stock 279,359 424,189
Changes in operating assets and liabilities:
Accounts receivable 102,610 246,718
Oil and gas property held for sale -- 466,343
Other current assets 564 (25,448)
Accounts payable 146,872 6,346
Other current liabilities -- (50,723)
----------- -----------
Net cash provided by (used in) operating activities (716,638) 76,627
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of oil and gas property held for sale -- (687,804)
Additions to office equipment -- (22,331)
Additions to oil and gas property -- --
Purchase of oil and gas property (9,983,532) (687,804)
Purchase of investment in oil and gas venture -- (95,054)
Proceeds from sale of oil and gas property, net -- 877,042
----------- -----------
Net cash used in investing activities 9,983,532 71,853
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder notes -- 134,027
Proceeds from sale of stock 10,806,049
Payment of stockholder notes -- (25,000)
----------- -----------
Net cash provided by financing activities 10,806,049 109,027
----------- -----------
INCREASE (DECREASE) IN CASH (105,879) 257,507
CASH, beginning of period 167,105 152,883
----------- -----------
CASH, end of period $ 272,984 $ 410,390
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES OF NONCASH TRANSACTIONS:
Issuance of stock for oil and gas properties $ 9,974,239 $ 102,000
=========== ===========
Conversion of stockholder notes and interest into common stock -- $ 134,027
=========== ===========
</TABLE>
5
See accompanying notes to these unaudited consolidated financial statements.
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization - ARXA International Energy, Inc. ("ARXA"), is a Delaware
corporation with its principal place of business in Gulfport, MS. ARXA is
engaged in oil and gas exploration, development, and operations in
Louisiana, Mississippi, Texas, and Utah. ARXA USA, Inc., is a Delaware
corporation and wholly owned subsidiary of ARXA. All significant
interconnecting accounts and transactions have been eliminated in
consolidation. On October 27, 1997, ARXA acquired substantially all of the
assets and certain limited liabilities of Phoenix Energy Group, Inc., a
Texas Corporation ("Phoenix"). Phoenix from the sale of its assets acquired
approximately sixty-three (63%) of the issued and outstanding common stock
of ARXA. Phoenix was the controlling stockholder in ARXA during the period
October 27, 1997 to May 7, 1999. Phoenix is a separate corporation
controlled by its stockholders, and is not controlled by ARXA.
On May 7, 1999, ARXA sold 6,000,000 shares of its Common Stock to Gulfport
Oil & Gas Inc. ("Gulfport"), a Delaware Corporation. Gulfport is a private
company, and on May 7, 1999, was the owner of approximately fifty-three and
four tenths percent (53.4%) of the outstanding 11,241,322 shares of ARXA and
was controlling shareholder of ARXA. Gulfport is controlled by its
stockholders and officers, Norris R. Harris, President and CEO, and Jack R.
Durland, Jr., Vice President. Phoenix granted to Norris R. Harris, President
of Gulfport, an irrevocable stock proxy on 2,557,262 shares of common stock
of ARXA owned by Phoenix. The stock proxy is for a period of one year from
May 5, 1999. On May 5, 1999, Phoenix owned approximately twenty-three
percent (23%) of the common stock of ARXA.
REVERSE STOCK SPLIT - Effective October 26, 1998, ARXA 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 period ended July 31, 1998 and 1999 has been prepared by ARXA,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The financial statements reference 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 ARXA will
continue as a going concern. ARXA had a net loss of $1,293,821 and negative
cash flow from operations of $105,879 for the nine month period ending July
31, 1999 and had an accumulated deficit of $4,488,837 on July 31. 1999.
On May 7, 1999, ARXA sold 6,000,000 shares of common stock to Gulfport at
$0.20 per share. Gulfport acquired the shares in ARXA for $600,000.00 in
cash and a promissory note for $600,000.00 plus interest at the rate of
7.75% per annum on the unpaid principal from May 7, 1999. The note was due
and payable on August 1, 1999.
On May 25, 1999, ARXA acquired from Gulfport a twenty-five percent (25%)
working interest in certain proved undeveloped, non-producing oil and gas
reserves below twelve thousand feet in the Pelahatchie field, Rankin County,
State of Mississippi. The acquisition of the oil and gas properties by ARXA
was based upon a petroleum engineer's appraisal report on the Pelahatchie
field which estimated proved undeveloped oil and gas reserves for three
development wells. The acquisition by ARXA from Gulfport was based upon
proved undeveloped non-producing oil and gas reserves discounted at
twenty-five percent. The total dollar value agreed to by ARXA and Gulfport
as to a twenty-five percent working interest in three development wells
in the Pelahatchie field was $13,576,532. Under the agreement between ARXA
and Gulfport, ARXA paid for the acquisition of the working interest in the
Pelahatchie field as follows: (1) Assigned to Gulfport the Promissory note
of Gulfport payable to ARXA in the amount of $600,000.00 principal and
accrued interest of $2,292.15 for a total of $602,292.15; (2) Assigned to
Gulfport 15,000,000 shares of common stock in ARXA at $.20 per share or a
total of $3,000,000.00 as agreed to in Agreement with Gulfport dated April
28, 1999; and (3) Assigned to Gulfport 8,598,482 shares of ARXA based upon
$1.16 per share which was the closing stock price of ARXA on May 25, 1999,
or a total of $9,974,239.85.
