SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] 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 33-1381-D
EuroGas, Inc.
(Exact name of registrant as specified in its charter)
Utah 87-0427676
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
942 East 7145 South, #101A
Midvale, Utah 84047
(Address of principal executive offices) (Zip Code)
(801) 255-0862
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal
year, if changed since last report)
Indicate by check mark 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 13, 1997, the Issuer had 60,943,718 shares of its common
stock, par value $0.001 per share, issued and outstanding.
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL
EuroGas, Inc. (the "Company"), files herewith unaudited condensed
consolidated balance sheets as of September 30, 1997 and December 31, 1996 (the
Company's most recent year end), and unaudited condensed consolidated statements
of operations for the three and nine month periods ended September 30, 1997 and
1996, unaudited condensed consolidated statements of cash flows for the nine
months ended September 30, 1997 and 1996, and statements of operations and cash
flows from inception on June 7, 1991, through September 30, 1997, together with
the unaudited condensed notes thereto. In the opinion of management of the
Company, such financial statements reflect all adjustments necessary to fairly
present the financial condition, results of operations, and cash flows of the
Company for the interim periods presented. These financial statements should be
read in conjunction with the audited financial statements of the Company and the
notes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 1996.
FORWARD LOOKING INFORMATION MAY PROVE INACCURATE
This report on Form 10-Q contains certain forward looking statements and
information relating to the Company and its business that are based on the
beliefs of management of the Company and assumptions made based on information
currently available to management. Such statements reflect the current views of
management of the Company and are not intended to be accurate descriptions of
the future. The discussion of the future business prospects of the Company is
subject to a number of risks and assumptions, including establishing beneficial
relationships with industry partners to provide funding and expertise to the
projects of the Company, locating commercial deposits of methane and natural gas
on the Company's concessions and licenses, the successful negotiation of
additional licenses and permits for the exploitation of any reserves located,
the successful completion of wells, the economic recoverability of in-place
reservoirs of hydrocarbons, the successful addressing of technical problems in
completing wells and producing gas, the success of the marketing efforts of the
Company, the ability of the Company to establish required facilities to gather
and transport hydrocarbons that may be produced, and the ability of the Company
to obtain the necessary financing to successfully complete its goals. Should
one or more of these or other risks materialize or if the underlying assumptions
of management prove incorrect, actual results of the Company may vary materially
from those described. The Company does not intend to update the forward looking
statements contained in this report.
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 16,681,101 $ 642,605
Receivables from shareholders -- --
Other receivables 39,357 122,047
Refundable deposit held in escrow 4,000,000 --
Other current assets 2,253 4,942
-------------- --------------
Total Current Assets 20,722,711 769,594
-------------- --------------
Property and Equipment
Mineral interests in unproved properties,
net of valuation allowance 20,875,881 14,252,754
Other property and equipment 317,097 2,423,039
-------------- --------------
21,192,978 16,675,793
Less: Accumulated depreciation (26,711) (2,144,113)
-------------- --------------
Net Property and Equipment 21,166,267 14,531,680
-------------- --------------
Other Assets
Goodwill, net 8,776 14,319
Deposits and long-term prepayments 436,661 586,546
-------------- --------------
Total Other Assets 445,437 600,865
-------------- --------------
Total Assets $ 42,334,415 $ 15,902,139
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 1,357,740 $ 1,389,859
Accrued liabilities 2,176,397 2,542,953
Accrued income taxes 911,051 911,051
Accrued preferred dividends 259,653 116,768
Notes payable-current portion -- 3,688,788
Notes payable to related parties-current portion 409,490 1,062,092
-------------- --------------
Total Current Liabilities 5,114,331 9,711,511
-------------- --------------
Long-Term Debt
Notes payable 3,917,104 5,733,702
Notes payable to related parties 5,015,108 4,897,844
-------------- --------------
Total Long-Term Debt 8,932,212 10,631,546
-------------- --------------
Minority Interest 950,000 950,000
-------------- --------------
Stockholders' Equity (Deficit)
Preferred stock, $0.001 par value, 2,396,144 shares
and 3,641,968 shares authorized, issued and
outstanding, respectively 2,396 3,642
Common stock, $0.001 par value, 325,000,000
shares authorized, 60,265,862 shares and
49,143,862 shares issued and outstanding,
respectively 60,266 49,144
Additional paid-in capital 56,701,991 14,842,922
Cumulative foreign currency translation adjustment (14,749) (14,749)
Deficit accumulated during the development stage (29,412,032) (20,271,877)
-------------- --------------
Total Stockholders' Equity (Deficit) 27,337,872 (5,390,918)
-------------- --------------
Total Liabilities and Stockholders' Equity $ 42,334,415 $ 15,902,139
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
For the Three Months For the Nine Months June 7, 1991
Ended September 30, Ended September 30, (Date of Inception)
-------------------------- -------------------------- Through
1997 1996 1997 1996 September 30, 1997
----------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Sale of Property Interest $ 500,000 $ -- $ 500,000 $ -- $ 500,000
----------- ----------- ----------- ----------- -------------
Costs and Expenses
Cost of property interest sold 500,000 -- 500,000 -- 500,000
Impairment of mineral interests
in property 1,972,612 -- 1,972,612 -- 2,941,713
Depreciation and valuation
allowance -- 206 4,725 619 2,100,604
General and administrative 3,376,063 1,681,400 6,472,763 3,473,192 20,158,877
----------- ----------- ----------- ----------- -------------
Total Costs and Expenses 5,848,675 1,681,606 8,950,100 3,473,811 25,701,194
----------- ----------- ----------- ----------- -------------
Other Income (Expenses)
Interest income 219,558 (530) 231,808 34 530,648
Interest expense (268,817) (38,700) (789,325) (112,599) (3,122,965)
Exchange gains (losses), net 191,859 -- 239,015 -- (311,282)
Other income 1,054 -- 1,054 -- 66,078
----------- ----------- ----------- ----------- -------------
Total Income (Expenses), Net 143,654 (39,230) (317,448) (112,565) (2,837,521)
----------- ----------- ----------- ----------- -------------
Loss Before Income Taxes (5,205,022) (1,720,836) (8,767,548) (3,586,376) (28,038,715)
Benefit from (Provision for) Income
Taxes -- 172,084 -- 358,638 (763,941)
----------- ----------- ----------- ----------- -------------
Net Loss (5,205,022) (1,548,752) (8,767,548) (3,227,738) (28,802,657)
Dividends Applicable to Preferred
Shares 198,471 29,900 372,607 89,700 609,375
----------- ----------- ----------- ----------- -------------
Net Loss Applicable to Common
Shares $(5,403,493) $(1,578,652) $(9,140,155) $(3,317,438) $ (29,412,032)
=========== =========== =========== =========== =============
Net Loss Per Common Share $ (0.09) $ (0.03) $ (0.17) $ (0.09) $ (0.99)
=========== =========== =========== =========== =============
Weighted Average Number of
Common Shares Used in Per
Share Calculation 58,108,511 47,484,903 52,612,078 37,846,296 29,151,900
=========== =========== =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
For the Nine Months June 7, 1991
Ended September 30, (Date of Inception)
----------------------------------- Through
1997 1996 September 30, 1997
------------- ------------- ------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (8,767,548) $ (3,227,738) $ (28,802,657)
Adjustments to reconcile net loss to cash
provided by operating activities:
Impairment of mineral interests in
Properties 1,972,612 -- 2,941,713
Depreciation and amortization 10,268 459,338 2,106,146
Compensation paid with issuance of
common stock -- -- 605,592
Exchange (loss) -- -- (550,298)
Changes in operating assets and liabilities, net
of assets acquired:
Receivables 84,641 (1,120,386) 109,039
Accounts payable (32,119) 70,362 152,561
Accrued liabilities 144,350 1,180,212 4,731,567
Income tax payable -- 458,003 763,941
Other 152,742 38,077 58,932
------------- ------------- --------------
Net Cash Used in Operating Activities (6,435,054) (2,142,132) (17,883,464)
------------- ------------- --------------
Cash Flows From Investing Activities
Purchases and exploration of mineral interests
in properties (1,621,438) (3,335,616) (12,963,399)
Purchases of property and equipment -- -- (2,426,337)
Acquisitions of subsidiaries, net of cash
Acquired (6,314,287) -- (6,129,194)
Increase in deposits and prepayments (4,000,000) -- (4,540,000)
Proceeds from sale of interest in gas property 500,000 -- 500,000
------------- ------------- --------------
Net Cash Used in Investing Activities (11,435,725) (3,335,616) (25,558,930)
------------- ------------- --------------
Cash Flows From Financing Activities
Proceeds from issuance of debt-related parties 4,317,262 4,321,387 19,191,272
Repayment of debt-related parties (2,000,000) -- (6,927,441)
Proceeds from issuance of debt 1,030,873 1,257,111 8,868,399
Principal payments on debt (2,938,860) -- (4,329,289)
Proceeds from issuance of common stock 33,500,000 -- 43,616,537
Dividends paid on preferred stock -- -- (120,000)
------------- ------------- --------------
Net Cash Provided by Financing Activities 33,909,275 5,578,498 60,299,478
------------- ------------- --------------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents -- -- (175,983)
------------- ------------- --------------
Net Increase in Cash and Cash Equivalents 16,038,496 100,750 16,681,101
Cash and Cash Equivalents at Beginning
of Period 642,605 72,212 --
------------- ------------- --------------
Cash and Cash Equivalents at End of Period $ 16,681,101 $ 172,962 $ 16,681,101
============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
For the Nine Months June 7, 1991
Ended September 30, (Date of Inception)
----------------------------------- Through
1997 1996 September 30, 1997
------------- ------------- ------------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow
Information
Cash paid for interest $ -- $ -- $ 77,361
Cash paid for income taxes -- -- --
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities
On June 11, 1997, the Company acquired all of the outstanding common stock of
OMV (Jakutien) Exploration Gesellschaft m.b.H. (OMVJ) for $6,107,908 cash,
acquisition costs of $220,396, a stock option to purchase 2,000,000 shares of
common stock exercisable at $4.00 to $6.00 per share, and a 5% interest in
OMVJ's net profits. The fair value of the stock option on the date granted was
$1,150,000. The fair value of the OMVJ net assets was $7,506,621.
From March through August 1997, long-term notes payable of $6,450,000, and
accrued interest of $539,223 were converted into 1,869,754 shares of common sock
at an average conversion rate of $3.74 per share.
During May 1997, 15,000 shares of the Company's 1997 Series A Preferred Stock
were issued for net cash of $13,250,000. In conjunction with the issuance,
commissions were paid in the form of 50,000 shares of the Company's common
stock.
During July 1997, 1,250,000 shares of 1996 Series preferred stock along with
$72,774 in related accrued preferred dividends were converted into 2,500,001
shares of common stock. In addition, 10,824.5 shares of 1997 Series preferred
stock and $156,948 of related accrued preferred dividends were converted into
1,772,246 shares of common stock from July through September 1997.
EuroGas, Inc. and Subsidiaries
(An Exploration Enterprise in the Development Stage)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared by the Company and are not audited. In the opinion of management, all
adjustments necessary for a fair presentation have been included, and consist
only of normal recurring adjustments. These financial statements are condensed
and, therefore, do not include all disclosures normally required by generally
accepted accounting principles. These statements should be read in conjunction
with the Company's most recent annual financial statements included in the
Company's report on Form 10-KSB for the period ending December 31, 1996. The
financial position and results of operations presented in the accompanying
financial statements are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997.
