UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter ended June 30, 1998 Commission File No.33-2392-D
European American Resources, Inc. (formerly Merlin Mining Co.)
(Exact name of registrant as specified in its charter)
Delaware 87-0443214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
91 South Main Street, Eureka, NV 89316
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (727) 298 - 0636
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
Transitional Small Business Disclosure Format:
Yes: X No:
The number of shares outstanding of each of the registrant's classes of common
stock as of June 30, 1998 is 11,808,908 shares all of one class of $.0001 par
value common stock.
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
INDEX
PAGE
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - June 30, 1998 1
Consolidated Statements of Operations - Six
Months Ended June 30, 1998 and June 30, 1997 2
Consolidated Statements of Operations - Three
Months Ended June 30, 1998 and June 30, 1997 3
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1998 4
Notes to Financial Statements 5-7
Management's Discussion and Analysis of financial
conditions and results of operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits on Reports on Form 8-K 9
Signature Page 10
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED BALANCE SHEET
June 30, 1998
Assets
Current Assets
Cash and cash equivalents $ 402,556
Prepaid rent on mining claims 16,050
Other receivable 60,250
Total Current Assets 478,856
Resource properties 2,638,619
Property and equipment, net of accumulated
depreciation of $35,211 32,870
Other Assets
Investments, net of valuation reserve of $803,792 482,000
Other assets 52,653
Due From Officer 8,000
Total Other Assets 542,653
Total Assets $3,692,998
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 236,469
Total Current Liabilities 236,469
Distribution rights payable 437,500
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, 11,808,908 shares issued
and outstanding 1,181
Additional paid in capital 9,809,747
Deficit accumulated during the exploration stage (6,791,899)
Total Stockholders' Equity 3,019,029
Total Liabilities and Stockholders' Equity $3,692,998
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended
June 30,
1998 1997
Revenue
Sales $ -$ -
Operating Expenses
Operating costs 39,150 44,470
General and administrative 277,557 75,050
Depreciation and amortization 5,000 -
Stock based compensation 44,625 -
Total Operating Expenses 366,332 119,520
Loss from operations (366,332) (119,520)
Other Income(Expense)
Interest income 14,905 427
Interest (expense) (3,073) -
Total Other Income(Expense) 11,832 427
Loss before income taxes (354,500) (119,093)
Income tax expense - -
Net Loss $ (354,500)$ (119,093)
Basic Loss per share $ (.031)$ (.012)
Average common shares outstanding 11,505,838 9,733,365
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended
June 30,
1998 1997
Revenue
Sales $ - $ -
Operating Expenses
Operating costs 19,575 29,124
General and administrative 140,060 11,321
Depreciation and amortization 2,500 -
Stock based compensation 44,625 -
Total Operating Expenses 206,760 40,445
Loss from operations (206,760) (40,445)
Other Income(Expense)
Interest income 6,824 427
Interest (expense) (3,073) -
Total Other Income(Expense) 3,751 427
Loss before income taxes (203,009) (40,018)
Income tax expense - -
Net Loss $ (203,009)$ (40,018)
Basic Loss per share $ (.017)$ (.004)
Average common shares outstanding 11,608,669 9,733,365
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended
June 30,
1998 1997
Cash Flows Operating Activities
Net Loss $(354,500)$ (119,093)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Stock based compensation 44,625 -
Depreciation 5,000 -
Changes in assets and liabilities:
Decrease (increase) in prepaid rent 39,150 (3,631)
(Increase) in accrued interest receivable (250) -
(Increase) in other assets (19,800) -
(Decrease) increase in accounts payable
and accrued expenses (126,934) 66,356
Net Cash Used by Operating Activities (412,709) (56,368)
Cash Flows From Investing Activities
Additions to resource properties (318,428) (56,081)
Additions to property and equipment (10,520) -
Increase in other receivable (60,000) -
Net Cash (Used In) Investing Activities (388,948) (56,081)
Cash Flows from Financing Activities
Advances from (repayments to) related party (134,093) 112,000
Proceeds from stock subscription 700,000 -
Advances to officer (8,000)
Net Cash Provided By Financing Activities 557,907 112,000
Net (Decrease) in Cash and Cash Equivalents (243,750) (449)
Cash and Cash Equivalents at Beginning of Period 646,306 951
Cash and Cash Equivalents at End of Period $ 402,556 $ 502
<PAGE>
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For the year ending December 31, 1997, and all
periods presented thereafter, the Company adopted 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. 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,
1997.
Schedule of Non Cash Investing and Financing Activities:
For the six months ended June 30,
1998 1997
Common stock issued for
Additions to resource properties $300,390 -0-
B. 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. As of June 30, 1998, the Company has
recorded $2,638,619 in resource properties. If these remaining costs had
been expensed rather than capitalized, the accumulated deficit at June 30,
1998 would have been $9,183,040 rather than $6,791,899.
