UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended September 30, 1999
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number 0-22808
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SILVER KING RESOURCES, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0884085
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6025 South Eaton Lane
Littleton, Colorado 80123
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(Address of principal executive offices)
(303) 798-2980
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(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No X
--- ---
Shares of the Registrant's Common Stock, par value $.0001 per share,
outstanding as of November 18, 1999: 18,075,000.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
SILVER KING RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
September 30, 1999 (unaudited) and December 31, 1998........................................ 3
Consolidated Statements of Operations and Comprehensive Loss
Three and nine months ended September 30, 1999 and 1998 (unaudited), and
August 23, 1988 (date of inception) through September 30, 1999 (unaudited).................. 4
Consolidated Statements of Stockholders' Equity (Deficit)
August 23, 1988 (date of inception) through September 30, 1999 (unaudited).................. 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998 (unaudited), and August 23, 1988
(date of inception) through September 30, 1999 (unaudited).................................. 6
Notes to Consolidated Financial Statements..................................................... 7
Item 2 - Management's Discussion and Analysis or Plan of Operation.................................. 9
PART II. OTHER INFORMATION
Item 1 - Legal proceedings.......................................................................... 15
Item 2 - Changes in securities and use of proceeds.................................................. 15
Item 3 - Defaults upon senior securities............................................................ 15
Item 4 - Submission of matters to a vote of security holders........................................ 15
Item 5 - Other events............................................................................... 15
Item 6 - Exhibits and reports on Form 8-K........................................................... 16
</TABLE>
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<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited) (Audited)
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,264 $ --
Loan receivable 40,000 --
Tax receivable 50,726 --
--------- ---------
93,990 --
EQUIPMENT, Net 5,500 --
MINING CONCESSIONS 156,500 --
--------- ---------
TOTAL ASSETS $ 255,990 $ --
========= =========
LIABILITIES
CURRENT LIABILITIES
Cash overdraft $ -- $ 25,000
Loan payable to related party 120,000 --
Accounts payable 83,754 --
--------- ---------
203,754 25,000
MINORITY INTEREST 90,921 --
--------- ---------
TOTAL LIABILITIES 294,675 25,000
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STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK - $0.001 par value, authorized 50,000,000 shares;
issued and outstanding 18,075,000 shares at September 30,
1999 and 1,000,000 at December 31, 1998 and 1997 18,075 1,000
ADDITIONAL PAID IN CAPITAL 580,259 5,834
WARRANTS OUTSTANDING 14,000 --
DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE (659,439) (31,834)
ACCUMULATED OTHER COMPREHENSIVE INCOME 8,420 --
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (38,685) (25,000)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 255,990 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
August 23,1988
Three Months Ended Nine Months Ended (Inception)
September 30, September 30, Through
1999 1998 1999 1998 September 30, 1999
------------ ----------- ------------ ------------ ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
COSTS AND EXPENSES
Exploration costs $ 55,809 $ -- $ 385,450 $ -- $ 385,450
Right of first refusal -- -- 131,250 -- 131,250
Administrative expenses 2,925 -- 44,743 1,834 51,577
Consulting expenses -- -- 23,500 -- 28,500
Financing fees -- -- 50,000 -- 50,000
Depreciation 300 -- 500 -- 500
Legal and accounting 19,813 -- 73,855 -- 93,855
Minority interest (30,479) -- (84,611) -- (84,611)
Interest expense -- -- 2,918 -- 2,918
------------ --------- ------------ ------------ ------------
NET LOSS (48,368) -- (627,605) (1,834) (659,439)
FOREIGN CURRENCY
TRANSLATION (1,720) -- 8,420 -- 8,420
------------ --------- ------------ ------------ ------------
COMPREHENSIVE LOSS $ (50,088) -- $ (619,185) $ (1,834) $ (651,019)
