<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, 2000
[ ] 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 900
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 14, 2000, there were 34,939,804 shares of Common Stock outstanding.
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED APRIL 30, 2000
<TABLE>
<CAPTION>
Part I - Financial Information Page
------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets April 30, 2000 (unaudited)
and October 31, 1999.............................................. 1
Consolidated Statements of Operations - For the Three months
Ended April 30, 2000 (unaudited) and April 30, 1999 (unaudited)... 2
Consolidated Statements of Operations - For the Six months
Ended April 30, 2000 (unaudited) and April 30, 1999 (unaudited)... 3
Consolidated Statement of Stockholders' Equity - For the Six months
Ended April 30, 2000 (unaudited).................................. 4
Consolidated Statements of Cash Flows - For the Six months
Ended April 30, 2000 (unaudited) and April 30, 1999 (unaudited)... 5
Notes to Unaudited Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 12
Part II - Other Information
---------------------------
Item 1. Legal Proceedings.......................................... 13
</TABLE>
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
<S> <C> <C>
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 4,218 143,493
Accounts receivable, net of allowance for doubtful accounts - -
----------- -----------
Total current assets 4,218 143,493
PROPERTY AND EQUIPMENT, (full cost method for oil and gas
properties), net of accumulated depletion, depreciation,
amortization and provision for impairment 12,091,317 11,606,872
OTHER ASSETS 50,734 51,296
----------- -----------
Total Assets $12,146,269 $11,801,661
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Payroll Taxes $ 14,636 $ -
Accounts payable - 3,860
Other current liabilities 15,000 11,215
----------- -----------
Total current liabilities 29,636 15,075
LONG-TERM LIABILITIES:
Notes Payable $ 500,000 $ -
Accrued interest on notes 33,151 -
----------- -----------
Total long-term liabilities 533,151 -
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; 34,939,804 and 34,939,804 shares issued and outstanding, respectfully 34,940 34,940
Additional paid-in-capital 16,097,129 16,097,129
Accumulated deficit (4,548,587) (4,345,483)
----------- -----------
Total stockholders' equity 11,583,482 11,786,586
----------- -----------
Total liabilities and stockholders' equity $12,146,269 $11,801,661
=========== ===========
</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, April 30,
2000 1999
-----------------------------------------
<S> <C> <C>
OIL AND GAS REVENUES - $ 21,812
COST AND EXPENSES:
Lease operating expenses $ 1,800 $ 4,991
Severance taxes - $ 1,476
Depletion, Depreciation,
amortization and provision for
impairment $ 6,826 $ 17,983
General and administrative $ 53,019 $ 163,487
-----------------------------------------
Total cost and expenses $ (61,645) $ (166,125)
-----------------------------------------
LOSS FROM OPERATIONS $ (61,645) $ (166,125)
OTHER INCOME (EXPENSES):
Interest income - $ 1,340
Dividend income $ 2,322
Interest expense $ (24,818) $ (1,695)
Other - $ 80
-----------------------------------------
$ (22,496) $ (275)
-----------------------------------------
LOSS BEFORE INCOME TAXES $ (84,141) $ (166,400)
INCOME TAX BENEFIT, net - -
-----------------------------------------
NET LOSS $ (84,141) $ (166,400)
=========================================
NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE- $ (0.002) $ (0.330)
BASIC AND DILUTED
Weighted Average Common and Common
Equivalent Shares 34,939,804 5,075,951
</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, 2000 April 30, 1999
==============================================
<S> <C> <C>
OIL AND GAS REVENUES $ 12,321 $ 44,893
-
COST AND EXPENSES: -
Lease operating expenses $ 8,686 $ 60,470
Severance taxes $ 4,174
Depletion, Depreciation,
amortization and provision for
impairment $ 16,116 $ 34,966
General and administrative $ 161,124 $ 859,868
Total cost and expenses $ (185,926) $ 959,478
LOSS FROM OPERATIONS $ (173,605) $ (914,585)
OTHER INCOME (EXPENSES):
Interest income $ 1 $ 2,030
Dividend income $ 3,651
Interest expense $ (33,151) $ (3,146)
Other - $ (34,721)
$ (29,499) $ (35,837)
LOSS BEFORE INCOME TAXES $ (203,104) $ (950,422)
INCOME TAX BENEFIT, net
NET LOSS $ (203,104) $ (950,422)
NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE- $ (0.006) $ (0.190)
BASIC AND DILUTED
Weighted Average Common and Common
Equivalent Shares 34,939,804 4,985,746
</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, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total Stock
--------- -------- Paid-In Unearned Accumulated Holders'
Shares Amount Capital Compensation Deficit Equity
---------- -------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, October 31, 1999 34,939,804 $34,940 $16,097,129 -- $(4,345,483) $11,786,586
