UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
----------
Commission File Number 0-11730
COGNIGEN NETWORKS, INC.
(FORMERLY 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 September 30, 1999
------------------------- -------------------------
Common Stock, .001 par value 32,500,000
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
------
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Commission File Number: 0-11730
Quarter Ended September 30, 1999
FORM 10-QSB/A
Part I - FINANCIAL INFORMATION
Unaudited Consolidated Statements of Operations..........................Page 1
Unaudited Consolidated Balance Sheets....................................Page 2
Unaudited Consolidated Statements of Cash Flows..........................Page 3
Notes to Unaudited Consolidated Financial Statements.....................Page 4
Management's Discussion and Analysis or Plan of Operation................Page 10
Part II - OTHER INFORMATION.............................................Page 14
Signatures..............................................................Page 16
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Unaudited Consolidated Statements of Operations
Three Months Ended
September 30,
----------------------------
1998 1999
------------ ------------
Revenue
Prepaid cards and pins ............... $ -- $ 445,090
Commissions .......................... -- 445,133
Allowances ........................... -- (5,379)
------------ ------------
Total revenue ...................... -- 884,844
------------ ------------
Operating expenses
Prepaid cards and pins ............... -- 302,637
Commissions .......................... -- 345,043
Sales, general and administrative .... -- 6,472,289
------------ ------------
Total operating expenses ........... -- 7,119,969
------------ ------------
Loss from operations .................... -- (6,235,125)
Other income (expense)
Interest expense ..................... 16,953 35,550
------------ ------------
Loss before income taxes ................ (16,953) (6,270,675)
Income taxes ............................ 4,132 --
------------ ------------
Net loss ................................ $ (12,821) $ (6,270,675)
============ ============
Loss per common share - basic and diluted $ -- $ (.26)
============ ============
Weighted average number of common shares
outstanding - basic and diluted 2,000 24,123,524
============ ============
See notes to unaudited consolidated financial statements.
- 1 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Unaudited Consolidated Balance Sheets
June 30, September 30,
1999 1999
----------- -----------
Assets
Current assets
Cash .......................................... $ -- $ 286,199
Accounts receivable ........................... -- 190,528
Advances to related party ..................... -- 200,000
Inventory ..................................... -- 20,993
Other current assets .......................... -- 752
----------- -----------
Total current assets ........................ -- 698,472
----------- -----------
Property and equipment ........................... -- 67,137
----------- -----------
Other assets
Deposits and other assets ..................... -- 1,515
Goodwill, net ................................. -- 203,086
Customer lists ................................ 1,300,000 1,300,000
Deferred tax asset ............................ 16,551 16,605
----------- -----------
Total other assets .......................... 1,316,551 1,521,206
----------- -----------
Total assets ..................................... $ 1,316,551 $ 2,286,815
=========== ===========
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Interest payable .............................. $ 67,814 $ 103,364
Current portion of long-term debt ............. 700,000 1,300,000
Accounts payable .............................. -- 15,144
Deferred revenue .............................. -- 73,689
Commissions payable ........................... -- 220,112
Payroll taxes payable ......................... -- 53,840
Income taxes payable .......................... -- 13,770
----------- -----------
Total current liabilities ................... 767,814 1,779,919
Long-term debt ................................... 600,000 300,000
----------- -----------
Total liabilities ........................... 1,367,814 2,079,919
Stockholders' (deficit) equity
Common stock, $.01 (June) and $.001 (September)
par value, 10,000 shares authorized; 2,000
shares issued and outstanding at June 30, 1999
and 50,000,000 shares authorized; 32,500,000
issued and outstanding and 40,006,916 to be
issued at September 30, 1999 ................. 20 72,506
Additional paid in capital .................... -- 6,646,348
Accumulated deficit ........................... (51,283) (6,511,958)
----------- -----------
Total stockholders' (deficit) equity ........ (51,263) 206,896
----------- -----------
Total liabilities and stockholders'
(deficit) equity ................................ $ 1,316,551 $ 2,286,815
=========== ===========
See notes to unaudited consolidated financial statements.
- 2 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss ............................................ $ (12,821) $(6,270,675)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization ..................... -- 22,908
Stock options granted for services to non employees -- 5,836,724
Changes in assets and liabilities
Accounts receivable ............................. -- 88,979
Inventory ....................................... -- 4,083
Intangible assets ............................... (4,132) --
Interest payable ................................ 16,953 35,550
Accounts payable ................................ -- 11,887
Deferred revenue ................................ -- 1,926
Commissions payable ............................. -- 35,844
Payroll taxes payable ........................... -- 3,436
----------- -----------
12,821 6,041,337
----------- -----------
Net cash used in operations ................... -- (229,338)
----------- -----------
Cash flows from investing activities
Cash acquired in acquisition ........................ -- 21,248
Advances to related party ........................... -- (200,000)
----------- -----------
Net cash provided by investing activities ..... -- (178,752)
----------- -----------
Cash flows from financing activities
Proceeds from subscriptions received ................ -- 884,289
Payments on notes payable ........................... -- (315,000)
Proceeds from notes payable ......................... -- 125,000
----------- -----------
Net cash provided by financing activities ..... -- 694,289
----------- -----------
Net increase in cash ................................... -- 286,199
Cash and cash equivalents-beginning of period .......... -- --
----------- -----------
Cash and cash equivalent-end of period ................. $ -- $ 286,199
=========== ===========
</TABLE>
Non-cash investing and financing activities:
There were certain non-cash transactions associated with the acquisition of
Cognigen Corporation and the reverse acquisition of Silverthorne
Production Company by Inter-American Telecommunications Holdings
Corporation (ITHC).
