EURASIA ENERGY LIMITED
(An exploration stage company)
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
June 30, 2007
Index
Balance Sheet
Statements of Operations
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
EURASIA ENERGY LIMITED | ||
(an exploration stage company) | ||
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BALANCE SHEET | ||
June 30, 2007 | ||
(Unaudited) | ||
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(Expressed in U.S. Dollars) |
| 2007 |
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ASSETS |
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Current assets |
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Cash and cash equivalents (Note 4) | $ | 189,078 |
Interest receivable |
| 148 |
Prepaid expenses |
| 63,008 |
Prepaid expenses - related party (Note 7) |
| 11,692 |
Total current assets |
| 263,926 |
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Fixed assets, net (Note 5) |
| 58,579 |
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Total assets | $ | 322,505 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable and accrued expenses | $ | 2,364 |
Accounts payable and accrued expenses - related party (Note 7) |
| 13,535 |
Total current liabilities |
| 15,899 |
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Common stock, par value $0.001, authorized 100,000,000 |
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shares; issued and outstanding 20,315,135 shares |
| 20,315 |
Additional paid-in capital |
| 4,879,905 |
Accumulated deficit |
| (9,066) |
Deficit accumulated during the exploration stage |
| (4,584,548) |
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Total stockholders' equity |
| 306,606 |
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Total liabilities and stockholders' equity | $ | 322,505 |
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(The accompanying notes are an integral part of these financial statements) | ||
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EURASIA ENERGY LIMITED | ||||||||||
(an exploration stage company) | ||||||||||
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STATEMENTS OF OPERATIONS | ||||||||||
For the three months and six months ended June 30, 2007 and 2006, and for the Period from | ||||||||||
November 28, 2005 (the effective date of the exploration stage) through June 30, 2007 | ||||||||||
(Unaudited) | ||||||||||
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| Cumulative |
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| Three months ended June 30, |
| Six months ended June 30, |
| Exploration | ||||
(Expressed in U.S. Dollars) |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Stage |
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Revenue | $ | - | $ | - | $ | - | $ | - | $ | - |
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Expenses |
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Consulting |
| 10,637 |
| 14,436 |
| 11,637 |
| 14,436 |
| 183,388 |
Data acquisition cost |
| - |
| (700) |
| - |
| 19,300 |
| 19,300 |
General and administrative |
| 70,575 |
| 53,313 |
| 144,525 |
| 79,179 |
| 307,494 |
General and administrative - related party (Note 7) |
| 3,052 |
| 6,880 |
| 7,089 |
| 9,970 |
| 31,942 |
Travel |
| 41,496 |
| 22,707 |
| 65,528 |
| 25,707 |
| 148,532 |
Stock-based compensation |
| 250,196 |
| 3,665,133 |
| 250,196 |
| 3,665,133 |
| 3,925,829 |
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| 375,956 |
| 3,761,769 |
| 478,975 |
| 3,813,725 |
| 4,616,485 |
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Operating Loss |
| (375,956) |
| (3,761,769) |
| (478,975) |
| (3,813,725) |
| (4,616,485) |
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Other income and expenses |
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Interest income |
| 2,739 |
| 8,232 |
| 7,037 |
| 10,994 |
| 31,937 |
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Net loss | $ | (373,217) | $ | (3,753,537) | $ | (471,938) | $ | (3,802,731) | $ | (4,584,548) |
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Net loss per common share (basic and fully diluted) | $ | (0.02) | $ | (0.18) | $ | (0.02) | $ | (0.19) |
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Weighted average number of common |
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shares outstanding |
| 20,315,135 |
| 20,315,135 |
| 20,315,135 |
| 20,252,980 |
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(The accompanying notes are an integral part of these financial statements) | ||||||||||
STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||
For the six months ended June 30, 2007 and for the Period from November 28, 2005 | ||||||
(the effective date of the exploration stage) through June 30, 2007 | ||||||
(Unaudited) | ||||||
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| Deficit |
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| Accumulated |
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| During the | Total |
| Common Stock | Additional | Accumulated | Exploration | Stockholders' | |
(Expressed in U.S. Dollars) | Shares | Amount | paid-in capital | Deficit | Stage | Equity |
