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, 2001 Commission File No.33-2392-D
European American Resources, Inc.
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(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)
13900 SW 24th Street, Davie, Fl 33325
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (954) 916 - 3874
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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:
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Transitional Small Business Disclosure Format:
Yes: No: X
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The number of shares outstanding of each of the registrant's classes of common
stock as of June 30, 2001 is 21,752,408 shares all of one class of $.0001 par
value common stock.
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
INDEX
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PAGE
PART I FINANCIAL INFORMATION
Balance Sheet - June 30, 2001 1
Statements of Operations - Six
and Six Months Ended June 30, 2000 and 2001 2-3
Three Statement of Cash Flows - Six
Months Ended June 30, 2000 and 2001 4
Notes to Financial Statements 5-9
Management's Discussion and Analysis of financial
conditions and results of operations 10-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits on Reports on Form 8-K 12
Signature Page 13
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
BALANCE SHEET
JUNE 30, 2001
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 292
Prepaid expenses 12,500
Unamortized loans 4,725
------------
Total Current Assets 17,517
Exploration joint Venture 2,380,265
Property and equipment, net of accumulated
depreciation of $9,192 3,328
Other Assets
Other assets 500
------------
Total Other Assets 500
------------
Total Assets 2,401,610
============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 509,763
Note payable 29,197
------------
Total Current Liabilities 538,960
Convertible Note Payable 100,000
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, 21,752,408 shares issued
and outstanding 2,175
Additional paid in capital 11,947,700
Deferred compensation (21,000)
Deficit accumulated during the exploration stage (10,166,225)
------------
Total Stockholders' Equity 1,762,650
------------
Total Liabilities and Stockholders' Equity $ 2,401,610
============
See notes to the financial statements.
1
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
(Unaudited)
For the Six Months Ended
June 30
2000 2001
------------ ------------
Revenue
Sales $ -- $ --
------------ ------------
Operating Expenses
Operating costs 61,348 --
General and administrative 371,604 438,141
Stock based compensation 85,313 21,000
Depreciation and amortization 1,252 1,987
------------ ------------
Total Operating Expenses 519,517 461,128
------------ ------------
Loss from operations (519,517) (461,128)
------------ ------------
Other Income (Expense)
Loan Fees -- (16,275)
Interest expense (28,463) (27,060)
------------ ------------
Total Other Income (Expense) (28,463) (43,335)
------------ ------------
Loss before income taxes (547,980) (504,463)
Income tax expense -- --
------------ ------------
Net Loss $ (547,980) $ (504,463)
============ ============
Basic Loss per share $ (.033) $ (.026)
============ ============
Average common shares outstanding 16,357,408 19,488,016
============ ============
See notes to the financial statements.
2
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended
June 30,
2000 2001
------------ ------------
Revenue
Sales $ -- $ --
------------ ------------
Operating Expenses
Operating costs 41,648 --
General and administrative 139,169 229,675
Stock based compensation 85,313 21,000
Depreciation and amortization 626 782
------------ ------------
Total Operating Expenses 266,756 251,457
------------ ------------
Loss from operations (266,756) (251,457)
------------ ------------
Other Income (Expense)
Loan fees -- (16,275)
Interest expense (12,138) (11,510)
------------ ------------
Total Other Income (Expense) (12,138) (27,785)
------------ ------------
Loss before income taxes (278,894) (279,242)
Income tax expense -- --
------------ ------------
Net Loss $ (278,894) $ (279,242)
============ ============
Basic Loss per share $ (.017) $ (.014)
============ ============
Average common shares outstanding 16,399,908 20,559,590
============ ============
See notes to the financial statements.
3
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
2000 2001
--------- ----------
Cash Flows Used by Operating Activities
Net Loss $(547,987) $(504,463)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation 1,252 1,987
Non-cash charges to operating expenses-
foregone mine claims 1,933 --
Non-cash charges for stock based compensation
and expenses paid by stock 141,563 120,356
Changes in assets and liabilities:
Decrease in prepaid expenses 19,349 12,500
Decrease in other assets -- --
Increase in accounts payable
and accrued expenses 112,352 194,498
--------- ---------
Net Cash Used by Operating Activities (271,531) 175,122
--------- ---------
Cash Flows from Investing Activities
Cash received from (Additions to) resource properties 73,476 --
Proceeds from foregone mine claims 391,333 --
--------- ---------
Net Cash from Investing Activities 464,809 --
--------- ---------
Cash Flows from(Used in) Financing Activities
Advances from (repayments to) related parties (159,675) 58,477
Cash received from note payable -- 100,000
Cash received from issuance of common stock -- 16,500
--------- ---------
Net Cash Provided By (Used in) Financing Activities (159,675) 174,977
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 33,603 (145)
Cash and Cash Equivalents at Beginning of Period 2,228 147
--------- ---------
Cash and Cash Equivalents at End of Period $ 35,831 $ 292
========= =========
See notes to the financial statements.
