_________________________________________________________________
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, 2000.
[ ] 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 Identification No.)
of incorporation)
942 East 7145 South, Suite 101A
Midvale, Utah 84047
(Address of principal executive
offices, including zip code)
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 118,779,963
------------------------------ -----------------------------
Title of Class (Number of Shares Outstanding
at November 13, 2000)
<PAGE> 2
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements F-1
Condensed Consolidated Balance Sheets as of September
30, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1999 and 2000
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 2000
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit Index 14
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Information
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2000 1999
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 861,932 $ 1,047,141
Investment in securities available-for-sale 143,548 317,084
Trade accounts receivable 2,489,794 907,269
Value added tax receivables 987,642 1,057,628
Receivable from joint venture partners 1,264,179 1,217,149
Other receivables 106,682 74,696
Other current assets 428,275 236,044
------------ ------------
Total Current Assets 6,282,052 4,857,011
------------ ------------
Property and Equipment - Full Cost Accounting
Oil and gas properties subject to amortization 21,734,833 21,553,571
Oil and gas properties not subject to
amortization 26,840,810 26,862,072
Other mineral interests 1,233,156 755,539
Other property and equipment 956,276 1,052,098
------------ ------------
Total Property and Equipment 50,765,075 50,223,280
------------ ------------
Less: accumulated depletion depreciation
and amortization (2,785,495) (2,060,386)
------------ ------------
Net Property and Equipment 47,979,580 48,162,894
------------ ------------
Other Investments at Cost 1,158,857 358,857
Long-Term Notes Receivable - 500,000
Other Assets - 89,816
------------ ------------
Total Assets $ 55,420,489 $ 53,968,578
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,812,917 $ 4,085,777
Accrued liabilities 4,634,524 3,554,095
Accrued income taxes 630,711 708,931
Accrued settlement obligations 6,849,182 12,527,000
Notes payable 3,259,344 4,155,492
Notes payable to related parties 1,559,946 1,329,161
------------ ------------
Total Current Liabilities 22,746,624 26,360,456
------------ ------------
Deferred Income Tax Liability 1,315,799 -
------------ ------------
Minority Interest 4,041,398 3,824,903
------------ ------------
Stockholders' Equity
Preferred stock, $.001 par value; 3,661,968
shares authorized; issued and outstanding:
September 30, 2000 - 2,392,228 shares,
December 31, 1999 - 2,394,028 shares; 1999
liquidation preference: $845,640 350,479 2,001,949
Common stock, $.001 par value; 325,000,000
shares authorized; issued and outstanding:
September 30, 2000 - 111,779,963 shares,
December 31, 1999 - 86,835,838 shares 111,780 86,836
Additional paid-in capital 126,882,415 102,032,174
Receivable from shareholders (200,000) -
Accumulated deficit (94,227,164) (76,471,799)
Accumulated other comprehensive loss (5,600,842) (3,865,941)
------------ ------------
Total Stockholders' Equity 27,316,668 23,783,219
------------ ------------
Total Liabilities and Stockholders' Equity $ 55,420,489 $ 53,968,578
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
F-1
<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,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Oil and Gas Sales $ 1,478,090 $ 1,345,037 $ 4,151,155 $ 3,326,629
------------ ------------ ------------ ------------
Costs and Operating Expenses
Oil and gas production 175,606 384,652 799,626 990,539
Depreciation depletion and amortization 109,519 622,221 840,243 1,428,166
Litigation settlement expense, net of
$105,000 settlement income 6,343,696 - 6,343,696 -
Less on sale of equipment 3,070 - 4,926 -
General and administrative 2,258,721 3,573,058 5,467,995 7,913,770
------------ ------------ ------------ ------------
Total Costs and Operating Expenses 8,890,612 4,579,931 13,456,486 10,332,475
------------ ------------ ------------ ------------
Other Income (Expense)
Interest income 26,164 108,215 76,806 190,051
Interest expense (3,848,540) (149,884) (6,814,002) (405,731)
Foreign exchange net gains (losses) 91,121 (2,567) 140,205 108,492
Realized loss on sale of securities - (1,600,000) - (1,637,694)
------------ ------------ ------------ ------------
Total Other Income (Expense) (3,731,255) (1,644,236) (6,596,991) (1,744,882)
------------ ------------- ----------- ------------
Loss Before Provision for Income Taxes (11,143,777) (4,879,130) (15,902,322) (8,750,728)
Provision for Income Taxes (1,398,162) - (1,398,162) -
Minority Interest in Income of Consolidated
Subsidiary 109,868 (179,545) (370,531) (348,608)
------------ ------------ ------------ ------------
Net Loss (12,432,071) (5,058,675) (17,671,015) (9,099,336)
Preferred Dividends (55,581) (24,902) (105,946) (1,031,679)
------------ ------------ ------------ ------------
Loss Applicable to Common Shares $(12,487,652) $ (5,083,577) $(17,776,961) $(10,131,015)
============ ============ ============ ============
Basic and Diluted Loss per Common Share $ (0.12) $ (0.06) $ (0.18) $ (0.12)
============ ============ ============ ============
Weighted Average Number of Common
Shares Used In Per Share Calculation 105,641,055 82,883,604 99,640,871 82,182,414
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-2
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(17,671,015) $ (9,099,336)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation depletion and amortization 840,243 1,428,166
Minority interest in income (loss) of subsidiary 370,531 348,608
Allowance provided against note receivable 500,000 -
Common stock issued for services 365,000 -
Interest expense related to grant of warrants 2,639,038 -
Accrued settlement obligations 6,448,696 -
Interest expense from beneficial conversion features 1,689,429 -
Debentures issued for expense paid by shareholder 986,376 -
Interest expense from detachable warrants 1,898,138 -
Loss on sale of equipment and securities
available-for-sale 1,856 1,637,694
Exchange gain (140,205) (108,492)
Deferred tax liability 1,315,799 -
Changes in assets and liabilities, net
of assets acquired:
Trade receivables (1,075,334) (534,686)
Other receivables (627,465) (558,384)
Other assets (118,171) (379,604)
Accounts payable 2,149,503 556,814
Accrued liabilities 1,859,225 1,658,760
------------ ------------
Net Cash Used In Operating Activities 1,431,644 (5,050,460)
------------ ------------
Cash Flows From Investing Activities
Purchases of mineral interests, property and equipment (4,381,716) (4,622,749)
Issuance of note receivable to Teton Petroleum Company (400,000) -
Investment in Teton Petroleum Company at cost (300,000) -
Proceeds from sale of securities, property and equipment 2,291,978 100,557
Investment in securities available-for-sale - (1,696,700)
------------ ------------
Net Cash Used In Investing Activities (2,789,738) (6,218,892)
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 195,000 -
Principal payments on notes payable to related parties (65,974) (150,000)
Principal payments on notes payable (630,905) (482,489)
Proceeds from issuance of preferred stock,
net of offering costs - 6,012,500
Proceeds from issuance of debentures 1,591,336 -
Proceeds from issuance of notes payable - 184,742
Proceeds from issuance of notes payable to
related parties 142,614 429,070
------------ ------------
Net Cash Used In Financing Activities 1,232,071 5,993,823
------------ ------------
(Continued)
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-3
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Effect of Exchange Rate Changes on Cash and
Cash Equivalents $ (59,186) $ (143,889)
------------ ------------
Net Decrease In Cash and Cash Equivalents (185,209) (5,419,418)
Cash and Equivalents at Beginning of Period 1,047,141 7,489,510
------------ ------------
Cash and Equivalents at End of Period $ 861,932 $ 2,070,092
============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 57,462 $ 255,847
============ ============
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities
During the three months ended March 31, 2000, accrued
liabilities in the amount of $87,216 were converted to
debentures. Debentures in the amount of $3,000,000 were converted
into 8,571,428 shares of common stock at $0.35 per share.
