As filed with the Securities and Exchange Commission ("SEC") on November
12, 1999.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
SILVER KING RESOURCES, INC.
-----------------------------------------------------------
(Name of Small Business Issuer as specified in its charter)
DELAWARE 65-0884085
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(Jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
6025 South Eaton Lane
Littleton, Colorado 80123
----------------------------------------
(Address of principal executive offices)
(303) 798-2980
-------------------------------
(Registrant's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
N/A N/A
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
------------------------------
Title of Class
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS(1)
INTRODUCTION
Silver King Resources, Inc. ("Silver King"), formerly known as Arngre, Inc., is
an exploration-stage mineral resource holding company incorporated under the
laws of the State of Delaware. Following a change in management in July 1998,
Silver King commenced the business of identifying, acquiring and exploring
properties containing silver mineralization. Prior to this time, Silver King was
an inactive company with no historic operations. Silver King chose to commence
this business based on management's perception that (i) the price of silver was
undervalued under existing supply and demand market forces; and (ii) during the
past decade, silver production has been insufficient to meet market demand,
which has increased primarily in the electronic, electrical products, jewelry,
silverware and photographic industries. Silver King's first exploration project
is a joint venture exploring properties in Mexico, where ongoing drilling and an
induced polarization survey indicate prospective silver mineralization. The
exploration program remains in the preliminary stage, and Silver King has not
yet completed a definitive feasibility study for the project. There can be no
assurance that a commercially viable mineral deposit exists in any of the
project's properties until the necessary exploration work is completed and a
comprehensive economic evaluation based on that completed work concludes
economic feasibility.
Silver King is the surviving entity of a merger (the "Merger") between Silver
King Resources (Delaware), Inc., a Delaware corporation, and Silver King
Resources, Inc., a Florida corporation formerly known as Arngre, Inc., which was
incorporated in Florida in August 1988 ("Arngre"). The Merger occurred on June
24, 1999. Prior to a change in management in 1998, Arngre was an inactive
company whose shares were listed for quotation on the OTC Bulletin Board. Silver
King Resources (Delaware), Inc., which was incorporated in Delaware in April
1999, was formed in order to effectuate the Merger and had no prior operating
history. After the Merger, Silver King Resources (Delaware), Inc., the surviving
corporation, changed its name to Silver King Resources, Inc. Pursuant to the
Merger, all of the issued and outstanding shares of common stock of Arngre were
exchanged on a one-for-one basis for an aggregate of 18,075,000 shares of common
stock of Silver King.
JOINT VENTURE TO DEVELOP MEXICAN PROJECT
On March 19, 1999, Silver King entered into a Joint Venture and Subscription
Agreement (the "Joint Venture Agreement") with International Capri Resources,
S.A. de C.V., a Mexican company ("ICRM"), International Capri Resources Ltd., a
British Columbian company ("ICR"), Zacualpan Minerals, LLC, a Colorado limited
liability company ("Zacualpan LLC"), and Alan Stier. Under the terms of the
Joint Venture Agreement, in May 1999, Silver King acquired a 60% interest in
newly-formed ICRM, which has rights to purchase five exclusive exploration and
exploitation silver-mining concessions in properties located in the municipality
of Zacualpan in Mexico and the municipality of Tetipac in the State of Guerrero,
Mexico under option purchase agreements assigned to it in December 1998 and
amended as of July 7, 1999. Under these agreements, ICRM expects to purchase the
five concessions by March 31, 2000, the date on which all of the final payments
for the concessions are due. ICRM also expects to purchase in the fourth quarter
of 1999 an approximately 4,500 hectare claim staked at a prospective
silver-producing property adjacent to Zacualpan, Mexico known as Quinto Real.
The five mining concessions, together with the Quinto Real claim, are referred
to as the "Zacualpan Project". The prospective mineralization at the Zacualpan
Project is uncertain. Through ICRM, and other subsidiaries that may be formed in
the future, Silver King plans to identify, explore, develop and place into
production mineral properties, focusing on prospective silver-producing
properties in Mexico.
The current shareholders of ICRM are Silver King, with a 60% equity interest,
and ICR and Zacualpan LLC, each with a 20% interest. Each shareholder is
entitled to appoint one member of ICRM's Board of Directors, so long as its
equity interest in ICRM is at least 10%. The operating budget of each
exploration phase for the Zacualpan Project is
- ----------
(1) For definitions of certain mining terms used in this description, see
"Glossary of Certain Mining Terms" at the end of Item 1 of this Form 10-SB.
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prepared by the operator, which is currently ICR, and submitted to ICRM's Board
of Directors for approval. Once ICRM's Board of Directors approves the budget,
the ICRM shareholders must finance the costs of the mining exploration programs
and budgets in amounts based on their ownership interest in ICRM. If one or more
shareholders fail to contribute capital in amounts equal to their respective pro
rata ownership interests, their interest in ICRM is adjusted accordingly. Under
the Joint Venture Agreement, if a shareholder contributes to the budget an
amount less than its ownership interest proportion, its interest in ICRM
decreases, while the complying shareholders' interests increase proportionately.
If a shareholder's interest in ICRM is reduced to less than 1%, it is deemed to
have assigned its remaining interest to the other shareholders and, as its sole
remuneration, is entitled to receive 0.5% of ICRM's net smelter returns.
All outstanding shares of ICRM are subject to a right of first refusal as set
forth in the Joint Venture Agreement and Bylaws of ICRM. Any ICRM shareholder
must first offer its ICRM shares to the other ICRM shareholders before it may
sell them to a third party. Any third party purchasing ICRM shares must agree to
be bound by the terms of the Joint Venture Agreement.
Both ICR and Zacualpan LLC, the other shareholders of ICRM, have prior direct or
indirect experience in the exploration and/or mining business. ICR is a company
engaged in the silver exploration business whose shares are listed on the
Vancouver Stock Exchange. From 1994 to 1998, ICR explored properties on Baffin
Island of the North West Territory in Canada for zinc, copper, nickel and gold.
ICR is currently involved in silver, zinc and gold exploration projects in
northwestern Ontario. Zacualpan LLC is a recently formed LLC, of which Mark
Isaacs is a principal member. Mr. Isaacs has been involved, as a principal, in
several hard rock mining projects in the United States and Mexico since 1991.
Contemporaneously with entering into the Joint Venture Agreement, Silver King
entered into a Right of First Refusal Agreement (the "ROFR Agreement") with Mark
Isaacs. Under the ROFR Agreement, Silver King has a right of first refusal to
participate in each and every mining and natural resource opportunity located in
Mexico or the United States (exclusive of projects geared towards the mining of
garnets) in which Mr. Isaacs or any entity controlled by him acquires an
interest. Silver King anticipates that its investment, if any, in opportunities
under the ROFR Agreement would be made through an operating subsidiary separate
from ICRM. In the event that Silver King exercises its right of first refusal
with respect to a project, it must initially contribute to a trust account up to
$750,000 to fund the project's budgeted preliminary expenditures for the first
90 days. If the funds deposited in the trust account are expended or irrevocably
committed for expenditure within approximately 45 weeks, Silver King and Mr.
Isaacs may form a joint venture with respect to the project, with Silver King
and Mr. Isaacs respectively owning an 80% and 20% interest in the venture. In
the event, however, that the project is owned or controlled by Polo Y Ron
Minerales S.A. de C.V., a Mexican company ("Polo Y Ron"), then Silver King shall
own a 60% interest in the venture, with Polo Y Ron owning a 25% interest and Mr.
Isaacs owning a 15% interest. Silver King's rights of first refusal as set forth
in the ROFR Agreement terminate on March 19, 2002. In addition, Silver King's
rights under the ROFR Agreement may be terminated by Mr. Isaacs if the current
stockholders of Silver King do not hold in the aggregate at least 25% of the
outstanding shares of Silver King's common voting stock.
SILVER INDUSTRY AND MARKET OVERVIEW
Silver is principally used in (i) the electrical and electronic components
industries, (ii) photography and (iii) jewelry and silverware. Due to its
strength, malleability, thermal and electrical conductivity and ability to
endure extreme temperature changes, silver has many industrial uses. It is used
in batteries, computer chips, electrical contacts and printing.
According to The Silver Institute, an international industry association of
miners, refiners, fabricators and silver wholesalers, demand for silver has
increased during the past five years by approximately 19% to 841 million ounces
per year. Production of silver by mining operations and secondary recovery from
scrap has been insufficient to meet this increased demand, resulting in a
shortfall exceeding 120 million ounces each year. The gap in the supply of
silver has been met to date by drawing on silver stockpiles. The increased
demand for silver is primarily due to the development of new technologies and
products using silver in electrical devices and electronic components, in
addition to significant increases in jewelry consumption from 1994 to 1998 of
approximately 13%, according to The Silver Institute.
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OVERVIEW OF BUSINESS
Silver King operates its business as an exploration stage mineral holding
company that intends to receive income from participating in joint ventures or
other business combinations, rather than, if warranted, developing and placing
mining properties into production on its own. Prior to the fourth quarter of
1998, Silver King was an inactive company with no operating history. Silver King
presently operates through its subsidiary ICRM, a joint venture in which Silver
King has a 60% equity interest. Through ICRM, Silver King currently has rights
to acquire five mining concessions in properties located in Southern Mexico, and
expects to purchase Quinto Real, an additional mining concession adjacent to
Zacualpan, Mexico, during the fourth quarter of 1999. These six mining
concessions are referred to as the "Zacualpan Project." No production of silver
is currently occurring at the Zacualpan Project, although commercial silver
mining by unaffiliated parties continues in the Zacualpan mining district. At
ICRM's request, an independent mining engineer, Juan Jose Cabuto Vidrio of
Mexico, and Burton Consulting Inc., independent geologists, completed a due
diligence report for the Zacualpan Project in December 1998. By April 1999,
Joseph P. Anzman, an independent geophysicist, and Israel Hernandez Perez and
Luis Nolasco Vargas, independent engineers, had completed the induced
polarization survey at the Zacualpan Project (other than the Quinto Real
concession to be acquired) recommended by the due diligence report. Based on the
results of the induced polarization survey, ICRM is conducting a drill program
at the Zacualpan Project. See ITEM 3. DESCRIPTION OF PROPERTY.
Silver King currently has no revenues. As of June 30, 1999, Silver King's
accumulated deficit was $611,071. Due to the capital-intense nature of starting
up a mining business, Silver King will require additional operating capital to
implement its business strategy of continued exploration of the Zacualpan
Project. As of June 30, 1999, Silver King had a cash balance of $5,914 and
working capital deficit of $34,797 as compared to no cash balance and a working
capital deficit of $25,000 as of December 31, 1998, when it was inactive.
Silver King plans to secure additional working capital primarily through the
sale of its securities. Its ability to raise capital accordingly depends on the
liquidity of Silver King's securities which, in turn, is facilitated by having a
class of securities eligible for public trading. The use of Silver King's
securities to raise capital relies to a great extent on the development and
maintenance of an active trading market for the securities. The public trading
market for Silver King's common stock is very limited. There can be no
assurances that a regular trading market will develop or, if developed, that it
will be sustained on a long-term basis.
THE ZACUALPAN PROJECT
The Zacualpan Project is located in the Zacualpan mining district, which is
located in the Municipality of Zacualpan in Mexico, approximately 94 kilometers
southwest of Mexico City, near the northern Guerrero state line. The Zacualpan
mining district has produced silver for over 450 years, with one mining
operation continuing production. There has been little modern exploration in the
district for mineralization through indirect techniques, such as geophysical
induced polarization surveying. Furthermore, much of the region has never been
drill tested and exploration below the water table has been minimal.
Based on recommendations from Juan Jose Cabuto Vidrio, an independent mining
engineer and Burton Consulting, Inc., an independent geological consulting firm
retained by ICRM, ICRM surveyed the Zacualpan Project through induced
polarization (the "IP Survey"). An induced polarization survey can indirectly
determine the presence of silver mineralization by detecting anomalous
conditions demonstrative of the presence of pyrite. Pyrite, an iron sulfide with
no commercial value, is an indicator of silver mineralization.
The 47 line/kilometer IP Survey outlined numerous anomalies in the vicinity of
former prospects and mine workings on the Zacualpan Project. From these
anomalies, fifteen targets were chosen for the first phase of a drill program.
ICRM is currently in the process of conducting the drill program to test, in a
preliminary manner, the potential of several vein structures outlined by the IP
Survey. The drilling is being supervised by an independent geologist, Stewart
Jackson of Denver, Colorado.
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To date, ICRM has completed the first phase of the fifteen-hole drill program
for the Zacualpan Project. Two of the vein structures, Quinto II and Nogale,
which were identified as induced polarization anomalies in the IP Survey, were
tested by thirteen drill holes. The Cometa structure was tested by two drill
holes. Assays have been completed for the fifteen drill holes.
Zones of sulfides, carrying lead, zinc and silver were encountered in all but
one hole. Data for two of the more prospective holes are set forth below:
<TABLE>
Hole # Interval/Distance in meters % Lead % Zinc gm/tonne Silver gm/tonne Gold
- ------ --------------------------- ------ ------ --------------- -------------
<S> <C> <C> <C> <C> <C>
#Z4 298.30-298.60 (0.33m) 7.10 9.09 368.9 0.41
#Z2 31.1-34.4 (2.7m) 0.49 1.35 147.8 0.07
48.49-50.60 (2.11m) 0.11 0.48 56.9 0.003
54.95-56.08 (1.13m) 1.06 3.63 199.65 0.105
</TABLE>
G.M. Lacme Laboratories of Guadalajara, Mexico prepared the materials for the
assays, with analyses conducted by its parent company, Acme Laboratories of
Vancouver, British Columbia. Analytical results are obtained by induction
coupled plasma 30 element scans, followed by standard fire assay techniques.
