SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 0R 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 31, 1999
EUROGAS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 33-1381-D 87-0427676
---------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
942 EAST 7145 SOUTH, SUITE 101A
MIDVALE, UTAH 84047
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 255-0862
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 31, 1999, EuroGas, Inc. ("EuroGas") completed the
acquisition of 14,100,000 shares of Big Horn Resources Ltd., a
Calgary, Alberta-based oil and gas producer ("Big Horn"), culminating
a series of related transactions described in the following paragraphs.
On October 5, 1998, EuroGas entered into a stock purchase
agreement with Oxbridge Limited, Rockwell Limited, and Conquest
Financial Corporation, three individual shareholders of Big Horn and
EuroGas referred to herein collectively as "ORC." ORC had the right
to purchase 10,000,000 shares of Big Horn common stock at $0.42 U.S.
($0.65 Canadian) per share. Under the terms of the stock purchase
agreement and a stock subscription agreement, EuroGas acquired the
rights of ORC to purchase 8,500,000 shares of Big Horn common stock
and paid Big Horn $4,205,500 U.S.($6,500,000 Canadian) on October 17,
1998. After receiving approval of the transaction from the Toronto
Stock Exchange in January 1999, Big Horn issued 8,500,000 Big Horn
common shares to EuroGas and issued 1,500,000 Big Horn common shares
to ORC. The 1,500,000 shares were paid for by EuroGas but were issued
directly to ORC as a finders' fee. In addition, EuroGas paid ORC
$500,000 U.S. as a finders' fee and for an option to purchase an
additional 3,000,000 Big Horn common shares at $0.53 U.S. ($0.80
Canadian) per share from ORC and to purchase warrants held by ORC to
acquire 2,000,000 Big Horn common shares at $0.97 U.S. ($1.50
Canadian)per share from Big Horn.
ORC verbally agreed further on October 5, 1998 to sell and
EuroGas agreed to purchase 5,600,000 common shares of Big Horn held
by ORC, including the 4,500,000 common shares described above, for
$2,940,224 U.S. ($4,480,000 Canadian) or $0.53 U.S. ($0.80 Canadian)
per share. On March 31, 1999, EuroGas completed the acquisition
of the 5,600,000 shares of Big Horn common stock by execution of
promissory notes in the aggregate amount of $1,840,224 U.S., and
the cancellation of a June 1998 note receivable from Rockwell
Limited in the amount of $1,100,000 U.S.
Big Horn is a full-service producer of oil and natural gas,
producing an average of 640 equivalent barrels of oil per day, with
proven reserves of approximately 1.9 million barrels of equivalent
oil and with a net present value of approximately $8 million U.S.,
based on a 10% discount rate as of December 31, 1998.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
The consolidated financial statements of Big Horn Resources
Ltd. as of December 31, 1998 and 1997 and for the years
then ended together with notes thereto and the report of
KPMG LLP, independent auditors, are located at page
F-5 of this Report.
(b) Pro forma financial information.
An unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1998, and notes
thereto, is located at page F-2 of this Report.
(c) Exhibits. The following exhibits are incorporated herein by this
reference.
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 Big Horn Resources Ltd. Stock Purchase
Agreement dated October 5, 1998
99.1 Press Release dated April 16, 1999
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 2 to
Current Report on Form 8-K/A to be signed on its behalf by the
undersigned thereunto duly authorized.
EUROGAS, INC.
By: /s/ HANK BLANKENSTEIN
--------------------------------------
Hank Blankenstein, Vice President and
Treasurer
Date: JULY 20, 1999
Page
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT F-2
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1998 F-3
Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statement of operations F-4
BIG HORN RESOURCES, LTD.
Auditors' Report to the Directors F-5
Consolidated Balance Sheets December 31, 1998 and 1997 F-6
Consolidated Statements of Earnings and Deficit for the Years
Ended December 31, 1998 and 1997 F-7
Consolidated Statements of Changes in Financial Position
for the Years Ended December 31, 1998 and 1997 F-8
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1998 and 1997 F-9
F-1
<PAGE>
EUROGAS, INC.
