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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2002.
[ ] 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 0-24781 87-0427676
---- ------- ------------
(State or other (Commission File (IRS Employer
jurisdiction No.) Identification
of incorporation) No.)
1006-100 Park Royal South
West Vancouver, B.C.
Canada V7T 1A2
-------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (604) 913-1462
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 158,626,460
- ------------------------------ ----------------
(Title of Class) (Number of Shares Outstanding
at September 6, 2002)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial
Condition 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 28
Certifications 29
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2002 2001
----------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 131,204 $ 257,831
Investment in securities available for sale 527,186 782,908
Investment in fixed-maturity securities - 1,445,501
Note receivable 362,082 -
Other receivables 317,748 586,520
Other current assets 21,991 21,050
----------- ------------
Total Current Assets 1,360,211 3,093,810
----------- ------------
Property and Equipment - full cost
accounting
Talc mineral properties and mining 6,433,592 6,300,993
equipment
Oil and gas properties not subject to 2,366,000 6,186,606
amortization
Furniture and office equipment 349,454 353,142
----------- ------------
Total Property and Equipment 9,149,046 12,840,741
----------- ------------
Less: accumulated depreication
and amortization (184,554) (183,278)
----------- ------------
Net Property and Equipment 8,964,492 12,657,463
----------- ------------
Investments - at cost 358,857 358,857
----------- ------------
Total Assets $10,683,560 $ 16,110,130
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accrued liabilities $ 4,611,599 $ 4,525,467
Accrued liabilities payable to related - 416,858
parties
Accrued settlement obligation 6,345,766 6,345,766
Accrued income taxes 802,979 802,621
Notes payable 29,531 35,718
Notes payable to related parties 223,834 388,576
----------- ------------
Total Current Liabilities 12,013,709 12,515,006
----------- ------------
Stockholders' Equity (Deficit)
Preferred stock - $0.001 par value;
3,661,968 shares authorized; 350,479 350,479
2,392,228 shares outstanding:
liquidation preference - $980,469
Common stock - $0.001 par value;
325,000,000 shares authorized; 158,627 144,797
158,626,460 shares and 144,796,460
shares issued, respectively
Additional paid in capital 141,542,921 139,314,283
Accumulated deficit (141,952,004) (134,659,453)
Accumulated other comprehensive loss (1,131,758) (1,336,314)
Treasury stock, at cost; 1,096,327
shares and 725,327 shares,
respectively (298,414) (218,668)
----------- ------------
Total Stockholders' Equity (Deficit) (1,330,149) 3,595,124
----------- ------------
Total Liabilities and Stockholders'
Equity (Deficit) $10,683,560 $ 16,110,130
=========== ============
The accompanying notes are an integral part of these condensed
financial statements.
2
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Oil and Gas Sales $ 2,612 $ - $ 2,612 $ -
------------ ------------ ------------ ------------
Costs and Operating expenses
Impairment of mineral
interests and equipment 3,937,500 1,154,444 3,937,500 1,154,444
Depreciation and
amortization 518 3,137 22,355 8,572
Litigation settlement
expense 1,690,893 1,690,947 1,690,893 1,690,947
General and administrative 1,358,253 50,756 1,810,085 1,560,041
------------ ------------ ------------ ------------
Total Costs and Operating
Expenses 6,987,164 2,899,284 7,460,833 4,414,004
------------ ------------ ------------ ------------
Other Income (Expense)
Interest income 20,085 42,840 21,087 47,484
Interest expense (84,360) 102,872 (88,279) (68,128)
Foreign exchange net gains
(losses) 240,405 (188,721) 215,184 (1,113)
Net gain on sale of
investments 104,788 1,086,612 118,112 1,028,222
Equity in income from
unconsolidated subsidiary - - - 341,843
Other expense (33,390) (1,357) (33,390) -
------------ ------------ ------------ ------------
Total Other Income
(Expense) 247,528 1,042,246 232,714 1,348,308
------------ ------------ ------------ ------------
Net Loss (6,737,024) (1,857,038) (7,225,507) (3,065,696)
Preferred Dividends 33,707 33,615 67,044 66,861
------------ ------------ ------------ ------------
Loss Applicable to Common
Shares $ (6,770,731) $ (1,890,653) $ (7,292,551) $ (3,132,557)
============ ============ ============ ============
Basic and Diluted Loss Per
Common Share $ (0.05) $ (0.01) $ (0.05) $ (0.02)
============ ============ ============ ============
Weighted Average Number of
Common Shares Used In Per
Share Calculation 149,012,440 136,791,515 146,401,707 131,945,908
============ ============ ============ ============
The accompanying notes are an integral part of these condensed
financial statements.
3
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months
Ended June 30,
---------------------------
2002 2001
------------ ------------
Cash Flows From Operating Activities
Net loss $ (7,225,507) $ (3,065,696)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation, depletion and amortization 22,355 8,572
Impairment of mineral interests and
equipment 3,937,500 1,154,444
Gain on sale of securities available
for sale (118,112) (1,028,222)
Net income of unconsolidated subsidiary - (341,842)
Amortization of discount on fixed - (31,699)
maturity securities
Expenses paid by issuance of notes - 110,000
payable to related party
Warrants issued for settlement cost 1,690,893 -
Services paid with common stock - 48,400
Foreign currency exchange (gain) loss (14,075) 1,113
Changes in assets and liabilities:
Other receivables 279,549 (305,302)
Prepaid expenses - 514,489
Accrued liabilities payable to related (535,574) -
parties
Accrued liabilities 522,094 967,250
------------ ------------
Net Cash Used In Operating Activities (1,440,877) (1,968,493)
------------ ------------
Cash Flows From Investing Activities
Purchases of mineral interests, (220,172) (240,485)
property and equipment
Purchase of securities available for sale (5,230) -
Proceeds from sale of Big Horn Resources Ltd.
common stock - 3,511,119
Payments to litigation settlement
trust account - (1,000,000)
Proceeds from sale of securities
available for sale 503,723 -
Proceeds from sale of property and equipment 5,642 133,393
Proceeds from sale of investment in fixed-
maturity securities 1,100,156 -
Payment to purchase Rozmin s.r.o - (100,000)
------------ ------------
Net Cash Provided By Investing Activities 1,384,119 2,304,027
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock - 44,310
Proceeds from sale of treasury stock 1,850 -
Purchase of treasury stock (81,596) (204,793)
------------ ------------
Net Cash Used In Financing Activities (79,746) (160,483)
------------ ------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 9,877 1,806
------------ ------------
Net Increase (Decrease) In Cash and (126,627) 176,857
Cash Equivalents
Cash and Equivalents at Beginning of Period 257,831 57,745
------------ ------------
Cash and Equivalents at End of Period $ 131,204 $ 234,602
============ ============
The accompanying notes are an integral part of these condensed
financial statements.
4
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
Supplemental Disclosure of Non cash Investing and Financing
Activities
During the six months ended June 30, 2002 and 2001, EuroGas
accrued preferred dividends of $67,044 and $66,861, respectively.
During March 2002 EuroGas sold its investment in fixed-maturity
securities carried at $1,445,501, and received $1,100,156 cash
and a note receivable of $345,345.
On June 10, 2002 EuroGas issued 10,000,000 common shares, valued
at $1,000,000, for a note receivable from shareholder of $448,425
and upon conversion of $170,291 notes payable, $500,000 in
accrued liabilities for salaries to officers, and $118,716, in
receivable from related parties.
The accompanying notes are an integral part of these condensed
financial statements.
5
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Interim Financial Statements - The accompanying
unaudited condensed consolidated financial statements include the
accounts of EuroGas, Inc. and its subsidiaries ("EuroGas" or the
"Company"). These financial statements are condensed and,
therefore, do not include all disclosures normally required by
accounting principles generally accepted in the United States of
America. These statements should be read in conjunction with
EuroGas' most recent annual financial statements included in the
Company's report on Form 10-K for the year ended December 31,
2001. 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 consolidated financial statements and
consist of only normal recurring adjustments. The results of
operations presented in the accompanying condensed consolidated
financial statements are not necessarily indicative of the
results that may be expected for the full year ending December
31, 2002.
Business Condition - EuroGas has accumulated a deficit of
$141,952,004 through June 30, 2002. EuroGas has had substantially
no revenue and has incurred losses from operations and negative
cash flows from operating activities during the six months ended
June 30, 2002 and 2001 and the year ended December 31, 2001. At
June 30, 2002, the Company had a working capital deficiency of
$10,653,498. These conditions raise substantial doubt regarding
the Company's ability to continue as a going concern. Realization
of the investment in properties and equipment is dependent upon
management obtaining financing for exploration, development and
production of its properties. In addition, if exploration or
evaluation of oil and gas properties not subject to amortization
is unsuccessful, all or a portion of the recorded amount of those
properties will be recognized as impairment losses. Management
plans to finance operations and acquisitions through borrowing
and possibly through the issuance of additional equity
securities, the realization of which is not assured.
Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of EuroGas, Inc., its
majority-owned subsidiaries and EuroGas' share of properties held
through joint ventures. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassifications - Certain reclassifications have been made in
the prior period financial statements to conform to the current
period presentation.