The first phase of the drill program is intended to validate the mineralization
in the most anomalous areas identified by the IP Survey. ICRM completed the
first phase of the drilling program during the third quarter of 1999, and is in
the process of conducting the second phase of the program, which it expects to
complete by the third quarter of 2000.
To date, ICRM's IP Survey and drill program indicate that there is sulfide
mineralization present at the Zacualpan Project, which may be widespread. Past
mining of old veins extended only to the water tables and rarely to 100 meter
depths beyond. Advanced methods of exploration apparently have not been utilized
in the area, which suggests that most mineralization below the water table, if
any, remains present for exploration and extraction. Due to the primitive
methods previously used to locate the mineralized areas in locations parallel to
identified veins, en echelon or blind structures may exist but have yet to be
located.
Since ICRM has not determined the location of reserves, both underground and
open pit mining operations are possible. Most mining operations in the Zacualpan
mining district are underground.
BUSINESS STRATEGY
Silver King's objective is to become, through strategic affiliations with joint
venture partners and operators with prior mining experience, a producer and
provider of silver, other precious metals and natural resources by acquiring and
developing a significant reserve of mineral deposits. The principal elements of
Silver King's business strategy are as follows: (i) to complete a drilling
program, and, if warranted, a feasibility study of a mining operation at the
Zacualpan Project; (ii) to acquire the Zacualpan Project by March 2000 under the
option purchase contracts ICRM entered into in the fourth quarter of 1998 and
under the proposed assignment agreement for the Quinto Real claim; (iii) if
warranted, to proceed to develop the Zacualpan Project into a mining operation;
(iv) to identify and acquire other mining, mineral and natural resource
properties, particularly in Mexico and the United States, that Silver King
believes contain significant amounts of silver or have exploration potential;
and (v) to secure the financing required to explore and develop the Zacualpan
Project as well as other mining, mineral and natural resource properties that
Silver King may acquire in the future.
Silver King believes that it will position itself to capitalize on the
increasing demand for silver and the commonly found co-occurring metals of zinc,
lead, copper and gold through the acquisition of development and exploration
properties with significant mineralization potential.
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COMPETITION
The mining industry is highly competitive. Silver King faces much competition in
acquiring the limited number of favorable properties and prospects for drilling,
exploration, development and mining operations. Many of Silver King's
competitors have more financial resources and longer operating histories with
established mining operations than Silver King does. If Silver King competes
with them for the same customers or markets, their financial strength and more
established reputations could prevent us from securing business from those
customers or in those markets. Larger competitors could discount prices to
attract or maintain customers. Silver King may not have the financial resources
to compete with them on that level. Competitors may have more financial
resources than Silver King to expend on the identification and exploration of
mining properties, which may impede our ability to locate and develop
potentially lucrative mines.
REGULATION
The mineral activities undertaken by Silver King and its subsidiaries are
subject to laws and regulations controlling not only the mining of and
exploration for mineral properties, but also the possible effects of these
activities on the environment.
Silver King's mining concessions in Mexico are subject to various Mexican
regulations which require permits and licenses from local authorities. Silver
King's failure to comply with applicable regulations could result in fines or
possible revocation of one or more of Silver King's operating licenses and title
to the mining concessions, any of which events could have a material adverse
effect on Silver King. Compliance with these laws and regulations may require
significant capital outlays or delays in Silver King's intended activities. In
addition, any future mining concessions or properties acquired by Silver King
will also be subject to various national, international, state or local mining
and environmental regulations. While these laws and regulations govern how
Silver King conducts many aspects of its business, management does not believe
that they have a material adverse effect on its results of operations or
financial condition at this time. Silver King will consider the cost and impact
of environmental regulation when it makes a decision to proceed with the
exploration at the Zacualpan Project after the drilling program there has been
completed. It is possible that future changes in environmental laws and
regulations could have a significant impact on any decisions Silver King makes
with regard to continued exploration at the Zacualpan Project or at any future
projects, causing those activities to be economically reevaluated at that time.
Silver King's mining operations in Mexico are subject to inspection and
regulation under Mexico's environmental laws, including the comprehensive
General Law on Ecological Balance and Environmental Protection. Environmental
conditions may exist on the Zacualpan Project which are unknown to Silver King
at present and which have been caused by previous or existing owners or
operators of these properties. Silver King has not sought an environmental
analysis at the Zacualpan Project, nor has it conducted a comprehensive review
of the environmental laws and regulations in Mexico. To the extent Silver King
is subject to environmental liabilities, the satisfaction of such liabilities
would reduce its net cash flow and negatively affect its financial position. If
Silver King was not able to fund environmental remediation costs, it might be
forced to suspend operations.
Silver King's current and future mining and processing operations and
exploration activities will also be subject to federal, state and local laws in
the countries in which it conducts activity that govern labor standards,
employee benefits, occupational health, mine safety and toxic substances.
Compliance with these laws may cause Silver King to incur substantial costs.
EMPLOYEES
As of the date of this registration statement, Silver King has two employees.
Silver King is not a party to any collective bargaining agreements, has not
experienced any work stoppages and believes that its relationship with its
employees is good.
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BUSINESS RISKS
When used in this filing, the words "may," "will," "expect," "anticipate,"
"believe," "continue," "estimate," "project," "intend," and similar expressions
are intended to identify forward-looking statements regarding events, conditions
and financial trends which may affect Silver King's future plans of operations,
business strategy, operating results and financial position. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date made and are not guarantees of future performance.
Statements made which are not historical facts, such as anticipated production
or costs, are forward-looking statements and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
projected or implied. These risks and uncertainties include, but are not limited
to, metals price volatility, volatility of metals production, industrial
minerals market conditions, and project development risks. Silver King
undertakes no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events. The
following risk factors with respect to Silver King and its operations may affect
its strategy and business plan:
1. The successful implementation of Silver King's business plan is contingent
upon acquiring mining concessions under option agreements. Silver King's rights
to mineral concessions at the Zacualpan Project derive from purchase option
agreements which require installment payments. In the event Silver King fails to
make such scheduled payments with respect to any of the concessions on the
relevant due date, Silver King's rights to any such property may lapse. In that
case, Silver King will have no business. There can be no assurance that Silver
King will, or will be able to, effect all such payments by the requisite payment
dates.
2. Silver King may not be able to continue as a going concern if it does not
generate revenues. Silver King's auditors have raised the issue that Silver King
may not be able to continue as a going concern as a result of a lack of
revenues. Silver King remains in the exploration stage. At June 30, 1999, Silver
King had a working capital deficit of $34,797 and an accumulated deficit of
$611,071, with deficits and losses expected to continue for the foreseeable
future.
3. The absence of an operating history increases the cost and risk of developing
Silver King's business. Silver King has no current operating history and is
subject to all risks inherent in a developing business enterprise. The
likelihood of success of Silver King must be considered in light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in connection with a new business in general and those specific to
the natural resource industry, such as the competitive and regulatory
environment in which Silver King will operate and high start-up costs. Silver
King expects to make substantial expenditures to determine the location and
extent of mineralization through surveys, drilling programs and other sampling
techniques. Silver King has already incurred approximately $140,000 in expenses
for the induced polarization survey and drilling program undertaken by ICRM at
the Zacualpan Project, and expects that it will continue to expend significant
sums for these activities and the advice of mining engineers and geological
consultants.
The material uncertainties inherent in the initial stages of Silver King's
mining program are the location and dimensions of mineralization, metal content
and receipt of necessary governmental permits. There can no assurance that
Silver King will discover minerals in sufficient quantities to justify
commercial operations or that funds and governmental permits required for
exploration and future development can be obtained at all, or on a timely basis.
Accordingly, there can be no assurance that Silver King's exploration efforts
will result in profitable mineral production.
4. As an exploration stage company, Silver King must expend significant amounts
of money before it can make a profit, if ever. Mineral exploration, particularly
for silver, is highly speculative in nature, frequently is nonproductive, and
involves many risks, often greater than those involved in the actual mining of
mineralization. Such risks can be considerable and may add unexpected
expenditures or delays to Silver King's plans. There can be no assurance that
Silver King's mineral exploration activities will be
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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. A related
factor is that exploration stage companies use the evaluation work of
professional geologists, geophysicists, and engineers for estimates in
determining whether to acquire an interest in property or to commence
exploration or development work. These estimates generally rely on scientific
estimates and economic assumptions, and in some instances may not be correct,
and could result in the expenditure of substantial amounts of money on a
property before it can be determined whether or not the property contains
economically recoverable mineralization. The economic viability of a property
cannot be determined until extensive exploration and development has been
conducted and a comprehensive feasibility study performed. Silver King currently
does not have any such feasibility studies, and has not yet prepared feasibility
studies on any of its properties.
5. The market fluctuation of mineral prices may render Silver King's business
economically unviable. The market prices of any minerals produced are subject to
fluctuation, which may negatively affect the economic viability of properties on
which expenditures have been made. Silver King remains in the exploration stage
and has commenced neither the extraction of minerals at commercial levels nor
the sale of minerals. Silver King is not able to determine at present whether or
not, or the extent to which, such risks may adversely affect Silver King's
strategy and business plans.
6. Silver King will need to generate revenue and secure additional financing to
operate. Silver King needs additional capital but currently has no revenues.
Substantial expenditures are required to establish ore reserves through
drilling, to determine metallurgical processes to extract the mineralization
from the ore and, in the case of new properties, to construct mining and
processing facilities. In the first half of 1999, Silver King raised $555,500 in
private placements of its securities. It intends to contribute a substantial
portion of the net proceeds of the private placement to ICRM so that it may
complete the acquisition of certain mineral rights. The net proceeds will not be
sufficient to fully finance the exploration and drill program currently in
process at the Zacualpan Project. Accordingly, Silver King will require further
financing in order to pursue its longer-term strategy to explore the Zacualpan
Project and acquire and explore additional mineralization properties. Silver
King intends to seek this financing through a combination of traditional debt
financing and the placement of debt and equity securities. Provided a liquid
trading market for Silver King's common stock develops, Silver King 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.
However, 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, Silver King may be required to utilize more of its cash resources,
if available, in order to initiate and maintain its acquisition strategy. If
Silver King does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. Silver King will attempt to identify sources of financing on an
on-going basis, but there can be no assurances that such sources can be found or
that, if available, the terms of such financing will be commercially acceptable
to Silver King. Because of Silver King's need for additional capital to fund the
exploration and drill program at the Zacualpan Project, to complete the
acquisition of certain mineral rights, and to provide for further development
and exploration, the lack of consistent revenue or financing sources could be a
detrimental factor in Silver King's business progress.
7. Due to the limited market for Silver King's common stock and possible
volatility of stock prices, an investment in Silver King may be risky and
illiquid. The public trading market for shares of Silver King's common stock on
the National Quotation Bureau's Pink Sheets is extremely limited. There is a
minimal supply of Silver King's shares eligible for public resale. There can be
no assurances that a regular trading market for the Silver King's common stock
will develop, and if it develops, whether it can be sustained. By its very
nature, trading on the National Quotation Bureau's Pink Sheets provides only
limited market liquidity. As a result of the limited market, stockholders may
have difficulty in effecting sales of their shares and/or obtaining a
satisfactory price for such shares. As of November 11, 1999, Silver King has
outstanding 18,075,000 shares of common stock of which approximately 100,000 are
eligible for public trading. Until its trading market develops, if at all, the
market price for Silver King's common stock is likely to be volatile, and
factors such as success or lack thereof in acquiring suitable strategic targets,
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competition, governmental regulation and fluctuations in operating results may
all have a significant effect. In addition, the stock markets generally have
experienced, and continue to experience, extreme price and volume fluctuations
which have affected the market price of many small capitalization companies and
which have often been unrelated to the operating performance of these companies.
These broad market fluctuations, as well as general economic and political
conditions, may adversely affect the market price of Silver King's common stock.
8. Silver King's common stock no longer trades on the OTC Bulletin Board due to
a rule change. Under a rule change recently announced by the SEC and the
National Association of Securities Dealers, Inc. ("NASD"), "non-reporting"
public companies trading on the OTC Bulletin Board as of January 4, 1999 like
Silver King are no longer eligible to trade securities on the OTC Bulletin Board
unless they become reporting companies under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), within a specified period of time. As a
result of the rule change, Silver King's common stock was suspended from
quotation on the OTC Bulletin Board on August 3, 1999, and as of October 1,
1999, is no longer eligible for quotation on the OTC Bulletin Board. According
to the rule change, the NASD limited trading activities to only those companies
that have registered their securities under the Exchange Act and have fully
cleared all comments made by the SEC to registration statements effectuating
such registration. Although Silver King's shares became registered under the
Exchange Act on September 8, 1999 by virtue of filing a registration statement
with the SEC on July 8, 1999, Silver King has not yet cleared all comments made
by the SEC to the registration statement. Management has prepared this amendment
to the registration statement to clear such SEC comments. Once the SEC comments
have been cleared, Silver King intends to submit an application for its shares
to be relisted on the OTC Bulletin Board. Silver King's common stock is
currently traded in the National Quotation Bureau's Pink Sheets.
9. Possible limitations upon trading activities and restrictions imposed upon
broker-dealers effecting transactions in penny stocks may depress the market for
Silver King's securities. The SEC has adopted regulations imposing limitations
upon the manner in which certain low priced securities (referred to as a "penny
stock") are publicly traded. Under these regulations, a penny stock is defined
as any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include any equity security
listed on the Nasdaq National Market System or SmallCap Market and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000 if such issuer has been in continuous operation for less
than three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
Also, under these regulations, certain broker/dealers who recommend such
securities to persons other than established customers and certain accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale.