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
On March 31, 1999, Eurogas completed the acquisition of 14,100,000
common shares (slightly more than a 50% interest) of Big Horn Resources
Ltd. ("Big Horn"), an oil and gas exploration and production company
operating in Western Canada. The accompanying unaudited condensed pro
forma consolidated statement of operations has been prepared to
present the results of operations of EuroGas, Inc. and
subsidiaries as if the acquisition of Big Horn had occurred on
January 1, 1998. By the date of the closing of the acquisition
on March 31, 1999, EuroGas had made cash payments of $4,723,498
on October 17, 1998, executed promissory notes on March 30, 1999
in the aggregate amount of $1,840,224, and had canceled a June 1998 note
receivable from one of Big Horn shareholders in the amount of
$1,100,000. These payments, and the face amounts of the notes,
were discounted by $70,238 using a 10% discount rate to
establish the purchase price on October 5, 1998, the date the
parties agreed to the terms of these transactions, of $7,593,484.
The acquisition was accounted for under the purchase method of
accounting. The purchase price was determined based upon the
fair value of the consideration paid. The purchase price was
allocated to the acquired net assets of Big Horn based upon
their relative fair values on the effective date of the
acquisition. The fair value of the acquired properties was
based on a reserve report prepared by independent petroleum engineers.
The purchase price exceeded the fair value of the net assets
acquired by $3,512,792 which was recognized by EuroGas, Inc. as a
non-recurring impairment expense at the date of the acquisition.
The following financial information was derived from, and should
be read in conjunction with the consolidated statements of
operations of EuroGas, Inc. and subsidiaries and of Big Horn for
the year ended December 31, 1998. The operations of Big Horn were
included in the consolidated results of operations of EuroGas,
Inc. and subsidiaries from October 5, 1998. Accordingly,
adjustments have been made to eliminate the duplication of the
Big Horn operations for the three months ended December 31,
1998. Since the results of operations from Big Horn are included
in the consolidated results of operations of EuroGas, Inc. and
subsidiaaries for the three months ended March 31, 1999, operations
for Big Horn and related pro forma amounts have not been
separately presented for that period. The unaudited condensed
consolidated pro forma statement of operations has been included
herein for comparative purposes only and does not purport to be
indicative of the results of operations which
actually would have been obtained had the agreement been completed
on January 1, 1998, or the results of operations which may be
obtained in the future. In addition, future results may vary
significantly from the results reflected in this pro forma
financial statement.
F-2
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
BIG HORN PRO FORMA PRO FORMA
EUROGAS, INC. RESOURCES ADJUSTMENT RESULTS
------------ ------------ ----------- -----------
FOR THE YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C>
REVENUE AND INCOME
Oil and gas sales $ 879,404 $ 2,711,520 (A) $ (879,404) $ 2,138,415
(C) (573,105)
Interest and other income 746,346 63,443 (A) (62,521) 747,268
------------ ------------ ----------- -----------
TOTAL REVENUE AND INCOME 1,625,750 2,774,963 (1,515,030) 2,885,683
------------ ------------ ----------- -----------
COSTS AND EXPENSES
Oil and gas production costs 305,009 828,950 (A) (305,009) 828,950
Impairment of mineral interest
and equipment 3,512,792 1,281,221 (D) (3,512,792) -
(F) (1,281,221)
Royalties - 573,105 (C) (573,105) -
Depreciation, depletion, and
amortization 293,955 872,579 (B) (7,114) 913,295
(A) (246,125)
General and administrative 7,804,401 222,826 (A) (41,121) 7,986,106
Interest 465,371 96,240 (A) (61,412) 500,199
Foreign exchange net losses 130,419 - - 130,419
Income tax benefit - (14,869) - (14,869)
------------ ----------- ----------- ----------
TOTAL COSTS AND EXPENSES 12,511,947 3,860,052 (6,027,899) 10,344,100
------------ ----------- ----------- ----------
(LOSS) BEFORE MINORITY INTEREST (10,886,197) (1,085,089) 4,512,869 (7,458,417)
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY (137,983) - (E) 67,927 (70,056)
------------ ----------- ----------- -----------
NET (LOSS) (11,024,180) $(1,085,089) 4,580,796 (7,528,473)
===========
PREFERRED DIVIDENDS (311,301) - - (311,301)
------------ ---------- --------- -----------
LOSS APPLICABLE TO COMMON
SHARES $(11,335,481) $(1,085,089) $4,580,796 $(7,839,774)
============ =========== ========== ===========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.18) $ (0.12)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN PER
SHARE CALCULATIONS 64,129,062 64,129,062
============ ===========
</TABLE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ARE PRESENTED ON THE FOLLOWING PAGE.
