<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
----------- ---------------
COMMISSION FILE NUMBER 0-9147
---------------------------
CANARGO ENERGY CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 91-0881481
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1580, 727 - 7th Avenue SW
Calgary, Alberta, Canada T2P 0Z5
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
403-777-1185
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of registrant's common stock outstanding on August 6, 1999
was 32,103,296. An additional 1,112,959 shares of common stock are issuable at
any time without additional consideration upon exercise of CanArgo Oil & Gas
Inc. Exchangeable Shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited
---------------------------
JUNE 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 190,618 $ 1,924,908
Accounts receivable 158,272 424,367
Advances to operator 290,338 376,890
Inventory 179,212 170,405
Other current assets 174,867 453,476
----------- -----------
Total current assets $ 993,307 $ 3,350,046
Deferred share issue costs 292,688 --
Property and equipment, net 6,383,049 6,201,936
Oil and gas properties, net, full cost method
(including unevaluated amounts of $13,510,157
and $13,266,368 respectively) 30,297,132 30,137,573
Investments in and advances to oil and gas and other
ventures - net 7,375,832 6,877,974
----------- -----------
TOTAL ASSETS $45,342,008 $46,567,529
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,633,174 $ 821,761
Accrued liabilities 717,702 1,162,050
----------- -----------
Total current liabilities $ 2,350,876 $ 1,983,811
Provision for future site restoration 4,300 --
Minority interest in subsidiaries 4,395,796 4,552,285
Stockholders' equity:
Preferred stock, par value $0.10 per share -- --
Common stock, par value $0.10 per share 2,135,589 2,101,464
Capital in excess of par value 101,646,976 101,545,941
Accumulated deficit (65,191,529) (63,615,972)
----------- -----------
Total stockholders' equity $38,591,036 $40,031,433
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,342,008 $46,567,529
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited Unaudited
------------------------- --------------------------
Three Months Ended Six Months Ended
JUNE 30, June 30, JUNE 30, June 30,
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Oil and gas sales $ 790,795 $ 51,902 $ 904,462 $ 132,516
Other -- 12,000 -- 12,000
----------- ----------- ----------- -----------
790,795 63,902 904,462 144,516
----------- ----------- ----------- -----------
Operating Expenses:
Lease operating expense 433,332 78,110 500,050 177,627
Direct project costs 118,337 245,078 403,537 784,484
General and administrative 419,550 757,403 1,104,384 2,214,754
Depreciation, depletion and
amortization 373,300 42,647 398,300 160,471
Equity loss from investments
in unconsolidated subsidiaries 20,000 43,946 41,581 135,377
Impairment of oil and gas
properties -- 100,000 -- 900,000
----------- ----------- ----------- -----------
1,364,519 1,267,184 2,447,852 4,372,713
----------- ----------- ----------- -----------
OPERATING LOSS 573,724 1,203,282 1,543,390 4,228,197
----------- ----------- ----------- -----------
Other Income (Expense):
Interest, net (102,361) 39,227 (150,620) 242,799
Other income (expense) 32,652 775 (8,233) 4,000
Loss on disposition
of equipment (29,803) (27,698) (29,803) (27,698)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (99,512) 12,304 (188,656) 219,101
----------- ----------- ----------- -----------
Minority interest in loss of
consolidated subsidiary 68,902 -- 156,489 --
----------- ----------- ----------- -----------
NET LOSS AND COMPREHENSIVE LOSS $ 604,334 $ 1,190,978 $ 1,575,557 $ 4,009,096
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 21,297,844 11,223,744 21,217,799 11,223,744
----------- ----------- ----------- -----------
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (0.03) $ (0.11) $ (0.07) $ (0.36)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
-------------------------
Six Months Ended
JUNE 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $(1,575,557) $ (4,009,096)
Depreciation, depletion and amortization 398,300 160,471
Impairment of oil and gas properties -- 900,000
Equity loss from investments in unconsolidated
subsidiaries 41,581 135,377
Loss on disposition of equipment 29,803 27,698
Minority interest in loss of consolidated subsidiary (156,489) --
Changes in assets and liabilities:
Accounts receivable 266,095 (818,331)
Advances to operator 86,552 --
Inventory (8,807) --
Other current assets 278,609 511,722
Accounts payable 811,413 (3,462)
Accrued liabilities (444,348) (9,759,594)
----------- ------------
NET CASH FROM (USED IN) OPERATING ACTIVITIES (272,848) (12,855,215)
----------- ------------
Investing activities:
Restricted cash -- 9,700,000
Deferred acquisition costs -- (1,125,827)
Investments in oil and gas properties (416,059) (110,599)
Purchase of property and equipment (306,916) (45,193)
Proceeds from disposition of assets 68,000 716,987
Investments in and advances to oil and gas and
other ventures (539,439) (63,979)
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (1,194,414) 9,071,389
----------- ------------
Financing activities:
Issue of common shares 25,660 --
Deferred share issue costs (292,688) --
----------- ------------
(267,028) --
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,734,290) (3,783,826)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,924,908 14,164,177
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 190,618 $ 10,380,351
=========== ============
Non cash investing and financing activities:
Issuance of common stock in connection with
acquisition of oil and gas properties $ 109,500 $ --
=========== ============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(UNAUDITED)
(1) Basis of Presentation - The interim consolidated condensed financial
statements and notes thereto of CanArgo Energy Corporation and its
subsidiaries (collectively, CanArgo) have been prepared by management
without audit. In the opinion of management, the consolidated condensed
financial statements include all adjustments, consisting of normal
recurring adjustments, necessary for a fair statement of the results for
the interim period. The accompanying consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in CanArgo's Annual Report on Form
10-K for the year ended December 31, 1998 filed with the Securities and
Exchange Commission.
On July 15, 1998, CanArgo filed with the Delaware Secretary of State
amendments to its Certificate of Incorporation to effect a one-for-two
reverse split of the shares of CanArgo's common stock (the "Reverse
Split") and to change CanArgo's name from Fountain Oil Incorporated to
CanArgo Energy Corporation. The Reverse Split has been reflected
retroactively in the accompanying financial statements.
Oil and Gas Properties - CanArgo and the unconsolidated entities for
which it accounts using the equity method account for oil and gas
properties and interests under the full cost method. Under this
accounting method, costs, including a portion of internal costs
associated with property acquisition and exploration for and development
of oil and gas reserves, are capitalized within cost centers established
on a country-by-country basis. Capitalized costs within a cost center,
as well as the estimated future expenditures to develop proved reserves
and estimated net costs of dismantlement and abandonment, are amortized
using the unit-of-production method based on estimated proved oil and gas
reserves. All costs relating to production activities are charged to
expense as incurred.
Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited
to an amount (the full cost ceiling limitation) equal to (a) the present
value (discounted at 10%) 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 fixed and determinable contractual
arrangements), plus (b) the lower of cost or estimated fair value of
unproved and unevaluated properties, less (c) income tax effects related
to differences in the book and tax basis of the oil and gas properties.
(2) Business Combination
On July 15, 1998, CanArgo completed the acquisition of all of the common
stock of CanArgo Oil & Gas Inc. ("CAOG") for common stock consideration
valued at $19,362,500. CAOG is an oil and gas exploration, development
and production company whose principal operations are located in the
Republic of Georgia. On completion of the acquisition, CAOG became a
subsidiary of CanArgo, and each previously outstanding share of CAOG
common stock was converted into the right to receive 0.8 shares of
CanArgo's common stock, giving the former shareholders of CAOG the right
to receive approximately 47% of CanArgo's common stock immediately after
the acquisition. In addition, the former management of CAOG now holds a
majority of CanArgo's senior management positions. The transaction was
accounted for as a purchase. Under purchase accounting, CAOG's results
have been included in CanArgo's consolidated financial statements since
the date of acquisition.
5
<PAGE> 6
The business combination will result in the issuance of 9,790,900 shares
of CanArgo's common stock without receipt of additional consideration by
CanArgo. At June 30, 1999, 8,671,941 of these shares had been issued.
Giving effect to the full issuance of such shares, the number of shares
of CanArgo's common stock outstanding as at June 30, 1999 would be
21,355,893.
(3) Need for Significant Additional Capital, Possible Impairment of Assets
As described in notes 5, 6 and 7 to the condensed consolidated financial
statements, CanArgo has oil and gas related assets totaling $43,703,081.
In order to recover the carrying value of the proved properties
(principally the Ninotsminda field), CanArgo will be required among other
things to raise significant additional capital to develop the proved
properties in order to increase production to a level that provides
positive cash flow and to recover the proved reserves associated with
those properties. If CanArgo cannot successfully raise the required funds
to develop the Ninotsminda field, it may not be able to recover its
carrying value.
In addition to the funds needed to develop the Ninotsminda field,
significant additional capital will be required to explore and, if
appropriate, develop CanArgo's unproved properties and its investment in
oil and gas ventures. This requirement could be met by raising
additional capital, partnering with other industry participants who would
fund all or part of the exploration or development activities in exchange
for an interest in the properties or interests or outright sale of the
properties or interests. CanArgo is actively seeking industry partners
in connection with its interests in the Stynawske field as well as its
other unproved properties in Eastern Europe. No adjustment to the
carrying value of these properties or interests have been made as of June
30, 1999, pending the outcome of CanArgo's capital raising and joint
venture efforts. However, if substantive joint venture partners are not
obtained or significant capital is not raised CanArgo may not recover all
or any of the carrying value of those assets. In addition, even if
CanArgo obtains the means or identifies an industry partner to explore
and develop those properties, there is no assurance that proved reserves
will be found in sufficient quantities to permit CanArgo to recover its
investment.
