UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2000
Commission File No.33-2392-D
European American Resources, Inc. (formerly Merlin Mining Co.)
(Exact name of registrant as specified in its charter)
Delaware 87-0443214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
400 Cleveland Street, Suite 901b, Clearwater, FL 33755
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (727) 298 - 0636
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 shorter period that the registrant was required
to file such report), and (2) has been subject to such filing requirements for
the past 90 days.
Yes: X No:
Transitional Small Business Disclosure Format:
Yes: X No:
The number of shares outstanding of each of the registrant's classes of common
stock as of June 30, 2000 is 16,694,908 of one class of $.0001 par value common
stock.
EUROPEAN AMERICAN RESOURCES, INC. (AN EXPLORATION STAGE COMPANY)
PAGE INDEX
PART I UNAUDITED FINANCIAL INFORMATION
Consolidated Balance Sheet - June 30, 2000 1
Consolidated Statements of Operations - Six Months Ended June 30, 2000 2
Consolidated Statements of Operations - Three Months Ended June 30, 2000 3
Consolidated Statement of Cash Flows - Six Months Ended June 30, 2000 4
Notes to Financial Statements 5-7
Management's Discussion and Analysis of financial conditions and
results of operations 8-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits on Reports on Form 8-K 10
Signature Page 11
EUROPEAN AMERICAN RESOURCES, INC. (AN EXPLORATION STAGE COMPANY)
UNAUDITED CONSOLIDATED BALANCE SHEET JUNE 30, 2000
Assets
Current Assets
Cash and cash equivalents $ 35,950
Prepaid rent on mining claims (368,133)
Total Current Assets (332,183)
Exploration joint venture 2,275,752
Other resource properties 388,254
Property and equipment,
Net of accumulated depreciation of $5,359 6,567
Other Assets Investments,
Net of valuation reserve of $1,018,292 267,500
Other assets 158,500
Total Other Assets 3,096,573
Total Assets 2,764,390
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 319,080
Notes payable to related parties 350,000
Total Current Liabilities 669,080
Stockholders' Equity Preferred stock;
$.0001 par value, 25,000,000 shares
authorized, no shares issued or outstanding -
Common stock; $.0001 par value,
250,000,000 shares authorized,
16,694,908 shares issued and outstanding 1,670
Additional paid in capital 10,889,396
Deficit accumulated during the exploration stage (8,795,756)
Total Stockholders' Equity 2,095,310
Total Liabilities and Stockholders' Equity $ 2,764,390
See notes to the unaudited consolidated financial statement.
1
EUROPEAN AMERICAN RESOURCES, INC. (AN EXPLORATION STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000 1999
----------- -----------
Revenue Sales $ 18,476 $ -
Operating Expenses
Operating costs 39,400 39,400
General and administrative 299,473 145,135
Depreciation and amortization 1,252 4,400
Total Operating Expenses 340,125 188,935
Loss from operations (321,649) (188,935)
Other Income (Expense) - 259
Interest expense (20,610) (4,548)
Total Other Income (Expense) (20,610) (4,289)
Loss before income taxes (342,259) (193,224)
Income tax expense - -
Net Loss $ (342,259) $ (193,224)
Basic Loss per share $ (.02) $ (.012)
Average common shares outstanding 16,694,908 16,212,491
See notes to the unaudited consolidated financial statement.
2
EUROPEAN AMERICAN RESOURCES, INC. (AN EXPLORATION STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2000 1999
------------ -----------
Revenue Sales $ 18,476 $ -
Operating Expenses
Operating costs 19,700 19,700
General and administrative 83,210 58,265
Depreciation and amortization 626 2,200
Total Operating Expenses 103,536 80,165
Loss from operations (85,060) (80,165)
Other Income (Expense) 259
Interest expense (2,760) (3,059)
Total Other Income (Expense) (2,760) (2,800)
Loss before income taxes (87,820) (82,965)
Income tax expense - -
Net Loss $ (87,820) $ (82,965)
Basic Loss per share $ (.005) $ (.005)
Average common shares outstanding 16,694,908 16,219,824
See notes to the unaudited consolidated financial statement.
3
EUROPEAN AMERICAN RESOURCES, INC. (AN EXPLORATION STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2000 1999
---------- ----------
Cash Flows
Operating Activities Net Loss $ (342,259) $ (193,224)
Adjustments to reconcile net loss
to net cash (used) by operating
activities:
Depreciation 1,252 4,400
Changes in assets and liabilities:
Decrease in prepaid rent 39,400 31,904
Decrease (increase) in other assets (30,000) 140
(Decrease) increase in accounts
payable and accrued expenses 44,806 38,476
Net Cash Used by Operating Activities (286,801) (118,304)
Cash Flows From Investing Activities
Cash received for (additions to)
resource properties 73,476 -
Net Cash From Investing Activities 73,476 -
Cash Flows From Financing Activities
Advances from (repayments) related party (144,946) 97,000
Net Cash Provided By Financing Activities (144,946) 97,000
Net Increase (Decrease) in Cash
and Cash Equivalents 33,722 (21,304)
Cash and Cash Equivalents at
Beginning of Period 2,228 21,419
Cash and Cash Equivalents at End of Period 35,950 115
See notes to the unaudited consolidated financial statement.