F-3
<PAGE>
EUROGAS, INC. AND SUBSUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
NOTE 1 -- Pro forma adjustment are as follows:
A - Adjustments to eliminate duplicated Big Horn operations from October
5, 1998 through December 31, 1998. The EuroGas condensed
consolidated statement of operations for the year ended December 31,
1998 includes the results of operations of Big Horn from the date of
its acquisition on October 5, 1998.
B - Adjustment to reflect depletion expense based upon Eurogas' purchase
price assuming the acquisition occurred on January 1, 1998.
C - Adjustment to classify royalties according to U.S. generally
accepted accounting principles.
D - Adjustment to exclude from the pro forma results a nonrecurring
impairment charge directly attributable to the acquisition.
E - Adjustment to reflect minority interest in the Big Horn income from
January 1, 1998
F - Adjdustment to eliminate the impairment loss recognized by Big Horn
prior to the Euro Gas acquisition.
NOTE 2 - The translation to U.S. Dollars and adjustments to U.S. generally
accepted accounting principles of the Big Horn financial statements, which
were prepared in Canadian dollars and using Canadian generally accepted
accounting principles, was done using the average exchange rate for the
year ended December 31, 1998, as follows:
<TABLE>
<CAPTION> U.S.
Canadian GAAP in U.S.
Financial U.S. GAAP Canadian Exchange GAAP in
Statements Adjustments Dollars Rate U.S. Dollars
---------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Revenue and Income
Oil and gas sales $4,021,076 $4,021,076 1.483 $2,711,520
Interest and other
income 94,084 94,084 1.483 63,443
---------- ---------- ------ ----------
Total Revenues and Income 4,115,160 4,115,160 1.483 2,774,963
---------- ---------- ------ ----------
Costs and Expenses
Oil and gas production costs 1,229,300 1,229,300 1.483 828,950
Impairment of mineral
interest and equipment - $ 1,900,000 1,900,000 1.483 1,281,221
Royalties 849,892 849,892 1.483 573,105
Depreciation, depletion,
and amortization 1,365,000 (71,000) 1,294,000 1.483 872,579
General and administrative 330,442 330,442 1.483 222,826
Interest 142,720 142,720 1.483 96,240
Income tax benefit - (22,050) (22,050) 1.483 (14,869)
---------- ----------- ---------- -------- ----------
Total Costs and Expenses 3,917,354 1,806,950 5,724,304 1.483 3,860,052
---------- ----------- ---------- ----------
Net Income (Loss) $ 197,806 $(1,806,950) $(1,609,144) 1.483 $(1,085,089)
========== =========== =========== ===========
</TABLE>
F-4
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of Big Horn Resources Ltd.
as at December 31, 1998 and 1997 and the consolidated statements of
earnings and deficit and changes in financial position for the years then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December
31, 1998 and 1997 and the results of its operations and the changes in its
financial position for the years then ended in accordance with generally
accepted accounting principles in Canada.
KPMG LLP
Chartered Accountants
Calgary, Canada
March 26, 1999
F-6
<PAGE>
Big Horn Resources Ltd.
-------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
DECEMBER 31 December 31
1998 1997
-------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $252,175 $76,240
Accounts receivable 1,702,025 1,851,835
Prepaid expenses and other assets 12,986 5,336
- - --------------------------------------------------------------------------
1,967,186 1,933,411
CAPITAL ASSETS (NOTE 3) 15,181,925 4,428,367
- - --------------------------------------------------------------------------
$17,149,111 $6,361,778
==========================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $1,867,680 $1,946,172
- - --------------------------------------------------------------------------
1,867,680 1,946,172
BANK INDEBTEDNESS (NOTE 4) 1,421,759 1,600,000
Provision for future abandonment and
site restoration costs 191,670 50,000
- - --------------------------------------------------------------------------
3,481,109 3,596,172
- - --------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (NOTE 5) 18,209,175 7,504,585
DEFICIT (4,541,173) (4,738,979)
- - --------------------------------------------------------------------------
13,668,002 2,765,606
SUBSEQUENT EVENTS (NOTE 8)
- - --------------------------------------------------------------------------
$17,149,111 $6,361,778
==========================================================================
APPROVED ON BEHALF OF THE BOARD:
---------------------------- -------------------------------
DIRECTOR DIRECTOR
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F6
<PAGE>
Big Horn Resources Ltd.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
-------------------------------------------------------------------------
YEAR Year
ENDED Ended
DECEMBER 31 December 31
1998 1997
---------------------------------------------------------------------------
REVENUE
Oil and gas sales $3,807,620 $2,637,805
Alberta royalty tax credit 213,456 93,981
Interest and other income 94,084 4,813
-------------------------------------------------------------------------
4,115,160 2,736,599
-------------------------------------------------------------------------
EXPENSES
Operating expenses 1,229,300 858,848
Royalties 849,892 759,855
General and administrative 330,442 243,413
Interest on long-term debt 142,720 93,121
Depletion and depreciation (note 3) 1,365,000 5,118,937