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, 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.<PAGE>
C. DURING THE YEAR, THE COMPANY ADOPTED
FASB STATEMENT NO. 130 - REPORTING COMPREHENSIVE INCOME.
Statement No. 130 requires the reporting of comprehensive income and its
components in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. To date, FASB Statement No.
130 does not have a material effect on the Company's financial position or
the results of operations.
D. RELATED PARTY TRANSACTIONS
Amounts due to related party at December 31, 1997, which total $134,093
including interest were repaid during the quarter ended March 31, 1998.
During the quarter the Company advanced $8,000 to the CEO in connection
with his moving to the United States. This advance has no specific
repayment terms.
E. DURING THE QUARTER ENDED JUNE 30, 1998, THE COMPANY ENTERED INTO A
SIGNIFICANT ROYALTY COMMITMENT AND OTHER COMMITMENTS.
Royalty Commitment
On May 26, 1998, the Company acquired the rights to 62 patented claims and
mill sites and approximately 50 unpatented claims. In connection with this
purchase, the Company paid the seller $128,000 to buy out a 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 and 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:
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, at the Company's
discretion, the seller $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.
E. DURING THE QUARTER ENDED JUNE 30, 1998, THE COMPANY ENTERED INTO A
SIGNIFICANT ROYALTY COMMITMENT AND OTHER COMMITMENTS.
(continued)
Other Commitments
During the period, the Company entered into employment agreements which
provide for the issuance of common stock in addition to base salary for the
employees. 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 employees direct their efforts. The
Company also agreed to issue 105,000 shares, provided one of the employees
remains employed by the Company through April 30, 1999. The agreements
also provided for options to purchase 366,000 shares at $.25 should the
Company experience a change in control whereby the current management be
eliminated.
Pursuant to a 1997 agreement, the Company issued 194,900 shares valued at
$.85 per share or $165,665, which was recorded as an addition to resource
properties.
<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
Six Months Ended June 30, 1998
The Company's results of operations for the six months ended June 30, 1998
consisted of a loss of $354,500 as compared to June 30, 1997 which consisted of
a loss of $119,093. The Company continued its effort to establish a value of
its resource properties, and although they have been informed that
realization is probable, formal values and final estimates of reserves have
not been proven.
During the quarter the Company entered into a significant royalty commitment in
connection with the acquisition of certain claims discussed in Note E.
On July 6, 1998, the Company signed a letter of intent, subject to due diligence
by the co-venturer for 90 days, to undertake a 50% profit sharing, after
recovery of capital costs associated with the property; recovery extraction
project for certain tailing and dump rock areas on the Company's properties,
with estimated tonnage of economic grade varying from 500,000 to 700,000 tons.
Liquidity and Working Capital
The Company's working capital declined during the quarter ended June 30, 1998.
At June 30, 1998 the Company had a working capital of $242,387 as compared to
working capital of $927,510 at December 31, 1997.
Also, during the six months ended June 30, 1998 the Company invested $618,818 in
resource properties as compared to $89,259 during the same period last year.
YEAR 2000 ISSUES
Many computer systems and software programs, including several used by the
Company may require modification and conversion to allow date code fields to
accept dates beginning with the year 2000. Major system failures or erroneous
calculations can result if computer systems are not year 2000 compliant.
The Company is in the process of evaluating the computer systems they now have
in use and does not anticipate a major undertaking to be compliant.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company instituted legal proceedings in Nevada, on July 9, 1998,
against the former president, alleging breach of contract and breach
of fiduciary duty. The suit seeks to recover undisclosed damages as
well as 400,000 shares of stock issued to the former president.
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
Form 8 dated April 29, 1998 disclosing changes in management and
directors.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant, caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EUROPEAN AMERICAN RESOURCES, INC.
FORMERLY MERLIN MINING CO.
Dated: August 31, 1998 By: /s/ Martin Sportschuetz
Martin Sportschuetz, CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 402,556
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 478,856
<PP&E> 68,081
<DEPRECIATION> (35,211)
<TOTAL-ASSETS> 3,692,998
<CURRENT-LIABILITIES> 236,469
<BONDS> 0
0
0
<COMMON> 1,181
<OTHER-SE> 3,017,848
<TOTAL-LIABILITY-AND-EQUITY> 3,692,998
<SALES> 0
<TOTAL-REVENUES> 14,905
<CGS> 0
<TOTAL-COSTS> 366,500
<OTHER-EXPENSES> 3,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (354,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (354,500)
<EPS-PRIMARY> (.031)
<EPS-DILUTED> 0
</TABLE>
