__________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_______________ TO _______________.
EUROGAS, INC.
----------------------------------
(Exact name of registrant as
specified in its charter)
UTAH 33-1381-D 87-0427676
----------------- -------------------- ------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction or Identification No.)
incorporation)
942 EAST 7145 SOUTH, SUITE 101A
MIDVALE, UTAH 84047
------------------------------------------------------------
(Address of principal executive
Registrant's telephone number, including area code: (801) 255-0862
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 [ ]
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date.
Common Stock, $0.001 par value 84,905,199
------------------------------- ----------------------------
(Title of Class) (Number of Shares Outstanding
at June 30, 1999)
Page 1
<PAGE>
INDEX TO FORM 10 Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of June 30,
1999 and December 31, 1998 (Unaudited)
Condensed Consolidated Statements of Operations for 4
the Three Months Ended June 30, 1998 and 1999
(Unaudited)
Condensed Consolidated Statements of Cash Flows for 5
the Three Months Ended June 30, 1998 and 1999
(Unaudited)
Notes to Condensed Consolidated Financial Statements 6
(Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 5. Other Events 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
Page 2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements.
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1999 1998
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . .$ 3,889,322 $ 7,489,510
Investment in securities available-for-sale . . . . 643,475 1,088,488
Trade accounts receivable . . . . . . . . . . . . . 2,019,134 1,107,508
Value added tax receivable. . . . . . . . . . . . . 431,235 431,235
Receivable from joint venture partners. . . . . . . 2,293,048 2,293,048
Receivable from related party . . . . . . . . . . . 150,000 200,000
Other receivables . . . . . . . . . . . . . . . . . 1,312,573 788,291
Other current assets. . . . . . . . . . . . . . . . 392,749 120,176
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . 11,131,536 13,518,256
----------- -----------
Property and Equipment - Full Cost Accounting
Oil and gas properties subject to amortization. . . 18,486,895 17,034,461
Oil and gas properties not subject to
amortization . . . . . . . . . . . . . . . . . . . 33,479,925 33,817,752
Other mineral interest property . . . . . . . . . . 167,814 167,814
Other property and equipment. . . . . . . . . . . . 845,226 580,868
----------- -----------
Total Property and Equipment . . . . . . . . . . . 52,979,860 51,600,895
Less: Accumulated depreciation and amortization . . (1,134,672) (332,579)
----------- -----------
Net Property and Equipment . . . . . . . . . . . . 51,845,188 51,268,316
----------- -----------
Investment In Equity Securities. . . . . . . . . . . 1,600,000 -
----------- -----------
Other Assets . . . . . . . . . . . . . . . . . . . . 547,815 547,815
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . .$65,124,539 $65,334,387
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . . .$ 4,569,966 $ 4,060,125
Accrued liabilities . . . . . . . . . . . . . . . . 2,699,287 2,618,014
Accrued income taxes . . . . . . . . . . . . . . . 864,175 870,836
Notes payable - current portion . . . . . . . . . . 2,500,682 4,226,739
Notes payable to related parties - current
portion. . . . . . . . . . . . . . . . . . . . . . 1,187,890 1,182,124
----------- -----------
Total Current Liabilities. . . . . . . . . . . . . 11,822,000 12,957,838
----------- -----------
Long-Term Notes Payable. . . . . . . . . . . . . . . 1,814,259 1,788,294
----------- -----------
Minority Interest. . . . . . . . . . . . . . . . . . 3,159,695 2,865,376
----------- -----------
Stockholders' Equity
Preferred stock, $.001 par value; 3,661,968
shares authorized; issued and outstanding:
June 30, 1999 - 2,393,518 shares, December 31,
1998 - 2,393,728 shares; June 30, 1999
liquidation preference: $1,789,197. . . . . . . . 2,394 2,394
Common stock, $.001 par value; 325,000,000
shares authorized; issued and outstanding:
June 30, 1999 - 84,905,199 shares, December 31,
1998 - 76,254,630 shares . . . . . . . . . . . . . 84,905 76,255
Additional paid-in capital. . . . . . . . . . . . . 98,052,568 92,013,961
Accumulated deficit . . . . . . . . . . . . . . . .(47,678,351) (43,532,787)
Accumulated other comprehensive loss. . . . . . . . (2,132,931) (836,944)
----------- -----------
Total Stockholders' Equity . . . . . . . . . . . . 48,328,585 47,722,879
----------- -----------
Total Liabilities and Stockholders' Equity . . . . .$65,124,539 $65,334,387
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Oil and Gas Sales. . . . . . . . . . . .$ 1,240,698 $ - $ 1,981,592 $ -
----------- ----------- ----------- -----------
Costs and Operating Expenses
Oil and gas production. . . . . . . . . 433,743 - 605,887 -
Depreciation and amortization . . . . . 510,228 6,980 805,945 11,750
General and administrative. . . . . . . 1,814,994 2,523,718 4,340,712 4,252,509
----------- ----------- ----------- -----------
Total Costs and Operating Expenses . 2,758,965 2,530,698 5,752,544 4,264,259
----------- ----------- ----------- -----------
Other Income (Expense)
Interest income . . . . . . . . . . . . 12,239 143,406 81,836 313,962
Foreign exchange net gains (losses) . . 45,431 47,247 111,059 (10,414)
Interest. . . . . . . . . . . . . . . . (132,582) (186,875) (255,847) (322,839)
Loss on sale of securities. . . . . . . - - (37,695) -
Minority interest in income of
consolidated subsidiary . . . . . . . (76,352) - (169,063) -
----------- ----------- ----------- -----------
Total Other Income (Expense). . . . . (151,264) 3,778 (269,710) (19,291)
----------- ----------- ----------- -----------
Net Loss . . . . . . . . . . . . . . . . (1,669,531) (2,526,920) (4,040,662) (4,283,550)
Preferred Dividends. . . . . . . . . . . (62,685) (25,181) (104,902) (67,643)
----------- ----------- ----------- -----------
Loss Applicable to Common Shares . . . .$(1,732,216) $(2,552,101) $(4,145,564) $(4,351,193)
=========== =========== =========== ===========
Basic and Diluted Loss Per
Common Share. . . . . . . . . . . . . .$ (0.02) $ (0.04) $ (0.05) $ (0.07)
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Used in Per Share
Calculation . . . . . . . . . . . . . . 80,839,795 64,688,142 79,885,435 63,496,056
=========== =========== =========== ===========
<FN>
The accompanying nots are an integral part of theses financial statements.