ITHC purchased 12,602,431 shares of Silverthorne Production Company's
common stock for $190,000 by creating a note payable. The note payable was
paid off subsequent to September 30, 1999.
See notes to unaudited consolidated financial statements.
- 3 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Notes to Unaudited Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
---------------------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information, which have been derived from 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-KSB filed with the Securities and Exchange Commission. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
have been made to in order to make the financial statements not misleading. The
results are not necessarily indicative of these for a complete fiscal year.
Basis of Presentation
---------------------
These unaudited consolidated financial statements include the accounts of
Inter-American Telecommunications Corporation, Inter-American Telecommunications
Holding Corporation (ITHC), Cognigen Corporation (Cognigen) and the Company. All
significant intercompany balances and transactions have been eliminated in
consolidation.
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.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method for financial reporting purposes at rates based on the
estimated useful lives ranging from 3-7 years.
Software developed to support the self-replicating Web pages used to market
telecommunication services and administer agents' sales and related commissions
has been capitalized according to the provisions of AICPA Statement of Position
98-1 "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use".
Intangible Assets
-----------------
Intangible assets are stated at cost and consist of goodwill and customer lists.
Goodwill is amortized u sing the straight-line method over five years. Customer
lists will be amortized over five years, once they are utilized in operations.
- 4 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Notes to Unaudited Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
---------------------------------------------------------------
Valuation of Long-Lived Assets
------------------------------
The Company assesses valuation of long-lived assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be disposed of. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved.
Commissions Receivable
----------------------
Commissions receivable represent amounts due from providers for
telecommunication services used by subscribers. Typically providers pay
commissions due to the Company forty-five days after the usage month-end to
allow for billing and collection.
Commissions Payable
-------------------
Commissions payable represent amounts due to agents as commission related to the
usage for which the Company is due commission income from its providers. It is
the Company's policy to pay commissions to its agents only after receiving
commissions due from its providers. This policy results in approximately two
months commission payable at any point in time.
Income Taxes
------------
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
- 5 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Notes to Unaudited Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
---------------------------------------------------------------
Revenue Recognition
-------------------
The Company records commission income when the underlying telecommunication
service is rendered. Commission income does not include amounts paid separately
to carriers for telecommunication services provided.
Calling card revenue is recorded when the calling cards are shipped. The
Company's policy is to delay shipment of calling cards for a two-week period
after receipt of cash to allow for processing. This delay results in deferred
revenue, which is recorded as a liability until the calling cards are shipped.
Calling card revenue includes amounts paid for the cost of the
telecommunications services provided by third-party carriers.
Note 2 - Business Acquisitions
------------------------------
Acquisition of Customer Databases
---------------------------------
On November 4, 1998, ITHC acquired a customer database of 54,034 individual
subscribers from TelKiosk Inc. (TelKiosk) in exchange for 2,844,285, as
adjusted, shares of ITHC common stock, and a $500,000 promissory note payable
November 4, 1999 (and subsequently extended until July 1, 2001 as to the
remaining $300,000 balance due). TelKiosk is partially owned by a former officer
and director of ITHC. This is an electronically archived database containing
54,034 individual, comma-delimited records of residential and business accounts
of long distance telephone subscribers using the callback or call-reorigination
system. The domiciles of these accounts are located primarily outside the United
States, including Japan, Italy, France, Argentina, Brazil, Spain, Israel, Russia
and CIS countries, Guatemala, Venezuela and Singapore. The customers in the
database use primarily U.S. origination - foreign termination callback long
distance services.
Also on November 4, 1998, ITHC acquired a customer database of 41,415 individual
subscribers from Combined Telecommunications Consultancy, Ltd. (CTC) in exchange
for 5,688,570, as adjusted, shares of ITHC common stock and an $800,000
promissory note payable November 4, 1999 (and subsequently extended until July
1, 2001 as to $300,000 of the remaining balance due). CTC is partially owned by
a former officer and director of ITHC. This is an electronically archived
database containing 41,415 individual, comma-delimited records of residential
and business accounts of long distance telephone subscribers. The domiciles of
these accounts are all located within the United States. Approximately 90% of
these accounts have an affinity to a foreign country, and the accounts are held
by persons of Russian, Romanian, Czech, Slovakian, Slovenian, Polish, Bulgarian,
German, Japanese and Filipino national origin.