NOTE 2 - SIGNIFICANT ACQUISITIONS
Rozmin s.r.o. - During 1998, EuroGas acquired a 23.65% interest
in a talc deposit in Eastern Slovakia through an indirect
investment in Rozmin s.r.o. On April 17, 2001, EuroGas entered
into an agreement to purchase an additional 57% interest in
Rozmin s.r.o. from Belmont Resources, Inc. ("Belmont"), in
exchange for EuroGas issuing 12,000,000 common shares, paying
Belmont $100,000 in cash, and modifying the exercise price of
existing stock options. EuroGas further agreed to issue an
additional 1,000,000 common shares for each $0.05 decrease in the
ten-day average OTC Bulletin Board quoted trading price of the
Company's common shares below $0.30 per share through April 17,
2002. During April 2002, EuroGas is obligated to issue 3,830,000
common shares to Belmont under the terms of the agreement. The
3,830,000 common shares were included in common shares
outstanding at June 30, 2002 in the accompanying condensed
financial statements. Additionally, EuroGas agreed to issue
additional common shares to Belmont if Belmont did not realize
$1,926,420 from the resale of the original 12,000,000 common
shares by April 17, 2002, and provided notice of the deficiency,
6
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
to compensate Belmont for the shortfall based on the ten-day
average trading price on the date of the notice of shortfall from
Belmont. Because Belmont has not provided notice of the sale of
the shares and the resulting deficiency, EuroGas is not able to
calculate the shares that may be issuable, but estimates it may
be obligated to issue approximately 12,000,000 additional common
shares to Belmont under this provision of the agreement.
In connection with the purchase by EuroGas, Rozmin s.r.o. granted
an overriding royalty to Belmont of two percent of gross revenues
from any talc sold. EuroGas agreed to pay Belmont a $100,000 non-
refundable advanced royalty payment and agreed to arrange the
necessary financing to place the talc deposit into commercial
production by April 17, 2002. If the talc deposit was not in
commercial production by then, EuroGas agreed to pay Belmont
additional advanced royalties of $10,000 per month for each month
of delay in achieving commercial production. As of June 30, 2002
EuroGas has accrued $25,000 in advance royalty due to Belmont
because the talc deposit was not in commercial production.
EuroGas granted Belmont the right to appoint one member of the
EuroGas, Inc., board of directors for not less than one year.
The purchase of the interest in Rozmin s.r.o. was recorded at
$3,843,560, based on the market value of the common shares issued
(including the guarantee of the future stock value), the increase
in the fair value from the modification of the stock options, and
the cash advance royalty to be paid. The issuance of additional
common shares under the guarantee of the future market value of
the Company's common shares will not result in additional cost
when issued. EuroGas accounted for the acquisition as a purchase
and allocated the purchase price to the assets acquired,
primarily the interest in talc mineral properties. No goodwill
was recognized in the purchase transaction. The operations of
Rozmin s.r.o. have been included in the consolidated results of
operations from its purchase.
EuroGas acquired the original 23.65% mineral interest through the
acquisition of a 55% interest in RimaMuran s.r.o., whose
principal asset was a 43% investment in Rozmin s.r.o. On April 2,
2002, EuroGas exchanged its 55% interest in RimaMuran s.r.o. for
the 43% investment in Rozmin s.r.o. held by RimaMuran. As part of
the exchange, EuroGas paid approximately $105,000 to the former
minority owners of RimaMuran to pay liabilities of RimaMuran and
to compensate the former minority owners. RimaMuran agreed to
transfer title to two pieces of heavy equipment, which EuroGas
had previously financed, to Rozmin. As a result of the exchange,
EuroGas has a 43% ownership in Rozmin s.r.o. and will acquire
ownership of the remaining 57% interest in Rozmin if the
transaction with Belmont is completed. By virtue of its potential
ownership of Rozmin s.r.o. and the talc deposit, EuroGas bears
the full responsibility to fund the development costs necessary
to bring the talc deposit to commercial production.
NOTE 3 - IMPAIRMENT OF MINERAL INTERESTS AND EQUIPMENT
During the second quarter of 2002, the Company evaluated its
investment in the Beaver River Gas project in British Columbia,
Canada. The terms of the related farmout agreement provide that
the operator of the project will receive payout of all of its
investment prior to any payments to the other interest holders
and then the Company would receive 3.33% of the net cash flows,
if any. The operator has invested in excess of $16,000,000 in the
project at June 30, 2002. Due to the low production from the
Beaver River Project and low gas prices currently being paid for
the production, management has determined that it is unlikely
that the Company will receive any of the cash flows from the
project, except for nominal overriding royalty payments.
Accordingly, the Company recognized a $3,937,500 charge for
impairment, which was the carrying value of the Company's
investment in the project, during the second quarter of 2002.
7
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - INVESTMENT IN EQUITY SECURITIES
Investment in Securities Available-for-Sale - The Company's
investment in equity securities are accounted for as available
for sale. The investments in securities available for sale are
carried at market value with unrealized gains and losses included
in other comprehensive income (loss). The cost of securities sold
was determined by the average-cost method. The investment in
securities consisted of the following at June 30, 2002 and
December 31, 2001:
June 30, December 31,
2002 2001
--------- ---------
Cost $ 448,833 $ 809,612
Gross unrealized gains 78,353 -
Gross unrealized losses - (26,704)
--------- ---------
Estimated fair value $ 527,186 $ 782,908
========= =========
During the six months ended June 30, 2002, the Company sold
available-for-sale securities for $503,723 gross proceeds that
resulted in gross realized gains of $118,112 and no gross
realized losses.
Investment in Fixed-Maturity Securities -On March 26, 2002, the
Company sold its investment in Enterra preferred stock to Enterra
for $1,445,501, of which $1,100,156 was received on March 26,
2002 and $345,345 is due in December 2002 under the terms of a
promissory note denominated in Canadian dollars. Due to the
recognition of an impairment loss during 2001, no additional gain
or loss was recognized from the sale during 2002. As adjusted for
changes in foreign currency exchange rates, the carrying value of
the note was $362,082 at June 30, 2002.
NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE
Polish Tax Refund Receivable - During the year ended December 31,
2001, Pol-Tex Methane Sp.zo.o., a wholly owned subsidiary, was
assessed a tax obligation of $186,031 by a Polish tax agency.
The Company appealed the decision to the Polish tax court.
Subsequent to December 31, 2001 the tax court found in favor of
the Company and reversed the total obligation. As of June 30,
2002, the Company has recorded a receivable for $190,357, the
amount of the expected refund.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Chief Executive Officer and principal shareholder of EuroGas,
together with various other companies under his control, have
paid miscellaneous business expenses on behalf of EuroGas and
EuroGas has paid certain expenses on their behalf. The resulting
receivables and payables were combined and presented in the
accompanying financial statements as notes payable to related
parties of $416,858 as of December 31, 2001. During the six
months ended June 30, 2002 EuroGas made additional payments of
$535,574 on behalf of the officer. Additionally, the Chief
Financial Officer assigned $200,000 of accrued salary, which
accrual arose during his service to the Company during 2000, to
the Chief Executive Officer. During June 2002, EuroGas entered
into a compensation agreement with its Chief Executive Officer
and principal shareholder that provides the officer with $300,000
of compensation for his prior services. The compensation was
charged to operations during the three months ended June 30,
2002. The resulting $381,284 payable to the officer was converted
into common stock as further described in Note 7 to the financial
statements.
8
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - STOCKHOLDERS' EQUITY
Preferred Stock - There are 2,391,968 shares of 1995 Series
Preferred Stock (the "1995 Series preferred stock") issued and
outstanding. The 1995 Series preferred stock is non-voting, non-
participating and has a liquidation preference of $0.10 per share
plus unpaid dividends. The 1995 Series preferred shareholders are
entitled to annual dividends of $0.05 per share. Each share of
the 1995 Series preferred shares is convertible into two common
shares upon lawful presentation of the share certificates.
Dividends are payable until converted. EuroGas has the right to
redeem the 1995 Series preferred stock on not less than 30 days
written notice, at a price of $36.84 per share, plus any accrued
but unpaid dividends. Annual dividend requirements of the 1995
Series preferred stock are $119,598.
There are 260 shares of the 1997 Series A Convertible Preferred
Stock (the "1997 Series preferred stock"). The 1997 Series
preferred stock is non-voting and accrues dividends at $60.00 per
share, or six percent annually. The 1997 Series preferred stock
has a liquidation preference of $1,000 per share, plus unpaid
dividends before liquidation payments applicable to common shares
but after liquidation payments to the 1995 Series preferred stock
outstanding. The 1997 Series preferred stock, along with unpaid
dividends thereon, are convertible into common shares at the rate
of $1,000 divided by the lesser of 125% of the average closing
bid price for five trading days prior to issuance or 82% of the
average closing bid price for five trading days prior to
conversion. The 1997 Series preferred stock has a liquidation
preference of $260,000.
