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
SEPTEMBER 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 of Identification No.)
incorporation)
942 East 7145 South, Suite 101A
Midvale, Utah 84047
_________________________________
(Address of principal executive
offices, including zip
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 86,830,838
______________________________ ________________________________
(Title of Class) (Number of Shares Outstanding at
September 30, 1999)
<PAGE>
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September
30, 1999 and December 31, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1998 and
1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30, 1998 and 1999
(Unaudited) 5
Notes to the Condensed Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1999 1998
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . $ 2,234,545 $ 7,489,510
Investment in securities available-for-sale . . . . 708,117 1,088,488
Trade accounts receivable . . . . . . . . . . . . . 2,715,725 1,107,508
Value added tax receivable. . . . . . . . . . . . . 392,054 431,235
Receivable from joint venture partners. . . . . . . 2,455,695 2,293,048
Receivable from related party . . . . . . . . . . . - 200,000
Other receivables . . . . . . . . . . . . . . . . . 712,986 788,291
Other current assets. . . . . . . . . . . . . . . . 378,904 120,176
----------- -----------
Total Current Assets. . . . . . . . . . . . . . . 9,598,026 13,518,256
----------- -----------
Property and Equipment - Full Cost Accounting
Oil and gas properties subject to amortization. . . 19,635,523 17,034,461
Oil and gas properties not subject to amortization. 33,946,386 33,817,752
Other mineral interest property . . . . . . . . . . 167,814 167,814
Other property and equipment. . . . . . . . . . . . 859,915 580,868
----------- -----------
Total Property and Equipment. . . . . . . . . . . 54,609,638 51,600,895
----------- -----------
Less: Accumulated depletion, depreciation
and amortization . . . . . . . . . . . . . . . . . (1,749,724) (332,579)
Net Property and Equipment. . . . . . . . . . . . 52,859,914 51,268,316
----------- -----------
Other Assets . . . . . . . . . . . . . . . . . . . . 457,608 547,815
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . $62,915,548 $65,334,387
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . . . $ 3,573,197 $ 4,060,125
Accrued liabilities . . . . . . . . . . . . . . . . 4,898,828 2,618,014
Accrued income taxes . . . . . . . . . . . . . . . 915,191 870,836
Notes payable - current portion . . . . . . . . . . 5,999,940 4,226,739
Notes payable to related parties. . . . . . . . . . 1,261,194 1,182,124
----------- -----------
Total Current Liabilities . . . . . . . . . . . . 16,648,350 12,957,838
----------- -----------
Long-Term Notes Payable. . . . . . . . . . . . . . . - 1,788,294
----------- -----------
Minority Interest. . . . . . . . . . . . . . . . . . 3,439,343 2,865,376
----------- -----------
Stockholders' Equity
Preferred stock, $.001 par value; 5,000,000
shares authorized; issued and outstanding:
September 30, 1999 - 2,392,318 shares,
December 31, 1998 - 2,393,728 shares;
liquidation preference - $802,165. . . . . . . . . 2,392 2,394
Common stock, $.001 par value; 325,000,000
shares authorized; issued and outstanding:
September 30, 1999 - 86,830,838 shares,
December 31, 1998 - 76,254,630 shares. . . . . . . 86,831 76,255
Additional paid-in capital. . . . . . . . . . . . . 98,055,388 92,013,961
Accumulated deficit . . . . . . . . . . . . . . . . (52,654,303) (43,532,787)
Accumulated other comprehensive loss. . . . . . . . (2,662,453) (836,944)
) ----------- -----------
Total Stockholders' Equity. . . . . . . . . . . . 42,827,855 47,722,879
----------- -----------
Total Liabilities and Stockholders' Equity $62,915,548 $65,334,387
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Oil and Gas Sales. . . . . . . . . . . . . $ 1,592,696 $ - $ 3,574,288 $ -
------------ ------------ ------------ ------------
Total Revenues . . . . . . . . . . . . . $ 1,592,696 $ - $ 3,574,288
------------ ----------- ------------
Operating Expenses
Oil and gas production. . . . . . . . . . 437,253 - 1,043,140 -
Depletion, depreciation and amortization. 772,535 13,153 1,578,480 19,066
General and administrative. . . . . . . . 3,452,912 1,947,418 7,793,624 6,205,134
------------ ------------ ------------ ------------