CanArgo has transported oil and gas related equipment to Georgia
initially for use in the development of the Ninotsminda field and
ultimately for the exploration and development of certain other unproved
properties in Eastern Europe. If the Ninotsminda field and certain
unproved properties are not successfully developed, CanArgo may not
recover the remaining carrying value of this equipment.
CanArgo's investments in Georgian American Oil Refinery and Sagarego
Power Corporation are part of the Company's strategy to develop the
Ninotsminda field and accordingly, the ultimate realization of those
investments is tied to the successful development and operation of that
field.
The consolidated financial statements of CanArgo do not give effect to
any additional impairment in the value of CanArgo's investment in oil and
gas properties and ventures or other adjustments that would be necessary
if financing cannot be arranged for the development of such properties
and ventures or if they are unable to achieve profitable operations.
CanArgo's consolidated financial statements have been prepared under the
assumption of a going concern. Failure to arrange such financing on
reasonable terms or failure of such properties and ventures to achieve
profitability would have a material adverse effect on the financial
position, including realization of assets, results of operations, cash
flows and prospects of the Company and ultimately its ability to continue
as a going concern.
(4) Deferred Share Issue Costs
Deferred share issue costs of $292,688, which are principally fees to
legal counsel and investment bankers, relate to a registration statement
with the Securities and Exchange Commission under which CanArgo offered
up to 21,264,643 shares of common stock. On August 6, 1999, CanArgo
closed its registered public offering resulting in the issuance of
11,850,362 shares at $0.30 per share for gross proceeds of $3,555,109.
6
<PAGE> 7
(5) Property and Equipment, Net
Property and equipment, net of accumulated depreciation and impairment at
June 30, 1999 and December 31, 1998 included the following:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
---------------------------------------- ------------
ACCUMULATED
DEPRECIATION
COST AND IMPAIRMENT NET NET
-------- --------------- ------ -------
<S> <C> <C> <C> <C>
Electrically enhanced oil
recovery ("EEOR")
equipment $ -- $ -- $ -- $ 272,098
Oil and gas related
equipment 8,763,141 (2,733,024) 6,030,117 5,653,481
Office furniture, fixtures
and equipment and other 1,176,927 (823,995) 352,932 276,357
----------- ------------ ----------- -----------
PROPERTY AND EQUIPMENT $ 9,940,068 $ (3,557,019) $ 6,383,049 $ 6,201,936
=========== ============ =========== ===========
</TABLE>
Oil and gas related equipment includes new or refurbished drilling rigs
and related equipment, substantially all of which has been transported to
the Republic of Georgia for use by CanArgo in the development of the
Ninotsminda field. The EEOR property and equipment is held by a
subsidiary that became an unconsolidated subsidiary.
(6) Oil and Gas Properties, Net
CanArgo has acquired interests in oil and gas properties through share
ownership, joint ventures and joint operating arrangements. A summary of
CanArgo's oil and gas properties at June 30, 1999 and December 31, 1998
is set out below:
<TABLE>
<CAPTION>
December 31,
JUNE 30, 1999 1998
--------------------------------------------------------------------- -------------
REPUBLIC OF
GEORGIA CANADA USA OTHER TOTAL TOTAL
------------- ------------ ------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proved properties $16,994,947 $ 1,637,947 $ 1,174,734 $ -- $19,807,628 $19,530,858
Unproved properties 12,951,701 324,500 -- 233,956 13,510,157 13,266,368
Less: accumulated
depletion and
impairment (525,421) (1,320,498) (1,174,734) -- (3,020,653) (2,659,653)
----------- ----------- ----------- -------- ----------- -----------
TOTAL OIL AND GAS
PROPERTIES, NET $29,421,227 $ 641,949 $ -- $233,956 $30,297,132 $30,137,573
=========== =========== =========== ======== =========== ===========
</TABLE>
Oil and gas properties obtained in connection with the acquisition of
CAOG includes $15,120,000 of properties in the full cost pool and
$10,550,500 of unevaluated properties. The Ninotsminda field includes
seven producing wells and since February 1996 has been operated under the
terms of a production sharing
7
<PAGE> 8
contract ("PSC") between Ninotsminda Oil Company Limited ("NOC") and the
Republic of Georgia represented by the state oil company, Georgian Oil.
Unproved properties in the Republic of Georgia include other license
areas within the Ninotsminda PSC, as well as other exploration areas
referred to as the Nazvrevi block and Block XIII operated under the terms
of a PSC between CanArgo's wholly owned subsidiary, CanArgo Nazvrevi
Limited, and the Republic of Georgia.
During the first quarter of 1997, CanArgo purchased a 60% interest in a
heavy oil property in the Sylvan Lake area in Alberta, Canada for
approximately $1,009,000. During the six months ended June 30, 1998,
CanArgo recognized impairments aggregating $900,000 on its oil and gas
properties in the Sylvan Lake project as a result of a decline of heavy
oil prices and the quarterly application of the full cost ceiling
limitation. The impairment relates to proved properties.
Unproved properties and associated costs not currently being amortized
and included in oil and gas properties were $13,510,157 and $13,266,368
at June 30, 1999 and December 31, 1998 respectively. Unproved oil and
gas properties at June 30, 1999 include costs of $13,185,657 (December
31, 1998 - $12,941,868) with respect to properties in Eastern Europe.
These properties are expected to be evaluated over the next five years.
Remaining costs of $324,500 (December 31, 1998 - $324,500) relate to the
Sylvan Lake field which are expected to be evaluated over the next 12
months. If no proved reserves are added, these properties could
experience additional impairment.
(7) Investments in and Advances to Oil and Gas and Other Ventures
CanArgo has acquired interests in oil and gas and other ventures through
less than majority interests in corporate and corporate-like entities. A
summary of CanArgo's net investment in and advances to oil and gas
ventures as of June 30, 1999 and December 31, 1998 is set out below:
<TABLE>
<CAPTION>
JUNE 30, December 31,
INVESTMENTS IN AND ADVANCES TO OIL AND GAS AND OTHER VENTURES 1999 1998
- ------------------------------------------------------------- -------- ------------
<S> <C> <C>
Ukraine - Stynawske Field, Boryslaw
Through 45% ownership of Boryslaw Oil Company $ 6,086,254 $ 5,980,613
Republic of Georgia - Sartichala
Through 12.9% ownership of Georgian American Oil Refinery 1,004,445 1,004,445
Republic of Georgia - Ninotsminda
Through an effective 42.5% ownership Sagarego Power Corporation 565,164 467,796
Uentech International Corporation
Through an effective 47.5% voting interest 336,430 --
Ukraine - Lelyaki Field, Pryluki Region
Through an effective 40.5% ownership of Kashtan Petroleum Ltd. 2,435,725 2,435,725
Adygea, Russian Federation - Maykop Field
Through 37% ownership in Intergas JSC 6,710,874 6,710,874
Albania - Gorisht-Kocul Field
Through 50% ownership of the joint venture 2,202,922 2,202,922
----------- -----------
TOTAL INVESTMENTS IN AND ADVANCES TO
OIL AND GAS AND OTHER VENTURES $19,341,814 $18,802,375
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, December 31,
EQUITY IN PROFIT (LOSS) OF OIL AND GAS AND OTHER VENTURES 1999 1998
- --------------------------------------------------------- -------- -------------
<S> <C> <C>
Ukraine - Stynawske Field, Boryslaw $ (616,461) $ (574,880)
Ukraine - Lelyaki Field, Pryluki Region (2,435,725) (2,435,725)
Adygea, Russian Federation - Maykop Field (1,452,510) (1,452,510)
Albania - Gorisht-Kocul Field (833,191) (833,191)
------------ ------------
CUMULATIVE EQUITY IN PROFIT (LOSS) OF
OIL AND GAS AND OTHER VENTURES $(5,337,887) $(5,296,306)
------------ ------------
Impairment - Maykop Field $(5,258,364) $(5,258,364)
Impairment - Gorisht-Kocul Field (1,369,731) (1,369,731)
------------ ------------
TOTAL IMPAIRMENT $(6,628,095) $(6,628,095)
------------ -----------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND
GAS AND OTHER VENTURES, NET OF EQUITY LOSS AND
IMPAIRMENT $ 7,375,832 $ 6,877,974
=========== ===========
</TABLE>
8
<PAGE> 9
As of June 30, 1999, CanArgo had net investments in and advances to oil
and gas ventures totaling $5,469,793 (December 31, 1998 - $5,405,733)
which relate to Boryslaw Oil Company, the entity holding the license to
develop the Stynawske field, for which development operations have not
yet begun. Included are advances to Boryslaw Oil Company totaling
$1,715,000 and $1,665,000 at June 30, 1999 and December 31, 1998,
respectively. Such advances are recoverable only from future revenue of
or payments from future participants in the venture, if any.
CanArgo's investment in and advances to Boryslaw Oil Company are
essentially unevaluated properties. At June 30, 1999 and December 31,
1998, there were no material operations or assets (other than unevaluated
properties) of entities being accounted for using the equity method.
Accordingly, no other separate financial information has been presented.
