` FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from 1/1/99 to 12/31/99
Commission file number 33-3492-D
EUROPEAN AMERICAN RESOURCES, INC. (Formerly Merlin Mining Company)
(Exact name of registrant as specified in its charter)
Delaware 87-0443214
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
400 Cleveland Street, Suite 901, Clearwater, FL 33755
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (727) 298-0636
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-KB or any amendment to
it. [X]
As of December 31, 1999, the Issuer had outstanding 16,314,908 shares of its
common stock, as adjusted, par value $0.0001 per share. As of December 31,
1999, 9,113,813 shares were held by non affiliates with an aggregate market
value of $7,382,188.
1
<PAGE>
PART I
Item 1. Business.
General Development of Business
The Company was incorporated in the State of Delaware on July 6,
1987. We are a Junior Mining Company. Since inception, the Company, which
considersitself a Junior Mining Company, has acquired various mining rights and
has held up to as many as approximately 6,700 patented, unpatented lode, mill
sites andplacer claims on certain properties located throughout the State of
Nevada.Presently the Company controls 830 of such claims, approximately 192 of
which were subject to an appeal with the IBLA for the "overstaking" by the same
mining company in which the Company has entered into an "Earn-In," exploration
joint venture agreement, Homestake Mining Company. The joint venture agreement
included provisions whereby we agreed to drop our appeal and we have agreed to
forego the 192 claims in the Spring Valley region. The Company has recorded a
reduction to resource properties of $116,736 in 1999, to reflect the removal of
these claims. (See Table under this Section). Certain of these rights were
acquired by agreements to pay an aggregate total royalty based upon various
percentages of the net profits delivered from the properties computed by a
predefined formula. Since acquisition of these properties, the Company has not
commenced any extractive mining operations.
Our current inventory of claims we now control, subject to the IBLA
appeal discussed above, 768 unpatented and 62 patented claims and mill sites
(see Table under this Section); primarily concentrating these efforts on the 62
patented claims and mill sites and 47 unpatented claims in the Prospect Mountain
region, which in May of 1998 the Company renegotiated and closed title to these
claims.
The Company's claim sites in this region are within approximately one mile of
the Archimedes (Ruby Hill) open pit, an actively producing gold mining
operation, which is owned by Homestake Mining Company. On February 18th the
Company agreed with Homestake to a joint venture agreement whereby Homestake
has committed to invest a minimum of $2,000,000 to maintain, explore or develop
the area of interest which includes 56 of our 62 patented claims and 47 of our
unpatented claims as well as approximately 30 claims they control. In addition
to the excitement over the quantities of resources exhibited at Archimedes Open
Pit, the extraction costs are some of the lowest reported in the industry ($104
per ounce in 1999). Although this provides no assurance in itself that the
joint venture claims in this region can provide similar results, management
considers this to be our best action to exploit its claims in this region. It
should be noted that
these claims are subject to a net smelter agreement with the former sellers (see
Commitments under this Section and in the financial statements; see Item 13).
The patented and unpatented lode and placer mining claims are in
numerous separate claim groups throughout Nevada. Although several of the
claims are contiguous, many are not, therefore the Issuer has been required to
conduct exploration and other field work to satisfy the annual assessment work
on the claims in numerous separate locations.
The validity of all unpatented mining claims, which constitutes most
of the Issuer's property holdings, is subject to inherent uncertainties. Apart
from 62 patented lode claims in the Prospect Mountain region, most of the
unpatented claims, if retained (also subject to an expected IBLA decision),
will be leased from the Bureau of Land Management. Such claims are located on
federal land pursuant to procedures established by the General Mining Law of
1872, as amended. Unpatented claims, when properly located, staked, and posted
according to regulation, give the claimant possessory rights only.
. 2
Possessory title to an unpatented claim, when validly initiated, endures unless
lost through abandonment due to failure to perform and file proof of
required annual assessment work, through failure to timely record conveyances,
or through a forfeiture which results from an adverse location made while the
prior location is in default with respect to the performance of annual
assessment work. Because many of these factors involve findings of fact, title
validitycannot be determined solely from an examination of the record.
The continuing validity of these claims is subject to many contingencies,
including the availability of land for location at the time the location was
made, the making of valid mineral discoveries within the boundary of each claim
compliance with all regulations, both state and federal, for locating claims,
the performance of annual assessment work of $100 per year per claim, and the
making of required annual and other filings with the Bureau of Land Management
(BLM) and the county in which the claims are located. Failure to perform
annual assessment work and failure to make required filings subjects the
claimant to forfeiture of rights through valued subsequent locations by others
or through cancellation by the government agency involved.
Title to unpatented claims and other mining properties in the western
United States typically involves certain other inherent risks due to the
frequently ambiguous conveyancing history characteristics of such properties as
well as the frequently ambiguous or imprecise language of mineral leases,
agreements, and royalty obligations. The Issuer has not obtained title opinions
on all of its claims, during 1998 the Company did obtain title opinions in
connection with the 62 patented and 47 unpatented claim sites, acquired in May
of 1998. With respect to the remaining 721 leased claims the Company has yet to
obtain title opinions and has to expect an IBLA decision if the Issuer should
experience a failure of title, then costs of action, acquisition, and initial
investigation may be lost.
The following chart sets forth the mining claims now retained by the
Issuer:
TABLE
EUROPEAN AMERICAN RESOURCES, INC. - MINING CLAIMS RETAINED AS OF
DECEMBER 31, 1999
Mining Approx. State of Nevada Number of
Project Name District County Claims
Bellehelen Bellehelen Nye 39
Ellendale Ellendale Nye 50
*Diamond Silverado
(includes Dugout
Canyon & Robinson
Canyon) Eureka Eureka 264 (Plus 62
Patents &
Mill Sites)
Mahogany Hills Eureka Eureka 28
Klondike Klondike Esmeralda 45
Ruby Hills Ruby Hills White Pine 75
Siegel Canyon Aurum White Pine 75
TOTAL 638
3
*56 patented claims and 47 unpatented claims in the Diamond Silverado Project in
Eureka have been contributed to the "Earn-In," exploration joint venture.
During the year, geological results indicate that the Company has yet to
prove its reserves, however results have indicated the Company's claims do have
indications that productive reserves for certain claims are probable. Since
these claims are not proven, estimates of their potential value are not
available at this time.
Description of Securities
The Issuer has 250,000,000 shares of common stock authorized at a par value
of $.0001; and 25,000,000 shares of convertible preferred stock authorized at a
par value of $.0001, of which none are issued or outstanding.
Competition
The Issuer faces competition in the mining field by companies in the same
sector of the business and in the same regions where the Issuer maintains its
claims. However, such competition, as fierce as it may be, does not directly
effect the operations or profitability of the Company as long as the claims are
maintained with the BLM and the Issuer proceeds with the acquisition or joint
venture agreements in order to actively mine such claims.
Employees
During 1998 the Company employed directly as consultants 8 individuals. In
1999 the Company employed 2 people. Until active mining operations are
commenced, the present management has made a concerted effort to keep employee
compensation at a minimum.
Item 2. Properties.
The Company maintained its offices at 400 Cleveland Street Suite 901,
Clearwater, Florida 33755 and at 91 South Main Street, P.O. Box 1066, Eureka, NV
89316.
