AS FILED: MAY 22, 1997 SEC FILE NO. 333-26619
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT ON
FORM S-3
UNDER THE SECURITIES ACT OF 1933
FX ENERGY, INC.
(Exact name of registrant as specified in its charter)
NEVADA 1070 87-0504461
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3006 HIGHLAND DRIVE, SUITE 206, SALT LAKE CITY, UTAH 84106,
TELEPHONE (801) 486-5555
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DAVID N. PIERCE, 3006 HIGHLAND DRIVE, SUITE 206, SALT LAKE CITY, UTAH 84106,
TELEPHONE (801) 486-5555
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
JAMES R. KRUSE, ESQ.
KRUSE, LANDA & MAYCOCK, L.L.C.
EIGHTH FLOOR, BANK ONE TOWER
50 WEST BROADWAY
SALT LAKE CITY, UTAH 84101
Telephone: (801) 531-7090
Telecopy: (801) 531-7091
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION--PRELIMINARY PROSPECTUS DATED MAY 16, 1997
100,000 SHARES
FX ENERGY, INC.
COMMON STOCK
All 100,000 shares of common stock, par value $0.001 per share (the "Common
Stock"), of FX Energy, Inc. (the "Company"), are being offered by certain
selling stockholders (the "Selling Stockholders"). See "SELLING STOCKHOLDERS"
and "DESCRIPTION OF SECURITIES" below.
The Selling Stockholders will offer their Common Stock through or to
securities brokers or dealers designated by them in the over-the-counter market,
in other transactions negotiated by the Selling Stockholders, or pursuant to
Rule 144 or another exemption from registration. Any such sale of Common Stock
by Selling Stockholders must be accompanied by, or follow the delivery of, a
prospectus filed with a current registration statement relating to the Common
Stock being offered, unless a Selling Stockholder elects to rely on Rule 144 or
another exemption from the registration requirements in connection with a
particular transaction. The Selling Stockholders and any broker, dealer, or
agent that participates with the Selling Stockholders in the sale of the Common
Stock offered hereby may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
or discounts received by them and any profit on the resale of the Common Stock
purchased by them may be deemed to be underwriting commissions under the
Securities Act. See "SELLING STOCKHOLDERS" and "PLAN OF DISTRIBUTION" below.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "FXEN." On May 16, 1997, the last reported price for the Company's
Common Stock on the Nasdaq National Market was $8.00 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER REGULATORY AUTHORITY, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER REGULATORY AUTHORITY
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Price to Offering Proceeds to
Public(1) Commissions(2) Selling Stockholders
- -------------------------------------------------------------------------------
By Selling
Stockholders
Per Share $8.00 -- $8.00
Total $800,000 -- $800,000
===============================================================================
(1) The price per share for the securities offered by the Selling Stockholders
is estimated at $8.00, the last reported price for the Common Stock on May
16, 1997. The Common Stock may be offered at the current market price,
which may vary through the period during which the securities may be
offered, or at such other prices as may be negotiated by a Selling
Stockholder and purchaser at the time of sale.
(2) The securities to be sold by Selling Stockholders may be sold by them
through or to securities brokers or dealers, which sales may involve the
payment of commissions by the Selling Stockholders. There is no agreement
between the Company and any broker or dealer respecting such sales.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
THE DATE OF THIS PROSPECTUS IS , 1997.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. In connection with this offering, the Company
estimates that it will incur costs of approximately $10,000 for legal,
accounting, printing, and other costs. Any separate costs of the Selling
Stockholders will be borne by them. Commissions or discounts paid in connection
with the sale of securities by the Selling Stockholders will be determined by
negotiations between them and the broker-dealer through or to which the
securities are to be sold and may vary depending on the broker-dealer's
commission or mark up schedule, the size of the transaction, and other factors.
See "PLAN OF DISTRIBUTION" below.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following reports are hereby incorporated by reference into this
Prospectus:
. Annual report on Form 10-KSB for the fiscal year ended December 31, 1996
("1996 Form 10-KSB");
. Quarterly report on Form 10-QSB for the fiscal quarter ended March 31,
1997 ("March 1997 Form 10-QSB");
. Current reports on Form 8-K dated February 3, March 17, and April 1, 4,
14, and 18, 1997; and
. The description of the Common Stock of the Company contained in its
registration statement on Form 8-A, file no. 0-25386, as declared
effective March 30, 1995, incorporating by reference from the section
entitled "Description of Securities" contained on page 55 of the
Company's registration statement on Form SB-2, Commission file no. 33-
88354-D, declared effective March 30, 1995.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
All documents subsequently filed by the Company pursuant to sections 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934 prior to termination
of the offering shall be deemed to be incorporated by reference into this
Prospectus. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference into this Prospectus, other than certain exhibits to
such documents. Requests for such copies should be directed to Stockholder
Relations, FX Energy, Inc., at 3006 Highland Drive, Suite 206, Salt Lake City,
Utah 84106, telephone number (801) 486-5555. In addition, such material and
other reports and information filed by the Company with the Securities and
Exchange Commission (the "Commission") can be inspected at or copies obtained
from certain regional offices of the Commission or the Public Reference Section
of the Commission, Washington, D.C. 20549, at the prescribed rates, or from the
SEC's internet site at http://www.sec.gov. See "ADDITIONAL INFORMATION" below.
- --------------------------------------------------------------------------------
PREFACE
- --------------------------------------------------------------------------------
CAUTION RESPECTING FORWARD-LOOKING INFORMATION
This prospectus contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect," and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current view
of the Company respecting future events and are subject to certain risks,
uncertainties, and assumptions, including the risks and uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected, or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
CERTAIN DEFINITIONS
All defined terms under rule 4-10(a) of Regulation S-X promulgated by the
Securities and Exchange Commission shall have their statutorily prescribed
meanings when used in this prospectus. In addition, the following terms have
the meaning set forth below when used herein.
"API" means American Petroleum Institute.
"BPD" means barrels of oil per day.
"BBL" means barrel of oil.
"BCF" means billion cubic feet of natural gas.
"DEVELOPMENT WELL" means a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
"EXPLORATORY WELL" means a well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
"MBBL" means thousand barrels of oil.
"MMBBL" means million barrels of oil.
"MMBOE" means million barrels of oil equivalent.
"PROVED RESERVES" means the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. "Proved reserves" may be developed or
undeveloped.
"PV-10 VALUE" means the estimated future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses such as general and administrative expense, debt service,
future income tax expense or depreciation, depletion, and amortization.
"RESERVOIR" means a porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and that is distinct and separate from other
reservoirs.
"STRATIGRAPHIC TEST" means a drilling effort, geologically directed, to obtain
information pertaining to a specific geological condition. Such wells
customarily are drilled without the intention of being completed for hydrocarbon
production.
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
The following summary is qualified in its entirety by the detailed
information and financial statements and the notes thereto appearing elsewhere
in this prospectus or incorporated herein by reference.
Unless otherwise indicated, all information herein relating to oil and gas
reserves has been calculated in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC").
THE COMPANY
FX Energy, Inc. (the "Company"), currently explores for oil and gas
primarily in Poland and the western United States and produces oil from fields
in Montana and Nevada. During 1996, the Company completed the public sale of
3,450,000 shares of Common Stock for net proceeds of approximately $17.7
million, advanced exploration of its principal oil and gas concession in Poland,
obtained additional exploration rights in Poland, and continued limited
development of its principal oil producing properties in Montana. When used
herein, the term "Company" includes both the Company and its subsidiaries.
The Company believes that its principal strengths are its existing
prospects in Poland, its access to previously collected geological and
geophysical data, its strategic alliances within the oil and gas industry, and
its ability to identify exploration properties and prospects.
During 1996, the Company's principal exploration activities were focused in
Poland, primarily on 2.4 million acres in northern Poland (the "Baltic
Concession") on which the Company acquired exploration rights in August 1995.
The Baltic Concession is in a geological region (the "Baltic Platform") that
contains established producing oil fields located approximately 50 miles to the
northeast in the Kaliningrad district of Russia.