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Balance, November 28, 2005 | 20,065,135 | $ 20,065 | $ 204,326 | $ (9,066) | $ - | $ 215,325 |
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Net loss for the year ended December 31, 2005 |
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| - | (13,598) | (13,598) |
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Balance, December 31, 2005 | 20,065,135 | 20,065 | 204,326 | (9,066) | (13,598) | 201,727 |
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Issuance of common stock and warrants, February 2006 | 250,000 | 250 | 749,750 | - | - | 750,000 |
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Stock-based compensation expense | - | - | 3,675,633 | - | - | 3,675,633 |
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Net loss for the year ended December 31, 2006 | - | - | - | - | (4,099,012) | (4,099,012) |
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Balance, December 31, 2006 | 20,315,135 | 20,315 | 4,629,709 | (9,066) | (4,112,610) | 528,348 |
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Stock-based compensation expense | - | - | 250,196 | - | - | 250,196 |
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Net loss for the six months ended June 30, 2007 | - | - | - | - | (471,938) | (471,938) |
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Balance, June 30, 2007 | 20,315,135 | $ 20,315 | $ 4,879,905 | $ (9,066) | $ (4,584,548) | $ 306,606 |
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(The accompanying notes are an integral part of these financial statements) | ||||||
EURASIA ENERGY LIMITED | ||||||
(an exploration stage company) | ||||||
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STATEMENTS OF CASH FLOWS | ||||||
For the six months ended June 30, 2007 and 2006, and for the Period from | ||||||
November 28, 2005 (the effective date of the exploration stage) through June 30, 2007 | ||||||
(Unaudited) | ||||||
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| Cumulative |
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| Six months ended June 30, |
| Exploration | ||
(Expressed in U.S. Dollars) |
| 2007 |
| 2006 |
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Cash flows from (used in) operating activities |
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Net Loss from continuing operations | $ | (471,938) | $ | (3,802,731) | $ | (4,584,548) |
Adjustments to reconcile loss from continuing operations |
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to net cash flows from operating activities |
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Stock-based compensation |
| 250,196 |
| 3,665,133 |
| 3,925,829 |
Depreciation |
| 7,654 |
| 2,681 |
| 17,961 |
Change in operating assets and liabilities |
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Accounts receivable, related party |
| - |
| 5,000 |
| 5,000 |
Interest receivable |
| 603 |
| (1,694) |
| (148) |
Prepaid expenses |
| (62,557) |
| (13,799) |
| (63,008) |
Prepaid expenses - related party |
| (9,409) |
| (9,508) |
| (11,692) |
Accounts payable and accrued expenses |
| (19,972) |
| 600 |
| 1,764 |
Accounts payable and accrued expenses - related party |
| (20,811) |
| - |
| 13,535 |
Net cash used in operating activities |
| (326,234) |
| (154,318) |
| (695,307) |
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Cash flows from investing activities |
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Fixed assets additions |
| - |
| (76,875) |
| (76,540) |
Net cash used in investing activities |
| - |
| (76,875) |
| (76,540) |
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Cash flows from financing activities |
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Proceeds from issuance of common stock and warrants |
| - |
| 750,000 |
| 750,000 |
Net cash provided by financing activities |
| - |
| 750,000 |
| 750,000 |
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Increase (Decrease) in cash and cash equivalents |
| (326,234) |
| 518,807 |
| (21,847) |
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Cash and cash equivalents, beginning of period |
| 515,312 |
| 197,327 |
| 210,925 |
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Cash and cash equivalents, end of period | $ | 189,078 | $ | 716,134 | $ | 189,078 |
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Cash and cash equivalents, consist of: |
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Cash at bank | $ | 89,078 | $ | 16,134 | $ | 89,078 |
Short term deposit |
| 100,000 |
| 700,000 |
| 100,000 |
| $ | 189,078 | $ | 716,134 | $ | 189,078 |
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Supplemental Information: |
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Cash paid for income taxes | $ | - | $ | - | $ | - |
Cash paid for interest | $ | - | $ | - | $ | - |
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(The accompanying notes are an integral part of these financial statements) | ||||||
EURASIA ENERGY LIMITED
(an exploration stage company)
Unaudited
Notes to Financial Statements
June 30, 2007
Note 1 - Organization
Eurasia Energy Limited ("the Company") (an exploration stage company) is engaged in oil and gas exploration.
