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 March 31, 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 March 31, 1999 is 16,205,158 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 - March 31, 1999 1
Consolidated Statements of Operations - Three
Months Ended March 31, 1999 2
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 1999 3
Notes to Financial Statements 4-5
Management's Discussion and Analysis of financial
conditions and results of operations 6-7
PART II OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits on Reports on Form 8-K 8
Signature Page 9
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
Assets
Current Assets
Cash and cash equivalents $ 5,769
Prepaid rent on mining claims 40,329
Note receivable from affiliate 13,439
Total Current Assets 59,537
Resource properties 2,803,110
Property and equipment, net of accumulated
depreciation of $13,651 28,869
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 3,320,017
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 165,752
Due to Related Parties 85,000
Total Current Liabilities 250,752
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, 16,205,158 shares issued
and outstanding 1,621
Additional paid in capital 10,783,092
Deficit accumulated during the exploration stage (7,715,448)
Total Stockholders' Equity 3,069,265
Total Liabilities and Stockholders' Equity $3,320,107
See notes to the consolidated financial statements.
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended
March 31,
1999 1998
Revenue
Sales $ - $ -
Operating Expenses
Operating costs 19,700 19,575
General and administrative 86,870 137,497
Depreciation and amortization 2,200 2,500
Total Operating Expenses 108,770 159,572
Loss from operations (108,770) (159,572)
Other Income (Expense)
Interest income - 8,081
Interest Expense (1,489) -
Total Other Income (Expense) (1,489) 8,081
Loss before income taxes (110,259) (151,491)
Income tax expense - -
Net Loss $ (110,259)$ (151,491)
Basic Loss per share $ (.007)$ (.013)
Average common shares outstanding 16,205,158 11,403,008
See notes to the consolidated financial statements.
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended
March 31,
1999 1998
Cash Flows Operating Activities
Net Loss $(110,259) $(151,491)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation 2,200 2,500
Changes in assets and liabilities:
Decrease in prepaid rent 12,204 19,575
Decrease (Increase) in other assets 140 (500)
(Decrease) increase in accounts payable
and accrued expenses 10,065 (42,862)
Net Cash Used by Operating Activities (85,650) (172,778)
Cash Flows used in Investing Activities
Additions to resource properties - (82,309)
Net Cash (Used In) Investing Activities - (82,309)
Cash Flows from Financing Activities
Advances from (repayments to) related party 70,000 (134,093)
Proceeds from stock subscription - 700,000
Net Cash Provided By Financing Activities 70,000 565,907
Net Increase (Decrease) in Cash and Cash Equivalents (15,650) 310,820
Cash and Cash Equivalents at Beginning of Period 21,419 646,306
Cash and Cash Equivalents at End of Period $ 5,769 $ 957,126
See notes to the consolidated financial statements.
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For the three months ended March 31, 1999)
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 three month
period ended March 31, 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 March 31, 1999, the Company has recorded
$2,803,110 in resource properties. If these remaining costs had been expensed
rather than capitalized, the accumulated deficit at March 31, 1999 would have
been $10,518,558 rather than $7,715,448.
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.
EUROPEAN AMERICAN RESOURCES, INC. AND SUBSIDIARY
(FORMERLY MERLIN MINING CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For the three months ended March 31, 1999)
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 March 31, 1999, totaled $85,000 and
bear interest at rates from 10% to prime plus 2.5%.
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
Three Months Ended March 31, 1999
The Company's results of operations for the three months ended March 31, 1999
consisted of a loss of $110,259 as compared to March 31, 1998 which consisted
of a loss of $151,491. 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.
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, would be the third
quarter of 1999.
Liquidity and Working Capital
The Company's working capital declined during the quarter ended March 31,
1999. At March 31, 1999 the Company had a working capital deficit of $191,215
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.
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 recission, 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
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant,
caused this report to be signed on its behalf by the undersigned, there-unto
duly authorized.
EUROPEAN AMERICAN RESOURCES, INC.
FORMERLY MERLIN MINING CO.
Dated: May 17, 1999 By: /s/ Martin Sportschuetz
Martin Sportschuetz, CEO