NOTE 2 - MAJOR TRANSACTIONS
On June 11, 1997, the Company acquired all the issued and outstanding stock
of OMV (Jakutien) Exploration GmbH ("OMVJ") from the OMV Group, Austria's
largest industrial concern, in exchange for $6,107,908 U.S. and a 5% interest
in OMVJ's net profits. OMVJ's primary asset is a 50% interest in a joint
venture in the Republic of Sakha (often referred to as Yakutia and the largest
member of the Russian Federation) with Sahaneftegas, the Yakutian national oil
and gas company. Prior to the agreement of acquisition, the Company also
granted a stock option to OMV Group for 2,000,000 shares of common stock
exercisable at $4.00 per share until April 1, 1998, $5.00 per share until March
31, 1999, and $6.00 per share through March 31, 2000, when it will expire if not
exercised. The stock option was treated as a non-refundable deposit towards
obtaining an interest in properties which was completed by the acquisition of
OMVJ. The amount of the deposit was approximately $1,150,000 based on the fair
value of the stock option on the date the parties agreed that it would be
granted. The cost of the OMVJ acquisition totaled $7,478,304.
In August of 1997, the Company officially closed its transaction with
Texaco for the sale of the Pol-Tex Concession 134 for the exploration and
development of coal bed methane gas and received an initial payment of $500,000.
Texaco has recently commenced drilling but it is too early for the Company to
have received a report on the results of such drilling. The agreement also
granted first right of refusal for Texaco to obtain a controlling interest in
two other Polish concessions held by the Company known as MMR and MMJ.
During the third quarter 1997, the investment in oil and gas interests in
the Czech Republic were evaluated and were determined to be impaired.
Accordingly, an impairment loss in the amount of $1,972,612 was recognized as an
expense related to this unproved property interest.
NOTE 3 - STOCKHOLDERS' EQUITY (DEFICIT)
The following table summarizes the changes in stockholders' equity
(deficit) during the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
Cumulative Deficit
Foreign Accumulated
Preferred Stock Common Stock Additional Currency During the Total
------------------ ------------------- Paid-in Translation Development Stockholders'
Shares Amount Shares Amount Capital Adjustment Stage Equity (Deficit)
--------- ------ ---------- ------- ----------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-December 31, 1996 3,641,968 $3,642 49,143,862 $49,144 $ 7,727,275 $(14,749) $(20,271,877) $(5,390,918)
Issuance for cash, March 19,
1997, $5.50 per share -- -- 500,000 500 2,749,500 -- -- 2,750,000
Conversion of notes payable
and related interest,
March 19, 1997, $2.70 per
share -- -- 852,630 853 2,301,247 -- -- 2,302,100
Issuance of 1997 Series
Preferred stock in Regulation
S offering for cash, net of
$1,750,000 offering costs,
May 28, 1997, $833.33 per
transferred share 15,000 15 50,000 50 13,249,935 -- -- 13,250,000
Options granted in connection
with acquisition of OMV
(Jakutien), June 11, 1997 -- -- -- -- 1,150,000 -- -- 1,150,000
Issuance upon exercise of
stock options for cash, June
30 and August 3, 1997, $7.00
to $2.50 per share -- -- 4,429,999 4,430 17,495,570 -- -- 17,500,000
Conversion of notes payable
and related interest, June 20
and August 3, 1997, $2.75 to
$3.16 per share -- -- 633,334 633 1,877,997 -- -- 1,878,630
Conversion of 1996 Series
Preferred shares and accrued
dividends, July 17, 1997 (1,250,000) (1,250) 2,500,001 2,500 71,524 -- -- 72,774
Conversion of notes payable
and related interest,
September 1, 1997,
$7.32 per share -- -- 383,790 384 2,808,109 -- -- 2,808,493
Conversion of 1997 Series
preferred shares and related
accrued dividends, July 17
through September 30, 1997 (10,824) (11) 1,772,246 1,772 155,187 -- -- 156,948
Preferred dividends -- -- -- -- -- -- (372,607) (372,607)
Net loss -- -- -- -- -- -- (8,767,548) (8,767,548)
--------- ------ ---------- ------- ----------- -------- ------------ -----------
Balance-September 30, 1997 2,396,144 $2,396 60,265,862 $60,266 $56,701,991 $(14,749) $(29,412,032) $27,337,872
========= ====== ========== ======= =========== ======== ============ ===========
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
From time to time, the Company receives short-term advances or the
obligations of the Company are temporarily met by entities affiliated with
the officers, directors, and consultants. In addition, the Company has
received longer term loans from such entities. These transactions are
reflected on the balance sheets of the Company as notes to related parties.
The amounts advanced on behalf of the Company totaled approximately $250,000
and $1.2 million for the three and nine months ended September 30, 1997.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has entered into employment contracts for consulting services
with certain individuals, which include a former director and members of his
immediate family. The contracts had original terms that ranged from six months
to three years. The contracts were initially terminated during 1997 with
remaining commitments under these terminated contracts of approximately
$112,500 at September 30, 1997. However, the Company has continued to make
substantial payments under extensions of the contracts.
The Company has been informed that it is the subject of an investigation by
the United States Securities and Exchange Commission (SEC), involving the
financial and other information set forth in the Company's periodic filings and
press releases. The Company has produced numerous documents and the oral
testimony of its officers and directors pursuant to extensive subpoenas from the
SEC. The SEC has obtained similar information from the Company's prior
independent public accountants. While the Company has not had any contact with
the SEC for over a year, it cannot yet predict the duration or outcome of this
investigation.
The Kingdom of the Netherlands has assessed a tax against the Company's
operating subsidiary, GlobeGas, even though it has significant operating losses.
The tax is the result of imputed earnings calculated on interest-free loans made
by GlobeGas. The Company accrued liabilities in prior periods relating to this
assessment in the amount of $763,941.
An unrelated entity filed a claim against the Company in connection with
lending activities between that entity and the management of GlobeGas prior to
the reorganization with the Company. The claim asserted that funds which were
loaned to management may have been invested into GlobeGas and therefore the
entity might have had an interest in GlobeGas at the date of its reorganization
with the Company. In November 1996, the Company entered into an agreement which
settled the claim. The Company issued 100,000 shares of common stock to the
entity and granted the entity options to purchase 2,000,000 shares of common
stock at $3.50 to $6.00 per share based upon when the options are exercised.
The options were exercisable upon issuance and are exercisable through December
1998. The Company has recently been sued for failure to register the shares and
options delivered pursuant to the settlement agreement. (See PART II - "ITEM 1.
LEGAL PROCEEDINGS.")
In March of 1997, a bankruptcy trustee appointed for certain former
shareholders of GlobeGas asserted a claim to the proceeds that the Company would
receive from the Texaco agreement. The Trustee's claim is apparently based upon
the theory that the Company may have paid inadequate consideration for its
acquisition of GlobeGas (which indirectly controlled the Pol-Tex Concession in
Poland) from former shareholders and therefore they are the true owners of the
proceeds received from the development of the Pol-Tex Concession in Poland. The
Company has filed a motion to dismiss the complaint. The Company believes that
the claim is totally without merit based on its belief that a prior settlement
with the principal creditor of the estate bars any such claim, that the court
has no jurisdiction over Pol-Tex or its interests held in Poland, and that the
Company paid substantial consideration for GlobeGas.
A financial consulting firm was retained by Danube prior to its acquisition
by the Company to assist in raising capital in exchange for commissions based on
the capital obtained. Upon completion of the Danube acquisition by the Company,
the financial consultant filed a complaint asserting a claim of $435,000 for
commissions, interest, and legal fees. Prior to the acquisition of Danube, the
financial consulting firm was successful in raising a limited amount of money
and the Company has offered a settlement of $50,000, the approximate amount it
believes is due (which amount is included in accrued expenses in the
accompanying financial statements), plus additional commissions for future
financing received as a result of the consulting firm's efforts.
The Company paid $120,000 of dividends on its 1995 Series Preferred Stock
during 1996, and approximately $175,000 during 1997. The dividends may have
been inappropriately paid under Utah law due to the existence of a stockholders'
deficit throughout most of the periods involved. As a result, the Company may
have a claim against the preferred shareholders who received the dividends for
their repayment.
NOTE 6 -- SUBSEQUENT EVENTS
On October 13, 1997, the Company received an additional concession in the
form of a usufruct from the Polish Ministry of Environmental Protection of
Natural Resource and Forestry to explore and potentially develop a 110 square
kilometer coal bed methane concession located close to the MMR and MMJ
Concessions. The Company is currently conducting a feasibility study to explore
the possibility of developing gas wells for a combined heat and power plant
project in which a consortium of North American power companies has expressed an
interest. The agreement requires an expenditure of only $40,000 per year
pending completion of a feasibility study and negotiations with third parties if
warranted.
On October 23, 1997, the Company entered into an agreement with Polish Oil
and Gas Company ("POGC") formalizing a Letter of Intent and which provides for
joint exploration of areas of interest potentially covering approximately
1,900,000 acres. The area covered by the agreement includes the Carpathian
Flysch and Tectonic Foredeep areas, encompassing the Bieszcady as well as
certain southeastern Carpathian concessions currently held by POGC. The joint
venture is currently shooting wide line seismic in an area known as
Rymanow-Leske and hopes that the interpretations from the seismic work will
provide a basis for locating a well site expected to be drilled in 1998.
The initial drilling will be done in a 50-50 basis and is expected to cost
between $8,000,000 and $10,000,000. The contract calls for a total
contractual commitment from the Company of $15,000,000.
On November 11, 1997, the Company acquired an outstanding 5% minority
interest in its Slovakian Project in exchange for 250,000 shares of restricted
common stock.
The Company has entered into what constitutes agreements in principle to
secure options and indirect rights to a natural gas project known as Beaver
River located in British Columbia. This project contemplates the reworking and
reengineering of a former producing field. It is expected that the project
will be led by a subsidiary of Canadian Occidental Petroleum. The Company will
initially commit approximately $1,000,000 and then may defer any decision about
completing the acquisition until it receives the results of the initial work
performed by the subsidiary of Canadian Occidental Petroleum. If the Company
eventually elects to proceed, it will obtain an approximately 18% working
interest in exchange for the $1,000,000 and 2,100,000 shares of its restricted
common stock.
The Company also determined not to proceed with its previously announced
Letter of Intent with Belmont Resources, a public held Canadian corporation of a
farm-out of a small portion of this Concession. The Company incurred no
material cost in connection with the execution and termination of this Letter of
Intent.
Subsequent to September 30,1997, an additional 3,115.5 shares of 1997
Series Preferred Stock and related accrued dividends were converted to 677,856
shares of common stock. Through November 13, 1997, a total of 13,940 1997
Series Preferred Stock and related accrued dividends had been converted into
2,450,102 shares of common stock. 1,060 shares of the 1997 Series Preferred
Stock remain outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the acquisition of rights to explore for and
exploit natural gas and coal bed methane gas in various parts of the world. The
Company currently has several projects in various stages of development,
including a coal bed methane gas project in Poland which has been farmed out to
a subsidiary of Texaco, Inc. ("Texaco"), a natural gas project in Slovakia, and,
as a result of a recent acquisition of a subsidiary of OMV Group, a natural gas
project in the Sakha Republic, a member of the Russian Federation located in
eastern Siberia. The assets acquired from OMV Group also include the right of
first refusal to exploit other minerals in the areas of interest, including
gold.
In addition, the Company has recently entered into a joint venture
agreement with Polish Oil & Gas Company ("POGC") concerning a separate project
in the Carpathian Flysch and Tectonic Foredeep formation located principally in
southeastern Poland. The Company is also in the final stages of negotiation
with POGC and Ukrgasprom (the Ukrainian state concern for the oil and gas
industry) for an agreement to explore and develop the same formation on the
Ukrainian side of the border, and another agreement with the holder of a similar
Slovakian concession covering the same formation in the Slovakian Carpathians.