The following is a summary of the preferred stock outstanding at
June 30, 2002:
Shares Liquidation Preference Annual Dividend Requirement
---------------------- ---------------------------
Designation Outstanding Per Share Total Per Share Total
- ----------- ----------- ------------ ------- ----------- ---------
1995 Series 2,391,968 $ 0.10 $239,197 $ 0.05 $ 119,598
1997 Series A
Convertible 260 1,000.00 260,000 60.00 15,600
----------- -------- ---------
Total 2,392,228 $499,197 $ 135,198
========= ======== =========
Common Stock and Warrants- On June 10, 2002 the Company issued
its Chief Executive Officer and principal shareholder 10,000,000
common shares and warrants to purchase 10,000,000 additional
common shares at $0.125 per share through June 9, 2003 and at
$0.15 per share through June 10, 2004. The common shares were
valued at $0.10 per share based upon the quoted market price of
$0.12 per share on the date of the issuance, less a discount for
restrictions on the resale of the common stock issued. The common
shares and warrants were issued in exchange for the conversion of
$170,291 of notes payable to related parties, $381,284 of accrued
liabilities to a related party and a note receivable from its
Chief Executive Officer in the amount of $448,425. The note
receivable is secured by the common shares issued and is due
within one year. The note receivable is reflected in the
accompanying financial statements as an offset to stockholders'
equity (deficit).
The warrants had no intrinsic value on the date of the issuance;
accordingly, no compensation was recognized from the issuance of
the warrants. The fair value of the warrants granted was
$754,448, estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk-free
interest rate of 3.15%; expected volatility of 171%; dividend
yield of 0%; and expected life of 2 years.
9
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On May 9, 2002 the Company issued warrants to purchase 5,714,286
common shares at $0.15 per share, principally to the Chief
Executive Officer and also to others. The warrants were issued to
holders of warrants originally issued in January 2000 in
connection with the issuance of $3,000,000 in debentures. Those
original warrants expired on March 31, 2002. The new warrants are
exercisable through March 31, 2004. The warrants granted have
been recorded at their fair value of $1,690,893 and the related
settlement expense has been charged to operations in the
accompanying condensed consolidated financial statements. The
fair value of the warrants was estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 3.27%; expected
volatility of 174%; dividend yield of 0%; and expected life of 2
years.
Treasury Stock - The Company purchased 371,000 shares of treasury
stock during January 2002 for $81,496, or $0.22 per share.
NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consisted of the following
at June 30, 2002 and December 31, 2001:
Foreign currency translation
adjustments $(1,210,111) $(1,309,610)
Unrealized gain (loss) on
investments in securities
available-for-sale 78,353 (26,704)
----------- -----------
Accumulated Other Comprehensive
Loss $(1,131,758) $(1,336,314)
=========== ===========
NOTE 9 - CONTINGENCIES AND COMMITMENTS
The principal portion of the Company's active litigation involves
matters relating to the Company's acquisition of GlobeGas (which
indirectly controlled the Pol-Tex Concession in Poland) as
follows:
McKenzie Bankruptcy Claim - This litigation is being brought by
Steve Smith, Chapter 7 Trustee (the "Trustee") for the bankruptcy
estates of 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), pending in the
United States Bankruptcy Court, for the Southern District of
Texas, Houston Division.
In March 1997, the Trustee commenced the following cause of
action: W. Steve Smith, Trustee, v. McKenzie Methane Poland Co.,
Francis Wood McKenzie, EuroGas, Inc. GlobeGas, B.V. and Pol-Tex
Methane, (Adv. No. 97-4114 in the United States Bankruptcy Court
for the Southern District of Texas, Houston Division). The
Trustee's initial claim appears to allege that the Company may
have paid inadequate consideration for its acquisition of
GlobeGas from persons or entities acting as nominees for the
McKenzies, and therefore McKenzies' creditors are the true owners
of the proceeds received from the development of the Pol-Tex
Concession in Poland. The Company has contested the jurisdiction
of the Court, and the Trustee's claim against a Polish
corporation (Pol-Tex), and the ownership of Polish mining rights.
The Company further contends that it paid substantial
consideration for GlobeGas (Pol-Tex's parent), and that there is
no evidence that the creditors of the McKenzies invested any
money in the Pol-Tex Concession.
10
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In March of 1997, the Trustee brought a related suit styled W.
Steve Smith, Trustee v. Bertil Nordling, Rolf Schlegal, MCK
Development B.V. Claron N.V., Jeffrey Ltd., Okibi N.V., McKenzie
Methane Poland Co., Harven Michael McKenzie, Timothy Stewart
McKenzie, Steven Darryl McKenzie and EuroGas, Inc., (Adv. No. 97-
4155) in each of the three McKenzie individual bankruptcy cases.
In general, the action asserts that the defendants, other than
the Company, who acquired an interest in the Polish Project,
received a fraudulent transfer of assets belonging to the
individual McKenzie bankruptcy estates, or are alter egos or the
strawmen for the McKenzies. As a result, the Trustee asserts
that any EuroGas stock or cash received by these defendants
should be accounted for and turned over to the Trustee. As to
the Company, the Trustee asserts that as transfer agent, the
Company should turn over the preferred stock presently
outstanding to the defendants or reserve such shares in the name
of the Trustee and that any special considerations afforded these
defendants should be canceled. It appears the Company was named
to this litigation only because of its relationship as transfer
agent to the stock in question. This suit has been
administratively consolidated with 97-4114, as amended, and is
currently pending before the Houston bankruptcy court.
In October 1999, the Trustee filed a Motion for Leave to Amend
and Supplement Pleadings and Join Additional Parties in the
consolidated adversary proceedings, 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. These causes of
action claim that the Company and certain of its officers,
directors or consultants cooperated or conspired with the
McKenzies to secret or conceal the proceeds from the sale of the
Polish Concession from the Trustee. In January 2000, this motion
was granted by the bankruptcy court. The Company is vigorously
defending this suit. On March 18, 2002, the court considered
motions to dismiss filed by EuroGas and an officer and a
shareholder (other named defendants). These motions are currently
pending before the Court. No trial date has been set.
In June 1999, the Trustee filed another suit in the same
bankruptcy cases styled Steve Smith, Trustee, vs. Eurogas, Inc.,
GlobeGas, B.V., Pol-Tex Methane, SP. Z.O.O., et al (Adv. No. 99-
3287). That suit sought sanctions against the defendants for
actions allegedly taken by the defendants during the bankruptcy
cases which 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, vs. Eurogas,
Inc., GlobeGas, B.V., Pol-Tex Methane, SP. Z.O.O. (Adv. No. 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. EuroGas disputes the allegations and has
filed a motion to dismiss or alternatively, to abate this suit.
The motion is currently pending before the court.
Management's estimate of the amount due under the claims made by
the Trustee has been accrued in the accompanying consolidated
financial statements as of June 30, 2002.
Kukui, Inc. Claim - In November 1996, the Company entered into a
settlement agreement with Kukui, Inc. ("Kukui"), a principal
creditor in the McKenzie bankruptcy case, whereby the Company
issued 100,000 common shares and an option to purchase 2,000,000
additional common shares, which option expired on December 31,
1998. The Company granted registration rights with respect to the
100,000 common shares issued. On August 21, 1997, Kukui asserted
a claim against EuroGas, which was based upon an alleged breach
of the 1996 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 the 100,000 shares delivered
to Kukui in connection with the 1996 settlement. In addition, the
Estate of Bernice Pauahi Bishop (the "Bishop Estate"), Kukui's
11
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
parent company, entered a claim for failure to register the
resale of common shares subject to its option to purchase up to
2,000,000 common shares of EuroGas. EuroGas denied any liability
and filed a counterclaim against Kukui and the Bishop Estate for
breach of contract concerning their activities with the McKenzie
Bankruptcy Trustee.
In December 1999, EuroGas signed a settlement agreement with the
bankruptcy Trustee, and other parties, including Kukui, Inc., and
the Trustees of the Bishop Estate , which had pursued separate
claims against EuroGas (the "Settlement Agreement"). The
Settlement Agreement, in part, required 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. The bankruptcy
court approved the Settlement Agreement on May 23, 2000. The
claims of Kukui, Inc. and the Trustees of the Bishop Estate have
been dismissed pursuant to the terms of the Settlement Agreement.
Under the terms of the Settlement Agreement, EuroGas recorded an
accrued settlement obligation and litigation settlement expense
of $1,000,000 during 1999, paid Kukui $782,232 of the settlement
obligation in 2000 and accrued an additional settlement
obligation liability and expense of $251,741 during 2000. During
2000, EuroGas issued the Bishop Estate 100,000 registered common
shares, which were valued at $100,000, or $1.00 per share. The
resulting accrued settlement obligation of $369,509 for the
estimated cost of settling the claim included an estimated
default penalty and interest. The Company contends that it has
fully performed under the Settlement Agreement and that the
Settlement Agreement additionally entitles the Company to a
complete release and dismissal of all suits filed by the
Bankruptcy Trustee. The Bankruptcy Trustee contends that EuroGas
defaulted under the Settlement Agreement and is not entitled to a
release or dismissal.