As of June 30, 1999, CanArgo had remaining net investments in oil and gas
properties and ventures totaling $37,672,964 (December 31, 1998 -
$37,015,547). Of this amount, $5,489,793 (December 31, 1998 -
$5,405,733) relates to the Stynawske field in the Ukraine for which
development operations have not yet begun. Ultimate realization of the
carrying value of CanArgo's oil and gas properties and ventures will
require production of oil and gas in sufficient quantities and marketing
such oil and gas at sufficient prices to provide positive cash flow to
CanArgo, which is dependent upon, among other factors, achieving
significant production at costs that provide acceptable margins,
reasonable levels of taxation or arrangements in lieu of taxation from
local authorities, and the ability to market the oil and gas produced at
or near world prices. In addition, CanArgo must mobilize drilling
equipment and personnel to initiate drilling, completion and production
activities. CanArgo expects that the initial phase of development of the
Stynawske field will consist of the workover of a number of existing
wells, with a view towards increasing production and gathering data for
the preparation of a full field development program. CanArgo is actively
seeking to establish arrangements under which oil and gas production
companies or other investors would acquire a portion of CanArgo's
interest in the Stynawske field in return for supplying financing or
services to implement the initial phase of the project. However, if one
or more of the above factors, or other factors, are different than
anticipated, these plans may not be realized, and CanArgo may not recover
its carrying value. CanArgo will be entitled to distributions from the
various properties and ventures in accordance with the arrangements
governing the respective properties and ventures.
(8) Accrued Liabilities
Accrued liabilities at June 30, 1999 and December 31, 1998 included the
following:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Professional fees $ 261,224 $ 280,000
Seismic acquisition 351,965 771,207
Taxes payable 61,000 61,000
Other 43,513 49,843
---------- ----------
$ 717,702 $1,162,050
========== ==========
</TABLE>
9
<PAGE> 10
(9) Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
NUMBER OF
SHARES ADDITIONAL TOTAL
ISSUED AND PAID-IN ACCUMULATED STOCKHOLDERS'
ISSUABLE PAR VALUE CAPITAL DEFICIT EQUITY
------------ --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 15,157,868 $1,515,786 $90,549,249 $(63,615,972) $28,449,063
Issuance of common stock
upon exchange of CanArgo
Oil & Gas Inc.
Exchangeable Shares 4,737,816 473,782 8,895,732 -- 9,369,514
Issuance of common stock
in connection with
acquisition of oil and
gas properties 250,000 25,000 84,500 -- 109,500
Issuance of common stock
for services 91,250 9,125 16,535 -- 25,660
Net loss -- -- -- (1,575,557) (1,575,557)
---------- ---------- ------------ ------------ -----------
20,236,934 2,023,693 99,546,016 (65,191,529) 36,378,180
Shares issuable upon
exchange of CanArgo Oil &
Gas Inc. Exchangeable
Shares without payment of
additional consideration 1,118,959 111,896 2,100,960 -- 2,212,856
---------- ---------- ------------ ------------ -----------
BALANCE, JUNE 30, 1999 21,355,893 2,135,589 $101,646,976 $(65,191,529) $38,591,036
========== ========== ============ ============ ===========
</TABLE>
At the annual meeting of stockholders held on June 16, 1999, stockholders
approved an amendment to CanArgo's Certificate of Incorporation to effect
a 1-for-25 reverse stock split of the outstanding common stock, subject
to implementation at the discretion of the Board of Directors. At June
30, 1999, the reverse stock split had not been effected.
(10) Net Loss Per Common Share
Effective December 31, 1997, CanArgo adopted SFAS No. 128 Earnings Per
Share. Basic and diluted net loss per common share for the periods ended
June 30, 1999 and 1998 are based on the weighted average number of common
shares outstanding during those periods. The weighted average numbers of
shares issued and issuable without receipt of additional consideration
for the six month periods ended June 30, 1999 and 1998 are 21,217,799 and
11,223,744, respectively. The weighted average number of shares
outstanding at June 30, 1999 excludes 2,529,336 shares issuable upon
exercise of options and warrants because they are anti-dilutive.
(11) Commitments and Contingencies
OIL AND GAS PROPERTIES AND INVESTMENTS IN OIL AND GAS VENTURES
CanArgo has contingent obligations and may incur additional obligations,
absolute and contingent, with respect to acquiring and developing oil and
gas properties and ventures. At June 30, 1999, CanArgo had the
contingent obligation to issue an aggregate of 187,500 shares of its
common stock, subject to the satisfaction of conditions related to the
achievement of specified performance standards by the Stynawske
10
<PAGE> 11
field project. CanArgo believes that it has no further obligation to
fund operations of Kashtan Petroleum Ltd. or Intergas JSC.
LEGAL PROCEEDINGS AND POTENTIAL CLAIMS
On June 17, 1999, CanArgo entered into a settlement agreement with Zhoda
Corporation ("Zhoda") in which both parties dismissed their respective
claims against each other in exchange for the transfer to CanArgo of all
of the shares Zhoda held in a CanArgo subsidiary, the conveyance to Zhoda
of CanArgo's interest in Kashtan Petroleum Ltd. and a cash payment from
CanArgo to Zhoda in the amount of $50,000. At June 30, 1999, the
remaining liability of $37,500 is included in accrued liabilities with
respect to this settlement.
On July 7, 1999, CanArgo entered into a settlement agreement with Ribalta
Holdings, Inc. in which both parties dismissed their respective claims
against each other.
POTENTIAL CLAIMS RELATING TO PREVIOUSLY IMPAIRED PROJECTS
As a result of CanArgo's decision to cease active development of the
Lelyaki, Maykop and Gorisht-Kocul projects, CanArgo may be subject to
contingent liabilities in the form of claims from the joint ventures
developing such projects or from others participating in those projects.
CanArgo was advised during the first quarter of 1998 that Intergas and
another shareholder of Intergas were considering asserting such claims in
relation to the Maykop project, but no such claims have yet been
asserted. CanArgo is unable to estimate the range that such claims, if
made, might total. However, if one or more such claims were asserted and
determined to be valid, they could have a material adverse effect on
CanArgo's financial position, results of operations, cash flows and
prospects. Such claims may be adjudicated in the host country forum
under host country laws.
(12) Segment Information
For the six month periods ended June 30, 1999 and 1998, CanArgo operated
through one business segment, oil and gas exploration and production,
reflecting its decision to use its electrically enhanced oil recovery
("EEOR") technology primarily internally as a competitive advantage to
obtain and exploit interests in heavy oil fields and not to pursue
external sales of goods and services related to the EEOR technology.
Operating revenues for the six month periods ended June 30, 1999 and 1998
by geographical area were as follows:
<TABLE>
<CAPTION>
JUNE 30, June 30,
1999 1998
--------- --------
<S> <C> <C>
OIL AND GAS EXPLORATION, DEVELOPMENT AND
PRODUCTION
Eastern Europe $707,171 $ --
Canada 197,291 132,516
-------- --------
TOTAL $904,462 $132,516
======== ========
</TABLE>
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<PAGE> 12
Operating profit (loss) for the six month periods ended June 30, 1999 and
1998 by geographical area were as follows:
<TABLE>
<CAPTION>
JUNE 30, June 30,
1999 1998
----------- -----------
<S> <C> <C>
OIL AND GAS EXPLORATION, DEVELOPMENT AND
PRODUCTION
Eastern Europe $ (741,599) $ (870,517)
Canada (73,335) (1,038,284)
----------- -----------
TOTAL $ (814,934) $(1,908,801)
CORPORATE EXPENSES $ (760,623) $(2,319,396)
----------- -----------
TOTAL $(1,575,557) $(4,228,197)
=========== ===========
</TABLE>
Identifiable assets as of June 30, 1999 and December 31, 1998 by business
segment and geographical area were as follows:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
CORPORATE
United States $ 1,119 $ 3,319
Canada 211,571 2,304,690
Western Europe 47,475 196,304
----------- -----------
TOTAL $ 260,165 $ 2,504,313
OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION
Eastern Europe $43,028,045 $41,644,701
Canada 147,759 1,001,733
Western Europe -- 13,769
----------- -----------
TOTAL $43,175,804 $42,660,203
OTHER ENERGY PROJECTS
Eastern Europe $ 1,906,039 $ 1,403,013
----------- -----------
IDENTIFIABLE ASSETS - TOTAL $45,342,008 $46,567,529
=========== ===========
</TABLE>
(13) Subsequent Events
On July 19, 1999, CanArgo obtained a $500,000 working capital loan from
Terrenex Acquisition Corporation, CanArgo's largest stockholder. The
loan is to be paid in full on or before September 21, 1999, with compound
interest payable at a rate of 1% per calendar month. CanArgo paid
Terrenex a financing fee of 50,000 shares, or about 4%, of Uentech
International Corp., a majority owned subsidiary of CanArgo which holds
the rights to CanArgo's EEOR technology.
On August 6, 1999, the Company closed its registered public offering
resulting in the issuance of 11,850,362 shares at $0.30 per share for
gross proceeds of $3,555,109. After completion of the offering, CanArgo
has 32,103,296 common shares issued and outstanding.