The Company has also entered into an agreement in principle which provides for
the right to acquire a substantial interest in a national gas project known as
the Beaver River located in British Columbia, Canada which is to be operated by
a subsidiary of Canadian Occidental Petroleum.
RECENT DEVELOPMENTS
Funding Activities
Prior to the second quarter of 1997, the Company suffered from a lack of
capital. The Company's activities to date have not generated revenue, except
from the sale of an interest in property, so it is not able to meet any of
its funding needs from operations. Since December 31, 1996, the Company
has completed a number of equity financings with net proceeds to the Company
of $33,500,000 which have significantly improved its working capital position
and provided it with funds to complete its recent acquisitions and to meet
its contractual obligations in the near term. The dramatic changes in
stockholders equity which have occurred in the last nine months are set
forth in the financial statements. At September 30, 1997, the Company had
$16,681,000 in cash and cash equivalents and $15,608,380 in working
capital available.
In addition, the Company has recently entered into an agreement with
CIBC/Oppenheimer & Co., Inc., a leading investment bank, granting
CIBC/Oppenheimer the exclusive right to render certain advisory financial and
investment banking services to the Company.
OMVJ Acquisition
The Company completed the acquisition of OMV (Jakutien) Exploration GmbH
("OMVJ"), a subsidiary of OMV Group ("OMV") on June 11, 1997. OMV is Austria's
largest industrial company and it explores and develops oil and gas projects in
Europe, the Mediterranean, and Asia, owns a number of oil refineries, and
operates an extensive pipeline network. OMV holds an option to purchase
2,000,000 shares of the Company's restricted common shares.
OMVJ's primary asset is a 50% interest in a joint venture (known as "TAKT")
which holds gas exploration interests and the right to acquire gold concession
interests located in the Sakha Republic. OMVJ's joint venture partner is
Sahaneftegas (the national oil and gas company of the Sakha Republic). The
Sakha Republic is geographically the largest member of the Russian Federation
and is located in Eastern Siberia. TAKT was formed to appraise, explore, and,
if justified, develop and export oil and gas reserves that may be discovered on
the areas subject to the joint venture. TAKT currently holds two large
exploration blocks located near the city of Lensk, covering approximately 21,300
square kilometers (approximately 9,650 square miles) located in the southeast
area of the East Siberian Platform or East Siberian Basin. These areas have
both been approved for exploration by the Sakha Republic government and the USSR
State Committee for Geology. EuroGas' acquisition and the extension of license
rights have been approved by the appropriate governmental authorities. TAKT
also holds the right of first refusal on adjoining exploration blocks. TAKT has
been conducting activities within its two blocks for the past six years,
employing modern seismic and exploration techniques. The exploration phase is
expected to last for another three to five years and is estimated to cost in its
entirety approximately $28,000,000 (U.S.) of which OMVJ's share would be
$14,000,000 (U.S.).
The Company recently received information covering gold exploration
projects approved by the Russian Federation covering areas in the Republic of
Sakha and which have now been made available upon a first right of refusal basis
to TAKT. The Company has hired third party experts to evaluate the projects.
The Sakha Republic is thinly populated, with a population of just over
1,000,000 people. Over 40% of its territory lies within the Arctic Circle and
the entire Republic is subject to severe climatic conditions. The ultimate
successful development of any hydrocarbons that may be found in this area will
depend on the construction of gathering and transportation systems over vast
distances, probably into Asia. The Company does not have the resources to
construct such pipelines.
The acquisition of OMVJ has been reflected in the balance sheets as of
September 30, 1997, based on the cash purchase price of $6,107,908, the value of
an option previously granted to OMV, and the Company's costs in completing the
acquisition. The Company has filed historical financial information concerning
OMVJ and pro forma information concerning the combined companies in its report
on Form 8-K dated June 11, 1997, as amended. Readers are referred to that
report for additional information.
POGC & Other Agreement Covering the Exploration of the Carpathians
On October 23, 1997, the Company entered into an agreement with Polish Oil
and Gas Company ("POGC") formalizing a Letter of Intent and which provides for
joint exploration potentially covering approximately 1,900,000 acres. The area
covered by the agreement includes the Carpathian Flysch and Tectonic Foredeep
areas, encompassing the Bieszcady as well as certain southeastern Carpathian
concessions currently held by POGC. The joint venture is currently shooting
wide line seismic in an area known as Rymanow-Leske and hopes that the
interpretations from the seismic work will provide a basis for the selection of
a well site expected to be drilled in 1998. The initial drilling will be done
in a 50-50 basis and is expected to cost between $8,000,000 and $10,000,000.
The contract calls for a total initial commitment from the Company of
$15,000,000.
The Company is also in the final stages of negotiation with POGC and
Ukrgasprom (the Ukrainian state concern for the oil and gas industry) for an
agreement to explore and develop the same formation on the Ukrainian side of the
border, and another agreement with the holder of a similar Slovakian concession
covering the same formation in the Slovakian Carpathians. The Company hopes to
have both agreements finalized by November 30, 1997.
Coal Bed Methane Concessions and Texaco Transaction
In August of 1997, the Company officially closed its transaction with
Texaco for the sale of the Pol-Tex Concession 134 for the exploration and
development of coal bed methane gas and received an initial payment from Texaco
of $500,000. Texaco has recently commenced drilling but it is too early for the
Company to have received a report on the results of such drilling. The
agreement also granted first right of refusal for Texaco to obtain a controlling
interest in two other Polish concessions held by the Company known as MMR and
MMJ.
On October 13, 1997, the Company received an additional concession from the
Polish Ministry of Environmental Protection of Natural Resource and Forestry to
explore and potentially develop a 110 square kilometer coal bed methane
concession located close to the MMR and MMJ Concessions. The Company is
currently conducting a feasibility study to explore the possibility of
developing gas wells for a combined heat and power plant project in which a
consortium of North American power companies has expressed an interest. The
agreement requires an expenditure of only $40,000 per year pending completion of
a feasibility study and negotiations with third parties if warranted.
Slovakian Project
The Company is currently drilling a third well (Trebisov 9) on its
Slovakian Concession. Trebisov 9 is a deviated well drilled on the same
location as Trebisov 8 which was recently drilled and tested. The drilling
is intended to help complete the work on the estimation and definition
of the reservoir in conjunction with some additional seismic work to be
undertaken in 1998. The first two wells drilled have both been subject to
production tests which indicate that a stimulated well in the Trebisov area
should produce approximately 1.1 million cubic feet per day. The Company plans
to drill three additional development wells by June of 1998. After the drilling
of these three wells, all the wells will be stimulated by fracturing and, if the
results are as expected, placed into production in the third quarter of 1998.
Applications for the construction of the production facilities are currently
being made to the Slovakian authorities.
In November of 1997, the Company acquired an outstanding 5% minority
interest in the Slovakian Project in exchange for the issuance of 250,000 shares
of restricted common stock.
The Company also determined not to proceed with its previously announced
Letter of Intent with Belmont Resources, a public held Canadian corporation of a
farm-out of a small portion of this Concession. The Company incurred no
material cost in connection with the execution and termination of this Letter of
Intent.
Czech Properties
After review of the results of the drilling in the Czech Republic and the
low priority assigned to this project by management of the Company, the Company
decided to terminate its activities in the Czech Republic and agreed to
surrender any rights therein. The Company suffered an impairment of its mineral
interests and overall properties in the amount of $1,972,612. (See Results of
Operations discussed below.)
Beaver River Project
The Company has entered into agreements in principle to acquire directly or
indirectly a substantial interest in the Beaver River National gas field located
in northeastern British Columbia. The gas field was originally developed by
Amoco Canada in the 1960s and was one of the largest producing gas fields in
British Columbia. Technical problems led to excess water production and Amoco
set in the field in 1978. However, a subsidiary of Canadian Occidental
Petroleum has entered into an agreement to attempt to establish commercial
natural gas production in the project using up-to-date technology and may, if
warranted, spend up to $13,000,000 (US) on the project before requiring any
participation from the other working interest. The participation would be
acquired by the exercising of an option to purchase a current 1/3 interest in
the field (prior to the assignment of an interest to Canadian Occidental
Petroleum and the purchase of shares in a publicly held Canadian interest which
owns a 16.7% interest in the current lease). The Company will initially deliver
$1,000,000 for a partial interest and will have the right but not the obligation
to purchase the remaining interest in stages depending upon the Wascana
operating results. If Wascana is successful in reestablishing commercial
production, the Company will have the right, through the agreements described
above, to ultimately own an approximate 18% working interest in exchange for the
$1,000,000 already delivered and an additional 2,113,207 shares of commons
stock.
Financial Position
The Company had accumulated losses applicable to common stock since
inception of approximately $29,412,000 through September 30, 1997, most of
which have been funded out of proceeds received from the issuance of stock
or debt instruments (substantial portions of which were issued to related
parties), loan proceeds, and incurring payables. The Company's stock and
debt transactions provided net cash of approximately $8,194,000, $2,927,000,
and $4,989,000 during the years ended 1996, 1995, and 1994, respectively.
Since December 31, 1996, the Company has sold 15,000 shares of its
1997 Series Preferred Stock for gross proceeds of $15,000,000, sold
4,930,000 shares of common stock for gross proceeds of $20,250,000, and
converted an additional $6,989,223 in debentures and other obligations
into 1,869,754 shares of common stock.
The Company's principal assets consist of unproved and undeveloped gas
properties. All costs incidental to the acquisition, exploration, and
development of such properties are capitalized, including costs of drilling and
equipping wells and directly related overhead costs which include the costs of
Company owned equipment. Since the Company has no proved reserves or
established production, these properties have not been amortized. In the event
that the Company is ultimately unable to establish production or sufficient
reserves on these properties to justify the carrying costs, the value of the
assets will need to be written down and the related costs charged to operations,
resulting in additional losses. The Company periodically evaluates unproved
properties for impairment and if a property is determined to be impaired, the
carrying value of the property is reduced to its net realizable amount.
RESULTS OF OPERATIONS
The Company has not received any revenues since inception, except for the
$500,000 received from Texaco during the quarter ended September 30, 1997. The
Company does not currently have a source of ongoing revenues.
The Company had a net loss applicable to common shares for the three and
nine months ended September 30, 1997, of approximately $5,403,000 and
$9,140,000, respectively, as compared to a net loss of approximately $1,579,000
and $3,317,000 for the comparative periods ended September 30, 1996. The
difference is due in large part to the expansion of the Company's activities,
primarily as a result of acquisitions, the growth of the Company's
administrative expenses, and the Company's decision to write off the carrying
value associated with its interests in the Czech Republic in the amount of
$1,972,612. A substantial portion of the general and administrative expenses
consist of payments to a limited number of officers, directors, and consultants.
From inception on June 7, 1991, through September 30, 1997, the Company had
accumulated losses of $29,412,000 of which $28,803,000 was a net loss from
operations and $609,000 a charge for dividends applicable to preferred shares.
Due to the highly inflationary economies of the Eastern European countries
in which the Company operates, the Company is subject to extreme fluctuations in
currency exchange rates that can result in the recognition of significant gains
or losses during any period. No gains or losses were recognized in the
nine months ended September 30, 1997, and 1996, respectively. The Company does
not currently employ any hedging techniques to protect against the risk of
currency fluctuations.
Under the full cost method by which the Company accounts for its mineral
interests in properties, costs of unproved properties are assessed periodically
and any resulting provision for impairment would normally be charged to the
proved property base, but since the Company does not have any proved properties,
the impairment is charged to operations. The impact of such reassessment and
resulting impairment charge could be significant during any particular period
and resulted in a write down of $1,972,612 during the quarter ended September
30, 1997, in the carrying value of the assets associated with the Company's
interests in the Czech Republic. As a result of the foregoing, the results of
operations for any particular period may not be indicative of the results that
could be expected for the remainder of the year.