On November 28, 2005, the Company signed a memorandum of understanding (“MOU”) with the State Oil Company of the Azerbaijan Republic ("SOCAR") which granted the Company the exclusive right to negotiate an Exploration, Rehabilitation, Development and Production Sharing Agreement ("ERDPSA") for a 600 square kilometer oil and gas block (the "Block") in the Republic of Azerbaijan. The effective date of the MOU was December 7, 2005. The Block is located in the shallow coastal waters of the Azerbaijan sector of the Caspian Sea approximately 70 kilometers south of the Azerbaijan capital of Baku.
Under the terms of the MOU, the Company had 12 months to negotiate and sign the ERDPSA with SOCAR. The MOU stipulated that SOCAR would provide the Company with all existing data relevant to the Block within 60 days from the effective date of the MOU. The MOU provided for termination in the event that the Company and SOCAR did not sign an agreement on the basic commercial principals and provisions of an ERDPSA on or before December 7, 2006. The termination date passed without the parties agreeing the commercial principals and the MOU terminated. Management is currently working to seek the agreement of SOCAR for an extension of the MOU or an agreement to move directly to negotiation on the main principles of the ERDPSA. The Company has completed its comprehensive study and initial development plan for the 600 square kilometer offshore oil and gas block which is the subject of the MOU. See also Note 9.
The Company's offices in Aberdeenshire, Scotland are currently provided on a rent free basis. The Company is charged $500 per month for office space in Vancouver, B.C. which is provided by a corporation which is controlled by a director of the Company. Due to limited Company operations, any facilities expenses are not material and have not been recognized in these financial statements.
Note 2 - Basis of Presentation - Going Concern Uncertainties
The Company is an exploration stage company as defined by Financial Accounting Standards Board Statement No. 7. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in United States, which contemplate continuation of the Company as a going concern. However, the Company has limited operations and has sustained operating losses in recent years resulting in an accumulated deficit. In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon the continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements, and the success of its future operations.
The Company has incurred losses from operations and has an accumulated deficit of $4,584,548 from the effective date of the exploration stage (November 28, 2005) to June 30, 2007. The Company's ability to continue as a going concern is in substantial doubt and is dependent upon obtaining additional financing and/or achieving a sustainable profitable level of operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company believes that the cash on hand will be able to meet its on-going costs in the next 12 months. The Company may seek additional equity as necessary and it expects to raise funds through private or public equity investment in order to support existing operations and expand the range of its business. There is no assurance that such additional funds will be available for the Company on acceptable terms, if at all.
Note 3 - Presentation of Interim Information
The accompanying unaudited interim financial statements have been prepared in accordance with Form 10-QSB instructions and in the opinion of management of the Company, include all adjustments (which are normal recurring adjustments) considered necessary to present fairly the financial position as of June 30, 2007 and the results of operations for the six months ended June 30, 2007 and 2006 and cash flows for the six months ended June 30, 2007 and 2006. These results have been determined on the basis of generally accepted accounting principles in United States and practices and applied consistently with those used in the preparation of the Company's 2006 Annual Report on Form 10-KSB.
Certain information and footnote disclosures normally included in the financial statements presented in accordance with United States generally accepted accounting principles have been condensed or omitted. It is suggested that the accompanying unaudited interim consolidated financial statements be read in conjunction with the annual financial statements and notes thereto incorporated by reference in the Company's 2006 Annual Report on Form 10-KSB.
Note 4 – Cash Equivalents
As of June 30, 2007, the Company has a short term deposit of $100,000 maintained at a bank, with interest at 4.50% per annum, maturing on July 18, 2007.
Interest receivable of $148 has been accrued as of June 30, 2007.