ARXA after completing the acquisition of the twenty-five percent working
interest in the Pelahatchie field has issued and outstanding stock of
34,839,804 shares. After the acquisition, Gulfport and its investors own
approximately 29,598,482 shares of common stock in ARXA which represents
eighty five percent (85%) of the issued and outstanding common stock of
ARXA.
3. NOTES PAYABLE TO STOCKHOLDERS:
The only note payable to stockholders at July 31, 1999 and October 31, 1998
is an unsecured note payable to a company affiliated with a stockholder of
ARXA in the amount of $79,770.00. The note bears interest at eight percent
per annum and is payable in quarterly installments. In the event the
interest is paid at the end of each quarter, the due date is automatically
extended until March 12, 1999. ARXA is in default in payment of the note.
The note has subsequently been reduced to judgment on June 2, 1999, in favor
of Duke Resources Corporation against ARXA in the amount of $79,770.00 plus
interest, attorney fees, and court costs of approximately $5,697.25. ARXA is
presently negotiating with Duke Resources Corporation to work out a plan for
payment of the judgment.
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 program 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 rather
than the year 2000. This could result in a major system failure and
miscalculations. The Year 2000 problem may impact ARXA and other entities
with which ARXA transacts business. ARXA determined the impact of the Year
2000 problem on their future operations would be significant.
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 employ
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 July 31, 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 July 31, 1999 were $6,536, which
is a $36,784 decrease from the $43,320 for the three months ended July 31, 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,
increased from $64,185 for the three months ended July 31, 1998 to $148,736 for
the three months ended July 31, 1999, an increase of $84,551. The increase is
primarily due to the Garcia #1 well, located in Brooks County, Texas, which was
re-worked, in the quarter ended July 31, 1998.
General and administrative costs decreased from $613,992 for the three months
ended July 31, 1998 to $184,912 for the three months ended July 31, 1999. The
decrease of $429,080, 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 $105,879 for the nine
months ended July 31, 1999 as compared to a positive of $257,507 for the nine
months ended July 31, 1998.
The principal source of cash for the nine months ended July 31, 1999 was
$102,610 from accounts receivable collections and $146,872157 from increased
accounts payable.
The primary source of cash for the nine months ended July 31, 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 and 4) the sale of
stock of $600,000.
Net cash was used in investing activities in the nine months ended July 31, 1999
for well costs of $7,978 on the West Lavaca River property.
Net cash was used in investing activities in the nine months ended July 31, 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, 5) funding of the IPX oil and gas venture for
$103,516, (the agreement was terminated March 1, 1998), and Pelahatchie
acquisition for $9,974,239 in stock and assignment of ARXA promissory note.
9
<PAGE>
At July 31, 1999, the Company's current liabilities of $378,581 exceed its
current assets of $289,804 by $88,777. The Company had a net loss of $1,293,821
and negative cash flow from operations of $105,879 for the nine months ended
July 31, 1999 and had an accumulated deficit of $4,488,837 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 $600,000 was comprised of cash and a note for
$600,000.00.
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 AEXA,
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
Judgment was entered in favor of Duke Resources Corporation against ARXA and
ARXA USA, Inc. in the amount of $79,770.00 plus interest of $2,972.25 plus
attorney fees in the amount of $2,725.00 and costs of the action. The judgment
totaling $85,467.25 was entered on June 2, 1999. The management of ARXA is
presently discussing a settlement of this judgment with Duke Resources
Corporation.
ITEM 2. OTHER INFORMATION
CHANGES IN CONTROL OF REGISTRANT
On May 7, 1999, Registrant sold 6,000,000 shares of its Common Stock to Gulfport
for $.20 per share. Gulfport on May 7, 1999 owned approximately fifty-three and
four tenths percent (53.4%) of the 11,231,922 issued and outstanding shares of
ARXA's Common Stock. The total consideration of $1,200,000.00 for the which the
shares were issued, was comprised of cash of $600,000 and a Promissory Note from
Gulfport to ARXA for $600,000, due August 1, 1999.
In addition, Gulfport had the right to acquire an additional 15,000,000 shares
of the Common Stock in ARXA at $.20 per share for a total consideration of
$3,000,000, either in cash or property within 180 days from May 7, 1999.