Silver King's common stock presently constitutes a "penny stock." Accordingly,
trading activities for Silver King's common stock will be made more difficult
for broker-dealers than in the case of securities not defined as "penny stocks."
This may have the result of depressing the market for Silver King's securities
and an investor may find it difficult to dispose of such securities.
10. Silver King will likely issue a substantial number of additional shares,
which would dilute its common stock. Silver King is previously authorized to
issue 50,000,000 shares of common stock of which 18,075,000 are outstanding as
of November 11, 1999. One of the principal elements of Silver King's business
strategy is to accomplish strategic property acquisitions with business
partners, which may be effectuated through the issuance of additional shares of
Silver King's common stock as part of the purchase price consideration. This
would have the effect of increasing the number of shares of common stock
outstanding. In addition, in order to accomplish its acquisition strategy on a
longer-term basis, Silver King is likely to require additional financing to fund
its acquisition strategy, which may entail the
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issuance of additional shares of common stock or common stock equivalents, which
would have the further effect of increasing the number of shares outstanding. In
connection with other business matters, Silver King will likely undertake the
issuance of more shares of common stock. This may be done in order to, among
others, facilitate a business combination, acquire assets or stock of another
business, compensate employees or consultants or for other valid business
reasons in the discretion of Silver King's Board of Directors. Under Delaware
law, Silver King can issue additional shares without notice to, or approval of,
existing stockholders. In addition, during January 1999, in conjunction with
private placements of its securities, Silver King granted warrants to purchase
an aggregate of 2,000,000 shares of common stock.
11. Silver King may not be able to realize its investments in mineral
properties. The ultimate realization of Silver King's investments in mineral
properties is dependent upon the discovery of economically recoverable reserves,
the ability of Silver King to obtain financing or make other arrangements for
development and upon future profitable production. Silver King expects to
finance its future operations through the sale of equity securities, joint
venture arrangements (including project financing), and the sale of interests in
mineral properties. Silver King does not have sufficient capital of its own to
explore and develop its mineral properties and there can be no assurances that
Silver King will be successful in obtaining the required funds to finance its
long-term capital needs.
12. Defective or invalid title to mineral concessions could adversely affect
Silver King's business. There is no guarantee that title to the concessions to
be acquired by its subsidiary will not be challenged or impugned. Title
insurance generally is not available, and Silver King's ability to ensure that
its subsidiary will obtain secure claims to individual mining concessions may be
severely constrained. Although Silver King has reviewed publicly available title
records for all of the claims which its subsidiary has rights to acquire, Silver
King has not conducted surveys of any of these claims; therefore, the precise
area and location of such claims may be in doubt. Accordingly, any mineral
concessions may be subject to prior unregistered agreements, transfers or
claims, and title may be affected by undetected defects.
13. Silver King is subject to holding company structure risks. Silver King
currently conducts, and will continue to conduct, all of its operations through
subsidiaries. Silver King's ability to obtain dividends or other distributions
from its subsidiaries may be subject to restrictions on dividends under
applicable local law and foreign currency exchange regulations in the
jurisdictions in which the subsidiaries operate. The subsidiaries' ability to
pay dividends or make other distributions to Silver King may also be subject to
their having sufficient funds from their operations legally available for the
payment thereof which are not needed to fund their operations, obligations or
other business plans. If Silver King's subsidiaries are unable to pay dividends
or make other distributions to Silver King, Silver King's growth may be
inhibited after the proceeds of the private placements completed in January and
April of 1999 are exhausted, unless Silver King is able to obtain additional
debt or equity financing on terms which are acceptable to Silver King. In the
event of a subsidiary's liquidation, there may not be assets sufficient for
Silver King to recoup its investment therein.
14. The mining business is very competitive. Silver King faces intense
competition in the mining industry. Many of Silver King's competitors have well
established operations and significantly greater financial, marketing, personnel
and other resources than Silver King. There can be no assurance that Silver King
will be able to compete effectively against these or any other competitors.
15. Silver King is controlled by a small number of stockholders who have the
ability to control important corporate decisions without the input of minority
stockholders. On the date of this registration statement, Silver King's
principal stockholders own approximately 66% of the common stock of Silver King.
Consequently, by virtue of Delaware law, these stockholders will be in a
position to elect all of Silver King's directors and control the outcome of
other corporate matters without the approval of Silver King's other
stockholders. In addition, applicable statutory provisions and the ability of
the Board of Directors to issue one or more series of preferred stock without
stockholder approval could deter or delay unsolicited changes in control of
Silver King by discouraging open market purchases of Silver King's stock or a
non-negotiated tender or exchange offer for such stock, which may be
disadvantageous to a majority of Silver
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King's stockholders who may otherwise desire to participate in such a
transaction and receive a premium for their shares.
16. Silver King may not be able to retain and attract the key personnel it needs
to succeed. Silver King's success will depend, in large part, on its ability to
retain and attract highly qualified personnel. Silver King's success in
attracting qualified personnel will depend on many factors, including its
ability to provide them with competitive compensation arrangements, equity
participation and other benefits. There is no assurance that the Company will be
successful in retaining or attracting highly qualified individuals in key
management positions.
17. Silver King and the mining industry are subject to substantial government
regulation. Environmental and other government regulations at the federal, state
and local level pertaining to Silver King's business and properties may include:
(a) surface impact; (b) water acquisition; (c) site access; (d) reclamation; (e)
wildlife preservation; (f) licenses and permits; (g) maintaining the fees for
unpatented mining claims; and (h) worker safety. Compliance with these
regulations could result in capital expenditures or restrictions and delays in
mining operations. Failure to comply with these regulations could result in
fines, clean up costs, financial liability or the loss of the right to conduct
mining activity. See Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION - COMPLIANCE WITH ENVIRONMENTAL AND LABOR LAWS.
18. Silver King's indemnification of its officers and directors for certain
liabilities may result in significant expenditures. The Bylaws of Silver King
provide that Silver King may indemnify any director, officer, agent and/or
employee as to those liabilities and on those terms and conditions as are
specified in the Delaware General Corporation Law. Further, Silver King may
purchase and maintain insurance on behalf of any such persons whether or not the
corporation would have the power to indemnify such person against the liability
insured against. The foregoing could result in substantial expenditures by
Silver King and prevent any recovery from such directors, officers, agents and
employees for losses incurred by Silver King as a result of their actions.
Further, Silver King has been advised that in the opinion of the Securities and
Exchange Commission, indemnification is against public policy as expressed in
the Securities Act of 1933, as amended, and is, therefore, unenforceable.
19. Since shares of Silver King's common stock have no preemptive rights or
cumulative voting rights, stockholders are not protected against dilution and
may not obtain board representation. There are no preemptive rights in
connection with Silver King's common stock. Thus, no existing common stockholder
has the right to buy additional shares of any new stock issues to preserve his
proportionate share equity ownership in Silver King. In addition, cumulative
voting in the election of directors is not provided for. Accordingly, the
holders of a majority of the shares of common stock, present in person or by
proxy, will be able to elect all of Silver King's Board of Directors. See ITEM
8. DESCRIPTION OF SECURITIES - Common Stock.
20. Silver King does not expect to pay dividends. The holders of the common
stock are entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. To date, Silver King has not
paid any cash dividends. The Board does not intend to declare any dividends in
the foreseeable future, but instead intends to retain all earnings, if any, for
use in Silver King's business operations. As Silver King will be required to
obtain additional financing, it is likely that there will be restrictions on
Silver King's ability to declare any dividends.
21. Silver King's operations may be adversely affected by Year 2000 issues.
Silver King is presently responding to Year 2000 issues. Year 2000 issues are
the result of computer programs being written using two digits rather than four
to define the applicable year associated with the program or an associated
computation. Any such two-digit computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. 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.
Management expects to have substantially all of the systems application changes
completed within the next two months and believes
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that its level of preparedness is appropriate. The total cost to Silver King of
these Year 2000 compliance issues is not anticipated to be material to its
financial position or results of operations in any given year since its mining
operations do not rely to any great extent on computer processes. These costs
and the date on which Silver King plans to complete the Year 2000 modification
and testing processes are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no assurances that these estimates will be
achieved and actual results could differ from those plans.
22. Silver King's operations may be adversely affected by instability in foreign
countries and local laws of foreign countries. Silver King's business is
currently conducted not in the United States, but in Mexico. As a result, Silver
King's operations are subject to various risks such as loss of revenue, property
or equipment due to expropriation, nationalization, war, insurrection, terrorism
or civil disturbance, the instability of the Mexican economy, currency
fluctuations and devaluations, adverse tax policies and governmental activities
that may limit or disrupt markets, restrict payments or the movement of funds or
result in the deprivation of contract rights. Silver King does not carry
political risk insurance to help protect against losses which we may incur as a
result of foreign political acts. Silver King has been advised by ICRM's Mexican
legal counsel that there are currently no foreign exchange controls in Mexico
nor applicable restrictions under Mexican law that prohibit the repatriation of
profits and the import and export of capital. Additionally, the ability of
Silver King to compete may be adversely affected by foreign governmental
regulations that encourage or mandate the hiring of local contractors, or by
regulations that require foreign contractors to employ citizens of, or purchase
supplies from vendors in, a particular jurisdiction. Silver King is subject to
taxation in a number of jurisdictions, and the final determination of its tax
liabilities involves the interpretation of the statutes and requirements of
various domestic and foreign taxing authorities. Moreover, the countries where
Silver King operates and plans to operate have legal systems that differ from
the United States legal system and may provide substantially less protection for
foreign investors. Silver King is not aware of any legal limitations on its
ability to obtain legal recourse in Mexico by virtue of being a foreign investor
in ICRM; however, other countries where Silver King could operate in the future
may have laws that limit the legal recourse Silver King may obtain or seek as a
foreign investor.
23. Laws restricting foreign investments may adversely affect Silver King's
business strategy. Foreign investment by Silver King in local joint ventures or
business acquisitions may be restricted, controlled, limited or even prohibited
by the laws of foreign jurisdictions in which Silver King operates or plans to
operate. Although Mexican legal counsel has advised Silver King that its equity
interest in its Mexican subsidiary is not subject to any legal restriction,
there can be no assurance that such restrictions will not be enacted in the
future. Other foreign laws require governmental approval to investments by
foreign persons and limit the extent of any such investment. There can be no
assurance that additional or different foreign restrictions or adverse policies
applicable to Silver King will not be imposed in the future. In addition, there
can be no assurances that the governments of the foreign jurisdictions in which
Silver King or its subsidiaries has property or mining concessions will
continually honor and uphold property rights of foreigners in their countries.
Silver King does not have political risk insurance covering it from any losses
caused by these foreign governments, such as expropriation. Expropriation or the
failure by a foreign government to recognize Silver King's mining concessions
could result in the cessation of Silver King's business or the loss of capital
expenditures made with respect to such properties.
24. Exchange rate fluctuations may have an adverse effect on Silver King's
results of operations. Silver King does not currently bill any customers as it
remains in the exploration stage. Silver King may bill in Mexican pesos or U.S.
dollars with respect to any activity emanating from the Zacualpan Project. To
date, the majority of expenses incurred in the exploration and drilling of the
Zacualpan Project have been billed in U.S. dollars and paid in Mexican pesos at
the applicable exchange rate, which Silver King expects to continue. Exchange
rates for Mexican pesos and other local currencies in countries where Silver
King may operate in the future fluctuate in relation to the U.S. dollar and such
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fluctuations may have an adverse effect on Silver King's earnings or assets when
local currencies are exchanged for U.S. dollars if the exchange rate is not
favorable for Silver King. During the past seven months, the Mexican peso
dropped slightly in value compared with the U.S. dollar, but has been stable.
Silver King does not currently engage or plan to engage in any hedging
transactions in international currencies. Accordingly, any weakening of the
value of such local currency against the U.S. dollar could result in lower
revenues and earnings for Silver King.
25. Silver King's lack of insurance to cover mining risks may expose it to
significant liability and expense. Since Silver King remains in the exploration
stage and has not yet acquired any mining concessions or commenced mining
operations, it has not obtained insurance covering mining risks. As the business
of mining is generally subject to many risks and hazards, including adverse
environmental effects, industrial accidents, labor disputes, cave-ins, flooding
and periodic interruptions due to inclement weather, Silver King will attempt to
obtain mining insurance within ranges of coverage consistent with industry
practice in the event that it acquires mining concessions and commences mining
activity. These risks can result in the damage and destruction of mineral
properties and processing facilities, as well as personal injury, environmental
damage, mining delays and monetary losses. There can be no assurances, however,
that Silver King will be able to secure such insurance at economically feasible
premiums. In addition, insurance against environmental risks may not be
generally available to Silver King.
GLOSSARY OF CERTAIN MINING TERMS
Adit: An almost horizontal entrance to a mine.
Andesite: A fine grained, gray volcanic rock, mainly plagioclase and feldspar.
Assay: A chemical test performed on a sample of ores or minerals to determine
the amount of valuable metals contained therein.
Calcareous: Containing calcium carbonate.
Development: Work carried out for the purpose of opening up a mineral deposit
and making the actual ore extraction possible.
Dolomite: A sedimentary rock rich in magnesia.
En Echelon/Blind Structures: Subparallel/not visible on surface.
Exploration: The searching for ore, usually by geological surveys, geophysical
prospecting, drilling, surface or underground headings, drifts, or tunnels.
Feasibility Study: A technical study of a project at sufficient level of
accuracy and detail to allow a decision as to whether a given project should
proceed.
