UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-11730
SILVERTHORNE PRODUCTION COMPANY
(Exact name of small business issuer as specified in its charter)
Colorado 84-0189377
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7001 Seaview Avenue NW
Suite 210
Seattle, Washington 98117
(Address of principal executive offices)
(206) 297-6151
(Issuer's Telephone number)
N/A
----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes_____ No ______
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Outstanding at
Class March 31, 2000
-------------------- ----------------------
Common Stock, $.001 par value 44,989,102
Transitional Small Business Disclosure Format (Check one): Yes _____ No X
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Commission File Number: 0-11730
Quarter Ended March 31, 2000
FORM 10-QSB
Part I - FINANCIAL INFORMATION
Unaudited Consolidated Statements of Operations...........................Page 1
Unaudited Consolidated Balance Sheets.....................................Page 3
Unaudited Consolidated Statement of Stockholder's Equity (Deficit)........Page 4
Unaudited Consolidated Statements of Cash Flows...........................Page 5
Notes to Unaudited Consolidated Financial Statements......................Page 6
Management's Discussion and Analysis or Plan of Operation.................Page 9
Part II - OTHER INFORMATION..............................................Page 15
Signatures...............................................................Page 16
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Unaudited Consolidated Statements of Operations
Three Months Ended
March 31,
------------------------------
1999 2000
------------ ------------
Revenue
Prepaid cards and pins ............... $ -- $ 82,632
Marketing commissions ................ -- 707,193
Other ................................ -- 129,504
Allowances ........................... -- (10,731)
------------ ------------
Total revenue ...................... -- 908,598
------------ ------------
Operating expenses
Prepaid cards and pins ............... -- 170,798
Marketing commissions ................ -- 457,062
Selling, general and administrative .. -- 826,184
------------ ------------
Total operating expenses ........... -- 1,454,044
------------ ------------
Loss from operations .................... -- (545,446)
Other income (expense)
Other income ......................... -- 42,452
Interest expense ..................... (16,953) (39,517)
------------ ------------
Loss before income taxes ................ (16,953) (542,511)
Income taxes ............................ 4,132 --
------------ ------------
Net loss ................................ $ (12,821) $ (542,511)
============ ============
Loss per common share - basic and diluted $ -- $ (0.01)
============ ============
Weighted average number of common shares
outstanding - basic and diluted ........ 14,411,039 82,287,546
============ ============
See notes to unaudited consolidated financial statements.
- 1 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Unaudited Consolidated Statements of Operations
Nine Months Ended
March 31,
------------------------------
1999 2000
------------ ------------
Revenue
Prepaid cards and pins ............... $ -- $ 846,427
Marketing commissions ................ -- 1,642,400
Other ................................ -- 131,874
Allowances ........................... -- (28,512)
------------ ------------
Total revenue ...................... -- 2,592,189
------------ ------------
Operating expenses
Prepaid cards and pins ............... -- 710,389
Marketing commissions ................ -- 1,198,675
Selling, general and administrative .. -- 7,726,564
------------ ------------
Total operating expenses ........... -- 9,635,628
------------ ------------
Loss from operations .................... -- (7,043,439)
Other income (expense)
Other income ......................... -- 59,179
Interest expense ..................... (50,859) (107,767)
------------ ------------
Loss before income taxes ................ (50,859) (7,092,027)
Income taxes ............................ 12,396 --
------------ ------------
Net loss ................................ $ (38,463) $ (7,092,027)
============ ============
Loss per common share - basic and diluted $ -- $ (0.09)
============ ============
Weighted average number of common shares
outstanding - basic and diluted ........ 14,411,039 76,736,355
============ ============
See notes to unaudited consolidated financial statements.