============ ========= ============ ============ ============
BASIC AND DILUTED LOSS
PER COMMON SHARE $ -- $ -- $ (0.05) $ --
============ ========= ============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES 18,075,000 1,000,000 13,446,875 1,000,000
============ ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 23, 1988 (INCEPTION) THROUGH SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Additional During the Other Stockholders'
Common Paid In Warrants Development Comprehensive Equity
Stock Capital Outstanding Stage Income (Deficit)
------- -------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 23, 1988 (INCEPTION)
THROUGH DECEMBER 31, 1996 $ 5,000 $ -- $ -- $ (5,000) $ -- $ --
Net loss for the year ended December 31, 1997 -- -- -- -- -- --
BALANCE AT DECEMBER 31, 1997 5,000 -- -- (5,000) -- --
Reincorporation fee paid by stockholders -- 1,834 -- -- -- 1,834
Recapitalization upon reincorporation (4,995) 4,995 -- -- -- --
Two hundred-for-one stock split 995 (995) -- -- -- --
Net loss for the year ended December 31, 1998 -- -- -- (26,834) -- (26,834)
------- -------- ------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1998 1,000 5,834 -- (31,834) -- (25,000)
Issuance of common stock 17,025 524,475 14,000 -- -- 555,500
Issuance of 50,000 shares of common stock
as financing fee 50 49,950 -- -- -- 50,000
Foreign currency translation -- -- -- -- 8,420 8,420
Net loss for the nine months ended
September 30, 1999 -- -- -- (627,605) -- (627,605)
------- -------- ------- --------- --------- ---------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED) $18,075 $580,259 $14,000 $(659,439) $ 8,420 $ (38,685)
======= ======== ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
August 23, 1988
Nine Months Ended (Inception)
September 30, Through
1999 1998 September 30, 1999
--------- ---------- ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(627,605) $(1,834) $(659,439)
Adjustments to reconcile net loss to net cash
used in operating activities
Issuance of common stock as financing fee 50,000 -- 50,000
Reincorporation fee paid by stockholder -- 1,834 1,834
Depreciation 500 -- 500
Changes in net assets and liabilities, net of
effects from acquisition
Increase in
Tax receivable (6,781) -- (6,781)
Accounts payable 76,804 -- 76,804
--------- ------- ---------
Net cash used in operating activities (507,082) -- (537,082)
--------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Mining concessions (36,500) -- (36,500)
Cost of acquisition (166,547) -- (166,547)
--------- ------- ---------
Net cash used in investing activities (203,047) -- (203,047)
--------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Minority interest (21,110) -- (21,110)
Loan receivable (40,000) -- (40,000)
Repayment of stockholder loans 114,084 -- 114,084
Proceeds from loan payable 120,000 -- 120,000
Proceeds from issuance of common stock 555,500 -- 560,500
Cash overdraft (25,000) -- --
--------- ------- ---------
Net cash provided by financing activities 703,474 -- 733,474
--------- ------- ---------
EFFECT OF EXCHANGE RATE ON CASH 9,919 -- 9,919
--------- ------- ---------
NET INCREASE IN CASH 3,264 -- 3,264
CASH - BEGINNING OF PERIOD -- -- --
--------- ------- ---------
CASH - END OF PERIOD $ 3,264 $ -- $ 3,264
========= ======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest $ 2,918 $ -- $ 2,918
========= ======= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock as financing fee $ 50,000 $ -- $ 50,000
========= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 1 - INTERIM PERIODS
The unaudited information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company=s management, reflects
normal recurring adjustments necessary for a fair presentation of the
information for the period presented.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been omitted. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company=s Form 10-SB
for the year ended December 31, 1998.
The results of operations for the three month and nine month periods ended
September 30, 1999 and 1998 are not necessarily indicative of operating results
for the full year.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Silver King
Resources, Inc. (the ACompany@) and its Subsidiary. All material intercompany
balances and intercompany transactions have been eliminated.
NOTE 3 - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
AReporting Comprehensive Income@, beginning January 1, 1999. 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. Comprehensive income (loss),
representing foreign currency translation adjustments for the nine months ended
September 30, 1999 and 1998 was $8,420 and $-0-.