-------------------------------------------------------------------------
3,917,354 7,074,174
-------------------------------------------------------------------------
NET EARNINGS (LOSS) 197,806 (4,337,575)
DEFICIT - BEGINNING OF YEAR (4,738,979) (401,404)
-------------------------------------------------------------------------
DEFICIT - END OF YEAR ($4,541,173) ($4,738,979)
=========================================================================
BASIC EARNINGS (LOSS) PER SHARE $0.01 ($0.46)
=========================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE>
Big Horn Resources Ltd.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
- - --------------------------------------------------------------------------
YEAR Year
ENDED Ended
DECEMBER 31 December 31
1998 1997
-------------------------------------------------------------------------
Cash provided by (used in):
Operations
Net earnings (loss) $197,806 ($4,337,575)
Add non-cash items:
Depletion and depreciation 1,365,000 5,118,937
Net change in non-cash working
capital items (644,282) (522,658)
-------------------------------------------------------------------------
918,524 258,704
-------------------------------------------------------------------------
Financing
Issue of share capital 10,704,590 3,492,035
Increase (decrease) in bank
indebtedness (178,241) 208,074
Accrued share issue costs - 150,000
-------------------------------------------------------------------------
10,526,349 3,850,109
-------------------------------------------------------------------------
Investing
Acquisition of Ironwood Petroleum
Ltd., net of cash acquired (6,548,925) -
Additions to capital assets (4,720,013) (4,032,573)
-------------------------------------------------------------------------
(11,268,938) (4,032,573)
Increase in cash 175,935 76,240
Cash, beginning of year 76,240
-------------------------------------------------------------------------
Cash, end of year $252,175 $76,240
=========================================================================
See accompanying notes to consolidated financial statements
F-8
<PAGE>
Big Horn Resources Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
__________________________________________________________________________
1. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements are prepared in accordance
with generally accepted accounting principles in Canada.
Substantially all of the exploration and production activities of the
Company are conducted jointly with others and these consolidated
financial statements reflect only the Company's proportionate
interest in such activities. These consolidated financial statements
include the accounts of Ironwood Petroleum Ltd. ("Ironwood")
effective from October 1, 1998.
(a) Petroleum and natural gas properties
The Company follows the full cost method of accounting for petroleum
and natural gas properties. All costs related to the exploration for
and the development of oil and gas reserves are capitalized on a
country by country basis. Costs capitalized include land acquisition
costs, geological and geophysical expenditures, lease rentals on
undeveloped properties and costs of drilling productive and
non-productive wells. Proceeds from the disposal of properties are
applied as a reduction of cost without recognition of a gain or loss
except where such disposals would result in a significant change in
the depletion rate.
Capitalized costs are depleted and depreciated using the unit of
production method based on the estimated gross proven oil and natural
gas reserves before royalties as determined by independent engineers.
Units of natural gas are converted into equivalent barrels of oil
based on their on their relative energy content.
Capitalized costs, net of accumulated depletion and depreciation,
are limited to estimated undiscounted future net revenues from proven
reserves, based on year-end prices, less estimated future site
restoration costs, general and administrative expenses, financing
costs and income taxes.
Estimated future abandonment and site restoration costs are
provided for over the life of proven reserves on a unit of production
basis. The annual charge is included in depletion and depreciation
expense and actual abandonment and site restoration costs are charged
to the provision as incurred.
The amounts recorded for depletion and depreciation and the
provision for future abandonment and site restoration costs are based
on estimates of proven reserves and future costs. The recoverable
value of capital assets is based on a number of factors including the
estimated proven reserves and future costs. By their nature, these
estimates are subject to measurement uncertainty and the impact on
financial statements of future periods could be material.
(b) Per share data
Per share amounts are calculated based on the weighted average
number of shares outstanding during the year. The exercise of stock
options and warrants would not have a material dilutive effect on the
per share data.
(c) Financial instruments
The Company's financial instruments consist of cash, accounts
receivable, accounts payable, accrued liabilities and bank
indebtedness. The fair values of all of the Company's financial
instruments approximate their carrying values.
(d) Estimates and assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual results
could differ from those estimates.