Preferred shareholders converted 1,800 shares of Series C
preferred stock together with $21,599 of accrued preferred
dividends into 5,329,713 common shares at a weighted-average
price of $0.54 per common share.
Also during the nine months ended September 30, 2000, the Company
issued 5,292,983 shares of common stock pursuant to accrued
settlement obligations valued at $3,835,514 or $0.72 per share.
An option to purchase 3,000,000 shares of the company's common
stock was granted pursuant to accrued settlement obligations
valued at $1,560,000. The options granted vest in one year and
are exercisable at $0.65 per share for a period of thirty days.
The Company issued 1,500,791 shares of common stock upon
conversion of debt to related parties in the amount of $525,277,
or $0.35 per share, including notes payable of $294,896 and
related accrued interest in the amount of $230,381. The Company
issued 1,499,208 shares of common stock upon conversion of debt
to third parties in the amount of $524,720, or $0.35 per share,
including notes payable of $146,883 and related accrued interest
in the amount of $377,837. The Company issued notes payable to
shareholders totaling $792,814 for payments made on behalf of the
Company for investments in property of $692,814 and an advance of
$100,000 to Teton Petroleum Company as a note receivable.
During the nine months ended September 30,1999, EuroGas accrued
preferred dividends of $1,031,679. Preferred shareholders
converted 8,000 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.
The accompanying notes are an integral part of these condensed financial
statements.
F-4
<PAGE>
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/A for the year
ended December 31, 1999. 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, 2000.
Business Condition- EuroGas and its subsidiaries have accumulated
deficits of $76,471,799 since their inception in 1995 through
December 31, 1999 and $94,227,164 as of September 30, 2000. They
have had losses from operations and negative cash flows from
operating activities during each of the three years in the period
ended December 31, 1999. These conditions raise substantial doubt
regarding the Company's ability to continue as a going concern.
Although the Company had positive stockholders' equity at
December 31, 1999 and September 30, 2000, realization of the
investment in properties and equipment is dependent on EuroGas
obtaining financing for the exploration, development and
production of those properties. If exploration of unproved
properties is unsuccessful, all or a portion of recorded amount
of those properties will be recognized as impairment losses.
Further, EuroGas is dependent on improvement in oil and gas
prices in order to establish profitable operations from oil and
gas production. As in the past, management plans to finance
operations and acquisitions through issuance of additional equity
securities, the realization of which is not assured.
NOTE 2 - PROPERTY ACQUISITIONS
EuroGas has paid a deposit of $300,000 towards a potential
acquisition of an interest in a Russian oil and gas company owned
by Teton Petroleum Company ("Teton"), made a loan to Teton in the
amount of $500,000 and placed a promissory note from an
individual in the amount of $500,000 to Teton and securities of
the individual into an escrow account to ensure the ability of
EuroGas to provide the remainder of a $1,000,000 loan to Teton.
The deposit paid by EuroGas will be forfeited if the acquisition
is terminated. If the acquisition is terminated, the parties have
agreed that the $500,000 loan will be converted into 1,000,000
shares of Teton common stock.
During the nine months ended September 30, 2000, Big Horn
Resources Ltd, a Canadian full-service oil and gas producer which
the Company holds an interest of 50.1% acquired property valued
at $889,472 and capitalized development and exploration costs in
the amount of $3,316,664. Big Horn Resources Ltd also disposed
of their non-core properties for net proceeds of $2,196,592.
Also during the nine months ended September 30, 2000, EuroGas
Austria GmbH, a wholly owned subsidiary capitalized exploration
costs in the amount of $477,614.
NOTE 3 - NOTE RECEIVABLE
As described in Note 2, Property Acquisitions, EuroGas made a
loan in the amount of $500,000 to Teton Petroleum Company (Teton)
of which $100,000 was paid by a shareholder on behalf of the
Company. During August 2000, Teton issued 1,000,000 restricted
common shares in satisfaction of this receivable. EuroGas has
recorded its investment in Teton shares as an investment in non-
marketable securities at its cost of $500,000.
During the second quarter of 2000 EuroGas determined that a note
receivable in the amount of $500,000 was unrecoverable.
Accordingly, the Company provided an allowance against the note
and recorded a bad debt charge of $500,000 to its operations for
the period ended June 30, 2000.
NOTE 4 - NOTES PAYABLE
During the first quarter of 2000 EuroGas completed the issuance
of two-year 10.5% convertible debentures in the amount of
$3,000,000 in exchange for cash proceeds of $1,591,336, the
conversion of prior outstanding EuroGas debt into debentures in
the amount of $422,288 and proceeds in the form of payments to
creditors on behalf of EuroGas by a debenture holder in the
amount of $986,376. The debentures are convertible into common
shares at $0.35 per share, which represents a discount of 20%
from quoted market values on the date of the issuance. Upon
conversion, the debenture holders also received warrants to
purchase 17,142,858 common shares at $0.35 per share. The
convertibility of the debentures at a discount, and the
detachable warrants issued below market on the date of issuance,
constitute a beneficial conversion feature of the debentures. The
Company recorded the three instruments at their relative fair
values on the date of issuance with $1,898,138 allocated to
warrants, $330,439 allocated to the debentures and $771,429
allocated to the beneficial conversion feature with the remaining
$2,669,567 recorded as a debt discount. Since the debentures
were immediately convertible, the Company recognized the
resulting debt discount of $2,669,567 as interest expense. The
values of the options was determined using the Black-Scholes
option pricing model with the following assumptions: risk-free
interest rate of 6.2%, expected dividend yield of 0%, volatility
of 126% and an expected life of two years. The debentures were
subsequently converted, at the election of the holders, on March
30, 2000, into 8,571,428 common shares and warrants to purchase
17,142,858 common shares at $0.35 were issued.
During September 2000, the Company issued 1,500,792 shares of
common stock upon conversion of notes payable to related parties
in the amount of $525,277, or $0.35 per share, including
conversion of principal on related party notes payable in the
amount of $294,896 and related accrued and unpaid interest in
the amount of $230,381. Also during September 2000, the Company
issued 1,499,209 shares of common stock upon conversion of notes
payable in the amount of $524,720, or $0.35 per share, including
principal on notes payable of $146,883 and related accrued and
unpaid interest in the amount of $377,837. The grant of
convertibility of the notes payable and notes payable to related
parties, at a discount below market, constitutes the grant of a
beneficial conversion feature of $0.31 for the difference between
market and the conversion price of the debt. The Company
recognized $918,000 as interest expense related to the beneficial
conversion feature.
During the nine months ended September 30, 2000, the Company
issued notes payable to shareholders totaling $892,814 for
payments made on behalf of the Company. Included in the payments
were investments in property and other operating expenses of
$792,814 and an advance of $100,000 to Teton Petroleum Company as
a note receivable.
Current notes payable were reduced during the nine months ended
September 30, 2000 by approximately $896,148 which primarily
consisted of a net reduction in a line of credit to a bank in
Canada of $742,061 and the conversion of notes to equity in the
amount of $146,883.