NOTE 4 - ACQUISITION
The Company entered into an agreement on March 19, 1999 to purchase a 60%
interest for $393,750 in a Mexican company which has received the rights to
purchase exclusive royalty-free exploration and/or exploitation concessions
covering properties in Mexico that may be silver producing.
The consideration of $397,750 was payable as follows:
o $25,000 on date of agreement
o $150,000 within seven business days of the date of agreement
o $218,750 within 20 business days of the date of agreement
Closing shall occur within ten calendar days of the later to occur of (I) 20
business days after the date of the agreement and (ii) issuance of the
regulatory approvals from the Vancouver Stock Exchange (VSE). Approval was
obtained from the VSE on May 10, 1999 and closing occurred on May 20, 1999.
After the capital contribution by the Company, the total capital of the Mexican
company aggregated $775,000.
As part of this agreement, the Company is obligated for future geological
consulting fees not to exceed $100,000 commencing August 31, 1999.
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<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 4 - ACQUISITION (Continued)
The purchase of the 60% interest in the Mexican company will be accounted for
under the purchase method of accounting. The excess of the purchase price over
the fair value of net tangible assets acquired amounting to $227,203 was charged
to operations as costs toward exploration.
Effective May 1, 1999, the financial position and results of operation of the
Mexican company have been reported under the consolidation method. All
significant intercompany transactions have been eliminated in consolidation.
NOTE 5 - LOAN PAYABLE TO RELATED PARTY
In September 1999, the Company borrowed $120,000 on a short-term basis from a
shareholder.
NOTE 6 - CAPITAL STOCK
Common Stock
In May 1998, the State of Florida approved the Company=s restated Articles of
Incorporation, which increased its capitalization from 7,500 common shares
authorized to 50,000,000 common shares. The par value changed from $1.00 per
share to $0.001 per share.
Upon recapitalization, the Company forward split its common stock on a two
hundred for one basis. This stock split increased the number of outstanding
common stock shares from 5,000 shares to 1,000,000 shares.
In January 1999, the Company sold 14,500,000 shares of its common stock
under a subscription agreement at a price of $0.001 per share.
In January 1999, the Company also sold 2,000,000 shares of its common stock
under a subscription agreement at a price of $0.008.
In April 1999, the Company sold 525,000 shares of its common stock under a
subscription agreement at a price of $1.00 per share.
All references to number of shares and per share amounts on the balance sheet
have been adjusted to give retroactive effect to the recapitalization and stock
splits.
Warrants
From time to time, the Board of Directors of the Company may issue warrants to
purchase its common stock to parties other than employees and directors.
Warrants may be issued as an incentive to help the Company achieve its goals, or
in consideration for cash or services rendered to the Company, or a combination
of the above.
In January 1999, as part of the subscription for 2,000,000 shares of common
stock, the Company issued warrants to purchase 2,000,000 shares of its common
stock at a price of $4.00 per share. The warrants were valued at $0.007 per
warrant.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PRIVATE SECURITIES LITIGATION REFORM ACT
The information contained in this Report on Form 10-QSB and in other public
statements by the Company and Company officers include or may contain certain
forward-looking statements. When used in this Report or in such statements, the
words "estimate," "project," "intends," "expects," "believes" and similar
expressions are intended to identify forward-looking statements regarding events
and financial trends which may affect the Company's future operating results and
financial position. Such statements are not guarantees of future performance and
are subject to risks and uncertainties that could cause the Company's actual
results and financial position to differ materially from those included within
the forward-looking statements. Such factors are described in detail in the
Company's Registration Statement on Form 10-SB/A-3 under the caption "RISK
FACTORS." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the results of any revision to
these forward-looking statements to reflect events or circumstances after the
date made or to reflect the occurrence of unanticipated events.
OVERVIEW
The Company is a exploration stage mining exploration and development
holding company with certain rights to acquire mining concessions at properties
located in southern Mexico through its Mexican subsidiary, International Capri
Resources S.A. de C.V. ("ICRM"). As none of these properties are in production,
the Company has no current operating income or cash flow.