Under an agreement reached in April 1996, the Company intends to explore
and develop the Baltic Concession with RWE-DEA AG ("RWE-DEA"), a subsidiary of
RWE AG, Germany's fifth largest industrial company. The Company and RWE-DEA
have completed a 360 kilometer seismic survey on selected portions of the Baltic
Concession, which assisted in RWE-DEA's selection of the site of the first
exploratory well. In late January 1997 the Company commenced this first well,
the Orneta #1. In April 1997, the Company began coring the well at a depth of
approximately 8,000 feet. The well recovered water at sufficient volume and
pressure to require shutting-in the well. The Company is plugging and
abandoning the well and will evaluate data from this test to identify other
structures in the Baltic Concession. The Company expects to proceed with a
number of additional seismic surveys and exploration wells to evaluate other
structures, identify further drilling prospects, and assess alternative
exploration models and to proceed with development, if warranted.
In May 1996, the Company entered into a joint study agreement with the
Polish Oil and Gas Company ("POGC") to reprocess and reinterpret geological and
geophysical data collected from a 6.25 million acre joint study area in the
Carpathian region of southeastern Poland (the "Carpathian JSA"). POGC is a
government-owned oil and gas exploration, production, refining, transportation,
and marketing entity. The Company and POGC are conducting a technical
evaluation of the largely undrilled horizons below 2,500 feet with the intention
of selecting specific areas on which to apply for concessions.
In December 1996, the Company obtained exclusive oil and gas exploration
rights and is proceeding with steps to obtain concessions on approximately 2.0
million acres in southeastern Poland near the city of Lublin (the "Lublin
Concession."). The Company has access to approximately 3,000 kilometers of
seismic data and logs of all wells previously drilled in the region, none of
which resulted in commercial production in the Lublin Concession. The nearest
known hydrocarbon discoveries, located 15 to 30 kilometers east of the
exploration area, consist of two gas accumulations and an oil accumulation, as
reported by POGC. The Company is now reinterpreting and reprocessing existing
data from the exploration area. In April 1997, the Company entered into an
agreement with Apache Corporation ("Apache") to explore and, if warranted,
develop the Lublin Concession whereby Apache, acting as operator, will earn a
50% interest in the Lublin Concession in consideration of completing specific
work at an estimated cost of approximately $5.0 million. Under the agreement,
Apache is obligated to conduct approximately 300 miles of 2-D seismic surveys in
the Lublin Concession, drill a first exploratory well and, unless Apache
withdraws, a second well prior to the third quarter of 1998, and bear certain
additional costs in order to earn its 50% interest. Apache may drill additional
wells if geological, geophysical, and seismic evaluations warrant. The Company
and Apache have created an area of mutual interest covering approximately 4
million additional acres on adjacent blocks that they will begin evaluating.
The Company's Lublin Concession adjoins a region reserved by the government
of Poland for oil and gas exploration by POGC, which is collaborating with the
Company in an appraisal of the hydrocarbon potential of such area. The area of
mutual interest of the Company and Apache includes this acreage.
In October 1996, the Company obtained rights to explore for gold and other
associated minerals in a 71,000-acre block in the Sudety region of southwestern
Poland (the "Sudety Exploration Area") and entered into a reconnaissance and
standstill agreement with Homestake Mining Company ("Homestake"), an
international gold mining company, under which the Company and Homestake will
jointly plan limited geological, geochemical, and geophysical reconnaissance of
the area. Subject to the results of the reconnaissance, the two companies may
elect to negotiate a subsequent agreement, in which case Homestake would likely
assume operations with the Company retaining a working or royalty interest. The
Company has agreed not to negotiate with any company other than Homestake
regarding the Sudety Exploration Area until December 1997.
The Company currently produces oil exclusively in the United States. At
December 31, 1996, the Company had estimated proved reserves of 5.4 MMBbl with a
net present value of estimated future net revenue, discounted annually at 10%
("PV-10 Value") of approximately $35.4 million. Approximately 80.4% of the
Company's 1996 production and 97.4% of its reserve base as of December 31, 1996,
are concentrated in northern Montana's Cut Bank field. In January 1996, the
Company completed an infill drilling program on a small portion of the Cut Bank
field and has budgeted to continue the program on strategically selected
additional areas in the field during the next two years. The results of the
initial program are being reviewed and monitored; and if, in the opinion of the
Company, other development opportunities then available to the Company,
including development in the Baltic Concession or other areas in Poland, are
likely to provide a greater financial return to the Company, funds initially
budgeted to Cut Bank field development may be utilized for development of other
fields.
In late 1996, the Company plugged and abandoned an exploratory test at its
Cobb Creek prospect in Nevada drilled in partnership with several independent
energy companies. In view of the Company's other exploration opportunities and
the current lack of industry interest in Nevada, the Company does not anticipate
drilling its existing Nevada prospects in the foreseeable future. The Company
is evaluating several additional exploration prospects in the western United
States, principally in Wyoming, Montana, Nevada, and North Dakota.
The Company explores and develops oil and gas prospects both
internationally in Poland and domestically in the western United States,
implementing a strategy that includes the following:
. Focus on Poland. The Company believes that the Baltic Concession, the Lublin
Concession, and the Carpathian JSA provide a foundation upon which to build a
significant exploration and development operation in Poland, capitalizing on
Poland's attractive combination of significant reserve potential,
underexplored acreage, and favorable operating environment. In 1989, Poland
initiated market-based reforms which have resulted in the country's economy
becoming one of the fastest growing in eastern Europe. Important elements of
this transition have included the introduction of both a broad-based
privatization program and an internationally competitive tax and royalty
structure. Partially as a result of these initiatives, Poland attracted
approximately $10.2 billion in direct foreign investment between 1989 and
mid-1996. Such international oil companies as Texaco, Inc., Tenneco Co.,
Exxon Corp., and Shell Oil Co., have either secured, or obtained the
exclusive right to negotiate for, oil and gas exploration rights. (See
below.)
. Access geological and geophysical data. The Company focuses on areas where
it can reevaluate previously collected geological and geophysical data.
During the preceding several decades, state-sponsored agencies in Poland
gathered thousands of line miles of seismic data and drilled numerous oil and
gas exploration or stratigraphic test wells in the various regions of the
country that such agencies believed had hydrocarbon potential. These
exploration efforts were hampered, in the Company's opinion, by the use of
outdated seismic processing, drilling, testing, and completion techniques.
Accessing this data and reevaluating it with modern processing techniques
enables the Company to complete geological and geophysical reconnaissance of
large areas that are relatively underexplored as compared to domestic regions
with similar hydrocarbon potential.
. Capitalize on strategic alliances. The Company seeks to form strategic
alliances to reduce its financial exposure and risk and to gain additional
technical and operational expertise. This strategy is exemplified by the
Company's alliances with RWE-DEA covering the Baltic Concession, with POGC in
the Carpathian JSA and the Lublin area, and with Apache in the Lublin
Concession. RWE-DEA, formerly Deutsche Texaco AG, is an established
producer, refiner, and marketer of oil and gas in Europe and currently
produces oil in the Baltic Sea off Germany's northern coast. Pursuant to an
agreement with the Company, RWE-DEA will acquire a 50% interest in the Baltic
Concession by paying the Company $250,000 and providing up to $2.1 million
for a seismic survey now completed and its share of costs of the first
exploratory well, now being plugged and abandoned, and by funding 50% of the
cost of a second well. The Company will operate all wells it drills jointly
with RWE-DEA. In addition, the Company is now evaluating existing geological
and geophysical data contributed by POGC in order to determine the
hydrocarbon potential of the Lublin Concession, adjacent POGC lands, and
certain target areas within the Carpathian JSA. The Company intends to
propose that it and POGC apply for exploration rights covering selected
target areas within the Carpathian JSA upon the completion of this analysis.
With Apache, the Company will undertake exploration and development, if
warranted, of the Lublin Concession with Apache acting as operator. Pursuant
to an agreement with the Company, Apache will acquire a 50% interest in the
Lublin Concession by providing approximately $5.0 million to complete a
seismic survey, drill one exploratory well and, unless Apache withdraws, a
second well prior to the third quarter of 1998, and bear certain additional
costs.
. Exploit domestic reserve base and prospects. The Company is studying the
results of a 1995-1996 infill drilling program on a 1,000 acre tract of the
Cut Bank field to determine whether, when compared to other opportunities now
available in Poland and elsewhere, such drilling is resulting in competitive
benefits to the Company and warrants expansion of the program to additional
areas in the field. The Company also has an ongoing program of prospect
generation and exploration in the western United States, which has resulted
in the identification of prospects in Wyoming, Montana, Nevada, and North
Dakota on which the Company is now seeking exploration rights, exploration
partners, additional data, or other items.