Item 3. Legal Proceedings.
The Company instituted legal proceedings in Nevada on July 9, 1998 with its
former president. On October 16, 1998, the Company's former president and the
Company agreed to mutual releases and the former president agreed to return to
the Company's treasury 350,000 shares, net of an assignment of 50,000 shares,
upon acceptance of this stipulation by the court in Nevada.
In 1999 the shareholder waived the assignment and the additional 50,000
shares were returned to the treasury.
During 1997, the Company entered into net smelting agreements for up to
$7,000,000 with former shareholders in exchange for the retirement of 2,187,500
shares. In August 1998, a lawsuit was commenced against the Company by German
American Investments Limited ("GAI"). GAI was the assignor of the above
distribution rights granted by the Company to eight of its shareholders in 1997,
including its current CEO, Martin Sportschuetz. The suit alleged that EPAR's
former president, Michael Ogilvie had fraudulently induced the shareholders to
enter into the distribution agreements and sought rescission of the distribution
agreements and return of the shares, along with damages. At the time of the
suit the Company's current CEO was neither a shareholder of "GAI", nor did he
have a financial interest in GAI. This lawsuit was subsequently settled. The
settlement
4
was amended whereas the Company is to issue 1,312,500 unrestricted shares and
1,750,000 restricted shares to rescind the distribution agreement and these were
recorded at the original value ascribed to the distribution rights, an increase
of $437,500 in common stock and additional paid in capital in 1998. The Company
also agreed to issue 1,093,500 restricted shares, valued at one-half of the
market price of the Company's common stock on December 31, 1998, or $.3625 per
share, totaling $396,485, consistent with the value of restricted stock agreed
to by the parties for the recision, which was charged to settlement expense in
1998.
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 continues to defend the case vigorously. No amounts
were recorded in the financial statement.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. The Company's Common Stock is traded in the over-
the-counter market with the trading symbol "EPAR".
The following table sets forth the high and low bid quotations for each
quarter for the two-year period through December 31, 1999, based upon
information received from the National Quotation Bureau. Such quotations
reflect inter-dealer prices, and do not include retail mark-up, mark-down or
commission. They may not represent actual transactions.
1999 First Quarter $0.63 $2.00
Second Quarter $0.66 $1.63
Third Quarter $0.69 $1.03
Fourth Quarter $0.73 $1.43
1998 First Quarter $1.72 $0.84
Second Quarter $1.66 $1.00
Third Quarter $1.40 $0.78
Fourth Quarter $1.22 $0.56
(b) Shareholders. As of December 31, 1999 the Company had 16,315,158
shares of common stock outstanding, held by individual shareholders and
brokerage firms and/or clearing houses, holding the Company's common shares in
street names for their clients. The Company believes that there are
approximately 952 beneficial owners of its common stock.
(c) Dividends. The Company has not paid or declared any dividends upon its
Common Stock since its inception and does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results and Plan of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company' financial position and
operating results during the periods included in the accompanying consolidated
financial statements, as well as information relating to the plans of the
Company's current management.
RESULTS OF OPERATIONS
Twelve Months Ended December 31, 1999 vs. December 31, 1998
The Company recorded a net loss of $849,812 for the year ended December 31,
1999 as compared to a loss of $1,167,790 for the year ended December 31, 1998.
This represents a loss per common share of $.05 for 1999 vs. $.10 for 1998. The
primary fluctuations were the decreases in stock based compensation from
$310,275 in '98 to $112,350 in '99 and total other expenses from $193,481 in '98
to $31,839 in '99. Included in operating costs for 1999 were $116,736 of
reductions in resource property costs previously capitalized which were
charged to operations as a result of the Company agreeing to forego 192 claims
in the Spring Valley region of Eureka in connection with the joint venture
agreement.
6
The Company spent most of 1999 negotiating the "Earn-In", exploration joint
venture agreement, executed in February, 2000 with Homestake Mining Company.
The Company maintained its patented and unpatented claims with the BLM while
it negotiated to attract the joint venture partner for all of its mining
operations On May 8, 1998, the Company entered into a significant commitment in
connection with its acquisition of 62 patented and 47 unpatented claims in the
Prospect Mountain region. The Company's geological efforts focused on these
claims due to the success of it 1997 drilling program and Homestake's Archimedes
(Ruby Hill) pit (operation), which is within approximately one mile from these
claims of the Company. The Company is as excited about its proximity to the
Ruby Hill Pit as it is with the extractive costs cited by Homestake in the
region.
Plan of Operations
In October of 1999, the Company entered into the letter of
intent/understanding with Homestake Mining Company, which led to the terms for
the exploration, earn-in joint venture agreement. As of February 18, 2000, the
earn-in and joint venture agreements with Homestake Mining for an area of
interest, which contains 103 of EPAR's Prospect Mountain claims were finalized.
Homestake also agreed to contribute approximately 30 claims in the area of
interest. The joint venture plans to obtain mining rights for additional claims
within the area of interest from third parties. Homestake is the manager of the
joint venture and has committed to expend a $300,000 minimum on exploratory and
development costs in the first round of the agreement by the end of 2000. In
total, Homestake has committed to spend a minimum of $2,000,000 by the end of
2002 and in turn will be vested with 51% in the joint venture. Upon the
completion of a feasibility study with the recommendation to enter mining,
Homestake will become then 70% vested.
Liquidity and Capital Resources
At December 31, 1999 the Company had a working capital deficit of $686,764.
As a result of anticipated capital expenditures and operating losses, we
may raise additional capital through the issuance of common stock to
sophisticated investors in a transaction exempt from registration pursuant to
Rule 506 of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act of 1933. As a result of existing credit facilities and
potential private offerings, we anticipate having sufficient working capital
through the end of fiscal year ending 2000 and beyond. We believe the co-
venture with Homestake gives this project the substantial backing needed to
exploit the Company's claims.
Forward looking and other statement
We have made statements in this document that are forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements y forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You
should read statements that contain these words carefully because they: (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our fiscal condition; or (3) state other "forward looking"
information.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or which we do not fully control. Important factors that
could cause actual results to differ materially from these expressed ;or implied
by our forward-looking statements, include, but are not limited to those risks,
uncertainties and other factors discussed in this document.
7
For further information visit the Company's website at "EPAR-GOLD.COM" or
"EPAR.COM" and we can also be contacted at our E-mail address;
"[email protected]".
Inflation
The rate of inflation has had little impact on the Company's results of
operations and is expected to not have a significant impact on continuing
operations.
Item 7. Financial Statement and Supplementary Data.
See Item 13.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors and Executive Officers of Registrant.
(a) Directors and Officers. The following schedule sets forth the name of
each director and officer of the Company and the nature of all positions, and
offices with the Company presently held by them. Each director and officer, has
been elected as of the shareholders's meeting in Clearwater, Florida on July 29,
1999.
The executive officers and directors of the Company are as follows:
Name Position Held
Martin Sportschuetz President & CEO
Dale M. Hendrick, P.Eng. Chairman & Technical Director
Carl Leaman Director
John Sgarlat Director
Evangelos Kechayans Director
Dale M. Hendrick, P. Eng., is a geologist, born in Ottawa, Ontario,
educated in Ottawa University and Queen's University, and is now the President
of Dale M. Hendrick and Associates. He has 41 years of experience in
exploration and mining having worked as a Mine Geologist at Rio Algom Mines
(Milliken) at Elliot Lake and Quemont Mines Ltd. At Noranda, P.Q. He joined
Herr Addison in 1964 and was Chief Geologist, Exploration from 1973 to 1988.