Total Operating Expenses. . . . . . . 4,662,700 1,960,571 10,415,244 6,224,200
------------ ------------ ------------ ------------
Other Income (Expense)
Interest income . . . . . . . . . . . . . 108,215 543,653 190,051 857,615
Foreign exchange net gains (losses) . . . (2,567) (57,093) 108,492 (67,507)
Interest expense. . . . . . . . . . . . . (97,052) 36,711 (352,899) (286,128)
Realized loss on securities . . . . . . . (1,600,000) - (1,637,694) -
Minority interest in income of
consolidated subsidiary. . . . . . . . . (288,103) - (457,167) -
------------ ------------ ------------ ------------
Total Other Income (Expense). . . . . (1,879,507) 523,271 (2,149,217) 503,980
------------ ------------ ------------ ------------
Net Loss . . . . . . . . . . . . . . . . . (4,949,511) (1,437,300) (8,990,173) (5,720,220)
Preferred Dividends. . . . . . . . . . . . (26,441) (142,706) (131,343) (210,349)
------------ ------------ ------------ ------------
Loss Applicable to Common Shares . . . . . $ (4,975,952) $ (1,580,006) $ (9,121,516) $ (5,930,569)
============ ============ ============ ============
Basic and Diluted Loss Per Common Share. . $ (0.06) $ (0.02) $ (0.11) $ (0.09)
============ ============ ============ ============
Weighted Average Number of Common Shares
Used in Per Share Calculation . . . . . . 82,883,604 66,456,970 82,182,414 63,918,059
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
------------------------
1999 1998
----------- -----------
Cash Flows From Operating Activities
Net loss. $(8,990,173) $(5,720,220)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depletion, depreciation and amortization . . . 1,398,039 19,066
Minority interest in income of subsidiary. . . 457,167 -
Loss on sale of securities available-
for-sale. . . . . . . . . . . . . . . . . . . 1,637,694 -
Exchange (gains) losses. . . . . . . . . . . . (108,492) 67,507
Changes in assets and liabilities, net
of assets acquired:
Trade receivables. . . . . . . . . . . . . (1,556,108) (365,360)
Other receivables. . . . . . . . . . . . . (558,384) -
Prepaid expenses . . . . . . . . . . . . . (269,822) (118,133)
Accounts payable . . . . . . . . . . . . . 361,165 (621,443)
Accrued expenses . . . . . . . . . . . . . 1,689,854 (202,161)
Other. . . . . . . . . . . . . . . . . . . - 30,213
----------- -----------
Net Cash Used In Operating Activities. . . . . (5,939,060) (6,910,531)
----------- -----------
Cash Flows From Investing Activities
Purchases of mineral interests, property
and equipment. . . . . . . . . . . . . . . . . . (4,351,748) (4,130,785)
Decrease (increase) in deposits and prepayments . 40,599 (308,290)
Investment in securities available-for-sale . . . (1,656,474) (1,408,200)
Proceeds from sale of securities
available-for-sale . . . . . . . . . . . . . . . 60,329 -
----------- -----------
Net Cash Used In Investing Activities. . . . . (5,907,294) (5,847,275)
----------- -----------
Cash Flows From Financing Activities
Principal payments on notes payable . . . . . . . (145,839) (2,855,384)
Principal payments on notes payable to
related parties. . . . . . . . . . . . . . . . . (150,000) (2,097,556)
Proceeds from issuance of notes payable to
related parties. . . . . . . . . . . . . . . . . 429,070 -
Proceeds from issuance of notes payable . . . . . 588,723 -
Proceeds from issuance of common stock, net
of offering costs. . . . . . . . . . . . . . . . - 12,637,500
Proceeds from issuance of preferred stock,
net of offering costs. . . . . . . . . . . . . . 6,012,500 -
Dividends paid on preferred stock . . . . . . . . - (260,141)
----------- -----------
Net Cash Used In Financing Activities. . . . . 6,734,454 7,424,419
----------- -----------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents . . . . . . . . . . . . . . (143,065) 148,202
----------- -----------
Net Decrease In Cash and Cash Equivalents. . . . . (5,254,965) (5,185,185)
Cash and Equivalents at Beginning of Period. . . . 7,489,510 17,247,667
----------- -----------
Cash and Equivalents at End of Period. . . . . . . $ 2,234,545 $12,062,482
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 255,847 $ 300,557
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended September 30,1999, EuroGas accrued
preferred dividends of $131,343. Preferred shareholders converted
7,910 shares of 1998 Series B Preferred stock together with $39,502 of
accrued preferred dividends into 10,576,208 common shares at
approximately $0.75 per common share.