Grade: The average assay of a ton of ore, reflecting metal content.
Hectare: A planar unit of measurement in the metric system for designating land
area. One hectare equals 2.47105 acres or 107,638.93 square feet (one acre
equals 43,560 square feet).
Mill: A processing plant that produces a concentrate of the valuable minerals or
metals contained in an ore. The concentrate must then be treated in some other
type of plant, such as a smelter, to effect recovery of the pure metal.
Mineralization: The process by which a mineral or minerals are introduced into a
rock.
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Net Smelter Return or NSR: A return based on the actual proceeds from sale of
metal or mineral products received less the cost of refining or smelting at an
off-site refinery.
Platy: Designating soil or minerals occurring in flaky layers.
Probable Reserves: That part of a mineral deposit which may be economically and
legally extracted or produced at the time of the reserve determination for which
quantity and grade and/or quality are computed from information similar to that
used for proven reserves (see below), but the sites for inspection, sampling and
measurement are farther apart or are otherwise less adequately spaced. The
degree of assurance, although lower than that for proven reserves, is high
enough to assume continuity between points of observation.
Proven Reserves: That part of a mineral deposit which may be economically and
legally extracted or produced at the time of the reserve determination for which
(a) quantity is computed from dimensions revealed in outcrops, trenches,
workings and drill holes and grade and/or quality are computed from the results
of detailed sampling; and (b) the sites for inspection, sampling and grade
measurement are spaced so closely and the geological character is so well
defined that size, shape, depth and mineral content of reserves are well
established.
Pyrite: An iron sulfide that may indicate the presence of silver mineralization.
Refining: The final stage of metal production in which residual impurities are
removed from the metal.
Reserve: That part of a mineral deposit which could be economically and legally
extracted or produced at the time of the Registration reserve determination.
Rhyolite: a fine-grained volcanic rock containing abundant silica minerals and
aluminosilicates (feldspar) plus accessory minerals.
Schists: Rocks that are platy due to physical changes caused by heat and
pressure.
Schistosity: Planar textural elements in schists that create an appearance of
layering.
Skarn: Rocks composed almost entirely of lime-bearing silicates and derived from
nearly pure limestones and dolomites into which large amounts of silicon,
aluminum, iron and magnesium have been introduced.
Smelting: Heating ore or concentrate material with suitable flux materials at
high temperatures creating a fusion of these materials to produce a melt
consisting of two layers: (1) one on top, a slag of the flux and gangue (waste)
minerals, and (2) one below, molten impure metals. This generally produces an
unfinished product requiring refining.
Stoping: In mining, the loosening and removal of ore in a mine, either by
working upward (overhead or overhand) or downward (underhand).
Tonne: A metric ton (1,000 kilograms, or 2,205 pounds).
Troy Ounce: Unit of weight measurement used for all precious metals. The
familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
Vein: A mineralized zone having a more or less regular development in length,
width and depth which clearly separates it from neighboring rock.
Waste: Barren rock in a mine, or mineralization that is too low in grade to be
mined and milled at a profit.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Silver King Resources, Inc. ("Silver King") 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. None of these properties are in production and, consequently, Silver
King has no current operating income or cash flow.
BACKGROUND
On June 24, 1999, 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.
PLAN OF OPERATION/THE ZACUALPAN PROJECT
In May 1999, Silver King formed a joint venture with International Capri
Resources Ltd. ("ICR") and Zacualpan Minerals LLC ("Zacualpan LLC") to acquire,
explore and, if warranted, develop six mining concessions on properties located
in southern Mexico with prospective silver mineralization (the "Zacualpan
Project"). The joint venture was structured by placing the rights to acquire the
mining concessions with International Capri Resources S.A. de C.V., a Mexican
company ("ICRM"), and having each of Silver King, ICR and Zacualpan LLC
subscribe for shares of ICRM. This structure was chosen since mining concessions
in Mexico must be held in the name of a Mexican entity. Also, this structure
allowed each shareholder to appoint one member to ICRM's board of directors,
which must approve operational decisions. The shareholders are required to fund
future exploration, development and operating expenses of the Zacualpan Project
by contributing capital to ICRM in proportion to their respective ownership
interests. Silver King owns a 60% equity interest in ICRM, which may be adjusted
upward or downward depending on each shareholder's compliance with required
capital contributions to ICRM in the future. See ITEM 1. DESCRIPTION OF BUSINESS
- - Joint Venture In Mexico.
In December 1998, Polo Y Ron Minerals, S.A. de C.V. assigned to ICRM its rights
in three agreements to purchase a total of five mining concessions in the
municipalities of Zacualpan and Tetipac in southern Mexico, which comprise parts
of the Zacualpan Project. In March and April 1999, an induced polarization
survey (the "IP Survey") was completed for the five concessions. The
geophysicist that performed the IP Survey recommended that ICRM undertake a
drill program to verify the IP Survey's promising indications of silver
mineralization at the Zacualpan Project. In the second quarter of 1999, ICRM
began a 2,000 meter drill program, the first phase of which was completed during
the third quarter of 1999. Management expects that ICRM will expend $1,000,000
for the drill program through mid-November 2000. Although the drill program is
currently in its initial stage, preliminary results indicate silver and base
metal anomalies. 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, which study is likely to entail a
more extensive drill program to define the mineralized zones. 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 drill program through mid-November 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
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for ICRM's drill program. To date, Silver King has funded approximately $140,000
of the $600,000. In addition, Silver King expects to expend over the next twelve
months the aggregate amount of approximately $328,000 to $428,000 for the
following reasons:
- --------------------------------------------------------------------------------
Amount Reason
- --------------------------------------------------------------------------------
$ 33,100 Remaining payments due under ICRM's mining concession option
purchase agreements for the Zacualpan Project
- --------------------------------------------------------------------------------
$ 15,000 Payment for ICRM's acquisition of the Quinto Real mining
concession
- --------------------------------------------------------------------------------
$ 40,000 Payments for government mining duties, proof of works and taxes
for ICRM's mining concessions at the Zacualpan Project and Quinto
Real
- --------------------------------------------------------------------------------
$ 40,000 Legal, administrative and accounting expenses for ICRM
- --------------------------------------------------------------------------------
$ 80,000 Legal, administrative and accounting expenses for Silver King
- --------------------------------------------------------------------------------
$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 Silver King to FAC Enterprises, Inc.
- --------------------------------------------------------------------------------
Silver King 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 Silver
King has thus far raised $555,500 in private placements of its securities in
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, Silver King intends to seek this financing through a combination of
traditional debt financing and the placement of debt and equity securities.
Silver King 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 Silver King'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, Silver King may be required to
utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition strategy. If Silver King does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings.
RESULTS OF OPERATIONS
REVENUES; LOSSES. Silver King does not yet produce silver or any other mineral
products and has no revenues from product sales. The net loss for the year ended
December 31, 1998 was $26,834. For the six months ended June 30, 1999, Silver
King incurred a net loss of $579,237, as pre-operating costs increased. From
August 23, 1988, its date of incorporation, through June 30, 1999, Silver King
has incurred a total net loss of $611,071.
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ADMINISTRATIVE. Administrative expenses were $1,834 for the year ended December
31, 1998, compared to no administrative expenses for the year ended December 31,
1997. This increase in administrative expenses from 1997 is the result of
reincorporation fees. Silver King incurred administrative expenses of $41,818
for the six months ended June 30, 1999. The increase in administrative expenses
from 1998 is the result of office and travel expenses.
CONSULTING. Consulting fees were $5,000 for the year ended December 31, 1998,
compared to no consulting fees for the year ended December 31, 1997. Silver King
incurred $23,500 in consulting fees for the six months ended June 30, 1999. The
increased consulting fees were due to retaining an administrative consultant.
LEGAL AND ACCOUNTING. Legal and accounting fees were $20,000 for the year ended
December 31, 1998, compared to no legal or accounting fees for the year ended
December 31, 1997. This increase from 1997 was due to costs associated with the
negotiation and preparation of the Joint Venture Agreement and the ROFR
Agreement. For the six months ended June 30, 1999, Silver King incurred legal
and accounting expenses of $54,042. This increase from 1998 was due to costs
associated with the private placement offerings of Silver King's securities and
the preparation of securities filings in compliance with securities disclosure
regulations.
INTEREST EXPENSES. Interest expenses for the six months ended June 30, 1999 were
$2,918, the first time Silver King has incurred an interest expense. The
interest expense was due to a $100,000 loan taken by Silver King in April 1999
at an annual interest rate of 12%, and other loans repaid in April 1999.
RIGHT OF FIRST REFUSAL. Silver King incurred a $131,250 expense for the six
months ended June 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 Silver King
certain rights of first refusal to participate in future mining and natural
resource opportunities identified by Mr. Isaacs. Silver King had not previously
incurred a similar type of expense.
EXPLORATION COSTS. Exploration expenses for the six months ended June 30, 1999
were $329,641, the first time Silver King has incurred an exploration expense.
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 Silver King'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 June 30, 1999, Silver King had cash and cash equivalents of $5,914. Silver
King had no cash or cash equivalents as of either December 31, 1997 or 1998. The
increase in the six months ended June 30, 1999 relative to prior years was due
to the receipt of net proceeds from private placements of securities.
Silver King received an aggregate of $555,500 in net proceeds from private
placements completed in January and April of 1999. In January 1999, Silver King
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, Silver King 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 for the year ended December 31, 1998
was $25,000, compared to $0 for the year ended December 31, 1997. The net cash
used in operating activities for the six months ended June 30, 1999 was
$496,331. The increase in the net cash used in operating activities from 1997
was due to the fact that Silver King had no operations prior to 1998, and the
costs incurred in 1998 and the first six months of 1999 for funding the
pre-operating costs.
16
<PAGE>
The net cash provided by financing activities was $682,653 for the six months
ended June 30, 1999, compared with no net cash from financing activities for any
prior period. 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 IP
Survey, drill 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. Silver King is
subject to a 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, Silver King 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 during the six months ended June 30,
1999 was $190,547. Of the $190,547, $24,500 was paid by Silver King toward the
purchase price of mining concessions and $166,547 was used to acquire Silver
King's equity interest in ICRM.
Silver King does not currently have a line of credit with any financial
institutions. Silver King currently owes $45,000 on a short-term loan to an
unrelated party.
Silver King has a working capital deficit and is not generating revenues. Silver
King 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.
SUBSEQUENT EVENTS
In September 1999, Silver King received a short-term loan from FAC Enterprises,
Inc., a principal stockholder. The loan bears interest at the rate of 10% per
annum and the entire principal and applicable interest is due on demand.
COMPLIANCE WITH ENVIRONMENTAL AND LABOR LAWS
Silver King's current and future mining and processing operations and
exploration activities will be subject to various federal, state and local laws
in the countries in which it conducts its activities, which govern the
protection of the environment, prospecting, development, production, labor
standards, employee benefits, occupational health, mine safety, toxic substances
and other matters. Compliance with these laws may cause Silver King to incur
substantial costs.
In connection with the exploration activities currently being carried out at the
Zacualpan Project in Mexico, Silver King expects to incur nonmaterial costs
related to (i) filing and complying with environmental reports; and (ii)
complying with any responses issued by the competent Mexican authorities to
these environmental reports.
The costs of compliance with environmental laws deriving from activities to be
carried out in the future at the Zacualpan Project are unpredictable and may not
be determined at this point, given that environmental conditions may exist on
the Zacualpan Project which are presently unknown to ICRM and Silver King and
which may have been caused by previous or existing owners or operators of these
properties. Silver King and ICRM have not sought an environmental analysis at
the Zacualpan Project, nor have they conducted a comprehensive review of the
environmental laws and regulations in Mexico.
The federal environmental law in Mexico is the General Law on Ecological Balance
and Environmental Protection ("LGEEPA"). In accordance with the LGEEPA and its
applicable regulations and official standards, violations of Mexican
environmental laws may result in administrative, criminal or civil liability.
1. Administrative Liability. Such liability arises when any damage or
affectation to the environment and ecological balance is caused, as well as in
the case of non compliance with the LGEEPA, its regulations
17
<PAGE>
or corresponding official standards. Any third party is entitled to directly
file an accusation with the appropriate Mexican environmental authorities of any
infringement to these legal provisions. If found responsible, a party must
repair the damage it has created.
The administrative penalties deriving from such infringements are: (i) the
imposition of fines; (ii), temporary or definitive, partial or total closing of
the responsible party's business, and/or (iii) up to 36 hours of imprisonment.
2. Criminal Liability. In accordance with the Criminal Code for the Federal
District in Federal Matters and for all the Mexican Republic in Common Matters,
crimes against the environment are currently punished by means of imprisonment,
generally between 3 months and 6 years, and the imposition of a fine equivalent
to 1,000 to 20,000 days of the minimum wage in effect for the Federal District.
3. Civil Liability. Under applicable Mexican civil law, violations of
environmental law may result in the obligation to repair any damage caused.
SEASONALITY
The silver mining business is not seasonal, although the rainy season in Mexico
from May to October can temporarily slow production rates due to road washouts,
site damage and underground mine flooding. Measures such as water control dikes
and water pumps can be taken to minimize the effects of flooding.
YEAR 2000 ISSUES
Silver King is presently responding to Year 2000 issues. Year 2000 issues are
the result of computer programs being written using two digits rather than four
to define the applicable year associated with the program or an associated
computation. Any of Silver King's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. 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 Silver King only recently commenced business as a mineral resource holding
company, our computer systems and reliance on third parties' computer systems
are limited. We do not have a computer network, and currently use only two
personal computers in our business. We have requested the vendors of our
personal computers and software applications to confirm that they are year 2000
compliant. While the possibility exits that the failure of Silver King's
computers and software applications could have an adverse effect on our
financial condition and results of operations, management does not believe that
such effect would be material. If necessary, management could replace computers
and software for less than $10,000. Silver King also maintains back-up copies of
business records in paper format.