</FN>
</TABLE>
Page 4
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months
Ended June 30,
------------------------
1999 1998
----------- -----------
Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . . . . . . . . .$(4,040,662) $(4,283,550)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . 801,813 11,750
Minority interest in income of subsidiary . . . . 169,063 -
Loss on sale of securities available-for-sale . . 37,694 -
Exchange gain . . . . . . . . . . . . . . . . . . (111,059) 10,414
Issuance of stock as financing and finders fees. . - 324,250
Changes in assets and liabilities, net
of assets acquired:
Trade receivables . . . . . . . . . . . . . . . (853,197) -
Other receivables . . . . . . . . . . . . . . . (548,863) (270,664)
Prepaid expenses. . . . . . . . . . . . . . . . (289,908) -
Accrued expenses. . . . . . . . . . . . . . . . 572,591 (183,928)
----------- -----------
Net Cash Used In Operating Activities . . . . . . (4,262,528) (4,391,728)
----------- -----------
Cash Flows From Investing Activities
Purchases of mineral interests, property
and equipment. . . . . . . . . . . . . . . . . . . (1,829,527) (2,637,721)
Increase in deposits and prepayments. . . . . . . . (49,608) -
Proceeds from related party receivable. . . . . . . 200,000 -
Issuance of receivable to related party . . . . . . (150,000) (1,100,000)
Investment in equity securities . . . . . . . . . . (1,600,000) -
Proceeds from sale of securities available-
for-sale . . . . . . . . . . . . . . . . . . . . . 60,329 -
Investment in securities available-for-sale . . . . (56,474) (1,411,292)
----------- -----------
Net Cash Used In Investing Activities . . . . . . (3,425,280) (5,149,013)
----------- -----------
Cash Flows From Financing Activities
Net change in line of credit. . . . . . . . . . . . (2,010,409) -
Principal payments on notes payable . . . . . . . . - (2,508,848)
Principal payments on notes payable to
related parties. . . . . . . . . . . . . . . . . . - (1,342,166)
Proceeds from notes payable . . . . . . . . . . . . 184,742 -
Proceeds from issuance of common stock,
net of offering costs. . . . . . . . . . . . . . . - 7,400,000
Proceeds from issuance of preferred stock,
net of offering costs. . . . . . . . . . . . . . . 6,012,500 -
Proceeds from issuance of common stock
by subsidiary. . . . . . . . . . . . . . . . . . . - -
----------- -----------
Net Cash Used In Financing Activities . . . . . . 4,186,833 3,548,986
----------- -----------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents. . . . . . . . . . . . . . . . (99,213) (97,926)
----------- -----------
Net Decrease In Cash and Cash Equivalents. . . . . . (3,600,188) (6,089,681)
Cash and Equivalents at Beginning of Period. . . . . 7,489,510 17,247,667
----------- -----------
Cash and Equivalents at End of Period. . . . . . . .$ 3,889,322 $11,157,986
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 255,847 $ 300,557
=========== ===========
Supplemental Disclosure of Noncash Investing and Financing Activities
During the six months ended June 30,1999, EuroGas accrued
preferred dividends of $104,902. Preferred shareholders converted
6,710 shares of 1998 Series B Preferred stock together with
$34,758 of accrued preferred dividends into 8,650,569 common
shares at approximately $1.12 per common share.
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
CONDENSED FINANCIAL STATEMENTS -- The accompanying unaudited
condensed consolidated financial statements include the accounts
of EuroGas, Inc. and its subsidiaries ("EuroGas"). 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
EuroGas' most recent annual financial statements included in the
Company's report on Form 10-K for the year ended December 31,
1998. In particular, EuroGas' significant accounting principles
were presented as Note 1 to the Consolidated Financial Statements
in that Report. In the opinion of management, all adjustments
necessary for a fair presentation have been included in the
accompanying condensed financial statements and consist of only
normal recurring adjustments. The results of operations presented
in the accompanying condensed financial statements are not
necessarily indicative of the results that may be expected for the
full year ending December 31, 1999.
NOTE 2 - INVESTMENT IN EQUITY SECURITIES
Equity securities were purchased during the six months ended June
30, 1999 which are recorded at cost because their resale is
restricted, and their fair value is not readily determinable. The
investments consist of $1,000,000 of 20% cumulative convertible
preferred stock of Intergold Corporation and $600,000 in share
capital of Hansageomyn GmbH, both of which are mining companies.
NOTE 3 - NOTES PAYABLE
Current notes payable were reduced during the six months ended
June 30, 1999 by approximately $1,726,057, which primarily
consisted of payments to reduce notes payable to a bank in Canada.
NOTE 4 - STOCKHOLDERS' EQUITY
During the six months ended June 30, 1999, EuroGas issued 6,500
shares of Series B 1998 preferred stock for $6,500,000 less
$487,500 of offering costs. In addition, 6710 shares of Series B
1998 preferred stock and $34,758 of accrued but unpaid preferred
dividends were converted into 8,693,645 common shares.