Holbrook Claim - On February 9, 2001, James R. Holbrook, a
documents escrow agent appointed under the Settlement Agreement,
filed his Complaint of Escrow Agent for Interpleader and for
Declaratory Relief against EuroGas, the Trustee and the other
parties to the settlement styled James R. Holbrook v. W. Steve
Smith, Trustee, Kukui, Inc., Eurogas, Inc. and Kruse Landa &
Maycock, L.L.C., (Adv. No. 01-3064) in the McKenzie bankruptcy
cases. Under this complaint, Holbrook sought a determination of
the defendants' rights in certain EuroGas files that he had
received from Kruse Landa and Maycock, former attorneys for
EuroGas. Through this litigation, the Trustee sought turnover of
all these files pursuit to the Settlement Agreement. EuroGas has
opposed turnover of privileged materials and filed a cross-claim
in the suit asking for a declaratory judgment that the Settlement
Agreement is enforceable and that the Trustee be ordered to
specifically perform his obligations under the Settlement
Agreement. The Trustee filed a counterclaim requesting specific
performance by EuroGas and other relief. At the direction of the
court, both parties filed motions for summary judgment. On
December 17, 2001, the court entered an order granting Trustee's
Motion for Summary Judgment and denying a related Motion to
Strike Affidavit, which EuroGas had filed. EuroGas has appealed
this order to the United States District Court for the Southern
District of Texas, which appeals are currently pending. EuroGas
cannot predict the outcome of these appeals, but intends to
vigorously pursue the appeals to completion.
Netherlands Tax Claim - EuroGas' subsidiary, GlobeGas BV, lost
its appeal for a reduction of a 1992 income tax liability in the
Netherlands of an amount equivalent to approximately $803,000 at
June 30, 2002. The tax arose from the sale of equipment at a
profit by the former owner of GlobeGas to its Polish subsidiary.
The liability is reflected in EuroGas' financial statements.
However, GlobeGas does not have the ability to pay the assessed
obligation and as a result may face forced liquidation and
dissolution by the Netherlands tax authority.
12
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other Contingencies and Commitments - During 2002, the Company's
Liechtenstein Subsidiary, Energy Global A.G., was statutorily
liquidated and dissolved by the Principality of Liechtenstein. As
a result, the Company lost $615,904 in net assets of that
subsidiary and may be subject to additional losses in net assets
of Energy Global's subsidiaries.
During April 1999, EuroGas entered into a three-year employment
contract with a former chief executive officer. The contract
provided for an annual salary of $400,000 plus living and other
allowances of $28,200. In addition, options to purchase 1,000,000
common shares at $0.95 per share were granted in connection with
the employment contract. The options vested on January 1, 2000,
and expire in April 2009. The officer resigned in January 2001.
EuroGas has accrued salary obligations to the officer in the
amount of $230,000, plus certain expenses, which are included in
accrued liabilities. EuroGas believes there may be offsets to
this amount but has not reduced the accrued amount.
In addition, other former officers have made claims for
compensation and for reimbursement of expenses against EuroGas,
which amounts have been included as accrued liabilities.
On February 5, 2002 EuroGas entered into an employment agreement
with its new President. The three-year agreement provides for
annual compensation of $400,000 to be paid in monthly
installments. The agreement provides for all terms of the
agreement to continue for the unexpired term of the agreement
should the Company be involved in a winding-up or merger
transaction. The agreement may be terminated if either party
fails to meet its obligations under the terms of the agreement.
In June 2002, the Company agreed to compensate its Chief Executive
Officer and principal shareholder $25,000 per month.
13
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, talc and other minerals. 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 a planning-
stage co-generation and mineral reclamation project. Unless
otherwise indicated, all dollar amounts in this Form 10-Q are
reflected in United States dollars.
When used herein, the terms the "Company," and "EuroGas,"
include EuroGas, Inc. and its wholly owned subsidiaries.
Recent Events
Investment in the Beaver River Project - During the second
quarter of 2002, the Company evaluated its investment in the
Beaver River Gas project in British Columbia, Canada. The terms
of the related farmout agreement provide that the operator of the
project will receive payout of all of its investment prior to any
payments to the other interest holders and then the Company would
receive 3.33% of the net cash flows, if any. The operator has
invested in excess of $16,000,000 in the project at June 30,
2002. Due to the low production from the Beaver River Project and
low gas prices currently being paid for the production,
management has determined that it is unlikely that the Company
will receive any of the cash flows from the project, except for
nominal overriding royalty payments. Accordingly, the Company
recognized a $3,937,500 charge for impairment, which was the
carrying value of the Company's investment in the Project, during
the second quarter of 2002.
Polish Tax Refund Receivable - During the year ended December 31,
2001, Pol-Tex Methane Sp.zo.o., a wholly owned subsidiary of the
Company, was assessed a tax obligation of $186,031 by a Polish
tax agency. The Company appealed the decision to the Polish tax
court. Subsequent to December 31, 2001 the tax court found in
favor of the Company and reversed the total obligation. As of
June 30, 2002, the Company has recorded a receivable for
$232,483, the amount of the expected refund.
Employment Agreements - On February 5, 2002 EuroGas entered into
an employment agreement with Dr. Michael J. Slater, the Company's
new President. The three-year agreement provides for annual
compensation of $400,000 to be paid in monthly installments. The
agreement provides for all terms of the agreement to continue for
the unexpired term of the agreement should the Company be
involved in a winding-up or merger transaction. The agreement may
be terminated if either party fails to meet its obligations under
the terms of the agreement. In June 2002 the Company agreed to
compensate its Chief Executive Officer and principal shareholder
$25,000 per month.
Rozmin Acquisition - During 1998, EuroGas acquired a 23.65%
interest in a talc deposit in Eastern Slovakia through an
indirect investment in Rozmin s.r.o. ("Rozmin"), by purchasing a
55% interest in RimaMuran s.r.o. ("RimaMuran"), whose principal
asset was a 43% investment in Rozmin. On March 27, 2001, EuroGas
entered into an agreement to purchase an additional 57% interest
in Rozmin from Belmont Resources, Inc. ("Belmont"), in exchange
for EuroGas's issuing 12,000,000 common shares to Belmont, paying
Belmont $100,000 in cash, and modifying the exercise price of
existing stock options. EuroGas also agreed to register the
resale of the common shares issued. Under the 2001 agreement,
EuroGas has the right to repurchase up to 6,000,000 common shares
at $2.00 per share for up to one year, upon thirty days written
notice to Belmont. EuroGas further agreed to issue additional
common shares if the ten-day average OTC Bulletin Board quoted
trading price of the Company's common shares was less than $0.30
per share for any ten-trading-day period through March 27, 2002.
Under the terms of the guarantee, EuroGas agreed to issue an
additional 1,000,000 common shares to Belmont for each $0.05
decrease in the ten-day average quoted market price below $0.30
per share. Additionally, EuroGas agreed to issue additional
common shares to Belmont if Belmont did not realize $1,926,420
from the resale of the original 12,000,000 common shares by April
17, 2002, and provided notice of the deficiency, to compensate
Belmont for the shortfall based on the ten-day average trading
price on the date of the notice of shortfall from Belmont.
Because Belmont has not provided notice of the sale of the shares
and the resulting deficiency, EuroGas is not able to calculate
the shares that may be issuable, but estimates it may be
obligated to issue approximately 12,000,000 additional common
shares to Belmont under this provision of the agreement.
14
In connection with the purchase by EuroGas, Rozmin granted an
overriding royalty to Belmont of two percent of gross revenues
from any talc sold. EuroGas agreed to pay Belmont a $100,000 non-
refundable advanced royalty payment and agreed to arrange the
necessary financing to place the talc deposit into commercial
production by March 27, 2002. If the talc deposit was not in
commercial production by then, EuroGas agreed to pay Belmont
additional advanced royalties of $10,000 per month for each month
of delay in achieving commercial production. The Company granted
to Belmont the right to appoint one member of the Company's board
of directors for not less than one year. In connection with the
acquisition, EuroGas further modified the exercise price of
options held by Belmont for the purchase of 2,500,000 common
shares from$0.82 per share to$0.40 per share.
EuroGas acquired the original 23.65% mineral interest through the
acquisition of a 55% interest in Rima Muran, whose principal
asset was a 43% investment in Rozmin. On April 2, 2002, EuroGas
exchanged its 55% interest in RimaMuran for the 43% investment in
Rozmin held by RimaMuran. As part of the exchange, EuroGas paid
approximately $105,000 to the former minority owners of RimaMuran
to pay liabilities of RimaMuran and to compensate the former
minority owners. RimaMuran agreed to transfer title to two pieces
of heavy equipment, which EuroGas had previously financed, to
Rozmin. As a result of the exchange, EuroGas has a direct 43%
ownership in Rozmin free of encumbrances, and will acquire direct
ownership of the remaining 57% interest in Rozmin once the
transaction with Belmont is completed. By virtue of its ownership
of Rozmin and the talc deposit, EuroGas bears the full
responsibility to fund the development costs necessary to bring
the deposit to commercial production.