We currently have no suppliers or customers but do 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 could impair our ability to properly
assess the economic viability of the Zacualpan Project. We are 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 us, 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 total cost to Silver King of these Year 2000 compliance issues is not
anticipated to be material to its financial position or results of operations in
any given year. Silver King has no mainframe or central database. Although minor
adjustments may be required on the software applications, these costs are
expected to be minimal. These costs and the date on which Silver King plans to
complete the Year 2000
18
<PAGE>
modification and testing processes are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no assurances that these estimates will be
achieved and actual results could differ from those plans.
Silver King believes that the most reasonably likely worst case scenario
resulting from the century change could be the transmission by independent
geological professionals to us of incorrect data regarding the Zacualpan
Project. If Silver King were to expend funds on exploring and developing areas
incorrectly identified by professional data as likely to contain mineralization,
it is probable that Silver King 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 our business, financial condition and results of operations.
In order to mitigate against incorrect assessments, Silver King has instructed
the geological professionals it has retained to maintain and provide Silver King
with backup paper copies of all data related to the Zacualpan Project.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The statement requires restatement
of all prior period earnings per share (EPS) data presented. The new standard
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Silver King adopted SPAS 128 for the period ending December 31, 1997 as
presented in the financial statements. Adoption of this standard did not result
in a restatement of prior periods EPS data.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), is effective for financial statements with fiscal years
beginning after December 15, 1997. Since Silver King has no items of other
comprehensive income, no separate statement of comprehensive income has been
presented. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements.
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), is effective for financial statements with fiscal years beginning
after December 15, 1998 with initial adoption reported as a cumulative effect of
a change of accounting principle. SOP 98-5 requires costs of start-up activities
and organization costs to be expensed as incurred. Silver King adopted SOP 98-5
effective January 1, 1999. Silver King does not expect adoption of SOP 98-5 to
result in any cumulative effect of a change in accounting principle.
ITEM 3. DESCRIPTION OF PROPERTY
Through ICRM, Silver King has the rights to acquire the first five mining
concessions listed below. In addition, ICRM expects to purchase and have
assigned to it a sixth mining concession known as Quinto Real by the end of
1999. All of the mining concessions listed below are located in southern Mexico
and collectively cover more than 11,430 acres:
19
<PAGE>
<TABLE>
<CAPTION>
Property Type of Concession Location Acres
-------- ------------------ -------- -----
<S> <C> <C> <C> <C>
1. El Quinto II Mining exploitation Municipality of Zacualpan, 22
(El Quinto Dos) concession State of Mexico
2. Los Compadres Mining exploitation Municipality of Tetipac, State 74
concession of Guerrero
3. El Cometa Navideno Mining exploitation concession Municipality of Tetipac, State 57
of Guerrero
4. La Cadena Mining exploitation concession Municipality of Zacualpan, 276
State of Mexico
5. El Volado Mining exploration concession Municipality of Zacualpan, 9
State of Mexico
6. Quinto Real Application for a mining Municipality of Zacualpan, 10,992
exploration concession State of Mexico
</TABLE>
In December 1998, Polo Y Ron Minerales, S.A. de C.V. ("Polo Y Ron") assigned to
ICRM all of its rights to acquire five of the six concessions (other than Quinto
Real) under three separate option contracts. The Quinto Real claim is currently
held by Polo Y Ron but is in the process of being assigned to ICRM for a price
of $15,000. The final payment under the option agreement for the Los Compadres
lot is February 28, 2000. The final payment under the other two option
agreements is March 31, 2000. The following table sets forth the payment status
for each of the concessions:
<TABLE>
<CAPTION>
CONSIDERATION
CONCESSION SELLER TOTAL CONSIDERATION PAID TO DATE
---------- ------ ------------------- -------------
<S> <C> <C> <C>
El Quinto II Felix Gomez Garcia U.S. $85,000.00 U.S. $61,500.00
El Cometa Navideno
Los Compadres Felix Gomez Garcia U.S. $25,000.00 U.S. $17,000.00
La Cadena, El Volado Hector Esquivel Esparza U.S. $101,600.00 U.S. $78,000.00
</TABLE>
Under the purchase contracts, ICRM will own 100% of the interest in each
concession when it has paid the total purchase price for the concessions, which
management expects to occur by March 2000.
LOCATION AND ACCESS
The Zacualpan Project is located in the states of Mexico and Guerrero in Mexico
near the town of Zacualpan. Geographical coordinates are 18(Degree) 44(feet)
North latitude and 90(Degree) 50(feet) West longitude. Portions of the Quinto
Real concession lie north of Zacualpan, while other concessions lie south of
Zacualpan in the vicinity of Coloxtitlan. Access can be gained from Mexico City
by three different highway routes: (a) travel west to the town of Metepec, south
to the town of Tenango de Arista Ixtapan de la Sal, and then southwest to
Zacualpan (total distance is 164 km); (b) travel west to the town of Toluca,
southwest to Nevado de Toluca, southeast to Paredones, south to Texcaltitlan,
east to Almoloya de Alquisiras, and then south to Zacualpan (total distance is
189 km); or (c) travel south to the town of Cuernavaca, southwest to Puente de
Ixtla, southwest to Cacahuamilpa, southwest to Ixtapan de la Sal, then south to
Zacualpan (total distance is 209 km). On all three routes, travel time is about
three hours on all paved roads as far as Zacualpan.
Access between the concession areas is provided by good secondary gravel roads
and within property blocks by well-traveled local access roads to residences,
maintained for two wheel drive vehicles. Minor difficulties are encountered due
to the rainy season in summer and fall but in general roads are in good shape
year-round.
Electrical power (110 V) is available throughout the region and is provided to
even small remote landholders. Water is abundant in the rainy season but is
somewhat scarce in the dry season with local municipal supplies coming from
reservoirs. Rural residents use a combination of streams, seeps, wells,
reservoirs and water haulage for water supply. Railway access is at Toluca,
located approximately 135 kilometers to the north, or at Cuernavaca,
approximately 153 kilometers to the northeast.
20
<PAGE>
The elevation is between 1500-2000 meters with a mild pleasant climate
throughout the year. The terrain is occupied entirely by towns and small land
holdings generally used for subsistence farming.
HISTORY OF THE MINING DISTRICT AND THE PROPERTY
The majority of the history of the Zacualpan mining district is derived from
Monografia Geologica-Minera Del Estado De Mexico (1996, released in November
1998), authored by Ing. Amador Nunez Miranda and others from the Office of
Economic Development of Mexico. According to Monografia Geologica-Minera Del
Estado De Mexico, there have been reports of bonanzas in the various mines in
the Zacualpan mining district throughout history. Some indication of the
economic importance of the district can be derived from the production records
from one of the ten or eleven mineralized zones. The mines of Guadalupe,
Pachuqueno and Regenerador, which are approximately three kilometers from the
Zacualpan Project, collectively produced one million tons of ore between 1967
and 1982, from which 9 million ounces of silver were recovered. It is estimated
that a similar amount of silver from a lesser tonnage of ore was produced in the
district prior to this time. Cia. Minera Campana de Plata, S.A. de C.V., a
subsidiary of Grupo Industrial Penoles ("Penoles"), published reserves in 1987
of over one million tons with grades of 289 grams/tonne of silver, 0.57% lead,
and 1.23% zinc. Minera Porvenir de Zacualpan, S.A. de C.V. ("MINPOZA") is
actively mining the Unificacion Guadalupe mines under lease from Penoles.
The majority of the land in the region is covered by mineral holdings with
current low levels of exploration activity being conducted by MINPOZA, Minas San
Luis, S.A. de C.V., a subsidiary of Industria Luismin ("Luismin"), and others.
Competition is intense for the lotteries of abandoned or relinquished claims
when they are posted for restaking by the Mexican Department of Mines with as
many as thirty simultaneous entrants being placed in the lottery for awarding of
these claims.
MINERALIZATION
Regional mineralization is reported from both veins of interpreted hydrothermal
origin and "mantos" of volcanogenic massive sulfides. Mineralization in
Zacualpan is predominantly of vein type but sulfide showings of probable
volcanogenic origin occur south of the southern portion of the Quinto Real
claim.
Mineralization in the Mamatla region to the south has been described as being
associated with alteration in host rocks referred to as skarn, and as that of a
massive sulfide. The most recent summary in Monografia Geologica-Minera del
Estado de Mexico describes it as of volcanogenic massive sulfide affinity.
MINING CONCESSIONS AT THE ZACUALPAN PROJECT
The concessions consist of three groupings of claims as follows, each of which
are discussed in sequence below:
1. EL QUINTO II, EL VOLADO, LA CADENA in the central area of the Zacualpan
mining district;
2. EL COMETA NAVIDENO, LOS COMPADRES to the south; and
3. QUINTO REAL, a new claim staked in the north.
1. EL QUINTO II, EL VOLADO, LA CADENA
This grouping of claims comprising 124.6 hectares contains several vein
structures many of which have had significant production in the past. Only the
El Quinto II area of workings is accessible today. The entire group of claims is
underlain by andesitic volcanics of varied textures from lava flows to pillowed
basalts. The units are all metamorphosed to green schists. Units in general have
schistosity parallel and subparallel to bedding units which in general have low
dip angles.
21
<PAGE>
Numerous quartz veinlet swarms trending both northwest and east-west appear to
be scattered throughout the claim block. Mineralized vein structures that have
been the subject of mining trend in general N 20-40 W and are subvertical in
attitude.
EL QUINTO II - EL VOLADO. This vein system is accessible today on two levels,
one at creek level in Arroyo San Juan; the other at approximately 50 meters
higher elevation and extending into El Volado claim. Lower workings of minor
extent are flooded. Several hundred meters of development are interconnected
from level to level with ventilation and access raises to the surface in several
places through old stopes. The vein system is comprised of two parallel
structures varying in width from 1-2 meters, expanding to several meters in some
stoped areas. Cross veins and intersecting features are present. The mine was
once equipped with electricity and rail, some of which remains. In the second
quarter of 1999, 164 tons of ore-bearing material was shipped for processing and
testing at the MINPOZA mill in Zacualpan. This shipment averaged 2.41% lead,
2.77% zinc, 199 gm/tonne silver and 0.10 gm/tonne gold.
Production from this vein system was reported to be substantial during the
Second World War for the production of zinc. A mill was established near the
lower portal in the site of an old abandoned hacienda foundation. A second mill
in a lower Calvario hacienda area apparently recovered silver from tailings from
the upper mill. A volume estimate from examination of old mine workings would
indicate at least a few hundred thousand tons of production. Mineralization
occurs within a shear structure trending from N 60 degrees W but having some
cross structural and en echelon zones and flexes within the vein system. The
structure is subvertical with dips in general 50-85 degrees east.
Minor oxidation occurs within the sulfide zones but generally sulfides appear
fresh where visible in underground workings. Sphalerite, galena and pyrite are
the dominant minerals but proustite-pyrargyrite are reported. Gangue minerals
are predominantly quartz and calcite. The vein does not have many clean
exposures underground as mining activities extracted to the limit of
mineralization in stopes. Pillars provide sample points and current mining by
hand consists of robbing pillars for a milling sample.
LA CADENA
Several inaccessible workings or vein systems occur in the eastern portion of La
Cadena. Most trend parallel to El Quinto II and El Volado. La Cadena consists of
two major portal sites, one of which dates from 1929. Production units at the
sites may date back to Spanish times (approximately 1300-1500) but production
results for the claims are unknown.
A small production mill was at one time located near the Las Golondrinas
workings at the La Cadena claim.
STATUS OF EXPLORATION OF EL QUINTO II, EL VOLADO AND LA CADENA
Silver King's subsidiary, ICRM, has undertaken an induced polarization survey
for each of the five properties other than Quinto Real. An induced polarization
survey can indirectly indicate the presence of silver mineralization by locating
anomalous conditions demonstrative of the presence of pyrite. The induced
polarization survey totaling 47 line-kilometers detected many anomalous areas
and 27 anomalous zones demonstrative of the presence of pyrite that traverse
these properties. Based on the survey results, these properties may have
widespread sulfide mineralization. To test the results of the induced
polarization survey, ICRM is undertaking a drilling program. Initial drilling
has intersected sulfides in fourteen of fifteen holes completed to date with
moderate silver values. Higher-grade mineralization is separated by zones of
lower grade rock within mineralized structures up to 25 meters in width. Values
within the higher grade portions of El Quinto II provide an illustration as
shown below. Additional drilling is needed to define possible oreshoots within
the steep structures for underground mining.
22
<PAGE>
Illustrative Holes are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Hole Interval/Distance % Lead % Zinc gm/tonne Silver gm/tonne Gold
(Meters)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hole Z-4 248.30-298.63 (.33m) 7.10 9.09 368.9 0.41
- --------------------------------------------------------------------------------------------
Hole Z-2 31.1-34.4 (2.7m) 0.49 1.35 147.8 0.07
48.49-50.60 (2.11m) 0.11 0.48 56.9 0.003
54.95-56.08 (1.13m) 1.06 3.63 199.65 0.105
- --------------------------------------------------------------------------------------------
</TABLE>
All but one of the other thirteen holes contained significant amounts of silver
and gold mineralization of lesser magnitude than the two holes illustrated
above. One hole did not contain base or precious metal values.
Additional drilling has been recommended for the Golondrinas portion of the
Cadena structure. Drilling is proposed for the depth projection of this zone for
possible reserves suitable for underground mining.