At June 30, 1999, the following preferred shares were outstanding:
Series 1995 Preferred shares; 2,391,968 shares outstanding;
$0.05 annual dividend rate per share, $119,598 annually;
$239,197 liquidation preference
1997 Series A Preferred shares; 260 shares outstanding; $60.00
annual dividend rate per share, $15,600 annually; $260,000
liquidation preference
1998 Series B Convertible Preferred Shares; 1,290 shares
outstanding; $60.00 annual dividend rate per share, $77,400
annually; $1,290,000 liquidation preference; convertible into
common stock at 80% of the five-day average trading price of
common stock prior to conversion
Page 6
<PAGE>
NOTE 5 - COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loss Applicable to Common Shares $(1,732,216) $(2,552,101) $(4,145,564) $(4,351,193)
Other Comprehensive Loss
Unrealized holding losses on
securities available-for-sale (15,026) (454,787) (441,157) (454,787)
Less: Reclassification adjustment
for losses realized in net loss - - 37,695 -
Net change in cumulative foreign
currency translation adjustment 333,910 (27,078) (892,525) (157,919)
----------- ----------- ----------- -----------
Total Other Comprehensive Loss 318,884 (481,865) (1,295,987) (612,706)
----------- ----------- ----------- -----------
Comprehensive Loss . . . . . . . . . $(1,413,332) $(3,033,966) $(5,441,551) $(4,963,899)
=========== =========== =========== ===========
</TABLE>
Accumulated other comprehensive loss consisted of the following at
June 30, 1999:
Unrealized loss on securities available-for-sale . . . . . .$ (782,728)
Cumulative foreign currency translation adjustment . . . . . (1,350,203)
-----------
Accumulated Other Comprehensive Loss . . . . . . . . . . . .$(2,132,931)
===========
NOTE 6 - COMMITMENTS AND CONTINGENCIES
EuroGas' subsidiary, GlobeGas BV ("GlobeGas"), has applied for a
reduction in an income tax liability of $829,688 in the
Netherlands. The tax arose from the sale of equipment at a profit
by the former owner of GlobeGas to a EuroGas Polish subsidiary.
EuroGas' position is that the gain on the sale should not have
been taxable to GlobeGas. The liability will continue to be
reflected in EuroGas' financial statements until the proposed
reduction is accepted by the Netherlands' taxing authorities.
A bankruptcy trustee appointed for certain former shareholders of
GlobeGas has asserted a claim to the proceeds that EuroGas has
received from the agreement with Texaco and exploitation of the
Pol-Tex methane concession in Poland (the "Pol-Tex Concession").
The Trustee's claim is apparently based upon the theory that
EuroGas may have paid inadequate consideration for its acquisition
of GlobeGas (which indirectly controlled the Pol-Tex Concession in
Poland) from persons who were acting as nominees for the former
shareholders, or in fact may be operating as a nominee for the
former shareholder, and are, therefore, the true owners of the
proceeds from the development of the Pol-Tex Concession. EuroGas
is vigorously defending against the claim. EuroGas 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
EuroGas paid substantial consideration for GlobeGas. EuroGas also
believes continued pursuit of the claim might give rise to a
separate cause of action against third parties which EuroGas will
pursue if necessary.
Page 7
<PAGE>
During 1997, a shareholder, who is also the principal creditor in
the above claim, asserted a claim against EuroGas based upon an
alleged breach of the settlement agreement between the shareholder
and EuroGas as a result of EuroGas' 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's
parent company entered a claim for failure to register the resale
of the shares subject to its option to purchase up to 2,000,000
common shares of EuroGas. EuroGas has denied any liability and
intends to vigorously defend the claims. EuroGas 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.
EuroGas has engaged officers, and technical and business
consultants for its various projects, under terms which will
require minimum payments of approximately $1,600,000 during the
year ending December 31, 1999.
EuroGas has notified the former shareholders of Danube of a
potential claim against them relating to title problems for
property interests in Slovakia lost to and reacquired from Maseva
Gas Spol. s.r.o. EuroGas believes the former shareholders of
Danube knew, or should have known, about the problems prior to the
acquisition of Danube and made no disclosure concerning the
problems. EuroGas has made a claim against the former Danube
shareholders for indemnity to the extent EuroGas suffers any
damage by reason of the potential title claim. It is uncertain
whether EuroGas will be able to recover from the former Danube
shareholders.
As a result of the title problems with the Nafta/Danube property,
a dispute has arisen with the joint venture partner, Nafta a.s.
("Nafta"). EuroGas has asserted a claim for misrepresentation of
the property asset at the time of its acquisition and has made
demand on Nafta in an amount equal to EuroGas' investment in the
property. Efforts to bring the property to production were
suspended pending resolution of the claims. EuroGas received
indications the Slovak government may seek to resolve the dispute,
however the government attempted, but recently failed to gain
control and become Nafta's largest shareholder. Resolution of this
matter is not assured.
An assertion has been made against EuroGas by holders of
registration rights that EuroGas failed to file a registration
statement for certain shares and warrants held. EuroGas has not
completed settlement negotiations; no amount has been estimated or
provided with respect to this claim.
In connection with a 53% interest in RimaMuran s.r.o., whose
principal asset is a minority interest in a talc deposit in
eastern Slovakia, EuroGas, through RimaMuran, will have an
obligation to fund 33% to 39% of the projected $12,000,000 capital
cost requirements. RimaMuran does not have the assets necessary
to meet this obligation and anticipates that the necessary funding
will need to be provided by EuroGas.