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<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Unaudited Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash .......................................... $ -- $ 1,983,745
Accounts receivable ........................... -- 160,569
Advances - related party ...................... -- 570,000
Employee receivable ........................... -- 20,000
Commissions receivable ........................ -- 399,764
Inventory ..................................... -- 66,808
Other current assets .......................... -- 108,698
------------ ------------
Total current assets ........................ -- 3,309,584
------------ ------------
Property and equipment, net ...................... -- 254,038
------------ ------------
Other assets
Intangibles and other assets, net ............. 1,316,551 1,532,954
------------ ------------
Total other assets ........................ 1,316,551 1,532,954
------------ ------------
Total assets .................................. $ 1,316,551 $ 5,096,576
============ ============
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Interest payable ............................ $ 67,814 $ 165,564
Current portion of long-term debt ........... 700,000 510,000
Accounts payable ............................ -- 22,906
Deferred revenue ............................ -- 149,262
Commissions payable ......................... -- 289,691
Payroll taxes payable ....................... -- 124,424
Income taxes payable ........................ -- 13,387
------------ ------------
Total current liabilities ................. 767,814 1,275,234
Long-term debt ................................ 600,000 180,000
------------ ------------
Total liabilities ......................... 1,367,814 1,455,234
Stockholders' (deficit) equity
Common stock $.001 par value, 50,000,000 shares
authorized; 14,411,039 and 44,989,102 issued
and outstanding at June 30, 1999 and March 31,
2000, respectively, and 37,298,444 to be
issued at March 31, 2000 ..................... 20 82,287
Additional paid in capital .................... -- 10,702,365
Accumulated deficit ........................... (51,283) (7,143,310)
------------ ------------
Total stockholders' (deficit) equity .... (51,263) 3,641,342
------------ ------------
Total liabilities and stockholders'
(deficit) equity ................................ $ 1,316,551 $ 5,096,576
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
SILVERTHORNE PRODUCTION COMPANY
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Nine Months Ended March 31, 2000
<TABLE>
<CAPTION>
Total
Common Stock Additional Shareholders'
----------------------------- Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1999 .................. 14,411,039 $ 20 $ -- $ (51,283) $ (51,263)
Stock issued in connection with the
acquisition of Cognigen assets (Note 5) 39,630,358 55 -- -- 55
Reverse acquisition (Note 5) ........... 15,757,047 69,723 (261,957) -- (192,234)
Common stock issued for cash net of
$727,474 of expenses (Note 6) ......... 12,489,102 12,489 5,127,598 -- 5,140,087
Options issued for services
to non-employees (Note 6) ............. -- -- 5,836,724 -- 5,836,724
Net loss ............................... -- -- -- (7,092,027) (7,092,027)
------------ ------------ ------------ ------------ ------------
Balance, March 31, 2000 ................ 82,287,546 $ 82,287 $ 10,702,365 $ (7,143,310) $ 3,641,342
============ ============ ============ ============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1999 2000
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss ............................................... $ (38,463) $(7,092,027)
----------- -----------
Adjustments to reconcile net loss to net
cash provided by operating activities -
Depreciation and amortization ...................... -- 20,962
Stock options granted for services to non employees -- 5,836,724
Changes in assets and liabilities
Receivables ...................................... -- (300,826)
Inventory ........................................ -- (41,732)
Other current assets ............................. -- (107,946)
Interest payable ................................. 50,859 97,750
Accounts payable ................................. -- 93,669
Deferred revenue ................................. -- 77,499
Deferred income taxes ............................ -- 16,531
Commissions payable .............................. -- 105,423
Income taxes payable ............................. -- (383)
----------- -----------
50,859 5,797,671
----------- -----------
Net cash used in operations ............. 12,396 (1,294,356)
----------- -----------
Cash flows from investing activities
Capital expenditures ................................. -- (187,628)
Intangible assets .................................... (12,396) (25,606)
Cash acquired in acquisition ......................... -- 21,248
Advances to related party ............................ -- (570,000)
----------- -----------
Net cash used in investing activities ... (12,396) (761,986)
----------- -----------
Cash flows from financing activities
Net proceeds from stock issuance ..................... -- 5,140,087
Distribution related to reverse acquisition .......... -- (190,000)
Payments on notes payable ............................ -- (910,000)
----------- -----------
Net cash provided by financing activities -- 4,040,087
----------- -----------
Net increase in cash ................................... -- 1,983,745
Cash and cash equivalents-beginning of period .......... -- --
----------- -----------
Cash and cash equivalent-end of period ................. $ -- $ 1,983,745
=========== ===========
</TABLE>
Non-cash investing and financing activities (Note 8).