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUALIFYING STATEMENT WITH RESPECT TO FORWARD-LOOKING INFORMATION
The United States Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for certain forward looking statements. Such forward
looking statements are based upon the current expectations of CanArgo and speak
only as of the date made. These forward looking statements involve risks,
uncertainties and other factors. The factors discussed below under "Forward
Looking Statements" and elsewhere in this Quarterly Report on Form 10-Q are
among those factors that in some cases have affected CanArgo's historic results
and could cause actual results in the future to differ significantly from the
results anticipated in forward looking statements made in this Quarterly Report
on Form 10-Q, future filings by CanArgo with the Securities and Exchange
Commission, in CanArgo's press releases and in oral statements made by
authorized officers of CanArgo. When used in this Quarterly Report on Form
10-Q, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe," "hope," "may" and similar expressions, as well as "will," "shall"
and other indications of future tense, are intended to identify forward looking
statements.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
On July 19, 1999, CanArgo obtained a $500,000 working capital loan from
Terrenex Acquisition Corporation, CanArgo's largest stockholder. The loan is
to be paid in full on or before September 21, 1999, with compound interest
payable at a rate of 1% per calendar month. CanArgo paid Terrenex a financing
fee of 50,000 shares, or about 4% of the outstanding shares, of Uentech
International Corporation, a majority owned subsidiary of CanArgo which holds
the rights to CanArgo's electrically enhanced oil recovery ("EEOR") technology.
CanArgo expects to repay the loan either from net proceeds of its public
offering discussed below or from the sale of assets not central to its
operations.
On August 6, 1999, CanArgo closed its registered public offering,
resulting in the issuance of 11,850,362 shares at $0.30 per share for gross
proceeds of $3,555,109. CanArgo's management believes that net proceeds from
the offering, augmented by cash generated from operations, the anticipated
proceeds of approximately $900,000 from the planned disposition of assets not
central to its operations and a $6 million loan from the International Finance
Corporation ("IFC") should be sufficient to cover operating needs during the
next twelve month period. However, no assurances can be given that:
O CanArgo will be able to complete any asset sales;
O the proceeds from any such asset sales will be as great as CanArgo
anticipates;
O CanArgo's operations will generate positive cash flow;
O CanArgo will satisfy the conditions to the disbursement of the IFC
loan; or
O The funds provided by the sources noted above or from other sources
will be sufficient to satisfy CanArgo's operating needs during the next
twelve months.
Of the net proceeds from the public offering, CanArgo intends to use $2
million to make a subordinated loan to Ninotsminda Oil Company so that
Ninotsminda Oil Company can receive funding of a $6 million loan from the IFC.
Current development plans for the Ninotsminda field includes the drilling of a
minimum of three development wells plus five major rehabilitations of existing
wells, with a view towards increasing oil production. The total budgeted cost
of the current development plan is $9,573,000. The development plan is
scheduled to be implemented in 1999 and the first half of 2000. CanArgo
believes that the $6 million loan from the IFC and the $2 million subordinated
loan from CanArgo to Ninotsminda Oil Company will provide most of the funds
required to complete the current development program.
13
<PAGE> 14
Pursuant to the loan agreement between Ninotsminda Oil Company and the
IFC, the IFC has the right, upon notice to CanArgo, to terminate its loan
commitment if, among other things, the first disbursement under the loan
agreement is not made by June 30, 1999, or such other date as IFC and CanArgo
agree. IFC has no obligation to disburse funds after June 30, 2000. In
addition to the provision of a $2 million subordinated loan to Ninotsminda Oil
Company, both the initial and each subsequent disbursement are also subject to
a large number of conditions including:
O the maintenance of specified financial ratios;
O the absence of any material adverse changes in Ninotsminda Oil
Company's financial position or business prospects;
O evidence that Ninotsminda Oil Company has received at least $10
million from its shareholders since the beginning of 1998 in the form
of equity contributions and the $2 million subordinated loan, which
either has been expended on the Ninotsminda field current development
program or is held in a cash account. CanArgo believes that the
other shareholder of Ninotsminda Oil Company will not participate in
the subordinated loan and that CanArgo will be required to fund the
entire $2,000,000 in order for Ninotsminda Oil Company to have access
to the IFC funding; and
O receipt by the IFC of favourable legal opinions on a variety of
matters related to the loan.
No assurance can be given that the conditions to disbursement will be
satisfied or, if not satisfied, waived, or that the IFC will fund all or any
part of the $6 million dollar loan.
As a considerable amount of infrastructure for the Ninotsminda field has
been put in place by Georgian Oil, increases in oil production are not expected
to increase infrastructure costs substantially. No assurance can be given,
however, that funding of the Ninotsminda field current development plan will be
timely, that the development plan will be successfully completed, that it will
increase production, or that the Ninotsminda field operating revenues after
completion of the development plan will exceed operating costs.
The extent, cost and timing of a full Ninotsminda field development plan
are highly speculative and will depend significantly upon the results of the
current development program. CanArgo currently projects that the full field
development plan for oil would involve the drilling of nine additional wells,
would cost an additional $16 million, and would require two to three years to
complete. Should Ninotsminda Oil Company attempt to implement such a plan
immediately following completion of the current development plan in
approximately mid-2000, it could require substantial additional funding. It is
unlikely CanArgo could provide such funding unless CanArgo itself obtained
substantial additional funding.
Depending upon the amount of revenue generated by operations and partial
funding of CanArgo projects by third-party participants, CanArgo believes that
it may be required to obtain additional debt or equity financing by the second
half of 2000. No assurances can be given that CanArgo will be able to obtain
such financing or that the financing that is available will be offered on terms
that are attractive or even acceptable to CanArgo. Potential sources of funds
include additional equity, project financing, debt financing and the
participation of other oil and gas entities in CanArgo's projects. Based on
continuing discussions including those with major stockholders, investment
bankers and other oil companies, CanArgo believes that such required funds will
be available. However, there is no assurance that such funds will be
available, and if available, will be offered on attractive or acceptable terms.
On March 29, 1999, CanArgo was advised that its common stock had been
delisted from The Nasdaq Market System effective at the close of business on
March 29, 1999. The management of CanArgo is assessing the impact the delisting
will have on CanArgo's plans and ability to raise required funds. On March 30,
1999,
14
<PAGE> 15
CanArgo's common stock commenced trading on the OTC Bulletin Board. The listing
of CanArgo common stock on the Oslo Stock Exchange has been a secondary listing,
with the primary listing being on The Nasdaq Stock Market. CanArgo is appealing
The Nasdaq Stock Market delisting decision, but if that appeal does not result
in the readmission of CanArgo common stock to trading on The Nasdaq Stock Market
and CanArgo is unable to establish another primary listing acceptable to the
Oslo Stock Exchange, CanArgo could not maintain its secondary listing on the
Oslo Stock Exchange. While CanArgo could apply for a primary listing on the
Oslo Stock Exchange, administrative requirements of that Exchange attaching to a
primary listing make an Oslo Stock Exchange primary listing not a feasible
alternative for CanArgo.
At the annual meeting of stockholders held on June 16, 1999, stockholders
approved an amendment to CanArgo's Certificate of Incorporation to effect a
1-for-25 reverse stock split of the outstanding common stock, subject to
implementation at the discretion of the Board of Directors. At June 30, 1999,
the reverse stock split had not been effected. The purpose of the reverse
split is to attempt to establish a common stock structure that might achieve a
bid price in excess of $5.00 per share so that CanArgo can seek readmission to
the Nasdaq National Market System. There is no assurance, however, that after
the reverse split the common stock will trade at a price that is 25 times its
current price or that the common stock will be relisted on Nasdaq.
As of June 30, 1999, CanArgo had a working capital deficit of $1,358,000,
compared to working capital surplus of $1,366,000 as of December 31, 1998. The
$2,724,000 decrease in working capital from December 31, 1998 to June 30, 1999
principally reflects a reduction in cash and cash equivalents and an increase
in accounts payable.
Cash and cash equivalents decreased $1,734,000 during the six months ended
June 30, 1999 from $1,925,000 at December 31, 1998 to $191,000 at June 30,
1999, primarily as a result of expenditures on operating activities. Cash and
cash equivalents at June 30, 1999 included $51,000 held by Ninotsminda Oil
Company, a 68.5% owned subsidiary of CanArgo which is developing the
Ninotsminda field, to which CanArgo has limited access.
Accounts receivable decreased from $424,000 at December 31, 1998 to
$158,000 at June 30, 1999. The decrease is primarily as a result of collection
of outstanding amounts and an allowance for doubtful accounts related to prior
oil sales.
Advances to operator decreased from $377,000 at December 31, 1998 to
$290,000 at June 30, 1999 as a result of expenditures by the entity performing
the operations at the Ninotsminda field on behalf and at the direction of
CanArgo.
At June 30, 1999, 52,000 barrels of oil were held in storage to be
available for sale in the Georgian domestic and regional market, or in the
international market. Inventories are valued at the lower of cost or market.
Other current assets decreased from $453,000 at December 31, 1998 to
$175,000 at June 30, 1999, primarily as a result of the amortization of prepaid
expenses.
Property and equipment, net, increased from $6,202,000 at December 31,
1998 to $6,383,000 at June 30, 1999, primarily as a result of capitalized costs
associated with moving two drilling rigs and related equipment to the Republic
of Georgia from Cyprus and testing of one of the rigs.