Net loss -- -- -- -- (203,104) --
---------- ------- ---------- --------- ----------- -----------
Balances, April 30, 2000 34,939,804 $34,940 $16,097,129 -- $(4,548,487) $11,583,482
========== ======= ========== ========= =========== ===========
</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, April 30,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(203,104) $(950,422)
Adjustments to reconcile net loss to net cash used in operating activities:
Depletion, depreciation, amortization and provision for impairment 16,116 34,966
Bad debt expense - 77,039
Equity in loss of oil and gas venture - -
Issuance of stock for compensation - 433,883
Issuance of stock for liabilities - -
Changes in operating assets and liabilities:
Accounts receivable - 25,571
Oil and gas property held for sale - -
Other current assets - -
Accounts payable - 224,157
Other current liabilities 14,562 -
Other long-term liabilities 33,151
Other, net - -
--------- --------
Net cash used in operating activities (139,275) (154,806)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) Sale of oil and gas property held for sale - -
Additions to office equipment - -
Additions to oil and gas property - (7,978)
Purchase of oil and gas property - -
Investment in oil and gas venture -
--------- --------
Net cash provided by (used in) investing activities - (7,978)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder notes - -
Payment of stockholder notes - -
Sales of common stock - -
--------- --------
Net cash divided by financing activities - -
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (139,275) (162,784)
CASH AND CASH EQUIVALENTS, beginning of period 143,493 167,105
--------- --------
CASH AND CASH EQUIVALENTS, end of period $ 4,218 $ 4,321
========= ========
</TABLE>
See accompanying notes to these unaudited consolidated financial statements.
5
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 30, 2000
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - ARXA International Energy, Inc. ("ARXA" or "the Company"), was
incorporated in Delaware and has 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.
Oil and Gas Revenues - The Company recognizes oil and gas revenues as the oil or
gas is produced and sold. As a result, the Company accrues revenue relating to
production for which the Company has not received payment.
Oil and Gas Property Held for Sale - Oil and gas property held for sale is
carried at the lower of cost or market.
Oil and Gas Property - The Company follows the full-cost method of accounting
for oil and gas property. Under the full-cost method, all costs associated with
property acquisition, exploration, and development activities are capitalized
into a "full-cost pool". Capitalized costs include lease acquisitions,
geological and geophysical work, delay rentals, costs of drilling, completing
and equipping successful and unsuccessful oil and gas wells and directly related
costs. Gains or losses are normally not recognized on the sale or other
disposition of oil and gas properties.
The capitalized costs of oil and gas properties, plus estimated future
development costs relating to proved reserves, are amortized on a unit-of-
production method over the estimated productive life of the proved oil and gas
reserves. Depletion expense per mcf equivalent was estimated to be $.64 for the
six months ended April 30, 2000.
Capitalized oil and gas property costs, less accumulated amortization and
related deferred income taxes, are limited to an amount (the ceiling limitation)
equal to the present value of estimated future net revenues from the projected
production of proved oil and gas reserves, calculated at prices in effect as of
the balance sheet date (with consideration of price changes only to the extent
provided by contractual arrangements) at a discount factor of 10%, less the
income tax effects related to differences between the book and tax basis of the
properties.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates.
6
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 30, 2000
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - continued
The Company's financial statements are based on a number of significant
estimates including oil and gas reserve quantities which are the basis for the
calculation of depreciation, depletion and impairment of oil and gas properties.
The Company's reserve estimates are determined by an independent petroleum
engineering firm. However, management emphasizes that reserve estimates are
inherently imprecise and that estimates of more recent discoveries and reserves
associated with non-producing properties are more imprecise than those for
producing properties with long production histories. At October 31, 1999,
approximately 83% of the Company's oil and gas reserves were attributable to
non-producing properties. Accordingly, the Company's estimates are expected to
change as future information becomes available.
