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 March 31, 1997
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OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-1381-D
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EuroGas, Inc.
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(Exact name of registrant as specified in its charter)
Utah 87-0427676
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
942 East 7145 South, #101A
Midvale, Utah 84047
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(Address of principal executive offices) (Zip Code)
(801) 255-0862
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(Registrant's telephone number, including area code)
N/A
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(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
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 14, 1997, the Issuer had 50,496,492 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 condensed consolidated
balance sheets as of March 31, 1997 (unaudited), and December 31, 1996 (the
Company's most recent year end), and unaudited condensed consolidated statements
of operations and cash flows for the three month periods ended March 31, 1997
and 1996, and from inception on June 7, 1991, through March 31, 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 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
competing 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)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Current Assets
Cash $ 643,646 $ 642,605
Other receivables 82,905 122,047
Inventory 2,527 0
Prepaid expenses 0 4,942
------------ ------------
Total Current Assets 729,078 769,594
Property and Equipment
Mineral interest in unproved properties,
net of valuation allowance 14,664,825 14,252,754
Equipment 2,423,756 2,423,039
------------ ------------
17,088,581 16,675,793
Less: Accumulated depreciation (2,291,450) (2,144,113)
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Net Property and Equipment 14,797,131 14,531,680
Other Assets
Goodwill, net 14,319 14,319
Deposits 86,638 586,546
Long-term prepaid expenses 1,627,335 0
------------ ------------
Total Other Assets 1,728,292 586,546
------------ ------------
Total Assets $ 17,254,501 $ 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 Sheet
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,715,204 $ 1,389,859
Accrued expenses 2,812,048 2,659,721
Accrued taxes 788,770 911,051
Current maturities of notes payable to related parties 1,062,092 3,688,788
Current maturities of notes payable 1,886,287 1,062,091
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Total Current Liabilities 8,264,401 9,711,510
Long-Term Debt
Notes payable 5,733,701 5,733,702
Notes payable to related parties 2,697,844 4,897,845
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Total Long-Term Debt 8,431,545 10,631,547
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Minority Interest 950,000 950,000
Stockholders' Equity
Preferred stock, $0.001 par value, 3,641,968 shares
authorized and outstanding 3,642 3,642
Common stock, $0.001 par value, 325,000,000
shares authorized, 50,496,492 shares issued and
outstanding 50,496 49,144
Additional paid-in capital 21,123,668 14,842,922
Cumulative foreign currency translation adjustment (14,749) (14,749)
Deficit accumulated during the development stage (21,554,502) (20,271,877)
------------- ------------
Total Stockholders' Deficit (391,445) (5,390,918)
Total Liabilities and Stockholders' Deficit $ 17,254,501 $ 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 Statement of Operations
For the periods ended March 31, 1997 and March 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
For the Cumulative
For the Three Months Period From
Ended March 31, June 7, 1991
---------------------------------- (date of inception)
1997 1996 to March 31, 1997
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<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
Operating Expenses
Impairment of mineral interests in property 0 0 969,101
Depreciation and valuation allowance 40,329 206 2,136,208
General and administrative expense 940,331 371,635 14,626,445
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Total Operating Expenses 980,660 371,841 17,731,754
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Net Loss from Operations 980,660 371,841 17,731,754
Other Income (Expense)
Interest income 0 (42,680) 298,842
Interest expense (242,148) 0 (2,575,790)
Exchange gains (losses), net 0 0 (550,298)
Other income (expenses) 0 0 65,024
------------- ------------- ---------------
Total Other Income (Expense) (242,148) (42,680) (2,762,222)
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Loss Before Income Taxes (1,222,808) (414,521) (20,493,976)
Benefit From (Provision for) Income Taxes 122,281 41,452 (641,660)
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Net Loss (1,100,527) (373,069) (21,135,636)
Dividends Applicable to Preferred Shares 182,098 29,900 418,866
------------- ------------- ---------------
Net Loss Applicable to Common Shares $ 1,282,625 $ (402,969) $ (21,554,502)
============= ============= ===============
Net Loss Per Common Share $ (0.03) $ (0.01) $ (0.75)
============= ============= ===============
Weighted Average Number of Common
Shares Used in Per Share Calculation 49,354,271 33,174,033 28,909,347
The accompanying notes are an integral part of these financial statements.