Since 1989 through Dale M. Hendrick and Associates, he has demonstrated an
excellent and strong track record as a corporate technical and financial
advisor to growth oriented junior resource companies on a global basis. On
February 7, 2000 Mr. Hendrick resigned after accepting a new position with
Gammon Lake Resources, Inc.
Martin Sportschuetz has held several executive positions in Germany,
including the Export Director of Reisser GMBH (LTD.), a company with a large
concentration of sales in the Middle East and Central Africa. He was the
Managing Director of GVA MBH (LTD.), a Financial Consulting Concern. He is also
the Managing Director of GVA IMMOBILIEN GMBH (LTD.). He had a tour of military
service in Munich. He has also studied law and economics in Tuebingen, Germany.
Carl Leaman is the president and founder of Paradise Construction Inc. He
is a resident of Georgia. He attended Lancaster Architectural School where he
studied drafting and design. He also studied business administration at
Kennesaw College. He also worked as a hydraulic engineer for Morgan Corporation
8
John Sgarlat is a graduate of Villanova University, Magnum Cum Laude, with
a Bachelor of Arts in Philosophy. He also attended a three year graduate
program at the University of Pennsylvania/Wharton School of Finance. Mr.
Sgarlat is presently the president of e-Content Inc., a producer of childrens'
television programs and educational marketing programs for public broadcasting
stations. He also worked as a registered representative with Hornblower and
Wheels. In 1974, he became Director of Marketing for Elkins and Company, a New
York Stock Exchange firm. Two years later he became a partner of the firm and
headed several departments. In 1985, Mr. Sgarlat helped restructure a failing
company with a new name, National Media Corporation. He is the founder and
chairman of the company where he served as the president and chief executive
officer. Mr. Sgarlat has extensive experience in investment banking and the
media industries.
Evangelos Kechayans, is a mechanical/marine engineer who resides in Athens
Greece, educated at Brooklyn Polytechnic Institute and is currently the
president and managing director of Metrix Systems S.A. He has also worked in
Greece as a project management consultant for major projects such as the
Kavalla Oil Refinery Project and Salarris Navy Underground Tanks. Mr. Kechayans
has also worked for Pelasgus Corp. and Martechnics Ltd where he was the general
manager for both companies.
Item 10. Executive Compensation.
The following table sets forth the renumeration paid or accrued by the
Company during the fiscal year ending December 31, 1999, to each of its Chief
Executive Officer, its officers and directors, and to all officers and
directors as a group.
Securities of
Salaries Property
Management Fees Insurance
Name of Individual Directors' Fees Benefits or
or Number of Persons Capacities in Commission and Repayment of
in Group Which Served Bonuses Personal Benefits
Martin Sportschuetz Director/CEO/ $ 85,000 105,000 shares
President/Officer
Dale M. Hendrick Director/Chairman -
Carl Leaman Director
John Sgarlat Director - -
Evangelos Kechayans Director - -
Officers and Directors
as a group - $ 85,000 105,000 shares
$ 5,000 Health
Benefits
9
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the number of Common Shares of the Company
owned by record, or to the knowledge of the Company, beneficially, by each
Director of the Company and by each person owning five percent or more of the
Company's outstanding shares, as of December 31, 1999.
Amount and
Nature of
Beneficial Percentage of
Name and Address Ownership Class Owned
Martin Sportschuetz 610,000 President & CEO 3.74%
Florida Resident
Dale M. Hendrick, P. Eng. 400,000 Chairman & 2.45%
Canadian Resident Technical Director
Carl Leaman (1) 111,400 Director .68%
Georgia Resident
John Sgarlat 0 Director -0-
Florida Resident
Evangelos Kechayans 0 Director -0-
Athens, Greece
George Whitney (2) 1,370,000 Shareholder 8.40%
Florida Resident
Total 2,091,400 12.82%
(1) Includes 90,000 shares held by First Leaman Family Trust
(2) Includes 670,000 held by Hi Point Corp., a company owned 100% by Mr.
Whitney.
Item 12. Certain Relationships and Related Transactions
Amounts due to related party at December 31, 1997 represented cash and
expense advances by a company affiliated with a stockholder and director of the
Company totaling $134,093 after the reduction of $250,000 for 357,143 shares to
be issued. During 1997 the company paid $30,480 for interest on this
obligation.
During 1997, the Company retired 2,187,500 shares of common stock in exchange
for distribution rights valued at $437,500.
Additionally, in 1997 the Company sold 2,075,000 shares during the year in
private transactions for $1.00 a share, which, net of offering costs of
$109,925, generated net proceeds to the Company of $1,265,075 and a $700,000
stock subscription receivable, which was collected on March 4, 1998.
Also in 1997, the company issued 400,000 shares to the president in connection
with his employment agreement.
In 1997, the Company issued 250,000 shares to an affiliate for investment
banking services which were valued at $1.16 or $290,000.
10
In 1997, the Company issued 25,000 shares to a finder, valued at $1.00 per
share, with a like amount charged to additional paid in capital.
In March 1998, the Company issued 750,000 shares to an affiliate for
exploration and reactivation services performed through December 31, 1997
valued at $.70 per share.
The Company issued 105,000 shares of common stock to the President in May of
1998 valued at $.85 per share, or $89,250, based upon their market value
subject to Rule "144" restrictions. Of this amount $44,625 was added to
resource properties and $44,625 was recorded as stock based compensation based
upon the Company's estimate of where the president directed his efforts.
The Company also agreed to issue 105,000 shares to a director, provided he
remained employed by the Company through April 30, 1999. The director resigned
from employment in an effort to curtail expenses, and remains as a director
today. The Company issued 90,000 restricted shares, valued at $.85 per share,
or $69,300, based upon their market value subject to Rule "144" restrictions.
Of this amount, $34,650 was added to resource properties and $34,650 was
recorded as stock based compensation.
During June of 1998 the Company advanced this investor $60,000 at 8% interest of
which $50,000 was repaid during the year leaving a balance of $12,234 including
accrued interest. During the year ended December 31, 1998 the Company recorded
$2,234 of interest income from this loan.
The Company issued 400,000 restricted shares to the chairman and director for
services during the year ended December 31, 1998, valued at $.77 per share or
$308,000, based upon their market value subject to Rule "144" restrictions. Of
this amount $154,000 was added to resource properties and $154,000 was recorded
as stock based compensation.
Effective May 1999, the Company issued 105,000 shares of common stock to the
president valued at $1.08 per share or $112,350, which as included in stock
based compensation expense for 1999.
11
PART IV
Item 13. Exhibits, Financial Statement Schedules.
(1) The following financial statements are included herein at pages
F-1 through F-17 as follows:
Independent Auditors' Report - Schuhalter, Coughlin & Suozzo, LLCF-1
Balance Sheet, December 31, 1999 F-2
Statement of Operations, for the Two Years Ended December 31, 1999
and From July 6, 1987 (Date of Inception) to December 31, 1999 F-3
Statements of Changes in Stockholders' Equity From Inception on
July 6, 1987 through December 31, 1999 F-4
Statement of Cash Flows for the Two Years Ended December 31, 1999
and from July 6, 1987 (Date of Inception) to December 31, 1999 F-8
Notes to Consolidated Financial Statements F-10
12
INDEPENDENT AUDITORS' REPORT
Board of Directors
European American Resources, Inc.
