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 March 31, 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 901, 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 March 31, 2000 is 16,314,908 of one class of $.0001 par value common
stock.
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
INDEX
PAGE
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - March 31, 2000 1
Consolidated Statements of Operations - Three
Months Ended March 31, 2000 2
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 2000 3
Notes to Financial Statements 4-6
Management's Discussion and Analysis of financial
conditions and results of operations 7-8
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 9
Item 5. Other Information 9
Item 6. Exhibits on Reports on Form 8-K 9
Signature Page 10
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
Assets
Current Assets
Cash and cash equivalents $ 14,879
Prepaid rent on mining claims 32,833
Total Current Assets 47,712
Exploration joint venture 2,348,753
Other resource properties 391,591
Property and equipment, net of accumulated
depreciation of $5,327 7,193
Other Assets
Investments, net of valuation reserve of $1,018,292 267,500
Other assets 72,164
Total Other Assets 339,664
Total Assets 3,134,913
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 433,797
Notes payable to related parties 534,139
Total Current Liabilities 967,936
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, 16,314,908 shares issued
and outstanding 1,632
Additional paid in capital 10,889,431
Deficit accumulated during the exploration stage (8,724,086)
Total Stockholders' Equity 2,166,977
Total Liabilities and Stockholders' Equity $ 3,134,913
See notes to the consolidated financial statement.
1
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended
March 31,
2000 1999
Revenue
Sales $ $ -
Operating Expenses
Operating costs 19,700 19,700
General and administrative 232,435 86,870
Depreciation and amortization 626 2,200
Total Operating Expenses 252,761 108,770
Loss from operations (252,761) (108,770)
Other Income (Expense)
Interest expense (16,325) (1,489)
Total Other Income (Expense) (16,325) (1,489)
Loss before income taxes (269,086) (110,259)
Income tax expense - -
Net Loss $ (269,086)$ (110,259)
Basic Loss per share $ (.016)$ (.007)
Average common shares outstanding 16,314,908 16,205,158
See notes to the consolidated financial statement.
2
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended
March 31,
2000 1999
Cash Flows Operating Activities
Net Loss $(269,086) $(110,259)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation 626 2,200
Changes in assets and liabilities:
Decrease in prepaid rent 19,700 12,204
Decrease (increase) in other assets (20,000) 140
(Decrease) increase in accounts payable
and accrued expenses 201,947 10,065
Net Cash Used by Operating Activities (66,813) (85,650)
Cash Flows From Investing Activities
Cash received for (additions to) resource properties 55,000 -
Net Cash From Investing Activities 55,000 -
Cash Flows From Financing Activities
Advances from (repayments to) related party 24,464 70,000
Net Cash Provided By Financing Activities 24,464 70,000
Net Increase (Decrease) in Cash and Cash Equivalents 12,651 (15,650)
Cash and Cash Equivalents at Beginning of Period 2,228 21,419
Cash and Cash Equivalents at End of Period $ 14,879 $ 5,769
See notes to the consolidated financial statement.
3
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For three months ended March 31, 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 March 31, 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 three month period ended March 31, 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
4
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For three months ended March 31, 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 March 31, 2000, the Company has
recorded $2,740,344 in total resource properties, net of $55,000 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 March 31, 2000 would have been $11,464,430 rather
than $8,724,086.
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 March 31, 2000 totaled $534,139 and bear
interest at rates from 12% to prime plus 2.5%. Interest expense on these
loans was $13,683 for the three months ended March 31, 2000.
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.
5
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For three months ended March 31, 2000)
D. COMMITMENTS AND CONTINGENCIES - (Continued)
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 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.
6
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
Three Months Ended March 31, 2000
The Company's results of operations for the three months ended March 31, 2000
consisted of a loss of $269,086 as compared to March 31, 1999 which consisted of
a loss of $110,259. This represents a loss per share of $.016 for the March,
2000 quarter vs. $.007 for March, 1999. The primary increase in expenses were
general and administrative, which were $232,435 in 2000 vs. $86,870 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 March 31, 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 is considering the
request of refund of certain fees which approximate the value of other resource
properties, and if these claims are not re-staked then the only remaining
resource properties the Company would have 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 March
31, 2000. At March 31, 2000 the Company had a working capital deficit of
$920,224 as compared to a working capital deficit of $686,764 at December 31,
1999.
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 $55,766 under this agreement. Another affiliate advanced
the Company $178,373 with interest at prime plus 2.5%. 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 March 31, 2000 the Company has borrowed $300,000
under this agreement.
7
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.
8
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 March 31, 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
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
NONE
9
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: May 22, 2000 By: /s/ Martin Sportschuetz
Martin Sportschuetz, CEO
10
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