The Company's oil and gas exploration activities involve significant risks.
There can be no assurance that the use of technical expertise as applied to
geophysical or geological data will ensure that any well will encounter
hydrocarbons. Further, there is no way to know in advance of drilling and
testing whether any prospect encountering hydrocarbons will yield oil or gas in
sufficient quantities to be economically viable. Several test wells are
typically required to explore each prospect or exploration area, particularly
underexplored areas such as the Baltic Concession and the other areas in Poland
where a significant portion of the Company's exploration activities are
concentrated. The Company may continue to incur substantial exploration costs
in specific areas, including the Baltic Concession, the Lublin Concession and
the Carpathian JSA in Poland, even if initial test wells are plugged and
abandoned or, if completed for production, do not result in production in
commercial quantities. To date, the Company has participated in seven
exploratory test wells in the western United States, none of which has resulted
in the establishment of commercial production or reserves.
The Company's executive offices are located at 3006 Highland Drive, Suite
206, Salt Lake City, Utah 84106, telephone number (801) 486-5555. The Company's
Montana field office is located at the corner of Central and Main, Oilmont,
Montana 59466, telephone number (406) 337-2050. The registered address of
Frontier Poland Exploration and Producing Company Sp. z o.o ("FX Poland"), a
Polish subsidiary of the Company, is Wal Miedzesynski 646, 03-994 Warszawa,
Poland.
THE OFFERING
Securities offered by Selling Stockholders..100,000 shares of Common Stock(1)
Common Stock outstanding before offering....12,584,381 shares
Common Stock outstanding after offering.....12,684,381 shares
Common Stock reserved for issuance..........3,165,694 shares(2)
Fully diluted Common Stock .................15,850,075 shares
Nasdaq Symbol...............................FXEN
(1)Includes 100,000 shares of Common Stock issuable on the exercise of options
to purchase Common Stock and to be sold pursuant to this Prospectus.
(2)In addition to the 100,000 shares of Common Stock reserved for issuance on
exercise of options currently held by Selling Stockholders, as of April 30,
1997, 3,015,694 shares of Common Stock were reserved for issuance on the
exercise of outstanding options and warrants, including options and warrants
previously granted but not yet exercisable, at exercise prices ranging from
$1.10 to $10.25 with a weighted average exercise price of $3.89 per share,
and 150,000 shares were reserved for issuance on the satisfaction of certain
contractual conditions relating to oil production levels from the Company's
producing properties in Montana and Nevada.
NO NET PROCEEDS
The Company will receive proceeds of $300,000 from the exercise of the
options held by the Selling Stockholders. The Company will receive no proceeds
from the sale of Common Stock by the Selling Stockholders, but will incur costs
of approximately $10,000 in connection with such offering.
- --------------------------------------------------------------------------------
RISK FACTORS
- --------------------------------------------------------------------------------
The purchase of Common Stock involves a high degree of risk. Prospective
investors should consider, in addition to the negative implications of all other
information and financial data set forth herein or incorporated herein by
reference, the following factors before making an investment in the Common
Stock. Certain portions of this Prospectus and the materials incorporated
herein by reference contain forward-looking information concerning the Company,
its plans and other future events. These statements should be read in
conjunction with the risks and uncertainties set forth below, which could cause
actual results to differ materially from such forward-looking statements.
FACTORS RELATING TO THE COMPANY
History of Operating Losses
From its inception in January 1989 through March 31, 1997, the Company
incurred cumulative losses of $10.9 million and, because of its continued
exploration activities, expects that it will continue to incur losses and that
its accumulated deficit will increase. The Company reported losses of $4.9 and
$2.5 million for the years ended December 31, 1996 and 1995, respectively, and
$1.8 million for the quarter ended March 31, 1997. The Company anticipates that
it will incur losses through 1997 and possibly beyond, depending on whether
exploration of the Baltic Concession results in the commencement of production
in quantities sufficient to cover related operating expenses and whether the
infill drilling program in the Cut Bank field in Montana results in significant
and sustained increased production. See "ITEM 1. FINANCIAL STATEMENTS" and
"ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" in the
March 1997 Form 10-QSB.
Dependence on Activities in Poland
Through 1997, the Company has allocated by far the largest portion of its
exploration budget for its activities in Poland. The Company's success will
depend to a high degree on its activities in Poland. The Company's dependence
on success in Poland is likely to be reflected in both the short-term
performance of the Common Stock and the Company's long-term financial results.
The market price of the Common Stock may experience significant fluctuations
based on the outcome of individual wells and the Company's other exploration
efforts in Poland. These fluctuations may be exacerbated by the fact that the
Common Stock, in management's opinion, currently trades to a significant degree
on the potential of the Company's current and planned activities in Poland.
There can be no assurance that the Company's efforts will be successful. Many
of the Company's exploration decisions are based on scientific data gathered by
third parties, some of which was gathered in the 1960s and 1970s. Although the
Company is reprocessing a portion of such data, there can be no assurance that
such data is as reliable as data gathered either using modern technology or
under the Company's supervision. The success of the Company's efforts in Poland
will depend, in addition to the risks normally associated with the exploration
for oil, on its ability to maintain its relationship with its exploration
partners and the Polish government and a number of political, economic, and
other risks and uncertainties associated with conducting operations in a foreign
country. If the Company's activities in Poland are unsuccessful, the price of
the Common Stock would likely suffer a material decline, and investors would
face the possible loss of a substantial portion of their investment. Because of
the preliminary stage of the Company's activities in Poland, no assurance can be
given that such activities will be successful. See "ITEM 1. DESCRIPTION OF
BUSINESS: Poland Exploration Activities" in the 1996 Form 10-KSB.
Volatility of Common Stock
The market price for the Common Stock has been volatile in the past and
could fluctuate significantly in response to the results of specific exploration
drilling tests (particularly the first test or other early tests), variations in
quarterly operating results and changes in recommendations by securities
analysts. In addition, the securities markets regularly experience significant
price and volume fluctuations that are often unrelated or disproportionate to
the results of operations of particular companies. These broad fluctuations
may adversely affect the market price of the Common Stock. See "ITEM 5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS" in the 1996 Form 10-KSB.
Dependence on RWE-DEA Strategic Alliance
The Company's plans for exploration and potential development of the Baltic
Concession are based, to a significant degree, on the continued participation of
RWE-DEA. If RWE-DEA elects not to continue its participation in the Baltic
Concession for any reason, or the Polish government does not approve RWE-DEA's
purchase of 50% of the shares of Warmia Petroleum Company, Sp. z o.o.("Warmia"),
the Company could, at its discretion, either seek a replacement partner or
proceed as planned with a substantially increased budget, subject to available
funds. Although the Company believes it would be able to locate an alternative
strategic partner, there can be no assurance that the Company would be
successful in obtaining the participation of another partner, that the terms of
any such arrangement would be favorable to the Company, or that such efforts
would not delay the Company's exploration and development of the Baltic
Concession.
Dependence on Polish Government Consent to RWE-DEA Assignment
In order to obtain desired treatment under Polish tax laws for joint
activities with RWE-DEA on the Baltic Concession, the Company and RWE-DEA have
determined to effect their 50-50 ownership in the project through RWE-DEA's
purchase of 50% of the shares of the Company subsidiary which holds the Baltic
Concession, Warmia. RWE-DEA's purchase of 50% of the shares of Warmia is
subject to approval by the Polish government. The Company expects that such
approval will be obtained in 1997 based on discussions among representatives of
the Company, RWE-DEA, and the Polish government. If such approval is not
obtained, the Company will reimburse RWE-DEA for its direct expenditures related
to the Baltic Concession. As of March 31, 1997, RWE-DEA had advanced Warmia
$2.1 million to fund exploration activity on the Baltic Concession. The Company
may require similar approval for any other joint exploration arrangements,
including its agreement with Apache.