400 Cleveland Street, Suite 901
Clearwater, Florida 33755
We have audited the accompanying balance sheet of European American Resources,
Inc. (an Exploration Stage Company) as of December 31, 1999 and the related
statements of operations for the two years then ended, shareholders' deficit
accumulated during the Exploration Stage, and for the period from July 6, 1987
(Date of Inception) through December 31, 1999 and the statements of cash flows
for the two years ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the accounting principals used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of European American Resources,
Inc. at December 31, 1999 and the results of their operations and cash flows
for the year then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1, the Company is in the exploration stage as of December
31, 1999. Recovery of the Company's assets is dependent upon future events,
the outcome of which is indeterminable. In addition, successful completion of
the Company's exploration program and its transition, ultimately, to attaining
profitable operations is dependent upon obtaining adequate financing to fulfill
its exploration activities and achieving a level of sales adequate to support
the Company's cost structure.
/s/ Schuhalter, Coughlin & Suozzo, LLC
Schuhalter, Coughlin & Suozzo, LLC
Raritan, New Jersey
April 13, 2000
F-1
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1999
Assets
Current Assets
Cash and cash equivalents $ 2,228
Prepaid rent on mining claims 52,533
Total Current Assets 54,761
Exploration joint venture 2,275,753
Other resource properties 519,590
Property and equipment, at cost, net of accumulated
depreciation of $4,701 7,819
Other Assets
Claim receivable, net of valuation reserve of $1,018,292 267,500
Other Assets 52,164
Total Other Assets 319,664
Total Assets 3,177,587
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 231,850
Notes payable to related parties 509,675
Total Current Liabilities 741,525
Commitments -
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 1,632
and outstanding
Additional paid in capital 10,889,431
Deficit accumulated during the exploration stage (8,455,001)
Total Stockholders' Equity 2,436,062
Total Liabilities and Stockholders' Equity $3,177,587
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATIONS
From
July 6,
1987
(Date of
For the Years Ended Inception) to
December 31, December 31,
1998 1999 1999
Revenues
Sales $ - $ - $ 29,028
Operating Expenses
Operating costs 78,800 193,536 3,862,720
General and administration 576,433 505,520 2,557,527
Depreciation and amortization 8,801 6,567 324,027
Stock based compensation 310,275 112,350 1,262,625
Royalty Expense - - 43,960
Total Operating Expenses 974,309 817,973 8,050,859
Loss from operations (974,309) (817,973)(8,021,831)
Other Income (Expense)
Interest income 20,862 - 316,963
Interest expense (7,192) (25,423) (138,523)
Settlement (expense) income (46,484) 50,000 3,516
Loss on the sale of assets - (2,583) (14,755)
Earnings on managed foreign investment - - 190,569
Net realized losses on marketable
securities - - (256,668)
Gain on cancellation of long term
debt-related party - - 500,000
Loss on write off related party
receivable - - (15,980)
Reserve for claim on foreign
investment (160,667) (53,833)(1,018,292)
Total Other Income (Expense) (193,481) (31,839) (433,170)
Loss before income taxes (1,167,790) (849,812)(8,455,001)
Income tax expense - - -
Net Loss $(1,167,790) $ (849,812)$(8,455,001)
Basic Loss Per Common Share $ (.10) $ (.05)
Average Common Shares Outstanding 11,851,389 16,297,295
The accompanying notes are an integral part of these financial statements.
F-3
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCEPTION ON JULY 6, 1987 THROUGH DECEMBER 31, 1999
Deficit
Accumulated
Additional During the
Common Stock Paid In Exploration
Shares Amount Capital Stage
Balance, July 6, 1987 - $ - $ - $ -
Shares issued to officers
and directors of the
Company and other
individuals, for cash July
through September, 1997 1,000,000 100 371,783 -
Net loss for the period
ended December 31, 1987 - - - (95,060)
Balance, December 31, 1987 1,000,000 100 371,783 (95,060)
Effect of recapitalization
of Paradise Valley Mining,
Inc. on March 11, 1988 1,000,000 100 200,418 -
Shares sold by private
placement for cash at $1.00
per share in July, 1988,
net of $4,808 in offering
costs 151,000 15 146,177 -
Shares sold by private
placement for cast at $0.33
per share in October, 1988 150,000 15 49,985 -
Net loss for the year ended
December 31, 1988 - - - (275,547)
Balance, December 31, 1988 2,301,000 230 768,363 (370,607)
Shares sold by private
placement for cash at
$10.00 per share during
April through June 1989,
net of $518,576 in
offering costs 429,374 43 3,774,785 -
Shares issued in payment of
interest at $10.00 per
share during April and May
1989 2,991 - 29,918 -
Net loss for the year ended
December 31, 1989 - - - (463,583)
Balance, December 31, 1989 2,733,365 $ 273 $ 4,573,066 $ (834,190)
The accompanying notes are an integral part of these financial statements.
F-4
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCEPTION ON JULY 6, 1987 THROUGH DECEMBER 31, 1999
Deficit
Accumulated
Additional During the
Common Stock Paid In Exploration
Shares Amount Capital Stage
Balance, January 1, 1990 2,733,365 $ 273 $ 4,573,066 $ (834,190)
Net loss for the year ended
December 31, 1990 - - - (1,620,689)
Balance, December 31, 1990 2,733,365 273 4,573,066 (2,454,879)
Net loss for the year ended
December 31, 1991 - - - (477,967)
Balance, December 31, 1991 2,733,365 273 4,573,066 (2,932,846)
Shares sold by private
placement for cash at
$.2714 per share during
September, 1992 7,000,000 700 1,899,300 -
Net loss for the year ended
December 31, 1992 - - - (694,935)
Balance, December 31, 1992 9,733,365 973 6,472,366 (3,627,781)
Net loss for the year ended
December 31, 1993 - - - (730,281)
Balance, December 31, 1993 9,733,365 973 6,472,366 (4,358,062)
Net loss for the year ended
December 31, 1994 - - - (332,383)
Balance, December 31, 1994 9,733,365 973 6,472,366 (4,690,445)
Net loss for the year ended
December 31, 1995 - - - (249,838)
Balance, December 31, 1995 9,733,365 973 6,472,366 (4,940,283)
net loss for the year ended
December 31, 1996 - - - (116,786)
Balance, December 31, 1996 9,733,365 $ 973 $ 6,472,366 $ 5,057,069
The accompanying notes are an integral part of these financial statements.