Results of Operations
The following table sets forth consolidated income statement
data and other selected operating data for the three-month and
six-month periods ended June 30, 2002 and 2001, respectively.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Oil and Gas Sales $ 2,612 $ - $ 2,612 $ -
Operating Expenses
Impairment of mineral 3,937,500 1,154,444 3,937,500 1,154,444
interest and equipment
Depreciation and
amortization 518 3,137 22,355 8,572
Litigation settlement 1,690,893 1,690,947 1,690,893 1,690,947
expense
General and administrative 1,358,253 50,756 1,490,085 1,560,041
----------- ----------- ----------- -----------
Total Operating Expenses 6,987,164 2,899,284 7,460,833 4,414,004
Other Income (Expense)
Interest income 20,085 42,840 21,087 47,484
Interest expense (84,360) 102,872 (88,279) (68,128)
Foreign exchange gains
(losses) 240,405 (188,721) 215,184 (1,113)
Net gain on sale of
investments 104,788 1,086,612 118,112 1,028,222
Other expense (33,390) (1,357) (33,390) -
Equity in income from
unconsolidated subsidiary - - - 341,843
----------- ----------- ----------- -----------
Net Loss (6,737,024) (1,857,038) (7,225,507) (3,065,696)
Three months ended June 30, 2002, compared with three months
ended June 30, 2001
Revenues. At December 31, 2000, EuroGas owned 50.1% of the
capital stock of Big Horn Resources, Ltd., a Canadian full
service oil and gas producer. Big Horn's business was conducted
primarily in western Canada,particularly in the provinces of
Alberta and Saskatchewan. Through 2001, the Company sold its
shares of Big Horn.
15
As a result of the Company's sale of its controlling
interest in Big Horn, and the non-consolidation of Big Horn
thereafter, the Company had substantially no oil and gas sales
for the three months ended June 30, 2002 and 2001.
Operating Expenses. Operating expenses primarily include
general and administrative expenses, depreciation and
amortization, cost of mineral interests and equipment, and
impairment of mineral interests and equipment. General and
administrative expenses were $1,358,253 for the three months
ended June 30, 2002, compared to $50,756 for the three months
ended June 30, 2001. The increase in administrative expenses is
the result of several employees accruing salaries and increased
costs in the use outside consultants. Depreciation and
amortization expenses were $518 for the three months ended June
30, 2002, compared to $3,137 for the three months ended June 30,
2001. This change is primarily attributable to the Polish
subsidiaries.
Interest expense was $84,360 for the three months ended June
30, 2002. This is compared to an interest reversal of $102,872
during the three months ended June 30, 2001. The primary reason
for the decrease in interest expense was due to debentures
decreasing during 2001 and not being outstanding in 2002.
Income Taxes. Historically, the Company has not been
required to pay income taxes due to the Company's absence of net
profits. For future years, the Company anticipates that it will
be able to utilize a substantial portion of its accumulated
deficit, which was approximately $141,952,000 as of June 30,
2002, to offset profits, if and when achieved, resulting in a
reduction in income taxes payable. However, to the extent
accumulated deficits have not been earned in countries where
income is earned, such offsets are not available.
Net Loss. The Company incurred a net loss of $6,737,024 for
the three months ended June 30, 2002, compared to a net loss of
$1,857,038 for the three months ended June 30, 2001. The losses
were due in large part to $3,937,500 of impairment of oil
property interests, the grant of stock purchase warrants as
settlement costs of $1,690,893, and as the absence of revenues,
combined with continued administrative, depreciation, and other
recurring continuing expenses.
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 a gain of $240,405 in the three months
ended June 30, 2002, compared to a loss of $188,721 in the three
months ended June 30, 2001, as a result of exchange rate changes
and currency transactions during these periods. The Company does
not currently employ any hedging techniques to protect against
the risk of currency fluctuations.
Six months ended June 30, 2002, compared with six months ended
June 30, 2001
Revenues. At December 31, 2000, EuroGas owned 50.1% of the
capital stock of Big Horn Resources, Ltd., a Canadian full
service oil and gas producer. Big Horn's business was conducted
primarily in western Canada, particularly in the provinces of
Alberta and Saskatchewan. Through 2001, the Company sold its
shares of Big Horn. As a result of the Company's sale of its
controlling interest in Big Horn and the non-consolidation of Big
Horn thereafter, the Company had substantially no oil and gas
sales for the six months ended June 30, 2002 and 2001.
Operating Expenses. General and administrative expenses
were $1,810,085 for the six months ended June 30, 2001, compared
to $1,560,041 for the six months ended June 30, 2001, an increase
of 16 percent. The increase in administrative expenses is the
result of accruing salaries for several employees and increased
expenses for outside consultants. Depreciation and amortization
expenses were $22,355 for the six months ended June 30, 2002,
compared to $8,572 for the six months ended June 30, 2001. This
increase is primarily attributable to the Polish subsidiaries.
Income Taxes. As indicated above, as a result of the
Company's absence of net profits, the Company 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
approximately $141,952,000 as of June 30, 2002, to offset
profits, if and when achieved, resulting in a reduction in income
taxes payable. However, to the extent accumulated deficits have
not been earned in countries where income is earned, such offsets
are not available.
16
Net Loss. The Company incurred a net loss of $7,225,507 for
the six months ended June 30, 2002, compared to a net loss of
$3,065,696 for the six months ended June 30, 2001. The losses
were due in large part to $3,937,500 of impairment of oil
property interests, the grant of stock purchase warrants as
settlement costs of $1,690,893, and as the absence of revenues,
combined with continued administrative, depreciation, and other
recurring continuing expenses. As indicated above, the Company
is subject to fluctuations in currency exchange rates, which may
result in recognition of significant gains or losses during any
period. The Company recognized a net gain of $215,184 during the
six months ended June 30, 2002 and a net loss of $1,113 during
the six months ended June 30, 2001, as a result of exchange rate
changes and currency transactions. The Company does not currently
employ any hedging techniques to protect against the risk of
currency fluctuations.
Capital and Liquidity
The Company had an accumulated deficit of $141,952,004 at
June 30, 2002, substantially all of which has been funded out of
proceeds received from the issuance of stock and the incurrence
of liabilities. At June 30, 2002, the Company had total current
assets of $1,360,211 and total current liabilities of $12,013,709
resulting in negative working capital of $10,653,498. As of June
30, 2002, the Company's balance sheet reflected $2,366,000 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 six months
ended June 30, 2002, the Company received $1,100,156 in cash from
the sale of its Enterra preferred stock, received $503,723 from
the sale of securities available for sale, but expended $220,172
in the purchase of property and equipment and development of
mineral interests, $1,440,877 in operations and $81,596 to
purchase treasury stock. As a result, the Company's financing
activities used net cash of $79,746 during the six-month period
ended June 30, 2002.
While the Company had cash of $131,204 at June 30, 2002, it
has substantial short-term and long-term financial commitments.
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, 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 are seen in currency exchange
losses, the Company has seen losses on its asset values in those
countries.
17
Warning Regarding Forward-looking Statements, and Factors that
may affect Future Results
This Quarterly Report on Form 10-Q contains forward-looking
statements and information relating to the Company and its
business, which are based on the beliefs of management of the
Company and assumptions made based on information currently
available to management. These statements can be identified by
the use of the words "will," "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 these 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 for the
year ended December 31, 2001, 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 its ability to
establish beneficial relationships with industry partners to
provide funding and expertise to the Company's projects; its
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 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 success of
marketing efforts; the ability to obtain the necessary financing
to successfully pursue the Company's business strategy; operating
hazards and uninsured risks; the intense competition and price
volatility associated with the oil and gas industry; and
international and domestic economic conditions.
The Company's activities are subject to 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 seeking to obtain
concessions is in the process of developing capitalistic
economies. As a result, many of their laws, regulations, and
practices with respect to the exploration and development of
hydrocarbons 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 or in 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 these countries elects to change its regulatory system, it is
possible that the government might seek to annul or amend the
governing agreements in a manner unfavorable to the Company or
impose additional taxes or other duties on the activities of the
Company. As a result of the potential for political risks in
these countries, it remains possible that the governments might
seek to nationalize or otherwise cause the interest of the
Company in the various concessions and licenses to be forfeited.
Many of the areas in which the Company's prospects are located
lack the necessary infrastructure for transporting, delivering,
and marketing the products which the Company seeks to identify
and exploit. Consequently, even if the Company is able to locate
hydrocarbons in commercial quantities, it may be required to
invest significant amounts in developing the infrastructure
necessary to carry out its business plan. The Company does not
presently have a source of funding available to meet these costs.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The Company conducts business in many foreign currencies. As
a result of the effects that foreign exchange rate movements of
those currencies have on the Company's costs and on the cash
flows, which it receives from its foreign operations, the Company
is subject to foreign exchange rate risks. The Company believes
that it currently has no other material market risk exposure. To
date, the Company has addressed its foreign currency exchange
rate risks principally by maintaining its liquid assets in US
dollars, in interest-bearing accounts, until payments in foreign
currency are required, but the Company does not reduce this risk
by utilizing hedging activities.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The principal portion of the Company's active litigation, as
described in the following six paragraphs involve matters
relating to the Company's acquisition of GlobeGas (which
18
indirectly controlled the Pol-Tex Concession in Poland). This
litigation is being brought by Steve Smith, Chapter 7 Trustee
(the "Trustee") for the bankruptcy estates of 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), pending in the United States Bankruptcy Court, for
the Southern District of Texas, Houston Division.
