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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________
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: JANUARY 31, 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 March 15, 2000, there were 34,939,804 shares of Common Stock outstanding.
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ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 2000
Part I - Financial Information Page
------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets - January 31, 2000 (unaudited)
and October 31, 1999.....................................................1
Consolidated Statements of Operations - For the Three months
Ended January 31, 2000 (unaudited) and January 31, 1999 (unaudited)......2
Consolidated Statement of Stockholders' Equity - For the Three months
Ended January 31, 2000 (unaudited).......................................3
Consolidated Statements of Cash Flows - For the Three months
Ended January 31, 2000 (unaudited) and January 31, 1999 (unaudited)......4
Notes to Unaudited Consolidated Financial Statements......................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................6
Part II - Other Information
Item 1. Legal Proceedings...............................................7
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ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
Consolidated Balance Sheet
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 48,405 143,793
Accounts receivable, net of allowance for doubtful accounts - -
----------- -----------
Total current assets 48,405 143,493
PROPERTY AND EQUIPMENT, (full cost method for oil and gas
properties), net of accumulated depletion, depreciation,
amortization and provision for impairment 12,098,877 11,606,872
OTHER ASSETS 50,000 51,296
-----------
Total Assets $12,197,282 $11,801,661
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to stockholders $ - $ -
Accounts payable 3,860 3,860
Other current liabilities 17,466 11,215
----------- -----------
Total current liabilities 21,326 15,075
LONG-TERM LIABILITIES:
Notes Payable $ 500,000 $ -
Accrued interest on notes 8,333 -
----------- -----------
Total long-term liabilities 508,333 -
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 (4,464,446) (4,345,483)
----------- -----------
Total stockholders' equity 11,667,623 11,786,586
----------- -----------
Total liabilities and stockholders' equity $12,197,282 $11,801,661
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
1
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ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------------------
January 31, January 31,
2000 1999
-----------------------------------------------
<S> <C> <C>
OIL AND GAS REVENUES $ 12,321 $ 23,081
COST AND EXPENSES:
Lease operating expenses 6,886 55,479
Severance taxes - 2,698
Depletion, Depreciation,
amortization and provision for
impairment 9,290 16,983
General and administrative 108,105 696,381
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Total cost and expenses 124,281 771,541
------------ -----------
LOSS FROM OPERATIONS (111,960) (748,460)
OTHER INCOME (EXPENSES):
Interest income 1 690
Dividend income 1,329
Interest expense 8,333 (1,451)
Other - (34,801)
----------- ----------
(7,003) (35,562)
----------- ----------
LOSS BEFORE INCOME TAXES (118,963) (784,022)
INCOME TAX BENEFIT, net - -
----------- ----------
NET LOSS $ (118,963) $ (784,022)
=========== ==========
NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE- $(0.003) $(0.16)
BASIC AND DILUTED
Weighted Average Common and Common
Equivalent Shares 34,939,804 4,953,918
</TABLE>
SEE ACCOMPANYING NOTES TO THESE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
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ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Three months Ended January 31, 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 -- -- -- -- (118,963) --
---------- ------- ----------- ------ ----------- -----------
Balances, January 31, 2000 34,939,804 $34,940 $16,097,129 -- $(4,464,446) $11,786,586
========== ======= =========== ====== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
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ARXA INTERNATIONAL ENERGY, INC. & SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------
January 31, January 31,
2000 1999
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(118,963) $(784,022)
Adjustments to reconcile net loss to net cash used in operating activities:
Depletion, depreciation, amortization and provision for impairment 9,290 16,983
Bad debt expense - 77,039
Equity in loss of oil and gas venture - -
Issuance of stock for compensation - 429,359
Issuance of stock for liabilities - -
Changes in operating assets and liabilities:
Accounts receivable - 34,162
Oil and gas property held for sale - -
Other current assets - -
Accounts payable - 105,936
Other current liabilities 6,252 -
Other long-term liabilities 8,333
Other, net - -
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Net cash used in operating activities (95,088) (120,543)
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 - (11,059)
Purchase of oil and gas property - -
Investment in oil and gas venture -
--------- ---------
Net cash provided by (used in) investing activities - (11,059)
--------- ---------
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 (95,088) (131,602)
CASH AND CASH EQUIVALENTS, beginning of period 143,493 167,105
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 48,405 $ 35,503
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES OF NON CASH TRANSACTION:
Issuance of stock for consulting services $ - $ 429,359
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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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 has engaged in oil and gas exploration and
development in Utah, Mississippi and Texas. ARXA USA, Inc., a wholly owned
subsidiary, was incorporated in Delaware. All significant intercompany accounts
and transactions have been eliminated in consolidation.
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.
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
$.66 for the year ended October 31, 1998, $.64 for the year ended October 31,
1999 and $.67 for the quarter ended January 31, 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.
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 $118,963
and negative cash flow from operations of $95,088 for the quarterly period ended
January 31, 2000 and had an accumulated deficit of $4,464,446 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.
3. NOTES PAYABLE TO STOCKHOLDERS:
None
5
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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. As
of March 15th of 2000 the Company has not experienced any Y2K problems.
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 January 31, 1999, no options have been granted under the Plan.
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 January 31, 2000 were $12,321,
which is a $10,760 decrease from the $23,081 for the three months ended January
31, 1999 and is primarily attributed to the slow down of production. Lease
operating expense, which includes workover costs, decreased from $69,477 for the
three months ended January 31, 1999 to $6,886 for the three months ended
January 31, 2000, a decrease of $62,591. The decrease is primarily due to the
write off of unproductive wells. General and administrative costs decreased from
$696,381 for the three months ended January 31, 1999 to $108,105 for the three
months ended January 31, 2000. The decrease of $588,276, primarily consists of a
decrease in payroll and office overhead expenses.
B. LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operating activities was a negative $95,088 for the three
months ended January 31, 2000 as compared to a negative of $784,022 for the
three months ended January 31, 1999.
The principle source of cash for the three months ended January 31, 2000 was
from $6,252 increased accounts payable and the use of $95,088 in Cash
Equivalents.
At January 31, 2000, the Company's current assets of $48,405 exceed current
liabilities of $21,326 by $27,079. The Company had a net loss of $118,963 and
negative cash flow from operations of $95,088 for the quarterly period ended
January 31, 2000 and had an accumulated deficit of $4,464,446 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.
Gulfport, in consideration of ARXA issuing Promissory Notes of $200,000 and
$300,000 respectfully, has transferred to ARXA an additional five percent (5%)
working interest in certain proved undeveloped, non-producing oil and gas
reserves in the Pelahatchie Field, Rankin County, Mississippi. The working
interest transferred by Gulfport to ARXA has a value in excess of $2,500,000.
After this transaction, ARXA will own a thirty percent (30%) working interest in
certain proved, undeveloped, non-producing oil and gas reserves in the
Pelahatchie Field, Rankin County, Mississippi.
The Company notes that there is not sufficient cash flow from operations to
continue to operate the business for the next fiscal quarter.
6
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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 March of 2000.
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 55th 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: 3-15-00 Norris R. Harris
/s/ Norris R. Harris
---------------------
President
Date: 3-15-00 Jack R. Durland, Jr.
/s/ Jack R. Durland, Jr.
-------------------------
Vice President and CFO
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM JANUARY 31, 2000 FORM 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
7