Page 8
<PAGE>
EuroGas has entered into agreements which grant rights to jointly
explore prospects within certain areas of the Ukraine. The
agreements commit EuroGas to form joint ventures and joint
companies and use the partners' concession agreements in
exploiting the potential oil and gas, as well as coal-bed methane
gas reserves. The potential reserves in the Ukraine have not been
independently verified.
During April 1999, EuroGas entered into a three-year employment
with its new chief executive officer. The contract provides for
annual salary of $400,000 plus living and other allowances of
$28,200. In addition, options to purchase 1,000,000 shares of
EuroGas common stock at $0.95 were granted in connection with the
employment contract. The options vest on January 1, 2000, and
expire in april 2009.
Page 9
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
The Company is engaged primarily in the acquisition of rights to explore
for and exploit oil, natural gas, coal bed methane gas and mineral mining.
The Company has also extended its business into co-generation (power and
heat) projects. The Company has acquired interests in a number of large
exploration concessions, for oil, natural gas and coal bed methane gas, and
is in various stages of identifying industry partners, farming out
exploration rights, undertaking exploration drilling, and seeking to
develop production. The Company currently has several projects in various
stages of development, including a coal bed methane gas project in Poland,
a natural gas project and several additional undeveloped concession areas
in Slovakia, a natural gas project in Yakutia (a member of the Russian
Federation located in eastern Siberia) and an interest in a talc
deposit in Slovakia. The Company has at least seven joint venture projects
in the Ukraine to explore for and exploit oil, natural gas and coal bed
methane gas with various Ukrainian State and private companies. The
Company recently created a consortium with the largest power generation
company in Great Britain, and with a large utility company in Germany, to
develop a co-generation power project in Western Poland.
The Company has also acquired holdings in several oil and natural gas
projects in Canada. One acquisition has given the Company a majority
interest in a full-service oil and gas producing company. The other project
is a joint venture with a major oil and gas company to reclaim one of
Canada's largest natural gas fields.
The Company's principal assets consist of both proven and developed
properties, as well as unproven and undeveloped 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 limited proven reserves and
established production, most of its holdings have not been amortized. In
the event that the Company is ultimately unable to establish production or
sufficient reserves on some of these properties to justify the carrying
costs, the value of the assets will need to be written down and the related
costs charged to operations, resulting in additional losses. The Company
periodically evaluates 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.
RECENT DEVELOPMENTS
Funding Activities. During the quarter ended June 30, 1999, the Company
completed two private placement financings with a single investor,
resulting in total cash proceeds to the Company of approximately $4.2
million. On May 6, 1999, the Company sold 3,000 shares of Series B
Convertible Preferred Stock, resulting in net proceeds to the Company of
approximately $2,775,000. On June 18, 1999, the Company sold 1,500 shares
of Series B Convertible Preferred Stock, resulting in net proceeds to the
Company of approximately $1,387,000. At June 30, 1999, the Company had
approximately $4 million in cash and cash equivalents and $(.7) million in
negative working capital.
Page 10
<PAGE>
Capital Expenditures. During the six months ended June 30, 1999, the
Company completed the acquisition of a Canadian oil and gas development
and production company. 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 by 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 1183 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. The total cost of the acquisition of Big Horn by the
Company was $7,593,484. Because of the temporary decline in oil prices,
the acquisition price paid by the Company reflects a premium over the
Company's proportionate share of the book value of Big Horn.
Results of Operations
The following table sets forth consolidated income statement data and other
selected operating data for the three and six months ended June 30, 1999
and 1998, respectively.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- ------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Oil and Gas Sales $ 1,240,698 $ - $ 1,981,592 $ -
Operating Expenses
Oil and gas production 433,743 - 605,887 -
General and administrative 1,814,994 2,523,718 4,340,712 4,252,509
Depreciation and amortization 510,228 6,980 805,945 11,750
----------- ----------- ----------- -----------
Total Operating Expenses 2,758,965 2,530,698 5,752,544 4,264,259
----------- ------------ ----------- -----------
Other Income (Expense)
Interest Income 12,239 143,406 81,836 313,962
Interest Expense (132,582) (186,875) (255,847) (322,839)
Foreign currency exchange gains
(losses), net 45,431 47,247 111,059 (10,414)
Realized loss on sale of securities - - (37,695) -
----------- ----------- ----------- -----------
Other Expense, Net (74,912) 3,778 (100,647) (19,291)
Minority interest in earnings
of subsidiary (76,352) - (169,063) -
----------- ----------- ----------- -----------
Net Loss $(1,669,531) $(2,526,920) $ 4,040,662 $ 4,283,550
=========== =========== =========== ===========
</TABLE>
Page 11
<PAGE>
Three Months Ended June 30, 1999 Compared With Three Months Ended June 30, 1998
REVENUES. Prior to 1998, the Company had not generated any revenues from
oil and gas sales. As a result of the Company's acquisition of a
controlling interest in Big Horn, the Company's results of operations for
the three months ended June 30, 1999 reflect oil and gas sales of
approximately $,240,698. For the three months ended June 30, 1998, the
Company had no revenues.
OPERATING EXPENSES. Operating expenses include oil and gas production
expenses, general and administrative expenses and depreciation and
amortization. Oil and gas production expenses were $433,743 for the
three months ended June 30, 1999, whereas the Company had no such expenses
during the three months ended June 30, 1998. The expenses incurred during
the three months ended June 30, 1999 reflect the Big Horn production
expenses. General and administrative expenses were $1,814,994 for the
three months ended June 30, 1999, compared to $2,523,718 for the three
months ended June 30, 1998, a decrease of 28%. The principal factors
that contributed to the decrease from 1998 to 1999 were the closure of
several offices, and decreased consulting fees. Depreciation and
amortization expenses were $510,228 for the three months ended June 30,
1999, of which $500,132 relates to amortization of the Big Horn properties
compared to $6,980 for the three months ended June 30, 1998. The
Company's interest in Big Horn was acquired at a fair value, but
due to low oil prices for the last eighteen months the actual book value
of the investment was lower than fair value, requiring the Company
to take an impairment charge. Under the full-cost method by which the
Company accounts for its mineral interests in properties, costs of
unproven properties are assessed periodically and any resulting provision
for impairment would normally be charged to the proven property base.
