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 September 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)
91 South Main Street, PO Box 1066 Eureka, NV 89316
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (775) 237-7943
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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 September 30, 2001 is 21,999,408 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 - September 30, 2001..............................1
Statements of Operations - Three Months
Ended September 30, 2000 and 2001.............................2
Statements of Operations - Nine Months
Ended September 30, 2000 and 2001.............................3
Statement of Cash Flows - Nine Months
Ended September 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
SEPTEMBER 30, 2001
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 254
Prepaid expenses 12,500
Other current assets 4,725
------------
Total Current Assets 17,479
Exploration joint venture 2,569,665
Property and equipment, net of accumulated
depreciation of $9,409 3,111
Other Assets
Other assets 500
------------
Total Other Assets 500
------------
Total Assets 2,590,755
============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 549,088
Note payable 33,697
------------
Total Current Liabilities 582,785
Distribution Rights Payable 240,000
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, 21,999,408 shares issued
and outstanding 2,200
Additional paid in capital 11,996,076
Deferred compensation --
Deficit accumulated during the exploration stage (10,230,306)
------------
Total Stockholders' Equity 1,767,970
------------
Total Liabilities and Stockholders' Equity $ 2,590,755
============
See notes to the financial statements.
1
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30,
2000 2001
------------ ------------
Revenue
Sales $ -- $ --
------------ ------------
Operating Expenses
Operating costs 3,185 --
General and administrative 216,889 63,864
Stock based compensation -- --
Depreciation and amortization 626 217
------------ ------------
Total Operating Expenses 220,700 64,081
Loss from operations (220,700) (64,081)
------------ ------------
Other Income (Expense)
Loan Fees -- --
Interest expense (14,375) --
------------ ------------
Total Other Income (Expense) (14,375) --
Loss before income taxes (235,075) (64,081)
Income tax expense -- --
Net Loss $ (235,075) $ (64,081)
============ ============
Basic Loss per share $ (.01) $ --
============ ============
Average common shares outstanding 16,694,908 21,478,808
============ ============
See notes to the financial statements.
2
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
(Unaudited)
For the Nine Months Ended
September 30,
2000 2001
------------ ------------
Revenue
Sales $ -- $ --
============ ============
Operating Expenses
Operating costs 64,533 --
General and administrative 588,493 502,005
Stock based compensation 85,313 21,000
Depreciation and amortization 1,878 2,204
------------ ------------
Total Operating Expenses 740,217 525,209
------------ ------------
Loss from operations (740,217) (525,209)
Other Income (Expense)
Loan fees -- (16,275)
Interest expense (42,838) (27,060)
------------ ------------
Total Other Income (Expense) (42,838) (43,335)
------------ ------------
Loss before income taxes (783,055) (568,544)
Income tax expense -- --
------------ ------------
Net Loss $ (783,055) $ (568,544)
============ ============
Basic Loss per share $ (.05) $ (.03)
============ ============
Average common shares outstanding 16,489,209 20,370,108
============ ============
See notes to the financial statements.
3
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
(Unaudited)
For the Nine Months Ended
September 30,
2000 2001
--------- ---------
Cash Flows Used by Operating Activities
Net Loss $(783,055) $(568,544)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation 1,878 2,204
Non-cash charges to operating expenses-
foregone mine claims 1,933 --
Non-cash charges for stock based compensation
and expenses paid by stock 266,563 120,356
Changes in assets and liabilities:
Decrease in prepaid expenses 37,533 12,500
Increase in other assets -- (4,725)
Increase in accounts payable
and accrued expenses 168,412 221,339
--------- ---------
Net Cash Used by Operating Activities (306,736) (216,870)
--------- ---------
Cash Flows from Investing Activities
Cash received from (Additions to)
resource properties 72,966 (100,000)
Proceeds from foregone mine claims 391,333 --
--------- ---------
Net Cash from Investing Activities (464,299) (100,000)
--------- ---------
Cash Flows from(Used in) Financing Activities
Advances from (repayments to) related parties (159,675) 60,477
Cash received from note payable -- 100,000
Payment of note payable -- (100,000)
Cash received from issuance of common stock -- 16,500
Cash received for distribution rights -- 240,000
--------- ---------
Net Cash Provided By (Used in)
Financing Activities (159,675) 316,977
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (2,112) 107
Cash and Cash Equivalents at Beginning of Period 2,228 147
--------- ---------
Cash and Cash Equivalents at End of Period $ 116 $ 254
========= =========
See notes to the financial statements.