During September 2000, the Company reached a settlement agreement
pursuant to the default on repayment of notes payable and notes
payable to related parties. Under the terms of the agreement,
the Company will issue 4,999,998 warrants. The warrants vest
immediately, are exercisable at $0.55 per share and expire on
December 31, 2003. The Company recorded interest expense in the
amount $2,639,038 related to the warrants. The warrants were
valued utilizing the Black-Scholes option pricing model with the
following weighted average assumptions: risk free interest rate
of 5.8 percent; expected dividend yield of 0 percent; volatility
of 137.3 percent; an expected life of 3.3 years.
NOTE 5 - STOCKHOLDERS' EQUITY
An assertion was made against EuroGas by alleged holders of
registration rights that EuroGas failed to file a registration
statement for certain shares and warrants. On March 16, 2000, a
default judgement in the amount of $19,773,113 was entered
against EuroGas by the United States District Court District of
Utah, Central Division due to lack of response by EuroGas. On
June 16, 2000, the Company entered into a settlement agreement,
with the holders of the registration rights in satisfaction of
the default judgement. Under the terms of the agreement, the
Company was required to issue 3,700,000 shares of its common
stock and an option to purchase an additional 3,000,000 shares of
common stock exercisable in one year at an exercise price of
$0.65 per share. The terms of the agreement further require the
Company to register the shares of common stock issued and to pay,
either in cash or additional common stock, the difference between
$3.00 per share and the market value of the shares of common
stock received by the holders of the registration rights upon
exercise of the options. The Company recognized a charge of
$11,527,000 related to the settlement agreement against its
operations during the year ended December 31, 1999. The warrants
granted were valued utilizing the Black-Scholes option pricing
model with the following weighted average assumptions: risk free
interest rate of 6.4 percent; expected dividend yield of 0
percent; volatility of 154.9 percent; an expected life of 1.1
year. During June 2000, the Company issued the 3,700,000 shares
of common stock as required under the terms of the agreement.
During September 2000, the Company issued 615,000 common shares
with a value of $440,000, or $0.72 per share, pursuant to a
settlement agreement reached during October 1999 with former
employees of Globegas, a wholly owed subsidiary of the Company.
The assertion made by the former employees was for prior
compensation owed. The Company recognized the accrued settlement
obligation and related expense during the year ended December 31,
1999.
As described in Note 7 - Commitments and Contingencies, during
the nine months ended September 30, 2000, the company issued
977,983 shares of common stock pursuant to other accrued
settlement obligations in the amount of $398,514 or $0.41 per
share.
As described in Note 4 - Notes Payable, during March 2000, the
Company issued 8,571,428 common shares upon conversion of
debentures with a value of $3,000,000, or $0.35 per share and
issued 3,000,001 common shares upon conversion of notes payable
and notes payable to related parties with a value of $441,779 and
accrued and unpaid interest of $608,218, or $0.35 per share.
During the January 2000, all 1,800 outstanding shares of 1999
Series C Convertible Preferred Stock were converted into
5,266,452 common shares at a weighted-average price of $0.34 per
share. In connection with the conversion, 63,261 common shares
were issued for $21,599 in accrued dividends on the converted
1999 Series shares at a weighted-average price of $0.34 per
common share.
During September 2000, the Company issued 500,000 common shares
to a shareholder as compensation for services valued at $365,000,
or $0.73 per share and during May 2000, the Company issued
250,000 common shares for cash in the amount of $195,000, or
$0.78 per share.
During September 2000, the Company entered into an agreement with
a broker/dealer for the resale of 2,000,000 common shares which
had been registered for resale by a recent Form S-3 Registration
Statement filed with the Securities and Exchange Commission.
Under the agreement, the broker/dealer was issued 2,000,000
common shares. As of September 30 ,2000, 400,000 shares were
resold for proceeds totaling $200,000, or $0.50 per share. The
$200,000 was recorded by the Company as subscriptions receivable.
The Company expects to receive either proceeds from the sale of
the remaining 1,600,000 shares or the return of those shares.
At September 30, 2000, 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; $513,162 liquidation preference
1997 Series A Preferred shares; 260 shares outstanding;
$60.00 annual dividend rate per share, $15,600
annually; $332,478 liquidation preference
NOTE 6 - COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For The Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Loss Applicable to Common Shares $(12,487,652) $ (5,083,577) $(17,776,961) $(10,131,015)
------------ ------------ ------------ ------------
Other Comprehensive Loss
Unrealized holding losses on
securities available-for-sale (32,621) 64,642 (173,536) (376,515)
Less: Reclassification adjustment
for losses realized in net loss - - - 37,695
Net change in cumulative foreign
currency translation adjustment (812,735) (594,715) (1,561,365) (1,487,240)
------------ ------------ ------------ ------------
Total Other Comprehensive Loss (845,356) (530,073) (1,734,901) (1,826,060)
------------ ------------ ------------ ------------
Comprehensive Loss $(13,333,008) $ (5,613,650) $(19,511,862) $(11,957,075)
============ ============ ============ ============
</TABLE>
Accumulated other comprehensive loss consisted of the following
at September 30, 2000:
Unrealized loss on securities available-for-sale $(1,242,389)
Cumulative foreign currency translation adjustment (4,358,453)
-----------
Accumulated Other Comprehensive Loss $(5,600,842)
===========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
EuroGas' subsidiary, GlobeGas BV, has applied for a reduction in
an income tax liability in the Netherlands of an amount
equivalent to approximately $692,431 at December 31, 1999. 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.
During January 2000, EuroGas entered into an agreement with
Slovgold GmbH, a related party, to conduct a six-well pilot
program in South Wales to test for coaled methane gas. Under the
terms of the agreement, EuroGas will cover the costs for the
pilot program and the first stage of any subsequent development
program in exchange for 40% of the cash flow until payout.
EuroGas interest will be reduced to 25% after the payout point is
reached. Slovgold GmBH is affiliated with a shareholder of
EuroGas.
A bankruptcy trustee appointed in the McKenzie Methane
Corporation Bankruptcy case (McKenzie Methane Corporation was an
affiliate of the former owner of a EuroGas subsidiary, Pol-Tex)
has asserted a claim to the proceeds that EuroGas would receive
from an agreement with Texaco during 1997 relating to the
exploitation of the Pol-Tex methane gas concession in Poland. The
Trustee's claim is apparently based upon the theory that EuroGas
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's, or in fact may be
operating as a nominee for the McKenzie's, and therefore, the
creditors of the estate are the true owners of the proceeds
received or to be received from the development of the Pol-Tex
concession. EuroGas believes that the claim is 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
trustee over the estate has no jurisdiction over Pol-Tex Methane,
a Polish corporation, or its interests held in Poland, that
EuroGas paid substantial consideration for Globegas, and that
there is no evidence that the creditors invested any money in the
Pol-Tex concession.
In October 1999, the Trustee filed a Motion for Leave to Amend
and Supplement Pleadings and Join Additional Parties in this
action and in an adversary proceeding in which he is seeking to
add new parties and assert additional causes of action against
EuroGas and the other defendants in this action. These new causes
of action include claims for damages based on fraud, conversion,
breach of fiduciary duties, concealment and perjury. In January
2000, that motion was approved by the Bankruptcy Court. This suit
has been administratively consolidated with the above claims and
is pending before the court.
In July 1999, the above mentioned trustee filed another suit in
the same bankruptcy cases seeking damages in excess of $170,000
for the defendants' alleged violation of an agreement with the
trustee which allowed the Texaco agreement to proceed. EuroGas
disputes the allegations and has filed a motion to dismiss or
alternately, to abate this suit which motion is currently pending
before the court.
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 and its parent company for breach of contract
concerning their activities with the bankruptcy trustee.