Because the Company has limited proven properties, if impairment charges
are required, a portion of those charges may be charged to operations.
The impact of such reassessment and resulting impairment charges could
be significant during any particular period.
INCOME TAXES. Historically, the Company has not been required to pay
income taxes, due to the Company's absence of net profits. For future
years, the Company anticipates that it will be able to utilize a
substantial portion of its accumulated deficit, which was approximately
$48,000,000 as of June 30, 1999, to offset profits, if and when achieved,
resulting in a reduction in income taxes payable.
NET LOSS. The Company incurred net losses of approximately $1.7 million and
$2.5 million for the three months ended June 30, 1999 and 1998, respectively.
These losses were due in large part to the absence of revenues, combined
with continued expansion of the Company's activities. The Company made a
concerted effort to control its administrative costs during the three
months ended June 30, 1999 resulting in a reduction over the same period
last year. The Company did see a limited amount of revenue from one of
its projects during the quarter ended June 30, 1999.
Page 12
<PAGE>
Due to the fluctuating economies of 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. The Company recognized $45,431, and $47,247 in
gains as a result of currency transactions in the three months
ended June 30, 1999 and 1998, respectively. The Company had a cumulative
foreign currency translation adjustment of $(1,350,203)at June 30, 1999.
The Company does not currently employ any hedging techniques to protect
against the risk of currency fluctuations.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Prior to 1998, the company had not generated any revenues from
oil and gas sales. As a result of the Company's acquisition of a controlling
interest in Big Horn, the Company's results of operations for the six months
ended June 30, 1999 reflect oil and gas sales of approximately $1,981,592.
For the six-months ended June 30, 1998, the Company had no revenues.
OPERATING EXPENSES. General and administrative expenses were $4,340,712
for the six months ended June 30, 1999, compared to $4,252,509 for the
six months ended June 30, 1998, an increase of two percent. The modest
increase was primarily attributable to increased personnel and
administrative expenses which were partially offset by the closure of
several offices during the later two months of the six month period ended
June 30, 1999. Depreciation and amortization expenses were $805,945 for
the six months ended June 30, 1999, compared to $11,750 for the six months
ended June 30, 1998. The increase of $794,195 was attributable to the
Big Horn properties that were amortized during the six months ended June
30, 1999. Oil and gas production expenses were $605,887 for the six months
ended June 30, 1999, reflecting the Big Horn production expenses. The Company
had no production expenses during the six months ended June 30, 1998.
NET LOSS. The Company incurred a net loss of approximately $40,040,662
for the six months ended June 30, 1999, compared to a net loss of
$4,283,550 for the six months ended June 30, 1998. The losses for both
periods resulted primarily from the absence of revenues, together with
the Company's ongoing operaitng expenses. The reduction of $242,888 in
net loss between the two six-month periods was attributable primarily to
the Company's efforts to control its administrative costs. As indicated
above, the Company is subject to fluctuations in currency rates which
may result in recognition in significant gains or losses during any
period. The Company recognized $111,059 in gains and $10,414 in losses
as a result of currency transactions during the six months ended June
30, 1999 and 1998, respectively.
Page 13
<PAGE>
CAPITAL AND LIQUIDITY
The Company had an accumulated deficit of $47.7 million at June 30, 1999,
substantially all of which has been funded out of proceeds received from
the issuance of stock and the incurrence of payables. At June 30, 1999, the
Company had total current assets of approximately $11.1 million and total
current liabilities of approximately $11.8 million, resulting in negative
working capital of approximately $.7 million. As of June 30, 1999, the
Company's balance sheet reflected approximately $33.4 million in mineral
interests in unproven mineral properties, net of valuation allowance.
These properties are held under licenses or concessions that contain
specific drilling or other exploration commitments and that expire within
one to three years, unless the concession or license authority grants an
extension or a new concession license, of which there can be no assurance.
If the Company is unable to establish production or resources on these
properties, or is unable to obtain any necessary future licenses or
extensions, or is unable to meet its financial commitments with respect to
these properties, it could be forced to write off the carrying value of the
applicable property.
Throughout its existence, the Company has relied on cash from financing
activities to provide the funds required for acquisitions and operating
activities. The Company's financing activities provided net cash of
approximately $6.2 million and $7.4 million during the six months ended
June 30, 1999 and 1998, respectively. Such net cash has been used
principally to fund net losses of approximately $4,040,662 and $4,283,550,
respectively. During the six months ended June 30, 1999 and 1998, the
Company's operating activities used net cash of approximately $4.3 million
and $4.4 million, respectively. A portion of the Company's cash was used
in acquiring mineral interests, property and equipment, either directly or
indirectly through the acquisition of subsidiaries, and the investment in
equity securities, with approximately $3.4 million and $5.1 million used
in investing activities for the six months ended June 30, 1999 and 1998,
respectively.
Equity securities were purchased during the six months ended June 30, 1999
which are recorded at cost because their resale is restricted, and their
fair value is not readily determinable. The investments consist of
$1,000,000 of 20% cumulative convertible preferred stock of Intergold
Corporation and $600,000 in share capital of Hansageomyn GmbH, both of
which are mining companies.