4
EUROPEAN AMERICAN RESOURCES, INC. (AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(For six months ended June 30, 2000)
A. BASIS OF PRESENTATION
The Company was incorporated in the State of Delaware on July 6, 1987. Since
inception, the Company acquired mining rights to mine precious metals for as
many as approximately 6,700 claims; as of June 30, 2000 the Company is the
holder of approximately 830 patented, unpatented lode, mill sites and placer
claims on certain properties located throughout the State of Nevada. In February
2000, the Company contracted its rights to 103 of these claims to a joint
venture with Homestake Mining. The Company is a Junior Mining Company. The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. The Company follows FASB 128 to compute earnings per
share. Basic EPS excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Common equivalent shares
have been excluded from the computation of diluted EPS since their affect is
antidilutive. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant Company's annual
report on form 10 KSB for the year ended December 31, 1999.
Supplemental schedule of cash flow from operations:
For the three months ended March 31, 2000 1999
Interest paid $ 2,642 $ 1,489
5
EUROPEAN AMERICAN RESOURCES, INC. (AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(For six months ended June 30, 2000)
B. EXPLORATION JOINT VENTURE AND OTHER RESOURCE PROPERTIES
The Company has incurred material amounts for direct exploratory activity costs
since acquisition of the right to these mining properties. In accounting for
these costs the Company selected an accounting policy which capitalizes
exploratory costs rather than expensing them as incurred. Amortization of these
costs is to be calculated by the units of production method based upon proven or
probable reserves. Costs incurred on properties later determined to be
unproductive are expensed by the Company as that determination is made. In
February 2000, the Company executed earn-in and joint venture agreements with
Homestake Mining for an area of interest which contains 103 of EPAR's Prospect
Mountain claims pursuant to a letter of intent signed in October, 1999.
Homestake agreed to contribute approximately 30 claims in the area of interest.
Homestake is the manager of the joint venture and committed in stage one to
expend a minimum of $300,000 through the end of 2000. In total, Homestake has
committed to spend a minimum of $2,000,000 through 2002 and in turn will be
vested with 51% in the joint venture at that juncture. After completion of a
feasibility study with the recommendation to enter mining, Homestake will become
70% vested. As of June 30, 2000, the Company has recorded $2,664,006 in total
resource properties, net of $74,476 received as a reimbursement for Homestake in
connection with the joint venture. If these remaining costs had been expensed
rather than capitalized, the accumulated deficit at June 30, 2000 would have
been $11,536,100 rather than $8,795,756. The Company has been in the exploration
stage to determine the amount of proven or probable reserves of its resource
properties, if any. Since December 31, 1997, the Company was informed by its
geologist that sufficient testing was completed to indicate the Company's
reserves are probable and in excess of the amounts capitalized, yet since they
are not yet proven, estimates of their potential value are not available at this
time.
C. RELATED PARTY TRANSACTIONS
Amounts due to related party at June 30, 2000 totaled $350,000 and bear interest
at rates from 12% to prime plus 2.5%. Interest expense on these loans was
$20,610 for the six months ended June 30, 2000.
6
D. COMMITMENTS AND CONTINGENCIES
Royalty (Claim Rental) Commitment
On May 26, 1998, the Company acquired 62 patented claims and mill sites and the
rights to 47 unpatented claims on Prospect Mountain. In connection with this
purchase, the Company paid the seller $128,000 to buy out the consulting
commitment which is included in resource properties, and $19,300 for repayment
of additional filing fees which may be subject to reimbursement to the Company;
this amount is included in other assets. The Company also issued 106,000 shares
to the seller and a company he controls, which were valued at $90,100 or $.85
per share, and a like amount was recorded as an addition to resource properties.
56 of the 62 patented claims and the 47 unpatented claims were contributed by
the Company to the joint venture and it is expected that this commitment will be
satisfied from the exploration of the joint venture properties. Additionally,
the Company agreed to pay advance minimum royalties of up to $100,000,000 as
follows: 1) $15,000 on the closing date 2) $50,000 on or before the first
anniversary 3) $90,000 on or before the second anniversary 4) $120,000 on or
before the third anniversary 5) $150,000 on or before the fourth anniversary 6)
$200,000 on or before the fifth anniversary and $200,000 each year thereafter.