Note 5 - Fixed Assets
Fixed assets consist of the following as at June 30, 2007:
Motor vehicle | $74,500 | |||
Office equipment | 2,040 | |||
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| 76,540 |
Less: accumulated depreciation | (17,961) | |||
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| $58,579 |
Depreciation charged to operations for the three-month and six-month periods ended June 30, 2007 and 2006, and the period from inception to June 30, 2007, amounted to $3,827 (2006: $2,681), $7,654 (2006: $2,681), and $17,961, respectively.
Note 6 - Common Stock, Warrants and Options
(a) Common Stock
On February 21, 2005, the Board of Directors approved a 2 for 1 forward split of the Company's stock. The accompanying financial statements are presented on a post-split basis.
(b) Warrants
The movement of share purchase warrants can be summarized as follows:
Weighted average | ||||
Number of warrants |
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Balance, December 31, 2005 | - |
| $- | |
Issued | 250,000 |
| 4.00 | |
Balance, December 31, 2006 | 250,000 |
| 4.00 | |
Expired | (250,000) |
| 4.00 | |
Balance, June 30, 2007 | - |
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During the six months ended June 30, 2007, no warrants were issued or exercised. On February 2007, 250,000 warrants at an exercise price of $4.00 each expired.
(c) Options
The movement of options can be summarized as follows:
Weighted average | ||||
Number of warrants |
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Balance, December 31, 2005 | - |
| $- | |
Issued | 1,535,000 |
| 0.25 | |
Balance, December 31, 2006 | 1,535,000 |
| 0.25 | |
Issued | 1,715,000 |
| 0.25 | |
Balance, June 30, 2007 | 3,250,000 |
| 0.25 | |
On April 4, 2007, the Company reduced the exercise price of the outstanding 1,535,000 stock options from $1.00 to $0.25 each and also extended the expiry date of 35,000 stock options from May 31, 2007 to April 14, 2011. The weighted average fair value of the re-priced options was estimated at $0.17 by using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, forfeiture rate 0%, expected volatility between 142.3% to 144.0%, risk-free interest rate of 4.55%, and expected lives between 4.5 to 5.0 years.
On April 4, 2007, the Board of Directors adopted the 2007 Stock Option Plan which allocates 2,000,000 common shares for issuance under the plan.
On April 4, 2007, the Company granted 465,000 and 1,250,000 stock options under its 2006 and 2007 stock option plans, respectively, to employees and consultants at $0.25 each, expiring on April 4, 2012. The options are vesting at the rate of 20% per year over five years from April 4, 2007 with 20% vesting immediately. The fair value of the 1,715,000 options granted was estimated at $0.18 each, for a total of amount of $308,700, by using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 143.97%, risk-free interest rates of 4.55%, and expected lives of 5.0 years.
The following table summarizes information about stock options outstanding at June 30, 2007:
Weighted | ||||||||||
Average | ||||||||||
Number | Remaining | Weighted | Number | Weighted | ||||||
Range of | Outstanding at | Contractual | Average | Exercisable at | Average | |||||
Exercise | June 30, | Life | Exercise | June 30, | Exercise | |||||
Prices | 2007 | (Years) | Price | 2007 | Price | |||||
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$0.25 |
| 3,250,000 |
| 4.31 |
| $0.25 |
| 1,878,000 |
| $0.25 |
Note 7 - Related Party Transactions
Included in accounts payable there is an amount of $490 due to a director for ongoing expenses incurred on behalf of the Company in Canada.
Included in accounts payable there is an amount of $13,045 due to the Chief Executive Officer for ongoing expenses incurred on behalf of the Company in United Kingdom.
During the three-month and six-month periods ended June 30, 2007, the Company paid corporate and administrative service charges of $3,052 (2006: $6,880) and $7,089 (2006: $9,970) to a law firm of which a director of the Company is the owner.
During the three-month and six-month periods ended June 30, 2007, the Company paid director fee of $2,500 (2006: $2,500) and $2,500 (2006: $2,500) to a director, respectively.
Note 8 - New Accounting Pronouncements
In February 2007, the FASB issued FAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115”, (“FAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not yet determined the impact of applying FAS 159.