F-5
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCEPTION ON JULY 6, 1987 THROUGH DECEMBER 31, 1999
Deficit
Accumulated
Additional During the
Common Stock Paid In Exploration
Shares Amount Capital Stage
Balance, January 1, 1997 9,733,365 $ 973 $ 6,472,366 $(5,057,069)
Retirement of shares for
distribution rights (2,187,500) (219) (437,281) -
Shares sold for $1.00 per
share in private place-
ments during the year,
net of $109,925 offering
costs 2,075,000 208 1,964,867 -
Shares issued for services
in connection with the
employment agreement of
the former president
valued at $1.00 400,000 40 399,960 -
Shares issued for
cancellation of debt to
related party, valued at
$.70 per share 357,143 36 249,963 -
Shares issued for exploration,
market making services and
reactivation services
rendered through December
31, 1997, valued at, $1.16,
$1.00 and $.70 per share 1,025,000 102 814,898 -
Net loss for the year
ended December 31, 1997 - - - (1,380,330)
Balance, December 31, 1997 11,403,008 1,140 $ 9,464,773 $ (6,437,399)
The accompanying notes are an integral part of these financial statements.
F-6
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCEPTION ON JULY 6, 1987 THROUGH DECEMBER 31, 1999
Deficit
Accumulated
Additional During the
Common Stock Paid In Exploration
Shares Amount Capital Stage
Balance, January 1, 1998 11,403,008 $ 1,140 $ 9,464,773 $ (6,437,399)
Shares issued for services
and additions to resource
properties at $1.21, $.85
and $.77 995,900 100 834,715 -
Shares issued to retire
distribution rights and
settlement 4,156,250 416 833,569 -
Retirement of shares in
connection with termination
of employment agreement with
the former president (350,000) (35) (349,965) -
Net loss for the year ended
December 31, 1998 - - - (1,167,790)
Balance, December 31, 1998 16,205,158 1,621 10,783,092 (7,605,189)
Shares issued for services
and additions to resource
properties at $1.08 and
$80 160,000 16 156,334 -
Retirement of shares in
connection with termination
of employment agreement
with the former president (49,750) (5) (49,995) -
Net loss for the year ended
December 31, 1999 - - - (849,812)
Balance, December 31, 1999 16,314,908 $ 1,632 $10,889,431 $(8,455,001)
The accompanying notes are an integral part of these financial statements.
F-7
EUROPEAN AMERICAN RESOURCES, INC.
STATEMENTS OF CASH FLOWS
(AN EXPLORATION STAGE COMPANY)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From
July 6,
1987
(Date of
For the Years Ended Inception) to
December 31, December 31,
1998 1999 1999
Cash Flows Operating Activities
Net Loss $(1,167,790) $ (849,812) $(8,455,001)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Depreciation and amortization 8,801 6,567 324,027
Reserve for claim compensation and
settlement 160,667 53,833 1,018,292
Issuance of common stock charged
to expense 356,759 112,350 1,409,109
Adjustments to resource properties
charged to operations - 116,736 1,741,046
Loss on the sale of fixed assets - 2,573 14,755
Earnings on managed foreign
investment - - (190,569)
Losses on marketable securities - - 156,668
Gain on cancellation of long term
debt - related party - - (500,000)
Loss on write off - related party
receivable - - 15,980
Changes in assets and liabilities:
(Increase) decrease in prepaid
rent 2,667 - (52,533)
(Decrease) increase in accounts
payable and accrued expenses (207,714) 76,163 231,850
(Increase) in other assets (11,955) (7,356) (52,164)
(Increase) in deferred offering
costs (62,500) 62,500 -
(Increase) in interest receivable
- affiliate (3,439) 1,821 (1,618)
Total Adjustments 243,286 425,187 4,114,843
Net Cash Used by Operating Activities (924,504) (424,625) (4,340,158)
The accompanying notes are an integral part of these financial statements.
F-8
EUROPEAN AMERICAN RESOURCES, INC.
STATEMENTS OF CASH FLOWS - (CONTINUED)
(AN EXPLORATION STAGE COMPANY)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From
July 6,
1987
(Date of
For the Years Ended Inception) to
December 31, December 31,
1998 1999 1999
Cash Flows From (Used In) Investing
Activities
Investment in foreign managed funds - - (2,250,000)
Foreign investment withdrawals - - 964,208
Investment in marketable securities - - (256,668)
Proceeds from sale of assets - 14,100 188,251
Advance to affiliate (60,000) - (75,980)
Repayment from affiliate 50,000 - 50,000
Resource properties (258,770) (103,341) (3,720,372)
Purchase of fixed assets (12,520) - (359,980)
Net Cash Provided (Used In)
Investing Activities (281,290) (117,441) (5,460,541)
Cash Flows from Financing Activities
Proceeds from issuance of common
stock, net of offering costs of
$622,309 from inception 700,000 - 8,543,252
Proceeds from issuance of notes
payable to related parties 15,000 - 399,093
(Repayment) proceeds of notes
payable - related party (134,093) 494,675 360,582
Proceeds from long term debt -
related parties - - 500,000
Net Cash Provided By Financing
Activities 580,907 494,675 9,802,927
Net Increase in Cash and Cash
Equivalents (624,887) (19,191) 2,228
Cash and Cash Equivalents at Beginning
of Period 646,306 21,419 -
Cash and Cash Equivalents at End of
Period $ 21,419 $ 2,228 $ 2,228
The accompanying notes are an integral part of these financial statements.
F-9
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION (AN EXPLORATION STAGE
COMPANY)
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 December 31, 1999
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. The Company is a Junior Mining Company. Since the
acquisition of these properties, the Company has not commenced planned
principal operations and accordingly has been considered an exploratory
stage company as defined in SFAS No. 7, "Accounting and Reporting for
Development Stage Companies", and it is in the exploration state as
defined in the SEC Guide 7. These financial statements present the
Company as an exploration stage company.
The Company has incurred over $4,400,000 in expenditures on resource
properties since inception which, after adjusting for claims the Company
no longer controlled and geological determinations, were adjusted downward
by $1,624,310 through December 31, 1995. During 1999 the Company further
adjusted other resource properties downward by $116,736 to reflect 192
claims the Company agreed to forego with its joint venture partner
discussed in Note 10. The amounts capitalized as resource properties
include direct exploratory costs since the acquisition of the right to
mine these 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, upon the commencement of the production phase. Costs incurred
on properties later determined to be unproductive are expensed by the
Company as that determination is made. As of December 31, 1999, the
Company has a total $2,795,343 of capitalized resource properties. If
these costs had been expensed rather than capitalized, the deficit
accumulated during the exploration stage at December 31, 1999 would have
been $11,250,344 rather than $8,455,001.
The Company has been in the exploration stage to determine the amount of
proven and/or probable reserves of its resource properties, if any.
During 1997, geological testing indicated that certain reserves of the
Company are probable and in excess of the amounts capitalized. They are
not proven as of December 31, 1999, and estimates of their potential value
are not available at this time. Sufficient capital resources and credit
facilities are available for the Company to maintain its mining claims and
the existing cost structure for personnel and administrative offices for
the near term (defined as one year). Additional capital or financing is
required to complete the Company's exploration program, and its
transition, ultimately, to obtaining profitable operations, is dependent
on future events, the outcome of which is indeterminable.
F-10
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed for
financial statement purposes using the straight line method over the
estimated useful lives of the related assets. The useful related lives of
property and equipment range from 3 to 5 years. For federal income tax
purposes, depreciation is computed under the modified acceleration cost
recovery system.
Statement of Cash Flows
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt investments purchased with a maturity of three months
or less to be cash equivalents.
The following items represent a schedule of non-cash investing and
financing activities:
1999 1998
Issuance of common stock for services
relating to capitalized resource properties $ 44,000 $ 524,540
Issuance of common stock for the
retirement of distribution rights $ - $ 437,500
Operating activities include interest paid of $10,742 and $37,672 for the
years ended December 31, 1999 and 1998 respectively.