In early December 1999, EuroGas signed a settlement agreement
with Kukui, the Bishop Estate and the bankruptcy Trustee, which,
if fully performed, would resolve all claims made by Kukui and
the bankruptcy Trustee in the aforementioned litigation. That
settlement, in part, requires EuroGas to pay $900,000 over 12
months and issue 100,000 shares of registered common stock to the
Bishop Estate by June 30, 2000. Subsequently, however, the
Trustee declared that certain conditions precedent set forth in
the settlement agreement have not been met and the Trustee does
not intend to seek bankruptcy court approval of the agreement.
EuroGas is now evaluating what effect this has on the agreement.
In the event the settlement agreement does not resolve the
foregoing litigation, EuroGas intends to vigorously defend the
litigation. Pursuant to the settlement, EuroGas is past due on a
portion of the monthly payments to Kukui and has executed all
pleadings required to be submitted to the Federal District Court
in Utah.
As further described in Note 8 - Subsequent Events, during
October 2000, the Company reached a mediation settlement
agreement related to the McKenzie Bankruptcy case and all
related assertions. The Company recorded a settlement expense in
the amount of $4,583,824 during the three month period ended
September 30, 2000 related to the agreement.
During July 1999, an action was commenced by a former consultant
asserting breach of a service agreement related to consulting and
engineering services provided to the Company. The consultant has
made an assertion for $159,500 and the right to purchase 284,000
shares of common stock at a price of $1.50 per share as
compensation for services provided to the Company. During the
second quarter of 2000, the Company reached a settlement
agreement in satisfaction of this action. Pursuant to the
agreement, the Company received $300,000 from a former officer,
and issued 250,000 shares of common stock. The Company recorded
the issuance of the common stock at the fair value of $195,000,
or $0.78 per share and settlement income in the amount of
$105,000 during the nine months ended September 30, 2000. The
former officer also made payments to the former consultant in
full satisfaction of his claims.
On October 11, 1999, an action was filed against the Company
entitled "Fred L. Oliver, Petroleum Ventures of Texas, R.A. Morse
and R.A. Morse, Trustee, Plaintiffs vs. EuroGas, Inc. and Beaver
River Resources, Ltd., Defendants" in the State District Court of
Dallas County, Texas, Cause #DV99-08032-A. In this action,
Plaintiffs assert that the Company breached an agreement by
failing to seek registration of certain restricted and
unregistered shares issued to Plaintiffs in connection with the
Company's acquisition of its interest in Beaver River Resources,
Ltd. The action seeks rescission of the agreement, or in the
alternative, damages, and includes claims for costs, attorneys'
fees and interest. The Company has filed an answer denying the
allegations contained in the lawsuit. The Company believes that
this lawsuit was settled and has recently filed a counterclaim to
enforce the settlement. The Company also entered into a second
round of settlement negotiations to resolve this lawsuit.
During March of 1998, EuroGas was notified there may be certain
title problems related to an area of mutual interest to be
explored and developed by the Nafta/Danube joint venture in
Slovakia. The problem area was outside of the Trebisov area where
EuroGas drilled six wells and which was unaffected by the claim.
The disputed area was located in the southern portion of the
property covered by the designations contained in the
Nafta/Danube joint venture agreements and was subject to a
competing claim of ownership by a private Slovak company.
EuroGas' expansion beyond the Trebisov was limited by the extent
the Nafta/Danube joint venture did not have exploration rights
as previously contemplated. During the second quarter of 1998,
EuroGas acquired a 90% interest in Maseva Gas, s.r.o. ("Maseva")
which holds the rights to the exploration territory known as
"Kralovsky Chlmec"and included the disputed area located to the
south of Trebisov. The division of the working interest for this
territory was 67.5% for EuroGas (rather than the 50% split which
governs the Trebisov area), provided that EuroGas carries the
cost of drilling the first two wells in the Maseva concession.
During October 1997 EuroGas received additional concession rights
from the Polish Ministry of Environmental Protection of Natural
Resources and Forestry to explore and potentially develop a 111
square kilometer coal bed methane concession. The concession
agreement requires expenditure of $40,000 per year pending
completion of a feasibility study and negotiations with third
parties for the eventual purchase of natural gas.
In October 1997, EuroGas completed an agreement on a 50/50 cost
basis for appraisal and development activities for an area
located in the Carpathian Flysch and tectonic Fordeep areas of
Poland. The agreement contemplates a total expenditure by EuroGas
of $15 million over a three- year period. EuroGas does not presently
have the assets necessary to meet this obligation.
In March 1998, EuroGas acquired a 53% interest in RimaMuran
s.r.o. whose principal asset is a minority interest in a talc
deposit in eastern Slovakia. RimaMuran will have an obligation to
fund 33 to 39% of the projected $12,000,000 capital cost
requirements over the next two and one-half years. RimaMuran does
not have the assets necessary to meet this obligation, and it is
anticipated that the necessary funding will need to be provided
by EuroGas. To date, EuroGas has invested $1,433,651 in the
RimaMuran project.
During February 1998, EuroGas formed a consortium with a large
United Kingdom power producer and with a German Utility company
to develop a power generation project in Zielona Gora, Western
Poland. EuroGas anticipates the total investment required to
develop the project will approximate $150 Million. EuroGas will
hold a 12.5% share interest in the joint venture created by the
consortium and will be required to pay approximately 7.5%, or
$11,250,000 of the estimated project cost. EuroGas does not
presently have the assets necessary to meet this obligation.
During 1998, EuroGas entered into six agreements which grant
rights to jointly explore prospects within the Ukraine. The
agreements commit EuroGas to form joint ventures and joint
companies and use the partners' concession agreements in
exploiting the potential standard 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
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 per share were granted in
connection with the employment contract. The options vest on
January 1, 2000, and expire in April 2009.
The Company leases office facilities from various lessors in the
United States, Poland, Ukraine, the Netherlands, and the United
Kingdom. Rent expenses for the years ended December 31, 1999,
1998 and 1997 were $517,354, $290,991, and $178,733,
respectively. Annual commitments for future minimum rental
payments required under the leases as of December 31, 1999 were
as follows:
Lease
Year Ending December 31: Payments
----------
2000 $ 154,452
2001 154,452
2002 104,814
----------
Total $ 413,718
==========
NOTE 8 - SUBSEQUENT EVENTS
During October 2000, the Company issued 7,000,000 shares common
stock for cash proceeds of $2,000,000, net of $500,000 issuance
costs. If the issuer does not realize $2,500,000 upon resale of
the 7,000,000 shares, the Company will issue additional shares to
provide for any shortfall.
During October 2000, the Company reached a mediation settlement
agreement related to the McKenzie Bankruptcy case to address
resolutions of all related disputes and issues as described in
Note 7 - Commitments and Contingencies. Under the terms of the
agreement, the Company agreed to pay $1,500,000 by December 31,
2000, execute a promissory note for $1,500,000 payable to the
trustee, bearing an interest rate of 8% per annum and maturing on
December 31, 2002. The Company also agreed to issue 2,000,000
shares of common stock and 2,800,000 warrants having a strike
price of $0.405 per share and expiring in two years. The Company
has agreed to file, for the benefit of the trustee, a
registration statement on Form S-3 by January 15, 2001 for the
common shares with a piggyback shelf registration for the
warrants. Under the terms of the settlement agreement, the
Company will make all past due installments due under the
original Kukui settlement agreement. The Company recorded a
settlement expense in the amount of $4,583,824 during the three
month period ended September 30, 2000 related to the settlement
agreement.
