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, 1998
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 May 13, 1998, the Issuer had 64,683,934 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 March 31, 1998, and December 31, 1997 (the
Company's most recent year end), and unaudited condensed consolidated statements
of operations for the three month periods ended March 31, 1998 and 1997, and
unaudited condensed consolidated statements of cash flows for the three month
periods ended March 31, 1998 and 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-K for the year ended December
31, 1997.
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, the success of the operating
entities on the projects in which the Company has an interest but does not
control, 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1998 1997
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 10,809,855 $ 17,247,667
Other receivables 155,102 173,691
Other current assets - 29,370
------------ ------------
Total Current Assets 10,964,957 17,450,728
------------ ------------
Investment in securities available
-for-sale 962,398 -
------------ ------------
Property and Equipment
Oil and gas properties subject
to amortization 7,295,012 -
Oil and gas properties not subject
to amortization 24,105,418 22,723,660
Other property and equipment 1,014,139 1,010,772
------------ ------------
32,414,569 23,734,432
Less: accumulated depreciation (770,100) (767,177)
------------ ------------
Net Property and Equipment 31,644,469 22,967,255
------------ ------------
Other Assets 525,280 336,560
------------ ------------
Total Assets $ 44,097,104 $ 40,754,543
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 696,598 $ 1,532,949
Accrued liabilities 3,407,398 3,420,042
Accrued income taxes 738,450 753,306
Notes payable - current portion 539,190 1,107,944
Notes payable to related parties
- current portion 1,043,526 1,270,547
------------ ------------
Total Current Liabilities 6,425,162 8,084,788
------------ ------------
Long-Term Debt
Notes payable 1,599,892 2,246,773
Notes payable to related parties 911,016 911,016
------------ ------------
Total Long-Term Debt 2,510,908 3,157,789
------------ ------------
Stockholders' Equity
Preferred stock, $.001 par value;
3,661,968 shares authorized;
2,392,228 shares issued and
outstanding; $499,197 liquidation
preference 2,392 2,392
Common stock, $.001 par value;
325,000,000 shares authorized;
issued and outstanding 64,683,934
shares in 1998 and 62,283,934
shares in 1997 64,684 62,284
Additional paid-in capital 69,235,945 61,644,596
Cumulative translation adjustment (145,590) -
Accumulated deficit (33,996,397) (32,197,306)
------------ -----------
Total Stockholders' Equity 35,161,034 29,511,966
------------ -----------
Total Liabilities and Stockholders'
Equity $ 44,097,104 $40,754,543
============ ===========
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
For the Three Months
Ended March 31,
1998 1997
----------- -----------
Revenues $ - $ -
Operating Expenses
Depreciation and valuation
allowance 2,923 40,329
General and administrative
expense 1,730,638 940,331
----------- -----------
Total Operating Expenses 1,733,561 980,660
----------- -----------
Other Income (Expense)
Interest income 170,556 -
Interest expense (135,964) (242,148)
Exchange losses, net (57,661) -
----------- -----------
Other Expense, Net (23,069) (242,148)
----------- -----------
Loss Before Income Taxes (1,756,630) (1,222,808)
Benefit From Income taxes - 122,281
----------- -----------
Net Loss (1,756,630) (1,100,527)
Dividends Applicable to Preferred
Shares 42,462 182,098
----------- -----------
Loss Applicable to Common Shares $(1,799,092) $(1,282,625)
=========== ===========
Basic and Diluted Loss Per
Common Share $ (0.03) $ (0.03)
=========== ===========
Weighted Average Number of Common
Shares Used in Per Share Calculation 63,483,934 49,354,271
=========== ===========
Net Loss Applicable to Common Shares $(1,799,092) $(1,282,625)
Other Comprehensive Income
Cumulative translation adjustment (145,590) -
----------- -----------
Comprehensive Loss $(1,944,682) $(1,282,271)
=========== ===========
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
For the Three Months
Ended March 31,
1998 1997
------------- ------------
Cash Flows From Operating Activities
Net loss $ (1,756,629) $ (1,100,527)
Adjustments to reconcile net loss
to cash provided by operating
activities:
Depreciation and amortization 4,770 147,337
Changes in assets and liabilities,
net of assets acquired:
Receivables 18,589 39,142
Accounts payable (836,351) 131,907
Accrued liabilities (55,106) 152,327
Accrued income taxes 14,856 (122,281)
Other 62,812 11,497
------------ -------------
Net Cash Used in Operating
Activities (2,547,059) (740,598)
------------ -------------
Cash Flows From Investing Activities
Purchases of property and equipment (1,105,137) (412,788)
Increase in deposits and prepayments (220,000) 24,830
Investment in securities available-
for-sale (962,398) -
------------ ------------
Net Cash Used In Investing
Activities (2,287,535) (387,958)
------------ ------------
Cash Flows From Financing Activities
Principal payments on notes payable (1,442,656) (1,802,500)
Proceeds from issuance of common stock - 2,932,097
------------ ------------
Net Cash Provided By (Used In)
Financing Activities (1,442,656) 1,129,597
------------ ------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (160,562) -
------------ ------------
Net Increase (Decrease) In Cash
and Cash Equivalents (6,437,812) 1,041
Cash and Equivalents at Beginning
of Period 17,247,667 642,605
------------ ------------
Cash and Equivalents at End of Period $ 10,809,855 $ 643,646
============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 226,429 $ 242,148
Supplemental Schedule of Noncash Investing and Financing Activities
During March 1998, the Company exercised its option to acquire a 16%
carried interest in the Beaver River oil and gas project in British
Columbia, Canada for $300,000 and 2,400,000 shares of common stock. The
acquisition was recorded at $7,875,000.
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- SIGNIFICANT ACCOUNTING PRINCIPLES
CONDENSED 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-K for
the period ended December 31, 1997. 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, 1998.
LOSS PER SHARE -- In the fourth quarter of 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share". Prior periods have been restated to conform to the
requirements of SFAS No. 128. Basic loss per common share is computed
by dividing net loss available to common stockholders by the weighted-
average number of common shares outstanding during the period. Diluted
loss per share reflects potential dilution which could occur if all
potentially issuable common shares from stock purchase warrants and
options or convertible notes payable resulted in the issuance of common
stock. In the Company's present position, diluted loss per share is
the same as basic loss per share because potentially issuable common
shares would decrease the loss per share and have been excluded from
the calculation.