Dependence on Government Approval
Should the Company's exploration efforts discover hydrocarbons in the
Baltic Concession, the Company will be required to engage in negotiations with
national and local government officials of Poland regarding certain of the terms
and conditions of the required exploitation licenses. This may result in
increased costs and delays. These negotiations would include the determination
of a development/exploitation fee within the range of 0.001% to 0.05% of the
market value of the economically recoverable reserves estimated to be in place,
payable in five equal annual installments. In addition, the granting of an
exploitation license requires the consent of the local governments having
jurisdiction over the production area. Although the Company has the exclusive
right to receive an exploitation license in the Baltic Concession and the local
governments will receive 60% of royalties paid, the Company could be subject to
significant delays in obtaining the consents of local authorities or satisfying
other governmental requirements prior to obtaining an exploitation license.
Finally, the granting of an exploitation license would require the Company to
comply with certain environmental regulations and may require the preparation of
an environmental impact statement. See "ITEM 1. DESCRIPTION OF BUSINESS" in
the 1996 Form 10-KSB.
Exploration Risks
The Company's oil and gas exploration activities involve significant risks.
There can be no assurance that the use of technical expertise as applied to
geophysical or geological data will ensure that any well will encounter
hydrocarbons. Further, there is no way to know in advance of drilling and
testing whether any prospect encountering hydrocarbons will yield oil or gas in
sufficient quantities to be economically viable. The first exploratory well in
the Baltic Concession did not recover any detectable gas or oil and is being
plugged and abandoned. Several test wells are typically required to explore
each prospect or exploration area, particularly underexplored areas such as the
Baltic Concession and the other areas in Poland where a significant portion of
the Company's exploration activities are concentrated. The Company may continue
to incur exploration costs in specific areas, including the Baltic Concession,
the Lublin Concession and the Carpathian JSA in Poland, even if initial test
wells are plugged and abandoned or, if completed for production, do not result
in production in commercial quantities. To date, the Company has participated
in seven exploratory test wells in the western United States, none of which has
resulted in the establishment of commercial production or reserves. The Company
has yet to complete a well in Poland, including the first exploratory well in
the Baltic Concession, which is being plugged and abandoned; and all of the
wells drilled previously by third parties in the Baltic Concession were plugged
and abandoned. There can be no assurance that the Company's efforts will be
successful. Many of the Company's exploration decisions are based on third-
party scientific data, some of which was gathered in the 1960s and 1970s.
Although the Company has reprocessed such data, there can be no assurance that
such data is as reliable as data gathered either using modern technology or
under the Company's supervision. See "ITEM 1. DESCRIPTION OF BUSINESS" in the
1996 Form 10-KSB.
Possible Changes in Royalty Rate
The Company's activities in Poland are subject to the risk of changes in
the royalty rate to be paid on production. If a commercially viable discovery
of oil were made, the Company would be required to apply for an exploitation
license with a term of 30 years and thereafter for the productive life of the
property. At this point, the Company will be obligated to pay a fee, in
addition to the royalty rate, to be negotiated within the range of 0.001% to
0.05% of the market value of the estimated recoverable reserves in place,
payable in five equal annual installments. The Company's activities in Poland
are subject to the risk of changes in the royalty rate to be paid on production.
Poland's Council of Ministers sets a base royalty rate for the extraction of
each mineral. The base royalty rate for oil is currently 6%, but could be
increased unilaterally up to 10% (the current statutory maximum base royalty
rate) by the Council of Ministers. The base royalty rate for gold is 10% by
default, as the Council on Ministers has not yet set a specific rate for gold.
Under the Geological and Mining Law, the Ministry of Environmental Protection,
Natural Resources and Forestry of the State Treasury can set the royalty rate
for any particular commercial production in a range between 50% and 150% of the
base royalty rate, depending on the economic viability of such operation. See
"ITEM 1. DESCRIPTION OF BUSINESS--Poland Exploration Activities" in the 1996
Form 10-KSB.
No Assurance of Commercial Production from the Baltic Concession
There has not been any commercial production of oil or gas from the Baltic
Concession. The first exploratory well drilled by the Company did not recover
any detectable oil or gas and is being plugged and abandoned. Various agencies
of the Polish government have drilled seven exploratory wells and eight
stratigraphic wells in the Baltic Concession to the same formation that is
productive in established fields in the Baltic Platform. None of these wells
has been completed for production. Notwithstanding the substantial data
available regarding the Baltic Concession from these previous drilling efforts
and other exploration programs, the Company believes that several exploration
tests may be required to appraise the potential of any structure that the
Company identifies. There can be no assurance that such tests will be
successful. Although the Company has identified certain structures within the
Baltic Concession that it believes contain oil reservoirs, there can be no
assurance that oil is present in commercial quantities. Further, there can be
no assurance that the porosity, permeability or other characteristics of any
reservoir formation will support the production of oil in commercial quantities.
Similarly, although the Company believes that it has identified a number of
structures that have the potential to contain hydrocarbons, there can be no
assurance that such structures actually contain hydrocarbons. See "ITEM 1.
DESCRIPTION OF BUSINESS--Poland Exploration Activities" in the 1996 Form 10-KSB.
No Assurance of Commercial Production from the Carpathian JSA
The exploration activity in the Carpathian JSA is in its initial stages and
no assurance can be given that it will result in any commercial production.
Although there is currently limited hydrocarbon production from certain shallow
formations in the Carpathian JSA, there has never been any commercial production
from the depths which the Company has the right to evaluate with POGC.
Dependence on Officers and Key Employees
The Company is dependent upon Mr. David N. Pierce, President, Mr. Andrew W.
Pierce, Operations Vice President, and other key personnel for its various
activities. The loss of the services of any of these individuals may materially
and adversely affect the Company. In addition, with respect to its activities
in Poland, the Company is dependent on Mr. Jerzy B. Maciolek, an executive
officer, and Eva K. Sokolowski, both Polish nationals, who have been
instrumental in assisting the Company in establishing its operations in Poland,
and the loss of the services of either person may materially and adversely
affect the Company's activities in Poland. The Company has entered into
employment agreements with Mr. David N. Pierce, Mr. Andrew W. Pierce, Mr.
Maciolek, and Ms. Sokolowski. The Company does not maintain key man insurance
on any of its employees.
Risks Associated with Growth
The Company has had limited operations and, if its activities in Poland are
successful, may experience rapid growth. The Company's ability to manage this
growth will depend, in part, upon its ability to attract and retain quality
management and technical personnel. No assurance can be given that the Company
will be able to attract or retain such employees or otherwise manage any
potential expansion of its business. The likelihood of the success of the
Company must be considered in light of the expenses, difficulties,
complications, and delays frequently encountered in connection with the early
stages of an oil and gas company. In particular, the Company's operations in
Poland to date have focused primarily on the evaluation of prospects, and the
Company has little or no experience in Poland regarding exploration,
development, production, and marketing and has not yet completed a well in
Poland. Although the Company does have experience in these areas in the United
States, there can be no assurance that such experience will assist in its
activities in Poland. See "ITEM 1. DESCRIPTION OF BUSINESS" in the 1996 Form
10-KSB.
Possible Future Need for Additional Capital
Prior to the end of 1997, the Company may need additional capital to
accelerate planned exploration and development programs in both Poland and the
United States. If exploration of the Baltic Platform, Lublin Concession or
Carpathian region is successful in proving substantial oil reserves, the Company
may require additional capital to fund a multi-well development program, install
oil storage and handling facilities or purchase other assets or related
investments required to support large-scale production. The Company has no
arrangement for any such additional financing, but may seek required funds from
the sale of additional securities, project financing, strategic alliances with
other energy or financial partners or other arrangements, all of which may
dilute the interest of existing shareholders in the Company or the Company's
interest in the specific project financed. There can be no assurance that
additional funds could be obtained or, if obtained, would be on terms favorable
to the Company. See "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS" in the March 1997 Form 10-QSB.
Capitalized Costs for Unproved Oil and Gas Properties
The Company follows the successful efforts method of accounting for its oil
and gas properties. Under this method of accounting, all property acquisition
costs and costs of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has found proved reserves.