See notes to unaudited consolidated financial statements.
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<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Notes to Unaudited Consolidated Financial Statements
Note 1 - Description of Business
The Company was incorporated in May 1983 in the State of Colorado to engage in
the cellular radio and communications business and to engage in any other lawful
activity permitted under Colorado law. In June 1988, the Company changed its
name to Silverthorne Production Company and commenced operations in the oil and
gas industry. These operations were discontinued in 1989. Since 1989, the
Company has attempted to locate acquisition prospects and negotiate an
acquisition. The Company's pursuit of an acquisition did not materialize until
August 20, 1999.
Note 2 - Summary of Significant Accounting Policies
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, have been made to (a) the results of consolidated
operations for the three and nine month periods ended March 31, 2000 and 1999,
respectively, (b) the consolidated balance sheet at March 31, 2000 and (c) the
consolidated statements of cash flows for the nine month periods ended March 31,
2000 and June 30, 1999, respectively, in order to make the financial statements
not misleading.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for financial
statements. For further information, refer to the audited consolidated financial
statements and notes thereto for the year ended June 30, 1999, included in
Silverthorne Production Company's ("Company") Annual Report on Form 10-K/A
filed with the Securities and Exchange Commission and the audited financial
statements of Inter-American Telecommunications Holding Corporation (ITHC) and
Cognigen Corporation (Cognigen) for the year ended June 30, 1999 included in the
Company's Current Report on Form 8-K/A filed with the Securities and Exchange
Commission on March 8, 2000.
Note 3 - Basis of Presentation
These unaudited consolidated financial statements include the accounts of
Inter-American Telecommunications Corporation, ITHC, Cognigen and the Company.
All significant intercompany balances and transactions have been eliminated in
consolidation.
- 6 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Notes to Unaudited Consolidated Financial Statements
Note 4 - Long-Term Debt
Long-term debt consists of the following:
June 30, March 31,
1999 2000
----------- ---------
8% unsecured promissory notes payable,
principal and interest due upon maturity
in July 2000. $ 1,300,000 $ 510,000
8% unsecured promissory note payable,
principal and interest due upon maturity
in November 2000. - 180,000
----------- ---------
1,300,000 690,000
Less current portion of long-term debt (700,000) (510,000)
----------- ---------
$ 600,000 $ 180,000
=========== =========
Note 5 - Business Acquisitions
On July 1, 1999, ITHC entered into an agreement with Cognigen to purchase all of
Cognigen's net assets. The purchase price included 5,500 shares of ITHC common
stock ($.01 par value), a $300,000 note payable due October 1, 1999 and a four
year employment contract for the founder of Cognigen with an annual base salary
of $175,000. The transaction was accounted for as a purchase. ITHC acquired net
assets of $86,230 and recorded goodwill of $213,770. The goodwill will be
amortized over a life of 20 years.
On August 20, 1999, the Company completed the acquisition of all of the net
assets of ITHC in exchange for up to 49,041,397 shares of the Company's common
stock. For financial statement purposes, this business combination was accounted
for as an additional capitalization of ITHC (a reverse acquisition in which ITHC
was the accounting acquirer). ITHC is considered the surviving entity and the
historical financial statements prior to the acquisition are those of ITHC. The
Company's net book value prior to the transaction was $0. The issuance of the
stock must be completed in two closings due to the limited amount of authorized
stock available for issuance under the Company's articles of incorporation. The
first closing resulted in the issuance of 11,742,953 shares while the remaining
37,298,444 shares will be issued after a shareholder vote to increase the
authorized number of shares or after a reverse stock split is effected. The
Company issued 5,000,000 shares of the Company's common stock as finders' fees
in connection with the transaction to unrelated individuals.