In March 1997, the Trustee commenced the following cause of
action: W. Steve Smith, Trustee, v. McKenzie Methane Poland Co.,
Francis Wood McKenzie, EuroGas, Inc. GlobeGas, B.V. and Pol-Tex
Methane, (Adv. No. 97-4114 in the United States Bankruptcy Court
for the Southern District of Texas, Houston Division). The
Trustee's initial claim appears to allege that the Company may
have paid inadequate consideration for its acquisition of
GlobeGas from persons or entities acting as nominees for the
McKenzies, and therefore McKenzies' creditors are the true owners
of the proceeds received from the development of the Pol-Tex
Concession in Poland. The Company has contested the jurisdiction
of the Court, and the Trustee's claim against a Polish
corporation (Pol-Tex), and the ownership of Polish mining rights.
The Company further contends that it paid substantial
consideration for GlobeGas (Pol-Tex's parent), and that there is
no evidence that the creditors of the McKenzies invested any
money in the Pol-Tex Concession.
In March of 1997, the Trustee brought a related suit styled W.
Steve Smith, Trustee v. Bertil Nordling, Rolf Schlegal, MCK
Development B.V. Claron N.V., Jeffrey Ltd., Okibi N.V., McKenzie
Methane Poland Co., Harven Michael McKenzie, Timothy Stewart
McKenzie, Steven Darryl McKenzie and EuroGas, Inc., (Adv. No. 97-
4155) in each of the three McKenzie individual bankruptcy cases.
In general, the action asserts that the defendants, other than
the Company, who acquired an interest in the Polish Project,
received a fraudulent transfer of assets belonging to the
individual McKenzie bankruptcy estates, or are alter egos or the
strawmen for the McKenzies. As a result, the Trustee asserts
that any EuroGas stock or cash received by these defendants
should be accounted for and turned over to the Trustee. As to
the Company, the Trustee asserts that as transfer agent, the
Company should turn over the preferred stock presently
outstanding to the defendants or reserve such shares in the name
of the Trustee and that any special considerations afforded these
defendants should be canceled. It appears the Company was named
to this litigation only because of its relationship as transfer
agent to the stock in question. This suit has been
administratively consolidated with 97-4114, as amended, and is
currently pending before the Houston bankruptcy court.
In October 1999, the Trustee filed a Motion for Leave to Amend
and Supplement Pleadings and Join Additional Parties in the
consolidated adversary proceedings, 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. These causes of
action claim that the Company and certain of its officers,
directors or consultants cooperated or conspired with the
McKenzies to secret or conceal the proceeds from the sale of the
Polish Concession from the Trustee. In January 2000, this motion
was granted by the bankruptcy court. The Company is vigorously
defending this suit. On March 18, 2002, the court considered
motions to dismiss filed by EuroGas and an officer and a
shareholder (other named defendants). These motions are currently
pending before the Court. No trial date has been set.
In June 1999, the Trustee filed another suit in the same
bankruptcy cases styled Steve Smith, Trustee, vs. Eurogas, Inc.,
GlobeGas, B.V., Pol-Tex Methane, SP. Z.O.O., et al (Adv. No. 99-
3287). That suit sought sanctions against the defendants for
actions allegedly taken by the defendants during the bankruptcy
cases which 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, vs. Eurogas,
Inc., GlobeGas, B.V., Pol-Tex Methane, SP. Z.O.O. (Adv. No. 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. EuroGas disputes the allegations and has
filed a motion to dismiss or alternatively, to abate this suit.
The motion is currently pending before the court.
Management's estimate of the amount due under the claims made by
the Trustee has been accrued in the accompanying consolidated
financial statements as of June 30, 2002.
In November 1996, the Company entered into a settlement agreement
with Kukui, Inc. ("Kukui"), a principal creditor in the McKenzie
bankruptcy case, whereby the Company issued 100,000 common shares
and an option to purchase 2,000,000 additional common shares,
which option expired on December 31, 1998. The Company granted
registration rights with respect to the 100,000 common shares
issued. On August 21, 1997, Kukui asserted a claim against
EuroGas, which was based upon an alleged breach of the 1996
settlement agreement as a result of the Company's failure to file
19
and obtain the effectiveness of a registration statement for the
resale by Kukui of the 100,000 shares delivered to Kukui in
connection with the 1996 settlement. In addition, the Estate of
Bernice Pauahi Bishop (the "Bishop Estate"), Kukui's parent
company, entered a claim for failure to register the resale of
common shares subject to its option to purchase up to 2,000,000
common shares of EuroGas. EuroGas denied any liability and filed
a counterclaim against Kukui and the Bishop Estate for breach of
contract concerning their activities with the McKenzie Bankruptcy
Trustee.
In December 1999, EuroGas signed a settlement agreement with the
bankruptcy Trustee, and other parties, including Kukui, Inc., and
the Trustees of the Bishop Estate , which had pursued separate
claims against EuroGas (the "Settlement Agreement"). The
Settlement Agreement, in part, required 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. The bankruptcy
court approved the Settlement Agreement on May 23, 2000. The
claims of Kukui, Inc. and the Trustees of the Bishop Estate have
been dismissed pursuant to the terms of the Settlement Agreement.
Under the terms of the Settlement Agreement, EuroGas recorded an
accrued settlement obligation and litigation settlement expense
of $1,000,000 during 1999, paid Kukui $782,232 of the settlement
obligation in 2000 and accrued an additional settlement
obligation liability and expense of $251,741 during 2000. During
2000, EuroGas issued the Bishop Estate 100,000 registered common
shares, which were valued at $100,000, or $1.00 per share. The
resulting accrued settlement obligation of $369,509 for the
estimated cost of settling the claim included an estimated
default penalty and interest. The Company contends that it has
fully performed under the Settlement Agreement and that the
Settlement Agreement additionally entitles the Company to a
complete release and dismissal of all suits filed by the
Bankruptcy Trustee. The Bankruptcy Trustee contends that EuroGas
defaulted under the Settlement Agreement and is not entitled to a
release or dismissal.
On February 9, 2001, James R. Holbrook, a documents escrow agent
appointed under the Settlement Agreement, filed his Complaint of
Escrow Agent for Interpleader and for Declaratory Relief against
EuroGas, the Trustee and the other parties to the settlement
styled James R. Holbrook v. W. Steve Smith, Trustee, Kukui, Inc.,
Eurogas, Inc. and Kruse Landa & Maycock, L.L.C., (Adv. No. 01-
3064) in the McKenzie bankruptcy cases. Under this complaint,
Holbrook sought a determination of the defendants' rights in
certain EuroGas files that he had received from Kruse Landa and
Maycock, former attorneys for EuroGas. Through this litigation,
the Trustee sought turnover of all these files pursuit to the
Settlement Agreement. EuroGas has opposed turnover of privileged
materials and filed a cross-claim in the suit asking for a
declaratory judgment that the Settlement Agreement is enforceable
and that the Trustee be ordered to specifically perform his
obligations under the Settlement Agreement. The Trustee filed a
counterclaim requesting specific performance by EuroGas and other
relief. At the direction of the court, both parties filed
motions for summary judgment. On December 17, 2001, the court
entered an order granting Trustee's Motion for Summary Judgment
and denying a related Motion to Strike Affidavit, which EuroGas
had filed. EuroGas has appealed this order to the United States
District Court for the Southern District of Texas, which appeals
are currently pending. EuroGas cannot predict the outcome of
these appeals, but intends to vigorously pursue the appeals to
completion.
Netherlands Tax Assessment. For the 1992 tax year, the
Kingdom of the Netherlands assessed a tax against GlobeGas in the
amount of approximately $911,000, even though Globe Gas had
significant operating losses. On December 17, 2001, the
Netherlands issued its final tax assessment, including interest
charged from 1998, in the amount of approximately $753,000. The
Company had until December 19, 2001 to make payment of this
amount or face possible additional proceedings against the assets
of GlobeGas in satisfaction of the assessment. The tax
assessment is payable in Euro, and as a result fluctuates on the
Company's financial statements due to adjustments in exchange
rates. However, GlobeGas does not have the ability to pay the
assessed obligation and as a result may face forced liquidation
and dissolution by the Netherlands tax authority.
Dissolution of Energy Global A.G. During 2002, the
Company's Liechtenstein Subsidiary, Energy Global A.G., was
statutorily liquidated and dissolved by the Principality of
Liechtenstein. As a result, the Company lost $615,904 in net
assets of that subsidiary and may be subject to additional losses
in net assets of Energy Global's subsidiaries.
Geocon Litigation. On April 13, 2001, Geocon Group
Services, Ltd. filed suit against EuroGas in an action styled
Geocon Group Services, Ltd. v. EuroGas, Inc., (Civil No.
010404108), in the Salt Lake County Court, Sandy Department,
Third District Court, State of Utah. The suit seeks $45,163 for
services allegedly performed by Geocon. The Company and Geocon
20
have entered into a Settlement Agreement, however the Company has
not had sufficient funds to make the settlement payment under the
agreement.