2. ACQUISITION
Effective October 1, 1998 the Company acquired all of the issued
and outstanding shares of Ironwood for $7,230,361 including
acquisition costs of $143,191.
This business combination has been accounted for using the
purchase method based on the assets and liabilities of Ironwood as at
September 30, 1998. The results of operations of Ironwood have been
included in the Company's consolidated financial statements effective
from October 1, 1998.
Details of the acquisition are as follows:
Assets acquired:
Current assets, excluding cash $613,792
Capital assets 7,342,545
----------
7,956,337
Liabilities assumed:
Current liabilities 1,321,742
Provision for future abandonment
and site restoration costs 85,670
----------
1,407,412
Net non-cash assets acquired 6,548,925
Cash acquired 681,436
----------
Net assets acquired $7,230,361
==========
Consideration:
Cash $7,230,361
==========
F-13
<PAGE>
3. CAPITAL ASSETS
------------------------------------------------------------------------
December 31, 1998
-------------------------------------------------------------------------
Accumulated
depletion and
Cost depreciation Net
-------------------------------------------------------------------------
Petroleum and natural
gas properties $22,716,141 $7,593,981 $15,122,160
Office furniture and
equipment 91,265 31,500 59,765
-------------------------------------------------------------------------
$22,807,406 $7,625,481 $15,181,925
=========================================================================
December 31, 1997
-------------------------------------------------------------------------
Accumulated
depletion and
Cost depreciation Net
-------------------------------------------------------------------------
Petroleum and natural
gas properties $10,672,915 $6,304,981 $4,367,934
Office furniture and
equipment 71,933 11,500 60,433
-------------------------------------------------------------------------
$10,744,848 $6,316,481 $4,428,367
=========================================================================
The provision for depletion and depreciation in 1998 and 1997
includes the following components:
1998 1997
-------------------------------------------------------------------------
Amortization of capital assets $1,309,000 $ 982,800
Provision for future abandonment and
site restoration 56,000 36,000
Write-down of abandoned overseas properties - 300,137
Ceiling test adjustment - 3,800,000
-------------------------------------------------------------------------
$1,365,000 $5,118,937
=========================================================================
As at December 31, 1998 costs of undeveloped land of $3,100,00
(1997 - $824,712) have been excluded from the calculation of
depletion expense.
4. BANK INDEBTEDNESS
Bank indebtedness represents the outstanding balance under an
authorized line of credit of $7,000,000 (1997 - $2,300,000) with the
Alberta Treasury Branches. Drawings under the line of credit bear
interest at 1% above the bank's prime lending rate. Security is
provided by a first charge over all of the Company's assets. The
balance is repayable on demand.
5. SHARE CAPITAL
(a) Authorized
Unlimited number of voting common shares without nominal or par value.
(b) Issued and to be issued.
-------------------------------------------------------------------------
Number of
common
shares Amount
-------------------------------------------------------------------------
Balance, December 31, 1996, shares issued and
to be issued 8,818,221 $4,012,550
Shares issued on exercise of warrants 436,250 305,377
Shares issued on exercise of warrants ( see
note 5(c) ) 500,000 115,000
Shares issued on exercise of stock options 73,500 26,460
-------------------------------------------------------------------------
Balance, December 31, 1997, shares issued 9,827,971 4,449,387
Proceeds received on issue of Special
Warrants, net of issue costs of $388,802
(see note 5(d)) - 3,045,198
-------------------------------------------------------------------------
Balance, December 31, 1997, shares issued
and to be issued 9,827,971 7,504,585
Shares issued on conversion of Special
Warrants ( see note 5(d) ) 3,434,000 -
Shares issued on exercise of stock options 564,500 172,260
Shares issued as compensation 10,220 9,198
Shares issued on private placement
(see note 5(e) ) 3,210,000 3,600,000
Shares issued on private placement
(see note 5(f) ) 1,075,500 914,175
Proceeds received from private placement
subscription ( see note 5(g) ) - 6,500,000
Share issue costs - (491,043)
-------------------------------------------------------------------------
Balance, December 31, 1998, shares issued 18,122,191 $11,709,175
Proceeds received from private placement
subscription (see note 5(g)) - 6,500,000
=========================================================================
Balance, December 31, 1998, shares issued
and to be issued 18,122,191 $18,209,175
=========================================================================
(c) On August 26, 1997, 500,000 common shares were issued to an
officer and director of the Company on the exercise of
500,000 share purchase warrants at a price of $0.23 per share
for an aggregate consideration of $115,000.