Oil and gas properties, net increased from $30,138,000 at December 31,
1998 to $30,297,000 at June 30, 1999, primarily as a result of the evaluation
of seismic data with respect to the Ninotsminda and Nazvrevi fields for
$100,000, capitalization of $475,000 of Ninotsminda Oil Company general and
administrative expenses related to exploration and development activities and
acquisition of certain interests with respect to the Ninotsminda field for
$110,000.
Investments in and advances to oil and gas and other ventures, net
increased from $6,878,000 at December 31, 1998 to $7,376,000 at June 30, 1999.
The increase reflects principally a restructuring by CanArgo of
15
<PAGE> 16
its EEOR assets whereby CanArgo placed its EEOR assets into Uentech
International Corporation, a Canadian controlled private corporation, with the
objective of Uentech International Corporation raising additional third party
capital specifically for development of the EEOR technology. Following the
restructuring, CanArgo held at June 30, 1999, 47.5% of the outstanding voting
common shares of Uentech International Corporation and 79.3% of the total common
shares outstanding. During the six month period ended June 30, 1999, CanArgo
also advanced $98,000 to CanArgo Power Corporation with respect to a power
project to be located adjacent to the Ninotsminda field and $106,000 to Boryslaw
Oil Company, the entity developing the Stynawske field project. These
investments and advances were partially offset by CanArgo's $42,000 equity in
the loss of Boryslaw Oil Company in the six months ended June 30, 1999.
As of June 30, 1999 and December 31, 1998, CanArgo had net investments in
and advances to Boryslaw Oil Company totaling $5,470,000 and $5,406,000,
respectively. CanArgo has the responsibility for arranging financing for this
venture, and unless third-party financing can be arranged, CanArgo might have
to supply the capital to finance operations until the venture generates
positive cash flow, which would have the effect of increasing investments in
and advances to oil and gas and other ventures. The amount of such advances
may be greater than the amount of the operating losses recognized by CanArgo,
which would cause such net investment balances to increase. Such investments
and advances at the initial stages of development are essentially unevaluated
oil and gas properties, and such costs may not be recovered if the venture is
not successful. No assurance can be given that CanArgo will be able to arrange
third-party financing for such venture, that CanArgo will have sufficient
resources to fund the capital and operating needs of the venture, or that the
venture will be successful.
As a result of CanArgo's suspension of activities relating to the Lelyaki,
Maykop and Gorisht-Kocul field projects, CanArgo may be subject to contingent
liabilities in the form of claims from the ventures developing those projects
and other participants therein. CanArgo was advised during the first quarter
of 1998 that the corporate entity developing the Maykop field project and a
shareholder in that entity were considering such claims, but no such claims
have yet been asserted. CanArgo management is unable to estimate the range that
such claims, if any, might total. However, if any claims were determined to be
valid, they could have a material adverse effect on CanArgo's financial
position, result of operations and cash flows. Any such claims may be
adjudicated in host country forums under host country law.
CanArgo has in the past been involved and in the future could be involved
in lawsuits and could incur significant costs in defending such lawsuits the
loss of which could have a material adverse effect on the financial condition,
results of operations, cash flows and prospects of CanArgo.
CanArgo has contingent obligations and may incur additional obligations,
absolute or contingent, with respect to the acquisition and development of oil
and gas properties and ventures in which it has interests that require or may
require CanArgo to expend funds and to issue shares of its common stock.
CanArgo believes that it has no further obligation to fund any operations
relating to the Lelyaki and Maykop field projects. At June 30, 1999, CanArgo
had a contingent obligation to issue 187,500 shares of common stock to a third
party upon satisfaction of conditions relating to the achievement of specified
Stynawske field project performance standards. As CanArgo develops current
projects and undertakes other projects, it could incur significant additional
obligations.
Development of the oil and gas properties and ventures in which CanArgo has
interests involves multi-year efforts and substantial cash expenditures. Full
development of CanArgo's oil and gas properties and ventures will require the
availability of substantial additional financing from external sources. CanArgo
intends where opportunities exist to transfer portions of its interests in oil
and gas properties and ventures to entities in exchange for such financing.
CanArgo generally has the principal responsibility for arranging financing for
the oil and gas properties and ventures in which it has an interest. There can
be no assurance, however, that CanArgo or the entities that are developing the
oil and gas properties and ventures will be able to arrange the financing
necessary to develop the projects being undertaken or to support the corporate
and other activities of CanArgo. There can also be no assurance that such
financing as is available will be on terms that are attractive or acceptable to
or are deemed to be in the best interest of CanArgo, such entities and their
respective stockholders or participants.
16
<PAGE> 17
Ultimate realization of the carrying value of CanArgo's oil and gas
properties and ventures will require production of oil and gas in sufficient
quantities and marketing such oil and gas at sufficient prices to provide
positive cash flow to CanArgo. Establishment of successful oil and gas
operations is dependent upon, among other factors, the following:
O mobilization of equipment and personnel to implement effectively drilling,
completion and production activities;
O achieving significant production at costs that provide acceptable margins;
O reasonable levels of taxation, or economic arrangements in lieu of
taxation, in host countries; and
O the ability to market the oil and gas produced at or near world prices.
CanArgo has plans to mobilize resources and achieve levels of production and
profits sufficient to recover the carrying value of its oil and gas properties
and ventures. However, if one or more of the above factors, or other factors,
are different than anticipated, these plans may not be realized, and CanArgo may
not recover the carrying value of its oil and gas properties and ventures.
CanArgo will be entitled to distributions from the various properties and
ventures in which it participates in accordance with the arrangements governing
the respective properties and ventures. Until the IFC loan is repaid by
Ninotsminda Oil Company, CanArgo will have only limited ability to transfer
funds from Ninotsminda Oil Company to CanArgo.
Minority interest in subsidiaries at June 30, 1999 of $4,396,000 relates
to the 31.5% interest of the non-controlling shareholder in Ninotsminda Oil
Company.
Year 2000 Compliance
The Year 2000 problem is the result of computer programs being written
using two digits to define the applicable year. If not corrected, any programs
or equipment that have time sensitive components could fail or produce
erroneous results. CanArgo has completed a review of its existing information
technology and non-information technology systems and has upgraded its
accounting information systems to software that the developer represents to be
Year 2000 compliant. Except for a limited number of desktop computers utilized
by CanArgo which CanArgo intends to replace, CanArgo believes that the software
and hardware currently used by CanArgo including oilfield production equipment
is Year 2000 compliant. The cost of replacing the desktop computers is
expected not to exceed $25,000. Although CanArgo does not expect to incur
significant additional expenditures to address Year 2000 issues, there can be
no assurance that this will be the case.
CanArgo has identified several significant suppliers of goods and
services, primarily in the banking, transportation, refining, utility and
communication sectors, whose inability or failure to become Year 2000 compliant
in a timely manner could have a material adverse effect on CanArgo's business,
financial condition, results of operations or cash flows. CanArgo has reviewed
information from these suppliers, where available, with respect to their Year
2000 compliance and status and continues to monitor their progress. While
disruptions to the local power grid as a result of the Year 2000 problem and
other problems could interfere with CanArgo's ability to produce oil and
continue development activities at the Ninotsminda field, CanArgo anticipates
that the planned addition later this year of independent power generation
capability at the Ninostsminda field, if accomplished, will substantially
mitigate that risk and enable CanArgo to at least produce and store oil.
Because of uncertainties, however, the actual effects of the Year 2000 problem
on CanArgo may be different from CanArgo's current assessment. Should remedial
efforts be required, the inability of CanArgo or its principal suppliers to
become Year 2000 compliant in a timely manner could impact CanArgo's ability to
produce, sell and receive payment for its crude oil on a timely basis and could
have a material adverse effect on CanArgo's business, financial condition,
results of operations or cash flows.
17
<PAGE> 18
New Accounting Standards
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, and
SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information
both of which were adopted in 1998 without having any material effect on
CanArgo's financial statements. In 1998, FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, which will be adopted in the
1999 third quarter financial statements and based on present circumstances
would not have any material effect on CanArgo's financial statements.
RESULTS OF OPERATIONS
Six Month Periods Ended June 30, 1999 and 1998
CanArgo recorded operating revenue of $904,000 during the six month period
ended June 30, 1999 compared with $145,000 for the six month period ended June
30, 1998. Ninotsminda Oil Company generated $707,000 of revenue in the six
month period ended June 30, 1999. Its net share of the 205,700 barrels of
gross production from the Ninotsminda field in the period amounted to 71,300
barrels. During the six month period ended June 30, 1999, 7,700 barrels of oil
were removed from storage and sold. Net sale prices for Ninotsminda oil sold
during the six months ended June 30, 1999 averaged $8.95 per barrel. Oil
production from the Sylvan Lake property in Alberta, Canada accounted for
$133,000 of revenue in the six month period ended June 30, 1999 and
substantially all revenue for the six month period ended June 30, 1998.
The operating loss for the six month period ended June 30, 1999 amounted
to $1,543,000 compared with $4,228,000 for the corresponding period in 1998.
The decrease in the operating loss is attributable primarily to 1998 costs
associated with CanArgo's involvement in some Eastern European oil and gas
ventures which involvement CanArgo has effectively terminated, 1998 costs
associated with CanArgo's business combination with CanArgo Oil & Gas Inc., and
the impairment of oil and gas properties which amounted to $900,000 in the 1998
period.
Lease operating expenses increased to $500,000 for the six month period
ended June 30, 1999, as compared to $178,000 for the six month period ended
June 30, 1998. The increase is primarily as a result of the inclusion of
Ninotsminda field operating expenses in the 1999 period.