If an exploratory well has not found proved reserves, the cost of drilling the
well are expensed. The costs of development wells are capitalized, whether
productive or nonproductive. Geological and geophysical costs on exploratory
prospects and the costs of carrying and retaining unproved properties are
expensed as incurred. An impairment allowance is provided to the extent that
capitalized costs of unproved properties, on a property-by-property basis, are
considered not to be realizable. Should future events indicate that an
impairment of recorded value has taken place, the impact on the relevant period
of results of operations could be significant. As a result of the foregoing,
the results of operations of the Company for any particular period may not be
indicative of the results that could be expected over longer periods.
Risks of Adverse Weather
A significant portion of the Company's exploration and development
activities are subject to periodic interruptions due to weather conditions that
may be quite severe in the areas where such activities are conducted. Heavy
precipitation may make travel to exploration sites or drilling locations
difficult or impossible. Extremely cold temperatures may delay or interrupt
drilling, well servicing and production. The foregoing may reduce production
volumes or increase exploration and production costs.
Shares Eligible for Future Sale
Substantially all of the approximately 12.5 million shares of Common Stock
currently issued and outstanding either (i) were sold in a registered offering,
(ii) have been held for in excess of two years and are eligible for resale under
Rule 144, promulgated under the Securities Act, (iii) are registered for resale
in previously filed registration statements, or (iv) are registered for resale
pursuant to this Prospectus. The resale of 1.1 million of such shares owned by
officers and directors of the Company is subject to certain volume and other
restrictions under Rule 144. The possible resale of the remaining 11.4 million
shares may have a depressive effect on the public trading market for the Common
Stock. See "ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS"
in the 1996 Form 10-KSB and "DESCRIPTION OF SECURITIES" below.
Substantial and Immediate Dilution
Persons purchasing Common Stock will suffer a substantial and immediate
dilution below the purchase price to the net tangible book value of their
shares. See "DILUTION" below.
Lack of Due Diligence Review
No securities broker-dealer or other person has been engaged to perform any
due diligence or similar review of this offering or the Company on behalf of the
Selling Stockholders, persons who may purchase Common Stock in this offering, or
any other person.
Control of the Company by Management
The current executive officers and directors of the Company hold sole or
shared voting and dispositive power over approximately 1.0 million issued and
outstanding shares of Common Stock, which constitutes approximately 8% of the
12.5 million shares of Common Stock currently issued and outstanding. Giving
effect only to the exercise of all options held by officers and directors,
including options not yet completely vested, current executive officers and
directors would own a total of approximately 3.3 million shares, or
approximately 22% of the approximately 15.0 million shares that would be issued
and outstanding. As a result of such ownership, such persons are able to
substantially influence the election of all of the directors of the Company and
the outcome of other matters submitted to the stockholders for consideration.
Substantial Warrants and Options Outstanding
As of April 30, 1997, the Company had issued and outstanding warrants and
options to purchase an aggregate of up to 3,015,694 shares of Common Stock at
exercise prices ranging from $1.10 to $10.25 with a weighted average exercise
price of $3.89 per share. Of those warrants and options, 2,337,000 shares of
Common Stock are issuable on the exercise of options held by officers and
directors of the Company at exercise prices ranging from $1.50 to $10.25 per
share, including options to purchase 868,500 shares that are not fully vested.
The existence of such warrants and options may prove to be a hindrance to future
financings by the Company, and the exercise of such warrants and options may
further dilute the interests of all other stockholders. The possible future
resale of Common Stock issuable on the exercise of such warrants and options
could adversely affect the prevailing market price of the Common Stock.
Further, the holders of options and warrants may exercise them at a time when
the Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. See "DESCRIPTION OF SECURITIES" below.
Caution Respecting Forward-Looking Information
This Prospectus contains certain forward-looking information, including
discussions of the uncertainties of certain terms to be determined in the future
relating to the Baltic Concession, the Carpathian JSA, and the Sudety
Exploration Area; uncertainties regarding future political, economic,
regulatory, fiscal, taxation and other policies in Poland; the future results of
various exploration and development activities; future events that may result in
the need for additional capital; future drilling and other exploration schedules
and sequences for various wells and other activities; the future ability of the
Company to attract drilling participants to share the costs of exploration and
development; and similar matters. Such information is based on present
circumstances and on the Company's predictions respecting events that have not
occurred, which may not occur or which may occur with different consequences
from those now assumed or anticipated. No assurance can be given that actual
events may not be different than the assumptions on which such forward-looking
information is based. See "ITEM 2. DESCRIPTION OF PROPERTY" in the 1996 Form
10-KSB.
FACTORS RELATING TO THE OIL AND GAS INDUSTRY
Uncertainty of Reserve Estimates and Future Net Revenues
There are numerous uncertainties inherent in estimating quantities of
proved oil reserves. The estimates in the 1996 Form 10-KSB which are
incorporated into this Prospectus are based on various assumptions relating to
rates of future production, timing and amount of development expenditures, oil
prices and the results of planned development work. Actual future production
rates and volumes, revenues, taxes, operating expenses, development expenditures
and quantities of recoverable oil reserves may vary substantially from those
assumed in the estimates. Any significant change in these assumptions,
including changes that result from variances between projected and actual
results, could materially and adversely affect future reserve estimates. In
addition, such reserves may be subject to downward or upward revision based upon
production history, results of future development, prevailing oil prices and
other factors. See "ITEM 2. DESCRIPTION OF PROPERTY--Producing Properties" in
the 1996 Form 10-KSB and "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS" in the March 1997 Form 10-QSB.
Development Risks
The Company's infill drilling program in the Cut Bank field in Montana is
based on the engineering model used in a similar program conducted on a portion
of the Company's property by a previous owner. There can be no assurance that
the Company's development program will achieve the results of the engineering
model on which it is based, significantly increase production or reserves or
result in a financial return to the Company. The Company has budgeted to
continue this infill drilling program at an estimated cost of $6.0 million
during the next two years on strategically selected additional areas in the
field in order to develop currently undeveloped reserves. The results of the
initial program are being reviewed and monitored; and if, in the opinion of the
Company, other development opportunities then available to the Company,
including development in the Baltic Concession or other areas in Poland, are
likely to provide a greater financial return to the Company, funds initially
budgeted to Cut Bank field development may be utilized for development of other
fields. Whether or not the development program is successful, no assurance can
be given that the Company will be able to discover, develop or purchase
properties sufficient to replace its current reserve base. See "ITEM 1.
DESCRIPTION OF BUSINESS-- United States Exploration, Production, and Development
Activities" in the 1996 Form 10-KSB.
Volatility of Commodity Prices and Markets
Oil prices were higher during 1996 than in recent previous years, but have
declined during 1997. There can be no assurance that such prices will not
continue to decline. Oil and gas prices have been and are likely to continue to
be volatile and subject to wide fluctuations in response to any of the following
factors: relatively minor changes in the supply of and demand for oil and gas;
market uncertainty; political conditions in international oil producing regions;
the extent of domestic production and importation of oil; the level of consumer
demand; weather conditions; the competitive position of oil or gas as a source
of energy as compared with coal, nuclear energy, hydroelectric power, and other
energy sources; the refining capacity of prospective oil purchasers; the effect
of federal and state regulation on the production, transportation, and sale of
oil; and other factors, all of which are beyond the control or influence of the
Company. In addition to its direct impact on the prices at which oil or gas may
be sold, adverse changes in the market or regulatory environment would likely
have an adverse effect on the Company's ability to obtain funding from lending
institutions, industry participants, the sale of additional securities, and
other sources. See "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS" in the March 31, 1997-Form 10-QSB.
Operating Hazards and Uninsured Hazards
The Company is engaged in the drilling and production of oil and, as such,
its operations are subject to the usual hazards incident to the industry. These
hazards include, but are not limited to, blowouts, cratering, explosions,
uncontrollable flows of oil, natural gas or well fluids, fires, pollution,
releases of toxic gas, and other environmental hazards and risks. These hazards
can cause personal injury and loss of life, severe damage to and destruction of
property and equipment, pollution or environmental damage, and suspension of
operations. In order to lessen the effects of these hazards, the Company
maintains insurance of various types to cover its domestic operations. The
Company has $5.0 million of general liability insurance. This insurance,
however, does not cover all of the risks involved in oil exploration, drilling,
and production of oil and, if coverage does exist, may not be sufficient to pay
the full amount of such liabilities. The Company may not be insured against all
losses or liabilities which may arise from all hazards because such insurance is
unavailable at economic rates, because of limitation on the insurance policy or
because of other factors. For example, the Company does not maintain insurance
against risks related to violations of environmental laws. The occurrence of a
significant adverse event that is not fully covered by insurance could have a
materially adverse effect on the Company. Further, the Company cannot assure
that it will be able to maintain adequate insurance in the future at rates it
considers reasonable. See "ITEM 1. DESCRIPTION OF BUSINESS--Operational
Hazards and Insurance" in the 1996 Form 10-KSB.
