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, 1999Commission File No.33-2392-D
European American Resources, Inc. (formerly Merlin Mining Co.)
(Exact name of registrant as specified in its charter)
Delaware 87-0443214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
400 Cleveland Street, Suite 901, Clearwater, FL 33755
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (813) 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 September 30, 1999 is shares all of one class of $.0001
par value common stock.
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
INDEX
PAGE
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - September 30, 1999 1
Consolidated Statements of Operations - Three
And Nine Months Ended September 30, 1999 2
Consolidated Statement of Cash Flows - Nine
Months Ended September 30, 1999 4
Notes to Financial Statements 5-7
Management's Discussion and Analysis of financial
conditions and results of operations 8-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits on Reports on Form 8-K 10
Signature Page 11
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
Assets
Current Assets
Cash and cash equivalents $ 27,909
Prepaid rent on mining claims 70,400
Note receivable from affiliate 13,439
Total Current Assets 111,748
Resource properties 2,852,111
Property and equipment, net of accumulated
depreciation of $2,934 9,586
Other Assets
Investments, net of valuation reserve of $964,459 321,333
Deferred offering costs 62,500
Other assets 52,164
Total Other Assets 435,997
Total Assets 3,409,442
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 187,803
Notes to related parties 280,500
Total Current Liabilities 468,303
Stockholder's 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, 16,260,158 shares issued
and outstanding 1,626
Additional paid in capital 10,827,087
Deficit accumulated during the exploration stage (7,887,574)
Total Stockholder's Equity 2,941,139
Total Liabilities and Stockholder's Equity $3,409,442
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended
September 30,
1999 1998
Revenue
Sales $ -$ -
Operating Expenses
Operating costs 58,933 61,658
General and administrative 200,464 451,136
Depreciation 4,800 7,500
Stock based compensation - 310,275
Total Operating Expenses 264,197 830,569
Other Income (Expense)
Interest Income 269 18,686
Interest Expense (15,874) (3,073)
Loss on Disposal of Equipment (2,583) -
Total Other Income (Expense) (18,188) 15,613
Loss before income taxes (282,385) (814,956)
Income tax expense - -
Net Loss $ (282,385)$ (814,956)
Average Common Shares Outstanding 16,228,380 11,611,076
Basic Loss Per Share $ (.0174) $ (.0700)
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
September 30,
1999 1998
Revenue
Sales $ -$ -
Operating Expenses
Operating costs 19,533 22,508
General and administrative 55,329 174,579
Depreciation 400 2,500
Stock based compensation - 265,650
Total Operating Expenses 75,262 465,237
Other Income (Expense)
Interest Income 2 3,781
Interest (Expense) (11,326) -
Loss on Disposal of Equipment (2,583) -
Total Other Income (Expense) (13,907) 3,781
Loss before income taxes (89,169) (461,456)
Income tax expense - -
Net Loss $ (89,169) $(461,456)
Average Common Shares Outstanding 16,260,158 12,128,130
Basic Loss Per Share $ (.0055) $ (.038)
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
For The
Nine Months Ended
September 30,
1999 1998
Cash Flows Operating Activities
Net Loss $ (282,385) $ (814,956)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Issuance of common stock charged to expense - 310,275
Depreciation 4,800 7,500
Loss on disposal of equipment 2,583 -
Changes in assets and liabilities:
(Increase) in prepaid rent (17,867) (15,842)
(Increase) in accrued interest receivable - (1,455)
(Increase) in other assets (7,356) (26,166)
Increase (decrease)in accounts payable
and accrued expenses 45,381 (153,732)
Net Cash Used By Operating Activities (254,844) (694,376)
Cash Flows From Investing Activities
Proceeds for fixed assets 834 -
Cash outlays for additions to resource properties (5,000) (352,711)
Additions to property & equipment - (12,520)
Increase in other receivables - (60,000)
Net Cash (Used In) Investing Activities (4,166) (425,231)
Cash Flows From Financing Activities
Advances (repayments to) from related parties 265,500 (134,093)
Proceeds from stock subscription - 700,000
Advances to officer - (8,000)
Net Cash Provided By Financing Activities 265,500 557,907
Net (Decrease)Increase in Cash and Cash Equivalents 6,490 (561,700)
Cash and Cash Equivalents at Beginning of Period 21,419 646,306
Cash and Cash Equivalents at End of Period $ 27,909 $ 84,606
<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 nine month period ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. 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,
1998.