REPORTING COMPREHENSIVE INCOME -- SFAS No. 130, "Reporting
Comprehensive Income" was adopted by the Company during the first
quarter of 1998. SFAS No. 130 requires the display of comprehensive
income and its components in the financial statements. The adoption of
SFAS No. 130 had no effect on the results of operation.
NOTE 2 -- ACQUISITIONS
In March 1998, the Company exercised its option to acquire a 16%
carried interest in the Beaver River Project in British Columbia,
Canada in exchange for $300,000 and the issuance of 2,400,000 shares of
its common stock. The Company will retain the right to purchase back
1,900,000 of the 2,400,000 common shares any time prior to April 15,
1999 by returning the carried interest, if the Company determines that
the results produced do not warrant the continued holding of the carried
interest. The acquisition has been valued at $7,875,000. The interest
in the Beaver River Project has been classified as oil and gas properties
not subject to amortization in the accompanying condensed consolidated
balance sheet as of March 31, 1998.
The Company acquired 993,333 units of United Gunn Resources, Ltd. (each
unit consisting of one share of common stock and one warrant) for
$962,398 during the quarter ended March 31, 1998. United Gunn
Resources, Ltd. holds an approximately 12% working interest in the
Beaver River Project. The investment in United Gunn Resources, Ltd. has
been accounted for as a noncurrent investment in securities available-
for-sale and is carried at market value which approximated cost at
March 31, 1998.
NOTE 3 -- OIL AND GAS PROPERTIES
An oil and gas reserve report was prepared for the Company's interests
in the Trebisov oil and gas properties in Slovakia, dated May 1, 1998,
which determined that proved reserves of oil and gas exist. Costs
incurred with respect to that project have been reclassified as oil and
gas properties subject to amortization during the quarter ended March
31, 1998. Amortization will begin when and if production begins from
wells on that property.
NOTE 4 -- CHANGE IN FUNCTIONAL CURRENCY OF FOREIGN SUBSIDIARIES
Effective January 1, 1998, the Company changed the functional
currencies of the subsidiaries operating in Poland and Slovakia from
the U.S. dollar to the local currencies due to those economies ceasing
to be considered highly inflationary. The change had no effect on
consolidated financial position at the date of the change. The effect
of changes in exchange rates during the quarter ended March 31, 1998,
and in the future with respect to those subsidiaries has been and will
be recognized as a separate component of stockholders' equity whereas
those changes were previously recognized in the results of operations.
The effect of the change during the quarter ended March 31, 1998, was
not material.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company's subsidiary, GlobeGas BV, has applied for a reduction in
an income tax liability of $738,450 in the Netherlands. The tax arose
from the sale of equipment at a profit by the former owner of GlobeGas
to the Company's Poland subsidiary. The Company's position is that the
gain on the sale should not have been taxable to GlobeGas. The
liability will continue to be reflected in the Company's financial
statements until the proposed reduction is accepted by the Netherlands'
tax authorities.
A bankruptcy trustee appointed for certain former shareholders of
GlobeGas has asserted a claim to the proceeds that the Company has and
may receive from the sale of assets to Texaco. 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 Methane 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 is vigorously defending against the claim. The
Company believes that the claim is totally without merit based on the
fact that a condition of a prior settlement with the principal
creditor of the estate bars any such claim, that the court has no
jurisdiction over Pol-Tex Methane or its interests held in Poland, and
that the Company paid substantial consideration for GlobeGas.
During 1997, a shareholder asserted a claim against the Company based
upon an alleged breach of the settlement agreement between the
shareholder and the Company as a result of the Company's failure to
file and obtain the effectiveness of a registration statement for the
resale by the shareholder of 100,000 shares delivered to the
shareholder in connection with the settlement. In addition, the
shareholder has informed the Company and the court that it 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 of the
Company's common stock. The Company had denied any liability and
intends to vigorously defend the claims. The Company has filed a
counterclaim against the shareholder for breach of contract concerning
its joint activities with the bankruptcy trustee appointed for certain
former shareholders of GlobeGas.
During March of 1998, the Company was notified there may be certain
title problems related to an area of mutual interest to be explored and
developed by the Slovakian joint venture. The problem area is outside
of the Trebisov area where the Company has drilled six wells and which
is unaffected by the claim. The disputed area is located in the
southern portion of the property covered by the designations contained
in the Slovakian joint venture agreements and is subject to a competing
claim of ownership by a private Slovakian company. The Company recently
entered into a letter of intent to acquire a controlling interest in
the disputed area which is located to the south of Trebisov. The terms
of the letter of intent provide for the acquisition of the competing
interest in exchange for 2,500,000 shares of restricted common stock
and two year warrants providing for the purchase of 2,500,000 shares
for $5.00 per share. The division of the working interest for this
territory will then be 75% for the Company (rather than the 50% split
which governs the Trebisov area) provided that the Company carries the
cost of drilling the first two wells in the disputed area. The Company
has notified the former shareholders of Danube of a claim against them
by reason of this recent problem. The cost of the acquisition of the
property will be based on the fair value of the common stock and
warrants on the date the transaction is completed less any amounts
recovered or recoverable from the former shareholders of Danube.
The Company has determined that it has an obligation to a lender in
connection with loans made principally to a subsidiary from 1995
through 1997. Management is in the process of negotiating a final
agreement with the lender to settle and determine all amounts owing,
but no agreement has yet been reached. Management has estimated that
the obligation will not exceed $1 million, which amount has been
included in accrued liabilities. Because the amount of the actual
obligation has not been finally established with the lender, it could
ultimately be determined to be in excess of the amount accrued.
In March 1998, the Company acquired a controlling interest in RimaMuran
S.r.o. whose principal asset is a minority interest in a talc deposit
in eastern Slovakia. RimaMuran has the obligation to fund 43% of the
projected $12,000,000 of capital costs over the next two and one-half
years. RimaMuran does not have the assets necessary to meet this
obligation, and it is anticipated that the necessary funding will need
to be provided by the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is primarily 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 has acquired several large concessions and is in various
stages of identifying industry partners, farming out exploration rights,
undertaking exploration drilling, and seeking to develop production. One of the
Company's early projects was a coal bed methane gas concession in Poland that
was sold, with a retained interest, to a subsidiary of Texaco, Inc. ("Texaco").
