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, 1999 Commission File No.33-2392-D
European American Resources, Inc. (formerly Merlin Mining Co.)
(Exact name of registrant as specified in its charter)
Delaware 87-0443214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
400 Cleveland Street, Suite 901, Clearwater, FL 33755
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (727) 298 - 0636
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
Transitional Small Business Disclosure Format:
Yes: X No:
The number of shares outstanding of each of the registrant's classes of common
stock as of June 30, 1999 is 16,260,158 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
Consolidated Balance Sheet - June 30, 1999 1
Consolidated Statements of Operations - Six and Three
Months Ended June 30, 1999 and 1998 2-3
Consolidated Statement of Cash Flows - Six and Three
Months Ended June 30, 1999 and 1998 4
Notes to Financial Statements 5-6
Management's Discussion and Analysis of financial
conditions and results of operations 7-8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits on Reports on Form 8-K 9
Signature Page 10
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
Assets
Current Assets
Cash and cash equivalents $ 115
Prepaid rent on mining claims 20,630
Note receivable from affiliate 13,439
Total Current Assets 34,184
Resource properties 2,847,110
Property and equipment, net of accumulated
depreciation of $15,851 26,669
Other Assets
Investments, net of valuation reserve of $964,459 321,333
Deferred offering costs 62,500
Other assets 44,668
Total Other Assets 428,501
Total Assets 3,336,464
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 181,289
Due to Related Parties 112,000
Total Current Liabilities 293,289
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, 16,260,158 shares issued
and outstanding 11,626
Additional paid in capital 10,827,087
Deficit accumulated during the exploration stage (7,795,538)
Total Stockholders' Equity 3,043,175
Total Liabilities and Stockholders' Equity $ 3,336,464
See notes to the consolidated financial statements.
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended
June 30,
1999 1998
Revenue
Sales $ - $ -
Operating Expenses
Operating costs 39,400 39,150
General and administrative 145,135 277,557
Depreciation and amortization 4,400 5,000
Stock based compensation - 44,625
Total Operating Expenses 188,935 366,332
Loss from operations (188,935) (366,332)
Other Income(Expense)
Interest income 259 14,905
Interest (expense) (4,548) (3,073)
Total Other Income(Expense) (4,289) 11,832
Loss before income taxes (193,224) (354,500)
Income tax expense - -
Net Loss $(193,224) $(354,500)
Basic Loss per share $ (.012) $ (.031)
Average common shares outstanding 16,212,491 11,505,838
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended
June 30,
1999 1998
Revenue
Sales $ - $ -
Operating Expenses
Operating costs 19,700 19,575
General and administrative 58,265 140,060
Depreciation and amortization 2,200 2,500
Stock based compensation - 44,625
Total Operating Expenses 80,165 206,760
Loss from operations (80,165) (206,760)
Other Income(Expense)
Interest income 259 6,824
Interest (expense) (3,059) (3,073)
Total Other Income(Expense) (2,800) 3,751
Loss before income taxes (82,965) (203,009)
Income tax expense - -
Net Loss $ (82,965) $(203,009)
Basic Loss per share $ (.005) $ (.017)
Average common shares outstanding 16,219,824 11,608,669
<PAGE>
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended
June 30,
1999 1998
Cash Flows Operating Activities
Net Loss $(193,224) $(354,500)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Stock based compensation - 44,625
Depreciation 4,400 5,000
Changes in assets and liabilities:
Decrease (increase) in prepaid rent 31,904 39,150
(Increase) in accrued interest receivable - (250)
Decrease (increase) in other assets 140 (19,800)
(Decrease) increase in accounts payable
and accrued expenses 38,476 (126,934)
Net Cash Used by Operating Activities (118,304) (412,709)
Cash Flows From Investing Activities
Additions to resource properties - (318,428)
Additions to property and equipment - (10,520)
Increase in other receivable - (60,000)
Net Cash (Used In) Investing Activities - (388,948)
Cash Flows from Financing Activities
Advances from (repayments to) related party 97,000 (134,093)
Proceeds from stock subscription - 700,000
Advances to officer - (8,000)
Net Cash Provided By Financing Activities 97,000 557,907
Net (Decrease) in Cash and Cash Equivalents (21,304) (243,750)
Cash and Cash Equivalents at Beginning of Period 21,419 646,306
Cash and Cash Equivalents at End of Period $ 115 $ 402,556
<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, 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, 1998, 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.
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, 1999, the Company has
recorded $2,847,110 in resource properties. If these remaining costs had
been expensed rather than capitalized, the accumulated deficit at June 30,
1999 would have been $10,636,648 rather than $7,785,538.
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.
<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 parties at June 30, 1999, totaled $112,000 and bear
interest at rates from 10% to prime plus 2.5%.
<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, 1999
The Company's results of operations for the six months ended June 30, 1999
consisted of a loss of $193,224 as compared to June 30, 1998 which consisted of
a loss of $354,500.
The Company is negotiating for both the tailings and extraction contracts and
the present negotiations include discussions of the co-venturer taking an
equity position in the Company or in turn the Company has reserved the right
to raise additional capital to assist in the implementation of the next
appropriate step toward the extractive process. These negotiations will
proceed and at this time there is no specific estimates of when and how the
co-venture will be implemented, or to what magnitude.
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, is expected to occur in the third or
fourth quarter of 1999.
During the quarter, IKAR Mining Corporation canceled the conditional letter of
intent, dated February 11, 1999, which would have given EPAR (the Company) the
rights to acquire certain interests in mining concessions that IKAR holds in
Tajikistan, a former Soviet Union State. At this time the Company has no
further interest in this transaction.
Liquidity and Working Capital
The Company's working capital declined during the quarter ended June 30, 1999.
At June 30, 1999 the Company had a working capital deficit of $259,105 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 $22,000 under this agreement.
<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. 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.
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: August 23, 1999 By: /s/ Martin Sportschuetz
Martin Sportschuetz, CEO
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<ALLOWANCES> 0
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<PP&E> 42,520
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<COMMON> 1,626
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