During the Third Quarter of 1999, a receivable in the amount of
$600,000 was assigned to a third party in partial satisfaction of a
note payable in the amount of $1,840,224 leaving a balance owed on the
note of $1,240,224 as of September 30, 1999.
During the nine months ended September 30, 1998, the Company accrued
dividends on preferred shares in the amount of $210,349. During the
third quarter of 1998, shareholders converted 8,000 shares of Series B
preferred stock into 3,486,728 common shares and were issued 48,961
common shares for accrued dividends on the Series B preferred shares in
the amount of $107,144.
During March 1998, the Company exercised its option to acquire a 16%
carried interest in the Beaver River oil and gas project in British
Columbia, Canada for $300,000 and 2,400,000 shares of common stock. The
acquisition was recorded at $7,875,000.
The accompanying notes are an integral part of these financial statements.
6
<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.
PRIOR YEAR PRESENTATION - Certain September 1998 amounts have been
reclassified in order to fonform with 1999 presentation.
NOTE 2 -- INVESTMENT IN EQUITY SECURITIES
Equity securities were purchased during the nine months ended September 30,
1999 which were recorded at cost because their resale was restricted, and
their fair value was not readily determinable. The investments consisted 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. During the third quarter of 1999, EuroGas
determined not to further invest in the two companies. The value of the
underlying common shares to the preferred stock have dropped substantially,
and management has determined there has been an other than temporary decline
in the fair value of both investments. Accordingly, during the third
quarter EuroGas recognized a $1,600,000 impairment of the investments.
NOTE 3 -- NOTES PAYABLE
Current notes payable increased during the nine months ended September 30,
1999 by approximately $1,773,201 which primarily consisted of proceeds from
a line of credit from a bank in Canada and the reclassification from
long-term notes payable to current notes payable.
NOTE 4 -- STOCKHOLDERS' EQUITY
During the nine months ended September 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, 7,910 shares of Series B 1998 preferred stock
and $39,501 of accrued but unpaid preferred dividends were converted into
10,576,208 common shares. At September 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; $393,727
liquidation preference
1997 Series A Preferred shares; 260 shares outstanding; $60.00 annual
dividend rate per share, $15,600 annually; $316,899 liquidation
preference
1998 Series B Convertible Preferred Shares; 90 shares outstanding;
$60.00 annual dividend rate per share, $5,400 annually; $91,539
liquidation preference; convertible into common stock at 80% of
the five-day average trading price of common stock prior to
conversion
7
<PAGE>
NOTE 5 - COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Loss Applicable to common Shares . . . . $ (4,949,511) $ (1,437,300) $ (8,990,173) $ (5,720,220)
------------ ------------ ------------ ------------
Other Comprehensive Loss
Unrealized holding gain (losses)
on securities available-for-sale. . 64,642 (56,165) (376,515) (514,044)
Less: Reclassification adjustment
for losses realized in net loss . . - - 37,695 -
Net change in cumulative foreign
currency translation adjustment . . (494,164) (2,390) (1,386,689) (145,560)
------------ ------------ ------------- -----------
Total Other Comprehensive Loss . . . (429,522) (58,555) (1,725,509) (659,604)
------------ ------------ ------------- ------------
Comprehensive Loss . . . . . . . . . $ (5,379,033) $ (1,495,855) $ (10,715,682) $ (6,379,824)
============ ============ ============= ============
Accumulated other comprehensive loss consisted of the following at September 30, 1999:
Unrealized loss on securities available-for-sale . . . . . . . . . $ (718,086)
Cumulative foreign currency translation adjustment . . . . . . . . (1,944,367)
-------------
Accumulated Other Comprehensive Loss . . . . . . . . . . . . . . . $ (2,662,453)
=============
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
EuroGas' subsidiary, GlobeGas BV ("GlobeGas"), has applied for a reduction
in an income tax liability currently valued at $735,030 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.