Intense Competition in Oil and Gas Industry
The oil and gas industry is highly competitive. Most of the Company's
current and potential competitors have greater financial resources and a greater
number of experienced and trained managerial and technical personnel than the
Company. There can be no assurance that the Company will be able to compete
effectively with such firms.
United States Governmental Regulation, Taxation and Price Control
The Company's activities are subject to numerous federal and state laws and
regulations concerning the storage, use, and discharge of materials into the
environment, the remediation of environmental impacts, and other matters
relating to environmental protection, all of which may adversely affect the
Company's operations and the costs of doing business. There can be no assurance
that future legislation or administrative regulations or interpretations will
not impose stricter requirements that could have an adverse impact on the
operating costs of the Company and the oil and gas industry in general. The
Company does not currently believe that it will be required in the near future
to expend material amounts due to environmental laws and regulations. A bond is
posted with the Environmental Protection Agency as security for the Company's
compliance with the environmental requirements administered by that agency
respecting the water injection wells in the Company's Montana producing
properties. See "ITEM 1. DESCRIPTION OF BUSINESS--Government Regulation" in
the 1996 Form 10-KSB.
FACTORS RELATING TO ACTIVITIES IN POLAND
Political Uncertainties
The exploration, development, and production of oil and gas in Poland are
and will be subject to ongoing uncertainties and risks, including risks of
political instability and changes in government, export and transportation
tariffs, local and national tax requirements, expropriation or nationalization
of private enterprises, and other risks arising out of foreign government
sovereignty over the exploration area. The terms of the agreements with
governmental agencies are subject to administration by government officials and
are, therefore, subject to changes in government personnel, the development of
new administrative policies and practices, and political changes in Poland.
There can be no assurance that the laws, regulations, and policies applicable to
the Company will not change, that the laws and regulations will be applicable in
any particular circumstance, or that the Company will be able to enforce its
rights in Poland. The Company anticipates that it will be required to
demonstrate, to the satisfaction of the Polish authorities, the Company's
compliance with concession terms respecting exploration expenditures, results of
exploration, environmental protection matters, and other factors. Although the
exploration and exploitation rights of the Company may be canceled by the
Company at any time, if it did so the Company would likely not be able to
recover previous payments made under the rights or any other costs incurred
respecting the rights upon such cancellation. There can be no assurance that the
Company will be able to take measures to provide adequate protection against any
of the political uncertainties discussed above. See "ITEM 1. DESCRIPTION OF
BUSINESS--Poland Exploration Activities " in the 1996 Form 10-KSB.
Currency Risks
The Company will be subject to a variety of currency risks, including the
risks that currencies will not be convertible at satisfactory rates, that the
official conversion rates between United States and Polish currencies may not
accurately reflect the relative value of goods and services available or
required in Poland and that inflation will lead to the devaluation of the Polish
Zloty.
Repatriation of Earnings
The Company may be restricted as to the amount, manner, or timing of the
repatriation to the United States of earnings from activities in Poland
conducted through wholly or partially owned subsidiaries. Currently, there are
no restrictions on the ability of a Polish entity to repay debt to a foreign
parent corporation or to pay fair market compensation to a foreign parent
corporation for legitimate services. However, Polish entities can pay dividends
only once annually and only to the extent of profits, as determined in
compliance with Polish accounting and regulatory requirements and as verified by
an audit satisfying Polish professional standards. In addition, the payment of
dividends by Polish subsidiaries is subject to a 5% withholding tax. Although
the Company is entitled to a credit against its United States tax obligations
equal to the Polish withholding tax, the Company may not be able to use this
credit unless the Company owes taxes in the United States. See "ITEM 1.
DESCRIPTION OF BUSINESS--Poland Exploration Activities" in the 1996 Form 10-KSB.
Lack of Exploration and Development Infrastructure
There can be no assurance that the Company will be able to conduct an
effective and efficient exploration program in Poland. Further, the Company is
subject to certain risks which could substantially increase the cost of
exploration, development and production activities and reduce potential
financial returns, including the limited availability of certain modern
exploration, drilling and production equipment, supplies and services and the
lack of availability or limited capacity of oil and gas gathering, storage,
transportation and processing facilities.
Lack of Transportation and Marketing Arrangements
The Company has no transportation, refining or marketing arrangements
relating to future oil production in Poland. Instead, the Company is relying
primarily on a continuous increase in international demand for oil products and
the fact that Poland reportedly imports over 95% of its oil as the basis for its
belief that an available market exists for any oil that may be discovered.
Subject to obtaining appropriate approval, the Company is not precluded from
exporting oil, but the Company presently has no such arrangements. There can be
no assurance that the Company will be able to establish transportation, refining
or marketing arrangements to sell any oil discovered and produced in Poland on
terms favorable to the Company or that the Company will be able to make
arrangements for the exportation of oil in the event such exportation is
desirable to the Company. See "ITEM 1. DESCRIPTION OF BUSINESS--Poland--
Onshore Baltic Concession" in the 1996 Form 10-KSB.
Poland's Governmental Regulation
The Company's activities in Poland are subject to certain laws and
regulations relating to the exploration for, and development, production,
marketing, transportation and storage of, oil, including measures relating to
the protection of the environment. The regulatory regime governing these
activities was recently promulgated and is relatively untested. Therefore,
there is little or no administrative or enforcement history or established
practice that can aid the Company in evaluating how the regulatory regime will
affect the Company's operations. Although the Company believes that the
regulatory infrastructure currently in place and now being further developed in
Poland is generally consistent with the government's stated purpose of
encouraging both foreign investment and the development of Poland's natural
resources, there can be no assurance that such governmental policy will not
change or that new laws and regulations, administrative practices or policies or
interpretations of existing laws and regulations will not materially and
adversely affect the Company's activities in Poland. See "ITEM 1. DESCRIPTION
OF BUSINESS: Poland Exploration Activities--Government Regulation and Related
Matters."
Poland's Environmental Regulations
The Company's operations are subject to environmental laws and regulations
in Poland. Poland's environmental laws and regulations provide for restrictions
and prohibitions on spills, releases, or emissions of various substances
produced in association with oil exploration and development. Additionally, if
significant quantities of gas are produced in conjunction with the Company's
production of oil, regulations prohibiting the flaring of gas and the absence of
a gas gathering and delivering system may restrict production or may require
significant expenditures by the Company to develop such a system prior to the
production of oil. Certain aspects of the Company's proposed operations may
require the submission and approval of environmental impact assessments by
governmental authorities in Poland prior to commencing production. See "ITEM 1.
DESCRIPTION OF BUSINESS: Poland Exploration Activities--Government Regulation
and Related Matters."
The Company completed a seismic program in 1996 and has only recently
initiated drilling activities and has not incurred material environmental
remediation costs to date. The Company believes that it is currently in
material compliance with all applicable laws and regulations. However, there
can be no assurance of such compliance or that applicable regulations or
administrative policies or practices will not be changed by the Polish
government. The cost of compliance with current regulations or any changes in
environmental regulations could require significant expenditures, and breaches
of such regulations may result in the imposition of fines and penalties, any of
which may be material. There can be no assurance that these environmental costs
will not have a material adverse effect on the Company's financial condition or
results of operations in the future.
- --------------------------------------------------------------------------------
NO NET PROCEEDS
- --------------------------------------------------------------------------------
The Company will receive proceeds of $300,000 from the exercise of the
options held by the Selling Stockholders. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders. In
connection with this offering, the Company estimates that it will incur costs of
approximately $10,000 for legal, accounting, printing, and other costs. Any
separate costs of the Selling Stockholders will be borne by them.
