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______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] 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 000-24781 87-0427676
---- --------- ----------
(State or other (Commission File No.) (IRS Employer
jurisdiction Identification No.)
of incorporation or
organization)
1006-100 Park Royal South
West Vancouver, B.C. Canada V7T 1A2
-----------------------------------
(Address of principal executive
offices, Zip Code)
(604) 913-1462
--------------
(Registrant's telephone number, including area code)
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of May 20, 2003, the registrant had 168,212,635 shares of common stock
outstanding.
1
EUROGAS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of
March 31, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) (Unaudited) for the Three
Months Ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Managements Discussion and Analysis of Financial
Condition Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Item 4. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 23
Certifications Pursuant to the Sarbanes-Oxley Act of 2002 24
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2003 December 31, 2002
- ---------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 74,344 $ 187,922
Investment in securities available-for-sale 1,856,792 1,490,058
Other receivables 97,262 98,176
Other current assets 15,457 16,416
- -------------------------------------------------------------------------------------------------
Total Current Assets 2,043,855 1,792,572
- -------------------------------------------------------------------------------------------------
Property and Equipment - full cost method
Talc mineral properties and mining equipment 6,520,759 6,507,736
Oil and gas properties not subject to amortization 796,449 841,427
Furniture and office equipment 363,656 371,188
- -------------------------------------------------------------------------------------------------
Total Property and Equipment 7,680,864 7,720,351
Less: Accumulated depletion, depreciation and amortization (194,085) (196,259)
- -------------------------------------------------------------------------------------------------
Net Property and Equipment 7,486,779 7,524,092
Receivable from a Related Party 37,176 101,084
- -------------------------------------------------------------------------------------------------
Total Assets $ 9,567,810 $ 9,417,748
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Accrued liabilities $ 5,524,750 $ 5,150,443
Accrued settlement obligations 13,145,766 13,145,766
Accrued income taxes 848,821 815,053
Notes payable to related parties 253,365 253,365
- -------------------------------------------------------------------------------------------------
Total Current Liabilities 19,772,702 19,364,627
- -------------------------------------------------------------------------------------------------
Stockholders' Equity (Deficiency)
Preferred stock, $0.001 par value; 3,661,968 shares authorized;
2,392,228 shares outstanding; liquidation preference: $499,19 350,479 350,479
Common stock, $0.001 par value; 325,000,000 shares authorized;
168,212,635 shares issued 168,213 168,213
Additional paid-in capital 143,595,224 143,595,224
Accumulated deficit (153,880,098) (153,346,645)
Accumulated other comprehensive income (loss) 11,077 (264,363)
Receivable from shareholder (448,425) (448,425)
Treasury stock, at cost; 5,028 shares (1,362) (1,362)
- -------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficiency) (10,204,892) (9,946,879)
- -------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 9,567,810 $ 9,417,748
=================================================================================================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the Three Months Ended March 31 2003 2002
- --------------------------------------------------------------------------------------------
Sales $ - $ -
- --------------------------------------------------------------------------------------------
Costs and Operating Expenses
Depreciation 2,084 21,837
General and administrative 456,972 451,832
- --------------------------------------------------------------------------------------------
Total Costs and Operating Expenses 459,056 473,669
- --------------------------------------------------------------------------------------------
Other Income (Expenses)
Gain on sale of securities available for sale - 13,324
Interest income 779 1,002
Interest expense (10,365) (3,919)
Foreign exchange net losses (48,492) (25,221)
Equipment rental income 17,017 -
- --------------------------------------------------------------------------------------------
Net Other Expenses (41,061) (14,814)
- --------------------------------------------------------------------------------------------
Net Loss (500,117) (488,483)
Preferred Dividends 33,336 33,337
- --------------------------------------------------------------------------------------------
Loss Applicable to Common Shares $ (533,453) $ (521,820)
============================================================================================
Basic and Diluted Loss Per Common Share $ - $ -
============================================================================================
Basic and Diluted Weighted-Average Common
Shares Outstanding 168,212,635 143,761,965
============================================================================================
Other Comprehensive Income (Loss)