(d) On September 16, 1997, the Company issued 592,000 Special
Warrants at a price of $2.00 per Special Warrant. Each
Special Warrant entitled the holder to acquire one common
share, one flow-through common share and one share purchase
warrant at no additional cost. Each share purchase warrant
entitled the holder to purchase an additional share of the
Company at a price of $1.25 per share exercisable until
September 21, 1998. On September 17, 1997 the Company issued
2,250,000 Special Warrants, of which 1,125,000 were
flow-through Special Warrants, at a price of $1.00 per
Special Warrant. Each Special Warrant entitled the holder to
acquire one common share and one share purchase warrant at no
additional cost. Each share purchase warrant entitled the
holder to purchase an additional share of the Company at a
price of $1.25 per share exercisable until September 21,
1998. The net proceeds to the Company from both issues were
$3,045,585. These proceeds were received in 1997. All of
the common shares referred to above were issued in 1998. The
share purchase warrants expired unexercised on September 21,
1998.
(e) On March 20, 1998, the Vancouver Stock Exchange approved a
non-brokered private placement of 3,000,000 common shares at a price
of $1.20 per share for proceeds of $3,600,000. The private placement
included 2,000,000 share purchase warrants exercisable up to March
22, 1999 at a price of $1.50 per common share. In addition, 210,000
common shares were issued as a finder's fee. The share purchase
warrants expired unexercised on March 22, 1999.
(f) On December 31, 1998 the Company issued 1,075,500 flow-through
common shares through a non-brokered private placement. Proceeds to
the Company from this issue were $914,175. Pursuant to the
flow-through share agreement, the Company will renounce $914,175 of
income tax deductions to the subscribers to these shares. At
December 31, 1998 $379,547 had been renounced.
(g) As described in note 2, the Company acquired, effective October
1, 1998, all of the issued and outstanding shares of Ironwood for
$7,230,361. This acquisition was partly financed by the issuance of
10,000,000 common shares at a price of $0.65 per share. This private
placement received final approval by the Toronto Stock Exchange on
January 29, 1999 and the common shares were issued from treasury on
February 4, 1999. The remaining funds held in escrow pursuant to the
private placement were released to the Company on February 5, 1999 in
the amount of $4,278,241. These funds are recorded as a reduction in
the Company's bank indebtedness at December 31, 1998.
(h) Options:
Number of options Exercise price Expiry date
----------------- -------------- -----------------
175,000 $0.69 November 25, 2001
85,000 $0.92 July 16, 2002
30,000 $1.15 March 09, 2003
85,000 $1.15 March 09, 2006
534,500 $0.98 May 26, 2008
25,000 $0.97 July 30, 2008
--------------------------------------------------
934,500
==================================================
(i) Warrants:
There are 50,000 share purchase warrants held by a company controlled
by a consultant to the Company as partial consideration for the purchase
of certain petroleum and natural gas properties. These warrants are
exercisable up to June 10, 1999 at an exercise price of $1.15.
There are 225,000 broker warrants outstanding related to the issue of
the Special Warrants referred to in note 5(d). These warrants vest as
to 1/4 on each of September 19, 1998, March 19, 1999, September 19, 1999
and March 19, 2000. These warrants are exercisable at a price of $1.00
per common share. The warrants will expire if not exercised on or
before the September 19, 2000.
6. INCOME TAXES
The income tax provision is calculated by applying Canadian
federal and provincial statutory tax rates to pre-tax income with
adjustments as set out in the following table:
[S] [C] [C]
1998 1997
-------- -----------
Earnings (loss) before income taxes $197,806 $(4,337,575)
Combined federal and provincial income tax
rate 45% 45%
Computed income tax provision $ 89,013 $(1,951,909)
Increase (decrease) resulting from:
Non-deductible Crown royalties 330,734 315,925
Resource allowance (248,225) (143,808)
Alberta Royalty Tax Credit (96,056) -
Recognition of accounting loss
carry-forwards (361,939) -
Depletion on assets with no tax base 285,237 818,100
Accounting losses not recognized - 1,001,208
Other 1,236 2,775
--------- ----------
$ - $ -
========= ==========
At December 31, 1998 the Company had approximately $12,697,000
(1997 - $6,240,000) of tax pools available to reduce future taxable
income.
7. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before,
on or after January 1, 2000 and, if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant system failure which could affect the Company's ability
to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers,
suppliers or other third parties, will be fully resolved.