- --------------------------------------------------------------------------------
DILUTION
- --------------------------------------------------------------------------------
Purchasers of shares of Common Stock from Selling Stockholders will
likely suffer substantial and immediate dilution in the adjusted net tangible
book value per share of the Common Stock they purchase below the purchase price
for such shares. As of March 31, 1997, the Company had a net tangible book value
of approximately $19.3 million, with 12.5 million shares of Common Stock issued
and outstanding, or approximately $1.54 per share, which represents dilution of
$6.46 per share below $8.00, the last sales price for the Common Stock on May
16, 1997.
- --------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
The Company is authorized to issue 20,000,000 shares of Common Stock,
$0.001 par value; and 5,000,000 shares of preferred stock, $0.001 par value.
PREFERRED STOCK
Under the Company's Articles of Incorporation, the Company's Board of
Directors is authorized, without shareholder action, to issue preferred stock in
one or more series and to fix the number of shares and rights, preferences and
limitations of each series. Among the specific matters that may be determined
by the Board of Directors are the dividend rate, the redemption price, if any,
conversion rights, if any, the amount payable in the event of any voluntary
liquidation or dissolution of the Company and voting rights, if any. The
Company has no outstanding preferred stock.
COMMON STOCK
As of April 30, 1997, the Company had 12,584,381 shares of Common Stock
issued and outstanding. The holders of Common Stock are entitled to one vote
per share on each matter submitted to a vote at any meeting of stockholders.
Holders of Common Stock do not have cumulative voting rights, and therefore, a
majority of the outstanding shares voting at a meeting of stockholders are able
to elect the entire Board of Directors, and if they do so, minority stockholders
would not be able to elect any members to the Board of Directors. The Company's
bylaws provide that a majority of the issued and outstanding shares of the
Company constitutes a quorum for stockholders' meetings, except with respect to
certain matters for which a greater percentage quorum is required by statute.
Stockholders of the Company have no preemptive rights to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the event of
liquidation of the Company, the shares of Common Stock are entitled to share
equally in corporate assets after satisfaction of all liabilities and the
payment of any liquidation preferences.
Holders of Common Stock are entitled to receive such dividends as the Board
of Directors may from time to time declare out of funds legally available for
the payment of dividends. The Company seeks growth and expansion of its
business through the reinvestment of profits, if any, and does not anticipate
that it will pay dividends on the Common Stock in the foreseeable future.
As of April 30, 1997, the Company had reserved for issuance an aggregate of
3,265,694 shares of Common Stock, including 100,000 shares reserved for issuance
on exercise of options held by Selling Stockholders at an exercise price of
$3.00 per share, 3,015,694 shares reserved for issuance on the exercise of
outstanding options and warrants at exercise prices ranging from $1.10 to $10.25
with a weighted average exercise price of $3.89 per share, and 150,000 shares
issuable on the satisfaction of certain contractual conditions relating to oil
production levels from the Company's producing properties in Montana.
CERTAIN ARTICLE AND BYLAW PROVISIONS
The Company's Articles of Incorporation divide the members of the Board of
Directors into three classes of directors, with each class to be as nearly equal
in number of directors as possible, serving staggered, three-year terms. The
Company's Articles of Incorporation also provide that directors may be removed,
with or without cause, by a two-thirds majority of the shareholders at a meeting
called for that purpose and that any resulting vacancies can be filled by only a
vote of a majority of the directors remaining in office.
The Company's bylaws permit stockholders to nominate a person for election
as a director or bring other matters before a stockholder meeting only if
written notice of such intent is provided to the Company at least 30 days prior
to the meeting. Such notice of intent to nominate a person for election as a
director is required to set forth the same kind of information respecting such
nominee as would be required under the proxy rules of the SEC, including the
written consent of the nominee to serve as a director, if elected, and the name
and address of the stockholder making the nomination as well as the number of
shares of stock owned by such stockholder. In the case of other proposed
business, the notice must set forth a brief description of each matter proposed,
the name and address of the stockholder proposing the matter, the number of
shares of stock owned by such stockholder and any material interest of such
stockholder in such matter.
Nevada law provides that a merger or consolidation, sale or similar
transaction involving all or substantially all of the Company's assets, the
issuance of securities having an aggregate value equal to 5% or more of the
aggregate market of all outstanding shares of the corporation or the
reclassification, recapitalization or similar transaction involving an
"interested stockholder" (as defined), within three years after the stockholder
became interested, cannot be completed unless such transaction is approved by
the Board of Directors of the Company. After the expiration of three years
after a person becomes an interested stockholder, a transaction cannot be
completed with the interested stockholder unless it is approved by the Board of
Directors or a majority of the outstanding voting power not beneficially owned
by the interested stockholder, unless certain "fair price" provisions are met.
Such fair price provisions generally require that the amount of cash and the
market value of the consideration of the cash to be received per share by all
holders of the outstanding Common Stock of the Company not beneficially owned by
the interested stockholder be at least equal to the higher of the price per
share paid by the interested stockholder or the market value on the date of
announcement of the proposed combination. For purposes of these provisions, an
interested stockholder is one who beneficially owns, directly or indirectly, 10%
or more of the voting power of the outstanding stock of the corporation.
The foregoing provisions may tend to deter any potential unfriendly offers
or other efforts to obtain control of the Company that are not approved by the
Board of Directors and thereby deprive the stockholders of opportunities to sell
shares of Common Stock at prices higher than the prevailing market price. On
the other hand, these provisions may tend to assure continuity of management and
corporate policies and to induce any person seeking control of the Company or a
business combination with the Company to negotiate on terms acceptable to the
then elected Board of Directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS; LIMITATION OF LIABILITY
The Company's articles of incorporation and bylaws provide for
indemnification of the Company's officers and directors to the fullest extent
permitted by the Nevada corporation law, which provides for indemnification for
damages, including costs and attorney's fees, incurred in any pending or
completed action by reason of the fact that such person was an officer or
director of the Company if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company. The Company's articles of incorporation contain a provision that
limits the personal liability of the Company's directors or officers for damages
for breach of fiduciary duty as a director or officer, except for damages
resulting from acts or omissions that involve intentional misconduct, fraud or
knowing violations of law or the payment of dividends in violation of statute.
The effect of this provision is to eliminate the rights of the Company and its
stockholders to recover money damages against a director or officer for breach
of fiduciary duty of care except in certain circumstances. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek non-
monetary relief such as an injunction or rescission in the event of a breach of
fiduciary duty. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provision, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent of the Company's securities is Fidelity
Transfer Company, 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115,
telephone (801) 484-7222.
- --------------------------------------------------------------------------------
SELLING STOCKHOLDERS
- --------------------------------------------------------------------------------
The following table provides certain information, as of the date of this
prospectus, respecting the Selling Stockholders, the shares of Common Stock to
be sold by them and to be held by them following the offering, assuming the sale
of all offered shares.
SECURITIES OWNED SECURITIES OWNED
PRIOR TO AFTER
THE OFFERING(1) THE OFFERING
------------------- SHARES ---------------------
COMMON TO BE COMMON
SELLING STOCKHOLDERS STOCK OPTIONS OFFERED STOCK OPTIONS
- ----------------------- ---------- --------- --------- ---------- ----------
James A. Giauque III(2) 9,250 75,000 75,000 9,250 0
Eva K. Sokolowski(3) 0 62,500 25,000 0 37,500
------- ------- ------- ------- -------
TOTAL 9,250 137,500 100,000 9,250 37,500
(1)Securities owned prior to the offering include all shares of Common Stock
and underlying securities convertible or exercisable into shares of Common
Stock owned by the Selling Stockholder. Shares owned after the offering
assume the sale of all shares of Common Stock offered pursuant to this
offering. Percentage figures respecting the securities owned after the
offering give effect to the exercise of all options by the Selling
Stockholders. The options held by the Selling Stockholders must be
exercised to purchase shares of Common Stock before the resale of the Common
Stock offered by the Selling Stockholders pursuant to this offering.
(2)Mr. Giauque was the controller of the Company from November 1995 through
December 1996.
(3)Ms. Sokolowski has been employed by the Company since August 1996.
- --------------------------------------------------------------------------------
PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------
GENERAL
This Prospectus relates to the public offer and sale by the Selling
Stockholders of an aggregate of 100,000 shares of Common Stock of the Company
consisting shares issuable on the exercise of Common Stock purchase options and
warrants at an exercise price of $3.00 per share. See "SELLING STOCKHOLDERS"
and "DESCRIPTION OF SECURITIES" above.