Loss per Common Share
The Company accounts for net loss per common share in accordance with the
provisions of Statements of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" ("EPS"). SFAS No. 128 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 effect is antidilutive.
Dividends
The Company has not paid any dividends and any dividends which might be
paid in the future will depend upon the financial requirements of the
Company and other relevant factors.
Reclassification
The financial statements presented for 1997 and from Inception on July 6,
1987 through December 31, 1999 have been reclassified to conform to the
current year's presentation.
F-11
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from those
estimates. These estimates include property and equipment, depreciation,
the carrying value of resource properties and distribution rights payable.
Stock-Based Compensation
The Company accounts for stock based compensation in accordance with SFAS
No. 123, "Accounting for "Stock-Based Compensation," which permits
entities to recognize as expense over the vesting period the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of the Accounting
Principles Board (APB) Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair value-based method, as
defined in SFAS No. 123, had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure required by SFAS No. 123. As such, compensation expense
is generally recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
Resource properties
The Company records its interest in resource properties at cost.
Producing properties will be amortized on the unit-of-production basis.
The ultimate recovery of costs associated with non-producing properties is
dependent upon the discovery and development of economic reserves or the
profitable sale of the properties. If a property is abandoned or sold,
the proceeds on the sale, less the cost of the property and any related
deferred expenditures, will be included in operations at that time. The
Company periodically reviews its mineral properties to ascertain whether
an impairment in value has occurred. Where a property is considered
uneconomic it is written off. At December 31, 1998 the Company had owned
and/or leased the rights to control a total of 850 claims, which are
considered probable and have a value based upon geological determinations
greater than the amount capitalized; yet no reserves are proven.
Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using currently enacted tax rates. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of
operations in the period that includes the enactment date. Because of the
uncertainty regarding the Company's future profitability, the future tax
benefits of its losses have been fully reserved for. Therefore, no
benefit for the net operating loss has been recorded in the accompanying
consolidated financial statements.
F-12
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Fair Value of Financial Instruments
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments",
requires the determination of fair value for certain of the Company's
assets and liabilities. The Company estimates that the carrying values of
its financial instruments approximate fair value.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
In accordance with SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
reviews for the impairment of long-lived assets and certain identifiable
intangibles to be held and used by the Company whenever events and changes
in circumstances indicate that the carrying value of an asset may not be
recoverable.
Other Accounting Pronouncements
The FASB has issued SFAS No. 130, Reporting Comprehensive Income effective
for fiscal years beginning after December 15, 1997, which establishes
standards for the reporting of comprehensive income and its components.
The Company implemented SFAS No. 130 during the year ended December 31,
1998 and as such the effect was not material to its financial position or
results of operations for 1998 or 1999.
NOTE 3 -CLAIM RECEIVABLE
The Company had previously entered into a managed investment agreement
with Schwabische Finanz-und Unternehmensberatung Gmbh (SFU). The
investment consisted of USD $2,250,000 which was being managed by SFU and
was being held in accounts at Dominick & Dominick AG. The agreement
commenced on September 25, 1992 and the funds were restricted from
withdrawal until October 1993. SFU had been notified of the Company's
intent to withdraw the funds and had indicated the funds would be wire
transferred in October 1993. SFU defaulted and did not liquidate the
account as instructed. SFU sent various payments in partial liquidation
totaling US $964,208 which payments were received sporadically through
December 22, 1995. After 1993, the Company increased its effort to
obtain the return of its investment and received confirmation from the
fiduciary of SFU that the funds were still intact. Subsequently the
fiduciary representation has been unsupported and the company believes it
was fraudulent and no underlying funds from the original investment remain
at that time under his control, and furthermore the Company believes its
prospects for collection were materially damaged by the fiduciary's
actions. The Company has filed a claim under German law, against the
fiduciary, for "fraudulent statements" which holds German attorneys
accountable for certain representations as well as requires minimum and
annually adjusted amounts of liability insurance for such claims as a
requirement for licensure. The Company's counsel has advised management
that it is probable they will receive an amount greater than the net
carrying value remaining in the financial statements. Management has also
classified this claim as a long term asset and reserved an amount for both
the recoverability and the costs associated with the claim. The
possibility does exist that the company may not realize any amount should
they not prevail in their action against the attorney. The last records
obtained which showed the funds intact were in 1993 and were invested with
Dominick and Dominick AG. Management has determined to charge the expense
and record the corresponding reserve in the amount of approximately
$804,000 to 1993, the earliest period when the Company actually received
F-13
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
detailed records and statements of its investments. This is consistent
with the maturity date of October, 1993 of the original investment
agreement. In 1997 the Company retained new counsel in Germany to
finalize the recovery of these amounts if any, from the German fiduciary.
The new counsel has advised the Company that the prospects for collection
have improved due to changes in German laws. Counsel has also advised the
Company to reduce the amount of its demand (an amount in excess of the
remaining carrying value) to accelerate recovery. Accordingly, during the
year ended December 31, 1998, the Company has further reserved an
additional $160,667 against this claim. During 1999 was advised that
recovery may be realized within as soon as twelve months and as long as
thirty six months, and therefore further reserved $53,833 representing the
time value of money at 9%.
The Company will record as income any amounts recovered, net of expenses,
above the remaining carrying value of $267,500, only in such period they
were actually realized, yet record as additional expense any further
reserve should the likelihood of recovery diminish.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31, 1999
Office equipment $ 12,520
Less: accumulated depreciation (4,701)
$ 7,819
NOTE 5 - INCOME TAXES
No provision for income taxes have been made for the periods presented as
the Company incurred losses during those periods.
Deferred taxes consist of the following at December 31, 1999:
Total deferred tax assets $1,803,360
Less: Valuation allowance (1,803,360)
Net deferred tax assets $ -
Deferred tax assets are attributable to available net operating loss
carryforwards. The valuation allowance was increased by $288,876 and
$221,124 during the years ended December 31, 1999 and 1998 respectively.
The Company has net operating loss carry forwards of approximately
$5,304,000 which expire in various years through the year 2012. The
amount of the operating loss carry forwards may be subject to annual
limitations limited by IRS regulations as a result of the sale of a
majority interest.
F-14
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - RELATED PARTY TRANSACTIONS
On September 25, 1992, the Company issued 7,000,000 shares of its
restricted common stock for $1,900,000 to a foreign investor, Trent, Ltd,
a Company controlled by a former director, Mr. Jochen A. Brenner. At the
time the shares were issued to Trent they represented approximately 71% of
the issued and outstanding common stock of the Company. In addition, the
Company also issued to Trent a $500,000 convertible debenture bearing
interest at 8%. As a result of the issuance of the common stock and the
convertible debenture, the Company was controlled by Trent. The
accompanying financial statements include only the accounts of the Company
and its subsidiaries and are not consolidated in any way with respect to
Trent nor do they include any of the accounts of Trent. The proceeds from
the stock issuance and debenture remained in the control of Mr. Brenner
and were invested in his name or the names of other entities under his
control in certain pooled investments which were to be invested in foreign
exchange forward contracts. All transactions were to be made at the risk
of Mr. Brenner, relieving the Company and the investment company from any
and all liability. The invested funds were restricted as to withdrawal
until October, 1993. While the invested funds were in the sole control of
Mr. Brenner, he had entered into an agreement with the Company to
liquidate the foreign investments and deliver the funds to the United
States for use by the Company beginning in October 1993. Between January
1, 1994 and December 31, 1995 the company confirmed the amounts with Mr.