In connection with this transaction, the Company gave Texaco a right of first
refusal to acquire a controlling interest in two other coal bed methane
concessions the Company holds in Poland. The Company has subsequently been
granted another concession in Poland and has entered into an agreement with
Polish Oil and Gas Company ("POGC") to jointly explore 1.9 million acres in
which POGC holds, or has the right to acquire, interests. The Company has also
entered into a letter of intent with Ukrainian state oil and gas concerns to
expand potential exploration into the Ukraine.
The Company also holds an interest in a potential natural gas field located
in Slovakia. It is a joint venture partner there with NAFTA Gbely a.s.
("NAFTA"), an energy concern that was formerly part of the national oil and gas
company. The Company has drilled four wells on this location and is currently
drilling a fifth.
In June 1997, the Company acquired EuroGas Jakutien Exploration GmbH,
formerly known as OMV (Jakutien) Exploration GmbH ("EJ"), from OMV Group
("OMV"), which holds a 50% interest in a joint venture established to explore
for oil and gas in the Sakha Republic in northeastern Siberia. The Company also
holds an interest in an oil and gas project in Canada and, in March 1998,
purchased an interest in a talc deposit located in Slovakia. The Company has
terminated an earlier interest it held in the Czech Republic.
The Company is in the early stages with respect to its exploration
interests and has not yet established production or a source of revenues. The
Company has been dependent to date on equity financings to meet its funding
needs and anticipates that it will continue to be so for the foreseeable future.
RECENT DEVELOPMENTS
Slovakian Project
The Company has drilled six wells on its Slovakian Concession. In
consultation with its technical consultant, Schlumberger, the joint venture has
decided to complete all the wells drilled, construct a processing plant, and tie
production to a nearby gas pipeline by the end of the year. The Company
recently engaged Ryder Scott Company, a petroleum engineering firm, to prepare a
reserve analysis on the Trebisov reservoir. The reserve report concluded the
that the Company had total proved reserves of 94,880 barrels of oil condensate
and 5,487 million cubic feet of natural gas on its Slovakian Concession. Of
this amount, 15,824 barrels of oil condensate and 868 million cubic feet of
natural gas are undeveloped proven reserves. Based on this report, the proved
reserves have a net present value, discounted at 10%, of approximately $7.3
million.
The joint venture is also completing 3D seismic surveys in the northern
Trebisov area and if the results warrant, will drill an exploration well in that
area. The Company has recently reduced its projected budget for this area as a
result of perceived cost savings and a revised development plan and currently
expects to spend approximately $5 million during the remainder of the year for
its share of the costs in Slovakia. These expenditures should permit the
Company to meet all its contractual commitments in this area.
During March of 1998, the Company was informed by NAFTA that a third-party
held rights to exploit a portion of the areas of mutual interest proposed to be
explored and developed by the Slovakian joint venture outside of the Trebisov
area. The Company recently entered into a Letter of Intent to acquire a
controlling interest in the disputed area. The terms of the Letter of Intent
provide for the acquisition of the competing interests in exchange for 2,500,000
shares of restricted common stock and two year warrants providing for the
purchase of 2,500,000 shares for $5.00 per share. The division of the working
interest for this territory will now be 75% for the Company, rather than the 50%
split which governs the Trebisov area, provided that the Company carries the
cost of drilling the first two wells in the previously disputed area. The
Company has notified the former shareholders of Danube of a claim against them
by reason of this recent problem.
Beaver River Project
The Company had entered into an option agreement to acquire an interest in
the Beaver River natural 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 shut-in the field in 1978. However, a
subsidiary of Canadian Occidental Petroleum has entered into an agreement to
attempt to reestablish commercial natural gas production in the project using
up-to-date technology and may, if warranted, spend up to $13 million (US) on the
project before requiring any participation from the other working interests.
The contracting parties amended the terms and structure of the transaction to
some degree so that the Company has exercised a portion of its option by first
purchasing 993,333 units of United Gunn Resources, Ltd. (one share of common and
one warrant), for approximately $962,000 (US). United Gunn Resources, Ltd.
holds an approximately 12% working interest in the project. The Company
completed the exercise of its option by acquiring a direct 16% percent working
interest in the project in exchange for $300,000 and the issuance of 2,400,000
shares of restricted common stock. EuroGas will retain the right to purchase
back 1,900,000 of the 2,400,000 shares of restricted common stock, for return of
the interest, any time prior to April 15, 1999, if EuroGas determines that the
results of the efforts to re-establish the field do not warrant the continued
holding of the direct interest.
Activities in the Ukraine
EuroGas has entered into a letter of intent with an Ukrainian state-owned
company, Zahidukrgeologia, to acquire 13 oil and gas properties which include
both standard oil and gas and coal bed methane projects located in the western
Ukraine. The Company is looking for a partner and has recently signed a
Confidentiality Agreement with a major European energy concern concerning its
possible participation in this and other Ukrainian projects.
The Company had previously announced the signing of a letter of intent with
Ukrnafta, a joint stock company, to explore and develop several large potential
oil and gas fields, which it believes have the potential for substantial
reserves that may be exploited by the introduction of modern technology and
secondary recovery technology. Part of the formations subject to this letter of
intent are a continuation of the Carpathian structures present in the Company's
activities in Slovakia and Poland. The Company has recently entered into a
second letter of intent with Ukrnafta to explore the possibility of a joint
venture development of the Dolina Oil Field located in western Ukraine.
The Company is now in the process of attempting to formalize the proposals
covered by the letters of intent.
Slovakian Talc Deposit
In March 1998, the Company acquired a controlling interest in RimaMuran
s.r.o. ("RimaMuran"), a closely-held entity whose principal asset is a minority
interest in a talc deposit located approximately 50 kilometers west of Kosice in
eastern Slovakia. Exploratory holes drilled between 1987 and 1994 confirmed the
existence of a large talc deposit located approximately 350 meters, or 1150
feet, below the surface.
RimaMuran has the obligation to fund 43% of the projected $12 million of
capital costs over the next two and one-half years. RimaMuran does not have the
assets necessary to meet this obligation, and it is anticipated that the
necessary funds will be provided by the Company. While initial exploration
activities have indicated the existence of a large talc deposit, the commercial
recovery of the talc has not been established.