Net loss $ (500,117) $ (488,483)
Unrealized gain on investments in securities
available for sale 335,684 446,541
Foreign currency translation adjustments (60,244) 99,370
- --------------------------------------------------------------------------------------------
Comprehensive Income (Loss) $ (224,677) $ 57,428
============================================================================================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended March 31 2003 2002
- -------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss $ (500,117) $ (488,483)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation 2,084 21,837
Gain on sale of securities available for sale - (13,324)
Gain on sale of property and equipment (5,986)
Exchange loss 48,492 25,221
Changes in operating assets and liabilities:
Other receivables - 60,102
Accrued liabilities payable to related parties - (134,707)
Accrued liabilities 291,684 (317,712)
- -------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (163,843) (847,066)
- -------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of investment in fixed-maturity securities - 1,100,156
Proceeds from sale of securities available for sale - 207,751
Purchase of securities available for sale - (5,230)
Purchases of mineral interests, property and equipment (17,429) (217,391)
Proceeds from sale of interest in gas property and equipment 5,986
- -------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities (11,443) 1,085,286
- -------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Collection of receivable from related parties 63,908 -
Proceeds from sale of treasury stock - 1,850
Acquisition of treasury stock - (81,596)
- -------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 63,908 (79,746)
- -------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (2,200) 23,697
- -------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (113,578) 182,171
Cash at Beginning of Period 187,922 257,831
- -------------------------------------------------------------------------------------------
Cash at End of Period $ 74,344 $ 440,002
===========================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ - $ -
- -------------------------------------------------------------------------------------------
Supplemental Schedule of Noncash Investing and
Financing Activities:
Accrual of preferred dividends $ 33,336 $ 33,337
Conversion of fixed-maturity securities to note receivable - 345,345
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND 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, 2002. 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, 2003.
Business Condition - EuroGas has accumulated a deficit of $153,880,098 through
March 31, 2003. EuroGas has had no revenue, losses from operations and negative
cash flows from operating activities during the years ended December 31, 2002
and 2001 and during the three months ended March 31, 2003. At March 31, 2003,
the Company had a working capital deficiency of $17,728,847 and a capital
deficiency of $10,204,892. 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 property and equipment is
unsuccessful, all or a portion of the recorded amount of those properties will
be recognized as impairment losses. Management plans to finance operations,
development of its properties and payment of its liabilities through borrowing,
through sale of interests in its properties 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.
Loss Per Share - Basic loss per common share is computed by dividing net loss
available to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share during periods of
income reflect potential dilution which could occur if all potentially issuable
common shares from stock purchase warrants and options, convertible notes
payable and preferred shares resulted in the issuance of common shares. The
weighted-average common shares outstanding was not increased from 39,342,858
potentially issuable common shares at March 31, 2003, and 16,950,000 potentially
issuable common shares at March 31, 2002, because to do so would have decreased
the loss per share and have been excluded from the calculation.
Reclassifications - Certain reclassifications have been made in the prior period
financial statements to conform to the current period presentation.
Recent Accounting Pronouncements - In June 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity," under which a liability for an exit cost was recognized at the date
of an entity's commitment to an exit plan. SFAS No. 146 requires that a
6
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
liability for a cost associated with an exit or disposal activity be recognized
at fair value when the liability is incurred. The provisions of this statement
are effective for exit or disposal activities that are initiated after December
31, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Among other provisions, this statement modifies the criteria for classification
of gains or losses on debt extinguishment such that they are not required to be
classified as extraordinary items if they do not meet the criteria for
classification as extraordinary items in APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The Company is required to apply the provisions of this standard
to transactions occurring after December 31, 2002. The adoption of this standard
in 2003 did not have any effect on the Company's financial position or results
of operations.