8
<PAGE>
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.
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 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. The parties are engaged in settlement
discussions and expect an agreement to be reached. The amounts expected to
be paid have been accrued in the financial statements.
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 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 Gbely 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 has
received indications the Slovak government may seek to resolve the dispute.
Recently, the government completed its nationalization of Nafta; although
discussions are scheduled between EuroGas and Nafta, resolution of this
maatter 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.
9
<PAGE>
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.
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 an three-year employment contract
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.
NOTE 7-SUBSEQUENT EVENTS
During November 1999, EuroGas made a $600,000 cash payment against the
principal of a note payable with a carrying value of approximately
$1,240,224 leaving a balance owing on the note of approximately $640,224 at
a rate of 8% due in one year.
During November 1999, the Company authorized and completed a private
placement of 1,800 shares of 1999 Series C 6% Convertible Preferred Stock
to an accredited investor, resulting in net proceeds to the Company of
approximately $1,651,500. The shares have a par value of $0.001 per share
and a liquidation preference of $1,000 per share, plus all accrued but
unpaid dividends. The 1999 Series C 6% Convertible Preferred Stock does
not have voting rights, except to the extent that the consent of the
holders is specifically required by the governing provisions of the
corporate law of the state of Utah as now existing or as they may hereafter
be amended.
10
<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 the Sakha Republic (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 has also 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. On November 5, 1999, the Company sold 1,800 shares of
1999 Series C 6% Convertible Preferred Stock, resulting in net proceeds to
the Company of approximately $1,651,500. At September 30, 1999, the
Company had approximately $2.2 million in cash and cash equivalents and
$(7.1) million in negative working capital.
CAPITAL EXPENDITURES. During the nine months ended September 30, 1999, the
Company increased its investment in a Canadian oil and gas development and
production company. In October 1998, the Company purchased 31% of the
outstanding shares of capital stock of Big Horn Resources Ltd., of Calgary,
Alberta, Canada ("Big Horn"). Big Horn is a full-service producer of oil
and natural gas, producing the equivalent of approximately 1300 barrels of
oil a day, with proven reserves of approximately 2.5 million barrels of
equivalent oil and with a net present value of approximately $12.4 million,
based on a 10% valuation rate. In March 1999, the Company finalized its
acquisition of additional shares of Big Horn common stock from certain
third parties, giving the Company an ownership interest in excess of 50% of
the outstanding shares of Big Horn' s capital stock. The total cost of the
acquisition of Big Horn by the Company was $7,593,913. 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 months ended September 30, 1999 and
1998, respectively.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- ------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Oil and Gas Sales $ 1,592,696 $ - $ 3,574,288 $ -
Total Revenues 1,592,696 - 3,574,288 -
OPERATING EXPENSES
Oil and gas production 437,253 - 1,043,140 -
General and administrative 3,452,912 1,947,418 7,793,624 6,205,134
Depreciation, depletion
and amortization 772,535 13,153 1,578,480 19,066
TOTAL OPERATING EXPENSES 4,662,700 1,960,571 10,415,244 6,224,200
OTHER INCOME (EXPENSE)
Interest income 108,215 543,653 190,051 857,615
Foreign exchange net
gains (losses) (2,567) (57,093) 108,492 (67,507)
Realized loss on sale
of securities (1,600,000) - (1,637,694) -
Interest (97,052) 36,711 (352,899) (286,128)
OTHER EXPENSE, NET (1,591,404) 523,271 (1,692,050) 503,980
Minority interest in
earnings of subsidiary (288,103) - (457,167) -
NET LOSS (4,949,511) (1,437,300) (8,990,173 (5,720,220)
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Through September 1998, the Company had not generated any
revenues from oil and gas sales. As a result of the Company's acquisition
of the controlling interest in Big Horn, the Company's results of
operations for the three months ended September 30, 1999 reflect oil and
gas sales of approximately $1,592,696. For the three months ended
September 30, 1998, the Company had no revenues.