The Company is the surviving entity of a merger that occurred on June 24,
1999 pursuant to which Silver King Resources, Inc., formerly known as Arngre,
Inc., a Florida corporation ("Arngre"), merged with and into Silver King
Resources (Delaware), Inc., a newly-formed Delaware corporation. Silver King
(Delaware), Inc., the surviving corporation of the merger, was formed for the
purpose of the merger and had no prior operating history. Immediately after the
completion of the merger, Silver King (Delaware), Inc. changed its name to
"Silver King Resources, Inc."
Prior to the merger, Arngre was an inactive company whose shares were
listed for quotation on the OTC Bulletin Board. Since the former stockholders of
Arngre acquired a controlling interest in Silver King (Delaware), Inc. in the
merger, the merger has been accounted for as a "reverse acquisition."
Accordingly, for financial statement presentation purposes, Arngre is viewed as
the continuing entity and the related business combination is viewed as a
recapitalization of Arngre, rather than an acquisition by Silver King
(Delaware), Inc. Prior to the fourth quarter of 1998, the Company was inactive
and had no prior operating history.
The Company formed a joint venture in May 1999 with ICRM, International
Capri Resources Ltd., a British Columbian company ("ICR"), and Zacualpan
Minerals, LLC, a
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<PAGE>
Colorado limited liability company ("Zacualpan LLC"), to acquire, explore and,
if warranted, develop six mining concessions in Mexico with prospective silver
mineralization called the Zacualpan Project. Each participant in the joint
venture is required to fund exploration, development and operating expenses for
the Zacualpan Project by contributing capital to ICRM in proportion to its
respective ownership interest. The Company's 60% equity interest in ICRM may be
adjusted upward or downward depending on each participant's compliance with the
capital contributions required in the future.
The Company completed an induced polarization survey at the Zacualpan
Project in April 1999. An induced polarization survey is an indirect method to
ascertain the presence of silver mineralization. The geophysicist that performed
the survey recommended a drilling program to verify the survey's promising
indications of silver mineralization at the Zacualpan Project. The Company has
been undertaking a drilling program at the project since the second quarter of
1999. Management expects that ICRM will expend $1,000,000 for the drilling
program through September 2000. If the results of a second phase of the drill
program are favorable, ICRM will commission a preliminary feasibility study to
be completed by approximately the end of the year 2000. Although management does
not expect ICRM to hire employees during the next twelve months, ICRM may hire
temporary, part-time employees to assist with the exploration drilling process
if necessary. If ICRM decides to commission a feasibility study, it would hire
an independent engineering firm to perform the study. The costs of two part-time
employees and the feasibility study are included in the $1,000,000 allotted for
the drilling program through September 2000. Based on these expectations,
management's plan of operation for the next twelve months is to fund $600,000 of
the $1,000,000 needed for ICRM's drilling program. To date, the Company has
funded approximately $140,000 of the $600,000. In addition, the Company expects
to expend over the next twelve months the aggregate amount of approximately
$348,000 to $448,000 for the following reasons:
- --------------------------------------------------------------------------------
Amount Reason
- --------------------------------------------------------------------------------
$ 48,100 Remaining payments due under ICRM's mining concession option
purchase agreements for the Zacualpan Project
- --------------------------------------------------------------------------------
$ 40,000 Payments for government mining duties, proof of works and taxes
for ICRM's mining concessions at the Zacualpan Project
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$ 40,000 Legal, administrative and accounting expenses for ICRM
- --------------------------------------------------------------------------------
$100,000 Legal, administrative and accounting expenses for Silver King
Resources, Inc.
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$100,000 $100,000 of consulting fees that may be payable to geological
consultants if retaining them for the Zacualpan Project is
warranted
- --------------------------------------------------------------------------------
$120,000 Loan payable from the Company to FAC Enterprises, Inc.
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<PAGE>
The Company will require further financing in order to pursue its
longer-term strategy to explore the Zacualpan Project through the planned
drilling program and acquire and explore additional mineralization properties.