Additionally on August 20, 1999, ITHC purchased 12,602,431 shares of the
Company's common stock for a price of $190,000 from certain existing
shareholders of the Company. This was recorded as a charge to equity in the
amount of $190,000.
The Company is the legal survivor and plans to change its name to Cognigen
Networks, Inc.
- 7 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Notes to Unaudited Consolidated Financial Statements
Note 6 - Stockholders' Equity
During the six months ended December 31, 1999, the Company received
subscriptions for 12,489,102 shares of the Company's common stock at prices of
$0.38 per share (11,562,302 shares) and $1.60 per share (926,800 shares) from
various persons. These shares were issued by March 31, 2000. The Company agreed
to pay a fee of 12% of the total proceeds received from the sale of the common
stock to a distributor and issue warrants to purchase up to a maximum of
1,500,000 shares of the Company's common stock to various persons in connection
with the sales. These warrants were valued at $347,400 based on a value of $.23
per warrant. This fee was accounted for as a cost of the reverse acquisition.
The Company paid a total of $727,474 related to the total fee due and other
expenses associated with the offering.
In August 1999, the Company issued 31,600,000 options entitling the holders to
purchase the Company's common stock at $0.46 per share. The options vest
immediately and expire five years from the date issued. The options cannot be
exercised until the Company amends it articles of incorporation or effects a
reverse split of its common stock so that it has sufficient shares available for
issuance upon the exercise of these options. 25,200,000 of these options were
issued to non employees while the remaining options were issued to employees and
directors. The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock options issued to employees and directors. $5,836,724 of compensation
expense was recorded in connection with the options granted to non employees
based on a value of $.23 per option.
Note 7 - Related Party Activities
During the nine months ended March 31, 2000, the Company advanced $570,000 to a
company it had entered into a letter-of-intent to acquire. The Company completed
the acquisition in April of 2000 by issuing 2,041,445 shares of its common stock
for all of the stock of the company acquired.
Note 8 - Non-Cash Investing and Financing Activities
During the nine months ended March 31, 2000:
The Company acquired net assets of 86,230 and recorded goodwill on the amount of
$213,770 by issuing a note for $300,000 in connection with a business
acquisition (Note 5).
During the nine months ended March 31, 1999:
The Company issued notes of $1,300,000 in exchange for customer lists of
1,300,000.
- 8 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
Certain of the information discussed in this quarterly report, and in particular
in this section entitled "Management's Discussion and Analysis or Plan of
Operation," contains forward-looking statements that involve risks and
uncertainties that might adversely affect the operating results of Silverthorne
Production Company ("Company") in the future in a material way. Such risks and
uncertainties include, without limitation, rate changes, fee policy or
application changes and competition. Many of these risks are beyond the control
of the Company. The Company is not entitled to rely on the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended, or Section
21E of the Securities Exchange Act of 1934, as amended, when making
forward-looking statements.
Overview
The Company was incorporated on May 6, 1983, in Colorado. On August 20, 1999,
the Company completed the acquisition of all of the net assets of ITHC in
exchange for up to 49,041,397 shares of the Company's common stock. For
financial statement purposes, this business combination was accounted for as an
additional capitalization of ITHC (a reverse acquisition in which ITHC was the
accounting acquirer). For accounting purposes, ITHC is considered the surviving
entity and the historical financial statements prior to the acquisition are
those of ITHC. The Company's net book value prior to the transaction was $0.
Inter-American Telecommunications Holding Corporation (ITHC) was incorporated on
July 24, 1998 in Delaware. Since its inception, ITHC has directed its efforts
toward the acquisition of assets that would allow it to be engaged in direct and
multilevel agency marketing and sale of long distance service and products as
well as the switching and transport of voice, fax and data telephone and
internet traffic and related services. On July 1, 1999, ITHC acquired the net
assets of Cognigen Corporation (Cognigen) in exchange for 5,500 shares of its
common stock and a note payable of $300,000. Cognigen was actively marketing
long distance telephone services over the internet.