This commitment ends when a total of $100,000,000 has been paid, including net
smelting returns, or should the Company pay the seller, at the Company's
discretion, $27,000,000 prior to May 26, 2003. The above advance on minimum
royalties will be accelerated when the Company begins to produce extraction
revenues from these properties and the net smelting returns, which are 4% in the
case when the average price of gold (London quote) in each production quarter
exceeds $400 per ounce and 3% in the case when the average price is less than
$400 per ounce; exceeds the annual minimum. In connection with the earn-in and
joint venture agreement, the Company assigned those claims to the seller with
the same commitment as the royalty commitment in the form of a rental
commitment.
Reserved Shares - In connection with the February agreement with Homestake, the
Company agreed to reserve 1,000,000 shares for issuance to secure this
commitment.
Other Proceedings - The Company is from time to time involved in various claims,
legal proceedings and complaints arising in the ordinary course of business. It
does not believe that anypending or threatened proceeding related or other
matters, or any amount which it may be required to pay by reason thereof, will
have a material adverse effect on the financial condition or future results of
operations of the Company.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements, as well as information relating to the plans of the Company's
current management.
RESULTS OF OPERATIONS AND CURRENT METHOD OF OPERATION
Six Months Ended March 31, 2000
The Company's results of operations for the six months ended June 30, 2000
consisted of a loss of $342,259 as compared to June 30, 1999 which consisted of
a loss of $193,224. This represents a loss per share of $.02 for the June, 2000
quarter vs. $.012 for June, 1999. The primary increase in expenses were general
and administrative, which were $299,432 in 2000 vs. $145,135 in 1999.
In February 2000 a definitive earn-in-exploration and joint venture agreement
was entered into with Homestake Mining Company of California ("Homestake")
regarding certain patented and unpatented mining claims and millsites, which
represent approximately 90% of the value attributed to the Company's resource
properties as of June 30, 2000 located on Prospect Mountain in Eureka County
Nevada.
Generally the terms outlined provide for Homestake to commit to at least
$2,000,000 of exploration expenditures for an undivided 51% interest in the
properties with the exclusive option to acquire up to a 70% interest in the
joint venture extraction of the properties. Homestake has also agreed to
contribute approximately 30 claims in the area of interest.
The Company has dropped an appeal on certain claims and has received refund of
certain fees which approximate the value of other resource properties, and since
these claims will not be re-staked, the only remaining resource properties the
Company has an interest in are those which have been contributed to the joint
venture.
Liquidity and Working Capital
The Company's working capital remained a deficit during the quarter ended June
30, 2000. To supplement working capital the Company has relied upon a $500,000
revolving credit line, secured by the Company's resource properties, from an
affiliate with interest at prime plus 2.5% and no specific repayment terms, of
which the Company has borrowed and repaid $55,766 under this agreement. Another
affiliate advanced the Company $178,373 with interest at prime plus 2.5%, of
which 128,373 has been paid back as of June 30, 2000. A different shareholder
has agreed to lend the Company up to $1,000,000 at 12%, secured by the Company's
resource properties. As of June 30, 2000 the Company has borrowed $300,000 under
this agreement.
8
FORWARD LOOKING AND OTHER STATEMENTS
Forward looking statements above and elsewhere in this report that suggest that
the Company will increase revenues through its failings joint venture become
profitable and are subject to risks and uncertainties. Forward-looking
statements include the information concerning possible or assumed future results
of operations and cash flows. These statements are identified by words such as
"believes," "expects," "anticipates" or similar expressions. Such forward
looking statements are based on the beliefs of EPAR and its Board of Directors
in which they attempt to analyze the Company's competitive position in its
industry and the factors affecting its business, including management's
evaluation of its resource properties. Stockholders should understand that each
of the foregoing risk factors, in addition to those discussed elsewhere in this
document and in the documents which are incorporated by reference herein, could
affect the future results of EPAR, and could cause those results to differ
materially from those expressed in the forward-looking statements contained or
incorporated by reference herein. In addition there can be no assurance that
EPAR and its Board have correctly identified and assessed all of the factors
affecting the Company's business.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In December, 1998 a subcontractor filed a lawsuit in Utah state court against
the Company seeking $60,000 for the breach of an alleged oral employment
agreement. The Company has filed a motion to dismiss for lack of personal
jurisdiction. The Company intends to defend the case vigorously. At June 30,
2000 this suit remains outstanding. No amounts were recorded in the financial
statement.
Other than the Utah suit above, we are not a party to any material legal
proceedings.
Item 2. Changes in Securities
As part of employment and outside consulting services agreements, the Company
issued an aggregate amount of 380,000 restricted shares of its common stock
during the second quarter of 2000.
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
9
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant, caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EUROPEAN AMERICAN RESOURCES, INC. FORMERLY MERLIN MINING CO.
Dated: August 10, 2000
By: /s/ Martin Sportschuetz
--------------------------------
Martin Sportschuetz, Pres. & CEO
11