EuroGas, Inc. and Subsidiaries
(An Exploration Enterprise in the Development Stage)
Condensed Consolidated Statement of Cash Flows
For the periods ended March 31, 1997 and March 31, 1996
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
For the Cumulative
For the Three Months Period From Since
Ended March 31, June 7, 1991
---------------------------------- (date of inception)
1997 1996 to March 31, 1997
-------------- ------------ -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,100,527) $ (373,068) $ (21,135,636)
Adjustments to reconcile net loss to cash
used by operating activities:
Impairment of mineral interest in
properties 0 0 969,101
Depreciation and amortization 147,337 159,472 2,243,215
Compensation paid with issuance of
common stock 0 0 605,592
Exchange (loss) gain 0 0 (550,298)
Changes in assets and liabilities, net of assets
acquired:
Receivables 39,142 (19,278) 63,540
Accounts payable 131,907 (134,039) 316,587
Accrued liabilities 152,327 687,906 4,739,544
Accrued taxes (122,281) (41,452) 640,394
Inventory (2,527) 442 2,415
Prepaid expenses 4,942 1,612 0
Other 9,082 23,927 (83,462)
-------------- ------------ ---------------
Net cash used in operating activities (740,598) 305,522 (12,189,008)
Cash Flows From Investing Activities
Purchases of mineral interests in properties (412,071) (287,268) (11,754,031)
Purchases of property and equipment (717) 441 (2,427,054)
Acquisition of subsidiaries, net of cash
acquired 0 0 185,093
Increases in deposits and payments 24,830 0 (515,170)
-------------- ------------ ---------------
Net Cash Used in Investing Activities (387,958) (286,827) (14,511,162)
Cash Flows From Financing Activities
Proceeds from issuance of debt-related parties 0 0 14,874,010
Repayments of debt-related parties 0 0 (4,927,441)
Proceeds from issuance of debt 0 0 7,837,526
Principal payments on debt (1,802,500) 0 (3,192,929)
Proceeds from issuances of common stock 2,932,097 0 13,048,634
Dividends paid on preferred stock 0 0 (120,000)
-------------- ------------ ---------------
Net Cash Provided by Financing
Activities 1,129,597 0 27,519,800
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 0 0 (175,983)
-------------- ------------ ---------------
Cash and Cash Equivalents at Beginning
of Period 642,605 72,212 0
-------------- ------------ ---------------
Cash and Cash Equivalents at End of Period $ 643,646 $ 90,907 $ 643,646
============== ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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. 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.
The accompanying condensed consolidated financial statements reflect numerous
transactions with related parties which are described in the Company's report on
Form 10-KSB and the annual consolidated financial statements included therein.
NOTE 2 -- 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 terminated during 1997. Commitments under
these terminated contracts are approximately $225,000 at March 31, 1997.
The Company has entered into an agreement with the Ministry of Environmental
Protection of Natural Resources and Forestry of Poland dated March 19, 1996,
whereby the Company agreed to a specified working program relating to its Pol-
Tex Methane Concession. The working program required the expenditure of
$2,918,000 towards certain drilling and completion procedures by December 31,
1996, of which approximately 85 percent was completed. The Company has continued
with the program in 1997. The concession agreement stipulates that the following
payments are to be made once commercial production commences: a one-time payment
of $287,900 and 9 percent of sales from the concession for a period of 20 years.
In connection with the sale of the concession to a Texaco subsidiary, the
obligations under the agreement will be assumed by the Texaco subsidiary.
The Company has entered into land use agreements with the owners of its well
drilling sites whereby the Company has paid land use fees under those
agreements. Those agreements are for an indefinite length of time and do not
require the payment of royalties if and when gas production begins.
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. The Company cannot currently 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 a liability in the amount of $788,770 at March
31, 1997, relating to this assessment.
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 EuroGas. 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 EuroGas.
In November 1996, EuroGas entered into an agreement which settled the claim.
EuroGas 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.
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. While the
Company is not required to answer the complaint until June 1, 1997, it plans to
vigorously defend against such claim. 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.