4
EUROPEAN AMERICAN RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
(For six months ended June 30, 2001)
(Unaudited)
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, 2001 the Company
is the holder of approximately 103 patented, unpatented lode, mill sites
and placer claims on certain properties located throughout the State of
Nevada, as the Company waived it's rights to approximately 727 claims and
received a refund of $391,33 of BLM fees for claims and costs with an
aggregate carrying value of $413,281, resulting in a $21,940 charge to
operating expenses during the year ended December 31, 2000. In February
2000, the Company contracted its rights to the 103 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, 2001 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2001. 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,
2000.
Supplemental schedule of cash flow from operations:
For the six
months ended
June 30,
2000 2001
--------- ----------
Interest paid $ 2,642 $ 0
========= ==========
Schedule of non cash investing and financing activities:
Cancellation of debt and
accrued interest $ 0 $ 304,060
========= =========
5
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For six months ended June 30, 2001)
Unaudited
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 March 31, 2001, the Company has recorded
$2,380,265 in total resource properties, all of which are included in
exploration joint venture net of $73,467 received as a reimbursement from
Homestake in connection with the joint venture. During the year ended
December 31, 2000, the Company has forgone 727 claims with a carrying value
of $413,282, including cash expenses of $20,015, and received a refund of
prior fees paid to the BLM totaling $391,333, resulting in a charge to
operating expenses of $21,948. If these remaining costs had been expensed
rather than capitalized, the accumulated deficit at June 30, 2001 would
have been $12,535,990 rather than $10,155,725.
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 May 11, 2001 totaled $280,000 which
included accrued interest of $13,729 and bore interest at rates from 12% to
prime plus 2.5%. Interest expense on these loans was $4,294 for the six
months ended June 30, 2001. This loan was converted to equity effective May
11, 2001.
During the six months ended June 30, 2001, the Company agreed to settle a
second loan with a major shareholder with accrued interest totaling
6
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For six months ended June 30, 2001)
Unaudited
C. RELATED PARTY TRANSACTIONS (Continued)
$360,000 for 1,500,000 shares. These shares were issued on April 10, 2001
and recorded outstanding as of December 31, 2000. The $13,331 charged to
interest expense during the six months ended June 30, 2001 on this note was
credited to additional paid in capital.
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.
7
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For six months ended June 30, 2001)
(Unaudited)
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 Commitments
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 any pending 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.
E. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2000, the FASB issued Interpretation (FIN) No.44, "Accounting for
Certain Transactions Involving Stock Compensation-an Interpretation of APB
Opinion No. 25" "FIN 44 clarifies the definition of employees, the criteria
for determining whether a plan qualifies as a non-compensatory plan, the
accounting consequences of various modifications to the terms of previously
fixed stock option or award and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions in the Interpretation cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The
Company adopted the provisions of FIN 44 as of July 1, 2000.
In July 2001, the Financial Accounting Standards Board issued FAS No. 141,
"Business Combinations" and FAS No. 142, "Goodwill and Other Intangible
Assets." FAS 141 supercedes Accounting Principles Bulletin No. 16,
"Business Combinations" and FAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." FAS 142 supercedes Accounting
Bulletin No. 17, "Intangible Assets." These statements require use of the
purchase method of accounting for all business combinations initiated after
June 30, 2001, thereby eliminating use of the pooling-of-interests method.
Goodwill will no longer be amortized but will be tested for impairment.
Additionally, new criteria have been established that determine whether an
acquired intangible asset should be recognized separately from goodwill.
The statements are effective for business combinations initiated after June
30, 2001 with the entire provisions of FAS 141 and FAS 142 becoming
effective for European American Resources, Inc. commencing with its 2002
fiscal year. European American Resources, Inc. is currently evaluating the
impact these statements will have on its results of operations and
financial position.
8
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For six months ended June 30, 2001)
(Unaudited)
F. EQUITY TRANSACTIONS
Through the six month period ended June 30, 2001, the Company sold 82,500
shares of its common stock generating gross proceeds of $16,500 and a like
amount of warrants to purchase one share each of the Company's common stock
at an exercise price of $.40. The Company granted 200,000 shares of common
stock and options which vest over the four quarters which end December 31,
2001 to its CEO in connection with his executive consulting contract and
375,000 shares of common stock to consultants for services performed and to
be performed during the six month period ended June 30, 2001.
Also, the Company issued 1,500,000 shares of common stock to settle
$360,000 of loans and accrued interest and 2,800,000 shares of common stock
and the assignment of the claim receivable previously reserved to a $0
value to settle $280,000 of debt and accrued interest during the six months
ended June 30, 2001.