NOTE 2 - INVESTMENT IN SECURITIES AVAILABLE-FOR-SALE
The Company's investments 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 accumulated other
comprehensive income (loss). The cost of securities sold was determined by the
average-cost method. The investments in securities consisted of the following:
March 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------
Cost $ 443,942 $ 412,892
Gross unrealized gains 1,412,850 1,077,166
- --------------------------------------------------------------------------------
Estimated fair value $ 1,856,792 $ 1,490,058
================================================================================
During the three months ended March 31, 2003, the Company made no sales or
purchases of available-for-sale securities.
NOTE 3 - ACCRUED SETTLEMENT OBLIGATIONS
Oxbridge Settlement - During 1997 Oxbridge Limited requested EuroGas convert
2,391,968 Series 1995 Preferred Stock into EuroGas common shares but was
effectively prevented in doing so by an agreed order with the Trustee in the
McKenzie bankruptcy case described below. As a result, Oxbridge was unable to
receive proceeds from the sale of the conversion shares when the average market
prices and trading volume would have resulted in substantial proceeds and has
made a claim against EuroGas for its losses. During 2002, EuroGas estimated the
cost to settle the Oxbridge claim to be approximately $6,800,000 and is included
in accrued settlement obligation as of March 31, 2003.
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)
(hereafter "97-4114"). The Trustee's initial claim appears to allege that the
7
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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, 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, including Wolfgang and Reinhard Rauball 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 the Rauballs (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, which motion is currently pending before the
court. On March 18, 2002, the court considered motions to dismiss filed by
EuroGas and the Rauballs (other named defendants). On September 10, 2002, the
Court entered an Order which required the Trustee to specify the causes of
action asserted against each Defendant. A few days prior to this Order, the
Trustee filed his Second Motion for Leave to Amend and Supplement Pleadings and
to Drop Certain Defendants (the "Second Motion"). On October 21, 2002, EuroGas
and other Defendants filed their Response to the Second Motion. On November 11,
2002, the Trustee filed his Motion and Reply to this Response under which, in
part, Trustee sought court approval to file a Third Amended Complaint. On March
8
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13, 2003 the Court entered and Order Granting Trustee's Motion for Leave to
Amend. On March 13, 2003 the Trustee filed his Third Amended Complaint, which
is now styled Steve Smith, Trustee v. Harven Michael McKenzie, McKenzie Methane
Poland, Inc., EuroGas, Inc., Wolfgang Rauball, Reinhard Rauball, MCK
Development, B.V., Claron, N.V., Jeffrey, Ltd. and Okibi N.V. (Adv. No. 97-4114
and 97-4115). As to EuroGas, the Third Amended Complaint asserts claims for
breach of contract, fraud in the inducement, conspiracy, aiding and abetting
civil conspiracy, fraudulent transfer and punitive damages. As to Wolfgang and
Reinhard Rauball, the Complaint asserts claims for turnover under Section 542
and 543 (Reinhard Rauball only) of the Bankruptcy Code, conversion, post-
petition avoidable transfers, civil conspiracy, aiding and abetting civil
conspiracy and punitive damages. The Company has recently filed a Motion to
Dismiss the Third Amended Complaint. At present, no trial date has been set.
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
December 31, 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 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 in an action 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
9
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. On
September 25, 2002 the District Court entered its Opinion and Order affirming
the Bankruptcy Court's orders. On October 25, 2002 EuroGas filed a notice of
appeal of the District Court's order to the Fifth Circuit Court of Appeals. The
appeal is currently pending before this Court. EuroGas cannot predict the
outcome of these appeals, but intends to vigorously pursue the appeals to
completion.
NOTE 4 - NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties are considered current and consist of:
March 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------------------
Loans from companies associated with a director
due in 2002 and 2003 with interest at 7% to 10%
unsecured $ 247,816 $ 247,816
Loan from a director, due in 2002, and 2003,
interest: 7.5% to 10% unsecured 5,549 5,549
- --------------------------------------------------------------------------------------------
Total Notes Payable to Related Parties 253,365 253,365
============================================================================================
NOTE 5 - 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. During the three months ended March 31, 2003, the shareholder made net
repayments of $63,908 of the receivable from the related party. The resulting
receivables and payables are combined and presented in the accompanying
financial statements as receivable from related parties of $37,716 and $101,084
as of March 31, 2003 and December 31, 2002, respectively.