The Company intends to seek an increase in their authorized number of shares or
the authorization for a 1-2, 1-3 or 1-4 reverse stock split as the Board deems
appropriate. The Company intends to take these actions at its next annual
shareholder meeting anticipated to be held in June 2000.
- 9 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
ITHC was a developmental stage company since its inception on July 24, 1998
through June 30, 1999. During this stage, ITHC generated no revenues and
incurred only minimal operational costs. ITHC focused its efforts on the pursuit
of the acquisition of business opportunities. On July 1, 1999, ITHC completed
the acquisition of all the net assets of Cognigen in a transaction accounted for
as a purchase. Additionally, in a transaction accounted for as a reverse
acquisition, ITHC acquired control of the Company, a non-operating public shell
corporation. Therefore, the results of operations for the three and nine months
ended March 31, 2000 are comprised entirely of the operations generated from the
net assets purchased from Cognigen on July 1, 1999. As no operations existed for
ITHC for the three and nine month periods ended March 31, 1999, no meaningful
comparisons can be made.
For purposes of this Management's Discussion and Analysis or Plan of Operation,
the Company believes that the unaudited results of operations for Cognigen for
the three and nine months ended March 31, 1999 shown below provide a more
meaningful basis for analysis. Therefore, all comparisons and analysis included
in this Management's Discussion and Analysis or Plan of Operation are based
upon these unaudited results of operations for Cognigen for the three and nine
months ended March 31, 1999.
- 10 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Unaudited Results of Operations
<TABLE>
<CAPTION>
Unaudited Results of Unaudited Results of
Operations for Operations
The Company for Cognigen
---------------------------- ----------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2000 2000 1999 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Prepaid cards and pins .......... $ 82,632 $ 846,427 $ 226,616 $ 657,003
Marketing commissions ........... 707,193 1,642,400 277,596 434,707
Other ........................... 129,504 131,874 -- --
Allowances ...................... (10,731) (28,512) -- --
----------- ----------- ----------- -----------
Total revenue ................. 908,598 2,592,189 504,212 1,091,710
Operating expenses
Prepaid cards and pins .......... 170,798 710,389 193,883 450,007
Marketing commissions ........... 457,062 1,198,675 205,334 321,367
Sales, general and administrative 826,184 7,726,564 138,234 359,023
----------- ----------- ----------- -----------
Total operating expenses ...... 1,454,044 9,635,628 537,451 1,130,397
----------- ----------- ----------- -----------
Loss from operations .............. (545,446) (7,043,439) (33,239) (38,687)
Other income (expense)
Other income .................... 42,452 59,179 -- --
Interest expense ................ (39,517) (107,767) -- --
----------- ----------- ----------- -----------
Net income (loss) .................. $ (542,511) $(7,092,027) $ (33,239) $ (38,687)
=========== =========== =========== ===========
</TABLE>
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<PAGE>
SILVERTHORNE PRODUCTION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 2000.
Total revenue for the three months ended March 31, 2000 was $908,598 compared to
$504,212 for the three months ended March 31, 1999. Total revenue for the 2000
period consisted of $82,632 related to prepaid cards and pins and $707,193
related to commissions. Total revenue for the comparable period in 1999
consisted of $226,616 related to prepaid cards and pins and $277,596 related to
commissions. The $143,984, or 63%, decrease in prepaid cards and pins is due to
reduced tariff calls as a result of competition. The $429,597, or 155%, increase
in commissions is due to an increase in agents of 20% or 236 new agents.
Operating costs related to prepaid cards and pins for the three months ended
March 31, 2000 decreased $23,085, or 12%, to $170,798 from $193,883 during the
three months ended March 31, 1999. Operating costs related to commissions for
the three months ended March 31, 2000 increased $251,728, or 123%, to $457,062
from $205,334 during the three months ended March 31, 1999. The cost increases
are directly related to the increases in sales revenue
General and administrative operating expenses increased $687,950, or 498%, to
$826,184 during the three months ended March 31, 2000 from $138,234 during the
three months ended March 31, 1999. This increase is due to increased salaries of
$164,706 or 182% as a result of more headcount, increased legal and professional
expenses of $101,031 or 131% due to acquisitions and increased commissions paid
of $51,200 or 13%.