Financial Position
The Company had an accumulated deficit of $33,996,397 at March 31, 1998,
most of which has 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 activities to
date have not generated revenue, except for the gross revenue of $500,000
recognized in connection with the sale of a single interest in property, so it
is not able to meet any of its funding needs from operations. The Company's
financing activities provided net cash of approximately $31 million, $8.2
million, and $2.9 million during the years ended 1997, 1996, and 1995,
respectively.
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 not had proved reserves or
established production, these properties have not been amortized. However, in
the quarter ended March 31, 1998, the Company obtained a reserve report on its
Trebisov holdings in Slovakia, establishing proved reserves with a net present
value of $7,295,012, which will be amortized against future production from this
area.
In the event that the Company is ultimately unable to establish production
or sufficient reserves on its 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 its 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 months
ended March 31, 1998 and 1997, of approximately $1,800,000 and $1,300,000,
respectively. The difference is due in large part to the expansion of the
Company's activities, primarily as a result of acquisitions and the growth of
the Company's administrative expenses. A substantial portion of the general and
administrative expenses consist of payments to a limited number of officers,
directors, and consultants.
Due to changes in exchange rates between the U.S. dollar and currencies in
the Eastern European countries in which the Company operates, the Company is
subject to fluctuations in currency exchange rates that can result in the
recognition of significant gains or losses during any period. A loss of $57,661
related to this currency conversion was recognized in the three months ended
March 31, 1998. 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, if any. If there is not a proved property base, the
impairment is charged to operations. The impact of such reassessment and
resulting impairment charge could be significant during any particular period.
As a result, 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 March 31, 1998, the Company reported approximately $31,400,000 in oil
and gas properties. 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 or 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 three months ending March 31, 1998 and 1997, operations
required cash of approximately $2,547,000 and $741,000, respectively. The cash
used in operations in the first quarter of 1998 was used primarily to fund the
Company's operational loss of $1,756,629 and to reduce the Company's accounts
payable by $836,351.
Investing activities used net cash of approximately $2,288,000 for the
three months ended March 31, 1998, the largest components of which were the
approximately $1,105,000 to purchase equipment and approximately $962,000 to
purchase securities held for investment, as compared to approximately $388,000
used for acquisitions in the prior three month period.
Financing activities used net cash of approximately $1,443,000 during the
three month period ending March 31, 1998, as compared to providing net cash of
approximately $1,130,000 in the prior year comparative period. Available cash
was used to reduce the principal balance of loans by this amount during the
first quarter of 1998.
At March 31, 1998, the Company had total current assets of approximately
$10,965,000 and total current liabilities of approximately $6,425,000, resulting
in working capital of approximately $4,540,000, or a working capital ratio of
1.7-to-1.
As noted above, the Company has relied principally on 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.
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 held 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 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
- ------- --------- -----------------
<S> <C> <C>
1 (10) Asset Exchange Agreement by and among EuroGas, Inc.,
Beaver River Resources, Ltd., and Terrell W. Smith,
Dated April 1, 1998
2 (10) Letter of Intent by and between EuroGas, Inc., and
Belmont Resources, Inc., Dated May 8, 1998
3 (23) Consent of Ryder Scott Company, Petroleum Engineers
4 (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
March 31, 1998.
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 15, 1998 By /s/ Hank Blankenstein
Hank Blankenstein, Vice-President
ASSET EXCHANGE AGREEMENT
THIS ASSET EXCHANGE AGREEMENT (the "Agreement"), dated as of the 1st day of
April, 1998 by and among EUROGAS, INC., a Utah corporation ("EuroGas"), BEAVER
RIVER RESOURCES, LTD., a British Columbia corporation ("BRRL"), and TERRELL W.
SMITH (the "Escrow Agent").
RECITALS
A. BRRL is the owner of an interest under Petroleum Natural Gas Lease
#15661 (the "Lease") issued by the authorities of British Columbia as held
under an agreement for a Farm Out Participation, Equalization and Royalty dated
October 15, 1997 by and between Wascana Energy Partnership, United Gunn
Resources, Ltd., Mayan Limited Partnership and Wade Oil & Gas Incorporated. A
copy of the Wascana Agreement is attached hereto as Exhibit A and by reference
incorporated herein.
B. This Agreement shall provide the means by which EuroGas may acquire
ownership of all of BRRL's outstanding capital stock.
C. An Escrow is to be established hereby to complete the terms and
conditions of the Agreement.
ARTICLE I
DEFINITIONS
1.1 Definitions. In this Agreement, the following terms have the meanings
specified or referred to in this Section 1.1 and shall be equally applicable to
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
"BRRL" shall mean Beaver River Resources, Ltd., a closely held Canadian
corporation organized under the laws of the Province of British Columbia.
"Closing" shall mean the closing of the transfer of the Exchanged Assets
and Exchange Price to the Escrow Agent.
"Closing Date" shall mean the date on which the Closing actually takes
place, as described in Section 4.1.
"Court Order" shall mean any judgment, order, aware or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"Escrow Agent" shall mean TERRELL W. SMITH.
"Escrowed Amount" shall mean cash, shares of stock and other property
deposited with the Escrow Agent.
"Encumbrance" shall mean any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions of any kind.
"EuroGas" shall mean EuroGas, Inc. a corporation duly organized and in good
standing under the laws of the State of Utah, United States.
"EuroGas Option" shall mean the right for EuroGas to reacquire 1,900,000
EuroGas Shares of common stock delivered hereunder as set forth in Article 4 of
this Agreement.
"EuroGas Shares" shall mean the restricted common stock of EuroGas, Inc.
par value $.001 which shall bear a restricted legend as set forth herein. The
shares of EuroGas shall be automatically adjusted to take into account any stock
split, stock or monetary dividend, consolidation, reorganization or other like
or similar event.
"Exchange Consideration" shall mean the aggregate consideration to be paid
by EuroGas for the Exchanged Assets, more particularly set forth in Section 3 1.
"Exchanged Assets" shall mean all of BRRL's issued and outstanding capital
stock.
"Governmental Body" shall mean any foreign, federal, state, local or other
governmental authority or regulatory body.
"Governmental Permits" shall mean all licenses, franchises, permits,
privileges, immunities, approvals and other authorizations from a Governmental
Body which are necessary to entitle BRRL to own or lease operate and use the
Lease.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or Governmental Body.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the United States Securities Act of 1933 or any
successor law and the rules and regulations issued pursuant to that Act or any
successor law.