4
EUROPEAN AMERICAN RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
For nine months ended September 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 September 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 nine month period
ended September 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/A for the year ended December 31, 2000.
Supplemental schedule of cash flow from operations:
For the nine
months ended
September 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
========= =========
Increase in exploration
joint venture paid in
common stock $ 0 $ 69,400
========= =========
5
EUROPEAN AMERICAN RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
For nine months ended September 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 September 30, 2001, the Company has recorded $2,569,665 in
total resource properties, all of which are included in exploration 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 September 30, 2001
would have been $12,799,971 rather than $10,230,306.
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 nine months
ended September 30, 2001. This loan was converted to equity effective May 11,
2001.
During the nine months ended September 30, 2001, the Company agreed to
settle a second loan with a major shareholder with accrued interest totaling
$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 nine months ended September 30, 2001 on this note was
credited to additional paid in capital.
6
EUROPEAN AMERICAN RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
For nine months ended September 30, 2001
(Unaudited)
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.
NOTES TO FINANCIAL STATEMENTS
For nine months ended September 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
A. 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 Pre-acquisition 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.
B. In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement addresses
financial accounting and reporting for the impairment or disposal of long-
lived assets. SFAS No. 144 supercedes SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed of",
and provides guidance on classification and accounting for such assets when
held for sale or abandonment. SFAS No. 144 is effective for fiscal years
begining after December 15, 2001. Management does not expect that adoption of
SFAS No. 144 will have a material effect on the Company's results of
operations or financial position.
8
F. EQUITY TRANSACTIONS
Through the nine month period ended September 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 of which 100,000 shares
were returned to the company upon the recent settlement of the executive
contract and were reflected as of Sepember 30, 2001 and 375,000 shares of common
stock to consultants for services performed and to be performed during the nine
month period ended September 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 nine months ended
September 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 during July, 2001.
The Company issued 347,000 shares of its Common Stock to the holder of the
royalty claim commitment, discussed in Note D, valued at $69,400, in lieu of
cash payment toward the current obligation during the nine months ended
September 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
Nine Months Ended September 30, 2001 vs. September 30, 2000
The Company's results of operations for the nine months ended September 30, 2001
consisted of a loss of $568,544 as compared to September 30, 2000 which
consisted of a loss of $783,055. This represents a loss per share of $.03 for
the nine months ended September 30, 2001 vs. $.05 for September, 2000. The
primary decrease in expenses were $64,533 operating costs in the nine months
ended September 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 nine months ended September 30, 2001
compared to $85,313 through September 30, 2000. The primary decrease in expenses
were general and administrative, which were $502,005 in 2001 as compared to
$588,493 in 2000. These include $69,750 of consulting fees paid in stock during
2001 compared to $181,250 for 2000. Interest expense was $27,060 for the nine
months ended September 30, 2001 vs. $42,838 for the nine months ended September
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 September 30, 2001 vs. September 30, 2000
The Company's results of operations for the three months ended September 30,
2001 consisted of a loss of $64,081 as compared to September 30, 2000 which
consisted of a loss of $235,075. This represents a loss per share of none for
the three months ended September 30, 2001 vs. $.01 for September 30, 2000. The
primary decrease in expenses were general and administrative, which were $63,864
in 2001 vs. $216,889 in 2000 due in part to increased investment banking
expenses. These include no consulting fees paid in stock during the current
quarter in 2001 compared to $15,750 for the comparable quarter in 2000. Interest
expense was $0 for the three months ended September 30, 2001 vs. $14,375 for the
three months ended September 30, 2000.
10
Liquidity and Working Capital
The Company's working capital remained a deficit during the quarter ended
September 30, 2001. At September 30, 2001 the Company had a working capital
deficit of $565,306 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 nine months ended September 30,
2001 the Company borrowed $100,000 in a note and this note was repaid in July.
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 September 30, 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
October 22, 2001
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: November 14, 2001 By: /s/ Evangelos Kechayans
----------------------------------
Evangelos Kechayans, President/CEO
13