Other Property and Equipment - Depreciation of property and equipment, other
than oil and gas properties, is provided generally on the straight-line basis
over the estimated useful lives of the assets as follows:
Furniture and office equipment 3 - 5 years
Automobile 5 years
Ordinary maintenance and repairs are charged to income, and expenditures which
extend the physical or economic life of the assets are capitalized. Gains or
losses on disposition of assets other than oil and gas properties and equipment
are recognized in income, and the related assets and accumulated depreciation
accounts are adjusted accordingly.
Other Non-Current Assets - Other non-current assets include organization costs,
which are being amortized over five years.
Income Taxes - The Company provides for income taxes on the liability method.
The liability method requires an asset and liability approach in the recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of the
Company's assets and liabilities.
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers cash equivalents to include all cash items, such as time
deposits and short-term investments that mature in three months or less.
Concentrations of Credit Risk - Financial instruments which potentially expose
the Company to concentrations of credit risk consist primarily of oil and gas
receivables. Substantially all of the Company's receivables were due from the
sale of oil and gas arising from production on properties located in Texas and
Louisiana. Although the Company is directly affected by the well-being of the
oil and gas production industry, management does not believe a significant
credit risk existed at April 30, 2000.
At times, the Company maintains deposits in banks which exceed the amount of
federal deposit insurance available. Management believes the possibility of
loss on these deposits is minimal.
7
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 30, 2000
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - continued
Earnings per share - The Company adopted SFAS No. 128, Earnings Per Share
(EPS), which was issued in February 1997, which requires presentation of both
basic and diluted EPS on the face of the income statement for all periods
presented. Basic EPS is computed by dividing net income available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS is computed using the
weighted-average number of common and potential common shares outstanding during
the period. In computing diluted EPS, the average stock price for the period is
used in determining the number of shares assumed to be purchased from the
exercise of stock options. There were no dilutive potential common shares
outstanding during the periods encompassed by these financial statements.
NOTE B - 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
$203,104 and negative cash flow from operations of $139,275 for the six months
ended April 30, 2000 and had an accumulated deficit of $4,548,587 at that date,
which raises substantial doubt about its ability to continue as a going concern.
The Company has targeted several acquisition opportunities and is aggressively
seeking financial sources to assist with the financing.
NOTE C - ACCOUNTS RECEIVABLE
There were no receivables at April 30, 2000.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment at April 30, consisted of the following:
<TABLE>
<S> <C>
Oil and gas properties $12,910,755
Other property and equipment 142,504
-----------
13,053,259
Less accumulated depletion, depreciation, amortization
and provision for impairment 961,942
-----------
$12,091,317
===========
</TABLE>
8
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 30, 2000
NOTE - E OTHER ASSETS
Other non-current assets at April 30, 2000 consisted primarily of an
indemnification fund of $50,000. The indemnity fund, was set up for the benefit
of the liquidating agent for Prospector in accordance with the Joint Venture
Dispute Resolution Agreement for a period not to exceed four years. Upon
expiration of the four-year period, any remaining funds will be returned to the
Company.
NOTE F - NOTES PAYABLE
On December 31, 1999, ARXA executed a Promissory Note in the amount of $200,000
together with interest at 10% per annum on the unpaid balance to Mark Trivette
and a Promissory Note of $300,000 to Kenneth A. and Lynn R. Hubbard together
with interest at the rate of 10% per annum on the unpaid balance. The Notes
have a maturity of September 1, 2000.
Gulfport Oil & Gas, Inc. (Gulfport) in consideration of ARXA executing the above
described Promissory Note has transferred to ARXA an additional one per cent
(1%) working interest in certain proved undeveloped, non-producing oil and gas
reserves in the Pelahatchie Field, Rankin County, State of Mississippi. The
working interest transferred by Gulfport to ARXA has a value in excess of
$500,000. After this transaction, ARXA owns a twenty six per cent (26%) working
interest in certain proved, undeveloped, non-producing oil and gas reserves in
the Pelahatchie Field, Rankin County, State of Mississippi.
NOTE G - INCOME TAXES
The Company has net operating loss carryforwards (NOL's) for income tax
reporting purposes of approximately $2,488,871. If not utilized, these NOL's
will expire in twenty years.