Related party loans are described in Note 4, Notes Payable to Related Parties.
NOTE 6 - 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 are 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
10
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. Annual dividend
requirements of the 1997 Series preferred stock are $15,600. The following is a
summary of the preferred stock outstanding at December 31, 2002:
Liquidation Preference Annual Dividend Requirement
------------------------ ------------------------
Shares
Designation Outstanding Per Share Total Per Share Total
- ------------------------------------------------------------------------------------------------
1995 Series 2,391,968 $ 0.10 $ 239,197 $ 0.05 $ 119,598
1997 Series A Conve 260 1,000.00 260,000 60.00 15,600
- ------------------------------------------------------------------------------------------------
Total 2,392,228 $ 499,197 $ 135,198
================================================================================================
Aggregate accrued dividends on preferred stock were $684,161 and $650,824 at
March 31, 2003 and December 31, 2002, respectively, and are included in accrued
liabilities.
NOTE 7 - ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive income (loss) consisted of the following:
March 31, 2003 December 31, 2002
- -------------------------------------------------------------------------------------------
Foreign currency translation adjustments $ (1,401,773) $ (1,341,529)
Unrealized gain on investments in
securities available for sale 1,412,850 1,077,166
- -------------------------------------------------------------------------------------------
Accumulated Other Comprehensive Income (Los $ 11,077 $ (264,363)
===========================================================================================
NOTE 8 - CONTINGENCIES AND COMMITMENTS
Purchase of Rozmin - EuroGas acquired a direct 43% interest in Rozmin s.r.o.
through a series of transactions from 1998 through April 2002. Rozmin s.r.o.
holds a talc deposit in Eastern Slovakia. 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 advance royalties, 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 2002 EuroGas issued
3,830,000 common shares to Belmont under the stock price guarantee. 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.
Additionally, EuroGas agreed to issue additional common shares to Belmont if
Belmont did not realize approximately $1,218,000 from the resale of the original
12,000,000 common shares by April 17, 2002, and provide notice of such
deficiency to EuroGas, 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
11
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
additional common shares, based on recent market prices for the Company's common
stock, to Belmont under this provision of the agreement.
EuroGas also 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 March 31, 2003 EuroGas has accrued $115,000 in advance royalty
due to Belmont because the talc deposit is not in commercial production.
Litigation - 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) and is described in Note 3.
Netherlands Tax Liability - EuroGas' subsidiary, GlobeGas BV, lost its appeal
for a reduction of a 1992 income tax liability in the Netherlands of $846,790
at March 31, 2003. 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.
Employment commitments and contingencies - 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
officer resigned in January 2001. The options vested on January 1, 2000, and
were considered to have expired during 2002 due to the termination of the
officer's employment. 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.
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.
Lease commitments - The Company leases office facilities from various lessors in
Poland, Vienna, and Vancouver. Except for Vancouver, the office leases are on
month-to-month agreements. EuroGas entered into a lease agreement for its
Vancouver office space that requires monthly payments of $6,851 through January
2003. Future minimum payments under the lease are $89,063.
12
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.
Results of Operations
The following table sets forth consolidated income statement data and other
selected operating data for the three-month periods ended March 31, 2003 and
2002, respectively.
For the Three Months
Ended March 31,
2003 2002
- ---------------------------------------------------------------------
Oil and Gas Sales -- --
Operating Expenses
Depreciation and amortization 2,084 21,837
General and administrative 456,972 451,823
- ---------------------------------------------------------------------
Total Operating Expenses 459,056 473,669
Other Income (Expense)
Other income 17,017 --
Net gain (loss) on sale of investments -- 13,324
Interest income 779 1,002
Interest expense (10,365) (3,919)
Foreign currency exchange gains
(losses), net (48,492) (25,221)
- ---------------------------------------------------------------------
Net Income (Loss) (500,117) (488,483)
Three months ended March 31, 2003, compared with three months ended March 31,
2002
Revenues. The Company had no oil and gas sales for the three months ended
March 31, 2003 and 2002.