SALE OF COMMON STOCK
The Common Stock to be sold by the Selling Stockholders may be sold by
them, from time to time, in the over-the-counter market through or to securities
brokers or dealers that may receive compensation in the form of discounts,
concessions, or commissions from the Selling Stockholders and/or the purchasers
of Common Stock for whom they may act as agent, directly to purchasers in
transactions negotiated by the Selling Stockholders or pursuant to Rule 144 or
another exemption from registration. Any such sale of Common Stock by Selling
Stockholders must be accompanied by, or follow the delivery of, a prospectus
filed with a current registration statement relating to the Common Stock being
offered, unless a Selling Stockholder elects to rely on Rule 144 or another
exemption from the registration requirements in connection with a particular
transaction. The Selling Stockholders, and any dealers or brokers that
participate in the distribution of the Common Stock, may be deemed to be
"underwriters" as that term is defined in the Securities Act, and any profit on
the sale of Common Stock by them and any discounts, commissions, or concessions
received by any such dealers or brokers may be deemed to be underwriting
discounts and commissions under the Securities Act.
The Common Stock may be sold by the Selling Stockholders from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at prices that may vary through the period during which the securities may be
offered, or at such other prices as may be negotiated by the Selling Stockholder
and the purchaser at the time of sale. The Company will pay expenses of this
offering incident to the offering and sale of the Common Stock to the public,
other than commissions and discounts of dealers or brokers. The Company does
not intend to enter into any arrangement with any securities dealer concerning
solicitation of offers to purchase the Common Stock.
EFFECT OF OFFERING ON MARKET
The trading volume of the Common Stock in the over-the-counter market is
limited. The sale or potential for sale of the 100,000 shares of Common Stock
to be sold in this offering may have a depressive effect on the trading price
for such securities. See "ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS" in the 1996 Form 10-KSB.
- --------------------------------------------------------------------------------
LEGAL MATTERS
- --------------------------------------------------------------------------------
The law firm of Kruse, Landa & Maycock, L.L.C., Salt Lake City, Utah,
counsel to the Company, has rendered an opinion that the shares of Common Stock
issuable on exercise of the Options held by the Selling Shareholders will be,
when issued in accordance with the terms of the Options, legally issued, fully
paid, and nonassessable under Nevada corporation laws.
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The consolidated balance sheets as of December 31, 1996 and 1995, and the
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended incorporated by reference in this Prospectus, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants given on the authority of that firm as experts in
accounting and auditing.
The financial statements of the Company for the year ended December 31,
1994, incorporated by reference, have been audited by Barker & Folsom, certified
public accountants, as stated in their report appearing in the 1996 Form 10-KSB,
and have been included therein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The estimates of oil and gas reserves of the Company respecting its
properties are incorporated herein by reference in reliance upon the authority
of Larry D. Krause, petroleum engineering consultant, Billings, Montana, in
reliance upon his authority as an expert in petroleum engineering.
- ---------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ---------------------------------------------------------------------------
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-3 under the Securities Act of 1933, as
amended. For the purposes hereof, the term "Registration Statement" means the
original Registration Statement and any and all amendments thereto. This
prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, to which reference hereby is
made. Each statement made in this prospectus concerning a document filed as an
exhibit to the Registration Statement is qualified in its entirety by reference
to such exhibit for a complete statement of its provisions. Any interested
party may inspect the Registration Statement and its exhibits, without charge,
at the public reference facilities of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at its regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center,
Suite 1300, New York, New York 10048. Any interested party may obtain copies
of all or any portion of the Registration Statement and its exhibits at
prescribed rates from the Public Reference Section of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. In addition, the SEC maintains an internet site that
contains reports, proxy and information statements and other information
regarding the Company and other registrants that file electronically with the
SEC at http://www.sec.gov.
- --------------------------------------
TABLE OF CONTENTS
- --------------------------------------
SECTION PAGE
FX ENERGY, INC.
Prospectus Summary 4
Risk Factors 8
No Net Proceeds 17
Dilution 18
Description of Securities 18
Selling Stockholders 20
Experts 21
Additional Information 21
100,000 SHARES OF COMMON STOCK
No dealer, salesman, or other person
has been authorized in connection with
this offering to give any information
or to make any representation other
than as contained in this prospectus
and, if made, such information or
representation must not be relied on
as having been authorized by the
Company. This prospectus does not
constitute an offer to sell or the
solicitation of an offer to buy any PROSPECTUS
securities covered by this prospectus
in any state or other jurisdiction to
any person to whom it is unlawful to
make such offer or solicitation in such
state or jurisdiction. MAY , 1997
- ---------------------------------------------------------------------------
ITEM 27. EXHIBITS
- ---------------------------------------------------------------------------
EXHIBITS
The following exhibits are included as part of this report:
SEC
EXHIBIT REFERENCE
NUMBER NUMBER TITLE OF DOCUMENT LOCATION
- ------- ---------- ---------------------------------------- ------------
Item 4. Instruments Defining the Rights of
Security Holders
- -----------------------------------------------------------
4.01 4 Specimen Stock Certificate Incorporated
by
Reference(1)
4.02 4 Designation of Rights, Privileges, and Incorporated
Preferences of 1993 Series Preferred by
Stock of Frontier Oil Exploration Reference(1)
Company
Item 5. Opinion Regarding Legality
- ------------------------------------------------------------
5.01 5 & 23 Opinion of Kruse, Landa & Maycock, L.L.C Original Filing
Item 23. Consents of Experts and Counsel
- ------------------------------------------------------------
23.01 23 Consent of Coopers & Lybrand L.L.P., This Filing
independent accountants
23.02 23 Consent of Barker & Folsom, previous This Filing
auditors for the Company
23.03 23 Consent of Larry D. Krause, Petroleum Original Filing
Engineer
23.04 23 Consent of Kruse, Landa & Maycock, See Item 5
L.L.C., counsel to the Company
Item 24 Powers of Attorney
- ------------------------------------------------------------
24.01 24 Power of Attorney Original Filing
(1) Incorporated by reference from the registration statement on Form SB-2, SEC
File No. 33-88354-D.
- ------------------------------------------------------------------------------
SIGNATURES
- ------------------------------------------------------------------------------
In accordance with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), the registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements of filing on Form S-3
and authorized this amendment to be signed on its behalf by the undersigned in
the city of Salt Lake City, state of Utah, on the 22nd day of May, 1997.
FX ENERGY, INC.
(Registrant)
By/s/ David N. Pierce, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
stated on the 22nd day of May, 1997.
/s/ David N. Pierce, Director and
President
/s/ Andrew W. Pierce, Director,
Vice-President and Secretary
(Principal Operations Officer)
/s/ Scott J. Duncan, Director,
Vice-President and Treasurer By/s/ David N. Pierce,
(Principal Accounting Officer) Attorney-in-Fact
Thomas B. Lovejoy, Director
/s/ Peter Raven, Director
Jerzy B. Maciolek, Director
Jay W. Decker, Director
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 of our report dated February 18, 1997, on our audit of the
consolidation financial statements of FX Energy, Inc. and subsidiaries. We also
consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND, L.L.P.
/s/
Salt Lake City, Utah
May 21, 1997
BARKER & FOLSOM
CERTIFIED PUBLIC ACCOUNTANTS
Thomas G. Barker, Jr., CPA, P.C. Randy K. Parker, CPA
M. Bradley Folsom, CPA, P.C. Nikki J. Thon
Member of APCPA Division of Firms
Member of SEC Practice Section
CONSENT OF INDEPENDENT AUDITORS
FX Energy, Inc. and Subsidiaries
Barker & Folsom do hereby consent to (a) the incorporation by reference into the
Registration Statement on Form S-3 of FX Energy, Inc. (the "Company") of our
opinion dated February 24, 1995, respecting the consolidated results of
operations, stockholders equity, and cash flows of the Company for the year
ended December 31, 1994, as such report is included in the Company's annual
report on form 10-KSB for its fiscal year ended December 31, 1996, and (b) the
reference to us under the heading "Experts" in such Registration Statement.
/s/ Barker & Folsom
Ogden, Utah
May 20, 1997
2655 Kiesel Avenue/Ogden, Utah 84401 (801) 621-0390/FAX (801) 392-7729