"Stockholders" shall mean the stockholders of BRRL.
"Tax" shall mean any federal, state, county, local or foreign income, gross
receipts, property, sales, use, transfer, gains, license, excise, import,
franchise, ad valorem, employment, payroll, withholding or minimum tax, or any
other tax custom, duty, governmental fee or other like assessment or charge of
any kind whatsoever, together with any interest or any penalty, deficiency,
addition to tax or additional amount imposed by any Governmental Body.
"Wascana" shall mean Wascana Energy Partnership and shall mean the operator
under the Wascana Agreement.
"Wascana Agreement" shall mean the agreement for a Farmout Participation,
Equalization and Royalty dated October 15, 1997 by and between Wascana Energy
Partnership, BRRL, United Gunn Resources, Ltd., Mayan Limited Partnership and
Wade Oil & Gas Incorporated.
ARTICLE 2
EXCHANGE AND SALE
2.1 Exchanged Assets. Upon the terms and subject to the conditions of
this Agreement the Stockholders will exchange all of the issued and outstanding
shares of the capital stock of BRRL for shares of the capital stock of EuroGas,
as herein provided. At the time such exchange is effected, the only asset of
BRRL shall be its leasehold interest in the Lease.
2.2 Excluded Liability. EuroGas shall not assume or be obligated to pay,
perform or otherwise discharge any liability or obligation of BRRL, direct or
indirect, known or unknown, absolute or contingent, not expressly assumed by
EuroGas pursuant to this Agreement.
2.3 Permitted Encumbrances. The only Encumbrance to be permitted
hereunder is obligations imposed by the terms of the Wascana Agreement and
Governmental Bodies on the Lease.
ARTICLE 3
EXCHANGE PRICE
3.1 Exchange Price. EuroGas shall deposit with the Escrow Agent, as the
Exchange price, US$300,000 and 2,400,000 EuroGas Shares.
ARTICLE 4
EUROGAS OPTION
4.1 EuroGas Option. At any time before April 15, 1999, EuroGas can elect
to acquire 1,900,000 EuroGas Shares by delivering a notice of the exercise of
such option and a reassignment in the form set forth in Exhibit B hereunder to
the Escrow Agent.
ARTICLE 5
ESTABLISHMENT OF ESCROW
5.1 Appointment of Escrow Agent. In order to implement the terms and
conditions of this Agreement, the parties hereby agree to establish an escrow
with Terrell W. Smith as Escrow Agent and close this transaction in accordance
with Article 6 set forth below.
5.2 Duties of Escrow Agent. It is understood and agreed by the parties to
this Agreement as follows:
(a) Escrow Agent is not and shall not be deemed to be an agent for
any party for any purposes and is merely acting as a depository and in a
ministerial capacity hereunder with the limited duties herein prescribed.
(b) Escrow Agent does not have and shall not be deemed to have any
responsibility in respect of any instructions, certificate, or notice
delivered to him other than to faithfully carry out the obligations
undertaken in this Agreement and to follow the directions in such
instructions or notice in accordance with the terms hereof.
(c) Escrow Agent is not and shall not be deemed to be liable for any
action taken or omitted by him in good faith and may rely on, and act in
accordance with, the advice of his counsel without liability on his part
for any action taken or omitted in accordance with such advice. In any
event, his liability hereunder shall be limited to liability for gross
negligence, willful misconduct, or bad faith on his part.
(d) Escrow Agent may conclusively rely on and act in accordance with
any certificate, instruction, notice, letter, telegram, cablegram or other
written instrument believed by him to be genuine and to have been signed by
the proper party or parties.
(e) Escrow Agent may apply for advice of counsel of his choice and
may rely upon such advice or may act or refrain from acting in accordance
with such advice.
(f) Escrow Agent shall be entitled to reimbursement from the parties
of (i) Escrow Agent's reasonable fees and reimbursement of his reasonable
expenses, including attorneys' fees in connection with duties hereunder and
(ii) the cost to save harmless, indemnify and defend Escrow Agent for,
from, and against any loss, damages, liability, judgment, costs and
expenses whatsoever, including counsel fees, suffered or incurred by him by
reason of, or on account of, any misrepresentations made to him or his
status or activities as Escrow Agent under this Agreement, except for any
loss, damages, liability, judgment, costs, or expenses resulting from gross
negligence, willful misconduct, or bad faith on the part of Escrow Agent.
(g) If any legal proceeding is instituted against him, Escrow Agent
agrees promptly to give notice of such proceeding to EuroGas and BRRL.
Escrow Agent shall not be required to institute legal proceedings of any
kind.
(h) Escrow Agent shall not, by act, delay, omission, or otherwise, be
deemed to have waived any right or remedy he may have either under this
Agreement or generally, unless such waiver be in writing, and no waiver
shall be valid unless it is in writing, signed by Escrow Agent, and then
only to the extent expressly therein set forth. A waiver by Escrow Agent
under the terms of this Agreement shall not be construed as a bar to, or
waiver of, the same or any other such right or remedy which he would
otherwise have on any other occasion.
(i) Escrow Agent may resign as such hereunder by giving 30 days
written notice thereof to EuroGas and BRRL. Within 20 days after receipt
of such notice, EuroGas and BRRL shall furnish to Escrow Agent written
instructions regarding the release of the remaining Escrowed Amount to a
substitute escrow agent designated by written instructions from EuroGas and
BRRL jointly, or, in the absence thereof, by instructions from a court of
competent jurisdiction to Escrow Agent. Such substitute Escrow Agent shall
be a title company, bank, or trust company organized and doing business
under the laws of the state of Utah and shall thereafter hold the Escrowed
Amount received by it pursuant to the terms of this Agreement and otherwise
act hereunder as if it were the Escrow Agent originally named herein.
Escrow Agent's duties and responsibilities hereunder shall terminate upon
the release of all property then held in escrow according to such written
instruction or upon such delivery as herein provided. This Agreement shall
not otherwise be assignable by Escrow Agent without the prior written
consent of EuroGas and RRRT.
(j) EuroGas and BRRL shall each pay one-half of the Escrow Agent fees
and other charges.