While the Company had cash of approximately $4 million at June 30, 1999, it
has substantial financial commitments with respect to exploration and
drilling obligations related to the mineral properties in which it has an
interest. Many of the Company's projects are long-term and will require
the expenditure of substantial amounts over a number of years before the
establishment, if ever, of production and ongoing revenues. As noted
above, the Company has relied principally on cash provided from equity and
debt transactions to meet its cash requirements. While the Company
currently has sufficient cash to meet its short-term needs, it will require
additional cash, either from financing transactions or operating
activities, to meet its longer-term needs. There can be no assurance that
the Company will be able to obtain additional financing, either in the form
of debt or equity, or that, if such financing is obtained, it will be
available to the Company on reasonable terms. If the Company is able to
obtain additional financing or structure strategic relationships in order
to fund existing or future projects, existing shareholders will likely
continue to experience further dilution of their percentage ownership of the
Company.
Page 14
<PAGE>
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 unproven
properties will be charged to operations, leading to significant additional
losses.
INFLATION
The amounts presented in the Company's consolidated financial statements do
not provide for the effect of inflation on the Company's operations or its
financial position. Amounts shown for property, plant and equipment and
for costs and expenses reflect historical costs and do not necessarily
represent replacement costs or charges to operations based on replacement
costs. The Company's operations, together with other sources, are intended
to provide funds to replace property, plant and equipment as necessary.
Net income would be lower than reported if the effects of inflation were
reflected either by charging operations with amounts that represent
replacement costs or by using other inflation adjustments. Due to
inflationary problems in Eastern Europe that is seen in currency exchange
losses and the cumulative transaction adjustment, the Company has seen
losses on its assets values in those countries.
YEAR 2000 ISSUES
GENERAL. The Company is actively engaged in assessing and correcting
potential year 2000 ("Y2K") information system problems. In short, the Y2K
problem is a result of information technology systems being designed to
recognize the year portion of a date as two rather then four digits, which
means that years coded "00" may be recognized as the year 1900, rather than
the year 2000. As a result, certain hardware and software products may not
properly function or may fail beginning in year 2000.
During 1998, the Company initiated an information system implementation
project (the "Project"), which affects nearly every aspect of the Company's
U.S. operations. In an effort to address compliance issues, the scope of
the Project was expanded to ensure Y2K compliance for newly acquired
software and hardware. The Project has two significant phases that are
designed to improve both operating processes and information systems
capabilities.
The first phase of the Project included hardware and software for the
Company's U.S. financial reporting operations. During 1998, phase one was
completed with hardware and software that has been tested and confirmed as
Y2K compliant. Phase two focuses on the Company's offshore financial
reporting systems and is expected to be completed in September 1999.
STATE OF READINESS. The Company's information systems consist principally
of its financial system. The Company's financial system includes general
ledger, accounts payable, sales and use tax calculations, payroll and human
resources applications. Phase one of the Project provided systems that are
Y2K compliant for the general ledger, accounts payable and payroll.
The Company's office support system includes network hardware and operating
systems, desktop and laptop computers and servers. The Company is in the
process of evaluating Y2K compliance for these systems and has identified
potential compliance issues primarily related to imbedded time clocks.
However, since the majority of the Company's hardware has been replaced or
upgraded over the past two years, critical systems compliance is not
expected to be a major issue.
Page 15
<PAGE>
COSTS TO ADDRESS Y2K ISSUES. As of June 30, 1999, the Company had spent
approximately $50,000 on hardware and approximately $25,000 for software
in connection with the Project, which costs have been expensed.
RISKS OF THE COMPANY'S Y2K ISSUES. The Company anticipates that the risks
related to its information and non-information systems will be mitigated by
current efforts being made in conjunction with the Project, as well as
ongoing assessment and correction programs. However, the primary Y2K risk
to the Company's operations is service disruption from third-party
providers that supply telephone, electrical, banking, and financial
reporting services. Any disruption of these critical services would hinder
the Company's ability to operate. Therefore, efforts are currently under
way to obtain Y2K compliance certification from the Company's major service
providers. Most of the Company's third-party joint venture organizations
are outside of the U.S., particularly in eastern Europe. The Company has
very little control, other than awareness, over these organizations.
Concern about potential problems has been raised, but commitment to
compliance is beyond the Company's control.
CONTINGENCY PLANS. The Company has not yet approved a formal contingency
plan for Y2K issues. However, the Company is preparing manual processes,
to be completed by October 1, 1999, that could be used in the event of
system and service disruption. A formal contingency plan is expected to be
completed and approved during 1999.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly 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 can
be identified by the use of the words "anticipate," "estimate," "project,"
"likely," "believe," "intend," "expect" or similar words. Forward-looking
statements reflect the current views of management of the Company and are
not intended to be accurate descriptions of the future. When considering
such statements, the reader should bear in mind the cautionary information
set forth in this section and other cautionary statements throughout this
Report, the Company's Annual Report on Form 10-K and in the Company's other
filings with the Securities and Exchange Commission. All forward-looking
statements are based on management's existing beliefs about present and
future events outside of management's control and on assumptions that may
prove to be incorrect. The discussion of the future business prospects of
the Company is subject to a number of risks and assumptions, including
those identified below. 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 anticipated,
estimated, projected or intended. Among the factors that may affect the
Company's results are the Company's ability to establish beneficial
relationships with industry partners to provide funding and expertise to
the Company's projects, the Company's efforts to locate commercial deposits
of hydrocarbons or other minerals on the Company's concessions and licenses,
the negotiation of additional licenses and permits for the exploitation of
any reserves located, the success of the Company's exploratory activities,
the completion of wells drilled by the Company, its joint venture partners
and other parties allied with the Company's efforts, the economic
recoverability of in-place reservoirs of hydrocarbons, technical problems
in completing wells and producing gas, the Company's marketing efforts, the
ability of the Company to obtain the necessary financing to successfully
pursue its business strategy, operating hazards and uninsured risks, the
intense competition and price volatility associated with the oil and gas
industry and international and domestic economic conditions.