The Company incurred a loss from operations of $545,446 for the three months
ended March 31, 2000 compared to $33,239 for the three months ended March 31,
1999. The decrease in operating loss during the current period is directly
related to the increase in general and administrative expenses discussed above.
Net interest income for the three months ended March 31, 2000 of $2,935 compares
to net interest income during the same three months ended March 31, 1999 of $0.
The reason for this increase is due to larger cash balances earning interest
from an increase in deposits. After interest income, the net loss for the three
months ended March 31, 2000 was $542,511, or $.01 loss per share, compared to
net income of $33,239 for the three months ended March 31, 1999.
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999
Total revenue for the nine months ended March 31, 2000 was $2,592,189 compared
to $1,091,710 for the nine months ended March 31, 1999. Total revenue in 2000
consisted of $846,427 related to prepaid cards and pins and $1,642,400 related
to commissions. Total revenue for the comparable period in 1999 consisted of
$657,003 related to prepaid cards and pins and $434,707 related to commissions.
The $189,424, or 29%, increase in prepaid cards and pins is due to an increase
in sales agents of approximately 800 agents. The $1,207,693, or 278%, increase
in commissions is also directly related to the increase in agents.
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<PAGE>
SILVERTHORNE PRODUCTION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Operating costs related to prepaid cards and pins for the nine months ended
March 31, 2000 increased $260,382, or 58%, to $710,389 from $450,007 during the
nine months ended March 31, 1999. Operating costs related to commissions for the
nine months ended March 31, 2000 increased $877,308, or 273%, to $1,198,675 from
$321,367 during the nine months ended March 31, 1999. The cost increases are
directly related to the increases in revenues.
General and administrative operating expenses increased $7,367,541, or 1,952%,
to $7,726,564 during the nine months ended March 31, 2000 from $359,023 during
the nine months ended March 31, 1999. This increase is due to a non-cash charge
for options granted to non-employees of $5,836,724 in addition to increased
salaries resulting from significant Company growth and increased legal and
professional costs from business acquisitions and related public filings.
The Company incurred a loss from operations of $7,043,439 for the nine months
ended March 31, 2000 compared with an operating loss of $38,687 for the nine
months ended March 31, 1999. The increase in operating loss during the period
is also related to the increase in general and administrative costs discussed
above.
Net interest expense for the nine months ended March 31, 2000 of $48,588
compares to net interest expense during the nine months ended March 31, 1999 of
$0. The reason for this increase is due to an increase in outstanding debt.
After interest expense, the net loss for the nine months ended March 31, 2000
was $7,092,027, or $0.09 loss per share, compared to net loss of $38,687 for the
nine months ended March 31, 1999.
Liquidity and Capital Resources:
The Company has funded its operations to date primarily from shareholder
advances and stock subscriptions received. At March 31, 2000, the Company had
cash and cash equivalents of $1,983,745 and working capital of $2,034,350.
Cash used by the Company for operating activities during the nine months ended
March 31, 2000 was $1,294,356. A primary component of the use of cash during the
nine months was the Company's net loss of $7,092,027 adjusted for non-cash
adjustments for depreciation and amortization of $20,962 and stock option
expense of $5,836,724. Additional uses of operating cash for the nine months
included increases in the Company's accounts receivable of $300,826, inventory
of $41,732 and other current assets of $107,946. The uses in operating cash were
partially offset by cash provided of $97,750 from interest payable, $93,669 of
accounts payable, deferred revenue of $77,499 and commissions payable of
$105,423. Sources of cash from investing activities include $21,248 from the
acquisition of Cognigen. Additional sources and uses of cash during the nine
months ended March 31, 2000 also include net proceeds from the receipt of stock
subscriptions of $5,140,087, capital expenditures of $187,628, payments on notes
payable of $910,000 and a distribution in connection with the reverse
acquisition.
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<PAGE>
SILVERTHORNE PRODUCTION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company currently has three notes with total outstanding blanaces of
$690,000. Two of these notes are due in July 2000 while the remaining note is
due November 2000.