Although the Company has raised $555,500 in private placements of its securities
during 1999, it intends to contribute a substantial portion of the net proceeds
of the private placements to ICRM so that it may complete the acquisition of
certain mineral rights and continue with the drilling program at the Zacualpan
Project. The net proceeds, however, will not be sufficient to fully finance the
exploration and drilling program currently in process at the Zacualpan Project.
Accordingly, the Company intends to seek this financing through a combination of
traditional debt financing and the placement of debt and equity securities. The
Company also hopes to finance some portion of its future property acquisitions
by using shares of its common stock for all or a substantial portion of the
consideration to be paid, although this may be difficult since no liquid trading
market for the Company's common stock exists. In the event that the common stock
does not attain or maintain a sufficient market, or potential property sellers
are otherwise unwilling to accept common stock as part of the consideration for
the sale of their properties, the Company may be required to utilize more of its
cash resources, if available, in order to initiate and maintain its acquisition
strategy. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings.
The Company is considered a exploration stage enterprise for accounting
purposes. As an exploration stage company, it must expend significant amounts of
money before it can make a profit, if ever. Silver exploration is highly
speculative and risky. There can be no assurance that the Company's mineral
exploration activities will be successful or profitable. Once mineralization is
discovered, it may take a number of years from the initial phase of drilling
until production is possible, during which time the economic feasibility of
production may change. Furthermore, the Company has not yet acquired the mining
concessions it is exploring in Mexico, has a substantial accumulated deficit
since inception and believes operating losses will continue for the foreseeable
future.
As of September 30, 1999, the Company had only nominal cash. At the parent
level, the Company has only nominal expenses to preserve its corporate
existence, but incurs expenses for legal and accounting services to comply with
securities disclosure regulations. Substantially all expenses associated with
the exploration and development of the Zacualpan Project are funded through the
ICRM Joint Venture Agreement. The Company is responsible for 60% of the required
financing upon a capital call by ICRM. The Company does not currently have
sufficient cash necessary to pay its current expenses or fund capital calls. In
the past, the Company has met these obligations through short-term loans from
the business associates of management and principal stockholders, or from
private placement proceeds. Due to the Company's lack of revenues, its
independent auditors included an explanatory paragraph in their report for the
year ended December 31, 1998 as to the substantial doubt about the Company's
ability to continue as a going concern. As the Company has now cleared all
comments from the Securities and Exchange Commission to its Registration
Statement on Form 10-SB, the existence of a trading market for the Company's
Common Stock may facilitate a private placement by which the Company would
obtain operating funds for the next twelve months. However, the Company has no
commitments for any such financings. Furthermore, given the financial condition
of the Company, any financing would likely be severely dilutive to its existing
stockholders. If the Company is unable
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<PAGE>
to secure financing in the very near term, it may be forced to liquidate its
interest in ICRM. The Company's long-term viability and growth will depend upon
its ability to obtain adequate financing and the successful acquisition and
development of mining concessions, among other matters, as to which there can be
no assurances.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1999 As Compared to September 30, 1998
REVENUES; LOSSES. The Company does not yet produce silver or any other
mineral products and has no revenues from product sales. For the three months
and nine months ended September 30, 1999, the Company incurred a net loss of
$48,368 and $627,605, respectively, as pre-operating costs increased. From
August 23, 1988, its date of incorporation, through September 30, 1999, the
Company has incurred a total net loss of $659,439.
ADMINISTRATIVE. Administrative expenses were $2,925 for the three months
ended September 30, 1999, compared to no administrative expenses for the three
months ended September 30, 1998. The Company incurred administrative expenses of
$44,743 for the nine months ended September 30, 1999, compared to administrative
expenses of $1,834 for the nine months ended September 30, 1998. The increase in
administrative expenses is the result of office and travel expenses.
CONSULTING. The Company did not incur any expenses for consulting fees
during the three months ended September 30, 1999 and September 30, 1998.
Consulting expenses were $23,500 for the nine months ended September 30, 1999,
compared to no consulting fees for the nine months ended September 30, 1998. The
increased consulting fees were due to retaining an administrative consultant.