Schedule of Non Cash Investing and Financing Activities:
For the nine months ended September 30,
1999 1998
Common stock issued for
Additions to resource properties $ 44,000 $489,040
Cancellation of accounts payable
in exchange for fixed assets $ 13,266
<PAGE>
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 September 30, 1999, the Company has
recorded $2,852,111 in resource properties. If these remaining costs had
been expensed rather than capitalized, the accumulated deficit at
September 30, 1999 would have been $10,739,685 rather than $7,887,574.
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 September 30, 1999 totaled $280,500 and
bear interest at rates from 12% to prime plus 2.5%. Interest expense on
these loans was $8,864 for the nine months ended September 30, 1999.
<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, 1999
The Company's results of operations for the nine months ended September 30, 1999
consisted of a loss of $282,385 as compared to September 30, 1998 which
consisted of a loss of $814,956.
On October 9, 1999 the Company executed an "Expression of Interest" to enter in
a definitive earn-in-exploration and joint venture agreement with Homestake
Mining Company of California ("Homestake") regarding certain patented and
unpatented mining claims and millsites, which represent approximately 90% of
the value attributed to the Company's resource properties as of September 30,
1999 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. The parties have 90 days from
October 9, 1999 to complete the final contract, and management does not
anticipate any difficulty in completing the agreement.
The Company has also negotiated the general terms of offering up to $8,000,000
worth of its Company stock with the assistance of an underwriter, the price per
share to be determined at the time of the offering which, should the Company not
enter into an agreement with a co-venturer, which was originally expected to
occur in the third or forth quarter of 1999, and will be rescheduled after the
above contract is finalized.
Liquidity and Working Capital
The Company's working capital remained a deficit during the quarter ended
September 30, 1999. At September 30, 1999 the Company had a working capital
deficit of $356,555 as compared to a working capital deficit of $83,296 at
December 31, 1998.
To supplement working capital the Company has obtained 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 $68,500 under this agreement. Additionally, 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, 1999 the Company has
borrowed $200,000 under this agreement.
Also, during the nine months ended September 30, 1999 the Company invested
$44,000 in value of its common stock and $5,000 in cash outlays for a total
increase of $49,000 in resource properties as compared to $489,040 of stock and
$352,711 of cash outlays during the same period last year.
<PAGE>
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
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 subject to the
issuance of shares. The initial settlement required that EPAR
rescind the distribution agreements and return 2,187,500
unrestricted shares to GAI, and issue 2,187,500 warrants exercisable
at $0.50 to the GAI investors. The settlement 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. 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 rescission, which was charged to settlement
expense during the year end December 31, 1998. The shares have yet
to be issued as of this filing.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
<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: November 22, 1999 By: /s/ Martin Sportschuetz
Martin Sportschuetz, CEO
<PAGE>
FINANCIAL SUMMARY
- -----END PRIVACY-ENHANCED MESSAGE-----
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,909
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 111,748
<PP&E> 12,520
<DEPRECIATION> (2,934)
<TOTAL-ASSETS> 3,409,442
<CURRENT-LIABILITIES> 468,303
<BONDS> 0
0
0
<COMMON> 1,626
<OTHER-SE> 2,939,513
<TOTAL-LIABILITY-AND-EQUITY> 3,409,442
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 266,511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,874
<INCOME-PRETAX> (282,385)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (282,385)
<EPS-BASIC> (.017)
<EPS-DILUTED> (.017)
</TABLE>