The Company believes its current liquidity requirement primarily will be to meet
working capital requirements. The Company has no planned significant capital
expenditures in the foreseeable future. Cash generated from operations was not
sufficient to meet working capital requirements for the nine months ended March
31, 2000, and may not be sufficient to meet working capital requirements for the
foreseeable future. Therefore, additional debt or equity financing may be
required for the Company to satisfy its short term capital needs. There can be
no assurances that the Company will be able to generate additional debt or
equity financing if needed.
The Company advanced $570,000 to Aquila International Telecommunications, Inc.
(Aquila) in connection with a carrier service agreement. This agreement was for
performing services for migrating customers from the Company's customer lists
to active status, switching services and full customer maintenance. The Company
acquired all of the outstanding common stock of Aquila in April 2000 by issuing
2,041,445 shares of its common stock. The required financial statements and
pro forma information will be included in the Company's Current Report on
Form 8-K/A anticipated to be filed with the Securities and Exchange Commission
within the required timeline.
- 14 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Commission File Number: 0-11730
Quarter Ended March 31, 2000
Form 10-QSB
PART II - OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
On March 21, 2000, a Current Report on Form 8-K was filed that reported
a change in Silverthrone's independent accountants under Item 4 and that
included a letter from Silverthorne's previous accountants as an exhibit under
Item 7(c).
On March 8, 2000, a Current Report on Form 8-K was filed that included
the financial statements of Inter-American Telecommunications Holding
Corporation and Cognigen Corporation under Item 7(a) and pro forma financial
information under Item 7(b) and the Stock Purchase and Asset Acquisition
Agreement by and among Inter-American Telecommunications Holding Corporation,
Silverthorne Production Company, et al. was filed as an exhibit under Item 7(c).
On February 14, 2000, a Current Report on Form 8-K was filed that
included a press release that was filed as an exhibit under Item 7(c).
On January 18, 2000, a Current Report on Form 8-K was filed that
reported a change in the number of shares owned by Inter-American
Telecommunications Holding Corporation after the closing of the transaction
between Silverthorne and Inter-American Telecommunications Holding Corporation
under Item 2 and that included the Amendment dated December 27, 1999, to Stock
Purchase and Asset Acquisition Agreement by and among Silverthorne Production
Company, Inter-American Telecommunications Holding Corporation, et al. as an
exhibit under Item 7(c).
On January 3, 2000, a Current Report on Form 8-K was filed that
reported a change in the transaction between Silverthorne and Inter-American
Telecommunications Holding Corporation under Item 2 and that included the
Amendment dated December 27, 1999, to Stock Purchase and Asset Acquisition
Agreement by and among Silverthorne Production Company, Inter-American
Telecommunications Holding Corporation, et al. as an exhibit under Item 7(c).
- 15 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SILVERTHORNE PRODUCTION COMPANY
By: /s/ Jimmy L. Boswell
------------------------------
Jimmy L. Boswell
President and Chief Operating
Officer
By: /s/ David G. Lucas
------------------------------
David G. Lucas
Chief Financial Officer
Denver, Colorado
May 23, 2000
- 16 -
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,983,745
<SECURITIES> 0
<RECEIVABLES> 580,333
<ALLOWANCES> 0
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<CURRENT-ASSETS> 3,309,584
<PP&E> 275,000
<DEPRECIATION> 20,962
<TOTAL-ASSETS> 5,096,576
<CURRENT-LIABILITIES> 1,275,234
<BONDS> 0
0
0
<COMMON> 82,287
<OTHER-SE> 3,559,055
<TOTAL-LIABILITY-AND-EQUITY> 5,096,576
<SALES> 2,592,189
<TOTAL-REVENUES> 2,651,368
<CGS> 0
<TOTAL-COSTS> 9,635,628
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<INTEREST-EXPENSE> 107,767
<INCOME-PRETAX> (7,092,027)
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<NET-INCOME> (7,092,027)
<EPS-BASIC> (.09)
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