UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter ended September 30, 2000 Commission File No.33-2392-D
European American Resources, Inc. (formerly Merlin Mining Co.)
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(Exact name of registrant as specified in its charter)
Delaware 87-0443214
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
400 Cleveland Street, Suite 901, Clearwater, FL 33755
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (727) 298 - 0636
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
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Transitional Small Business Disclosure Format:
Yes: No: X
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The number of shares outstanding of each of the registrant's classes of common
stock as of September 30, 2000 is 16,694,908 shares all of one class of $.0001
par value common stock.
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(FORMERLY MERLIN MINING CO.)
INDEX
PAGE
PART I FINANCIAL INFORMATION
Balance Sheet - September 30, 2000 1
Statements of Operations - Nine and Three
Months Ended September 30, 2000 and 1999 2-3
Three Statement of Cash Flows - Nine
Months Ended September 30, 2000 and 1999 4
Notes to Financial Statements 5-8
Management's Discussion and Analysis of financial
conditions and results of operations 9-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits on Reports on Form 8-K 11
Signature Page 12
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EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 116
Other prepaid expenses 15,000
------------
Total Current Assets 15,116
------------
Exploration joint Venture 2,380,265
------------
Property and equipment, net of accumulated
depreciation of $6,579 5,941
------------
Other Assets
Investments, net of valuation reserve of $1,018,292 267,500
Other assets 500
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Total Other Assets 268,000
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Total Assets 2,669,322
============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 400,262
Notes payable to related parties 350,000
------------
Total Current Liabilities 750,262
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Stockholders' Equity
Preferred stock; $.0001 par value, 25,000,000
shares authorized, no shares issued or
outstanding
Common stock; $.0001 par value, 250,000,000
shares authorized, 16,694,908 shares issued
and outstanding 1,670
Additional paid in capital 11,155,956
Deficit accumulated during the exploration stage (9,238,056)
------------
Total Stockholders' Equity 1,919,060
------------
Total Liabilities and Stockholders' Equity $ 2,669,322
============
See notes to the financial statements.
1
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EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
STATEMENT OF OPERATIONS
(Unaudited)
For the Nine Months Ended
September 30,
2000 1999
---------- ----------
Revenue
Sales $ -- $ --
------------ ------------
Operating Expenses
Operating costs 64,533 58,933
General and administrative 588,493 200,464
Stock based compensation 85,313 --
Depreciation and amortization 1,878 4,800
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Total Operating Expenses 740,217 264,197
------------ ------------
Loss from operations (740,217) (264,197)
Other Income (Expense)
Interest income -- 269
Interest expense (42,838) (15,874)
Loss on disposal of equipment -- (2,583)
------------ ------------
Total Other Income (Expense) (42,838) (18,188)
------------ ------------
Loss before income taxes (783,055) (282,385)
Income tax expense -- --
------------ ------------
Net Loss $ (783,055) $ (282,385)
============ ============
Basic Loss per share $ (.05) $ (.02)
============ ============
Average common shares outstanding 16,489,209 16,228,380
============ ============
See notes to the financial statements.
2
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EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30,
2000 1999
---------- ----------
Revenue
Sales $ -- $ --
------------ ------------
Operating Expenses
Operating costs 3,185 19,533
General and administrative 216,889 55,329
Stock based compensation -- --
Depreciation and amortization 626 400
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Total Operating Expenses 220,700 75,262
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Loss from operations (220,700) (75,262)
Other Income (Expense)
Interest income -- 2
Interest expense (14,375) (11,326)
Loss on disposal of equipment -- (2,583)
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Total Other Income (Expense) (14,375) (13,907)
Loss before income taxes (235,075) (89,169)
Income tax expense -- --
------------ ------------
Net Loss $ (235,075) $ (89,169)
============ ============
Basic Loss per share $ (.01) $ (.01)
============ ============
Average common shares outstanding 16,694,908 16,260,158
============ ============
See notes to the financial statements.
3
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EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
2000 1999
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Cash Flows Used by Operating Activities
Net Loss $(783,055) $(282,385)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation 1,878 4,800
Loss on disposal of equipment -- 2,583
Non-cash charges to operating expenses
foregone mine claims 1,933 --
Non-cash charges for stock based compensation
and expenses paid by stock 266,563 --
Changes in assets and liabilities:
Decrease (increase)in prepaid expenses 37,533 (17,867)
Decrease (increase) in other assets -- (7,356)
Increase in accounts payable
and accrued expenses 168,412 45,381
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Net Cash Used by Operating Activities (306,736) (254,844)
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Cash Flows from Investing Activities
Proceeds for fixed assets -- 834
Cash received from (additions to) resource
properties 72,966 (5,000)
Proceeds from foregone mine claims 391,333 --
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Net Cash from Investing Activities 464,299 (4,166)
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Cash Flows from(Used in) Financing Activities
Advances from (repayments to) related parties (159,675) 265,500
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Net Cash Provided By (Used in) Financing Activities (159,675) 265,500
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Net Increase (Decrease) in Cash and Cash Equivalents (2,112) 6,490
Cash and Cash Equivalents at Beginning of Period 2,228 21,419
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Cash and Cash Equivalents at End of Period $ 116 $ 27,909
========= =========
See notes to the financial statements.