8. SUBSEQUENT EVENTS
(a) On January 1, 1999 the Company amalgamated with its wholly-owned
subsidiary, Ironwood Petroleum Ltd. under the continuing name Big Horn
Resources Ltd.
(b On February 4, 1999 the Company issued 10,000,000 common shares
from treasury as described in note 5(g).
(c) On February 5, 1999 the Company received the remaining proceeds
from escrow from its private placement as described in note 5(g).
9. DIFFERENCES IN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES BETWEEN
CANADA AND THE UNITED STATES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in Canada.
Differences in accounting principles as they pertain to the accompanying
financial statements are immaterial except as described below:
(a) Under U.S. GAAP the carrying value of petroleum and natural gas
properties and related facilities, net of deferred income taxes, is
limited to the present value of after-tax future net revenue from
proven reserves based on prices and costs at the balance sheet date
and discounted at 10%, plus the lower of cost and fair value of
unproven properties. The application of the full cost ceiling test
under U.S. GAAP resulted in a write-down of capitalized costs in 1998.
(b) Under U.S. GAAP deferred income tax assets or liabilities are
computed on the difference between financial statements and income
tax bases of assets and liabilities. Deferred income tax provisions
are based on the change during the period in the related deferred
income tax asset or liability accounts.
(c) Under U.S. GAAP future income taxes are recognized on the
difference between the book value and the tax value of net assets
acquired on a purchase.
(d) Under U.S. GAAP, cash restricted for use in repayment of
bank indebtedness is shown as a current asset.
The impact of the differences between Canadian and U.S. GAAP on the
consolidated statements of earnings and deficit are as follows:
1998 1997
-------------------------
Net earnings (loss) under Canadian GAAP 197,806 $(4,337,575
Ceiling test write-down (1,900,000) -
Application of liability method for
income taxes 22,050 -
Adjustment of depletion 71,000 160,000
--------------------------------------------------------------------
Net earnings(loss)under U.S. GAAP $(1,609,144) $(4,177,575)
--------------------------------------------------------------------
Earnings per share under U.S. GAAP $(0.09) $(0.43)
The impact of the differences between Canadian and U.S. GAAP on the
consolidated balance sheets are as follows:
CANADIAN
GAAP ADJUSTMENTS US GAAP
--------------------------------------------
December 31, 1998
Restricted cash $ - $ 4,278,241 $ 4,278,241
Capital assets 15,181,925 (1,128,460) 14,053,465
Bank indebtedness (1,421,759) 4,278,241 5,700,000
Deferred income tax
liability - 1,918,490 1,918,490
Deficit (4,541,173) (3,046,950) (7,588,123)
December 31, 1997
Capital assets $ 4,428,367 $(1,240,000) $ 3,188,367
Deficit 4,738,979 (1,240,000) (5,978,979)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (hereinafter referred to as this
"Agreement") is entered into this 5 day of October, 1998, by and
among EUROGAS, INC., a Utah corporation ("EuroGas"), and Oxbridge
Ltd., Rockwell Ltd., and Conquest Ltd. ("Assignors"), based on the
following:
PREMISES
A. Assignors are the owners of shares with warrants to
acquire shares of common stock of Big Horn Resources Ltd., a
publicly-held company listed on the Vancouver Stock Exchange ("Big
Horn").
B. Assignors have the additional right to subscribe for
10,000,000 shares of common stock of Big Horn for $0.65 (CDN) per
share.
C. EuroGas and Assignors wish to combine to complete the
subscription and acquire the Big Horn shares of common stock for the
consideration and on the terms set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, based on the stated premises, which are
incorporated herein by reference, and for and in consideration of
the mutual covenants and agreements hereinafter set forth and the
mutual benefit to the parties to be derived herefrom, it is hereby
agreed as follows:
1. ACQUISITION OF BIG HORN STOCK. EuroGas shall exercise
the subscription and pay to Big Horn $6,600,000 (CDN). EuroGas shall
receive 8,500,000 shares of Big Horn, and Assignors shall receive
1,500,000 shares of Big Horn.
2. RIGHTS OF FIRST REFUSAL. EuroGas shall have the first
right to acquire any securities of Big Horn owned or subsequently
acquired by Assignors. If Assignors receive a bona fide offer to
purchase any such securities, they shall provide EuroGas with a
written notice of the complete terms and conditions of such offer.