In July of 1996 Dr. Martin A. Schuepbach, the President of Danube, was added to
the Board of Directors of the Company and was appointed as the Company's
president and chief executive officer for a term of three years. On January 14,
1997, Mr. Schuepbach resigned as a director and officer of the Company and
asserted that a breach of his employment contract has occurred and that he is
entitled to monthly compensation for the remainder of the term of the contract.
The Company plans to deny any breach. To date the Company is not aware of any
litigation having been filed in this matter and cannot estimate a possible
contingent liability.
On January 17, 1997 the Company's joint venture partner in the Czech Republic
notified the Company it is delinquent in the payment of certain obligations of
the joint venture agreement and threatened to terminate the association. The
Company disagrees with the assertion and has invoked its right to arbitrate this
dispute. Pending resolution, the Company has suspended any further work in the
Czech Republic. The Company is currently unable to predict the outcome or make
any estimates regarding the related loss contingency.
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 EuroGas, 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 EuroGas 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. The dividends may have been inappropriately paid under Utah law due to
the existence of a stockholders' deficit throughout the year ended December 31,
1996. As a result, the Company may have a claim against the preferred
shareholders who received the dividends for their repayment.
NOTE 3 -- STOCK & OPTION TRANSACTIONS
The Company borrowed $2,000,000 under a promissory note from a related company
in March 1997 and used the proceeds to repay a note payable and related accrued
interest. The Company also issued 500,000 shares of common stock for $2,750,000
or $5.50 per share in March 1997. A portion of the proceeds from the issuance
of the common stock was used to repay the promissory note payable to the related
party.
In March 1997, the Company also granted a stock option to an unrelated company
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 granted as
a non-refundable deposit towards obtaining an interest in oil and gas
properties, joint venture or equity transactions which are currently under
negotiation. 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.
NOTE 4 -- SUBSEQUENT EVENTS
On April 28, 1997, the Company's subsidiary, Pol-Tex , entered into a letter of
intent with Polish Oil and Gas Company ("POGC") to form a joint technical team
to evaluate concessions for methane gas exploration in the Carpathian Flysch and
Tectonic Foredeep areas of Poland for which POGC currently holds concessions or
is in the process of obtaining concessions. The joint team will identify the
areas to be subject to a joint venture between the Company and POGC and the
timing and extent of the obligations of the two parties. The letter of intent
specifies an exploration budget of $15 million over a three year period and
grants the Company the exclusive right to negotiate with POGC through September
30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the exploration for coal bed methane gas in
Poland and natural gas in Slovakia and the Czech Republic. The Company holds
hydrocarbon concessions or is a joint venturer with entities that hold
hydrocarbon licenses granted by governmental agencies in each of these
countries. The Company's interest in Eastern Europe is based on the
encouragement provided by the national governments for the development of these
resources.
In January 1993, the Company's wholly-owned subsidiary, Pol-Tex Methane,
Sp. z.o.o. ("Pol-Tex"), was awarded exploration rights for coal bed methane gas
in a concession located in the Upper Silesian Coal Basin in Poland (the "Pol-Tex
Concession"). In September 1993, the Company's wholly-owned subsidiary,
GlobeGas, entered into a joint venture agreement with Rybnicka Spolka Weglowa SA
to form McKenzie Methane Ribnik Sp. z.o.o. ("MMR") to exploit a second
concession located in the Upper Silesian Coal Basin. In March 1996, the
Company's 85%-owned subsidiary, McKenzie Methane Jastrzebie Sp. z.o.o. ("MMJ"),
entered into a joint venture agreement for a third concession in the same area.
These three concessions (the "Polish Concessions") cover approximately 92,000
acres in south central Poland.
On March 24, 1997, The Company entered into an agreement with a subsidiary
of Texaco Incorporated ("Texaco") to sell the Pol-Tex concession, the largest of
the coal bed methane gas concessions held by the Company, to Texaco. The
agreement also grants a first right of refusal to Texaco to obtain a controlling
interest in the other Polish Concessions (the MMR and MMJ concessions) upon
which EuroGas intends to conduct development activities later this year. The
agreement is subject to the approval of the Polish Ministry of Environmental
Protection of Natural Resources and Forestry (the "Polish Ministry"). The
transaction is scheduled to formally close on or about June 13, 1997.