Operating Expenses. Operating expenses primarily include, general and
administrative expenses, depreciation and amortization, and impairment of
mineral interests and equipment. General and administrative expenses were
$456,972 for the three months ended March 31, 2003, compared to $451,832 for the
three months ended March 31, 2002. The increase in administrative expenses is
the result of several new employees. Depreciation expense was $2,084 for the
three months ended March 31, 2003, compared to $21,837 for the three months
ended March 31, 2002. This decrease is primarily attributable to the lower
amount of properties in service for depreciation and amortization.
Interest expense was $10,365 for the three months ended March 31, 2003.
This is compared to an interest expense of $3,919 during the three months ended
March 31, 2002.
13
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 approximately $17,800,000 of
its accumulated deficit, which was approximately $153,880,098 as of March 31,
2003, 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 $500,117 for the three months
ended March 31, 2003, compared to a net loss of $488,483 for the three months
ended March 31, 2002. The losses were due in large part to 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 loss of $48,492 in the three months
ended March 31, 2003, and a loss of $25,221 in the three months ended March 31,
2002, as a result of currency transactions and translation of foreign currency
financial statements during these periods. 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 $153,880,098 at March 31, 2003,
substantially all of which has been funded out of proceeds received from the
issuance of stock and the incurrence of liabilities. At March 31, 2003, the
Company had total current assets of $2,043,855 and total current liabilities of
$19,772,702 resulting in a working capital deficiency of $17,728,847. As of
March 31, 2003, the Company's balance sheet reflected $796,449 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 three months ended March 31, 2003, the Company received
$5,986 and expended $17,429 in the purchase of property and equipment and
development of mineral interests, $163,843 was used in operating activities. As
a result, the Company's financing activities provided net cash of $63,908 during
the three-month period ended March 31, 2003.
While the Company had cash of $74,344 at March 31, 2003, 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
14
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.
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
15
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.
Future terrorist activity or government action against perceived
terrorist threats in the United States or in areas of the world in which the
Company does business or owns property may, however, adversely affect the
Company's business operations and financial condition.
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.
Item 4. Controls and Procedures
Based on their evaluation, as of a date within 90 days of the filing date
of this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rule 13a-
14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are
effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no unreported developments in any material litigation that
were not reported in reports previously filed by the Company with the Securities
and Exchange Commission on Form 10-K or Form 10-Q for periods ended prior to the
period covered by this report.
16
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 Northampton, Report on Form 8-K
Inc., dated August 3, 1994,
and Energy Global, A.G. Exhibit No. 1*
2.2 Agreement and Plan of Merger between Report on Form 8-K
EuroGas, Inc., and Danube International dated July 12, 1996,
Petroleum Company, Inc., dated July 3, Exhibit No. 5*
1996, as amended
2.3 English translation of Transfer Report on Form 8-K
Agreement between EuroGas and OMV, Inc. dated June 11, 1997
for the Acquisition of OMV (Yakut) Exhibit No. 1*
Exploration GmbH dated June 11, 1997
2.4 Asset Exchange Agreement between Report on Form S-1
EuroGas, Inc., and Beaver River dated July, 23, 1998
Resources, Ltd., dated April 1, 1988 Exhibit No. 2.03*
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*
3.3 Designation of Rights, Privileges, and Quarterly Report on
Preferences Form 10-QSB dated
of 1995 Series Preferred Stock March 31, 1995,
Exhibit No. 1*
3.4 Designation of Rights, Privileges, and Report on Form 8-K
Preferences of 1996 Series Preferred dated July 12, 1996,
Stock Exhibit No. 1*
3.5 Designation of Rights, Privileges, and Report on Form 8-K
Preferences 1997 Series A Convertible dated May 30, 1997
Preferred Stock Exhibit No. 1*
3.6 Designation of Rights, Privileges, and Report on Form S-1
Preferences of 1998 Series B Dated July 23, 1998
Convertible Preferred Stock Exhibit No. 3.06*
3.7 Articles of Share Exchange Report on Form 8-K
dated August 3, 1994,
Exhibit No. 6*
3.8 Designation of Rights, Privileges, and Registration Statement on
Preferences of 1999 Series C 6% Form S-1, File No. 333-
Convertible Preferred Stock 92009, filed on December
2, 1999
17
Exhibit
Number Title of Document Location
4.1 Subscription Agreement between EuroGas, Report on Form S-1
Inc., and Thomson Kernaghan & Co., dated July 23, 1998
Ltd., dated May 29, 1998 Exhibit No. 4.01*
4.2 Warrant Agreement dated July 12, 1996, Report on Form 8-K
with Danube Shareholder dated July 12, 1996,
Exhibit No. 2*
4.3 Registration Rights Agreement Between Report on Form S-1 dated
EuroGas, Inc., and Thomson Kernaghan & July 23, 1998 Exhibit No.