OPERATING EXPENSES. Operating expenses include oil and gas production
expenses, general and administrative expenses, depreciation, depletion and
amortization. Oil and gas production expenses were $437,253 for the three
months ended September 30, 1999, whereas the Company had no such expenses
during the three months ended September 30, 1998. General and
administrative expenses were $3,452,912 for the three months ended
September 30, 1999, compared to $1,947,418 for the three months ended
September 30, 1998, an increase of approximately 77% The principal factors
that contributed to the increase from 1998 to 1999 were significant costs
associated with the closure of several offices, a significant charge was
taken for expenses related to the Company's Slovakian natural gas
projects, a significant charge was accrued for a potential settlement of on
going litigation and increased costs related to additional employees and
use of consulting fees. Depreciation, depletion and amortization expenses
were $772,535 for the three months ended September 30, 1999, compared to
$13,153 for the three months ended September 30, 1998. The Company's
interest in Big Horn was acquired at 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 $53
million as of September 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 $4,949,511 and
$1,437,300 for the three months ended September 30, 1999 and 1998,
respectively. These losses were due in large part to a loss in securities
held in several mineral projects, the absence of revenues, combined with
continued expansion of the Company's activities. The Company has continued
to make a concerted effort to control its administrative costs during the
quarter. The Company did see a limited amount of revenue from one of its
projects during the quarter ended September 30, 1999.
Due primarily to the fluctuating economies of the Eastern European
countries in which the Company has investments, the Company is subject to
fluctuations in currency exchange rates that can result in significant
gains or losses during any period. The net change in foreign currency
translation adjustment, which is a component of accumulated other
comprehensive loss, was a gain of $64,642 and loss of $297,369 during the
three months ended September 30, 1999 and 1998, respectively. Net foreign
exchange losses were recognized in operations and were $(2,567) and
$(57,093) during the three months ended September 30, 1999 and 1998,
respectively. The Company does not currently employ any hedging techniques
to protect against the risk of currency fluctuations.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Through September, the Company had not generated any revenues
from oil and gas sales. As a result of the Company's acquisition of the
controlling interest in Big Horn, the Company's results of operations for
the nine months ended September 30, 1999 reflect oil and gas sales of
approximately $3,574,288. For the nine months ended September 30, 1998,
the Company had no revenues.
OPERATING EXPENSES. General and administrative expenses were $7,793,624
for the nine months ended September 30, 1999, compared to $6,205,134 for
the nine months ended September 30, 1998, an increase of approximately 26%.
The increase was primarily attributable to increased personnel and
administrative expenses, additional costs associated with the closure of
several offices and significant expenses associated with the Slovakian
projects. Depreciation, depletion and amortization expenses were $1,578,480
for the nine months ended September 30, 1999, compared to $19,066 for the
nine months ended September 30, 1998. The increase of $1,559,414 was
attributable to the Big Horn properties that were amortized during the nine
months ended September 30, 1999. Oil and gas production expenses were
$1,043,140 for the nine months ended September 30, 1999, reflecting Big
Horn production expenses. The Company had no production expenses during
the nine months ended September 30, 1998.
NET LOSS. The Company incurred a net loss of approximately $8,990,173 for
nine months ended September 30, 1999, compared to a net loss of($5,720,220)
for the nine moths ended September 30, 1998. The losses for both periods
resulted primarily from the absence of revenues, together with the
Company's ongoing operating expenses. The increase of $3,269,953 in net
loss between the two nine-month periods was attributable primarily to the
Company realizing losses on securities in several mineral property
investments, a significant accrual for a settlement of ongoing litigation
and increased costs in the administrative area. As indicated above, the
Company is subject to fluctuations in currency exchange rates which may
result in recognition in significant gains or losses during any period.
The Company recognized $108,492 in gains and $67,507 in losses as a result
of currency transactions during the nine months ended September 30, 1999
and 1998, respectively. The net change in foreign currency translation
adjustment, which is a component of accumulated other comprehensive loss,
was a loss of 338,820 and 145,560 for the nine months ended September 30,
1999 and 1998, respectively.