On April 28, 1997, Pol-Tex entered into a letter of intent with Polish Oil
and Gas Company ("POGC") to form a joint technical team to evaluate concessions
for natural gas exploration currently held by POGC or in which it is in the
process of obtaining rights located in the Carpathian Flysch and Tectonic
Foredeep areas of Poland. The joint team will identify the areas to be subject
to a joint venture between the Company and POGC and the timing and extent of the
obligations of the two parties. The letter of intent specifies an exploration
budget of $15 million over a three year period and grants the Company the
exclusive right to negotiate with POGC concerning the concessions through
September 30, 1997.
As part of its intent to diversify and expand its interests in Europe, in
July 1996, the Company acquired Danube International Petroleum Company
("Danube") which holds rights to participate in exploration for natural gas in
Slovakia and the Czech Republic. The Company has focused on the development of
the Slovakian project, but retains an interest in the Czech Republic. Danube is
a partner in a joint venture agreement (the "Slovakian Joint Venture") with
NAFTA Gbely a.s. ("NAFTA") organized for natural gas exploration and development
under a license covering 128,000 acres located in the East Slovakian Basin, a
northeastern extension of the Pannonian Basin which covers large parts of
Hungary and the southeastern part of Slovakia. The joint venture now operates
pursuant to an exploration permit which expires April 24, 1999. The Slovakian
Joint Venture recently completed one test well and has commenced a second test
well. In late 1996, NAFTA and the Company agreed to add an additional area of
mutual interest to their joint activities (sometimes referred to as the Lipany
area). The Company has entered into a preliminary understanding to farmout a
portion of its participation in the Slovakian Joint Venture.
On April 16, 1997, the Company announced that it had entered into a
Confidentiality Agreement which covered the possible participation in a number
of its projects by OMV Aktiengesellschaft. 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 has been granted an option to purchase
2,000,000 shares of the Company's restricted common shares, as a non-refundable
deposit towards obtaining an interest in an oil and gas property joint venture
or other equity transaction with OMV. The area under current investigation
includes the Slovakian Concession (including the Lipany area) and other areas
which may reach into Poland. The discussions with OMV are preliminary in nature
and there can be no assurance that an agreement will result.
The Company accumulated losses of approximately $21,555,000 through March
31, 1997, most of which have been paid by 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 500,000 shares of stock for gross proceeds of $2,750,000
and converted 2,200,000 in debentures into 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.
RESULTS OF OPERATIONS
The Company has not received any revenues since inception.
The Company had a net loss applicable to common shares for the three months
ended March 31, 1997, of approximately $1,283,000 as compared to a net loss of
approximately $403,000 for the three months ended March 31, 1996. The
difference is due in large part to the expansion of the Company's activities
into Slovakia and Czechoslovakia and the increase in indebtedness incurred as a
result of such activities.
From inception on June 7, 1991, through March 31, 1997, the Company had
accumulated losses of $21,554,502 of which $21,135,636 was a net loss from
operations and $418,866 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 such gains or losses were recognized in the
quarters ended March 31, 1997, or 1996.
As of March 31, 1997, the Company reported approximately $14,665,000 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.
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 which is required is charged to
operations. The impact of such reassessment and resulting impairment charge
could be significant during any particular period. 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.
CAPITAL AND LIQUIDITY
Throughout its existence, the Company has relied on cash from financing
activities to provided cash required for operating and investing activities.
During the quarter ending March 31, 1997, operations required cash of
approximately $741,000. Since inception on June 7, 1991, the Company has used
net cash in operations of approximately $12,189,000. Such net cash has been
used principally to fund cumulative net losses of approximately $21,555,000.
Investing activities used net cash of approximately $388,000 as compared to
approximately $287,000 in the prior three month period. Investing activities
consisted principally of development of mineral rights in Slovakia. Since
inception, the Company has reported approximately $14,511,000 for the purchase
of mineral interests.
Financing activities provided net cash of approximately $1,130,000 during
the three month period ending March 31, 1997 (there were no financing activities
in the prior year comparative period). Funds received were a result of a sale
of 500,000 shares of the Company's common stock for $2,750,000 of which
$1,800,000 was used for a principal payment on a loan from a related party.
From inception through March 31, 1997, the proceeds from financing activities
are approximately $27,520,000 of which approximately $9,947,000 is net proceeds
from related prior borrowings and payments to related parties.