Further, Gulfport has the right to contribute property or assets for stock. Any
exchange of property or cash by Gulfport would be based upon the value of the
oil and gas properties as determined by independent petroleum engineer, mutually
acceptable to ARXA and Gulfport.
Prior to the Gulfport sale transaction, Phoenix, controlled 2,557,262 shares of
common stock in ARXA or approximately forty-eight and nine tenths percent
(48.9%) of ARXA. Following the transaction, Phoenix holds approximately
twenty-three percent (23%) of the Common Stock. Phoenix granted Norris R.
Harris, President of Gulfport, an exclusive and irrevocable proxy to vote all of
the Common Stock of ARXA held by Phoenix for a period of one year from May 5,
1999.
Gulfport is controlled by Norris R. Harris, its President and CEO and Jack R.
Durland Jr., Vice President.
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
Previously, the Board of Directors of ARXA in a press release dated June 1,
1999, disclosed that ARXA's Fiscal Year End will be changing from October 31,
1999 to September 30, 1999. The board of directors of ARXA in a director's
meeting on July 30, 1999, declared that it would not change the fiscal year end.
The board of directors of ARXA will further review this matter at the next
director's meeting in October 1999.
11
<PAGE>
CHANGE OF CORPORATE OFFICER
Dennis P. McGrath, formerly Vice President - Finance of ARXA, as of September 1,
1999, was no longer an officer of ARXA. At a director's meeting of ARXA on
September 2, 1999, the directors elected and appointed Jack R. Durland, Jr. as
Vice President - Finance.
CHANGE IN OIL AND GAS PROPERTIES
ARXA was formerly the owner of an oil and gas lease covering 672 acres in
Matagorda County, Texas. This 1977 lease was for a primary term of three years
and as long thereafter as oil and/or gas is produced in paying quantities or as
operations for drilling or reworking are conducted with no cessation of more
than sixty (60) consecutive days. The owner and lessor of the 1977 lease through
their attorney sought to cancel the lease because of lack of production in
paying quantities and the fact that there was a cessation of production for more
than sixty (60) consecutive days. ARXA's previous management failed to pay
royalties or communicate with the mineral owner for more than six months. ARXA's
previous management further refused to accept phone calls from the mineral owner
and their representative. Based upon these facts and over forty years of oil and
gas experience in the State of Texas, the present management of ARXA was of the
opinion that a District Court in Matagorda County, Texas would find the oil and
gas lease had terminated. The present owners of the 1977 oil and gas lease had
an adverse and unfavorable opinion of ARXA and were not interested in dealing
with ARXA. On June 29, 1999, the present owner of the 1977 oil and gas lease
executed a new oil and gas lease to Gulfport. Gulfport is in the process of
drilling a new well on the 672 acre lease to be designated as the Hawkins Ranch
No. 1 well. Gulfport has reached an agreement with ARXA that after payout for
drilling a development well and a salt water disposal well ARXA will have a
twenty-five percent working interest with no expense to ARXA. The estimated
expenditures for Gulfport in the two wells will be over $1,000,000.00 Dollars.
Gulfport has assigned to ARXA the zone in the Lewis Ranch #5 Well which ARXA
was previously producing from and which the reserves were based upon. When this
zone is produced ARXA will receive the revenue. The agreement between Gulfport
and ARXA was based upon a proposal submitted to ARXA prior to May 7, 1999 from
another oil and gas operator who was not aware of the fact that the oil and
gas lease was in jeopardy.
Gulfport has assigned to ARXA a One Hundred Percent (100%) working interest in
ten wells in East Texas located in Jasper, Smith and Rusk Counties. Gulfport has
previously spent on these ten wells, in excess of $600,000 Dollars. Gulfport
assigned the wells to ARXA for no consideration.
ARKA INTERNATIONAL ENERGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, ARXA
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ARXA INTERNATIONAL ENERGY, INC.
Date: 9-14-99 NORRIS R. HARRIS
/s/ Norris R. Harris
------------------------
President/CEO
Date: 9-14-99 JACK R. DURLAND, JR.
------------------------
/s/ Jack R. Durland, Jr.
Vice President - Finance
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM JULY 31, 1999 FORM 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JULY 31,
1999 FORM 10-Q FUNDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 272,984
<SECURITIES> 0
<RECEIVABLES> 16,820
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 289,804
<PP&E> 11,644,343
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,996,772
<CURRENT-LIABILITIES> 378,581
<BONDS> 0
0
0
<COMMON> 34,839
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,996,772
<SALES> 51,429
<TOTAL-REVENUES> 51,429
<CGS> 0
<TOTAL-COSTS> 1,309,413
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,257,984)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,257,984)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
