Eurogas Financials= Monster LoserForm 10-Q for EUROGAS INC
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21-Aug-2006
Quarterly Report
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 and six-month periods ended June 30, 2004 and 2003, respectively.
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For the Three Months Ended For the Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Oil and Gas Sales $ - $ - $ - $ -
Costs and Operating
Expenses
Depreciation 2,268 2,146 4.624 4,502
Impairment of mineral
interests and
equipment - - - -
Litigation settlement - - - -
expense
General and 267,892 269,435 547,237 547,780
administrative
Total Costs and 270,160 271,581 550,861 552,282
Operating Expenses
Other Income (Expenses)
Interest expense (5,893 ) (6,578 ) (12,627 ) (13,312 )
Foreign exchange net (27,847 ) (18,473 ) (52,332 ) (42,958 )
gain (loss)
Equipment rental income - -
Interest income - - - -
Gain on sale of - - - -
securities available for
sale
Other expense - - - -
Net Other Expenses (21,954 ) (25,051 ) (53,173 ) (56,270 )
Loss Before Accounting (314,873 ) (296,632 ) (626,793 ) (608,552 )
Change
Cumulative Effect of (9,873 ) (10,567 ) (21.855 ) (22,549 )
Accounting Change
Net Loss (335,727 ) (307,199 ) (659,629 ) (631,1010 )
Preferred Dividends (34,782 ) (34,782 ) (69,564 ) (69.564 )
Loss Applicable to $ (370,509 ) $ (341,981 ) $ (729,193 ) $ (700,665 )
Common Shares
Basic and Diluted Loss
Per Common Share
Loss before accounting $ (0.00 ) $ (0.00 ) $ (0.00 ) $ (0.01 )
change
Net Loss $ (0.00 ) $ (0.01 ) $ (0.00 ) $ (0.01
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Basic and Diluted
Weighted-Average Common
Shares Outstanding 191,212,635 168,212,635 191,212,635 168,212,635
Comprehensive Income (Loss)
Net loss $ (370,509 ) $ (307,191 ) $ (729,193 ) $ (631,101 )
Foreign currency - - - -
translation adjustments
Unrealized gain on
investment in securities
available for - - - -
sale
Comprehensive Income (Loss) $ (370,509 ) $ (307,191 ) $ (729,193 $ (631,101 )
Three months ended June 30, 2006 compared with three months ended June 30, 2005
Revenues. The Company had no oil and gas sales for the three months ended June 30, 2006 and for the three months ended June 30, 2005
Operating Expenses. Operating expenses primarily include general and administrative expenses, depreciation, impairment of mineral interests and equipment and litigation settlement expense. General and administrative expenses were $267,892 for the three months ended June 30, 2006 compared to $269,435 for the three months ended June 30, 2004. The slight decrease in administrative expenses is the result of minor changes of expenditures relating to administrative items. Depreciation expense was $2,268 for the three months ended June 30, 2006 compared to $ 2,146 for the three months ended June 30, 2005
Other Income and Expense. Interest expense was $5,893 for the three months ended June 30, 2006 compared to $6,578 during the three months ended June 30, 2005
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 operating loss carry forwards in the United States of America of approximately $18,300,000 as of June 30, 2006 to offset profits, if and when achieved, resulting in a reduction in income taxes payable. However, to the extent accumulated deficits have not been incurred in countries where income is earned, such offsets will not be available.
Net Loss. The Company incurred a net loss of $335,727 for the three months ended June 30, 2006 compared to a net loss of $307,199 for the three months ended June 30, 2006 The losses were due in large part to the absence of revenues, combined with continued administrative, interest, foreign exchange loss 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 $27,847in the three months ended June 30, 2006 compared to a loss of $ 18,473 in the three months ended June 30, 2005 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, 2006 compared with Six months ended June 30, 2005
Revenues. The Company had no oil and gas sales for the six months ended June 30, 2006and for the six months ended June 30, 2005
Operating Expenses. Operating expenses primarily include general and administrative expenses, depreciation, impairment of mineral interests and equipment and litigation settlement expense.
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General and administrative expenses were $547,237for the six months ended June 30, 2006 compared to $547,780 for the six months ended June 30, 2005 The slight decrease in administrative expenses is the result of reduced expenditures relating to administrative items, telephone and legal charges. Depreciation expense was $4.624for the six months ended June 30, 2006 compared to $4,502for the six months ended June 30, 2005
Other Income and Expense. Interest expense was $12,627 for the six months ended June 30, 2006 compared to $13,312 during the six months ended June 30, 2005
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 operating loss carry forwards in the United States of America of approximately $18,200,000 as of June 30, 2006 to offset profits, if and when achieved, resulting in a reduction in income taxes payable. However, to the extent accumulated deficits have not been incurred in countries where income is earned, such offsets will not be available.
Capital and Liquidity
The Company had an accumulated deficit of $185,314,524 at June 30, 2006 substantially all of which has been funded out of proceeds received from the issuance of stock and the incurrence of liabilities. At June 30, 2006 the Company had total current assets of $3,150,355 and total current liabilities of $29,592,399 resulting in a working capital deficiency of $26,442,044. As of June 30, 2006 the Company's balance sheet reflected $0 in mineral interests in properties not subject to amortization, net of valuation allowance mostly due to sale of Polish properties by Bankruptcy court..
Throughout its existence, the Company has relied on cash from financing activities to provide the funds required for acquisitions and operating activities. As a result, the Company used net cash of $547,263 during the six months ended June 30, 2006
While the Company had a negative amount of cash of $(3,518) at June 30, 2006 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
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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, 2005, 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.
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.
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