CAPITAL AND LIQUIDITY
The Company had an accumulated deficit of $52,654,303 at September 30,
1999, substantially all of which has been funded out of proceeds received
from the issuance of stock and the incurrence of payables. At September 30,
1999, the Company had total current assets of approximately $9.5 million
and total current liabilities of approximately $16.6 million, resulting in
negative working capital of approximately $7.1 million. As of September
30, 1999, the Company's balance sheet reflected approximately $34 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, 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 $6.7 million and $7.4 million during the nine months ended
September 30, 1999 and 1998, respectively. Such net cash has been used
principally to fund cumulative net losses of approximately $9 million and
$5.7 million, respectively. During the nine months ended September 30,
1999 and 1998, the Company's operating activities used net cash of
approximately $5.9 million and $6.9 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, with approximately $5.9 million and $5.8 million used in
investing activities for the nine months ended September 30, 1999 and 1998,
respectively, of which approximately $4.4 million and $4.1 million,
respectively, was used in acquiring mineral interests.
While the Company had cash of approximately $2.2 million at September 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 experience further dilution of their percentage ownership of the
Company.
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 reflected in currency exchange
losses, 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 certified as
Y2K compliant. Phase two focuses on the Company's offshore financial
reporting systems and is expected to be operational 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.
COSTS TO ADDRESS Y2K ISSUES. As of Septmber 30, 1999, the Company had
spent $50,000 on hardware and $25,000 for software in connection with the
Project.
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 prepared documentation that could be
used in the event of system and service disruption.
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 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.
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, Yakutia, and Ukraine) are 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
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 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 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 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, and has filed a counterclaim against
KUKUI and Bishop's Estate for breach of contract. The parties are engaged
in settlement discussions and expect an agreement to be reached.
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. During the reporting period,
the income tax liability was reduced on the financial statements of the
Company due to fluctuations in exchange ratios. As of September 30, 1999,
the income tax liability recorded in the Company's financial statements was
$735,030. 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
On November 4, 1999, the Company completed a private placement of
1,800 shares of Series C 6% convertible Preferred Stock to an accredited
investor, resulting in net proceeds to the Company of approximately
$1,651,500 to be used for general working capital. The private placement
of the Series C 6% convertible Preferred Stock was 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 following based upon the following: (a) the investor
represented and warranted to the Company that it was an "accredited
investor," as defined in Rule 501 of Regulation D promulgated under the
Securities Act and had such background, education, and experience in
financial and business matters as to be able to evaluate the merits and
risks of an investment in the securities; (b) there was no public offering
or general solicitation with respect to the offering, and the investor
represented and warranted that it was acquiring the securities for its own
account and not with an intent to distribute the such securities; (c) the
investor was provided with copies of the Company's most recent Annual
Report on Form 10-KSB and any and all other information requested by the
investor with respect to the Company, (d) the investor acknowledged that
all securities being purchased were "restricted securities" for purposes of
the Securities Act, and agreed to transfer such securities only in a
transaction registered with the SEC under the Securities Act or exempt
from registration under the Securities Act; and (e) a legend was placed on
the certificates and other documents representing each such security
stating that it was restricted and could only be transferred if
subsequently registered under the Securities Act or transferred in a
transaction exempt from registration under the Securities Act.
During 1999, the Company completed two issuances of 1998 Series B
Convertible Preferred Stock to an existing shareholder of the Company
pursuant to the Subscription Agreement. The company sold an aggregate of
6,500 shares of Series B Convertible Preferred Stock, resulting in net
proceeds to the Company of approximately $6,012,500. 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - none.
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: November 15 , 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 September 30, 1999, and statements of operations for the nine months
ended September 30, 1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,234,545
<SECURITIES> 708,117
<RECEIVABLES> 6,276,460
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,598,026
<PP&E> 54,609,638
<DEPRECIATION> (1,749,724)
<TOTAL-ASSETS> 62,915,548
<CURRENT-LIABILITIES> 16,648,350
<BONDS> 0
0
2,392
<COMMON> 86,831
<OTHER-SE> 42,738,182
<TOTAL-LIABILITY-AND-EQUITY> 62,915,548
<SALES> 3,574,288
<TOTAL-REVENUES> 3,574,288
<CGS> 1,043,140
<TOTAL-COSTS> 1,043,140
<OTHER-EXPENSES> 9,019,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 352,899
<INCOME-PRETAX> (8,990,173)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,990,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,125,516)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