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent sales of unregistered Securities.
In connection with the April 17, 2001, agreement with
Belmont Resources, Inc. ("Belmont") to purchase Belmont's
interest in Rozmin s.r.o ("Rozmin"), the Company made certain
guarantees to Belmont. First, the Company agreed to issue an
additional 1,000,000 common shares for each $0.05 decrease in the
ten-day average OTC Bulletin Board quoted trading price of the
Company's common shares below $0.30 per share through April 17,
2002. Through April 2002, EuroGas was obligated to issue
3,830,000 common shares to Belmont under the terms of the
agreement. The Company's obligation to issue these shares matured
during the quarter ended June 30, 2002. The Company will issue
such shares without registration under the 1933 Act in reliance
on section 4(2) of the 1933 Act and the rules and regulations
promulgated thereunder. The shares of stock will be issued as
restricted securities and the certificates representing the
shares will be stamped with a restrictive legend to prevent any
resale without registration under the 1933 Act or pursuant to an
exemption.
Additionally, the Company agreed to issue additional common
shares to Belmont if Belmont did not realize at least $1,926,420
from the resale of the original 12,000,000 common shares by April
17, 2002, and provided notice of the deficiency, to compensate
Belmont for the shortfall based on the ten-day average trading
price on the date of the notice of shortfall from Belmont.
Because Belmont has not provided notice of the sale of the shares
or any resulting deficiency, the Company's obligation to issue
these shares has not matured, and the Company has not issued the
shares. Further, the Company is presently not able to calculate
the number of shares that it may be obligated to issue, but
estimates that the number of shares may be approximately
12,000,000 additional common shares to Belmont under this
provision of the agreement.
In June 2002, the Company sold, in a private placement
offering, 10,000,000 units, each unit consisting of one share of
its common stock and one Series A two-year common stock purchase
warrant with an exercise price ranging from $0.125 to $0.15 per
share (depending on the date of exercise), to Wolfgang Rabaull,
the Company's Chairman and Chief Executive Officer. The Company
issued such shares and warrants without registration under the
1933 Act in reliance on section 4(2) of the 1933 Act and the
rules and regulations promulgated thereunder. The shares of
stock and the warrants were issued as restricted securities and
the warrants and the certificates representing the shares were
stamped with a restrictive legend to prevent any resale without
registration under the 1933 Act or pursuant to an exemption.
On May 9, 2002, the Company issued to Herb Zimmer and
Wolfgang Rauball, the Company's Chaiman and Chief Executive
Officer, warrants to purchase up to 5,714,286 shares of the
Company's common stock at an exercise price of $0.15 per share,
exercisable through March 31, 2004. The Company issued the
warrants without registration under the 1933 Act in reliance on
section 4(2) of the 1933 Act and the rules and regulations
promulgated thereunder. The warrants were issued as restricted
securities and were stamped with a restrictive legend to prevent
any resale without registration under the 1933 Act or pursuant to
an exemption.
21
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report.
Exhibit
Number Title of Document Location
- -------- ------------------------------- ---------------
2.1 Exchange Agreement between Report on Form
Northampton, Inc., 8-K
and Energy Global, A.G. dated August
3, 1994,
Exhibit No. 1*
2.2 Agreement and Plan of Merger Report on Form
between EuroGas, Inc., 8-K
and Danube International dated July 12,
Petroleum Company, Inc., 1996,
dated July 3, 1996, as amended Exhibit No. 5*
2.3 English translation of Transfer Report on Form
Agreement between 8-K
EuroGas and OMV, Inc. for the dated June 11,
Acquisition of 1997
OMV (Yakut) Exploration GmbH
dated June 11, 1997 Exhibit No. 1*
2.4 Asset Exchange Agreement between Report on Form
EuroGas, Inc., S-1 dated July,
and Beaver River Resources, 23,1998
Ltd., dated April 1, 1988 Exhibit No. 203*
3.1 Articles of Incorporation Registration
Statement
on Form S-18,
File
No. 33-1381-D
Exhibit No.
1*
3.2 Amended Bylaws Annual Report
on
Form 10-K for
the
fiscal year
ended
September 30,
1990,
Exhibit No.
1*
22
Number Title of Document Location
- -------- ------------------------------- ---------------
3.3 Designation of Rights, Quarterly
Privileges, and Preferences Report on
of 1995 Series Preferred Stock Form 10-QSB
dated
March 31,
1995,
Exhibit No. 1*
3.4 Designation of Rights, Report on Form
Privileges, and Preferences 8-K
of 1996 Series Preferred Stock dated July
12, 1996,
Exhibit No.
1*
3.5 Designation of Rights, Report on Form
Privileges, and Preferences 8-K
1997 Series A Convertible dated May 30,
Preferred Stock 1997
Exhibit No. 1*
3.6 Designation of Rights, Report on Form
Privileges, and Preferences S-1
of 1998 Series B Convertible Dated July 23,
Preferred Stock 1998
Exhibit No.
3.06*
3.7 Articles of Share Exchange Report on Form
8-K August
3, 1994,
Exhibit No. 6*
3.8 Designation of Rights, Registration
Privileges, and Preferences of Statement on
1999 Series C 6% Convertible Form S-1, File
Preferred Stock No. 333-92009,
filed on
December 2,
1999
4.1 Subscription Agreement between Report on Form
EuroGas, Inc., and S-1
Thomson Kernaghan & Co., Ltd., dated July 23,
dated May 29, 1998 1998
Exhibit No.
4.01*
4.2 Warrant Agreement dated July 12, Report on Form
1996, with 8-K
Danube Shareholder dated July 12,
1996,
Exhibit No. 2*
4.3 Registration Rights Agreement Report on Form
Between EuroGas, Inc., S-1 dated July
and Thomson Kernaghan & Co., 23, 1998
Ltd., dated May 29, 1998 Exhibit No.
4.02*
4.4 Registration Rights Agreement Report on Form
dated July 12, 1996, 8-K
with Danube Shareholder dated July 12,
1996
Exhibit No. 3*
4.5 Registration Rights Agreement by Report on Form
and among EuroGas, Inc., and S-1
Finance Credit & Development dated July 23,
Corporation, Ltd., dated June 30, 1998
1997 Exhibit No.
4.06*
4.6 Option granted to the Trustees of Annual Report
the Estate of on
Bernice Pauahi Bishop Form 10-KSB
for the
fiscal year
ended
December 31,
1995,
Exhibit No.
10*
4.7 Registration Rights Agreement by Annual Report
and among on
EuroGas, Inc., and Kukui, Inc., Form 10-KSB
and the Trustees of for the
the Estate of Bernice Pauahi fiscal year
Bishop ended
December 31,
1995,
Exhibit No.
11*
4.8 Option issued to OMV Annual Report
Aktiengesellschaft to acquire up on
to 2,000,000 shares of restricted Form 10-KSB
common stock for the
fiscal year
ended
December 31,
1996,
Exhibit No.
13*
23
Number Title of Document Location
- -------- ------------------------------- ---------------
4.9 Form of Convertible Debenture Quarterly
issued on January 12, 2000. report on Form
10-Q dated
March 31,
2000.
10.1 English translation of Mining Quarterly
Usufruct Contract between The Report on Form
Minister of Environmental 10-Q dated
Protection, Natural Resources and September 30,
Forestry of the Republic of 1997 Exhibit
Poland and Pol-Tex Methane, dated No. 1*
October 3, 1997
10.2 Agreement between Polish Oil and Quarterly
Gas Mining Joint Stock Company Report on Form
and EuroGas, Inc., dated October 10-Q dated
23, 1997 September 30,
1997 Exhibit
No. 2*
10.3 1996 Stock Option and Award Plan Annual Report
on
Form 10-KSB
for the
fiscal year
ended
December 31,
1995,
Exhibit No.
14*
10.4 Settlement Agreement by and among Annual Report
Kukui, Inc., and on
Pol-Tex Methane, Sp. zo.o., Form 10-KSB
McKenzie Methane for the
Rybnik, McKenzie Methane fiscal year
Jastrzebie, GlobeGas, ended
B.V. (formerly known as McKenzie December 31,
Methane Poland, 1995,
B.V.), and the Unsecured Exhibit No.
Creditors' Trust of the 15*
Bankruptcy Estate of McKenzie
Methane Corporation
10.5 Acquisition Agreement between Report on Form
EuroGas, Inc., and Belmont S-1 dated
Resources, Inc., dated July 22, July 23, 1998
1998 Exhibit No.
10.20*
10.6 General Agreement governing the Report on Form
operation of 8-K
McKenzie Methane Poland, B.V. dated August
3, 1994,
Exhibit No. 2*
10.7 Concession Agreement between Annual Report
Ministry of on
Environmental Protection, Natural Form 10-KSB
Resources, and for the
Forestry and Pol-Tex Methane Ltd. fiscal year
ended
Dec ember 31,
1995,
Exh ibit No.
18*
10.8 Association Agreement between Annual Report
NAFTA a.s. Gbely on
and Danube International Form 10-KSB
Petroleum Company for the
fiscal year
ended
December 31,
1995,
Exhibit No.