Brenner and a German fiduciary; and received partial payments totaling $
964,208. Mr. Brenner failed to return these funds. In 1996 the Company
determined the debenture should be canceled in conjunction with the
managed foreign investments and claim receivable, discussed in Note 3,
retroactively to December 31, 1993.
The Company received all working capital through September 30, 1987 from
stockholder/officers. These parties agreed to have all payments through
September 30, 1987 amounting to $371,883 credited to equity in exchange
for 1,000,000 shares of common stock.
In 1989, pursuant to the private placement of stock, the Company paid
stock offering fees to related parties, including $30,000 paid to Merlin
Equities, Inc., a broker-dealer and an affiliate of the president, at that
time, of the Company. Canopus, Ltd., a London-based entity and principal
shareholder of the Company was paid $300,000. A total of $418,000 was
paid to two officers of Harrier, Inc., a public corporation, for whom an
officer of the Company served as financial consultant in raising equity
funding.
In 1997, the Company leased office space from an affiliate on a month to
month basis via the assumption of the affiliates lease to a third party
from September, 1997 through December 31, 1997. Rent expense paid to the
third party was $4,687.
In 1997 the Company issued 250,000 shares to an affiliate for investment
banking services valued at $290,000.
F-15
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
During 1997, the Company signed a note to a director bearing interest of
11%. Interest charged to expense for this note in 1997 was $30,480. In
March 1998, the Company issued 357,143 shares, valued at $250,000, or $.70
per share, in cancellation of $250,000 of the note due to the related
party. The Company also issued 750,000 shares valued at $525,000, or $.70
per share, which are assignable, for exploration and reactivation
services, performed through December 31, 1997. At December 31, 1997,
$134,093 including interest remained outstanding on this note. The Company
repaid this amount during the first quarter of 1998.
On April 22, 1998, the Company entered into a consulting agreement with
its current CEO which provides for the issuance of common stock in
addition to annualized fees, as amended, of $96,000 per year. During the
year ended December 31, 1998 the president was paid $64,000 under this
agreement. The Company issued 105,000 shares of common stock valued at
$.85 per share, or $89,250, based upon their market value subject to Rule
"144" restrictions. Of this amount $44,625 was added to resource
properties and $44,625 was recorded as stock based compensation based upon
the Company's estimate of where the president directed his efforts.
The Company also agreed to issue 105,000 shares to a director, provided he
remained employed by the Company through April 30, 1999. The director
resigned from employment in an effort to curtail expenses, and remains as
a director today. The Company issued 90,000 restricted shares, valued at
$.85 per share, or $69,300, based upon their market value subject to Rule
"144" restrictions. Of this amount, $34,650 was added to resource
properties and $34,650 was recorded as stock based compensation. The
agreement initially provided for annualized compensation of $72,000 and
during the year ended December 31, 1999 he was paid $27,000 under this
agreement.
In May of 1998, the Company entered into a management agreement for
internal accounting services for $3,000 per month and the issuance of
100,000 restricted shares, valued at $.77 per share, or $77,000 and was
recorded as stock based compensation.
During June of 1998 the Company advanced this investor $60,000 at 8%
interest of which $50,000 was repaid during the year leaving a balance of
$12,234 including accrued interest. During the year ended December 31,
1998 the Company recorded $2,234 of interest income from this loan.
The Company issued 400,000 restricted shares to the chairman and director
for services during the year ended December 31, 1998, valued at $.77 per
share or $308,000, based upon their market value subject to Rule "144"
restrictions. Of this amount $154,000 was added to resource properties
and $154,000 was recorded as stock based compensation.
Credit Facilities Provided By Affiliates
In December, 1998 one shareholder agreed to advance up to $40,000 with
interest at 10% through April 30, 1999, or the completion of the Company's
offering of common stock, whichever occurs first, and its secured by the
Company's resource properties. In 1999 this note was amended to provide
up to $1,000,000 at 12% indefinitely. At December 31, 1999, $300,000 of
principle is outstanding on this note, plus accrued interest of $10,669.
F-16
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In December 1998, an affiliate agreed to make a $500,000 revolving credit
available to the Company with interest at prime plus 2.5% available to
the Company, on an as needed basis, secured by the Company's resource
properties with no specific repayment terms. At December 31, 1999 $55,766
was outstanding. Interest expense on this note was $1,205 during 1999.
During 1999 another affiliate agreed to advance $139,180 for expenses and
cash with interest at 9%. Interest expense was $4,061 under this
agreement for 1999.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In order to maintain the Company's current unpatented mineral lease claims
[See Note 1], the Company must pay an annual rental fee of $100 per claim
to the Bureau of Land Management. The fees have been paid through August
31, 1999. During 1997, some of these properties were "overstaked" by a
third party and the Company has won a stay of decision from the finding of
the Bureau of Land Management(BLM), which has caused this overstaking,
pending the review of the Interior Board of Land Appeals(IBLA) relating to
this claim. The Company does not expect the result of this review,
regardless of outcome, to have an adverse effect on the carrying value of
the resource properties. The Company did however agree to forego its
rights to 192 claims in connection with its joint venture agreement
discussed in Note 10, and has reduced resource properties by $116,736
during 1999.
Royalty (Claim Rental) Commitment
On March 19, 1997 the Company's prior president entered into an option to
purchase previously leased claims from the original lessors of 47
unpatented claims and owner of 62 patented claims. This agreement gave
the Company all patented and unpatented claims for the purchase price of
100,000 shares of the Company's common stock subject to their restricted
legend, and certain accelerated payments under a consulting agreement and
further 10% Net Smelter Return (NSR) less applicable expenses up to
$100,000,000 million dollars from the properties. Additionally, on March
19, 1997 the Company entered into a forty-eight (48) month consulting
agreement with the geological company owned by the original owner of the
patented claims with a monthly retainer of $4,000 and a minimum total of
$192,000 to be paid under this agreement. During 1997, $36,000 was paid
under this agreement for geological efforts and recorded as an addition to
resource properties.
The preceding agreement was canceled and replaced by the current
management and 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. Additionally, the Company agreed to pay advance minimum
royalties of up to $100,000,000 as follows:
F-17
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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.
Other Commitments
During 1997, the Company entered into net smelting agreements for up to
$7,000,000 with former shareholders in exchange for the retirement of
2,187,500 shares. The Company charged $437,500 to common stock and
additional paid in capital as this represented the net estimated value of
the distribution rights based upon the anticipated payments, if any, that
would have been made under the agreement.
In August 1998, a lawsuit was commenced against the Company by German
American Investments Limited ("GAI"). GAI was the assignor of the above
distribution rights granted by the Company to eight of its shareholders in
1997, including its current CEO, Martin Sportschuetz. The settlement was
finalized whereas the Company is to issue 1,312,500 unrestricted shares
and 1,750,000 restricted shares to rescind the distribution agreement and
these were recorded at the original value ascribed to the distribution
rights, an increase of $437,500 in common stock and additional paid in
capital through December 31, 1998. The Company also agreed to issue
1,093,500 restricted shares, valued at one-half of the market price of the
Company's common stock on December 31, 1998, or $.3625 per share, totaling
$396,485 consistent with the value of restricted stock agreed to by the
parties for the recission, which was charged to settlement expense.