4
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EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For nine months ended September 30, 2000)
(Unaudited)
A. BASIS OF PRESENTATION
The Company was incorporated in the State of Delaware on July 6, 1987.
Since inception, the Company acquired mining rights to mine precious
metals for as many as approximately 6,700 claims; as of September 30,
2000 the Company is the holder of approximately 103 patented,
unpatented lode, mill sites and placer claims on certain properties
located throughout the State of Nevada, as the company waved it's
rights to approximately 727 claims and received a refund of $391,33 of
BLM fees for claims and costs with an aggregate carrying value of
$413,281, resulting in a $21,940 charge to operating expenses during
the quarter ended June 30, 2000. In February 2000, the Company
contracted its rights to the 103 claims to a joint venture with
Homestake Mining. The Company is a Junior Mining Company.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended
September 30, 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 nine
months ended
September 30,
2000 1999
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Interest paid $9732 $ -
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5
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EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For nine months ended September 30, 2000)
Unaudited
B. EXPLORATION JOINT VENTURE AND OTHER RESOURCE PROPERTIES
The Company has incurred material amounts for direct exploratory
activity costs since acquisition of the right to these mining
properties. In accounting for these costs the Company selected an
accounting policy which capitalizes exploratory costs rather than
expensing them as incurred. Amortization of these costs is to be
calculated by the units of production method based upon proven or
probable reserves. Costs incurred on properties later determined to be
unproductive are expensed by the Company as that determination is made.
In February 2000, the Company executed earn-in and joint venture
agreements with Homestake Mining for an area of interest which contains
103 of EPAR's Prospect Mountain claims pursuant to a letter of intent
signed in October, 1999. Homestake agreed to contribute approximately
30 claims in the area of interest. Homestake is the manager of the
joint venture and committed in stage one to expend a minimum of
$300,000 through the end of 2000. In total, Homestake has committed to
spend a minimum of $2,000,000 through 2002 and in turn will be vested
with 51% in the joint venture at that juncture. After completion of a
feasibility study with the recommendation to enter mining, Homestake
will become 70% vested. As of June 30, 2000, the Company has recorded
$2,380,265 in total resource properties, all of which are included in
exploration joint venture net of $72,966 received as a reimbursement
from Homestake in connection with the joint venture. During the quarter
ended June 30, 2000, the Company forgone 727 claims with a carrying
value of $413,282, including cash expenses of $20,015, and received a
refund of prior fees paid to the BLM totaling $391,333, resulting in a
charge to operating expenses of $21,948. If these remaining costs had
been expensed rather than capitalized, the accumulated deficit at June
30, 2000 would have been $11,618,321 rather than $9,238,056.
The Company has been in the exploration stage to determine the amount
of proven or probable reserves of its resource properties, if any.
Since December 31, 1997, the Company was informed by its geologist that
sufficient testing was completed to indicate the Company's reserves are
probable and in excess of the amounts capitalized, yet since they are
not yet proven, estimates of their potential value are not available at
this time.
C. RELATED PARTY TRANSACTIONS
Amounts due to related party at June 30, 2000 totaled $350,000 and bear
interest at rates from 12% to prime plus 2.5%. Interest expense on
these loans was $42,838 for the nine months ended September 30, 2000.
6
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EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For nine months ended September 30, 2000)
(Unaudited)
D. COMMITMENTS AND CONTINGENCIES
Royalty (Claim Rental) Commitment
On May 26, 1998, the Company acquired 62 patented claims and mill sites
and the rights to 47 unpatented claims on Prospect Mountain. In
connection with this purchase, the Company paid the seller $128,000 to
buy out the consulting commitment which is included in resource
properties, and $19,300 for repayment of additional filing fees which
may be subject to reimbursement to the Company; this amount is included
in other assets. The Company also issued 106,000 shares to the seller
and a company he controls, which were valued at $90,100 or $.85 per
share, and a like amount was recorded as an addition to resource
properties. 56 of the 62 patented claims and the 47 unpatented claims
were contributed by the Company to the joint venture and it is expected
that this commitment will be satisfied from the exploration of the
joint venture properties. Additionally, the Company agreed to pay
advance minimum royalties of up to $100,000,000 as follows:
1) $15,000 on the closing date
2) $50,000 on or before the first anniversary
3) $90,000 on or before the second anniversary
4) $120,000 on or before the third anniversary
5) $150,000 on or before the fourth anniversary
6) $200,000 on or before the fifth anniversary and
$200,000 each year thereafter.