NOTE H - COMMITMENTS AND CONTINGENCIES
Environmental Contingencies - The Company's activities are subject to existing
federal and state laws and regulations governing environmental quality and
pollution control. It is impossible to predict the impact of environmental
legislation and regulations on operations in the future, although compliance may
necessitate significant capital outlays, that would materially affect earning
power or cause other material changes. Penalties may also be assessed to the
Company for any pollution caused by the Company's operations and the Department
of Interior is authorized to suspend any operation which threatens immediate or
serious harm to life, property or environment, which suspension may remain in
effect until the damage has ceased. This regulatory burden on the oil and gas
industry increases the cost of doing business and consequently affects the
Company's profitability. It may be anticipated that state and local
environmental laws and regulations will have an increasing impact on oil and gas
exploration and operations.
The Company has never been fined or incurred liability for pollution or other
environmental damage in connection with its operations.
9
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 30, 2000
NOTE I - STOCKHOLDERS' EQUITY
The Company issued warrants to acquire 3,297,000 (pre-split), 659,400 (post-
split) shares of its common stock as part of the acquisition transaction with
Energy Group, Inc. (Phoenix).
The warrants are exercisable at $2.00 (pre-split) $10.00 (post-split) per share.
These warrants expire on August 9, 2000 and are currently exercisable.
On August 21, 1998, the Company issued 57,700 warrants to certain Arxa
shareholders to purchase the Company's common stock at $1.25. These warrants
expire on August 31, 2000.
Prior to the merger transaction with Phoenix, the Company issued 405,000
warrants to purchase the Company's common stock at $10.00. These warrants
expire on August 9, 2000.
In addition, Phoenix granted options to employees and directors to acquire
147,753 shares of Phoenix's common stock and an option to an individual to
acquire 6,146 shares of its common stock. The options, which expire on
September 11, 2007, have an exercise price of $12.50 per share. The options
issued to employees to acquire 36,959 shares of Phoenix's common stock on
September 12, 2000. The options issued to directors, and to the individual
mentioned above, are currently exercisable. These options have not been
converted to options to acquire common stock of the Company.
NOTE J - 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, 2000, no options had been granted under the Plan.
With respect to incentive stock options, no option may be granted more than ten
years after the effective date of the stock option plan or exercised more than
ten years after the date of grant (five years if the optionee owns more than 10%
of the common stock of the Company at the date of grant). Additionally, with
regard to incentive stock options, the exercise price of the option may not be
less than 100% of the fair market value of the common stock at the date of grant
(110% if the optionee owns more than 10% of the common stock of the Company).
Subject to certain limited exceptions, options may not be exercised unless, at
the time of exercise, the optionee is in the service of the Company.
Non-qualified options granted under the plan may not have an exercise price less
than 85% of the fair market value of the Company's common stock on the date of
grant.
On July 27, 1998 the Company authorized the issuance of warrants to management
and non-employee directors to purchase 1,000,000 shares of common stock at $.25
per share. 50% of the warrants are to be exercisable when the Company's stock
price reaches $6.25 per share, 25% when the price reaches $7.50 per share, and
25% when the stock price reaches $8.75 per share. Should the Company declare a
stock dividend the number of shares will go up and the prices will go down
proportionately. These warrants have not been issued as of April 30, 2000. The
pro forma effect of the 1,000,000 shares is shown below in this footnote.
10
<PAGE>
ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 30, 2000
NOTE J - STOCK OPTION PLAN - continued
In October 1995, the Financial Accounting Standards Board issued a new statement
titled "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on fair value. Fair value is generally determined under an option pricing
model using the criteria set forth in SFAS 123.
The Company applies APB Opinion 25, Accounting of Stock Issued to Employees, and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans.
Had compensation expense for the Company's stock based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method prescribed by SFAS 123, the Company's net loss
and loss per common share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<S> <C>
Net loss-as reported $ (203,104)
Net loss-Pro forma (1,985,504)
Net loss per common share-as reported (.0058)
Net loss per common share-Pro forma (.0568)
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk-free
rate of 8%; volatility of 198%, no assumed dividend yield; and expected life of
one year.
NOTE L - SUPPLEMENTAL CASH FLOW INFORMATION
No interest was paid during the six months ended April 30, 2000.
11
<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, 2000 were $-0-, which
is a $21,812 decrease from the $21,812 for the three months ended April 30, 1999
and is primarily attributed to production held in suspense. Lease operating
expense, which includes workover costs, decreased from $4,991 for the three
months ended April 30, 1999 to $1,800 for the three months ended April 30, 2000,
a decrease of $3,191. The decrease is primarily due to properties which are no
longer owned by ARXA, or properties on which the operating expenses are in
dispute. General and administrative costs decreased from $163,487 for the three
months ended April 30, 1999 to $53,019 for the three months ended April 30,
2000. The decrease of $110,468, comes from the down-sizing instituted by the
Company beginning in May 1999. in order to maximize its available working
capital.
B. LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operating activities was a negative $139,275 for the six
months ended April, 30, 2000 as compared to a negative $154,806 for the six
months ended April 30, 1999.
The principle source of cash for the six months ended April 30, 2000 was the
$145,493 on hand at the beginning of the period.
At April 30, 2000, the Company's current assets of $4,218 was exceed by current
liabilities of $29,636, or by $25,418. The Company had a net loss of $203,104
and negative cash flow from operations of $139,0275 for the six month period
ended April 30, 2000 and had an accumulated deficit of $4,548,587 at that date,
which raises substantial doubt about the Company's ability to continue as a
going concern. The Company is continuing to target several acquisition
opportunities and is aggressively seeking financial sources to assist with the
financing.
The Company notes that there is not sufficient cash flow from operations to
continue to operate the business for the next fiscal quarter.
C. MANAGEMENT'S RESPONSE AND PLAN OF OPERATIONS
Under-capitalization continues to be the most serious problem facing the
Company.
To correct this problem the Company has acquired the rights to several high
potential oil and gas development prospects which would provide the
justification for the Company's planned additional Public Offering which will
now proceed as rapidly as possible. It is the intent of the Company to apply
for membership on the American Exchange simultaneously with the offering.
The Company believes that a listing on a major stock exchange in preference to
the Bulletin Board will open opportunities for acquisitions with stock and cash.
The Company is confident that, with the offering completed, it will qualify for
the AMEX.
The Company is in negotiations with a group of private investors to fund the
drilling of one or more wells in the Pelahatchie Field in Rankin County,
Mississippi, and for the completion of the W.H. Mitchell No. 1 Well in Walthall
County, Mississippi, in the Hosston Sand formation at 16,400 feet, which is
scheduled for the last week in July of 2000.
12
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
ARXA is not engaged in any pending legal proceedings nor are any of its
properties subject to any legal proceedings except for the following discussion.
ARXA is further not aware of any legal proceedings pending or threatened against
its officers and/or directors in their capacity as corporate officers or
directors of ARXA.
On October 15, 1999, Radler Enterprises Texas, Inc., filed suit against ARXA and
Craig Ford in the 55/th/ Judicial District for the District Court of Harris
County, State of Texas. The lawsuit was on a Lease Agreement executed on August
19, 1998 by Craig Ford as President of ARXA. The Lease Agreement was not
approved by the Board of Directors of ARXA. The Plaintiff Radler is suing for
actual damages under the lease plus attorney fees, interest, and costs. ARXA
intends to vigorously defend this lawsuit on its merits and will not be
representing Mr. Ford. At this time ARXA is in the discovery phase of this
lawsuit.
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: 6-14-00 Norris R. Harris
/s/ Norris R. Harris
---------------------
President
Date: 6-14-00 Jack R. Durland, Jr.
/s/ Jack R. Durland, Jr.
-------------------------
Vice President and CFO
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM APRIL 30, 2000 FORM 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
13
<PAGE>
Shareholders
ARXA International Energy, Inc. & Subsidiary
Gulfport, Mississippi
We have reviewed the accompanying balance sheet of ARXA International Energy,
Inc. & Subsidiary as of April 30, 2000, and the related statements of
operations, changes in shareholder?s equity and cash flows for the quarter then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in this financial statement is the representation of the
management of Arxa International Energy, Inc. & Subsidiary.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review we are not aware of any material modifications that should
be made to the accompanying financial statement in order for it to be in
conformity with generally accepted accounting principles.
As discussed in Note B to the consolidated financial statement the Company has a
net loss of $203,104 and negative cash flows from operations of $139,275 for the
six months ended April 30, 2000 and had an accumulated deficit of $4,548,587 at
that date, which raises substantial doubt about its ability to continue as a
going concern. The Company is currently seeking outside sources of financing to
fund its development efforts. Should the Company be unable to access such
financing, it will have to materially curtail its development and operating
activities. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Gibbons, Gibbons & Buck, P. C.
June 9, 2000
/s/ H. E. Gibbons
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H. E. Gibbons