Page 16
<PAGE>
The Company's activities also carry with them certain risks in
addition to the risks normally associated with the exploration and
development of hydrocarbons. Each of the eastern European countries in
which the Company has obtained or is obtaining concessions (Poland,
Slovakia, Russian Federation state of Yakutia, and Ukraine) is in the
process of developing capitalistic economies. As a result, many of their
laws, regulations, and practices with respect to the exploration and
development of hydrocarbons or other minerals have not been time tested
or yet adopted. The Company's operations are subject to significant risks
that any change in the government itself, government personnel, or the
development of new policies and practices may adversely effect the Company's
operations and financial results at some future date. Furthermore, the
Company's concessions and licenses are often subject, either explicitly
or implicitly, to ongoing review by governmental ministries. In the event
that any of the countries elects to change its regulatory system, it is
possible that the government might seek to annul or amend the governing
agreements in a manner unfavorable to the Company or impose additional
taxes or other duties on the activities of the Company. As a result of
the potential for political risks in these countries, it remains possible
that the governments might seek to nationalize or otherwise cause the
interest of the Company in the various concessions and licenses to be
forfeited. Many of the areas in which the Company's prospects are located
lack the necessary infrastructure for transporting, delivering, and
marketing the products which the Company seeks to identify and exploit.
Consequently, even if the Company is able to locate hydrocarbons or other
minerals in commercial quantities, it may be required to invest significant
amounts in developing the infrastructure necessary to carry out its business
plan. The Company does not presently have a source of funding available to
meet these costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company conducts business in many foreign currencies. As a result,
it is subject to foreign currency exchange rate risk due to effects that
foreign exchange rate movements of those currencies have on the Company's
costs and on the cash flows which it receives from its foreign operations.
The Company believes that it currently has no other material market risk
exposure. To date, the Company has addressed its foreign currency exchange
rate risks principally by maintaining its liquid assets in U.S. Dollars, in
interest-bearing accounts, until payments in foreign currency are required,
but does not reduce this risk by utilizing hedging activities.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.
In 1996, KUKUI, Inc. ("KUKUI"), acting separately and on behalf of the
Unsecured Creditors Trust of the Bankruptcy Estate of McKenzie Methane
Corporation (McKenzie Methane Corporation was an affiliate of the former
owner of Pol-Tex), asserted certain claims against Pol-Tex and GlobeGas,
two subsidiaries of the Company in connection with lending activities
between McKenzie Methane Corporation and the management of GlobeGas prior
to its acquisition by the Company. The claim asserted that funds that were
loaned to prior GlobeGas management may have been invested in GlobeGas and,
therefore, McKenzie Methane Corporation might have had an interest in
GlobeGas at the time of the acquisition of GlobeGas by the Company. These
Page 17
<PAGE>
claims were resolved pursuant to a settlement agreement entered into in
November 1996 (the "KUKUI Settlement Agreement"). Under the terms of the
settlement agreement, the Company issued to the Bishop's Estate (KUKUI's
parent) 100,000 shares of Common Stock and an option to purchase up to
2,000,000 shares of Common Stock at any time prior to December 31, 1998.
The option exercise price was $3.50 per share if exercised within 90 days
of the execution of the Company's 1997 agreement with Texaco (the "Texaco
Agreement"); $4.50 per share if exercised prior to December 31, 1997; and
$6.00 per share if exercised prior to December 31, 1998. The Company also
granted registration rights with respect to the securities.
In March 1997, a trustee over certain of the McKenzie parties and other
related entities asserted a claim to the proceeds that the Company would
receive from the Texaco Agreement and exploitation of the Pol-Tex
Concession in an action entitled: "Harven Michael McKenzie, debtor;
Timothy Stewart McKenzie, debtor; Steven Darryl McKenzie, debtor (case no.
95-48397-H2-7, Chapter 7; case no. 95-48474-H2-7, Chapter 7; and case no.
95-50153-H2-7, Chapter 7, respectively) W. Steve Smith, trustee, plaintiff
v. McKenzie Methane Poland Co., Francis Wood McKenzie, EuroGas, Inc.,
GlobeGas, B.V. and Pol-Tex Methane, Sp. zo.o., defendants (Adv. No. 97-4114
in the United States Bankruptcy Court for the Southern District of Texas
Houston Division)." The trustee's claim alleges that the Company paid
inadequate consideration for its acquisition of GlobeGas (which indirectly
controlled the Pol-Tex Concession) from persons who were acting as nominees
for the McKenzie parties or in fact may be operating as a nominee for the
McKenzie parties and therefore the creditors of the McKenzie parties are
the true owners of the proceeds received from the development of the
Pol-Tex Concession (KUKUI is also the principal creditor of the McKenzie
parties in these other cases.). The Company plans to vigorously defend
against such claims. The Company believes that the litigation is without
merit based on its belief that the prior settlement with KUKUI bars any
such claim, the trustee over the McKenzie parties has no jurisdiction to
bring such claim against a Polish corporation (Pol-Tex) and the ownership
of Polish mining rights, that the Company paid substantial consideration
for GlobeGas, and that there is no evidence that the creditors of the
McKenzie parties invested any money in the Pol-Tex Concession. The Company
also believes that continued pursuit of the claim may give rise to a
separate cause of action against third parties that the Company will pursue
if necessary.
On August 21, 1997, KUKUI, Inc. asserted a claim against the Company in an
action entitled "KUKUI, Inc. v. EuroGas, Inc., Case No. H-972864 United
States District for the Southern District of Texas, Houston Division".