ARTICLE 6
CLOSING BY DELIVERY TO AND DISBURSEMENT BY ESCROW AGENT
6.1 Closing. Upon the terms and conditions set forth herein, the Closing
shall be effectuated on or before April 15, 1998 by the parties delivering to
the Escrow Agent the items set forth in Section 6.2 and Section 6.3, except such
delay as provided in Section 6.3 below with respect to the deposit of shares of
BRRL capital stock.
6.2 Delivery by EuroGas. EuroGas shall deposit with the Escrow Agent:
(a) US$300,000 cash
(b) Two certificates of EuroGas shares; one in the amount of 500,000
EuroGas shares and the other in the amount of 1,900 000 EuroGas Shares.
(c) A legal opinion from its counsel in the form set forth in Exhibit
C.
6.3 Delivery by Stockholders and BRRL.
(a) Within sixty (60) days after execution of the Agreement,
Stockholders of BRRL shall deposit with the Escrow Agent certificates
representing all of the issued and outstanding capital stock of BRRL,
separate stock powers executed in blank by Stockholders with signature
guarantees and limited powers of attorney authorizing the Escrow Agent to
deliver such shares to EuroGas within five (5) days after April 15, 1999 if
EuroGas has not exercised its option to acquire the 1,900,000 shares of
EuroGas stock from the Escrow Agent.
(b) A legal opinion from BRRL's counsel in the form attached as
Exhibit D.
6.4 Disbursement by Escrow Agent. Upon execution of the Agreement and the
establishment of the Escrow, the Escrow Agent shall hold and disburse the items
deposited as follows:
(a) Escrow Agent shall, within ten (10) days after establishment of
the Escrow, disburse the US$300,000 to BRRL; provided, however, such
disbursement of funds shall not be made to BRRL until ninety percent (90%)
of the issued and outstanding shares of capital stock of BRRL has been
deposited by the Stockholders with the Escrow Agent.
(b) Within five (5) days after December 1, 1998 or at the specific
co-signed instructions of BRRL and EuroGas prior thereto, Escrow Agent
shall deliver to BRRL 500,000 shares of EuroGas Shares.
(c) Within five (5) days after April 15, 1999, the balance of the
EuroGas Shares to Stockholders and delivery of the BRRL shares deposited by
the stockholders to EuroGas.
(d) If the Escrow Agent receives a notice of exercise of the EuroGas
Option any time prior to April 15, 1999 together with the appropriate
reassignment as set forth in Article 4, Escrow Agent shall deliver the
1,900,000 EuroGas Shares to EuroGas and he shall deliver to BRRL any
remaining EuroGas Shares or cash left in Escrow and the shares of BRRL
capital stock to the Stockholders who have deposited the shares.
6.5 Benefits and Burdens. During the Escrow EuroGas shall be entitled to
all the benefits of the BRRL's interest in the Lease. EuroGas shall comply with
the terms of the Wascana Agreement and be responsible for all of the related
costs, expenses, damages and liabilities whatsoever of carrying such interest in
the Lease to the same extent as if EuroGas were the owner of such interest.
ARTICLE 7
REPRESENTATIONS, COVENANTS AND WARRANTIES OF BRRL
As an inducement to EuroGas to enter into this Agreement and to consummate
the transactions contemplated hereby, BRRL hereby represents, covenants and
warrants to EuroGas and agrees as follows:
7.1 Organization of BRRL. BRRL is a corporation duly organized and validly
existing under the laws of the Province of British Columbia and it will be in
good standing after its Stockholders' meeting is held to authorize the execution
of this Agreement.
7.2 Authority of BRRL.
(a) The execution, delivery, and performance by BRRL of the Agreement
by BRRL of the Agreement and all agreements, documents, obligations, and
transactions contemplated by the Agreement have been duly authorized by all
necessary action on the part of the board of directors of BRRL and are not
inconsistent with BRRL's articles of incorporation or any resolution of the
directors of BRRL, and do not and will not contravene any provision of, or
constitute a default under any indenture, mortgage, contract, or other
instrument known to it to which BRRL is a party or by which it is bound.
Upon the execution and delivery of the Agreement, they will, subject to
approval of the Stockholders, constitute legal, valid, and binding
agreements and obligations of BRRL enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws of
general application affecting the enforcement of creditors' rights,
including, without limitation, the effect of statutory or other laws
regarding fraudulent conveyance or preferential transfers, and by the
availability of equitable remedies.
(b) Subject to approval of this Agreement by the Stockholders, BRRL
and the officer signing on its behalf, have the power and legal capacity to
enter into the Agreement and to execute the Agreement and any other
documents required by the Agreement.
(c) Upon the execution of this Agreement BRRL will promptly call a
meeting of its Stockholders for the purpose of having the Stockholders
approve this Agreement and the agreeing to the deposit of the Stockholders'
BRRL stock certificates in escrow in accordance herewith.
7.3 Status of Exchanged Assets. If the stock of BRRL is delivered to
EuroGas in accordance with this Agreement, the assets of BRRL at the time of
such delivery (which shall consist only of BRRL's leasehold interest in the
Lease) shall be unencumbered except for the Permitted Encumbrance described in
Article 2.3 hereof.
7.4 Independent Investigation Access. BRRL acknowledges that BRRL has
carefully reviewed EuroGas's SEC reports and press releases furnished by EuroGas
to BRRL, including but not limited to the press release dated March 19, 1998.
BRRL further acknowledges that BRRL in making its decision to acquire EuroGas
Shares has relied upon independent investigations made by it and by BRRL's
representatives and has had an opportunity to ask questions of and to receive
answers from EuroGas and its authorized representatives concerning the business
of EuroGas.
7.5 Restriction Acknowledgment. BRRL acknowledges that the completion of
the Agreement and the issuance of the consideration constitute the offer and
sale of securities as those terms are defined under the Securities Act, as
amended, and applicable state statutes. The delivery of EuroGas Shares shall be
consummated in reliance on certain exemptions from the registration requirements
of federal and state securities laws on which BRRL shall be entitled to rely as
a basis for its determination that the issuance of the EuroGas Shares is exempt
from the registration requirements of the Securities Act and similar state laws.
Until such time as such securities shall have been registered under the
Securities Act as contemplated by this Agreement, each of the certificates
representing the EuroGas Shares shall bear a legend in substantially the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS
OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS
OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL TO THE EFFECT
THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT AND SUCH STATE STATUTES.