Direct project costs decreased to $404,000 for the six month period ended
June 30, 1999, from $784,000 for the six month period ended June 30, 1998,
reflecting 1998 costs associated with CanArgo's involvement in some Eastern
European oil and gas ventures which involvement CanArgo has effectively
terminated, partially offset by activity related to the Ninotsminda field.
General and administrative costs decreased to $1,104,000 for the six month
period ended June 30, 1999, from $2,215,000 for the six month period ended June
30, 1998. The decrease is primarily attributable to 1998 costs associated with
CanArgo's involvement in some Eastern European oil and gas ventures, which
involvement CanArgo has effectively terminated, and 1998 costs associated with
CanArgo's business combination with CanArgo Oil & Gas Inc., partially offset by
the cost of general and administrative activity related to the Ninotsminda
field.
The increase in depreciation, depletion and amortization expense from
$160,000 for the six month period ended June 30, 1998 to $398,000 for the six
month period ended June 30, 1999 is attributable principally to depletion
related to Ninotsminda field oil production and depreciation of drilling
equipment which are included in the 1999 period.
The equity loss from investments in unconsolidated subsidiaries decreased
to $42,000 for the six month period ended June 30, 1999 from $135,000 for the
six month period ended June 30, 1998 as a result of the substantially lower
level of activity conducted through unconsolidated subsidiaries in 1999,
reflecting the
18
<PAGE> 19
termination of CanArgo's involvement in the development activities of some
Eastern European oil and gas ventures conducted through unconsolidated
subsidiaries.
During the six months ended June 30, 1998, CanArgo wrote down its oil and
gas properties in the Sylvan Lake project by an aggregate $900,000 as a result
of a substantial decline of heavy oil prices and the quarterly application of
the full cost ceiling limitation. There was no comparable write down during
the six months ended June 30, 1999.
CanArgo recorded net other expenses of $189,000 for the six months ended
June 30, 1999, as compared to net other income of $219,000 during the six
months ended June 30, 1998. The principal reason for the decrease is lower
interest income as a result of lower cash balances during the six months ended
June 30, 1999 compared to the same period for the previous year and the payment
of a facility and commitment fee pursuant to Ninotsminda Oil Company's
$6,000,000 Loan Agreement with the International Finance Corporation.
The net loss of $1,576,000, or $0.07 per share, for the six month period
ended June 30, 1999 compares to a net loss of $4,009,000, or $0.36 per share,
for the six month period ended June 30, 1998. As a result of the issuance of
shares in connection with the business combination, the weighted average number
of common shares outstanding was substantially higher during the six month
period ended June 30, 1999 than during the six month period ended June 30,
1998.
Three Month Periods Ended June 30, 1999 and 1998
CanArgo recorded operating revenue of $791,000 during the three month
period ended June 30, 1999 compared with $64,000 for the three month period
ended June 30, 1998. Ninotsminda Oil Company generated $639,000 of revenue in
the three month period ended June 30, 1999. Its net share of the 97,900
barrels of gross production from the Ninotsminda field in the period amounted
to 32,200 barrels. Ninotsminda Oil Company sold from storage in the three
month period ended June 30, 1999 39,000 barrels of oil into the Georgian local
and regional markets. Because lower transportation costs are involved, CanArgo
believes that sales of Ninotsminda oil to customers in the Georgian local and
regional markets generally yield relatively higher net sales prices to
Ninotsminda Oil Company than sales to other customers. Net sale prices for
Ninotsminda oil sold during the three months ended June 30, 1999 averaged $8.99
per barrel. Oil production from the Sylvan Lake property in Alberta, Canada
accounted for $87,000 of revenue in the three month period ended June 30, 1999
and substantially all revenue for the three month period ended June 30, 1998.
The operating loss for the three month period ended June 30, 1999 amounted
to $574,000 compared with $1,203,000 for the corresponding period in 1998. The
decrease in the operating loss is attributable primarily to revenue from the
Ninotsminda field, 1998 costs associated with CanArgo's involvement in some
Eastern European oil and gas ventures which involvement CanArgo has effectively
terminated, 1998 costs associated with CanArgo's business combination with
CanArgo Oil & Gas Inc., and the impairment of oil and gas properties which
amounted to $100,000 in the three month period ended June 30, 1998.
Lease operating expenses increased to $433,000 for the three month period
ended June 30, 1999 from $78,000 for the three month period ended June 30,
1998. The increase is primarily as a result of the inclusion of Ninotsminda
field expenses in the 1999 period.
Direct project costs decreased to $118,000 for the three month period
ended June 30, 1999, from $245,000 for the three month period ended June 30,
1998, reflecting 1998 costs associated with CanArgo's involvement in some
Eastern European oil and gas ventures which involvement CanArgo has effectively
terminated, partially offset by activity related to the Ninotsminda field.
General and administrative costs decreased to $420,000 for the three month
period ended June 30, 1999, from $757,000 for the three month period ended June
30, 1998. The decrease is primarily attributable to 1998 costs associated with
CanArgo's involvement in some Eastern European oil and gas ventures, which
involvement
19
<PAGE> 20
CanArgo has effectively terminated, and 1998 costs associated with CanArgo's
business combination with CanArgo Oil & Gas Inc., partially offset by the cost
of activity related to the Ninotsminda field.
The increase in depreciation, depletion and amortization expense from
$43,000 for the three month period ended June 30, 1998 to $373,000 for the
three month period ended June 30, 1999 is attributable principally to 1999
depletion related to Ninotsminda field oil production and depreciation of
drilling equipment.
The equity loss from investments in unconsolidated subsidiaries decreased
to $20,000 for the three month period ended June 30, 1999, from $44,000 for the
three month period ended June 30, 1998 as a result of the substantially lower
level of activity conducted through unconsolidated subsidiaries in 1999,
reflecting the termination of CanArgo's involvement in the development
activities of some Eastern European oil and gas ventures conducted through
unconsolidated subsidiaries.
During the three months ended June 30, 1998, CanArgo wrote down its oil
and gas properties in the Sylvan Lake project by an aggregate $100,000 as a
result of a substantial decline of heavy oil prices and the quarterly
application of the full cost ceiling limitation. There was no comparable write
down during the three months ended June 30, 1999.
CanArgo recorded net other expense of $100,000 for the three months ended
June 30, 1999, as compared to net other income of $12,000 during the three
months ended June 30, 1998. The principal reason for the decrease is lower
interest income as a result of lower cash balances during the six months ended
June 30, 1999 compared to the same period for the previous year and the payment
of a facility and commitment fee pursuant to Ninotsminda Oil Company's
$6,000,000 Loan Agreement with the International Finance Corporation.
The net loss of $604,000, or $0.03 per share, for the three month period
ended June 30, 1999 compares to a net loss of $1,191,000, or $0.11 per share,
for the three month period ended June 30, 1999. As a result of the issuance of
shares in connection with the business combination, the weighted average number
of common shares outstanding was substantially higher during the three month
period ended June 30, 1999 than during the three month period ended June 30,
1998.
FORWARD LOOKING STATEMENTS
The forward looking statements contained in this Item 2 and elsewhere in
this Form 10-Q are subject to various risks, uncertainties and other factors
that could cause actual results to differ materially from the results
anticipated in such forward looking statements. Included among the important
risks, uncertainties and other factors are those hereinafter discussed.
Few of such forward looking statements deal with matters that are within
the unilateral control of CanArgo. Joint venture, acquisition, financing and
other agreements and arrangements must be negotiated with independent third
parties and, in some cases, must be approved by governmental agencies. Such
third parties generally have interests that do not coincide with those of
CanArgo and may conflict with CanArgo's interests. Unless CanArgo and such
third parties are able to compromise their respective objectives in a mutually
acceptable manner, agreements and arrangements will not be consummated.
Operating entities in various foreign jurisdictions must be registered by
governmental agencies, and production licenses for development of oil and gas
fields in various foreign jurisdictions must be granted by governmental
agencies. These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and matters. In
addition, the policies and practices of governmental agencies may be affected
or altered by political, economic and other events occurring either within
their own countries or in a broader international context.
CanArgo does not have a majority of the equity in the entity that is the
licensed developer of some projects that CanArgo may pursue in Eastern Europe
such as the Stynawske field project, even though CanArgo may be the designated
operator of the oil or gas field. In such circumstances, the concurrence of
co-venturers may
20
<PAGE> 21
be required for various actions. Other parties influencing the timing of events
may have priorities that differ from those of CanArgo, even if they generally
share CanArgo's objectives. As a result of all of the foregoing, among other
matters, the forward looking statements regarding the occurrence and timing of
future events may well anticipate results that will not be realized.
The availability of equity or debt financing to CanArgo or to the entities
that are developing projects in which CanArgo has interests is affected by many
factors including:
O world economic conditions;
O international relations;
O the stability and policies of various governments;
O fluctuations in the price of oil and gas and the outlook for the oil and
gas industry;
O competition for funds; and
O an evaluation of CanArgo and specific projects in which CanArgo has an
interest.
Rising interest rates might affect the feasibility of debt financing that is
offered. Potential investors and lenders will be influenced by their
evaluations of CanArgo and its projects and comparisons with alternative
investment opportunities.
The development of oil and gas properties is subject to substantial risks.