EuroGas shall have thirty (30) days from the receipt of such notice
to acquire the securities subject tot he notice on the terms and
conditions set forth in the notice. EuroGas shall have the right, at
its option, to substitute shares of EuroGas common stock in place of
cash. If EuroGas does not exercise its right, Assignors may sell the
securities covered by the notice, on the terms and conditions
specified therein, within the succeeding thirty (30) days. Any other
sale shall require notice to EuroGas as set forth above.
3. CASH PAYMENTS TO ASSIGNORS. EuroGas shall pay to
Assignors $500,000 (US) on terms and conditions to be decided at a
Closing.
4. ADDITIONAL DOCUMENTS. In addition to the items
identified in this Section of this Agreement, each of the parties
shall execute and deliver, as of, or any time subsequent to the date
of this Agreement, such additional documents as may be reasonably
requested by the other party in order to effectuate the transactions
contemplated by this Agreement.
5. CONDITIONS PRECEDENT. The completion of this Agreement
shall require the compliance with all applicable Canadian and United
States laws concerning the acquisition of Big Horn shares and the
reporting and approvals required for EuroGas.
6. CLOSING. The Closing of the transaction shall be at a
time and place agreed to by the parties.
IN WITNESS WHEREOF, the parties hereto have cause this
agreement to be executed as of the date first above written.
EuroGas:
By: /S/ Hank Blankenstein
----------------------------------
Hank Blankenstein, Vice-President
Assignors:
/S/ Peter John
----------------------------------
/S/ Hans Dietman
----------------------------------
EUROGAS ACQUIRES ADDITIONAL INTEREST IN CANADIAN OIL AND GAS
PRODUCER BIG HORN RESOURCES
New York, NY - April 16, 1999 - EuroGas, Inc. ("EuroGas", or the
"Company") announces that it has acquired an additional
5,600,000 shares of Big Horn Resources Ltd. ("Big Horn"), a
publicly held Canadian oil and gas producer. Together with
8,500,000 shares of Big Horn previously acquired by EuroGas,
EuroGas now holds an aggregate of 14,100,000 shares of Big Horn,
representing in excess of 50% of the common shares currently
outstanding in Big Horn (assuming 28,122,191 shares
outstanding). The total cost of the additional shares was
$4,368,000 Canadian dollars.
Big Horn Resources Ltd. is a Calgary, Alberta based oil and gas
producer whose current production is approximately 900 barrels
of oil equivalent ("boe") per day, with a gas to oil mix of
approximately 50:50. As at December 31, 1998, Big Horn had
combined total proved and probable reserves in excess of 2.7
million boe.
EuroGas has acquired the common shares of Big Horn for
investment purposes. Although the Company has no immediate plans
to consider a business combination proposal, it may consider
such a combination in the future. EuroGas may make further
purchases of Big Horn through open market transactions or
through private placements..
EuroGas controls methane gas concessions in Poland and has oil
and gas exploration and development joint ventures in Canada,
Poland, the Slovak Republic, Ukraine, and in the Sakha Republic.
EuroGas, Inc. common stock is traded on the OTC Bulletin Board
under the symbol EUGS, and on the Frankfurt, Berlin, Munich, and
Hamburg Stock Exchanges under the symbols, EUG.F, EUG.B, EUG.M,
and EUG.H, respectively.
For a discussion of the contingencies and uncertainties to which
information respecting future events is subject, see EuroGas'
1998 annual report on Form 10-KSB and other SEC reports.
For further information
In North America, contact: Philippe Niemetz or Walter DeCanio
(212) 785-2626
1-888-EUROGAS
Email: [email protected]
In Europe, contact: Ingo Soriano-Eupen
(49) 221-925-9920
Email: [email protected]
This press release contains certain forward-looking statements
and information relating to the Company that is based on the
beliefs of management as well as assumptions made by and
information currently available to management. When used in this
document, the words, "anticipate", "believe", "estimate",
"expect" and "intend" and similar expressions, as they relate to
the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current
view of the Company reflecting future events and are subject to
certain risks, uncertainties and assumptions including the risks
and uncertainties noted. Should one or more of these risks
materialize, or should the underlying assumptions prove
incorrect, actual results may vary materially from those
described as anticipated, believed, estimated, expected or
intended. For a discussion of the contingencies and
uncertainties to which information respecting future events is
subject, see EuroGas' Form 10-KSB. This press release contains
references to certain past events, which have been discussed in
previous news releases and regulatory filings. For information
contained in previous news releases please refer to EuroGas'
Website http://www.eugs.com. For regulatory filings please refer
to EDGAR.