As of September 30, 1997, the Company reported approximately $20,876,000 in
mineral interests in unproved mineral properties, net of valuation allowance.
These properties are held under licenses or concessions that contain specific
drilling or other exploration commitments and that expire within one to three
years, unless the concession or license authority grants an extension or a new
concession license, of which there can be no assurance. If the Company is
unable to obtain any necessary future licenses or extensions, it could be forced
to write off the carrying value of the related property.
CAPITAL AND LIQUIDITY
Throughout its existence, the Company has relied on cash from financing
activities to provide the funds required for acquisitions and operating
activities. During the nine months ending September 30, 1997 and 1996,
operations required cash of approximately $6,435,000 and $2,142,000,
respectively. Since inception on June 7, 1991, the Company has used net cash in
operations of approximately $17,883,000. Such net cash has been used
principally to fund cumulative net losses of approximately $28,803,000.
Investing activities used net cash of approximately $11,436,000 for the
nine months ended September 30, 1997, the largest component of which was the
approximately $6,315,000 booked in connection with the acquisition of OMVJ,
as compared to approximately $3,336,000 used for acquisitions in the prior
nine month period. Since inception, the Company's investment activities have
used cash of approximately $25,559,000.
Financing activities provided net cash of approximately $33,909,000 during
the nine month period ending September 30, 1997, as compared to $5,578,000 in
the prior year comparative period. From inception through September 30, 1997,
the proceeds from financing activities are approximately $60,299,000 of which
approximately $12,264,000 is net proceeds from borrowings and payments to
related parties.
At September 30, 1997, the Company had total current assets of
approximately $20,723,000 and total current liabilities of approximately
$5,114,000, resulting in working capital of approximately $15,609,000 or a
working capital ratio of 4 to 1.
As noted above, the Company has relied principally on cash provided from
financing activities to meet its cash requirements. While the Company currently
has sufficient cash to meet its short-term needs, it will be required to obtain
additional cash either from financing activities or operations to meet its
longer term needs. The Company believes that the engagement of CIBC/Oppenheimer
will provide assistance in meeting the Company's future financial requirements,
but there can be no assurance that funds will be available to the Company as and
when needed by its business activities, or at all. Obtaining additional equity
financing or structuring strategic relationships will continue to result in
dilution of the percentage ownership of the Company by the current shareholders.
If the Company is unable to establish production or reserves sufficient to
justify the carrying value of its assets or to obtain the necessary funding to
meet its short and long-term obligations or to fund its exploration and
development program, all or a portion of the mineral interests in unproved
properties will be charged to operations, leading to significant additional
losses.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 30, 1997, the Company settled all matters outstanding between the
former shareholders of Danube and the Company by entering an agreement which
converted all of the outstanding past due principal and interest due on a
promissory note in the amount of $2,808,493 in exchange for 383,790 shares of
the Company's common restricted stock (calculated based on $7.00 per share). In
connection with this agreement, all claims held by the former Danube
shareholders, including claims previously asserted by Martin Schuepbach as a
result of an alleged breach of his employment agreement, were released.
On August 21, 1997, KUKUI, Inc. asserted a claim against EuroGas, Inc. in
an action entitled KUKUI, Inc. v. EuroGas, Inc., Case No. H-972864 United States
District for the Southern District of Texas, Houston Division. KUKUI's claim is
based upon an alleged breach of the settlement agreement between the Company and
KUKUI as a result of the Company's failure to file and obtain the effectiveness
of a registration statement for the resale by KUKUI of 100,000 shares delivered
to KUKUI in connection with the settlement. In addition, KUKUI has informed the
Company and the court that Bishop's Estate, its parent, would be entering a
claim for failure to register the resale of the shares subject to its option to
purchase up to 2,000,000 shares in the Company's common stock. The Company has
denied any liability and intends to vigorously defend the claim. (See Note 5 to
Financial Statements.)
EXHIBITS
The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document
- ------- --------- -----------------
<S> <C> <C>
1 (10) Mining Usufruct Contract between The Minister of Environmental
Protection, Natural Resources and Forestry of the Republic of Poland
and Pol-Tex Methane, dated October 3, 1997
2 (10) Agreement between Polish Oil and Gas Mining Joint Stock Company
and EuroGas, Inc., dated October 23, 1997
3 (10) Agreement for Acquisition of 5% Interest in a subsidiary by and between
EuroGas, Inc., B. Grohe, and T. Koerfer, dated November 11, 1997
4 (10) Option Agreement by and between EuroGas, Inc., and Beaver River
Resources, Ltd., dated October 31, 1997
5 (27) Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Issuer has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EUROGAS, INC.
Dated: November 14, 1997 By /s/ Hank Blankenstein
Hank Blankenstein, Vice-President
MINING USUFRUCT CONTRACT
EXECUTED ON OCTOBER 3, 1997
IN WARSAW
BETWEEN
THE MINISTER OF ENVIRONMENTAL PROTECTION,
NATURAL RESOURCES AND FORESTRY OF THE REPUBLIC OF POLAND
AS THE CONCESSION GRANTER
AND
POL-TEX METHANE,
LIMITED LIABILITY COMPANY
WITH FOREIGN INTEREST
SEATED IN JASTRZEBIE ZDROJ, ZAMKOWA 5
AS THE MINING CONTRACTOR
USUFRUCT AGREEMENT
entered into this 3rd day of October, 1997, in Warsaw between the STATE TREASURY
represented by the MINISTER OF ENVIRONMENTAL PROTECTION, NATURAL RESOURCES AND
FORESTRY OF THE REPUBLIC OF POLAND, Mr. Stanislaw Zelichowski, in his capacity
as Joint Concession Authority acting through Dr. Krzysztof Szamalek, Secretary
of State (herein the "Concession Authority")
and
Pol-Tex Methane Sp. z o.o., a Polish limited liability company with foreign
interest, with seat in Jastrzebie Zdroj at ul. Zamkowa 5,
represented by:
1) Mr. Andrzej Kazimierz Andraczke
2) Mr. Bronislaw Piechula
(hereinafter the "Contractor")
Pol-Tex Methane Sp. z o.o., a Polish limited liability company with foreign
interest states:
1) its capital is 18.221.855 Polish Zlotys
2) there are three members of the Management Board
Mr. Wolfgang Rauball - President
Mr. Andrzej Andraczke - Secretary
Mr. Juergen T. Preuss - Member
3) Contractor is registered in the Commercial Register kept by the District
Court in Katowice under number RHB.
WITNESSETH:
1) WHEREAS, the ownership and control of all Coalbed Methane existing in its
natural state within the territory of the Republic of Poland (including the
territorial waters thereof), (herein "Poland") belongs to the State
Treasury of the Republic of Poland which empowered the Minister to grant
concessions to explore, develop and produce mineral resources, and
Contractor desires to engage in such activities by virtue of this Contract
and the Joint Concession for which it has applied or will apply;
2) WHEREAS, Contractor affirms that it has the experience, the financial and
technical ability and resources and the professional expertise to
efficiently carry out the Coalbed Methane Operations hereinafter defined;
and these facts are known to the Minister;
3) WHEREAS, it is known that Contractor fulfills conditions to have the
concession granted to explore, develop, and produce Methane (herein Joint
Concession)
parties agree as follows:
CHAPTER 1
GRANT AND ESTABLISHMENT OF USUFRUCT
AND JOINT CONCESSION
Article 1
Concession Authority hereby establishes in favor of the Contractor an exclusive
mining usufruct for the exploration and exploitation of CBM in the Mining
Usufruct Area as defined in Appendix 1 to this agreement.
Article 2
This Contract is the agreement which shall govern the relations among the
Parties for the purposes of the CBM Operations conducted hereunder, and
respective rights and obligations of each Party relating thereto.
Article 3
1. Contractor shall use all reasonable endeavors to submit a completed
application for the Joint Concession to the Minister within sixty (60) days
of signature of this Contract.
2. Contractor and the Minister shall thereafter cooperate fully and use all
reasonable endeavors to have the Joint Concession issued to Contractor
within sixty (60) days following submission of Contractor's application
therefor.
CHAPTER 2
TERM AND PHASES OF THE CONTRACT
Article 4
This Contract shall become effective as of the date first set forth above and
shall continue for 25 years or until the earliest to occur of the following:
1) expiration of the concession
2) first date on which, other than as a result of Force Majeure production
shall have been unjustifiably suspended for a period of six (6) consecutive
months;
3) the end of the Second Exploration Phase if no Commercial Discovery has been
made during the Exploration Phase
4) sixty (60) days written notice by Minister or Contractor of their intent to
terminate this Contract; or
5) the mutual agreement of the Parties.
Article 5
The term of this Contract shall be divided into three phases:
1) The "First Exploration Phase" which shall commence on the Joint Concession
Effective Date and shall continue for a period of twenty-four (24) months;
2) the "Second Exploration Phase" which shall commence upon the termination or
expiration of the First Exploration Phase and shall continue for a period
of twenty-four (24) months; and
3) The "Exploitation Phase" which shall commence upon termination or
expiration of the Second Exploration Phase and shall continue throughout
the term of this Contract and during which the Exploitation Operations will
take place.
Article 6
The election to continue this Contract into the Second Exploration Phase and/or
the Exploitation Phase, as the case may be, shall be at Contractor's sole
election; provided that, Contractor is in compliance with the terms of this
Contract and the Joint Concession and has satisfied all work, expenditure and
other material obligations pertaining to the relevant preceding phase.
Article 7
Notice of election to enter into the Second Exploration Phase and/or the
Exploitation Phase must be made in writing to the Minister within thirty (30)
calendar days before the end of the relevant preceding phase.
Article 8
If Contractor will submit reasonable request, Minister can extend the First or
Second Exploration Phase for time necessary to conduct additional exploration
for Methane. The written request from Contractor should be submitted to the
Minister within thirty (30) calendar days before event justifying additional
exploration efforts.
Article 9
In the event an Exploration Well is being drilled, logged, tested or plugged or
if Exploration Operations are being conducted or if an evaluation report or
Geological Documentation is being prepared on the date when the First
Exploration Phase or Second Exploration Phase would otherwise expire, such Phase
shall, upon written request from Contractor to the Minister within thirty (30)
calendar days after the end of such Phase, be extended as needed in order to
enable Contractor to complete the drilling, logging, testing and/or plugging of
such well, to assess the results thereof and to determine whether said results
confirm a commercial Discovery.
Article 10
If the Contractor declares a Discovery has the potential to be a Commercial
Discovery, but that the current infrastructure and/or market conditions prohibit
the immediate development of such Discovery, then the Second Exploration Phase
shall, upon written request from Contractor to the Minister within thirty (30)
calendar days after the end of the Second Exploration Phase, be extended for an
additional five (5) years to enable Contractor to develop the infrastructure
and/or to enable a change in market conditions necessary to allow the commercial
development of the Discovery in question.
Article 11
If this agreement expired and if CBM is still being produced from a Development
Area within the Mining Usufruct Area, the Contractor may apply for a new
concession covering the said Development Area.
Article 12
Upon the termination of this Contract or the Joint Concession, Minister will
define the scope of works that Contractor shall do to remove the impact of the
development on environment.
CHAPTER 3
Article 13
If and when any Discovery is made within the Mining Usufruct Area, Contractor
shall promptly report such Discovery to the Minister.
Article 14
As soon as practicable after a Discovery and, in any event, not more than six
months thereafter, Contractor shall submit a report to the Minister for his
consideration indicating whether or not such Discovery merits further
exploration. The report shall be prepared in the form of an appendix to the
geological work plan. In the event no Discovery is made, no such appendix shall
be required however the Contractor shall notify the Minister in such event. If
Contractor determines that the Discovery merits further exploration, the report
shall include an exploration program which shall include the drilling of one or
more Exploration wells to determine whether such Discovery constitutes a
Commercial Discovery. Positive results of Exploration Phase create the base for
Minister to extend the Second Exploration Phase for the period not longer than
three (3) years.