Also during October 2000, the Company reached an agreement in
principal related to a dispute involving the issuance of common
stock upon conversion of notes payable. Under the terms of the
agreement, the Company will issue 3,800,000 shares of common
stock, which will be registered with the Securities and Exchange
Commission by the submission of a Form S-3 no later than January
15, 2001. The Company will also issue a warrant to purchase
5,200,000 shares of common stock at $1.00 per share. The
warrants will expire on January 15, 2002. The Company recorded a
settlement expense in the amount of $1,864,872 during the three
month period ended September 30, 2000 related to the settlement
agreement and issued 877,983 of the required 3,800,000 shares of
common stock.
During October 2000, EuroGas loaned an additional $500,000 cash
to Teton Petroleum under terms of a convertible debenture and a
share purchase agreement. The debenture carries a 20% interest
rate and is convertible after one year, together with $100,000
interest which will accrue through that date, into 2,000,000
registered Teton common shares at $0.30 per share.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
The Company is primarily engaged in the acquisition of
rights to explore for and exploit natural gas, coal bed methane
gas, crude oil and other hydrocarbons. The Company has acquired
interests in several large exploration concessions and is in
various stages of identifying industry partners, farming out
exploration rights, undertaking exploration drilling, and seeking
to develop production. The Company is also involved in co-
generation and mineral reclamation projects. The following
discussion highlights the Company's acquisition activities and
holdings by global region.
Activities in Canada. The Company holds an equity interest
of slightly more than 50% of the capital stock of Big Horn
Resources Ltd. ("Big Horn"), a Canadian full-service oil and gas
producer. Big Horn's business is conducted primarily in western
Canada, particularly in the provinces of Alberta and
Saskatchewan, and its stock is currently traded on the Toronto
Stock Exchange. Although the Company currently holds one seat on
Big Horn's board of directors, the Company is not involved in the
day-to-day management or operations of Big Horn. The Company
consolidates the operations and assets of Big Horn into the
Company's financial statements.
Activities in Poland. EuroGas Polska, a wholly-owned
subsidiary of the Company, has formed a consortium with certain
other companies under the registered name of "Energetyka
Lubuska." Energetyka Lubuska has executed a letter of intent
with the Polish Oil and Gas Company to develop a new power plant
near Gorzow, in northwestern Poland. The proposed project
involves the construction of a five-megawatt power plant that
uses gas produced by a nearby oilfield to produce electricity
that will be marketed to a nearby desulfurization plant owned by
the Polish Oil and Gas Company. The project is at a preliminary
stage, and the Company must enter into a final agreement with the
Polish Oil and Gas Company, complete the design of the plant, and
obtain financing before the 12-24 month construction process can
commence. The Company expects to enter into a final agreement
by the end of 2000.
In addition, on September 7, 2000, the Polish Ministry of
Environmental Protection, Natural Resources and Forestry granted
EuroGas Polska a concession to explore and develop oil and gas
for over one million acres in the Carpathian oil fairway. In May
2000, a report conducted by independent Polish oil and gas
experts indicated potentially producing deposits in 12
exploration leads within this area. On October 27, 2000,
EuroGas Polska entered into a Joint Operation Agreement with the
Polish Oil and Gas Company. The agreement calls for Polish Oil
and Gas Company to become the operator in the Carpathian project.
Separately, the Polish Oil and Gas Company and the Company have
entered into a tentative agreement whereby the Polish Oil and Gas
Company will acquire 30% of EuroGas Polska
Activities in Slovakia. The Company is pursuing three
projects in Slovakia, including the development of the Gemerska-
Poloma talc deposit located near Roznava. The Company owns a
24.5% indirect interest in this talc deposit, operated by Rozmin
s.r.o., with the remaining interest being held by Belmont
Resources, Ltd. ("Belmont"), a Vancouver, British Columbia
corporation and an affiliate of a significant shareholder of the
Company. The Company anticipates commercial production for the
talc mine in 2001. Belmont has agreed to finance the first $1.0
million of the Company's expenditures in mining the Gemerska-
Poloma deposit.
<PAGE> 4
The Company's two remaining Slovakian projects involve the
exploration for oil or natural gas in the Trebisov gas field in
eastern Slovakia and the Evigeo (Medzilaborce) concession in the
northeastern corner of Slovakia. Each of these projects is at an
early exploratory or appraisal stage.
Activities in Sakha Republic. In 1997, the Company acquired
OMV (Jakutien) GmbH, which holds a 50% interest in the TAKT Joint
Venture, which is based in Yakutsk, Sakha Republic, Russia. The
TAKT Joint Venture held two oil and gas exploration licenses.
The Company participated in a work program of seismic
reprocessing of over 1,700km of data and its interpretation prior
to the expiry of the licenses in October 1998. Recently, the
Company has been negotiating to have the licenses renewed to
allow the Company to move forward towards choosing a drilling
location for a future well. The Company negotiated the agreement
with Pan Asia Mining Company for a farm-out of a portion of the
Company's interest in TAKT.
Activities in the United Kingdom. UK Gas Limited, a United
Kingdom company, and Slovgold GesmbH, an Austrian company, are
negotiating a 50/50 joint venture to engage in coalbed methane
gas exploration activities in South Wales. On January 20, 2000,
the Company entered into an agreement with Slovgold pursuant to
which the Company purchased 50% of Slovgold's 50% interest in
this joint venture if and when Slovgold finalizes its agreement
with UK Gas. If the joint venture agreement between UK Gas and
Slovgold is finalized, the Company anticipates conducting a six-
well pilot program on a 500 sq. kilometer (125,000 sq. acre)
concession in South Wales held by UK Gas to test for coalbed
methane gas. The Company's agreement with Slovgold calls for the
Company to cover the costs for the six-well pilot program
(estimated at $700,000) and the first stage of any subsequent
development program in exchange for 40% of the cash flow until
payout, after which the Company's contribution obligation and
cash flow interest will be reduced to 25%. In order to minimize
the amount of capital the Company needs to contribute to conduct
the pilot program, the Company has entered into discussions with
UK Gas in order to permit the Company to participate in the pilot
program by utilizing drilling equipment owned by its Polish
subsidiary. In light of the absence of binding agreement between
Slovgold and UK Gas (or any approval by UK Gas of the Company's
participation), the Company remains uncertain about the prospect
of pursuing the pilot program in any form.
Proposed Merger with Teton Petroleum Company. On April 5,
2000, the Company entered into a Master Transaction Agreement
(and related merger agreement) with Teton Petroleum Company, a
Delaware corporation ("Teton"), and Goltech Petroleum, LLC, a
Texas limited liability company and wholly-owned subsidiary of
Teton. Due to the delay of both Teton and the Company completing
related due diligence, and to liabilities associated with a
default judgment entered against the Company, such Master
Transaction Agreement has been amended pursuant to various side
letters. In July, both parties concluded that it was in the best
interests of Teton and the Company to simplify and clarify their
current contractual relationship with respect to the merger. On
July 28, 2000, a standstill agreement was reached by both
parties. On August 13, 2000, the Company and Teton entered into
an amended and restated standstill agreement. The amended and
restated standstill agreement provides for the following:
1. The Standstill agreement replaces the Master Transaction
Agreement dated April 5, 2000;
2. All indebtedness among the parties has been settled;
3. Teton has satisfied its indebtedness to the Company by
issuing 1,000,000 shares of Teton stock to the Company.