19*
10.9 Agreement between Moravske' Annual Report
Naftove' Doly a.s. on
and Danube International Form 10-KSB
Petroleum Company for the
fiscal year
ended
December 31,
1995,
Exhibit No.
20*
10.10 Form of Convertible Debenture Report on Form
8-K
dated August
3, 1994,
Exhibit No. 7*
10.11 Form of Promissory Note, as Annual Report
amended, with attached on
list of shareholders Form 10-KSB
for the
fiscal year
ended
December 31,
1995,
Exhibit No.
23*
24
Number Title of Document Location
- -------- ------------------------------- ---------------
10.12 Amendment #1 to the Association Annual Report
Agreement Entered on
on 13th July 1995, between NAFTA Form 10-KSB
a.s. Gbely and for the
Danube International Petroleum Fiscal year
Company ended
December 31,
1996,
Exhibit No.
25*
10.13 Acquisition Agreement by and Form 10-Q
among Belmont Resources, Inc., Dated
EuroGas Incorporated, dated September 30,
October 9, 1998 1998
Exhibit No. 1*
10.14 Letter of Intent by and between Annual Report
Polish Oil and Gas on
Company and Pol-Tex Methane, Form 10-KSB
dated April 28, 1997 for the
Fiscal year
ended
December 31,
1996,
Exhibit No.
27*
10.15 Purchase and Sale Agreement Report on Form
between Texaco Slask 8-K
Sp. zo.o., Pol-Tex Methane Sp. Dated March
zo.o. and 24, 1997
GlobeGas B.V. Exhibit No. 1*
10.16 English translation of Articles Report on Form
of Association of the 8-K/A
TAKT Joint Venture dated June 7, Dated June 11,
1991, as amended 1997
April 4, 1993 Exhibit No. 3*
10.17 English translation of Proposed Report on Form
Exploration and 8-K/A
Production Sharing Contract for Dated June 11,
Hydrocarbons 1997
between the Republic of Sakha Exhibit No. 4*
(Yakutia) and the Russian
Federation and the TAKT Joint
Venture
10.18 English translation of Agreement Registration
on Joint Investment and Statement on
Production Activities between Form S-1 dated
EuroGas, Inc., and July 23, 1998
Zahidukrgeologia, dated May 14, Exhibit No.
1998 10.21*
10.19 English translation of Statutory Registration
Agreement of Association of Statement on
Limited Liability Company with Form S-1 dated
Foreign Investments between July 23, 1998
EuroGas, Inc., and Makyivs'ke Exhibit No.
Girs'ke Tovarystvo, dated June 10.22*
17, 1998
10.20 Partnership Agreement between Amendment No.
EuroGas, Inc., and RWE-DEA 1 to
Aktiengesellschaft for Mineraloel Registration
and Chemie AG, date July 22, 1998 Statement on
Form S-1 dated
August 3, 1998
Exhibit No.
10.23
10.21 Mining Usufruct Contract between Quarterly
The Minister of Report on
Environmental Protection, Natural Form 10-Q
Resources and dated
Forestry of the Republic of September 30,
Poland and Pol-Tex 1997
Methane, dated October 3, 1997 Exhibit No. 1*
10.22 Agreement between Polish Oil and Quarterly
Gas Mining Joint Report on
Stock Company and EuroGas, Inc., Form 10-Q
dated October 23, 1997 dated
September 30,
1997
Exhibit No. 2*
10.23 Agreement for Acquisition of 5% Quarterly
Interest in a Report on
Subsidiary by and between Form 10-Q
EuroGas, Inc., B. Grohe, dated
and T. Koerfer, dated November September 30,
11, 1997 1997
Exhibit No. 3*
25
Number Title of Document Location
- -------- ------------------------------- ---------------
10.24 Option Agreement by and between Quarterly
EuroGas, Inc., Report on
and Beaver River Resources, Ltd., Form 10-Q
dated dated
October 31, 1997 September 30,
1997
Exhibit No. 4*
10.25 Lease Agreement dated September Registration
3, 1996, between Potomac Statement
Corporation and the Company; on Form S-1,
Letter of Amendment dated File No.
September 30, 1999. 333-92009
filed on
December 2,
1999
10.26 Sublease dated November 2, 1999, Registration
between Scotdean Limited and the Statement on
Company Form S-1, File
No. 333-92009,
filed on
December 2,
1999
10.27 Securities Purchase Agreement Registration
dated November 4, 1999, between Statement on
the Company and Arkledun Drive Form S-1, File
LLC No. 333-92009,
filed on
December 2,
1999
10.28 Registration Rights Agreement Registration
dated November 4, 1999, between Statement on
the Company and Arkledun Drive Form S-1, File
LLC No. 333-92009,
filed on
December 2,
1999
10.29 Supplemental Agreement dated Registration
November 4, 1999, between the Statement on
Company and Arkledun Drive LLC Form S-1, File
No. 333-92009,
filed on
December 2,
1999
10.30 Executive Employment Agreement Registration
dated April 20, 1999 between the Statement on
Company and Karl Arleth Form S-1, File
No. 333-92009,
filed on
December 2,
1999
10.31 Settlement Agreement dated June Form 10-K for
16, 2000, between the Company and year ended
FCOC December 31,
2000
10.32 Securities Purchase Agreement Form 10-K for
dated October 2, 2000, between year ended
the Company and Arkledun Drive December 31,
LLC 2000
10.33 Registration Rights Agreement Form 10-K for
dated October 2, 2000, between year ended
the Company and Arkledun Drive December 31,
LLC 2000
10.34 Settlement Agreement dated Form 10-K for
November 14, 2000, between the year ended
Company and Arkledun Drive LLC December 31,
2000
10.35 Consulting Agreement dated Form 10-K for
September 18, 2000, between the year ended
Company and Spinneret Financial December 31,
Systems, Ltd. 2000
10.36 Securities Purchase Agreement Form 10-K for
dated March 27, 2001 between the year ended
Company and Belmont Resources December 31,
Inc. 2000
10.37 Agreement dated April 9, 2001 Form 10-K for
between the Company and Belmont year ended
Resources Inc. December 31,
2000
10.38 Warrant Agreement dated September Form 10-K for
8, 2000 with Oxbridge Limited year ended
December 31,
2000
26
Number Title of Document Location
- -------- ------------------------------- ---------------
10.39 Warrant Agreement dated September Form 10-K for
8, 2000 with Rockwell year ended
International Ltd. December 31,
2000
10.40 Warrant Agreement dated September Form 10-K for
8, 2000 with Conquest Financial year ended
Corporation December 31,
2000
10.41 Termination and Transfer Form 10-K for
Agreement dated June 23, 2000 year ended
between the Company and Belmont December 31,
Resources, Inc. 2000
10.42 Loan Agreement dated March 3, Form 10-K for
1999 between the Company and Pan year ended
Asia Mining Corp. December 31,
2000
10.43 Agreement dated July 14, 2000 Form 10-K for
between the Company and Oxbridge year ended
Limited December 31,
2000
10.44 Amended Agreement dated July 25, Form 10-K for
2000 between the Company, Pan year ended
Asia Mining Corp., and Oxbridge December 31,
Limited 2000
10.45 Settlement Agreement dated Form 10-K for
November 20, 2000 between the year ended
Company and Beaver River December 31,
Resources, Ltd. 2000
21.1 Subsidiaries Annual Report
on
Form 10-KSB
for the
Fiscal year
ended
December 31,
1995,
Exhibit No.
24*
99.1 Certification under Section 906 Attached
of the Sarbanes-Oxley Act (18
U.S.C. SECTION 1350)
* Incorporated by reference
(b) No current reports on Form 8-K were filed during the
reporting quarter.
27
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:
September 11, 2002 By: /s/ Wolfgang Rauball
-----------------------------------------
Wolfgang Rauball, Chief Executive Officer
(Principal Executive Officer)
September 11, 2002 By: /s/ Hank Blankenstein
------------------------------------------
Hank Blankenstein, Chief Financial Officer
(Principal Financial and Accounting Officer)
28
CERTIFICATIONS
I, Wolfgang Rauball, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
EuroGas, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
/s/ Wolfgang Rauball
- ------------------------
Name: Wolfgang Rauball
Date: September 11, 2002
[EXPLANATORY NOTE REGARDING CERTIFICATIONS: Representations 4, 5
and 6 of the Certification as set forth in Form 10-Q have been
omitted, consistent with the Transition Provisions of SEC
Exchange Act Release No. 34-46427, because this quarterly report
of Form 10-Q covers a period ending before the Effective Date of
Rules 13a-14 and 15d-14.]
I, Hank Blankenstein, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
EuroGas, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
/s/ Hank Blankenstein
- ------------------------
Name: Hank Blankenstein
Date: September 11, 2002
[EXPLANATORY NOTE REGARDING CERTIFICATIONS: Representations 4, 5
and 6 of the Certification as set forth in Form 10-Q have been
omitted, consistent with the Transition Provisions of SEC
Exchange Act Release No. 34-46427, because this quarterly report
of Form 10-Q covers a period ending before the Effective Date of
Rules 13a-14 and 15d-14.]
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