Article 15
No later than six (6) months following expiration of the Second Exploration
Phase, Contractor shall submit the Geological Documentation to the Minister for
the handing down of the "separate decision" on the detailed conditions of
Methane exploitation.
CHAPTER 4
OWNERSHIP OF CBM AND DATA AND CONDFIDENTIALITY
Article 16
During the term of this Contract, all CBM produced from the Mining Usufruct Area
shall be owned by the Contractor and Contractor shall have the right to freely
dispose of all CBM produced hereunder. Ownership of all such CBM shall pass to
Contractor at the wellhead.
Article 17
1. Contractor will have access, free of cost other than reasonable costs of
reproduction and handling, to all CBM related geological, geophysical,
geochemical, drilling, engineering, well logs and other data owned by the
Minister.
2. The Minister shall use his good offices in obtaining and providing to
Contractor such information and data as may be reasonably required by
Contractor for planning and executing projects incidental to CBM Operations
under this Contract, including data acquired by or available to the
Minister in relation to the Mining Usufruct Area.
Article 18
Ownership of all original geological, geophysical, geochemical, drilling,
engineering, logging, production and other data, samples, cuttings, cores,
tapes, maps, reports, and other materials or information obtained from time to
time as a result of CBM Operations or prepared in fulfillment of the obligations
of the Mining Law (hereinafter the "Operations Information") shall vest in the
Contractor.
Article 19
1. All Operations Information including all information and data concerning
the Mining Usufruct Area and CBM Operations hereunder which is not in the
public domain shall be kept confidential by the Parties and not disclosed
to any Third Party except as with the prior written consent of all Parties.
2. Disclosing Information to Third Party without consent of all Parties can
cause that the Party will be entitled to receive value consideration as
defined by law.
Article 20
Contractor shall be entitled to transfer its rights to all or any part of such
data to any Third Party, subject to the prior written permission of the
Minister.
Article 21
In the event the Contractor is required by the provisions of the Mining Law, to
make available any of the materials and information to the State geologic
administration authorities solely on a need to known and free-of-charge basis it
shall do so solely in the event it is used for their internal use and subject to
the recipient entering into confidentiality obligations.
Article 22
Upon termination of this Contract, Contractor shall deliver all geological,
geophysical, geochemical, drilling, engineering, logging, production and other
data, samples, cuttings, cores, tapes, maps, interpretations, reports, and other
materials or information obtained by Contractor as a result of CBM Operations to
the Minister; provided that, Contractor will be entitled to retain copies of
data and representative samples for its internal use and subject to recipient to
keep confidentiality obligations for the period of one year.
CHAPTER 5
MINING AREAS AND RELINQUISHMENT
Article 23
The Contractor may at any time relinquish all or any part of the Mining Usufruct
Area, under condition that will complete the plan of agreed works and perform
the duties connection with environmental protection.
Article 24
Contractor shall give notice in writing to the Minister of any relinquished
areas, including a map showing said areas with the geographic location and the
coordinates of the connecting points of the boundary lines.
CHAPTER 6
WORK OBLIGATIONS
Article 25
The Contractor shall have no further work obligations other than those set forth
in the Joint Concession which shall provide exclusively that:
1) The tests will be done to define reserves, permeability and economic
feasibility of production.
2) Contractor shall commence CBM Operations not later than six (6) months from
the Joint Concession Effective Date.
3) During the First Exploration Phase (24 months), Contractor shall, at
Contractor's discretion, drill a total of 3 wells (boreholes or coreholes),
maximum to the bottom of Gruszowskie series in eastern part or bottom of
the lowest seam of Brzezne series (Pietrzkowickie) in Western part.
Contractor will perform all geophysical and other tests to define the
conditions for future production.
4) During the Second Exploration Phase, Contractor shall drill 7 Exploration
Wells in the Mining Usufruct Area; and will perform all necessary tests.
In the event Contractor has carried out work in excess of the minimum work
obligations, as defined in pt. 2, during the First Exploration Phase, the excess
work shall be set off against the work obligations corresponding to the work
obligations for the Second Exploration Phase.
Article 26
In the event the Minister requests Contractor to perform certain additional
studies or works as may be reasonably required, then the costs engendered
thereby shall be determined by the Parties and Contractor should be compensated
accordingly to the separate agreement.
CHAPTER 7
CONSULTATION
Article 27
After the Joint Concession Effective Date, the Contractor shall advise and
consult with the Minister as frequently as necessary to provide oversight of its
CBM Operations, the carrying out of the matters related to this Contract and
ensuring effective communication and cooperation among the Parties, without
prejudice to the rights and obligations of Contractor for the day-to-day
management of CBM Operations or to Contractor's other rights and obligations
hereunder. Contractor is obligated to submit the report after completion of
each phase.
Article 28
Such consultation shall be in the form as deemed appropriate by the Parties.
The Parties shall meet at least once a Year.
Article 29
Contractor shall notify the Minister of all significant CBM Operations
scheduled, such as geological and geophysical surveys and the initiation of
drilling. Contractor shall also notify the Minister of the date on which
Contractor anticipates reaching the total depth of each well being drilled.
Article 30
Contractor shall provide to the Minister for its sole use and subject to the
confidentiality obligations, data and information collected and complied with
respect to the CBM Operations in the Mining Usufruct Area, as follows:
(a) one set of geological reports, studies or interpretations and the maps,
sections and other documents related thereto;
(b) one set of all geophysical recordings, measurements and reports, with all
maps, profiles, sections, interpretations, studies and other documents
relating thereto, and copies of recordings (tapes or otherwise and all
supporting date);
(c) one set of initial, daily and final well reports and composite logs
representing the lithology and other parameters relating to each well
drilled;
(d) a representative portion of all cores, samples, fluids and other materials
taken from outcrops and wells; and
(e) one set of fluid measurements, analyses and other results in final form
produced by or for the Contractor in connection with CBM Operations.
Article 31
Contractor shall make an annual report to the Minister describing the activities
carried out by the Contractor during the preceding Contract Year. Contractor
shall make such other reports to the Minister in such form, detail and at such
time as the Minister may require; provided, however, that in any event, the
Minister's requests for such reports shall not interfere unreasonably with the
Contractor's ability to carry out CBM Operations efficiently or necessitate any
undue expense.
CHAPTER 8
ROYALTY
Article 32
1) Contractor shall pay a Royalty.
2) Royalty is paid on quarterly basis on the decision of the Minister, based
on information provided by contractor.
3) The rules for paying the royalty and the way how the royalty should be paid
is defined by regulations of the Council of Ministers based on Mining Law.
CHAPTER 9
MINING USUFRUCT FEES
Article 33
Parties to this agreement decide, that the usufruct fee is the function of the
area of usufruct and that the area will be used to conduct the works to explore
and develop CBM.
Article 34
Contractor will pay to the Minister the Usufruct Fee in two installments:
1) Contractor shall pay to the Minister, within sixty (60) days of the Joint
Concession Effective Date, the Polish Zloty equivalent of 25.000 U.S.
Dollars converted to Polish Zloty at the exchange rate in effect on the
Joint Concession's Effective Date.
2) Amount defined as the function of recoverable reserves, from 0.02 to 0.10%
of the value of recoverable reserves, within thirty (30) days from the
start of the exploitation Phase.
Article 35
Within sixty (60) days after the commencement date of the Exploitation Phase,
Contractor shall pay the Polish Zloty equivalent of 25,000 U.S. Dollars (USD) as
the "Concession Fee pursuant to Article 85 of the Mining Law calculated
accordingly to Article 34. This amount will be paid in the following
proportion:
60% for local authorities
40% for National Environmental Fund
CHAPTER 10
MEASUREMENT OF CBM
Article 36
All CBM produced, saved and not used in CBM Operations shall be measured at the
Delivery Point decided by the Parties to this agreement for delivery of CBM to
third party.
Article 37
1) Contractor shall measure all CBM produced and saved hereunder. Contractor
shall keep complete and accurate records of all CBM produced and measured
and the Minister's representatives shall have access to such measurements.
The Minister shall have the right to examine and test such measurements,
measurement equipment, charts and other measurement or test equipment or
data.
2) All measurements shall for all purposes in this Contract be adjusted to
standard conditions of pressure and temperature, that is, a pressure of 861
kg per square meter (or 14.7 pounds per square inch) and a temperature of
15.5 degrees Celsius (60 degrees Fahrenheit).
CHAPTER 11
PROTECTION OF THE ENVIRONMENT
Article 38
The Contractor is obligated to cover all expenses connected with land
reclamation, removal of mining damages, storage of polluting materials
particularly salt waters, protection against negative impact of development
works on environment and repair any damages resulting from such circumstances.
Article 39
In the event of a release of CBM or other material on land, or in fresh water,
or if the Contractor's operations result in any other form of pollution or
otherwise cause harm to environment, the Contractor shall promptly take all
reasonable measures to repair any damage resulting from such circumstances.
CHAPTER 12
EMPLOYMENT AND TRAINING
Article 40
1) Contractor shall be free to employ and engage personnel; provided, however,
that, in recruiting employee candidates, Contractor shall give preference
to Polish nationals who are qualified by education, training, and
experience.
2) Contractor shall provide training for Polish citizens employed in the CBM
Operations until the expiry or termination of this Contract.
3) Contractor agrees to spend the Polish Zloty equivalent of 15,000 U.S.
Dollars (USD) per year throughout the period of validity of this Contract
for training Polish citizens, calculated accordingly to Article 34.
CHAPTER 13
FORCE MAJEURE
Article 41
Performance under this Contract by Contractor shall be excused in the event such
performance is delayed or prevented by Force Majeure occurring after the
Effective Date of this Contract and which could not be foreseen or prevented by
any reasonable action of the Contractor.
Article 42
Force Majeure shall be considered to include such events beyond the reasonable
control of the Contractor which have not been brought about at its insistence
and include, but are not limited to war, insurrection, riot, civil disorder,
embargo, blockade, explosion, fire, lightning, earthquake or other adverse
weather conditions, strikes or any other event of a similar nature.
Article 43
Upon the happening of an event of Force Majeure, the Contractor shall
immediately inform the Minister. Such notification shall contain an indication
of the nature of the event of Force Majeure claimed and insofar as possible, an
evaluation of the likely duration of the event of Force Majeure and its impact
upon the obligations of the Contractor. The Minister will extend the Joint
Concession for a period equal to the period of delay caused by the Force Majeure
occurrence plus such period of time as is necessary to reestablish operations.
Article 44
If the impairment of operations described above should continue for an
uninterrupted period of time exceeding two (2) Calendar Years, Contractor shall
have the right to elect to terminate this Contract and Contractor shall be
discharged from all further obligations under this Contract.
CHAPTER 14
TERMINATION OF CONTRACT
Article 45
On termination of this Contract, all wells drilled by Contractor under this
Contract are to be plugged and abandoned in a manner consistent with
regulations.
Article 46
Termination of this Contract shall take place without prejudice to any right or
obligation which may have accrued to the Minister or to the Contractor under the
Contract prior to such termination.