The parties have until November 1, 2000 to negotiate a new
merger agreement (see below, where the parties have extended
this date to December 31, 2000);
4. The parties are free to seek financing from third parties;
Since August 13, 2000, both parties have been involved in
continued and confidential negotiations on a potential merger. On
October 20, 2000, the Company received a convertible debenture
from Teton, which will give the Company the right and obligation
to acquire an additional 2,000,000 shares of Teton stock if a
merger is not completed by December 31, 2000. At this same time,
both companies have agreed to extend the standstill agreement
deadline of November 1, 2000 to December 31, 2000. Both parties
are actively continuing the merger negotiations at this time.
<PAGE> 5
Since the amended and restated standstill agreement
was signed on August 13, 2000, Teton has secured independent
third party financing for a portion of their needs in the Goloil
license. As a result, Teton's 100% ownership interest in Goltech
has been reduced to 50% on an interim basis. Goltech's primary
asset is its ownership of 70.59% of a Russian closed joint stock
company known as Goloil. Teton has represented to The Company
that Goloil is the operator of the Eguryakhskiy License
Territory, also referred to as the Goloil Project, a 187 sq.
kilometer (46,200 acre) oil field centrally located in the
southern half of the West Siberian basin in Russia. Goltech is
in the early stages of constructing an approximately 25 mile-long
pipeline from the Eguryakhskiy license area to an existing
pipeline in order to increase the volume of oil extracted from
the Eguryakhskiy license area. Currently there are 4 wells on
the license and a fifth well which is being drilled. Two wells
are producing 1,250 barrels of oil per day, and two wells are
shut in due to the inability to transport truck more than 1,250
barrels of oil from the field at this time.
Outlook
In the past, the Company has focused its resources on pre-
exploration or early-exploration stage natural gas, coal bed
methane gas, and other hydrocarbon projects with little short-
term revenue potential. The Company believes that its investment
in such early-stage projects will prove profitable in the long-
run and may continue to invest in additional early-stage projects
from time to time in the future. Nonetheless, present management
believes that, in order to balance out its holdings, the focus of
the Company's acquisition, investment and development strategy
should be on hydrocarbon projects that have the potential to
generate short-term revenues.
<PAGE> 6
Results of Operations
The following table sets forth consolidated income statement data
and other selected operating data for the three- month and nine-
month periods ended September 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------------------------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and Gas Sales $ 1,478,090 $1,345,037 $4,151,155 $3,326,629
Operating Expenses
Oil and gas production 175,606 384,652 799,626 990,539
Depreciation depletion 109,519 622,221 840,243 1,428,166
and amortization
Realized loss on sale of (3,070) - (4,926) -
equipment
Litigation settlement 6,343,696 - (4,926) -
expenseent
General and
administrative 2,258,721 3,573,058 5,467,995 7,913,770
Total Operating Expenses 8,890,612 4,579,931 13,456,486 10,332,475
Other Income (Expense)
Interest Income 26,164 108,215 76,806 190,051
Interest Expense (3,848,540) (149,884) (6,814,002) (405,731)
Foreign currency 91,121 (2,567) 140,205 108,492
exchange gains
(losses), net
Realized loss on sale of - (1,600,000) - (1,637,694)
securities
Other Expense, Net (3,731,255) (1,644 236) (6,596,991) (1,744,882)
Net Loss Before Provision (11,143,777) (4,879,130) (15,902,322) (8,750,728)
for Income Tax
Provision for Income Tax (1,398,162) - (1,398,162) -
Minority Interest in
income of Consolidated
Subsidiary 109,868 (288,103) (370,531) (457,167)
Net Loss (12,432,071) (5,058,675) (17,671,015) (9,099,336)
</TABLE>
<PAGE> 7
Three Months Ended September 30, 2000 Compared with Three Months
Ended September 30, 1999
Revenues. As the Company owns the controlling interest in Big
Horn, the Company's results of operations for the three months
ended September 30, 2000 reflect oil and gas sales of $1,478,090,
all of which is attributable to Big Horn. This is an increase of
10 percent compared to the same period in 1999.
Operating Expenses. Operating expenses primarily include oil and
gas production, general and administrative expenses, depreciation
and amortization, cost of mineral interests and equipment and
impairment of mineral interests and equipment. Oil and gas
production expenses decreased from $384,652 for the three months
ended September 30, 1999 to $175,606 for the three months ended
September 30, 2000. Such decreased costs result primarily from a
stabilization of the production. General and administrative
expenses were $2,258,721 for the three months ended September 30,
2000, compared to $3,573,058 for the three months ended September
30, 1999. Such decrease in administrative expenses is the result
of an effort to reduce overhead. Depreciation and amortization
expenses were $109,519 for the three months ended September 30,
2000, compared to $622,221 for the three months ended September
30, 2000.
During the three months ended September 30, 2000, the Company
incurred interest expense of $3,848,540, compared to $149,884
during the three months ended September 30, 1999. Interest
related to the grant of warrants due to the default on notes
payable and to a beneficial conversion feature on conversion of
notes payable and notes payable to related parties caused this
increase.
Income Taxes. Historically, the Company, except for its Canadian
Subsidiary, Big Horn, 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 $94,227,164 as of September 30, 2000, to offset
profits, if and when achieved, resulting in a reduction in income
taxes payable.
The Company's 50.1% owned subsidiary, Big Horn, recorded an
income tax expense in the amount of $1,398,162 for the nine
months ended September 30, 2000, and a deferred tax liability of
$1,315,799 as of September 30, 2000. The deferred tax liability
is the result of the reversal of temporary differences in the tax
basis related to the depletion method, and as the result of pass
through deductions allowed to certain Canadian shareholders under
Canadian tax regulations.
Net Loss. The Company incurred net losses of $12,432,071 for the
three months ended September 30, 2000 and $5,058,675 for the
three months ended September 30, 1999. These losses remain
attributable to the Company's absence of revenues, other than
those of Big Horn, combined with continued administrative,
production, depreciation and other recurring expenses. The
increase in net losses for the three months ended September 30,
2000, as compared to the three months ended September 30, 1999,
was primarily attributable to the net litigation settlement
expense of $6,343,696. These net losses excluding the litigation
expenses are expected to continue at least some part of 2001.
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 $91,121 in gains during the three months
ended September 30, 2000, and $2,567 as currency exchange loss in
the three months ended September 30, 1999, as a result of
currency transactions during such periods. The Company does
not currently employ any hedging techniques to protect against
the risk of currency fluctuations.
<PAGE> 8
Nine Months Ended September 30, 2000 Compared with Nine Months
Ended September 30, 1999
Revenues. As the Company owns the controlling interest in Big
Horn, the Company's results of operations for the nine months
ended September 30, 2000 reflect oil and gas sales of $4,151,155,
all of which is attributable to Big Horn. This is a 25 percent
increase from 1999.
Operating Expenses. General and administrative expenses were
$5,467,995 for the nine months ended September 30, 2000, compared
to $7,913,770 for the nine months ended September 30, 1999, a
decrease of 31 percent. The decrease was primarily attributable
to a reduction of consulting fees as well as the fact that the
company incurred a large one-time cost associated with the
leasing of new offices during the first quarter of 1999.
Depreciation and amortization expenses were $840,243 for the nine
months ended September 30, 2000, compared to $1,428,166 for the
nine months ended September 30, 1999. Such decrease is primarily
attributable to a reduced need for extraordinary depletion and
amortization. Oil and gas production expenses remained
relatively stable between the first nine months of 1999 and the
first nine months of 2000, other than a nominal decrease.