On May 8, 1997, the Company entered into an employment agreement with the
former president for a period of seven (7) years, which provided former
annual cash compensation of $144,000, subject to a ten percent (10%)
increase per year and such other increases as the Board of Directors may
determine from time to time at its sole discretion and employee stock
bonuses, including 400,000 shares of common stock, issued to the former
president upon signing, subject to the restrictions of Rule 144 and
thereafter 210,000 shares of common stock were to be issued on each
anniversary for the first, second, third and fourth yearly anniversary of
the contract. Additionally, the agreement called for stock options
entitling the president to purchase up to 1,000,000 shares from 1999
through 2005 at prices ranging $5.00 per shares increasing annually to
$8.50 per share.
F-18
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
On April 22, 1998, the Company terminated the former president. In July
1998, EPAR filed a lawsuit against its former president. This lawsuit was
subsequently settled. The settlement required Mr. Ogilvie to return
400,000 shares of the Company's common stock which he received as a result
of his employment by EPAR, 50,000 of the shares were assigned to the
shareholder who made a significant investment in the Company during 1997.
The Company recorded settlement income of $350,000 based upon the original
value ascribed to these shares. In 1999 the significant shareholder
waived any rights to the assigned shares and the Company recorded $50,000
of settlement income.
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 December 31, 1999 this suit remains outstanding. No
amounts were recorded in the financial statement.
The Company's mining and exploration activities are subject to various
federal, state and local laws and regulations governing the protection of
the environment. These laws and regulations are continually changing and
generally becoming more restrictive. The Company conducts its operation so
as to protect the public health and environment and believes its
operations are materially in compliance with all applicable laws and
regulations. The Company has made, and expects to make in the future,
expenditures to comply with such laws and regulations.
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.
NOTE 8 - COMMON STOCK
During 1997, the Company retired 2,187,500 shares of common stock in
exchange for distribution rights, valued at $437,500.
Effective for December 31, 1998 the Company agreed to issue 1,312,500
unrestricted shares and 1,750,000 restricted shares to rescind the
distribution agreement. Additionally, 1,093,500 restricted shares valued
at one-half of the market price of the Company's common stock consistent
with the value of restricted stock agreed to by the parties, which
resulted in a $396,485 charge to settlement expense.
In 1997 the Company sold 2,075,000 shares during the year in exempt
transactions for $1.00 a share, which, net of offering costs of $109,925,
generated net proceeds to the Company of $1,265,075 and a $700,000 stock
subscription receivable, which was collected on March 4, 1998.
Also in 1997, the Company issued 400,000 shares to the president in
connection with his employment agreement as discussed in Note 7. At
December 31, 1997 resource properties were increased $200,000 and $200,000
was charged to the statement of operations for the year ended December 31,
1997. These shares were valued at $1.00, which represented the most
recent selling price of restricted shares.
F-19
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In 1998 the Company terminated the president and both parties commenced
legal action which resulted in the return to the Company of 350,000
shares. The Company recorded settlement income of $350,000 based upon the
original value ascribed to the shares.
In 1997, the Company issued 250,000 shares to an affiliate for investment
banking services which were valued at $1.16 or $290,000, which represented
the same proportionate discount for recent sales of restricted shares to
the market price at the time of the transaction.
In 1997, the Company issued 25,000 shares to a finder, valued at $1,00 per
share, with a like amount charged to additional paid in capital. These
shares were valued at the most recent selling price of restricted shares.
In March, 1998, the Company issued 357,143 shares valued at $.70 in
cancellation of $250,000 debt with an affiliate. The shares outstanding
and the amounts "Due to Related Party" at December 31, 1997 have been
adjusted to reflect his transaction. The value ascribed to these shares
was adjusted for the same proportionate discount for restricted shares in
relation to the market price at the time of the transaction.
In March 1998, the Company issued 750,000 shares to an affiliate for
exploration and reactivation services performed through December 31, 1997
valued at $.70 per share or $525,000. At December 31, 1997 resource
properties were increased $175,000 and $350,000 was charged to general and
administrative expenses in the statement of operations for the year ended
December 31, 1997. The value ascribed to these shares was adjusted for
the same proportionate discount for restricted shares in relation to the
market price at the time of the transaction.
As discussed in Note 6, the Company issued 100,000 restricted shares
valued at $.77 per share, or $77,000; 105,000 restricted shares valued at
$.85 per share, or $89,250; 90,000 restricted shares valued at $.85 per
share, or $69,300 and 400,000 restricted shares valued at $.77 per share,
or $308,000 to various members of the Company's management team. Of these
amounts $233,275 was added to resource properties and $310,275 was
recorded as stock based compensation.
Pursuant to a 1997 agreement, the Company issued 194,900 unrestricted
shares valued at $1.21 per share, or $201,165, which was recorded as an
addition to resource properties in 1998.
In 1999 the Company issued 55,000 shares valued at .80 per share of
$44,000 for geological services and advanced royalties which were recorded
as additions to resource properties.
In 1999 the Company issued 105,000 shares valued at $1.08 to the president
consistent with his employment agreement and recorded the same as stock
based compensation.
Reserved Shares
The Company granted options to an accredited investor to purchase, at $.50
per share, up to 1,225,000 shares of restricted common stock. The option
period begins on September 3, 1999 and runs through September 3, 2000 or
sooner, should the Company sell the control of either its 62 patented
claims or a majority of its outstanding common stock to a single
purchaser.
F-20
EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The Company also granted an accredited investment firm options to
purchase, also at $.50 per share up to 675,000 shares of restricted common
stock. The option period begins on September 3, 1999 and runs through
September 3, 2000 or sooner, should the Company sell the control of either
its 62 patented claims or a majority of its outstanding common stock to a
single purchaser.
Pursuant to a 1997 agreement, 242,600 shares are expected to be issued in
1999 for services in connection with the Company's resource properties.
In the case of a change in control, whereby the current management would
be eliminated, the company agrees to first issue an option to the
president to purchase from 189,000 to 201,000 shares of the Company's
common stock at an exercise price of $.25.
In February 2000 in connection with the earn-in joint venture agreement
the Company pledged 1,000,000 shares as collateral to the holder of the
royalty/rental commitment.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of
December 31, 1999, are as follows:
1999
Carrying Fair
Assets: Amount Value
Cash and Equivalents $ 2,228 $ 2,228
Claim receivable 267,500 267,500
Liabilities:
Accounts payable and accrued expenses $231,850 $231,850
Notes payable to related parties $509,675 $509,675
NOTE 10 - SUBSEQUENT EVENTS
Earn-in and Joint Venture Agreement
On February 18, 2000, the Company entered into certain 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.
F-21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
European American Resources, Inc.
(Registrant)
By: /s/ Martin R. Sportschuetz
Martin R. Sportschuetz, President & CEO
Dated: April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME CAPACITY
/s/ Martin R. Sportschuetz
Martin R. Sportschuetz President & CEO
Dated: April 14, 2000
F-23
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