ARTICLE 8
REPRESENTATIONS, COVENANTS AND WARRANTIES OF EUROGAS
As an inducement to BRRL to enter into this Agreement and to consummate the
transactions contemplated hereby, EuroGas hereby represents, covenants and
warrants to BRRL and agrees as follows:
8.1 Organization of EuroGas. EuroGas is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Utah, with
full corporate power and authority to own its properties and engage in its
business as contemplated.
8.2 Legality of EuroGas Shares. The EuroGas Shares are legally issued,
fully paid and non-assessable
8.3 Authority of EuroGas.
(a) The execution, delivery and performance by EuroGas of the
Agreement and all agreements, documents, obligations, and transactions
contemplated by the Agreement have been duly authorized by all necessary
action on the part of EuroGas and are not inconsistent with EuroGas's
articles of incorporation or any resolution of the directors of EuroGas,
and do not and will not contravene any provision of, or constitute a
default under any indenture, mortgage, contract or other instrument known
to it to which EuroGas is a party or by which EuroGas is a party or by
which it is bound. Upon the execution and delivery of the Agreement, it
will constitute a legal, valid and binding agreement and obligation of
EuroGas, enforceable in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application affecting the enforcement
of creditors' rights, including, without limitation, the effect of
statutory or other laws regarding fraudulent conveyance or preferential
transfers, and by the availability of equitable remedies.
(b) EuroGas and the officers signing on its behalf, have the power
and legal capacity to enter into the Agreement and to execute the Agreement
and any other documents required by the Agreement.
8.4 Registration of EuroGas Shares. Commencing April 15, 1998 and
continuing thereafter, EuroGas shall use all commercially reasonable efforts to
file and pursue to effectiveness a registration statement with the Securities
and Exchange Commission covering the 2,400,000 shares of EuroGas common stock,
except to the extent that EuroGas Shares may be publicly sold pursuant to an
exemption to registration, including but not limited to Rule 144 adopted under
the Securities Act or as it may be amended or succeeded to from time to time.
ARTICLE 9
GENERAL PROVISIONS
9.1 Survival of Obligations. All representations, warranties, covenants
and obligations contained in this Agreement shall survive the consummation of
the transactions contemplated by this Agreement.
9.2 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered when
delivered personally or when sent by registered or certified mail or by private
courier addressed as follows:
If to EuroGas Hank Blankenstein
EuroGas, Inc.
942 East 7145 South, #101A
Midvale, Utah 84057
Telephone: 801/255-0862
Facsimile: 801/255-2005
With a copy to: Howard S. Landa, Esq.
Kruse, Landa & Maycock
Eighth Floor, Valley Tower
50 West Broadway (300 South)
Salt Lake City, Utah 84101
Telephone: 801/531-7090
Facsimile: 801/531-7091
If to BRRL: Fred Oliver
Beaver River Resources, Ltd.
4625 Greenville Avenue, Suite 205
Dallas, Texas 75206
Telephone: 214/739-2895
Facsimile: 214/987-3776
With a copy to: Lionel E. Gilly, Esq.
5646 Milton Street, Suite 309
Dallas, TX 75206-3986
Telephone: 214/691-1541
Facsimile: 214/691-1573
If to Escrow Agent: Terrell W. Smith
Fairbanks Capital
P.O. Box 65250
Salt Lake City, Utah 84165-0250
Telephone: 801/293-1883
Facsimile: 801/293-1297
or such other address as such party may indicate by a notice delivered to the
other parties hereto.
9.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and permitted
assigns.
9.4 Access to Records after Closing. For a period of two (2) years after
the Closing Date, EuroGas and its representatives shall have reasonable access
to all of the books and records of the Exchanged Assets transferred to EuroGas
hereunder to the extent that such access may reasonably be required by EuroGas
to meet its reporting obligations under the Securities Laws. BRRL shall afford
such access upon receipt of reasonable advance notice and during normal business
hours. EuroGas shall be solely responsible for any costs or expenses incurred by
it pursuant to this Section 9.4.
9.5 Entire Agreement; Amendments. This Agreement and the Exhibits
referred to herein and the documents delivered pursuant hereto contain the
entire understanding the parties hereto with regard to the subject matter
contained herein or therein, and supersede all prior agreements and
understandings between or among any of the parties hereto. This Agreement shall
not be amended, modified or supplemented except by a written instrument signed
by an authorized representative of each of the parties hereto.
9.6 Interpretation. Article titles and headings to sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of the Agreement. The Exhibits
referred to herein shall be construed with and as an integral part of this
Agreement to the same extent as if they were set forth verbatim herein.
9.7 Waivers. Any term or provision of this Agreement may be waived, or
the time for its performance may be extended, by the party or parties entitled
to the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any party, it is
authorized in writing by an authorized representative of such party. The failure
of any party hereto to enforce at any time any provision of this Agreement shall
not be construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to constitute a waiver of any other or subsequent
breach.
9.8 Partial Invalidity. Whenever possible, each provision hereof shall be
interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder of
such invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.
9.9 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be considered an original instrument, but
all of which shall be considered one and the same agreement, and shall become
binding when one or more counterparts have been signed by each of the parties
hereto and delivered to BRRL and EuroGas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
EUROGAS:
EuroGas, Inc.
By: /s/ Hank Blankenstein
BRRL:
Beaver River Resources, Ltd.
By: /s/ Fred Oliver
Vice President
ESCROW AGENT:
/s/ Terrell W. Smith
Terrel1 W. Smith
LETTER OF INTENT
THIS LETTER OF INTENT is made and entered into this 8th day of May, 1998,
by and between EUROGAS, INC., a Utah corporation ("EuroGas"), and BELMONT
RESOURCES, a publicly-held Canadian corporation organized under the laws of the
Province of British Columbia ("Belmont"), based on the following:
Recitals
A. EuroGas is a publicly held company that owns mineral interests in
Slovakia through a subsidiary in a project hereinafter known as Danube.
EuroGas' interest in the project is described in more detail in its annual
report filed with the United States Securities and Exchange Commission on Form
10-K for the period ended December 31, 1997.