The $4,151,155 oil and gas revenue figure on the Company's
Statement of Operations represents 100% of Big Horn oil and gas
revenues. The $370,531 minority interest expense is included to
account for the interest of the minority shareholders in Big
Horn, so that the net income figures set forth on the Statement
of Operations reflect only the Company's approximately 51% equity
interest in Big Horn.
Income Taxes. As indicated above, as a result of the Company's
absence of net profits, the Company, except for its Canadian
subsidiary Big Horn, has not historically been required to pay
income taxes. For future years, the Company anticipates that it
will be able to utilize a substantial portion of its accumulated
deficit, which was $94,227,164 as of September 30, 2000, to
offset profits, if and when achieved, resulting in a reduction in
income taxes payable.
The Company's 50.1% owned subsidiary, Big Horn, recorded an
income tax expense in the amount of $1,398,162 for the nine
months ended September 30, 2000, and a deferred tax liability of
$1,315,799 as of September 30, 2000. The deferred tax liability
is the result of the reversal of temporary differences in the tax
basis related to the depletion method, and as the result of pass
through deductions allowed to certain Canadian shareholders under
Canadian tax regulations.
Net Loss. The Company incurred a net loss of $17,671,015 for the
nine months ended September 30, 2000, compared to a net loss of
$9,099,336 for the nine months ended September 30, 1999. The
losses for both periods resulted from the Company's absence of
revenues, other than those of Big Horn, together with the
Company's ongoing operating expenses. The increase in net loss
for the nine-month period ended September 30, 2000, compared to
the nine month period ended September 30, 1999, is primary
attributable to the litigation settlement expenses.
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 $140,205 during the nine months ended September 30,
2000, and $108,492 during the nine months ended September 30,
1999, in gains as a result of currency transactions.
<PAGE> 9
Capital and Liquidity
The Company had an accumulated deficit of $94,227,164 at
September 30, 2000, substantially all of which has been funded
out of proceeds received from the issuance of stock and the
incurrence of payables. At September 30, 2000, the Company had
total current assets of $6,282,052 and total current liabilities
of $22,746,624, resulting in negative working capital of
$16,464,572. As of September 30, 2000, the Company's non-current
asset section of its balance sheet reflected $26,840,810 in
mineral interests in properties not subject to amortization, 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. During the nine months
ended September 30, 2000, the Company received $1,591,336 in cash
from the issuance of the January 12, 2000 Convertible Debentures,
but expended $696,879 of such cash in principal payments on
outstanding notes. The Company received $195,000 in proceeds from
the issuance of common stock and $142,614 from the issuance of
notes payable. As a result, the Company's financing activities
provided net cash of $1,232,071 during the nine-month period
ended September 30, 2000, compared to the net cash of $5,993,823
from financing activities during the nine-month period ended
September 30, 1999. The net cash received during the nine-month
period ended September 30, 2000 was used primarily for general
and administrative expenses.
While the Company had cash of $861,932 at September 30, 2000, it
has substantial short-term and long-term financial commitments
with respect to exploration and drilling obligations related to
the mineral properties in which it has an interest, potential
litigation liabilities, and its contingent commitments to Teton
Petroleum Company under the Teton Master Agreement (which is
presently being renegotiated). Excluding potential litigation
liabilities and contingent commitments to Teton Petroleum Company
(for which the Company cannot reasonably estimate capital needs
at the present time), the Company estimates its financial
commitments for the remaining three months of 2000 will be
approximately $2 million. These funds have been obtained in
October as explained in the Subsequent Events note to the
financial statements. 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. The Company does not
have sufficient cash to meet its short-term or long-term needs,
and it will require additional cash, either from financing
transactions or operating activities, to meet its immediate and
long-term obligations. 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.
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.
<PAGE> 10
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 and 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
following:
- the Company's ability to renegotiate its agreements with
Teton Petroleum Company;
- 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 ability of the Company to obtain the necessary financing to
successfully pursue its business strategy; operating hazards and
uninsured risks; and
- the intense competition and price volatility associated
with the oil and gas industry.
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, in some cases, 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.
<PAGE> 11
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 that
it receives from its foreign operations. 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.
On December 30, 1999, Finance & Credit Development Corporation
Ltd., an Ireland corporation ("FCDC"), commenced an action
against the Company in a case styled Finance & Credit Development
Corporation Ltd., an Ireland Corporation vs. EuroGas, Inc., a
Utah corporation, Case No. 2:00VC-1024K. The Company did not
file an answer or other responsive motion to such complaint.
Accordingly, following the filing of a Motion for Default
Judgment and supportive papers by the plaintiff, on March 16,
2000, the federal district court issued a default judgment
against the Company in the amount of $19,773,113. On or about
June 16, 2000, the Company entered into a memorandum of
understanding, with FCDC in satisfaction of default judgment. In
consideration for FCDC's stipulation to vacate the default
judgment, the Company agreed, among other things, to issue to
FCDC 3,700,000 shares of common stock, to grant FCDC an option
exercisable for the 30-day period following June 30, 2001, to
purchase an additional 3,000,000 shares of common stock at an
exercise price of $.65, and to pay to FCDC in cash or shares of
common stock the difference between $3.00 per share and the
market value of the shares of common stock received upon exercise
of the option. The Company is in the process of consummating the
transactions contemplated by the memorandum of understanding.
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. 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.
<PAGE> 12
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 believes that the litigation is without merit based
on its belief that the prior settlement with KUKUI bars any such
claim, that 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. In October 1999,
the Trustee filed a Motion for Leave to Amend and Supplement
Pleadings and Join Additional Parties in this action and in
adversary proceeding 97-4155 (described below) in which he is
seeking to add new parties and additional causes of action
including claims for damages based on fraud, conversion, breach
of fiduciary duties, concealment and perjury. In January, 2000,
such motion was approved by the bankruptcy court.
In June 1999, the Trustee filed another suit in the same
bankruptcy cases styled "Steve Smith, Trustee, Plaintiff vs.
EuroGas , Inc., Globegas, B.V., Pol-Tex Methane, Sp. z.o.o., et
al." Adversary #99-3287. That suit sought sanctions against
the Defendants for actions allegedly taken by the Defendants
during the bankruptcy cases that the Trustee considered improper.
The Defendants filed a motion to dismiss the lawsuit, which was
granted in August 1999. In July 1999, the Trustee also filed a
suit in the same bankruptcy cases styled "Steve Smith, Trustee,
Plaintiff, vs. EuroGas, Inc., Globegas, B.V., Pol-Tex Methane,
Sp. z.o.o." Adversary #99-3444. This suit seeks damages in
excess of $170,000 for the Defendants alleged violation of an
agreement with the Trustee executed in March 1997, which
agreement, in part, allowed the Texaco Agreement to proceed. The
Company disputes the allegations and has filed a motion to
dismiss or alternatively, to abate this suit which motion is
currently pending before the court. Nonetheless, in order to
avoid additional costs associated with extended litigation, the
Company is engaged in settlement discussions in an attempt to
reach a negotiated resolution of the dispute.
On August 21, 1997, KUKUI 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. This lawsuit was subsequently transferred to
the United States District Court, District of Utah, Central
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 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. This
action has been settled under a settlement agreement described in
the paragraph below.