KUKUI's claim is based upon an alleged breach of the KUKUI Settlement
Agreement as a result of the Company's failure to file and obtain the
effectiveness of a registration statement for the resale by KUKUI of
100,000 shares of Common Stock delivered to KUKUI in connection with the
settlement. In addition, Bishop's Estate, KUKUI's parent, has entered a
claim for failure to register the resale of shares of Common Stock subject
to its option to purchase up to 2,000,000 shares of Common Stock. The
Company has denied any liability, intends to vigorously defend the claim
and recently filed a counterclaim against KUKUI and Bishop's Estate for
breach of contract, in particular concerning its joint activities with the
Trustee over the McKenzie parties.
Page 18
<PAGE>
For the 1992 year, the Kingdom of the Netherlands assessed a tax against
the Company's operating subsidiary, GlobeGas in the amount of $911,051 even
though it had significant operating losses. The income tax liability as
stated in U.S. dollars fluctuates on the financial statements of the Company
due to adjustments in exchange ratios, and was $712,044 as of June 30, 1999.
The Company has appealed the assessment and has proposed a settlement which
would result in a reduction in the tax to $42,000. Pending final
resolution, a liability for the total amount assessed will continue to be
reflected in the Company's financial statements.
ITEM 2 Changes in Securities and Use of Proceeds
RECENT SALES OF UNREGISTERED SECURITIES
During the three months ended June 30, 1999, the Company completed two
private placements of preferred stock to an existing shareholder of the
Company. The Company sold and aggregate of 4,500 shares of Series B
Convertible Preferred Stock, resulting in net proceeds to the Company of
approximately $4,162,500. The private placements of the Series B
Convertible Preferred Stock were effected in reliance upon the exemption
for sales of securities not involving a public offering, as set forth in
Section 4(2) of the Securities Act of 1933, as amended, based upon the
Company's pre-existing relationship with the purchaser and representations
and warranties provided by the purchaser.
ITEM 5. Other Events.
On April 20, 1999, Mr. Karl Arleth was named President and CEO of the
Company and he was also appointed to serve as a director of the Company.
Mr. Arleth has extensive experience in the oil and gas industry, most
recently serving as Director of Azerbaijan International Operating Company
(AIOC) Shareholding for the newly formed BP Amoco p.l.c. In this role,
Mr. Arleth chaired the shareholder board of AIOC, and an international
consortium of 11 companies engaged in the development and transportation
of oil from the Azeri-Chirag-Gunashli offshore field complex in Azerbaijan.
Previously, Mr. Arleth was President of Amoco Caspian Se Petroleum Limited
in Baku, Azerbaijan. Prior, in 1997, he was Director of Strategic Planning
for Amoco Corporation Worldwide Exploration and Production Sector in
Chicago. From 1992 until 1997, Mr. Arleth was President Amoco Poland
Limited in Warsaw, Poland, where he was responsible for oil and gas
exploration and production projects as well as business development
activities that focused on natural gas transmission, distribution, storage
and electric power generation.
On June 14, 1999, Mr. Rudolp Heinz was appointed to serve as a director of
EuroGas, Inc. Mr. Heinz presently serves as the General Manager of the
German Federation of Money Managers, and as a shareholder advocate. Prior
to becoming an independent money manager and Independent Financial Advisor,
Mr. Heinz was manager of the securities department for the Frankfurt based
BHF Bank and was also responsible for that bank's United States, Japan,
and United Kingdom Subsidiaries. From 1983 until 1990, Mr. Heinz was the
sole General Manager of DB Capital Management GmbH, a Deutsche Bank
subsidiary with operations in Germany, United States, Japan and the United
Kingdom.
With the addition of Mr. Heinz as a director of the Company, the Company's
Board of Directors has recently established compensation and audit
committees. The members of both committees, each of whom will serve
until the next annual meeting of the shareholders of the Company and
until his successor is duly elected and qualified, are Mr. Heinz, Dr.
Gregory P. Fontana and Dr. Hans Fischer.
Page 19
<PAGE>
On June 30, 1999, Mr. Wolfgang Rauball resigned from all positions he has
held with the Company, and its subsidiaries. He stated that his reason
for resignation was to devote more time to his personal life and other
business interests that he is involved in. The Company will greatly miss
his involvement in its ongoing activities. Mr. Rauball has been
instrumental in the success of the Company.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedules
(b) Reports on Form 8-K
On April 15, 1999, the Company filed with the Commission a Current Report on
Form 8-K. This report, as amended by Amendments No. 1 and 2 to the Current
Report on Forms 8-K/A, reported the Company's acquisition of slightly
more than 50% of the capital stock of Big Horn in a series of transactions
completed on March 31, 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Developments."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EUROGAS, INC.
Dated: August 16, 1999 By /S/ Hank Blankenstein
---------------------------------
Hank Blankenstein, Vice-President
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of June 30, 1999, and statements of operations for the six months ended
June 30, 1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,889,322
<SECURITIES> 643,475
<RECEIVABLES> 6,205,990
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,131,536
<PP&E> 52,979,860
<DEPRECIATION> (1,134,672)
<TOTAL-ASSETS> 65,124,539
<CURRENT-LIABILITIES> 11,822,000
<BONDS> 1,814,259
0
2,394
<COMMON> 84,905
<OTHER-SE> 48,241,286
<TOTAL-LIABILITY-AND-EQUITY> 65,124,539
<SALES> 1,240,698
<TOTAL-REVENUES> 1,240,698
<CGS> 943,971
<TOTAL-COSTS> 1,814,994
<OTHER-EXPENSES> 30,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,582
<INCOME-PRETAX> (1,669,531)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,669,531)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,669,531)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