2. LOS COMPADRES AND EL COMETA NAVIDENO
This grouping of claims comprising 53 hectares covers two parallel N30 W
trending vertical vein systems El Cometa Navideno and the adjoining Santiago
vein system together with occurrences along the approximate extensions of these
veins onto the Los Compadres claim.
The majority of the workings extending over a few hundred meters southerly from
the portal are inaccessible with remnants of ventilation raises and open stopes
located on the hillside 50-100 meters and 100-200 meters, south of the adit in
the creek bottom. The adit is accessible for a little over 100 meters, then is
obstructed by a cave in.
Stopes in the parallel Santiago vein 20 meters to the east were apparently
connected by galleries to those of the El Cometa Navideno vein and extended to
some depth below creek level in addition to going to surface. Where exposed in
the adit the nearly vertical El Cometa vein is 0.5 meters but is reported to be
wider than 1 meter. The veins are hosted by andesite schists at the creek level
and by phyllites at higher elevations.
Several other prospect adits and pits lie to the north of the claim group but
are not recorded and possible production is unknown.
The Los Compadres portion of this unit has number of quartz vein prospects in
andesite and phyllites. Little work has been done in these areas.
STATUS OF EXPLORATION OF LOS COMPADRES AND EL COMETA NAVIDENO
As with the first group of claims, expected targets in this area could be
sulfide masses within vein systems that would be 50,000 to 150,000 tons,
possibly larger. Dimensions would be 1-2 meters in width, 100-300 meters in
length and 100-300 meters in vertical dimension. To evaluate the potential for
targets of this nature, an induced polarization survey was conducted. Drilling
is in progress to test induced polarization anomalies for potential mineralized
zones.
23
<PAGE>
3. QUINTO REAL
This large claim block is underlain predominantly by andesitic schists and
phyllites mapped as Triassic-Jurassic in age. In general, they are moderately
dipping, with schistosity parallel to initial bedding as defined by lithologic
variations, particularly within lahar-type andesitic fragmentals. Limy bands
occur within phyllites in the central portion of this claim block. Swarms of
quartz veinlets 1-10 centimeters in width occur throughout the region frequently
parallel or subparallel to foliation in many areas.
In the valley bottoms in the central portion of the claim block recent tertiary
sediments with limestone and volcanic fragments and calcareous matrix fill the
lower valleys and cover much of the underlying volcanic schist and phyllites. A
granodiorite of Cretaceous age occurs near the north boundary of the claim. Its
relationship with the Triassic-Jurassic volcanics can not be seen and no visible
alteration zone is observed in nearby volcanics.
Capping ridges in the northwestern portion of the claim is a thick massive to
flow banded pink rhyolite of Tertiary age underlain by a thick rhyolite
fragmental with unsorted matrix (mudflows or lahars). These younger rocks lie as
a caprock over the underlying schists and phyllites with the actual contact
obscured by landslides and fill cover.
Just off the south boundary of the claim in the bedrock of a creek, a small
showing of sulfide mineralization, including pyrite and quartz, occurs in
andesite schists. These sulfides and quartz are interpreted to have a possible
volcanogenic aspect as they follow vague outlines of pillows in pillow lavas and
are not constrained by vein structures.
STATUS OF EXPLORATION OF QUINTO REAL
A preliminary geochemical survey of stream sediments conducted in this area
returned anomalous value for gold in several areas of the claim group. Initial
follow up rock sampling did not determine the source for the gold anomalies.
Additional work is needed to define possible gold mineralization in these areas.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of Silver King's common stock as of November 11, 1999, by (i) each
person who, to the knowledge of Silver King, beneficially owned more than 5% of
the common stock; (ii) each director and executive officer of Silver King; and
(iii) all executive officers and directors of Silver King as a group:
24
<PAGE>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL % OF
BENEFICIAL OWNERS OWNERSHIP (1) CLASS
- ------------------- ------------- ------
Alan Stier(2) 0 0.0%
4372 44B Avenue
Delta, British Columbia
Canada V4K 1H1
Dr. Stewart Jackson(3) 0 0.0%
6025 S. Eaton Lane
Littleton, CO 80123
Boyett Investments Limited 1,500,000 8.2%
Tropic Isle Building
Road Town
Tortolla, British Virgin Islands
Capital Growth Trust 1,500,000 8.2%
2028 Ryans Run Road
Lansdale, PA 19446
Clifton Capital Ltd. 2,000,000(4) 10.5%
Tropic Isle Building
Road Town
Tortolla, British Virgin Islands
Cranbourne Investments Ltd. 1,000,000 5.5%
Whitehill House
Newby Road Industrial
Hazel Grove, Stockport
Cheshire M5H IK5
FAC Enterprises, Inc. 3,300,000(5) 17.5%
4960 South Virginia Street
Suite 300
Reno, NV 89502
Gatkin Limited 1,500,000 8.2%
Whitehill House
Newby Road Industrial
Hazel Grove, Stockport
Cheshire M5H IK5
GWR Trust 1,500,000 8.2%
1912 Caldwell
Conway, AR 72032
Stephen P. Harrington 1,000,000(6) 5.5%
648 Post Road
Wakefield, RI 02879
25
<PAGE>
KAB Investments, Inc. 1,500,000 8.2%
24224 Kanis Road
Little Rock, AR 72223
Mark A. Kuperman(7) 75,000 *
7695 SW 104 Street, Suite 210
Miami, FL 33156
Matrix Capital Management Ltd. 1,000,000 5.5%
15302 25th Dr. S.E.
Mill Creek, WA 98012
SPH Investments Inc. 1,000,000(8) 5.5%
648 Post Road
Wakefield, RI 02879
West Tropical Investments Corp. 930,000 5.1%
3100 North 29th Court
Hollywood, FL 33020
All Directors, and Executive 1,075,000 5.9%
Officers as a Group (4 persons)
- ----------
*Represents less than 1% of the outstanding shares of common stock.
(1) The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the rules and
regulations promulgated under the Exchange Act, and accordingly, may include
securities owned by and for among others the spouse and/or minor children of an
individual and any other relative who has the same home as such individual, as
well as other securities as to which the individual has or shares voting or
investment power or which such person has the right to acquire within 60 days
after the date of this filing pursuant to the exercise of options, or otherwise.
Beneficial ownership may be disclaimed as to certain of the securities. This
table has been prepared based on 18,075,000 shares of common stock outstanding
as of November 11, 1999.
(2) The President of Silver King.
(3) Vice President - Mining Operations of Silver King.
(4) Includes warrants to purchase 1,000,000 shares of common stock issued in a
private placement transaction.
(5) Includes warrants to purchase 800,000 shares of common stock issued in a
private placement transaction.
(6) Includes 1,000,000 shares owned by SPH Investments Inc. Mr. Harrington is
the President of SPH Investments Inc. and the former President of Silver King.
(7) The former president and director of Silver King.
(8) Ownership of these shares is attributed to Stephen P. Harrington, the
President of SPH Investments Inc. and the former President of Silver King.
26
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth certain information regarding each of the directors and
executive officers of the Company.
NAME AGE OFFICE
---- --- ------
Alan Stier 43 President, Treasurer and Director
Stewart Jackson 58 Vice President - Mining
Operations and Secretary
The following is a brief summary of the business experience of each of the
above-named individuals:
ALAN STIER became the President and Treasurer and a Director of Silver King
in June 1999. From 1995 through the present, Mr. Stier has been the President
and Chief Executive Officer of International Capri Resources Ltd. ("ICR"), a
British Columbian company engaged primarily in the mining and exploration
business whose shares are traded on the Vancouver Stock Exchange. Mr. Stier has
been a member of the board of directors of ICR since 1993. ICR has focused its
mining and exploration activities in Baffin Island in Canada's Northwest
Territory and in northwestern Ontario. ICR is a 20% owner of ICRM, Silver King's
Mexican operating subsidiary. From March 1996 to August 1998, Mr. Stier was the
President, Chief Executive Officer and a Director of Landore Resources, Inc., a
public company engaged in the gold mining business in northwestern Ontario. Mr.
Stier is a certified Power Engineer in British Columbia and Alberta, Canada.
DR. STEWART JACKSON became Vice President - Mining Operations and Secretary
of Silver King in June 1999. Dr. Jackson has over 39 years of experience in the
mining industry. From 1987 through the present, Dr. Jackson has been an
independent consultant, officer, director and principal of several U.S. and
Canadian public mining companies involved in the exploration and development of
diamonds, base metals, precious minerals, industrial minerals and oil and gas,
including Continental Precious Minerals Ltd., Monument Resources, Inc., Little
Squaw Gold Mining Corporation and Nu-Dawn Resources Ltd. From 1981 through 1987,
Dr. Jackson was the founder and President of Crown Resource Corp. (now known as
Crown Resources Corporation), a public company developing gold and silver
targets in northeastern Washington. Dr. Jackson has also published several
articles on geological topics. He received his doctorate degree in Stratigraphy
and Economic Geology in 1969 from the University of Alberta.
BOARD OF DIRECTORS
All directors hold office until the next annual meeting of the stockholders and
the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
The Board of Directors presently consists of one (1) member.
ITEM 6. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning compensation
paid to or accrued by the Company's Chief Executive Officer, Chairman of the
Board and all other executive officers who earned more than $100,000 (salary and
bonus) (the "Named Executive Officers") for all services rendered in all
capacities to the Company during the fiscal years ended December 31, 1998, 1997
and 1996:
27
<PAGE>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
<TABLE>
<CAPTION>
RESTRICTED
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK OPTIONS/
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS (#)
- ------------------ ------ ------ ----- ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Alan Stier 1998 N/A N/A N/A N/A N/A
President and Chairman of 1997 N/A N/A N/A N/A N/A
the Board 1996 N/A N/A N/A N/A N/A
Stephen P. Harrington 1998 -- -- -- -- --
Former President 1997 N/A N/A N/A N/A N/A
1996 N/A N/A N/A N/A N/A
Mark A. Kuperman 1998 -- -- -- -- --
Former President 1997 -- -- -- -- --
1996 -- -- -- -- --
</TABLE>
DIRECTORS COMPENSATION
Directors who are officers of Silver King receive no additional compensation for
serving on the board of directors, other than reimbursement of reasonable
expenses incurred in attending meetings.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALE OF SHARES TO AN ENTITY AFFILIATED WITH A FORMER OFFICER AND DIRECTOR
On January 27, 1999, Silver King sold 1,000,000 shares of its common stock to
SPH Investments, Inc., for a total purchase price of $1,000. Stephen Harrington,
the former President of Silver King, is also the President of SPH Investments,
Inc. These shares were sold in a private placement transaction exemption
registration under Section 4(2) and Regulation D of the Securities Act.
In September 1999, Silver King borrowed $120,00 from FAC Enterprises, Inc., a
principal stockholder, on a short-term basis. The loan is due on demand and the
principal amount bears interest at the rate of 10% per annum.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
Silver King is authorized to issue 50,000,000 shares of common stock, $.0001 par
value per share (post-Merger), of which 18,075,000 are issued and outstanding as
of November 11, 1999.
Holders of common stock have equal rights to receive dividends when, as and if
declared by the board of directors, out of funds legally available therefor.
Holders of common stock have one vote for each share held of record and do not
have cumulative voting rights.
Holders of common stock are entitled upon the liquidation of Silver King to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
common stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of common stock are fully paid and nonassessable.
28
<PAGE>
PREFERRED STOCK
Within the limits and restrictions provided in Silver King's certificate of
incorporation, the board of directors has the authority, without further action
by the stockholders, to issue up to 15,000,000 shares of preferred stock, $.0001
par value per share (post-Merger), in one or more series, and to fix, as to any
such series, the dividend rate, redemption prices, preferences on liquidation or
dissolution, sinking fund terms, conversion rights, voting rights, and any other
preference or special rights and qualifications. There are presently no shares
of preferred stock outstanding.
Shares of preferred stock issued by the board of directors could be utilized,
under certain circumstances, to make an attempt to gain control of Silver King
more difficult or time consuming. Shares of preferred stock could be issued with
certain rights that might have the effect of diluting the percentage of common
stock owned by a significant stockholder or issued to purchasers who might side
with management in opposing a takeover bid that the board of directors
determines is not in the best interest of the company and its stockholders. The
existence of preferred stock may, therefore be viewed as having possible
anti-takeover effects. A takeover transaction frequently affords stockholders
the opportunity to sell their shares at a premium over current market prices.
The board of directors has not authorized the issuance of any series of
preferred stock.
DIVIDEND POLICY
Silver King has not paid any cash dividends to date, and has no intention to pay
any cash dividends on its common stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the board
of directors and to certain limitations imposed by the General Corporation Law
of the State of Delaware. The timing, amount and form of dividends, if any, will
depend, among other things, on the company's results of operations, financial
condition, cash requirements and other factors deemed relevant by board of
directors.
DELAWARE ANTI-TAKEOVER LAW
Silver King is governed by the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "GCL"), an anti-takeover law. In
general, the law prohibits a public Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with its affiliates and associates, owns (or within
three years, did own) 15% or more of the corporation's voting stock.
The provisions regarding certain business combinations under the GCL could have
the effect of delaying, deferring or preventing a change in control of Silver
King or the removal of existing management. A takeover transaction frequently
affords stockholders the opportunity to sell their shares at a premium over
current market prices.