In early December, 1999, the Company signed a settlement
agreement with Kukui, the Bishop Estate and the bankruptcy
Trustee in the aforementioned litigation. That settlement, in
part, requires the Company to pay $900,000 over the next 12
months and issue 100,000 shares of registered common stock to the
Bishop Estate by June 30, 2000. In January, 2000, the Trustee
declared that certain conditions precedent set forth in the
settlement agreement have not been met, and the Trustee does not
intend to seek bankruptcy court approval of the agreement. If
the settlement agreement does not resolve the foregoing
litigation, the Company intends to vigorously defend the
litigation. Pursuant to the settlement, the Company has made the
first six monthly payments to Kukui, has executed all pleadings
required to be submitted to the United States District Court,
District of Utah, and has issued to Kukui, Inc. 100,000 shares of
restricted common stock. The Company has recently agreed to cure
all past due installments and pay the remaining installments by
November 30, 2000.
<PAGE> 13
In October 2000, the Company attended mediation with the Trustee,
Kukui, the McKenzies, and Wolfgang and Reinhard Rauball to
address resolution of all disputes and issues arising out of the
Steve, Tim & Mike McKenzie bankruptcy cases. A mediation
settlement agreement was reached under which the Company agreed
to do the following: (i) pay the Trustee $1.5 million by December
31, 2000, (ii) execute a promissory note for $1.5 million payable
to the Trustee, bearing interest at 8% per annum, maturing on
December 31, 2002, (iii) file for the benefit of the Trustee a S-
3 registration statement by January 15, 2001, for 2 million
shares of the Company's common stock, with a piggyback shelf
registration of 2.8 million warrants having a strike price equal
to the closing U.S. market price of the Company's common stock on
October 20, 2000, (iv) make the past due installments under the
Kukui Settlement Agreement described above, (v) provide certain
documentation to the Trustee, (vi) waive and not assert any
claims in the McKenzie bankruptcy cases, and (vii) indemnify the
trustee against any claims filed by Bertil Nordling in the
McKenzie bankruptcy cases. In return, the Company and its
affiliates will receive a global release from the Trustee and
Kukui (and its affiliates) releasing the Company from all claims
that could be asserted by these parties. The parties are in the
process of preparing a final settlement agreement that will be
submitted to the bankruptcy court in the McKenzie cases for
approval.
In July 1999, an action was commenced by Randy Crawford styled
"Randy Crawford, PhD. P.E., Plaintiff, v. EuroGas, Inc., Danube
International Petroleum company, Ltd., Danube Acquisition Corp.,
and Martin Schuepbach, Defendant," in the State District Court,
Dallas, Texas, Cause # DV 9805298. In this litigation, Crawford
asserts that the Defendants breached a service agreement under
which he was employed to provide consulting and engineering
services and that he is now owed $159,500 and the right to
purchase 284,000 shares of common stock of the Company at the
price of $1.50 per share. The Company recently settled this
action pursuant to an agreement requiring (i) Crawford to dismiss
his claims against the Company, (ii) Schuepbach to pay $300,000
to the Company, and (iii) the Company to issue 250,000 shares of
restricted common stock to Schuepbach. This agreement has been
fully performed.
On October 11, 1999, an action was filed against the Company
entitled "Fred L. Oliver, Petroleum Ventures of Texas, Inc., R.A.
Morse and R.A. Morse, Trustee, Plaintiffs vs. EuroGas, Inc. and
Beaver River Resources, Ltd., Defendants" in the State District
Court of Dallas County, Texas, Cause #DV99-08032-A. In this
action, Plaintiffs assert that the Company breached an agreement
by failing to seek registration of certain restricted and
unregistered shares issued to Plaintiffs in connection with the
Company's acquisition of its interest in Beaver River Resources,
Ltd. The action seeks rescission of the agreement, or in the
alternative, damages, and includes claims for costs, attorneys'
fees and interest. The Company has filed an answer denying the
allegations contained in the lawsuit. The Company believes that
this lawsuit was settled and has recently filed a counterclaim to
enforce the settlement. The Company also entered into a second
round of settlement negotiations to resolve this lawsuit.
On or about November 1, 1999, a settlement was reached with
Stephen Jeu and Susanna Calvo resolving their claims in a suit
filed in the District Court, Harris County, Texas, 55th Judicial
District. Pursuant to the settlement agreement, the Company
agreed to issue on or before June 1, 2000 to Mr. Jeu and Ms.
Calvo shares of common stock with a market value of $440,000 on
the date of issuance and to reprice certain outstanding options.
The Company did not fully perform all of the terms of the
settlement agreement, but all issues related to the Company's
default and remaining obligations under the settlement agreement
have been resolved by the issuance of 615,000 shares of the
Company's common stock to Mr. Jeu and Ms. Calvo.
For the 1992 tax year, the Kingdom of the Netherlands assessed a
tax against GlobeGas, a subsidiary of the Company, in the amount
of approximately $911,000, even though it had significant
operating losses. The amount fluctuates on the financial
statements of the Company due to adjustments in exchange ratios.
At September 30, 2000, the income tax liability recorded in the
Company's financial statements was $603,350. The Company has
appealed the assessment and has proposed a settlement that 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.
<PAGE> 14
Item 2. Changes in Securities and Use of Proceeds
On or about January 12, 2000, the Company issued four Convertible
Debentures in the aggregate face amount of $3,000,000 (the
"Convertible Debentures") to several individual investors, in
exchange for an aggregate of $1,591,336 in cash, the conversion
of $422,288 in outstanding the Company's indebtedness, and
payments made by such investors on behalf of the Company to
creditors of the Company in the amount of $986,376. The
Convertible Debentures accrued interest at the rate of prime plus
two percent (currently 10.2%) per annum. As of June 30, 2000,
the holders of all four Convertible Debentures exercised their
rights to convert the Convertible Debentures to Common Stock.
Pursuant to the conversion of the debentures, the Company issued
8,571,428 shares of Common Stock and warrants to purchase
17,142,858 shares of Common Stock at an exercise price of $0.35
per share.
The private placement of the Convertible Debentures (and the
warrants and shares of common stock issuable upon the conversion
thereof) 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 investors
confirmed to the Company that they were "accredited investors,"
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; (c) the investors were provided with any and all
other information requested by the investors with respect to the
Company, (d) the investors 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 Convertible Debentures 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -See Exhibit Index following the signature page.
(a) Reports on Form 8-K - none.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Quarterly Report on
Form 10-Q to be signed on its behalf by the undersigned thereunto
duly authorized.
EUROGAS, INC.
Dated: November 13, 2000 By:/s/ Borre Dahl
------------------------------------
(Borre Dahl, Principal
Financial and Accounting
Officer)
<PAGE> 16
Exhibit Index
Exhibi
t Title of Document Location
Number
3.1 Articles of Incorporation Registration
Statement
on Form S-18,
File
No. 33-1381-D*
3.2 Amended Bylaws Annual Report on
Form 10-K for
the
fiscal year
ended
September 30,
1990*
3.3 Designation of Rights, Quarterly Report
Privileges, and Preferences on
of 1995 Series Preferred Stock Form 10-QSB
dated
June 30, 1995*
3.4 Designation of Rights, Report on Form 8-
Privileges, and Preferences K
of 1996 Series Preferred Stock dated July 12,
1996*
3.5 Designation of Rights, Report on Form 8-
Privileges, and Preferences K
1997 Series A Convertible dated May 30,
Preferred Stock 1997*
4.1 Form of Convertible Debenture Annual Report on
issued on January 12, 2000. Form 10-K for
the fiscal year
ended December
31, 1999.*
4.2 Form of Series 2000A Warrant Quarterly Report
on Form 10-Q for
the quarter
ended March 31,
2000.*
10.1 Settlement Agreement dated June Quarterly Report
16, 2000 on Form 10-Q for
the quarter June
30, 2000.*
27.1 Financial Data Schedule Filed herewith.
*Incorporated by reference