At March 31, 1997, the Company had total current assets of approximately
$729,000 and total current liabilities of approximately $8,264,000, resulting in
a working capital deficit of approximately $7,535,000 or a negative working
capital ratio 1:11. Total assets include $1,627,335 of long-term prepaid
expenses which consists in part of $1,150,000 resulting from the valuation of an
option delivered to OMV in March of 1997 as a non-refundable deposit towards
obtaining an interest either in oil and gas property, joint venture or other
equity transaction. (See Note 3 to Financial Statements.) If the Company
completes a transaction with OMV, the $1,150,000 will be treated as part of the
cost of acquiring the interest either in a property, joint venture or other
equity transaction. If a transaction with OMV is not completed, the $1,150,000
will be written off and result in a corresponding increase in the shareholders'
deficit and accumulated losses in the development stage. The current debt
includes a $2,500,000 obligation to former Danube shareholders who are now
principal stockholders of the Company. While the Company is attempting to
negotiate for an extension of the due date on the Danube matter, it has not been
successful to date.
During the three month period ending March 31, 1997, the Company received
approximately $2,750,000 in gross proceeds from the issuance of stock. In
addition, debentures in the principal amount of $2,200,000 plus accrued
interest, were converted to 852,630 shares of common stock. Therefore, the
Company has been able to substantially reduce the deficit in stockholders'
equity, however the Company continues to have current liabilities substantially
in excess of its current assets. In addition, the Company is committed to spend
substantial amounts to satisfy its obligations under its gas concessions. The
Company will continue to require significant cash for operating expenses and
drilling commitments, excluding compensation to executive employees, consultants
and their affiliates. The Company does not have any agreement with anyone to
provide the funds necessary to meet these commitments. If the necessary funding
is not available, the Company may be unable to continue and it is unlikely that
it would be able to sell its interests for an amount sufficient to satisfy its
obligations. Consequently, if the Company is unable to continue, there will not
be any value for its shareholders.
The Company anticipates that the transaction with Texaco will improve the
Company's liquidity. The terms of the agreement include a cash payment to the
Company at closing of $500,000 plus Texaco's assumption of all Pol-Tex
concession obligations, including the obligation to spend additional amounts for
exploration. The Company anticipates that this transaction will close in June
1997, although the closing is subject to approval by the Polish Ministry so no
assurance can be given. In addition, the Company believes that the completion
of the Texaco agreement may enhance the Company's ability to attract third party
debt and equity capital. There can be no assurance, of course, that any
financing from other sources will be available.
As noted above, the Company has relied principally on cash provided from
financing activities to provide its cash requirements, particularly cash
provided from related parties. Although the Company anticipates that it will be
able to continue to obtain cash from financing activities in the foreseeable
future, there can be no assurance that it will be able to do so.
If the Company is unable to establish production on 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 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document Location
- ------ --------- ----------------- --------
<S> <C> <C> <C>
1 (27) Financial Data Schedule This Filing
</TABLE>
REPORTS ON FORM 8-K
On March 24, 1997, the Company filed a report on Form 8-K reporting
entering into an agreement with a Polish affiliate of Texaco, Incorporated
("Texaco"), whereby Texaco would acquire the rights to appraise, operate, and
develop the Company's Pol-Tex gas concession under "ITEM 2. ACQUISITION AND
DISPOSITION OF ASSETS" and the sale of 500,000 shares of its common stock at a
price of $5.50 per share for net proceeds of $2,750,000 to a German bank under
"ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S."
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: May 22, 1997 By /s/ Hank Blankenstein
--------------------------------------
Hank Blankenstein, Secretary/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1997, AND STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 643,646
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,527
<CURRENT-ASSETS> 729,078
<PP&E> 17,088,581
<DEPRECIATION> 2,251,450
<TOTAL-ASSETS> 17,254,501
<CURRENT-LIABILITIES> 8,264,401
<BONDS> 0
<COMMON> 50,496
0
3,642
<OTHER-SE> (445,583)
<TOTAL-LIABILITY-AND-EQUITY> 17,254,501
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 980,660
<OTHER-EXPENSES> 242,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242,148
<INCOME-PRETAX> (1,222,808)
<INCOME-TAX> (122,281)
<INCOME-CONTINUING> (1,100,527)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,282,625)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