Co., Ltd., dated May 29, 1998 4.02*
4.4 Registration Rights Agreement dated Report on Form 8-K
July 12, 1996, with Danube Shareholder dated July 12, 1996
Exhibit No. 3*
4.5 Registration Rights Agreement by and Report on Form S-1
among EuroGas, Inc., and Finance Credit dated July 23, 1998
& Development Corporation, Ltd., dated Exhibit No. 4.06*
June 30, 1997
4.6 Option granted to the Trustees of the Annual Report on
Estate of Bernice Pauahi Bishop Form 10-KSB for the
fiscal year ended
December 31, 1995,
Exhibit No. 10*
4.7 Registration Rights Agreement by and Annual Report on
among EuroGas, Inc., and Kukui, Inc., Form 10-KSB for the
and the Trustees of the Estate of fiscal year ended
Bernice Pauahi Bishop December 31, 1995,
Exhibit No. 11*
4.8 Option issued to OMV Aktiengesellschaft Annual Report on
to acquire up to 2,000,000 shares of Form 10-KSB for the
restricted common stock fiscal year ended
December 31, 1996,
Exhibit No. 13*
4.9 Form of Convertible Debenture issued on Quarterly report on Form
January 12, 2000. 10-Q dated March 31, 2000.
10.1 English translation of Mining Usufruct Quarterly Report on Form
Contract between The Minister of 10-Q dated September 30,
Environmental Protection, Natural 1997 Exhibit No. 1*
Resources and Forestry of the Republic
of Poland and Pol-Tex Methane, dated
October 3, 1997
10.2 Agreement between Polish Oil and Gas Quarterly Report on Form
Mining Joint Stock Company and EuroGas, 10-Q dated September 30,
Inc., dated October 23, 1997 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*
18
Exhibit
Number Title of Document Location
10.4 Settlement Agreement by and among Annual Report on
Kukui, Inc., and Pol-Tex Methane, Sp. Form 10-KSB for the
zo.o., McKenzie Methane Rybnik, fiscal year ended
McKenzie Methane Jastrzebie, GlobeGas, December 31, 1995,
B.V. (formerly known as McKenzie Exhibit No. 15*
Methane Poland, B.V.), and the
Unsecured Creditors' Trust of the
Bankruptcy Estate of McKenzie Methane
Corporation
10.5 Acquisition Agreement between EuroGas, Report on Form S-1 dated
Inc., and Belmont Resources, Inc., July 23, 1998
dated July 22, 1998 Exhibit No. 10.20*
10.6 General Agreement governing the Report on Form 8-K
operation of McKenzie Methane Poland, dated August 3, 1994,
B.V. Exhibit No. 2*
10.7 Concession Agreement between Ministry Annual Report on
of Environmental Protection, Natural Form 10-KSB for the
Resources, and Forestry and Pol-Tex fiscal year ended
Methane Ltd. December 31, 1995,
Exhibit No. 18*
10.8 Association Agreement between NAFTA Annual Report on
a.s. Gbely and Danube International Form 10-KSB for the
Petroleum Company fiscal year ended
December 31, 1995,
Exhibit No. 19*
10.9 Agreement between Moravske' Naftove' Annual Report on
Doly a.s. and Danube International Form 10-KSB for the
Petroleum Company 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 amended, Annual Report on
with attached list of shareholders Form 10-KSB for the