CHAPTER 15
CONTRACT ADJUSTMENT
In the event that:
1) an Administrative act causes a change to the laws of Poland, and such
change increases the obligation of the Contractor from that existing at the
Effective Date, and such change shall include an obligation to pay any tax,
imposition, royalty, duty or other charge or to provide any service or
carry out any activity or to obtain further approvals concessions or
authorizations of any nature; restrict, divest or limits any rights or
benefits accruing to Contractor;
2) the matters specifically provided for in this Contract have led to an
increase in expenditure or in greater or more extensive obligations on the
Contractor including work obligations;
3) environmental damage costs are incurred by the Contractor as a result of
events occurring prior to the Effective Date, including those arising out
of or in any way whatsoever connected with any operations or activities in
the Mining Usufruct Area;
then Contractor may, at any time thereafter, notify the Minister of such event
and submit one or more certificates as to the costs engendered thereby,
including the costs of material, labor, legal fees and professional and advisory
fees, the extent of the delay incurred or likely to be incurred, the amount of
any penalties or fees incurred by the Contractor and the above environmental
damage costs, accompanied by reasonable evidence in respect thereof. Within
fifteen (15) days of receipt of such notice, the Minister and Contractor shall
meet to negotiate in good faith and agree upon the modifications which are
required to be made to the terms of this Contract in order to lessen or
eliminate obligations of them and to restore the Contractor's rights and
benefits to a level equal to what they would have been had such change or event
not occurred, or such cost not have been incurred, or upon such other remedy as
they agree may be appropriate. In the event the Parties are unable to agree
within one hundred twenty (120) days after the Contractor's notice to the
Minister upon the modifications which are needed to the Contract or upon such
other remedy as may be required, then the Contractor may either terminate this
Contract or refer the matter to the Arbitration Court at Polish National Chamber
of Commerce in Warsaw.
CHAPTER 16
DISPUTE RESOLUTION
Article 48
Any dispute arising out of, or relating to this Contract which cannot be settled
amicably before the passing of sixty (60) days from the giving of notice of one
Party regarding such dispute, shall be settled by before the Arbitration Court
of the Polish National Chamber of Commerce in Warsaw, Poland.
Article 49
In the event of the commencement of dispute settlement procedures, the Parties
shall continue their performance of this Contract and they do not have right to
suspend the agreement until the matters are settled.
CHAPTER 17
NOTICES
Article 50
Communications to be given, submitted or made hereunder by any Party to another
shall be in writing and delivered to the address of the other Party or Parties.
Article 51
Communication between Parties will be conducted in Polish language.
CHAPTER 18
FINAL MATTERS
Article 52
The existing law and regulations should be applied to the matters not regulated
by this agreement.
Article 53
This agreement was prepared in 3 identical copies, in Polish and English,
however for interpretation of the agreement Polish version will be used.
Article 54
This agreement becomes effective on the date of its execution.
Warsaw, October 3, 1997
For the Minister: For Contractor:
/s/ Krzysztof Szamalek /s/ Andrzej Andraczke
Krzysztof Szamalek Andrzej Andraczke
/s/ Bronislaw Piechula
Bronislaw Piechula
AGREEMENT
BETWEEN
POLISH OIL AND GAS MINING JOINT STOCK COMPANY
AND
EUROGAS, INC.
DATED OCTOBER 23, 1997
PREAMBLE
EUROGAS Inc. states that it is a sole owner of POL-TEX METHANE, a limited
liability company, with the participation of foreign capital, registered in the
commercial register of the District Court in Katowice - VII Commercial Register
Department at No. RHB 5508, based on the verdict of the Court dated 5th Sept.
1990.
CONSIDERING the EUROGAS Inc. wants to explore, develop, exploit and process
Natural Gas and Crude Oil in the area of the Republic of Poland, and it has the
experience, possibilities, financial and technical resources, as well as the
professional knowledge enabling the effective running of such an Activity;
CONSIDERING that to run its Activity EUROGAS Inc. is going to set up
companies with foreign capital participation, in particular with the
participation of PGNiG S.A.;
Furthermore, CONSIDERING that having the consent of PGNiG S.A. - O.B.G.
GEONAFTER, EUORGAS Inc. has entered into the rights and obligations of POL-TEX
METHANE arising form the Letter of Intent signed on 28th May 1997 in Warsaw
between the above mentioned PGNiG S.A. - O.B.G. GEONAFTA and POL-TEX METHANE,
the parties agree on the below:
ARTICLE 1
DEFINITIONS
For the purpose of the present agreement, unless something else appears
from the context, the definition of this Article are comprehended as follows:
1. "JOINT VENTURE" - means the whole of undertakings, including the
particular undertakings aiming at achieving the target described in Art. 2.
2. "PARTIES" - means subjects entering into the present agreement:
1/Polish Oil and Gas Mining joint stock company, with its registered
office at 6 Krucza Street room 14, 00-537 Warsaw, Poland - Branch
Geological Bureau GEONAFTA (PGNiG);
2/EUROGAS Inc. 80 Broad Street Penthouse New York, NY 10004 (EUROGAS);
while the PARTY is the adequate for the above mentioned ones.
3. "SHAREHOLDERS" - in any case such a definition appears it is
equivalent of the notion "parties".
4. "COMPANY" - means the company or the companies formed by the parties
to accomplish the joint venture.
5. "BODIES OF THE COMPANY" - means bodies of the company appointed by the
parties according to the Polish Commercial Code and the deed of company
formation.
6. "INVESTMENT" - it is the equivalent of the notice "joint venture".
7. "CAPITAL EXPENDITURES" - means the value of goods and services
indispensable to accomplish the Investment.
8. "OPERATOR" - the party holding the concession or its organizational or
associated unit with the required powers and qualifications, or any person
contracted by the party suiting the conditions.
9. "ADVISORY COMMITTEE" - the group of experts appointed by the parties
according to Art. 7.
10. "THE AREAS COMPRISED BY PGNiG CONCESSIONS"
"THE AREAS OF PGNiG INTEREST"
"THE AREAS COMPRISED BY EUROGAS CONCESSIONS"
"THE AREAS OF EUROGAS INTEREST"
-means the areas designated by coordinates, mentioned in appendix I to the
agreement.
11. "CONCESSION ACTIVITY" - means the performance rights arising of the
concession by any of the Parties or the Company.
12. "NATURAL GAS" or "GAS" - means hydrocarbons in gas state in normal
atmospheric conditions of temperature and pressure, including wet gas, dry gas,
raw gas and other hydrocarbons in gas state, as well as gas left after the
condensation or extraction of fluid hydrocarbons from gas, excluding condensed
or extracted fluid hydrocarbons.
13. "CRUDE OIL" - means mineral oil, and other kinds of hydrocarbons, both
in constant and fluid state, in natural state or obtained from natural gas
through condensation or extraction.
14. "FORCE MAJEURE" - any sudden event caused by the external
circumstances out of the objec6tive control of the parties, as well as the
necessity of submission to any statute, directive or regulation promulgated by
the entitled authority, including the decision of central or local authorities
in Poland or any other country where the party or its successor in right has the
seat.
15. Definitions used in this agreement, in particular:
1/extracted mineral
2/mineral deposit
3/mining area
4/mining enterprise
5/mining usufruct
6/concession
7/concession authority
8/other definitions set up in the Mining and Geological Law 1994 (Dz.
U. No. 27, s. 96) or any other commonly binding statute shall be
understood as the statute orders it.
ARTICLE 2
THE AIM OF THE AGREEMENT
Unless the agreement issues different targets, it aims to accomplish the
joint venture of the parties, especially exercising the parties' concession
rights or to explore and develop natural gas and crude oil deposits, as well as
their natural derivatives from the areas mentioned in appendix 1 to the present
agreement, designated by coordinates there, and to exploit and process the
extracted minerals, due to concessions which shall be granted to the parties or
the company formed by them.
The aim of the agreement comprises the undertakings to choose the areas for
prospecting which shall result in applying for prospecting concession as well.
ARTICLE 3
THE CONDITIONS OF JOINT VENTURE
1. The parties confirm that before the day of signing the present
agreement, the conditions set in the III part of the Letter of Intent of 28th
May 1997, have been fulfilled. In particular the parties have chosen the
exploration concessions and the areas they are interested in, and which are not
specified in the concessions. The concessions and areas mentioned above the
parties treat as the joint preliminary Option, and it should be realized
according to the mode and rules of this agreement, through the detailed Options.
2. EUROGAS confirms the assertion of the point 3, II part of the Letter
of Intent, made by POL-TEX METHANE, takes it over as its own obligation to
involve capital and equipment of the concerted value of 15,000,000 USD (fifteen
million) to accomplish the aim of the agreement during the first three years of
the Letter of Intent being in force, and irrevocably states it shall engage the
above costs at its own risk.
3. Subject to Art. 4.3, while the present agreement is binding, none of
the parties can, against the provisions of the agreement, make offers, negotiate
nor enter into a contract of joint venture concerning any of the concessions or
areas agreed by the Parties in the Meaning of the Letter of Intent dated May 28.
ARTICLE 4
DETAILED OPTIONS
1. For the time the agreement is in force, each of the parties intending
to start the performance of the concession comprised by the preliminary Option,
shall be obliged to propose the other party the participation in such an
undertaking (Proposal), presenting:
1/a copy of the concession for prospecting and discerning of deposits
of Gas and Oil, issued by the concession authority, due to Art. 22 and 23
of Mining and Geological Law;
2/a copy of the mining usufruct contract in the area where the
prospecting and discernment of the mentioned extracted minerals shall be
led;
3/planned scope, schedule and cost of works;
4/the other party's proposal of financing the works referred to
planned costs.
2. If the detailed Option means the involvement into the program for the
concession already executed by PGNiG then PGNiG can propose to EUROGAS the
option to develop this concession. If the detailed Option means the involvement
into the program for the concession already executed by EUROGAS, then EUROGAS
will propose to PGNiG the option to develop this concession. In such a case,
the party offering the participation shall as well deliver the other party:
1/listing of the works done till that very moment, including the
records;
2/documentary evidence statement for the expenditures of present
works.
3. In relation to areas of interest of the parties comprised by the
preliminary Option, the Proposal for the other party concerning such an area,
shall contain its indication, documents mentioned in points 1.3 and 1.4 of this
article and the obligation to apply with a motion to the concession authority to
grant the concession. The project of the motion shall be contained in the
Proposal. As the concession is granted, the party making the Proposal shall
hand over the documents of point 1.1 and 1.2 of the article to the other party
within 14 days.
4. Within 90 days since the Proposal is received, the party receiving it
can make a statement concerning the accession to the proposed undertaking; the
statement shall include the obligation to finance the agreed part of the planned
costs. Within the same time limit the parties shall conclude the contract
settling the rules of the undertaking's realization (detailed contract). The
lack of response within the above mentioned time limit shall be understood as
the resignation from the detailed Option in question. In extraordinary and
necessary situations the parties can agree on only prolongation of the above
time limit; the time limit however cannot be prolonged for more than the next 90
days.
5. In case the situation of point 3 occurs, the statement of accession to
the proposed undertaking can be canceled within 1 month from the day of
receiving the documents mentioned in point 1.1 and 1.2, if the party making the
statement finds the conditions of the concession or the mining usufruct contract
to be unsatisfactory or arduous.
6. In the case that one Party already did some works in the area of the
concession to be granted to other Party, Parties in the separate agreement will
decide to include these costs into investment of Party which will have the
concession granted. The costs can include also the costs of future works. The
agreement will also define the ownership of the data (geological documentation).
In case if EUROGAS will cover the above mentioned costs. These costs will be
used to offset the investment as defined in Art. 3 pt. 2 of this agreement.
ARTICLE 5
MANAGING THE JOINT VENTURE, OPERATOR
1. To manage the joint venture the parties, acting through their
statutory bodies, shall appoint the proxies in number of 2 persons per Party, to
constitute the Board of Directors. The competence, rules and mode of work of
the Board of Directors shall be defined in regulations agreed by the parties.
2. Managing each of the joint venture undertakings shall be within the
competence of the Operator. This shall be served by the party having the
concession to conduct activity of the subject undertaking.