LEGAL AND ACCOUNTING. Legal and accounting fees were $19,813 for the three
months ended September 30, 1999, compared to no legal or accounting fees for the
three months ended September 30, 1998. This increase was due to costs associated
with the private placement offerings of the Company's securities and the
preparation of securities filings in compliance with securities disclosure
regulations. For the nine months ended September 30, 1999, the Company incurred
legal and accounting expenses of $73,855, compared to no legal and accounting
expenses for the nine months ended September 30, 1998. This increase was due to
costs associated with the negotiation and preparation of the Joint Venture
Agreement for ICRM and a Right of First Refusal Agreement with Mark Isaacs, as
well as costs associated with the private placement offerings of the Company's
securities and the preparation of securities filings in compliance with
securities disclosure regulations.
INTEREST EXPENSES. The Company did not incur any interest expenses for the
three months ended September 30, 1999 and 1998. Interest expenses for the nine
months ended September 30, 1999 were $2,918, the first time the Company has
incurred an interest expense. The interest expense was due to a $100,000 loan
taken by the Company in April 1999 at an annual interest rate of 12%, and other
loans repaid in April 1999.
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<PAGE>
RIGHT OF FIRST REFUSAL. The Company incurred a $131,250 expense for the
nine months ended September 30, 1999 for a subscription payment made on behalf
of Zacualpan LLC for Zacualpan LLC's 20% interest in ICRM, in consideration for
which Mark Isaacs, a principal member of Zacualpan LLC, granted the Company
certain rights of first refusal to participate in future mining and natural
resource opportunities identified by Mr. Isaacs. The Company had not previously
incurred a similar type of expense.
EXPLORATION COSTS. Exploration expenses for the three months ended
September 30, 1999 were $55,809, the first time the Company incurred an
exploration expense. Exploration expenses for the nine months ended September
30, 1999 were $385,450. The exploration expense was due to costs for the induced
polarization survey and drilling program at the Zacualpan Project. The
exploration expense also includes $227,203, the excess of the $397,750 purchase
price for the Company's equity interest in ICRM over the fair value of net
tangible assets, which was charged to operations as costs toward exploration.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had cash and cash equivalents of
$3,264. The Company had no cash or cash equivalents as of December 31, 1998. The
increase in the nine months ended September 30, 1999 relative to prior periods
was due to the receipt of net proceeds from private placements of securities.
The Company received an aggregate of $555,500 in net proceeds from private
placements completed in January and April of 1999. In January 1999, The Company
issued (i) 14,500,000 shares of its common stock at a price of $.001 per share
and received $14,500 in net proceeds, and (ii) 2,000,000 units, each unit
consisting of one share of common stock and one common stock purchase warrant,
at a price of $.008 per unit and received $16,000 in net proceeds. In April
1999, the Company issued 525,000 shares of its common stock at a price of $1.00
per share and received $525,000 in net proceeds.
The net cash used in operating activities increased from $0 for the nine
months ended September 30, 1998 to $507,082 for the nine months ended September
30, 1999. The increase in the net cash used in operating activities was due to
the fact that the Company had no operations prior to 1998, and the costs
incurred in the first nine months of 1999 for funding the pre-operating costs.
The net cash provided by financing activities was $703,474 for the nine
months ended September 30, 1999, compared with no net cash from financing
activities for the nine months ended September 30, 1998. This net cash was due
principally to the private placements of $555,500 completed in January and April
of 1999, as well as proceeds from loans. These funds will be used to (i) pay the
purchase price for the five mining concessions for which ICRM entered into
option contracts, (ii) fund the induced polarization survey, drilling program
and further exploration at the Zacualpan Project and (iii) fund approximately
$75,000 in legal, accounting and consulting fees associated with the formation
of the ICRM joint venture. To date, $156,500 of the total purchase price of
$211,600 for the five mining concessions has been paid. The remaining amount to
be paid, $55,100, is due by March 2000. The Company is subject to a
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<PAGE>
series of obligations with respect to ICRM's acquisition of mining concessions
at the Zacualpan Project. If these commitments are not satisfied, ICRM could
forfeit its right to acquire the concessions or, once they are acquired, the
title to them. These obligations consist of making installment payments owed but
not yet payable to acquire the concessions under the option agreements, paying
government mining duties and transfer taxes and filing proof of works. In
addition, the Company has agreed to fund $100,000 of consulting fees that may be
payable to geological consultants if retaining them for the Zacualpan Project is
warranted.