TRANSFER AGENT
The transfer agent for the Company's securities is Interest Transfer Company,
1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117, (801) 272-9294.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
Silver King's common stock is listed for quotation on the National Quotation
Bureau's Pink Sheets under the symbol "SVKG"(1); however, the market for such
shares is extremely limited. No assurance can be given that a significant
trading market for Silver King's common stock will develop or, if developed,
will be sustained. Silver King's common stock traded on the OTC Electronic
Bulletin Board from May 20, 1998 to August 3, 1999, when the shares became
ineligible for trading under the OTC Bulletin Board Eligibility Rule.
29
<PAGE>
The following table sets forth the range of the high and low closing bid prices
of Silver King's common stock during each of the calendar quarters identified
below. These bid prices were obtained from the National Quotation Bureau, Inc.
and do not necessarily reflect actual transactions, retail markups, mark downs
or commissions. The transactions include inter-dealer transactions. Based on the
very limited public float and trading in Silver King's common stock, management
of the company believes that such data is anecdotal and may bear no relation to
the true value of Silver King's common stock or the range of prices that would
prevail in a fluid market.
1997 High Low
---- ---- ---
1st Quarter * *
2nd Quarter * *
3rd Quarter * *
4th Quarter * *
1998 High Low
---- ---- ---
1st Quarter * *
2nd Quarter * *
3rd Quarter * *
4th Quarter * *
1999 High Low
---- ---- ---
1st Quarter $2.75 $0.1875
2nd Quarter $6.00 $0.3125
3rd Quarter $5.00 $2.00
4th Quarter $4.00 $2.00
to November 10, 1999)
- ----------
* No bids reported
(1) From April 8, 1999 to the present, Silver King has traded under symbol
"SVKG". From April 2, 1999 through April 7, 1999, Silver King traded under the
symbol "SKRI" on the OTC Bulletin Board. From May 20, 1998 through April 1,
1999, Silver King traded under the symbol "ANNE" on the OTC Bulletin Board.
The last sales price of Silver King's common stock as of November 10, 1999 was
$2.19 per share.
SHARES ISSUABLE UPON EXERCISE OF WARRANTS
Silver King has issued five year warrants to purchase an aggregate of 2,00,000
shares of its common stock at an exercise price of $4.00 per share. All of these
warrants have vested.
SHARES ELIGIBLE FOR PUBLIC RESALE
As of November 11, 1999, 100,000 shares of common stock of Silver King are
eligible for public resale pursuant to Rule 144 promulgated under the Securities
Act.
30
<PAGE>
HOLDERS
As of November 11, 1999, the number of stockholders of record of Silver King's
common stock was approximately 77, although management believes that there are
additional beneficial owners of the common stock who own their shares in "street
name."
DIVIDENDS
Silver King has not paid any cash dividends to date, and has no intention to pay
any cash dividends on its common stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the board
of directors and to certain limitations imposed by the General Corporation Law
of the State of Delaware. In addition, Silver King may raise capital and
financing through traditional debt financing and the placement of debt and
equity securities. It is possible that, as a condition to securing such
financing, Silver King may be required to agree not to declare dividends for a
certain amount of time. The timing, amount and form of dividends, if any, will
also depend, among other things, on Silver King's results of operations,
financial condition, cash requirements and other factors deemed relevant by the
board of directors.
ITEM 2. LEGAL PROCEEDINGS
Neither Silver King nor any of its property is a party to any pending or
threatened legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
1. On January 27, 1999, Silver King issued and sold an aggregate of 14,500,000
shares of common stock to raise gross proceeds of $14,500. This offering was
undertaken by Silver King prior to the execution and closing of the definitive
joint venture agreement with ICRM. At that time Silver King was an inactive
company with no assets or liabilities. Investors in such offering were,
therefore, subject to a number of risks and uncertainties, including the
material contingencies associated with the execution of the joint venture
agreement. These shares were issued directly by Silver King without payment of
any commissions to the following accredited investors in a private placement
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof and Rule 506 of Regulation D promulgated
thereunder:
31
<PAGE>
Name Number of Shares
- ---- ----------------
Appel, Gerald R. 25,000
Bartlett, Bruce Edwin 20,000
Bartlett, David and Louann 20,000
Bartlett, Ruth 50,000
Big Brothers, Big Sisters of Northwest Arkansas 10,000
Borenstein, Howard and Shari 100,000
Boyett Investments Limited 1,500,000
Brennon, Bobby 50,000
Campbell, Bruce or Paige 25,000
Capital Growth Trust 1,500,000
Cranbourne Investments Ltd. 1,000,000
Diversified Investment Fund, L.P. 155,000
FAC Enterprises, Inc. 1,500,000
Flick, Inc. 10,000
Founders Equity Group, Inc. 100,000
Gatkin Limited 1,500,000
Good, Henry H. III 75,000
Good, Henry H., M.D. 25,000
GWR Trust 1,500,000
Ibsen, Michael D. 100,000
Ivester, Carolyn 10,000
KAB Investments, Inc. 1,500,000
Keith, Kevin and Tracie 25,000
Knight, George 100,000
Matrix Capital Management Ltd. 500,000
McCracken Brothers 50,000
Moorehead Charitable Trust, George and Nancy 75,000
Moorehead Charitable Trust, Donald and Shelley 75,000
Petillo, Delores 5,000
Quattrochi, Joseph 25,000
Romano, Mario 100,000
Rosner Money Purchase Plan, Steven B. 150,000
Sands, Sidney and Edythe 50,000
Schuyhart, Bill W. 100,000
SPH Investments Inc. 1,000,000
Stoltz, J. Michael 100,000
The D.A.R. Group 125,000
Vogel Enterprises Inc. Pension Trust 30,000
Vogel, Robert A. 30,000
Vogel, Samuel M. 30,000
West Tropical Investments Corp. 930,000
Weston Investors, Inc. 25,000
Wilson, Fred IRA Rollover 200,000
----------
Total: 14,500,000
32
<PAGE>
2. On January 27, 1999, Silver King issued and sold an aggregate of 2,000,000
units, each unit consisting of one share of common stock and five year warrants
to purchase four shares of common stock at an exercise price of $4.00 per share
to raise gross proceeds of $16,000. This offering was undertaken by Silver King
prior to the execution and closing of the definitive joint venture agreement
with ICRM. At that time Silver King was an inactive company with no assets or
liabilities. Investors in such offering were, therefore, subject to a number of
risks and uncertainties, including the material contingencies associated with
the execution of the joint venture agreement. These units were issued directly
by Silver King without payment of any commissions to the following accredited
investors in a private placement transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof and Rule 506
of Regulation D promulgated thereunder:
Number of Number of Number of
Name Units Shares Warrants
---- --------- --------- ---------
Clifton Capital Ltd. 1,000,000 1,000,000 1,000,000
FAC Enterprises, Inc. 1,000,000 1,000,000 1,000,000
Total: 2,000,000 2,000,000 2,000,000
3. On April 14, 1999, Silver King issued and sold an aggregate of 525,000 shares
of common stock to raise gross proceeds of $525,000. This offering was
undertaken by Silver King prior to vesting in a 60% equity interest in ICRM. At
that time there were no assurances that Silver King would become a shareholder
of ICRM. Investors in such offering were, therefore, subject to a number of
risks and uncertainties, including the material contingencies associated with
vesting in majority ownership of ICRM. These shares were issued directly by
Silver King without payment of any commissions to the following accredited
investors in a private placement transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof and Rule 506
of Regulation D promulgated thereunder:
Name Number of Shares
---- ----------------
Clanstar International Ltd. 200,000
Garvey, Martin 5,000
Hauser, Eric 5,000
Hill Samuel Pacific Trust
Company (BVI) Ltd. as
Trustees of the Renascence Trust 100,000
IFIGA Company 25,000
Lauer, Michael 40,000
The Orbiter Fund, Ltd. 150,000
-------
Total: 525,000
4. On April 15, 1999, Silver King issued 50,000 shares of common stock to
Founders Equity Group, Inc., as consideration for a $100,000 loan made to Silver
King, which was repaid in full on May 25, 1999. These shares were issued
directly by Silver King without payment of any commissions to Founders Equity in
a private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and Rule 506 of Regulation D
promulgated thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Silver King's certificate of incorporation and bylaws reflect the adoption of
the provisions of Section 102(b)(7) of the General Corporation Law of the State
of Delaware, as amended (the "GCL"), which eliminate or limit the personal
liability of a director to Silver King or its stockholders for monetary damages
for breach of fiduciary duty under
33
<PAGE>
certain circumstances. Silver King's certificate of incorporation and bylaws
also provide that the company shall indemnify any person, who was or is a party
to a proceeding by reason of the fact that he is or was a director or officer of
the company, or is or was serving at the request of the company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be or not opposed to the
best interests of the company, in accordance with, and to the full extent
permitted by, the GCL. In addition, the certificate of incorporation and bylaws
authorize Silver King to maintain insurance to cover such liabilities.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of Silver King pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Silver King of expenses incurred or paid by a director, officer or
controlling person of the company in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issuer.
PART F/S
The following financial statements are filed with this Form 10-SB:
Independent Auditors' Report of Barry Friedman P.C.
Independent Auditors' Report of Cogen Sklar LLP
Consolidated Balance Sheets as of December 31, 1998 and 1997 (Audited) and as of
June 30, 1999 (Unaudited)
Consolidated Statements of Operations and Comprehensive Loss for the years ended
December 31, 1998 and 1997 and for the period from August 23, 1988 (inception)
through December 31, 1998 (Audited), and for the six months ended June 30, 1999
and for the period from August 23, 1988 (inception) through June 30, 1999
(Unaudited)
Consolidated Statement of Stockholders' Equity (Deficit) for the years ended
December 31, 1998 and 1997 and for the period from August 23, 1988 (inception)
through December 31, 1998 (Audited), and for the six months ended June 30, 1999
and for the period from August 23, 1988 (inception) through June 30, 1999
(Unaudited)
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and
1997 and for the period from August 23, 1988 (inception) through December 31,
1998 (Audited), and for the six months ended June 30, 1999 and for the period
from August 23, 1988 (inception) through June 30, 1999 (Unaudited)
Notes to Consolidated Financial Statements
PART III
ITEM 1. INDEX TO EXHIBITS
See the index at "Item 2. DESCRIPTION OF EXHIBITS."
34
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
The following exhibits are filed with this Registration Statement:
Exhibit No. Description
- ----------- -----------
2.1 Certificate of Incorporation, as amended (1)
2.2 Certificate of Merger (1)
2.3 By-Laws (1)
6.1 Joint Venture Agreement dated March 19, 1999, among (1)
Silver King Resources, Inc. (f/k/a Arngre, Inc.),
International Capri Resources Ltd., International Capri
Resources S.A. de C.V., Zacualpan Minerals, LLC and
Alan Stier
6.2 Right of First Refusal Agreement dated March 19, 1999, (1)
between Silver King Resources, Inc. (f/k/a Arngre,
Inc.) and Mark S. Isaacs
6.3 Contract of Assignment of Rights dated as of December (1)
11, 1998 between Polo Y Ron Minerales, S.A. de C.V. and
International Capri Resources, S.A. de C.V.
6.4 Contracts of Mining Exploration and of Promise of (1)
Assignment of Rights dated as of November 19, 1998
between Felix Gomez Garcia and Polo Y Ron Minerales,
S.A. de C.V. (Los Compadres lot)
6.5 Contracts of Mining Exploration and of Promise of (1)
Assignment of Rights dated as of November 19, 1998
between Felix Gomez Garcia and Polo Y Ron Minerales,
S.A. de C.V. (El Quinto and El Cometa Navideno lots)
6.6 Contracts of Mining Exploration and of Promise of (1)
Assignment of Rights dated as of November 30, 1998
between Hector Esquivel Esparza and Polo Y Ron
Minerales, S.A. de C.V. (La Cadena and El Volado lots)
6.7 Form of Securities Purchase Agreement dated January 27, (1)
1999 to purchase shares of common stock at $.001 per
share
6.8 Form of Securities Purchase Agreement dated January 27, (1)
1999 to purchase units at $.008 per unit
6.9 Form of Warrant to Purchase Shares of Common Stock of (1)
Silver King Resources, Inc. Granted to unit subscribers
6.10 Form of Securities Purchase Agreement dated April 14, (1)
1999 to purchase shares of common stock at $1.00
per share
6.11 Amendment to Contracts of Assignment of Rights dated as (2)
of November 19, 1998 between Felix Gomex Garcia and
Polo Y Ron Minerales, S.A. de C.V. (Los Compadres lot)
6.12 Amendment to Contracts of Mining Exploration and of (2)
Promise of Assignment of Rights dated as of November 19,
1998 between Felix Gomez Garcia and Polo Y Ron
Minerales, S.A. de C.V. (El Quinto and El Cometa
Navideno lots)
6.13 Amendment to Contracts of Mining Exploration and of (2)
Promise of Assignment of Rights dated as of November
30, 1998 between Hector Esquivel Esparza and Polo Y Ron
Minerales, S.A. de C.V. (La Cadena and El Volado lots)
8.1 Agreement and Plan of Merger ("Merger Agreement"), (1)
dated as of June 23, 1999, between Silver King
Resources (Delaware), Inc. and Silver King Resources,
Inc.
- ----------
(1) Previously filed as an exhibit to Registrant's Registration Statement on
Form 10-SB, filed on July 8, 1999.
(2) Previously filed as an exhibit to Amendment No. 1 to Registrant's
Registration Statement on Form 10-SB, filed on September 23, 1999.
35
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this amendment no. 3 to the registration
statement to be signed on its behalf by the undersigned, thereto duly
authorized.
SILVER KING RESOURCES, INC.
Date: November 12, 1999 By: /s/ Alan Stier
-----------------------
Alan Stier, President
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report of Barry Friedman P.C. F-2
Independent Auditors' Report of Cogen Sklar LLP F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statement of Stockholders' Equity (Deficit) F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Arngre, Inc.