ARTICLE 6
PROTECTION OF THE CONCESSION
The operator shall be bound to carry on the joint venture agreement
accordingly to the conditions of the concession, mining usufruct contract, the
provisions of law and the detailed contract. In case of danger of withdrawal or
expiration of the concession the Operator shall take up the factual acts and use
all possible measures necessary to keep the concession. The Operator shall
immediately inform the other party about the danger and the acts undertaken on
that ground. In case of withdrawal or expiration of the concession, for the
reasons on the Operator's side, he shall be obliged to redress the damage due to
provisions of the detailed contract.
ARTICLE 7
ADVISORY COMMITTEE
1. Within 30 days since the agreement has been signed the Advisory
Committee of six members shall be created; three members shall be appointed by
PGNiG S.A. and another three by EUROGAS.
2. Each of the parties shall appoint from the members of the Committee
the chairman to alternatively preside the succeeding meetings of the Advisory
Committee.
3. The Advisory Committee meetings shall be held at least every six
months and at any other time agreed by the members. At the party's request the
chairman shall convene the meeting; the other party shall be notified at least
15 days before, and in case of urgent works notification must be done within the
time concluded by the members. The notification should specify the date,
location and agenda of the meeting. The resolutions of the Advisory Committee
may be adopted by correspondence, including telex and fax, provided that all the
members assent to it.
4. To adopt the resolution the presence of at least four members of the
Advisory Committee is required. The resolutions shall be passed by the majority
of votes, and each of the members shall have one vote.
5. The Advisory Committee's main task is general works' supervision and
assuring the effective contact and cooperation between the parties, not
encroaching their rights and obligations as the works' conducting is concerned.
The Advisory Committee is enabled to examine and pronounce opinions in all the
matters arising out of the agreement.
ARTICLE 8
TRAINING
EUROGAS will designate 15,000 USD per year for the training of Polish
citizens to enhance their knowledge to properly conduct the works as defined in
this Agreement.
ARTICLE 9
EXPENSES' CONTROL
Each of the parties has the right to make inquiries into the land and
mortgage register, other registers and records concerning the joint venture,
kept by the Operator, provided that at least 14 days before the inquiring party
notifies the Operator about the time of inspection and appoints the person or
persons to do it.
ARTICLE 10
THE RIGHT OF ACCESS
At any reasonable time, at its own risk and cost, each of the parties shall
have the right of access to the concession area and the works of the joint
venture, provided that the Operator is notified early enough about the time when
such an access or entering shall take place and the persons entitled to access
are appointed.
ARTICLE 11
THE JOINT DATA BASE
While the present agreement is binding, all the technical data and
information concerning the Joint Venture, known to the parties shall be
exchanged. In compliance with the situation the Operator shall use the
information to create the Joint Data Base available to both of the parties.
ARTICLE 12
CONFIDENTIAL INFORMATION
1. All the elaboration, pricing, samples, geophysical and engineering
data, reports, working plans, other information and data acquired by the parties
on the ground of the present agreement, or any information concerning the Joint
Venture, as well as the information exchanged by the parties before signing the
present agreement ("confidential information") shall be kept in secret by the
party knowing it. Those items of information must not be revealed to any person
without the previous written consent of the other party. The Confidential
Information must not be used for any other reason than realization and
estimation of the Joint Venture.
2. Independently of the above, each of the parties getting acknowledged
with the information, is entitled to disclose the Confidential Information
without the previous written consent in cases listed below:
1/to members of the Board of Directors, members of management board,
directors or workers of each of the parties, and to any other associated
person to whom the Confidential Information shall be disclosed, only to
realize or estimate the present Joint Venture agreement, provided that the
present provisions are binding for such a person.
2/to in- and out- consultants providing their services professionally,
to whom the Confidential Information shall be revealed for the purpose of
carrying their work on behalf of the party or the Joint Venture, and on the
ground of estimation of the present Joint Venture. The Consultants shall
be pledged in writing to keep in secret such information, accordingly to
the present provision;
3/to any central administration institution entitled to acquire such
information, as well as any court or other office in reply to court appeal
or legal proceedings;
4/in good faith, to any bank or financial institution, provided that
the bank or the institution pledges in writing to keep the Confidential
Information in secret, accordingly to the present provision;
5/within the scope the information is commonly known to public, or has
been possessed by the party acquiring it before disclosure, or the party
has acquired it due to the provisions of law, independently from the
present agreement.
3. The present Art. 11 shall be in force for the time of 5 (five) years
after the expiration of the agreement.
4. The parties state that there is no proper remedial measure in case of
fundamental breach of any of the provisions of the present Art. 11, which
lasting undisturbed, will cause the damages that cannot be repaired. In case of
the above, the wronged party shall be entitled to demand an immediate cessation
of the fundamental breach of Art. 11. The party can perform the above right
together with any other remedial measure accessible to her.
ARTICLE 13
THE SCOPE OF OPENNESS
None of the parties is forbidden to make public advertisements, which the
party, being in good faith, shall acknowledge as indispensable to be in
agreement with the applicable law or the rules of any stock exchange, where the
party's shares are.
ARTICLE 14
CESSION
1. The party's rights and obligations arising out of the present
agreement can be transferred to its associated subject or organizational unit,
provided that the other party previously grants its written consent without
unreasonable delay. The consenting party should be convinced that the successor
in right will be able to fulfill the technical and financial conditions of the
present agreement.
2. The change of the shares' ownership in the company does not constitute
the cession or any other transfer of rights of the present agreement.
ARTICLE 15
FORCE MAJEURE
1. The present agreement execution's infringements shall be justified by
the parties in case of Force Majeure being the reason of delay or preclusion of
the agreement's performance. This provision shall be used by the parties,
provided that they act with due diligence to overcome the impediment and return
to performance of the agreement without unjustified delay.
2. If the Joint Venture is delayed, limited or made impossible by the
Force Majeure circumstances, the time to comply with such affected obligations,
the time the present agreement is binding and all the rights and obligations
arising out of it shall be prolonged for the time period equal with the subject
delay, with regard to the necessary time period to recommence the activity.
3. The party whose ability to fulfill obligations is affected for above
reasons, shall immediately inform the other party in writing, giving the reasons
at the same time, so that the parties could do their best to eliminate it.
ARTICLE 16
END OF EXPLORATION WORKS
1. In case of a successful result of the exploration works, the parties
through the separate contract, concluded within three months since the
geological documentation is approved by the proper state authority, decide
either to perform the joint concession together, or to transfer by PGNiG S.A. to
EUROGAS or other economic entity the right to information got as the result of
geological works (geological documentation). Relatively they decide about the
rules and time of reciprocal settlements, in each case accordingly to the
financial conditions assuring the return of the EUROGAS and PGNiG S.A. invested
capital for the prospecting works, including the suitable profit.
2. The parties shall form the company or companies with their sole shares
and participation to perform jointly the exploitation concession.
ARTICLE 17
AGREEMENT DISSOLUTION
1. Each of the parties is allowed to renounce its rights and be dismissed
from the obligations arising out of the present agreement, maintaining the six
months notice.
2. Due to the present Article, the agreement dissolution will happen
undamaged for any rights based on the present agreement, acquired before by the
parties.
ARTICLE 18
BINDING LAW
The present agreement is subject to Polish law and the international
treaties that Poland participates in.
ARTICLE 19
THE COMPOSITION OF THE AGREEMENT
The present agreement is the one and only agreement between the parties
concerning its subject and replaces all the oral or written contracts between
the parties.
ARTICLE 20
CHANGES AND AMENDMENTS
Changes and amendments of the present agreement shall be in writing,
otherwise they should be considered null.
ARTICLE 21
DIVISIBILITY OF THE PROVISIONS
If for any reason one or some of the provisions of the present agreement
shall be considered null, illegal or in any way non-performable, the invalidity,
illegality or nonperformance will not influence the other provisions of the
agreement, and the agreement shall be approached as if those null, illegal or
non-performable provisions would not exist.
ARTICLE 22
SETTLING OF DISPUTES
All the disputes which may arise on the ground of this agreement shall be
settled by the Arbitration Court in Warsaw at the National Economic Chamber.
ARTICLE 23
CORRESPONDENCE
1. According to the present agreement all the notices, motions, requests,
contracts, approvals, consents, instructions, authorizations, licenses,
exemptions or any other documents which are to be granted, submitted or prepared
by any of the parties for the other one, shall be deemed to be handed in
properly, if they are prepared in writing and delivered personally to the
authorized representative of the other interested party; or if they are sent by
postage registered mail, telegram, telex or fax at the address of the other
party set below, or at the address as the party can record in writing:
a/for Polish Oil and Gas Mining joint Stock Company:
Geological Research Division Geonafta
Jagiellonska Street 76, 03-301 Warsaw,
b/for EUROGAS Inc.
Lektykarska 18, 01-687 Warsaw
2. Notices handed in accordingly to point 1 of this Article shall be
considered valid, provided they are received within the office hours at week
days, and if they are received after the office hours, their validity shall
start on the very next working day.
ARTICLE 24
COPIES AND LANGUAGES
1. The present agreement has been prepared in Polish and English.
2. One Polish and one English copy are obtained by each of the parties.
3. Only Polish version is legally binding and should be used in
arbitration, due to Art. 22 of the present agreement.
ARTICLE 25
COMING INTO FORCE
The agreement enters into force on the day it is signed.
AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into this 11th day of
November, 1997, by and between EUROGAS, INC., a Utah corporation ("EuroGas"),
and B. GROHE, an individual ("Grohe") and T. KOERFER, an individual ("Koerfer"),
based on the following:
Recitals
A. On or about July 3, 1996, EuroGas acquired all of the issued and
outstanding shares of a company known as Danube International Petroleum Company,
a Texas corporation ("Danube Texas").
B. DIPC owns 95% of a company now known as Danube International Petroleum
Company, B.V., a Netherlands corporation ("Danube Netherlands"), which in turn
holds rights to the joint venture and exploitation of oil and gas concessions in
Slovakia and Czechoslovakia.
C. Grohe owns a 2-1/2% uncertificated interest in Danube Netherlands.
D. Koerfer owns a 2-1/2% uncertificated interest in Danube Netherlands.
E. The parties have agreed that Grohe and Koerfer will exchange their
uncertificated interest in Danube Netherlands for shares of common stock of
EuroGas as set forth below.
Agreement
Based on the foregoing premises and the terms and provisions set forth
herein and the mutual benefits of the parties to be derived therefrom, it is
hereby agreed as follows:
1. Incorporation of Recitals. The above-stated restated recitals are
hereby incorporated by reference.
2. Grohe Exchange. Grohe shall exchange his 2-1/2% interest in Danube
Netherlands for 125,000 shares of restricted common stock of EuroGas bearing the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). NO OFFER OR SALE OF THESE SECURITIES MAY BE
MADE IN THE UNITED STATES OR FOR THE BENEFIT OF A UNITED STATES PERSON
WITHOUT FURTHER REGISTRATION OR OTHER COMPLIANCE WITH THE SECURITIES
ACT.
3. Koerfer Exchange. Koerfer shall exchange his 2-1/2% interest in
Danube Netherlands for 125,000 shares of restricted commons tock of EuroGas
bearing the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). NO OFFER OR SALE OF THESE SECURITIES MAY BE
MADE IN THE UNITED STATES OR FOR THE BENEFIT OF A UNITED STATES PERSON
WITHOUT FURTHER REGISTRATION OR OTHER COMPLIANCE WITH THE SECURITIES
ACT.
4. Release. Each of the parties agree to release the other party, which
shall include all affiliates, officers, directors, stockholders, attorneys, or
assigns with respect to any claims or causes of action whatsoever, which they
may have against the other party relating to the ownership interests in Danube
Netherlands.