fiscal year ended
December 31, 1995,
Exhibit No. 23*
10.12 Amendment #1 to the Association Annual Report on
Agreement Entered on 13th July 1995, Form 10-KSB for the
between NAFTA a.s. Gbely and Danube Fiscal year ended
International Petroleum Company December 31, 1996,
Exhibit No. 25*
10.13 Acquisition Agreement by and among Form 10-Q
Belmont Resources, Inc., EuroGas Dated September 30, 1998
Incorporated, dated October 9, 1998 Exhibit No. 1*
10.14 Letter of Intent by and between Polish Annual Report on
Oil and Gas Company and Pol-Tex Form 10-KSB for the
Methane, dated April 28, 1997 Fiscal year ended
December 31, 1996,
Exhibit No. 27*
19
Exhibit
Number Title of Document Location
10.15 Purchase and Sale Agreement between Report on Form 8-K
Texaco Slask Sp. zo.o., Pol-Tex Methane Dated March 24, 1997
Sp. zo.o. and GlobeGas B.V. Exhibit No. 1*
10.16 English translation of Articles of Report on Form 8-K/A
Association of the TAKT Joint Venture Dated June 11, 1997
dated June 7, 1991, as amended Exhibit No. 3*
April 4, 1993
10.17 English translation of Proposed Report on Form 8-K/A
Exploration and Production Sharing Dated June 11, 1997
Contract for Hydrocarbons between the Exhibit No. 4*
Republic of Sakha (Yakutia) and the
Russian Federation and the TAKT Joint
Venture
10.18 English translation of Agreement on Registration Statement on
Joint Investment and Production Form S-1 dated July 23,
Activities between EuroGas, Inc., and 1998 Exhibit No. 10.21*
Zahidukrgeologia, dated May 14, 1998
10.19 English translation of Statutory Registration Statement on
Agreement of Association of Limited Form S-1 dated July 23,
Liability Company with Foreign 1998 Exhibit No. 10.22*
Investments between EuroGas, Inc., and
Makyivs'ke Girs'ke Tovarystvo, dated
June 17, 1998
10.20 Partnership Agreement between EuroGas, Amendment No. 1 to
Inc., and RWE-DEA Aktiengesellschaft Registration Statement on
for Mineraloel and Chemie AG, date July Form S-1 dated August 3,
22, 1998 1998 Exhibit No. 10.23
10.21 Mining Usufruct Contract between The Quarterly Report on
Minister of Environmental Protection, Form 10-Q dated
Natural Resources and Forestry of the September 30, 1997
Republic of Poland and Pol-Tex Methane, Exhibit No. 1*
dated October 3, 1997
10.22 Agreement between Polish Oil and Gas Quarterly Report on
Mining Joint Stock Company and EuroGas, Form 10-Q dated
Inc., dated October 23, 1997 September 30, 1997
Exhibit No. 2*
10.23 Agreement for Acquisition of 5% Quarterly Report on
Interest in a Subsidiary by and between Form 10-Q dated
EuroGas, Inc., B. Grohe, and T. September 30, 1997
Koerfer, dated November 11, 1997 Exhibit No. 3*
10.24 Option Agreement by and between Quarterly Report on
EuroGas, Inc., and Beaver River Form 10-Q dated
Resources, Ltd., dated October 31, 1997 September 30, 1997
Exhibit No. 4*
10.25 Lease Agreement dated September 3, Registration Statement
1996, between Potomac Corporation and on Form S-1, File No.