The net cash used in investing activities increased from $0 for the nine
months ended September 30, 1998 to $203,047 for the nine months ended September
30, 1999. Of the $203,047, $36,500 was paid by the Company toward the purchase
price of mining concessions and $166,547 was used to acquire the Company's
equity interest in ICRM.
The Company does not currently have a line of credit with any financial
institutions. The Company currently owes $120,000 on a short-term loan from FAC
Enterprises, Inc., a principal stockholder.
The Company has a working capital deficit and is not generating revenues.
The Company needs to raise additional funds in the next twelve months in order
to continue its operations. This may be accomplished through traditional debt
financing and the placement of debt and equity securities.
YEAR 2000
The Company is currently working to minimize the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. This could result in a system failure or miscalculation
causing disruptions of operations, including among other things, a temporary
inability to process transactions, send invoices or engage in normal business
activities. Since the Company only recently commenced business as a mineral
resource holding company, its computer systems and reliance on third parties'
computer systems are limited. The Company does not have a computer network, and
currently uses only two personal computers in its business. The Company has
requested the vendors of its personal computers and software applications to
confirm that they are Year 2000 compliant. To date, no material problems have
been identified. Any such software that management determines not to be Year
2000 compliant will be exchanged for Year 2000 compliant software as soon as
practicable after such determination. The costs of addressing potential problems
have not and are not expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods. If
necessary, management could replace computers and software for less than
$10,000. The Company also maintains back-up copies of business records in paper
format.
The Company currently has no suppliers or customers but does rely on
information and data provided by professional geologists and engineers to
analyze the prospects of mineralization at the Zacualpan Project. If the
software and equipment of those professionals and those on whom such
professionals rely to gather and evaluate this data are not Year 2000
functional, it
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<PAGE>
could impair the Company's ability to properly assess the economic viability of
the Zacualpan Project. The Company is in the process of soliciting confirmation
from these professionals that their computer systems are Year 2000 compliant.
The professionals currently working on the drilling program have informed the
Company, however, that the data collection and evaluation does not significantly
rely on computer processes. Moreover, the geologists and engineers maintain
original paper records of the data collected. Management expects to have
substantially all of the systems application changes, if any are necessary, to
be completed within the next two months and believes that its level of
preparedness is appropriate.
The Company believes that the most reasonably likely worst case scenario
resulting from the century change could be the transmission by independent
geological professionals to it of incorrect data regarding the Zacualpan
Project. If the Company were to expend funds on exploring and developing areas
incorrectly identified by professional data as likely to contain mineralization,
it is probable that the Company would not locate any significant mineralization
and consequently incur losses. Such an incorrect assessment of any future
exploration and development plans of mining project could have a material
adverse effect on the Company's business, financial condition and results of
operations. In order to mitigate against incorrect assessments, the Company has
instructed the geological professionals it has retained to maintain and provide
the Company with backup paper copies of all data related to the Zacualpan
Project.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor any of its property is a party to any pending or
threatened legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Events
OTC Bulletin Board
On October 1, 1999, trading of the Company's Common Stock on the OTC
Bulletin Board was suspended for failure to maintain compliance with applicable
listing standards. The Securities and Exchange Commission notified the Company
that, effective November 18, 1999, the Company cleared all comments to its
Registration Statement on Form 10-SB.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 18, 1999 Silver King Resources, Inc.
/s/ Alan Stier
---------------------
Alan Stier, President
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<PAGE>
Exhibit No. Exhibit
- ----------- -------
27 Financial Data Schedule
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