Expectations regarding production, even if estimated by independent petroleum
engineers, may prove to be unrealized. There are many uncertainties inherent
in estimating production quantities and in projecting future production rates
and the timing and amount of future development expenditures. Estimates of
properties in full production are more reliable than production estimates for
new discoveries and other properties that are not fully productive.
Accordingly, estimates related to CanArgo's properties are subject to change as
additional information becomes available.
Most of CanArgo's interests in oil and gas properties and ventures are
located in Eastern European countries. Operations in those countries are
subject to certain additional risks including the following:
O enforceability of contracts;
O currency convertibility and transferability;
O unexpected changes in tax rates;
O availability of trained personnel; and
O availability of equipment and services and other factors that could
significantly change the economics of production.
Production estimates are subject to revision as prices and costs change.
Production, even if present, may not be recoverable in the amount and at the
rate anticipated and may not be recoverable in commercial quantities or on an
economically feasible basis. World and local prices for oil and gas can
fluctuate significantly, and a reduction in the revenue realizable from the
sale of production can affect the economic feasibility of an oil and gas
project. World and local political, economic and other conditions could affect
CanArgo's ability to proceed with or to effectively operate projects in various
foreign countries.
Demands by or expectations of governments, co-venturers, customers and
others may affect CanArgo's strategy regarding the various projects. Failure to
meet such demands or expectations could adversely affect CanArgo's
participation in such projects or its ability to obtain or maintain necessary
licenses and other approvals.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not yet effective.
21
<PAGE> 22
PART II - OTHER INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In May and June 1999, CanArgo issued an aggregate of 91,250 shares of
common stock to two persons in consideration for financial consulting services
valued at $0.2812 per share.
The offers and sales of the shares were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), under
Section 4(2) of the Act as a transaction by an issuer not involving a public
offering. The purchasers of the shares represented to the Registrant, among
other things, that they were acquiring the shares for their own account; that
they were acquiring the shares for investment and not with a view towards the
distribution thereof; and that they would not sell the shares without
registration under the Act or an applicable exemption from such registration
requirement. The certificates representing the shares have a restrictive
legend endorsed thereon reflecting the restrictions on transferability arising
out of the foregoing matters, and CanArgo has issued "stop transfer"
instructions to its transfer agent with respect to the shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of stockholders was held on June 16, 1999. Stockholders
voted (1) to elect five directors to serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified, (2) to
approve an amendment to the Certificate of Incorporation to effect a 1-for-25
reverse stock split of the outstanding common stock, (3) to approval a proposal
to amend the 1995 Long Term-Incentive Plan to increase the number of shares
that may be issued thereunder and (4) to ratify the selection of
PricewaterhouseCoopers LLP as independent public accountants of CanArgo for the
fiscal year ending December 31, 1999. On the record date, April 30, 1999,
there were 21,264,624 shares of the voting securities of CanArgo outstanding
and entitled to vote.
With respect to the election of the five directors, the tabulation of
votes was as follows:
<TABLE>
<CAPTION>
Nominee Votes For Withheld Broker Non-Votes
---------------------------------------------------------------
<S> <C> <C> <C>
Michael Binnion 13,510,622 466,463 0
Russell Hammond 13,474,152 482,933 0
Peder Paus 13,390,172 566,913 0
David Robson 13,439,002 518,083 0
Nils N. Trulsvik 13,449,281 507,804 0
</TABLE>
With respect to the reverse stock split, the tabulation of votes was
13,223,779 in favor, 685,082 against, 48,224 abstentions and no broker
non-votes.
With respect to the proposal to amend the 1995 Long-Term Incentive Plan,
the tabulation of votes was 10,667,329 in favor, 655,376 against, 1,290,703
abstentions and 1,343,677 broker non-votes.
With respect to the ratification of the selection of
PricewaterhouseCoopers LLP as CanArgo's independent public accountant, the
tabulation of votes was 12,857,217 in favor, 24,776 against, 1,075,092
abstentions and no broker non-votes.
No other matters were submitted to a vote.
22
<PAGE> 23
ITEM 5. OTHER INFORMATION
On August 6, 1999, the Company closed its registered public offering
resulting in the issuance of 11,850,362 shares at $0.30 per share for gross
proceeds of $3,555,109. After completion of the offering, CanArgo has
32,103,296 common shares issued and outstanding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
Management Contracts, Compensation Plans and Arrangements
are identified by an asterisk (*)
1(1) Escrow Agreement with Signature Stock Transfer, Inc. (Incorporated herein
by reference from Form S-1 Registration Statement, File No. 333-72295
filed on June 9, 1999).
1(2) Selling Agent Agreement with each of Credifinance Securities Limited,
David Williamson Associates Limited, and Orkla Finans (Fondsmegling) ASA
(Incorporated herein by reference from Form S-1 Registration Statement,
File No. 333-72295 filed on June 9, 1999).
1(3) Escrow Agreement with Orkla Finans (Fondsmegling) ASA (Incorporated
herein by reference from Form S-1 Registration Statement, File No.
333-72295 filed on June 9, 1999).
1(4) Selling Agent Agreement with National Securities Corporation
(Incorporated herein by reference from Post-Effective Amendment No. 1 to
Form S-1 Registration Statement, File No. 333-72295 filed on July 29,
1999).
1(5) Escrow Agreement with Continental Stock Transfer & Trust Company
(Incorporated herein by reference from Post-Effective Amendment No. 1 to
Form S-1 Registration Statement, File No. 333-72295 filed on July 29,
1999).
2(1) Agreement Relating to the Sale and Purchase of All the Issued Share
Capital of Gastron International Limited dated August 10, 1995 by and
among Ribalta Holdings, Inc. as Vendor and Fountain Oil Incorporated as
Purchaser, and John Richard Tate as Warrantor (Incorporated herein by
reference from October 19, 1995 Form 8-K).
2(2) Supplemental Agreement Relating to the Sale and Purchase of All the
Issued Share Capital of Gastron International Limited dated November 3,
1995 by and among Ribalta Holdings, Inc. as Vendor and Fountain Oil
Incorporated as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from October 19, 1995 Form 8-K).
2(3) Supplemental Deed Relating to the Sale and Purchase of All the Issued
Share Capital of Gastron International Limited dated May 29, 1996 by and
among Ribalta Holdings, Inc. as Vendor and Fountain Oil Incorporated as
Purchaser, and John Richard Tate as Warrantor (Incorporated herein by
reference from June 30, 1997 Form 10-Q).
2(4) Memorandum of Agreement between Fielden Management Services Pty, Ltd.,
A.C.N. 005 506 123 and Fountain Oil Incorporated dated May 16, 1995
(Incorporated herein by reference from December 31, 1997 Form 10-K/A).
2(5) Amended and Restated Combination Agreement between Fountain Oil
Incorporated and CanArgo Energy Inc. dated as of February 2, 1998
(Incorporated herein by reference from Form S-3 Registration Statement,
File No. 333-48287 filed on June 9, 1998).
</TABLE>
23
<PAGE> 24
<TABLE>
<C> <S>
2(6) Voting, Support and Exchange Trust Agreement (Incorporated herein by
reference as Annex G from Form S-3 Registration Statement, File No.
333-48287 filed on June 9, 1998).
3(1) Registrant's Certificate of Incorporation and amendments thereto
(Incorporated herein by reference from July 15, 1998 Form 8-K).
3(2) Registrant's Bylaws (Incorporated herein by reference from
Post-Effective Amendment No. 1 to Form S-1 Registration Statement,
File No. 333-72295 filed on July 29, 1999).
*10(1) Form of Option Agreement for options granted to certain persons,
including Directors (Incorporated herein by reference from August 31,
1994 Form 10-KSB, filed by Electromagnetic Oil Recovery, Inc., the
Company's predecessor).
*10(2) Employment Agreement between Fountain Oil Incorporated and Susan E.
Palmer (Incorporated herein by reference from August 31, 1995 Form
10-KSB).
*10(3) Amended and Restated 1995 Long-Term Incentive Plan (Incorporated
herein by reference from Post-Effective Amendment No. 1 to Form S-1
Registration Statement, File No. 333-72295 filed on July 29, 1999).
*10(4) Fee Agreement dated November 15, 1995 between Fountain Oil
Incorporated and Robert A. Halpin (Incorporated herein by reference
from August 31, 1996 Form 10-KSB).
*10(5) Amended Fee Agreement dated December 10, 1996 between Fountain Oil
Incorporated and Robert A. Halpin (Incorporated herein by reference
from December 31, 1996 Form 10-K).
*10(6) Amended and Restated CanArgo Energy Inc. Stock Option Plan
(Incorporated herein by reference from September 30, 1998 Form 10-Q).
</TABLE>
24
<PAGE> 25
<TABLE>
<C> <S>
*10(7) Workorder between CanArgo Energy Inc. and Nils N. Trulsvik as
Consultant (Incorporated herein by reference from September 30, 1998
Form 10-Q).
*10(8) Consultancy Agreement between CanArgo Energy Corporation and Fincom
AS, Norway (Incorporated herein by reference from September 30, 1998
Form 10-Q).
*10(9) Employment Contract between CanArgo Energy Inc. and Anthony J. Potter
(Incorporated herein by reference from September 30, 1998 Form 10-Q).
*10(10) Workorder between CanArgo Energy Inc. and Alfred Kjemperud as
Consultant (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on February 12,
1999).