the Company; Letter of Amendment dated 333-92009, filed on
September 30, 1999. December 2, 1999
20
Exhibit
Number Title of Document Location
10.26 Sublease dated November 2, 1999, Registration Statement on
between Scotdean Limited and the Form S-1, File No. 333-
Company 92009, filed on December
2, 1999
10.27 Securities Purchase Agreement dated Registration Statement on
November 4, 1999, between the Company Form S-1, File No. 333-
and Arkledun Drive LLC 92009, filed on December
2, 1999
10.28 Registration Rights Agreement dated Registration Statement on
November 4, 1999, between the Company Form S-1, File No. 333-
and Arkledun Drive LLC 92009, filed on December
2, 1999
10.29 Supplemental Agreement dated November Registration Statement on
4, 1999, between the Company and Form S-1, File No. 333-
Arkledun Drive LLC 92009, filed on December
2, 1999
10.30 Executive Employment Agreement dated Registration Statement on
April 20, 1999 between the Company and Form S-1, File No. 333-
Karl Arleth 92009, filed on December
2, 1999
10.31 Form 10-K for year ended
Settlement Agreement dated June 16, December 31, 2000
2000, between the Company and FCOC
Securities Purchase Agreement dated Form 10-K for year ended
10.32 October 2, 2000, between the Company December 31, 2000
and Arkledun Drive LLC
10.33 Registration Rights Agreement dated Form 10-K for year ended
October 2, 2000, between the Company December 31, 2000
and Arkledun Drive LLC
10.34 Settlement Agreement dated November 14, Form 10-K for year ended
2000, between the Company and Arkledun December 31, 2000
Drive LLC
10.35 Consulting Agreement dated September Form 10-K for year ended
18, 2000, between the Company and December 31, 2000
Spinneret Financial Systems, Ltd.
10.36 Securities Purchase Agreement dated Form 10-K for year ended
March 27, 2001 between the Company and December 31, 2000
Belmont Resources Inc.
10.37 Agreement dated April 9, 2001 between Form 10-K for year ended
the Company and Belmont Resources Inc. December 31, 2000
10.38 Warrant Agreement dated September 8, Form 10-K for year ended
2000 with Oxbridge Limited December 31, 2000
10.39 Warrant Agreement dated September 8, Form 10-K for year ended
2000 with Rockwell International Ltd. December 31, 2000
10.40 Warrant Agreement dated September 8, Form 10-K for year ended
2000 with Conquest Financial December 31, 2000
Corporation
10.41 Termination and Transfer Agreement Form 10-K for year ended
dated June 23, 2000 between the Company December 31, 2000
and Belmont Resources, Inc.
21
Exhibit
Number Title of Document Location
10.42 Loan Agreement dated March 3, 1999 Form 10-K for year ended
between the Company and Pan Asia Mining December 31, 2000
Corp.
10.43 Agreement dated July 14, 2000 between Form 10-K for year ended
the Company and Oxbridge Limited December 31, 2000
10.44 Amended Agreement dated July 25, 2000 Form 10-K for year ended
between the Company, Pan Asia Mining December 31, 2000
Corp., and Oxbridge Limited
10.45 Settlement Agreement dated November 20, Form 10-K for year ended
2000 between the Company and Beaver December 31, 2000
River Resources, Ltd.
21.1 Subsidiaries Annual Report on
Form 10-KSB for the
Fiscal year ended
December 31, 1995,
Exhibit No. 24*
* Incorporated by reference
(b) No current reports on Form 8-K were filed during the reporting quarter.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EUROGAS, INC.
(Registrant)
May 20, 2003 By /s/ Wolfgang Rauball
-------------------------------
Wolfgang Rauball
Chief Executive Officer
May 20, 2003 By /s/ Hank Blankenstein
--------------------------------
Hank Blankenstein
Principal Accounting and Financial
Officer
23
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Wolfgang Rauball, Chief Executive Officer of EuroGas, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of
EuroGas, Inc. (the "Registrant");
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;
4. The Registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have
indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 20, 2003 /s/ Wolfgang Rauball
-----------------------------
Wolfgang Rauball
Chief Executive Officer
(Principal Executive Officer)
24
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Hank Blankenstein, Chief Financial Officer of EuroGas, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of
EuroGas, Inc. (the "Registrant");
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;
4. The Registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have
indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 20, 2003 /s/ Hank Blankenstein
----------------------
Hank Blankenstein
Chief Financial Officer
(Principal Financial and
Accounting Officer)
25