UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSBA
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter ended September 30, 1998Commission 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)
1212 Court St., Suite C-2, Clearwater, FL 33756
(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, 1998 is 12,398,908 shares all of one class of $.0001
par value common stock.
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(FORMERLY MERLIN MINING CO.)
INDEX
PAGE
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - September 30, 1998 1
Consolidated Statements of Operations - Three
And Nine Months Ended September 30, 1998 2
Consolidated Statement of Cash Flows - Nine
Months Ended September 30, 1998 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
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED BALANCE SHEET
Assets
Current Assets
Cash and cash equivalents $ 84,606
Other receivable 61,455
Prepaid rent on mining claims 71,042
Total Current Assets 217,103
Resource properties 2,812,976
Property and equipment, net of accumulated
depreciation of $37,711 32,370
Other Assets
Investments, net of valuation reserve of 803,792 482,000
Other assets 59,020
Due from officer 8,000
Total Other Assets 549,020
Total Assets 3,611,469
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 161,095
Total Current Liabilities 161,095
Distribution rights payable 437,500
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, 12,398,908 shares issued
and outstanding 1,240
Additional paid in capital 10,263,989
Deficit accumulated during the exploration stage (7,252,355)
Total Stockholder's Equity 3,012,874
Total Liabilities and Stockholder's Equity $ 3,611,469
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended
September 30,
1998 1997
Revenue
Sales $ - $ -
Operating Expenses
Operating costs 61,658 68,205
General and administrative 451,136 256,770
Depreciation 7,500 -
Stock Based Compensation 310,275 345,000
Total Operating Expenses 830,569 669,975
Other Income (Expense)
Interest Income 18,686 448
Interest Expense (3,073) -
Total Other Income (Expense) 15,613 448
Loss before income taxes (814,956) (669,527)
Income tax expense - -
Net Loss $ (814,956)$ (669,527)
Average Common Shares Outstanding 11,611,076 9,571,244
Basic Loss Per Share $ (.0700)$ (.0700)
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
September 30,
1998 1997
Revenue
Sales $ - $ -
Operating Expenses
Operating costs 22,508 22,735
General and administrative 173,579 182,720
Depreciation 2,500 -
Stock Based Compensation 265,650 345,000
Total Operating Expenses 464,237 550,455
Other Income (Expense)
Interest Income 3,781 21
Interest Income - -
Total Other Income (Expense) 3,781 21
Loss before income taxes (461,456) (550,434)
Income tax expense - -
Net Loss $ (461,456)$ (550,434)
Average Common Shares Outstanding 12,128,130 9,264,615
Basic Loss Per Share $ (.038) $(.059)
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARIES
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF CASH FLOWS
For The
Nine Months Ended
September 30,
1998 1997
Cash Flows Operating Activities
Net Loss $ (814,956)$ (669,527)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Issuance of common stock charged to expense 310,275 345,000
Depreciation 7,500 -
Changes in assets and liabilities:
(Increase) in prepaid rent (15,842) (77,396)
(Increase) in accrued interest receivable (1,455) -
(Increase) in other assets (26,166) -
Increase (Decrease)in accounts payable
and accrued expenses (153,732) 34,923
Net Cash Used By Operating Activities (694,376) (367,000)
Cash Flows From Investing Activities
Cash outlays for additions to resource properties (352,711) (83,820)
Additions to property & equipment (12,520) -
Increase in other receivables (60,000) (33,500)
Net Cash (Used In) Investing Activities (425,231) (117,320)
Cash Flows From Financing Activities
Advances (repayments to) from related party (134,093) 280,360
Proceeds from the issuance of stock, net of
offering costs of $123,273 - 576,728
Proceeds from stock subscription 700,000 -
Advances to officer (8,000) -
Net Cash Provided By Financing Activities 557,907 857,088
Net (Decrease)Increase in Cash and Cash Equivalents (561,700) 372,768
Cash and Cash Equivalents at Beginning of Period 646,306 951
Cash and Cash Equivalents at End of Period $ 84,606 $ 373,719
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, 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 nine months ended September 30,
1998 1997
Common stock issued for
Additions to resource properties $489,040 -0-
Reduction of Accounts Payable
a resource properties for
amended commitments $ 48,576 -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 September 30, 1998, the Company has
recorded $2,861,552 in resource properties. If these remaining costs had
been expensed rather than capitalized, the accumulated deficit at
September 30, 1998 would have been $10,113,907 rather than $7,252,355.
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. 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 nine months ended September 30, 1998 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 NINE MONTHS ENDED SEPTEMBER 30, 1998, THE COMPANY ENTERED INTO
A SIGNIFICANT ROYALTY COMMITMENT AND OTHER COMMITMENTS, INCLUDING COMMON
STOCK TRANSACTIONS.
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
$1,000,000,000 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.
E. DURING THE QUARTER ENDED SEPTEMBER 30, 1998, THE COMPANY ENTERED INTO A
SIGNIFICANT ROYALTY COMMITMENT AND OTHER COMMITMENTS, INCLUDING COMMON
STOCK TRANSACTIONS
(Continued)
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.
Other Commitments And Stock Transactions
During the nine month period ended September 30, 1998, 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.
Also, during the quarter ended September 30, 1998 the Company issued 400,000
shares to accelerate and counsel a consulting agreement, valued at $.77 or
$308,000 and 90,000 shares, valued at $.77 or $69,300, were issued to an
employee to accelerate the cancellation of his employment agreement and
100,000 shares valued at $.77 or $77,000 were issued to a consultant for
administrative services, in connection with various services performed during
the period, based upon their market value subject to Rule "144" restrictions.
Of this amount $188,650 was added to resource properties and $265,650 was
recorded as stock based compensation based upon the Company's estimate of
where the employee and consultants directed their efforts.
Additionally, in connection with the termination of a past president, the
Company has reached agreements to settle with the past president its mutual
release and the return of 350,000 shares, net of an assignment of 50,000
shares, to the Company's treasury. Amounts previously capitalized to resource
properties for these shares will be credited and the amounts previously
charged as stock based compensation will be recorded as settlement income in
the fourth quarter, 1998.
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, 1998
The Company's results of operations for the nine months ended September 30, 1998
consisted of a loss of $814,956 as compared to September 30, 1997 which
consisted of a loss of $669,527. 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,
which had an estimated tonnage of economic grade varying from 500,000 to
700,000 tons. This period has expired and the Company has been in negotiation
with other co-venturer's relating to a similar transaction. Presently the
initial tonnage of economic grade range for present negotiations is from
between 300,000 to 600,000 tons. 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 thereis
no specific estimates of when and how the co-venture will be implemented, or
to what magnitude.
Liquidity and Working Capital
At September 30, 1998 the Company had available working capital of $556,008,
including a recently obtained credit facility from a former lender with long
term repayment features for up to $500,000 with interest at 8%. The Company had
working capital of $927,510 at December 31, 1997.
Also, during the nine months ended September 30, 1998 the Company invested
$489,040 in value of its common stock and $352,711 in cash outlays for a total
increase of $841,751 in resource properties as compared to $83,820 of cash
outlays 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
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.
Item 2. Changes in Securities
NONE, other than the transactions discussed in Note E ; Other
Commitments and Common Stock Transactions.
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
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: By: /s/ Martin Sportschuetz
Martin Sportschuetz, CEO