This commitment ends when a total of $100,000,000 has been paid,
including net smelting returns, or should the Company pay the seller,
at the Company's discretion, $27,000,000 prior to May 26, 2003.The
above advance on minimum royalties will be accelerated when the Company
begins to produce extraction revenues from these properties and the net
smelting returns, which are 4% in the case when the average price of
gold (London quote) in each production quarter exceeds $400 per ounce
and 3% in the case when the average price is less than $400 per ounce;
exceeds the annual minimum. In connection with the earn-in and joint
venture agreement, the Company assigned those claims to the seller with
the same commitment as the royalty commitment in the form of a rental
commitment.
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.
7
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EUROPEAN AMERICAN RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(For nine months ended September 30, 2000)
(Unaudited)
E. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, which amends the accounting and
reporting standards of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, for certain derivative instruments and hedging activities,
SFAS No. 133, was previously amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133, which deferred the effective date of SFAS No. 133 to fiscal
years commending after June 15, 2000. The Company will adopt SFAS No. 138
concurrently with SFAS No. 133, however, management does not believe that such
adoptions will have a material impact on the Company's results of operations.
In March 2000, the FASB issued Interpretation (FIN) No.44, "Accounting for
Certain Transactions Involving Stock Compensation-an Interpretation of APB
Opinion No. 25" "FIN 44 clarifies the definition of employees, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequences of various modifications to the terms of previously fixed stock
option or award and the accounting for an exchange of stock compensation awards
in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in the Interpretation cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The Company adopted the provisions
of FIN 44 as of July 1, 2000.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements, as well as information relating to the plans of the Company's
current management.
RESULTS OF OPERATIONS AND CURRENT METHOD OF OPERATION
Nine Months Ended September 30, 2000 vs. September 30, 1999
The Company's results of operations for the nine months ended September 30, 2000
consisted of a loss of $783,055 as compared to September 30, 1999 which
consisted of a loss of $282,385. This represents a loss per share of $.05 for
the nine months ended September 30, 2000 vs. $(.02) for September, 1999. The
primary increase in expenses were general and administrative, which were
$588,493 in 2000 vs. $200,464 in 1999. These include $181,250 of Consulting fees
paid in stock during 2000 compared to none for 1999. Interest expense was
$42,838 for the nine months ended September 30, 2000 vs. $15,874 for the nine
months ended September 30, 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 all of the value attributed to the Company's resource properties as of
June 30, 2000 located on Prospect Mountain in Eureka County Nevada.
Generally the terms outlined provide for Homestake to commit to at least
$2,000,000 of exploration expenditures for an undivided 51% interest in the
properties with the exclusive option to acquire up to a 70% interest in the
joint venture extraction of the properties. Homestake has also agreed to
contribute approximately 30 claims in the area of interest.
The Company dropped an appeal on certain claims and received the refund of
certain fees which approximated the value of other resource properties, and if
these claims are not re-staked then the only remaining resource properties of
the Company will remain in the joint venture.
The Company plans on pursuing the joint venture and other opportunities in the
extractive industries.
9
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Liquidity and Working Capital
The Company's working capital remained a deficit during the quarter ended
September 30, 2000. At September 30, 2000 the Company had a working capital
deficit of $735,146 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 $50,000 under this agreement. 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 September 30, 2000 the Company has borrowed $300,000
under this agreement. Management is also considering the issuance of its common
stock, or otherwise increase equity, in private placement transactions, intended
to be exempt from registration, to Sophisticated Investors to supplement its
working capital.
Forward looking and other statements
Forward looking statements above and elsewhere in this report that suggest that
the Company will increase revenues through its 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.
10
<PAGE>
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 September
30, 2000 this suit remains outstanding. No amounts were
recorded in the financial statement.
Other than the Utah suit above, we are not a party to any
material legal proceedings.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
October 26, 2000 reporting the change in President and CEO to
Barry N. Klein on form 8-K.
Exhibit 27; enclosed herewith page 13.
11
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12
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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.)
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Dated: November 15, 2000 By: /s/ Barry N. Klein
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Barry N. Klein, CEO