B. In connection with the participation in the project, title questions
have been raised concerning Danube's rights to certain concession areas and
EuroGas' corresponding right to indemnity against certain parties known as the
Danube shareholders, all which is more particularly described in EuroGas' annual
report filed with the United States Securities and Exchange Commission on Form
10-K for the period ended December 31, 1997.
C. Maseva, s.r.o. ("Maseva"), a company registered in the business
registry of the district court in Slovakia, currently has the contract on this
disputed property and also has certain other rights which are of interest to
EuroGas ("Maseva Concession").
D. Belmont currently owns 90% of the Maseva Concession and has the right
to acquire the remaining 10%.
E. Subject to the terms and conditions set forth, this Agreement shall
allow EuroGas to acquire all of Belmont Resources' interest currently held and
to be acquired in Maseva and its underlying properties as described in Exhibit A
attached hereto.
Agreement
NOW THEREFORE, based upon foregoing recitals, which are incorporated herein
by this reference, and the information currently known to EuroGas, the parties
agree to enter into this Letter of Intent on the following principal terms and
conditions:
1. Exchange. In exchange for the all of Belmont's right, title and
interest in Maseva Concession and subject to the terms and conditions set forth
herein, EuroGas shall deliver to Belmont
(a) 2,500,000 shares of restricted common stock 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."
(b) Warrants to purchase 2,500,000 shares of EuroGas common stock at
$5.00 per share for two years.
(c) Piggyback Registration Rights Agreement with volume restrictions
in a form to be agreed upon at closing.
(d) An agreement reserving to Belmont a 25% working interest in the
Maseva Concession with a provision that EuroGas carry Belmont's share of
the costs on the first two wells drilled by EuroGas or assigns.
2. Conditions Precedent to the Completion of the Acquisition. Set forth
below are the conditions precedent that must be met prior to the completion and
closing of the agreement.
(a) EuroGas shall satisfactorily complete a legal due diligence
review of Belmont's ownership interest in Meseval and its right to assign
such interest.
(b) The execution of a definitive exchange agreement.
(c) The necessary approval of the Board of Directors of each company
and, if required, any regulatory approvals.
(d) The execution of a definitive registration rights agreement.
(e) Belmont has secured the remaining 10% of the Maseva Concession or
has made appropriate provisions for its future acquisition.
3. Date of Closing. The parties commit to work in good faith toward the
due diligence work, the negotiation, drafting, and execution of definitive
agreements on or before May 15, 1998, and to complete the closing on or before
June 15, 1998. If closing has not been completed by the 15th day of July, 1998,
this Agreement, unless the time for closing is extended in writing by EuroGas,
shall terminate.
4. Due Diligence Investigation. Subject to the terms of confidentiality
set forth in paragraph 5, Belmont agrees to afford EuroGas' employees, auditors,
investment advisors, legal counsel, and other authorized representatives
reasonable access to the properties, records, and personnel of Belmont as it
relates to this matter in order to review and investigate the business records
and legal documents of Belmont at the cost and expense of EuroGas.
5. Confidentiality. During the course of the legal due diligence review,
both EuroGas and Belmont may receive confidential and proprietary information
about the other. The parties agree that each of them shall at all times take
all reasonable and necessary steps to safeguard the confidentiality of
proprietary information of the other party disclosed by or on behalf of that
party in connection with the proposed transaction; that such information will be
used solely for the purposes of evaluating the proposed transaction; and that
such information will not be disclosed to any third party without the prior
written consent of the disclosing party. In the event the transaction is not
consummated, both parties agree to return all documents (and copies thereof)
containing such confidential information to each other (or certify to each other
as to the destruction of such documents and copies) and to continue to maintain
the confidentiality of all disclosed information.
6. Third Party Offers. In consideration of EuroGas' commitment to
immediately begin expending funds for the legal due diligence investigation, and
the negotiation and preparation of a definitive agreement respecting the
transaction in order to complete the transaction as quickly as practicable,
neither Belmont, nor its board of directors, officers, or affiliates will enter
into any agreement, solicit or encourage submission of proposals or offers, or
provide further information to any party with respect to the sale of the Project
without the consent of EuroGas, for a period of 75 days subsequent to the date
of this letter agreement. Belmont will immediately notify EuroGas of any offer
or proposal it receives, including the identity of the other party and the
specific terms of the offer or proposal.
7. Costs. Whether or not the transaction is consummated, each of the
parties will pay its respective costs and expenses associated with the
negotiation, preparation, execution, and delivery of the definitive agreements
and the consummation of the transaction.
8. Press Releases. No press releases shall be issued by Belmont without
the prior written consent of EuroGas which shall have the ability to review not
only the timing of any such press release also the content set forth therein.
The parties intend that the provision of this paragraph be fully binding
regardless of whether or not the transaction is consummated.
DATED as of the date first above written.
EuroGas:
By /s/ Paul Hinterthur
Duly Authorized Officer
Belmont:
BELMONT RESOURCES
By /s/ Vojetech Agyagos
Duly Authorized Officer
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS FAX: (303) 623-4258
TELEPHONE (303) 623-9147
600 SEVENTEENTH STREET SUITE 900N DENVER, COLORADO 80202
CONSENT OF RYDER SCOTT COMPANY
We consent to the use of our report respecting EuroGas, Inc.'s (the
"Company"), properties and the discussion of such report as contained in the
Company's quarterly report of Form 10-Q for the quarter ended March 31, 1998.
Very truly yours,
/s/ Ryder Scott Company
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, Colorado
May 12, 1998
CALGARY OFFICE: 1850, 355-8TH AVENUE, S.W., CALGARY, ALBERTA T2P 1C9
TELEPHONE (403) 262-2799 FAX (403) 262-2790
HEADQUARTERS: 1100 LOUISIANA, SUITE 3800, HOUSTON, TEXAS 77002
TELEPHONE (713) 651-9191
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1998, AND STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,809,855
<SECURITIES> 962,398
<RECEIVABLES> 155,102
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,964,957
<PP&E> 32,414,569
<DEPRECIATION> (770,100)
<TOTAL-ASSETS> 44,097,104
<CURRENT-LIABILITIES> 6,425,162
<BONDS> 2,510,908
<COMMON> 64,684
0
2,392
<OTHER-SE> 35,093,958
<TOTAL-LIABILITY-AND-EQUITY> 44,097,104
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,733,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (135,964)
<INCOME-PRETAX> (1,756,630)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,756,630)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
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