In February 2007, the Financial Accounting Standards Board (“FASB”) issued FSP FAS 158-1. This FASB Staff Position (FSP) updates the illustrations contained in Appendix B of FASB Statement No. 87,Employers’ Accounting for Pensions,Appendix B of FASB Statement No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,and Appendix C of FASB Statement No. 106,Employers’ Accounting for Postretirement Benefits Other Than Pensions,to reflect the provisions of FASB Statement No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. This FSP also amends the questions and answers contained in FASB Special Reports,A Guide to Implementation of Statement 87 on Employers’ Accounting for Pensions, A Guide to Implementation of Statement 88 on Employers’ Account ing for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,andA Guide to Implementation of Statement 106 on Employers’ Accounting for Postretirement Benefits Other Than Pensions,and incorporates them into Statements 87, 88, and 106 as Appendixes E, C, and F, respectively. This FSP supersedes those FASB Special Reports. Finally, this FSP makes conforming changes to other guidance and technical corrections to Statement 158. This FSP does not provide additional implementation guidance for Statement 158 beyond the conforming changes, nor does it change any of the provisions of Statement 158. Currently the Company does not have any employers’ Pensions and Postretirement Benefits which require the adoption of this Statement, so the Statement will have no impact on the financial statements.
Note 9 - Contingent Liabilities
On September 25, 2006, the Company and its Chief Executive Officer, Nicholas W. Baxter were served in a law suit commenced in the Court of Session in Edinburgh, Scotland. The Company and Mr. Baxter were sued by Arawak Energy Corporation (“Arawak”) and its wholly owned subsidiary, Commonwealth Oil & Gas Company Limited (“Commonwealth”). Mr. Baxter was a director of Arawak until May 5, 2003. Mr. Baxter was periodically a director of Commonwealth until February, 2006. The Company is not associated with or connected to Arawak or Commonwealth in any business or contractual context. Arawak and Commonwealth
alleged that in the course of his directorship, Mr. Baxter breached his fiduciary duty as a director and accessed and used confidential information relating to Arawak and Commonwealth oil and gas properties in Azerbaijan for the purpose of securing the Company’s MOU for its Block in Azerbaijan. The Company has been made a party to the action as an alleged knowing recipient of confidential information and of a commercial opportunity diverted to it in breach of fiduciary duty. Arawak and Commonwealth were seeking US$17.2 million in damages from Mr. Baxter, a declaration that the Company holds its MOU in trust for the benefit of Arawak and Commonwealth and an accounting of profits failing which payment of US$100 million or alternatively damages against Mr. Baxter and the Company for breach of confidence in the same amount. The Company and Mr. Baxter retained joint counsel and filed an appearance and defense.
On February 22, 2007, Arawak and Commonwealth amended their pleadings to remove the allegations of misappropriation of confidential information and breach of confidence and the principal pursuer, Arawak Energy Corporation, has removed itself from the action. In the alternative to the claim for an accounting of profits, there was added a claim for damages in the amount of US$100 million against Mr. Baxter and the Company in respect of the alleged breach of fiduciary duty.
The Company is optimistic that the claims against it and Nicholas Baxter will be defended successfully. However, the outcome of litigation is often uncertain and the matter remains before the Scottish Courts. A three week trial is scheduled to commence August 28, 2007.
Note 10 - Subsequent Events
The Company has filed a Registration Statement with Securities Exchange Commission on its plan of conversion to change its jurisdiction from the State of Nevada to Anguilla, British West Indies, which has been adopted by the board of directors and requisite vote of stockholders of the Company. The primary purpose of the conversion is to enhance the Company’s ability to operate internationally from a jurisdiction which is easily accessible from North America and Europe. Our principal assets and offices are already located outside the U.S. and there is no compelling reason for the Company to remain a U.S. corporation. Anguilla is a cost effective location for these purposes and has a secondary benefit of being a low tax jurisdiction. The Company is waiting for the final approval of the Securities Exchange Commission.
After obtaining the approval from Securities Exchange Commission and on the effective time of the conversion, each issued and outstanding share of the Company capital stock will remain as one common share of the Company in accordance with the terms of the plan of conversion.
Each option or warrant to acquire the common stock of the Company granted under the Company’s stock plans or otherwise issued by the Company and that is outstanding and unexercised immediately prior to the effective time of the conversion will continue to be assumed by the Company without alteration