Miami, Florida May 13, 1998
I have audited the Balance Sheet of Arngre, Inc. (A Development Stage Company),
as of December 31, 1997, and the related statement of operations, stockholders'
equity and cash flows for the year then ended and for the period from August 23,
1988 (inception), through December 31, 1997. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Arngre, Inc. (A Development Stage
Company), as of December 31, 1997, and the results of its operations and cash
flows for the year then ended and for the period from August 23, 1988
(inception), through December 31, 1997, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note #2 to the financial
statements, the Company has no established source of revenue. This raises
substantial doubt about its ability to continue as a going concern. Management's
plan in regard to these matters are also described in Note #2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Barry L. Friedman
- ---------------------------
Barry L. Friedman
Certified Public Accountant
Las Vegas, Nevada
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Silver King Resources, Inc.
Wakefield, Rhode Island
We have audited the accompanying balance sheets of Silver King Resources, Inc.
(an exploration stage company) as of December 31, 1998, and the related
statements of operations and comprehensive loss, stockholders' equity (deficit)
and cash flows for the year then ended, and for the period from August 23, 1988
(inception) through December 31, 1998. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Silver King Resources, Inc. as of and for the year ended December
31, 1997 and for the period from August 23, 1988 (inception) through December
31, 1997 were audited by other auditors whose report dated May 13, 1998
contained an explanatory paragraph that raised substantial doubt about the
company's ability to continue as a going concern since the company has no
established source of revenue. The financial statements for the period from
August 23, 1988 (inception) through December 31, 1997 reflect total expenses and
net loss of $5,000 of the related totals. The other auditors' report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for such periods, is based on the report of such other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that out audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors the
financial statements referred to above present fairly, in all material respects,
the financial position of Silver King Resources, Inc. as of December 31, 1998,
and the results of its operations and cash flows for the year then ended, and
for the period from August 23, 1988 (inception) through December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has no established source of revenue. This raises
substantial doubt about its ability to continue as a going concern. Management's
plan in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Cogen Sklar LLP
-------------------
COGEN SKLAR LLP
May 21, 1999, except for Note 8,
as to which the date is June 24, 1999
Bala Cynwyd, Pennsylvania
F-3
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998 June 30, 1999
----------- --------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ -- $ 5,914
Tax receivable -- -- 50,726
----------- --------- ---------
-- -- 56,640
EQUIPMENT, Net -- -- 5,800
MINING CONCESSIONS -- -- 144,500
----------- --------- ---------
TOTAL ASSETS $ -- $ -- $ 206,940
=========== ========= =========
LIABILITIES
CURRENT LIABILITIES
Cash overdraft $ -- $ 25,000 $ --
Loan payable -- -- 45,000
Accounts payable -- -- 46,437
----------- --------- ---------
-- 25,000 91,437
MINORITY INTEREST -- -- 104,100
----------- --------- ---------
TOTAL LIABILITIES -- 25,000 195,537
----------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK - $0.001 par value, authorized 50,000,000
shares; issued andoutstanding 18,075,000 shares at
June 30, 1999 and 1,000,000 at December 31, 1998 and 1997 1,000 1,000 18,075
ADDITIONAL PAID IN CAPITAL 4,000 5,834 580,259
WARRANTS OUTSTANDING -- -- 14,000
DEFICIT ACCUMULATED DURING THE EXPLORATION
STAGE (5,000) (31,834) (611,071)
ACCUMULATED OTHER COMPREHENSIVE INCOME -- -- 10,140
----------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) -- (25,000) 11,403
----------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ -- $ -- $ 206,940
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Year Ended August 23, 1988 August 23, 1988
December 31, (Inception) Six Months (Inception)
---------------------------- Through Ended Through
1997 1998 December 31, 1998 June 30, 1999 June 30, 1999
---------- ------------ ----------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
COSTS AND EXPENSES
Exploration costs $-- $ -- $ -- $ 329,641 $ 329,641
Right of first refusal -- -- -- 131,250 131,250
Administrative expenses -- 1,834 6,834 41,818 48,652
Consulting expenses -- 5,000 5,000 23,500 28,500
Financing fees -- -- -- 50,000 50,000
Depreciation -- -- -- 200 200
Legal and accounting -- 20,000 20,000 54,042 74,042
Minority interest -- -- -- (54,132) (54,132)
Interest expense -- -- -- 2,918 2,918
---- ------------ ------------ ------------ ------------
NET LOSS -- (26,834) (31,834) (579,237) (611,071)
FOREIGN CURRENCY
TRANSLATION -- -- -- 10,140 10,140
---- ------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $-- $ (26,834) $ (31,834) $ (569,097) $ (600,931)
==== ============ ============ ============ ============
BASIC AND DILUTED LOSS
PER COMMON SHARE $-- $ (0.03) $ (0.04)
========== ============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES 1,000,000 1,000,000 14,989,583
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 23, 1988 (INCEPTION) THROUGH JUNE 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 -- -- -- -- 10,140 10,140
Net loss for the nine months ended
June 30, 1999 -- -- -- (579,237) -- (579,237)
--------- --------- --------- --------- --------- ---------
BALANCE AT June 30, 1999 (UNAUDITED) $ 18,075 $ 580,259 $ 14,000 $(611,071) $ 10,140 $ 11,403
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 23, 1988 August 23, 1988
December 31, (Inception) Six Months (Inception)
------------------------ Through Ended Through
1997 1998 December 31, 1998 June 30, 1999 June 30, 1999
-------- --------- ----------------- ------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ -- $ (26,834) $ (31,834) $(579,237) $(611,071)
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 -- 1,834
Depreciation -- -- -- 200 200
Changes in net assets and liabilities, net of
effects from acquisition
Increase in
Tax receivable -- -- -- (6,781) (6,781)
Accounts payable -- -- -- 39,487 39,487
-------- --------- --------- --------- ---------
Net cash used in operating activities -- (25,000) (30,000) (496,331) (526,331)
-------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Mining concessions -- -- -- (24,000) (24,000)
Cost of acquisition -- -- -- (166,547) (166,547)
-------- --------- --------- --------- ---------
Net cash used in investing activities -- -- -- (190,547) (190,547)
-------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Minority interest -- -- -- (6,931) (6,931)
Repayment of stockholder loans -- -- -- 114,084 114,084
Proceeds from loan payable -- -- -- 250,000 250,000
Repayment of loan payable -- -- -- (205,000) (205,000)
Proceeds from issuance of common stock -- -- 5,000 555,500 560,500
Cash overdraft -- 25,000 25,000 (25,000) --
-------- --------- --------- --------- ---------
Net cash provided by financing activities -- 25,000 30,000 682,653 712,653
-------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE ON CASH -- -- -- 10,139 10,139
-------- --------- --------- --------- ---------
NET INCREASE IN CASH -- -- -- 5,914 5,914
CASH - BEGINNING OF PERIOD -- -- -- -- --
-------- --------- --------- --------- ---------
CASH - END OF PERIOD $ -- $ -- $ -- $ 5,914 $ 5,914
======== ========= ========= ========= =========
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 fe $ -- $ -- $ -- $ 50,000 $ 50,000
======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND JUNE 30, 1999 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated August 23, 1988 in the state of Florida as Arnge,
Inc. On March 25, 1999, the Company amended its articles of incorporation in
order to change its name to Silver King Resources, Inc. Since planned principal
operations have not commenced, the Company is considered an exploration stage
company, as defined in the Statement of Financial Accounting Standards No. 7
(SFAS 7).
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three
months or less to be cash equivalents.
Fair Value of Financial Instruments
Financial instruments consist of cash, receivables and accounts payable. The
carrying amount approximates fair value because of the short maturity of these
instruments.
The carrying value of loans payable approximates fair value since the interest
rate associated with the debt approximates the current market interest rate.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on management's
knowledge and experience. Accordingly, actual results could differ from those
estimates.
Exploration Costs
Exploration costs will be expensed as incurred.
Foreign Currency Translation
Assets and liabilities of the foreign subsidiary have been translated using the
exchange rate at the balance sheet date. The average exchange rate for the
period has been used to translate revenues and expenses. Translation adjustments
are reported as a separate component of equity (other comprehensive income).
Income Taxes
The Company accounts for its income taxes under SFAS 109, "Accounting for Income
Taxes", which requires an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for temporary differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
Loss Per Share
Effective year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share" (EPS). This statement establishes standards for computing
and presenting EPS, replacing the presentation of currently required primary EPS
with a presentation of Basic EPS. For entities with complex capital structures,
the statement requires the dual presentation of both Basic EPS and Diluted EPS
on the face of the statement of operations. Under this new standard, Basic EPS
is computed based on weighted average shares outstanding and excludes any
potential dilution; Diluted EPS reflects potential dilution form the exercise or
conversion of securities into common stock or from other contracts to issue a
common stock and is similar to the currently required fully diluted EPS.
F-8
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND JUNE 30, 1999 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic earnings (loss) per share include the weighted average number of shares
outstanding during the year. Diluted earnings (loss) per share include the
weighted average number of shares outstanding and dilutive potential common
shares, such as warrants. Assumed conversion of the warrants would be
antidilutive, therefore, basic and diluted earnings (loss) per share are the
same.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income", beginning January 1, 1998. 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. The component of comprehensive
income consists of foreign currency translation adjustment of $10,140, no
applicable tax for the six months ended June 30, 1999.
Recently Issued Accounting Pronouncements
In September 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5") which provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. SOP 98-5 is effective for all fiscal years
beginning after December 15, 1998 with initial adoption reported as a cumulative
effect of a change in accounting principle. The Company has adopted SOP 98-5
effective January 1, 1999. The adoption of SOP 98-5 will not result in any
cumulative effect of a change in accounting principle.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. As discussed in
Note 1, the Company is in the exploration stage and its activities have been
limited to preliminary organizational activities. The Company has not commenced
its proposed business activities, nor has it received any revenues from
operations. These factors raise substantial doubt about the ability of the
Company to continue as a going concern.
The company intends to raise additional capital through private offerings in
order to fund the drill program related to it's investment in it's Mexican
company and to invest in other mining properties.
The balance sheet does not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classifications of liabilities that might be necessary in the event the Company
cannot continue in existence.
NOTE 3 - 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.
F-9
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND JUNE 30, 1999 (UNAUDITED)
NOTE 3 - ACQUISITION (Continued)
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.
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 4 - RIGHT OF FIRST REFUSAL
On March 19, 1999, the Company entered into an agreement with a principal of a
company, in which the company is also a stockholder of the Mexican company
described in Note 3, to obtain a right of first refusal with respect to certain
future mineral projects. The consideration for this right of first refusal with
a term of three years was $131,250. Since the probable future inflows of cash is
not determinable by management, the $131,250 has been expensed.
NOTE 5 - LOAN PAYABLE TO RELATED PARTY
The Company borrowed $100,000 from a related corporation, bearing interest at
12%. The entire principal and applicable interest was originally due on May 15,
1999. The Company repaid $50,000 on May 20, 1999, with the remaining $50,000
repaid on May 25, 1999. The Company issued 50,000 shares of common stock to this
corporation as payment of a financing fee. The common stock was valued at $1.00
per share.
F-10
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND JUNE 30, 1999 (UNAUDITED)
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.
NOTE 7 - INCOME TAXES
There is no income tax benefit for operating losses for the years ended December
31, 1997 and 1998 due to the following:
o Current tax benefit - the operating losses cannot be carried back to
earlier years.
o Deferred tax benefit - the deferred tax assets were offset by a valuation
allowance. Management believes that a valuation allowance is considered
necessary since it is more likely than not that the deferred tax asset will
not be realized through future taxable income.
F-11
<PAGE>
SILVER KING RESOURCES, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND JUNE 30, 1999 (UNAUDITED)
NOTE 7 - INCOME TAXES (Continued)
The components of the net deferred tax assets (liabilities) are as follows:
1997 1998
----------- ----------
Net operating loss carryforwards $ -- $ 2,300
Organization cost 1,700 1,700
Acquisition costs -- 6,800
Valuation allowance (1,700) (10,800)
----------- ----------
$ -- $ --
=========== ==========
The use of net operating loss carryforwards is limited when there has been a
substantial change in ownership (as defined) during a three year period. Because
of the recent and contemplated changes in common stock and warrants, such a
change may occur in the future. In this event, the use of net operating losses
each year would be restricted to the value of the Company on the date of such
change multiplied by the federal long-term tax exempt rate ("annual
limitation"); unused annual limitations may then be carried forward without this
limitation.
At December 31, 1998 the Company had net operating loss carryforwards of
approximately $7,000 which if not used, will expire through 2013.
NOTE 8 - REINCORPORATION IN THE STATE OF DELAWARE
On June 24, 1999, the Company merged with its wholly-owned subsidiary, Silver
King Resources (Delaware), Inc. After the merger, Silver King Resources
(Delaware), Inc., the surviving corporation, changed its name to Silver King
Resources, Inc. In conjunction with the merger, the par value of the common
stock was changed to $.0001 and the Company is authorized to issue up to
15,000,000 shares of preferred stock, $.001 par value per share, in one or more
series, and to fix, as to any such series, the dividend rate, redemption prices,
preferences on liquidation or dissolution, sinking fund terms, conversions
rights, voting rights, and any other preference or special rights and
qualifications. There are presently no shares of preferred stock issued.
NOTE 9 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 1999 and for the six months
then ended are unaudited and, in the opinion of management include all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation of financial position and results of operations. The results
of operations for the six months ended June 30, 1999 are not necessarily
indicative of the results to be expected for the entire year.
F-12