10(11) Convertible Loan Agreement between Ninotsminda Oil Company (NOC) and
International Finance Corporation (IFC) dated December 17, 1998
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
10(12) Put Option Agreement between CanArgo Energy Corporation, JKX Oil & Gas
PLC. and IFC dated December 17, 1998 (Incorporated herein by reference
from Form S-1 Registration Statement, File No. 333-72295 filed on
February 12, 1999).
10(13) Guarantee Agreement between CanArgo Energy Corporation and IFC dated
December 17, 1998 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on February 12,
1999).
10(14) Agreement between Georgian Oil Refinery Company and CanArgo Petroleum
Products Ltd. dated September 26, 1998 (Incorporated herein by
reference from Form S-1 Registration Statement, File No. 333-72295
filed on February 12, 1999).
10(15) Terrenex Acquisition Corporation Option regarding CanArgo (Nazvrevi)
Limited (Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
10(16) Production Sharing Contract between (1) Georgia and (2) Georgian Oil
and JKX Navtobi Ltd. dated February 12, 1996 (Incorporated herein by
reference from Form S-1 Registration Statement, File No. 333-72295
filed on June 7, 1999).
10(17) Agreement and Promissory Note dated July 19, 1999, with Terrenex
Acquisition Corporation (Incorporated herein by reference from
Post-Effective Amendment No. 1 to Form S-1 Registration Statement,
File No. 333-72295 filed on July 29, 1999).
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
On June 10, 1999, CanArgo filed a Form 8-K dated June 16, 1999
reporting Item 5. Other Events and Item 7. Financial Statements,
Pro Forma Financial Information and Exhibits, regarding its public
offering of a minimum 11,500,000 shares and a maximum 21,264,643
shares of common stock.
25
<PAGE> 26
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CANARGO ENERGY CORPORATION
Date: August 13, 1999 By: /s/ Michael Binnion
-------------------------------------
Michael Binnion
President and Chief Financial Officer
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILED
HEREWITH EXHIBIT
- --------------------------------------------------------------------------------
<C> <C> <S>
1(1) Escrow Agreement with Signature Stock Transfer, Inc.
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on June 9, 1999).
1(2) Selling Agent Agreement with each of Credifinance Securities
Limited, David Williamson Associates Limited, and Orkla Finans
(Fondsmegling) ASA (Incorporated herein by reference from Form
S-1 Registration Statement, File No. 333-72295 filed on June 9,
1999).
1(3) Escrow Agreement with Orkla Finans (Fondsmegling) ASA
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on June 9, 1999).
1(4) Selling Agent Agreement with National Securities Corporation
(Incorporated herein by reference from Post-Effective Amendment
No. 1 to Form S-1 Registration Statement, File No. 333-72295
filed on July 29, 1999).
1(5) Escrow Agreement with Continental Stock Transfer & Trust
Company (Incorporated herein by reference from Post-Effective
Amendment No. 1 to Form S-1 Registration Statement, File No.
333-72295 filed on July 29, 1999).
2(1) Agreement Relating to the Sale and Purchase of All the Issued
Share Capital of Gastron International Limited dated August 10,
1995 by and among Ribalta Holdings, Inc. as Vendor and Fountain
Oil Incorporated as Purchaser, and John Richard Tate as
Warrantor (Incorporated herein by reference from October 19,
1995 Form 8-K).
2(2) Supplemental Agreement Relating to the Sale and Purchase of All
the Issued Share Capital of Gastron International Limited dated
November 3, 1995 by and among Ribalta Holdings, Inc. as Vendor
and Fountain Oil Incorporated as Purchaser, and John Richard
Tate as Warrantor (Incorporated herein by reference from
October 19, 1995 Form 8-K).
2(3) Supplement Deed Relating to the Sale and Purchase of All the
Issued Share Capital of Gastron International Limited dated May
29, 1996 by and among Ribalta Holdings, Inc. as Vendor and
Fountain Oil Incorporated as Purchaser, and John Richard Tate
as Warrantor (Incorporated herein by reference from June 30,
1997 Form 10-Q).
2(4) Memorandum of Agreement between Fielden Management Services
Pty, Ltd., A.C.N. 005 506 123 and Fountain Oil Incorporated
dated May 16, 1995 (Incorporated herein by reference from
December 31, 1997 Form 10-K/A).
2(5) Amended and Restated Combination Agreement between Fountain Oil
Incorporated and CanArgo Energy Inc. dated as of February 2,
1998 (Incorporated herein by reference from Form S-3
Registration Statement, File No. 333-48287 filed on June 9,
1998).
</TABLE>
<PAGE> 28
<TABLE>
<C> <C> <S>
2(6) Voting, Support and Exchange Trust Agreement (Incorporated herein
by reference as Annex G from Form S-3 Registration Statement, File
No. 333-48287 filed on June 9, 1998).
3(1) Registrant's Certificate of Incorporation and amendments thereto
(Incorporated herein by reference from July 15, 1998 Form 8-K).
3(2) Registrant's Bylaws (Incorporated herein by reference from
Post-Effective Amendment No. 1 to Form S-1 Registration Statement,
File No. 333-72295 filed on July 29, 1999).
*10(1) Form of Option Agreement for options granted to certain persons,
including Directors (Incorporated herein by reference from August
31, 1994 Form 10-KSB, filed by Electromagnetic Oil Recovery, Inc.,
the Company's predecessor).
*10(2) Employment Agreement between Fountain Oil Incorporated and Susan
E. Palmer (Incorporated herein by reference from August 31, 1995
Form 10-KSB).
*10(3) Amended and Restated 1995 Long-Term Incentive Plan (Incorporated
herein by reference from Post-Effective Amendment No. 1 to Form
S-1 Registration Statement, File No. 333-72295 filed on July 29,
1999).
*10(4) Fee Agreement dated November 15, 1995 between Fountain Oil
Incorporated and Robert A. Halpin (Incorporated herein by
reference from August 31, 1996 Form 10-KSB).
</TABLE>
<PAGE> 29
<TABLE>
<C> <C> <S>
*10(5) Amended Fee Agreement dated December 10, 1996 between Fountain
Oil Incorporated and Robert A. Halpin (Incorporated herein by
reference from December 31, 1996 Form 10-K).
*10(6) Amended and Restated CanArgo Energy Inc. Stock Option Plan
(Incorporated herein by reference from September 30, 1998 Form
10-Q).
*10(7) Workorder between CanArgo Energy Inc. and Nils N. Trulsvik as
Consultant (Incorporated herein by reference from September 30,
1998 Form 10-Q).
*10(8) Consultancy Agreement between CanArgo Energy Corporation and
Fincom AS, Norway (Incorporated herein by reference from
September 30, 1998 Form 10-Q).
*10(9) Employment Contract between CanArgo Energy Inc. and Anthony J.
Potter (Incorporated herein by reference from September 30, 1998
Form 10-Q).
*10(10) Workorder between CanArgo Energy Inc. and Alfred Kjemperud as
Consultant (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on February 12,
1999).
10(11) Convertible Loan Agreement between Ninotsminda Oil Company (NOC)
and International Finance Corporation (IFC) dated December 17,
1998 (Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
10(12) Put Option Agreement between CanArgo Energy Corporation, JKX Oil
& Gas PLC. And IFC dated December 17, 1998 (Incorporated herein
by reference from Form S-1 Registration Statement, File No.
333-72295 filed on February 12, 1999).
10(13) Guarantee Agreement between CanArgo Energy Corporation and IFC
dated December 17, 1998 (Incorporated herein by reference from
Form S-1 Registration Statement, File No. 333-72295 filed on
February 12, 1999).
10(14) Agreement between Georgian Oil Refinery Company and CanArgo
Petroleum Products Ltd. dated September 26, 1998 (Incorporated
herein by reference from Form S-1 Registration Statement, File
No. 333-72295 filed on February 12, 1999).
10(15) Terrenex Acquisition Corporation Option regarding CanArgo
(Nazvrevi) Limited (Incorporated herein by reference from Form
S-1 Registration Statement, File No. 333-72295 filed on February
12, 1999).
10(16) Production Sharing Contract between (1) Georgia and (2) Georgian
Oil and JKX Navtobi Ltd. dated February 12, 1996 (Incorporated
herein by reference from Form S-1 Registration Statement, File
No. 333-72295 filed on June 7, 1999).
10(17) Agreement and Promissory Note dated July 19, 1999, with Terrenex
Acquisition Corporation (Incorporated herein by reference from
Post-Effective Amendment No. 1 to Form S-1 Registration
Statement, File No. 333-72295 filed on July 29, 1999).
X 27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 190,618
<SECURITIES> 0
<RECEIVABLES> 158,272
<ALLOWANCES> 0
<INVENTORY> 179,212
<CURRENT-ASSETS> 993,307
<PP&E> 9,940,068
<DEPRECIATION> 3,557,019
<TOTAL-ASSETS> 45,342,008
<CURRENT-LIABILITIES> 2,350,876
<BONDS> 0
0
0
<COMMON> 2,135,589
<OTHER-SE> 36,455,447
<TOTAL-LIABILITY-AND-EQUITY> 45,342,008
<SALES> 904,462
<TOTAL-REVENUES> 904,462
<CGS> 0
<TOTAL-COSTS> 903,587
<OTHER-EXPENSES> 439,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,621
<INCOME-PRETAX> (1,575,557)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,575,557)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,575,557)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