5. Other Documentation. The parties agree to execute such documentation
as may be reasonable and necessary to effectuate the terms and intent of this
Agreement.
6. Facsimile Counterparts. This Agreement may be executed in facsimile
counterparts, which shall then be considered to be originals and binding upon
the parties.
DATED as of the date first above written.
EuroGas:
EUROGAS, INC.
By /s/ Hank Blankenstein
Hank Blankenstein, Vice-President
942 East 7145 South, #101A
Midvale, Utah 84047
Grohe:
/s/ B. Grohe
B. Grohe
c/o John D. Gourley
Madison Realty Investors, Inc.
6116 North Central Expressway,
Suite 901
Dallas, Texas 75206
Koerfer:
/s/ Thomas Koerfer
T. Koerfer
c/o John D. Gourley
Madison Realty Investors, Inc.
6116 North Central Expressway,
Suite 901
Dallas, Texas 75206
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is granted effective the 31st day
of October, 1997, by and between EUROGAS, INC., a Utah corporation ("EuroGas"),
to BEAVER RIVER RESOURCES, LTD., a closely-held Canadian corporation organized
under the laws of the Province of British Columbia, but having its principal
office in Texas ("Beaver River"), based upon the following:
Recitals
A. Beaver River owns a one-third (33-1/3%) interest in a project known as
the Beaver River Project which is held pursuant to a Petroleum Natural Gas Lease
No. 15667 (the "Lease") issued by the appropriate authorities of British
Columbia.
B. EuroGas has the right to acquire a portion of the Lease indirectly
from another party and wishes to obtain an option to acquire Beaver River's
interest in the Lease pursuant to the terms and conditions set forth herein in
exchange for an initial payment of $300,000.
C. All owners of the Lease are considering entering into an agreement
with Wascana Energy Incorporated, a subsidiary of Canadian Occidental Petroleum
("Wascana"), in substantially the form attached hereto as Exhibit "A" and
incorporated herein by this reference. The project is to be undertaken by
Wascana through three phases, hereinafter referred to as "Phase I," "Phase II,"
and "Phase III." For purposes of this Agreement, the definitions and timing with
respect to Phase I, II, and III are the same as set forth in Exhibit "A"
(sometimes hereinafter referred to as the "Wascana Agreement").
D. The Wascana Agreement will, if completed, turn the Beaver River's
interest in the Lease into a 15% working interest. The option granted hereunder
will allow EuroGas to purchase the interest held in the Lease by Beaver River in
whatever form or percentage (Beaver River's interest in the Lease shall
hereinafter be referred to as the "Beaver River Interest") with the
understanding that protections will be granted to EuroGas preventing impairment
of the Beaver River Interest as set forth in paragraphs 5 and 6 of this
Agreement.
E. Beaver River wishes to grant such an option, subject to the approval
of the shareholders of Beaver River. Beaver River is in the process of
obtaining such approval.
Agreement
NOW, THEREFORE, based on the foregoing recitals and in consideration of the
terms and provisions set forth herein, the mutual benefits to be gained by the
performance thereof, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Incorporation of Recitals. The above-stated recitals are incorporated
herein by reference.
2. Grant of Option. Effective upon the execution of the Wascana
Agreement, Bear River hereby grants to EuroGas an option to acquire all or part
of the Beaver River Interest in the amounts and at the times and for the
consideration as set forth below in exchange for $300,000 (U.S.), which shall be
paid within 15 days after the execution of the Wascana Agreement. If the
Wascana Agreement does not become effective, this Agreement shall be null and
void.
3. Exercise of Option.
(a) On or before 30 days after Wascana notifies Beaver River (and
Beaver River notifies EuroGas) that Wascana has completed Phase I and has
elected either to proceed with Phase II or withdraw, EuroGas may exercise
the option to purchase one quarter of the Beaver River Interest by
delivering notice to Beaver River and within 15 days thereafter, 528,302
shares of restricted EuroGas common stock.
(b) On or before 30 days after Wascana notifies Beaver River (and
Beaver River notifies EuroGas) that Wascana has completed Phase II and has
elected either to proceed with Phase III or withdraw, EuroGas may exercise
the option to purchase one quarter of the Beaver River Interest by
delivering notice to Beaver River and within 15 days thereafter, 528,302
shares of restricted EuroGas common stock.
(c) On or before 30 days after Wascana notifies Beaver River (and
Beaver River notifies EuroGas) that Wascana has completed Phase III and has
elected either to proceed or withdraw from the project, EuroGas may
exercise the option to purchase the remainder of the Beaver River Interest
by delivering notice to Beaver River and within 15 days thereafter,
1,056,603 shares of restricted EuroGas common stock.
4. Share Dilution Protection. The number of shares of EuroGas common
stock to be issued upon the exercise of the option shall automatically be
adjusted to take into account any stock split, stock dividend, consolidation,
reorganization, or other like or similar event.
5. Termination. This Agreement shall terminate as to any unexercised
portion on either of the following two events:
(a) EuroGas fails to exercise any portion of the option set forth in
paragraph 3 if Wascana elects to proceed with the project; or
(b) EuroGas does not exercise any unexercised portion of the option
within 60 days after Wascana notifies Beaver River that it has elected to
withdraw.
6. Securities Restrictions Applicable to EuroGas Shares. The shares of
EuroGas to be delivered to Beaver River upon the exercise of the option
hereunder shall not be registered pursuant to the securities laws and shall bear
the following legend (and such other applicable legends as may be required by
national or governmental securities laws at the time of the delivery):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). NO OFFER OR SALE OF THESE SECURITIES MAY BE
MADE IN THE UNITED STATES OR FOR THE BENEFIT OF A UNITED STATES PERSON
WITHOUT FURTHER REGISTRATION OR OTHER COMPLIANCE WITH THE SECURITIES
ACT."
7. Affirmative Covenants and Representations of Beaver River.
(a) Beaver River is the owner of a one-third (33-1/3%) interest in
the Lease and there is no lien or encumbrance upon the Lease, except for
the royalty and governmental obligations (British Columbia) attaching
thereto.
(b) Beaver River has full corporate power and authority to enter into
this Agreement and perform its obligations hereunder.
(c) Beaver River shall, as promptly as possible but in no event later
than three days, deliver any notice or information received by Beaver River
from Wascana.
(d) Beaver River will use its best efforts to renew the term of the
Lease if the Lease would expire prior to the expiration of this Agreement.
(e) Beaver River shall file a notice of the granting of this
Agreement with the appropriate governmental authority (British Columbia).
8. Beaver River Negative Covenants. Without the written consent of
EuroGas, Bear River will not undertake any of the following:
(a) to sell, assign, exchange, pledge, or otherwise transfer any of
its rights in this Agreement or the Beaver River Interests;
(b) to create or suffer to exist any liens incurred against or other
charge or encumbrance against the Lease;
(c) to make or consent to the amendment or any other modification or
waiver with respect to the Lease or enter into an agreement or admit to
exist any restriction with respect to the Lease;
(d) to consent to any amendment or other modification of the
agreement with Wascana.
9. Affirmative Covenants. EuroGas shall have the following affirmative
Covenants with respect to this Agreement:
(a) To accept the assignment of an interest in the Lease from Beaver
River, subject to the Lease operating agreement and the liability for the
financial requirements, if any, applicable to the interest assigned,
including, but not limited to, rentals, operating costs, legal expenses,
plugging and abandoning costs and expenses from and hereafter the effective
date of the transfer of the interest; and
(b) At all relevant time, EuroGas shall use its best efforts to make
sure that as the issuer of shares it is in compliance with the provisions
allowing for resales under Rule 144 promulgated under the rules and
regulations of the Securities Act.
10. Notification of Receipt of Payment. In the event that any payments
are made to Beaver River by Wascana (or any other participant in the Lease),
Beaver River shall notify EuroGas of receipt of such payments, place the payment
into trust, and deliver such payment to EuroGas (or a part thereof as may be
applicable), if the option or a part thereof is exercised by EuroGas within 30
days after receipt of notice.
11. Notice. Any notice or request required or permitted to be given
hereunder shall be sufficient if in writing and delivered personally, sent by
facsimile transmission, or sent by registered mail, return receipt requested, to
the addresses hereinabove set forth or to any other address designated by either
of the parties hereto by notice similarly given. Such notice shall be deemed to
have been given upon such personal delivery, facsimile transmission, or mailing,
as the case may be, to the addresses set forth below:
If to EuroGas, to: EuroGas, Inc.
942 East 7145 South, #101A
Midvale, Utah 84047
Facsimile: (801) 255-2005
Confirmation: (801) 255-0862
With a copy to: Howard S. Landa, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Facsimile: (801) 531-7091
Confirmation: (801) 531-7090
If to Beaver River, to: Fred L. Oliver
Beaver River Resources, Ltd.
4625 Greenville Avenue, Suite 205
Dallas, Texas 75206
Facsimile: (214) 987-3776
Confirmation: (214) 739-2895
With a copy to: Lionel E. Gilly, Esq.
5646 Milton Street, Suite 309
Dallas, Texas 75206-3986
Facsimile: (214) 691-1573
Confirmation: (214) 691-1541
12. Validity of Provisions and Severability. If any provision of this
Agreement is, or becomes, or is deemed invalid, illegal, or unenforceable in any
jurisdiction, such provision shall be deemed amended to conform to the
applicable jurisdiction, or if it cannot be so amended without materially
altering the intention of the parties, it will be stricken. However, the
validity, legality, and enforceability of any such provisions shall not in any
way be effected or impaired thereby in any other jurisdiction and the remainder
of this Agreement shall remain in full force and effect.
13. Attorneys' Fees. In the event that any action, suit, arbitration, or
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall be entitled to recover all of such party's costs,
including reasonable attorneys' fees, incurred in each and every such action,
suit, arbitration, or other proceeding, including any and all appeals or
petitions therefrom.
14. Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties pertaining to the subject matter of this
Agreement. This Agreement supersedes all prior agreements, if any, any
understandings, negotiations, and discussions, whether oral or written. No
supplement, modification, waiver, or termination of this Agreement shall be
binding unless executed in writing by the party to be bound thereby.
15. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the Province of British Columbia
Canada, except the laws applying to the resale of the securities to be delivered
hereunder which shall be governed by the jurisdiction of resale.
16. Section Headings. Section headings in this Agreement are for
convenience and reference only and should not be deemed to alter or affect the
interpretation of any provisions thereof.
17. Other Documentation. The parties agree to execute such documentation
as may be reasonable and necessary to effectuate the terms and intent of this
Agreement.
18. Facsimile Counterparts. This Agreement may be executed in facsimile
counterparts, which shall then be considered to be originals and binding upon
the parties.
EFFECTIVE as of the date first above written.
EuroGas:
EUROGAS, INC.
By /s/ Hank Blankenstein
Hank Blankenstein, Vice-President
Beaver River:
BEAVER RIVER RESOURCES, LTD.
By /s/ Fred L. Oliver
Duly Authorized Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1997, AND STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,681,101
<SECURITIES> 0
<RECEIVABLES> 39,357
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,722,711
<PP&E> 21,192,978
<DEPRECIATION> 26,711
<TOTAL-ASSETS> 42,334,415
<CURRENT-LIABILITIES> 5,114,331
<BONDS> 9,882,212
<COMMON> 60,266
0
2,396
<OTHER-SE> 27,275,210
<TOTAL-LIABILITY-AND-EQUITY> 42,334,415
<SALES> 500,000
<TOTAL-REVENUES> 500,000
<CGS> 500,000
<TOTAL-COSTS> 500,000
<OTHER-EXPENSES> 6,477,488
<LOSS-PROVISION> 1,972,612
<INTEREST-EXPENSE> 789,325
<INCOME-PRETAX> (8,767,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,767,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,767,548)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
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