The Company issued 100,000 shares of common stock in connection with a
convertible note, due in July 2001. The holder had the option, if not
repaid buy the due date, to convert this note to 1,000,000 shares of common
stock. This note was repaid subsequent to June 30, 2001.
9
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 June 30, 2001 vs. June 30, 2000
The Company's results of operations for the six months ended June 30, 2001
consisted of a loss of $504,463 as compared to June 30, 2000 which consisted of
a loss of $547,980. This represents a loss per share of $(.026) for the six
months ended June 30, 2001 vs. $(.033) for June, 2000. The primary decrease in
expenses were $61,348 operating costs in the six months ended June 30, 2000
compared to none in 2001 as the Company's Joint Venture partner bears such
expenses during the next two years, and stock based compensation which was
$21,000 for the six months ended June 30, 2001 compared to $85,313 through June
30, 2000. The primary increase in expenses were general and administrative,
which were $438,141 in 2001 as compared to $371,604 in 2000. These include
$69,750 of Consulting fees paid in stock during 2001 compared to none for 2000.
Interest expense was $27,060 for the six months ended June 30, 2001 vs. $28,463
for the six months ended June 30, 2000.
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 all of the value attributed to the Company's resource properties as of
June 30, 2001 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 plans on pursuing the joint venture and other opportunities in the
extractive industries, including the assignment of up to 25% of its interest in
the Joint Venture for up to $1,200,000 on an as paid basis.
Three Months Ended June 30, 2001 vs. June 30, 2000
The Company's results of operations for the three months ended June 30, 2001
consisted of a loss of $279,242 as compared to June 30, 2000 which consisted of
a loss of $278,894. This represents a loss per share of $(.014) for the three
months ended June 30, 2001 vs. $(.017) for June, 2000. The primary increase in
expenses were general and administrative, which were $229,675 in 2001 vs.
$139,169 in 2000 due in part to increased investment banking expenses. These
include $15,750 of Consulting fees paid in stock during 2001 compared to none
for 2000. Interest expense was $11,510 for the three months ended June 30, 2001
vs. $12,138 for the three months ended June 30, 2000.
10
Liquidity and Working Capital
The Company's working capital remained a deficit during the quarter ended June
30, 2001. At June 30, 2001 the Company had a working capital deficit of $521,443
as compared to a working capital deficit of $326,263 at December 31, 2000.
To supplement working capital the Company had 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. The Company
had borrowed $280,000, including accrued interest of $13,729 under this
agreement and this was satisfied in May, 2001 by the assignment of the Company's
claim receivable which had been previously written down to $0 value and the
issuance of 2,800,000 shares of common stock. A different shareholder had agreed
to lend the Company up to $1,000,000 at 12%, secured by the Company's resource
properties. This note plus accrued interest was settled for 1,500,000 shares of
the Company's common stock on April 10, 2001, which was reflected at December
31, 2000 for accounting purposes. During the six months ended June 30, 2001 the
Company borrowed $100,000 in a note as follows: Interest only through July 26,
2001, such interest to be paid with 100,000 restricted shares of the Company's
common stock with piggy back registration rights. This note was repaid
subsequent to June 30, 2001. At maturity the holder has the option to convert
the balance of the note into shares of the Company's common stock at $.10 per
share. Management has a preliminary undertaking to assign up to 25% interest in
its remaining interest of the exploration Joint Venture to certain investors for
up to $1,200,000 on a pro-rata as paid basis. Through August 10, 2001 this
investor has advanced approximately $240,000 toward this arrangement. Management
is also considering the issuance of its common stock, or otherwise increase
equity, in private placement transactions, intended to be exempt from
registration, to Sophisticated Investors to supplement its working capital.
Forward looking and other statements
Forward looking statements above and elsewhere in this report that suggest that
the Company will increase revenues through its mining joint venture and will
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.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------ -----------------
The Company is from time to time involved in various claims, legal
proceedings and complaints arising in the ordinary course of its
business. It does not believe that any pending 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.
Item 2. Changes in Securities
- ------ ---------------------
NONE
Item 3. Defaults Upon Senior Securities
- ------ -------------------------------
NONE
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
NONE
Item 5. Other Information
- ------ -----------------
NONE
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
In connection with the filing of this instant Form 10QSB, the Company
announces the addition of two directors, Stephan Wasser and Richard
Cokl, effective June 12, 2001. The Company also announces a finance
committee has been formed and this includes Mssrs. Mark Beloyan,
Stephan Wasser and Richard Cokl.
12
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.
---------------------------------
Dated: August 14, 2001 By: /s/ Mark Beloyan
----------------------------------
Mark Beloyan, CEO
13