- 6 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Notes to Unaudited Consolidated Financial Statements
Note 2 - Business Acquisitions (continued)
------------------------------------------
Acquisition of Customer Databases (continued)
---------------------------------------------
Migration of customers will commence when the solicitation process is complete.
The lists were originally purchased by CTC and TelKiosk in an arm's length
transaction from an independent international long distance reseller and
customer base consolidator. The purchase price to ITHC was determined with
respect to amounts paid or payable to the original seller of the lists.
Cognigen Acquisition
--------------------
On July 1, 1999, ITHC entered into an agreement with Cognigen to purchase all of
Cognigen's net assets. The purchase price included 31,286,894 shares, as
adjusted, of ITHC common stock and a $300,000 note payable. Additionally, ITHC
entered into a four-year employment contract with the founder of Cognigen, which
provides for an annual base salary of $175,000. The transaction was accounted
for as a purchase. ITHC acquired net assets of $86,285 and recorded goodwill of
$213,770. The goodwill is being amortized over a life of 5 years.
Reverse Acquisition
-------------------
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
15,757,047 shares reflected in the statement of stockholders' equity reflect
those shares of Company's common stock outstanding immediately prior to the
reverse acquisition. 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 the
authorized number of shares is increased 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. The
shares were valued at $1,900,000, or $.38 per share, and reported on a net basis
in additional paid-in-capital.
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 paid-in capital in
the amount of $190,000.
The Company is the legal survivor and changed its name to Cognigen Networks,
Inc.
- 7 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Notes to Unaudited Consolidated Financial Statements
Note 2 - Business Acquisitions (continued)
------------------------------------------
Reverse Acquisition (continued)
-------------------------------
In January 2000, the Company entered into a letter of intent to acquire Aquila
International Telecommunications, Inc., subject to the execution of a definitive
agreement and other conditions.
Note 3 - Common Stock and Stock Options
---------------------------------------
During the three months ended September 30, 1999, the Company received
subscriptions for 2,708,472 shares of the Company's common stock at a price of
$0.38 per share from various persons. The subscriptions and cash were received
prior to September 30, 1999, however, the stock will not be issued until after
the number of authorized shares is increased or a reverse stock split is
effected. 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 and subsequent sales. As of
September 30, 1999, the Company had paid approximately $177,000 towards the
total fee due.
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.
- 8 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Notes to Unaudited Consolidated Financial Statements
Note 4 - Long-Term Debt
-----------------------
Long-term debt consists of the following:
June 30, September 30,
1999 1999
----------- -----------
8% unsecured promissory notes payable,
principal and interest due upon maturity
at July 2000 ........................... $ 1,300,000 $ 1,300,000
8% unsecured promissory note payable,
principal and interest due upon maturity
at November 2000 ....................... -- 300,000
----------- -----------
1,300,000 1,600,000
Less current portion .................... (700,000) (1,300,000)
----------- -----------
$ 600,000 $ 300,000
=========== ===========
- 9 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY 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.
Overview
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 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 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.
- 10 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY 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 months ended
September 30, 1999 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 month period ended September 30, 1998, 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 months ended September 30, 1998 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 will be based upon
these unaudited results of operations for Cognigen for the three months ended
September 30, 1998.
Results of Operations for Cognigen for the Three Months Ended September 30, 1998
Revenue
Prepaid cards and pins .......... $ 222,762
Commissions ..................... 74,360
---------
Total revenue ............... 297,122
Operating expenses
Prepaid cards and pins .......... 123,899
Commissions ..................... 63,599
Sales, general and administrative 144,977
---------
Total operating expenses .... 332,475
---------
Loss from operations and before taxes (35,353)
Income taxes ......................... --
---------
Net loss ............................. $ (35,353)
=========
- 11 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Total revenue for the three months ended September 30, 1999 was $884,844
compared to $297,122 for the three months ended September 30, 1998. Total
revenue for the 1999 period consisted of $445,090 related to prepaid cards and
pins and $445,133 related to commissions. Total revenue for the comparable
period in 1998 consisted of $222,762 related to prepaid cards and pins and
$74,360 related to commissions. The $222,328, or 100%, increase in prepaid cards
and pins is due to a larger internet presence and more agents making sales. The
$370,118, or 498%, increase in commissions is due to a larger number of agents
making sales.
Operating costs related to prepaid cards and pins for the three months ended
September 30, 1999 increased $178,738, or 144%, to $302,637 from $123,899 during
the three months ended September 30, 1998. Operating costs related to
commissions for the three months ended September 30, 1999 increased $281,444, or
443%, to $345,043 from $63,599 during the three months ended September 30, 1998.
The cost increases are directly related to the increased revenue.
General and administrative operating expenses increased $6,327,312, or 4,364%,
to $6,472,289 during the three months ended September 30, 1999 from $144,977
during the three months ended September 30, 1998. This increase is primarily due
to the addition of staff and the charge for stock options granted to non
employees.
The Company incurred a loss from operations of $6,270,675 for the three months
ended September 30, 1999 compared with a loss from operations of $35,353 for the
three months ended September 30, 1998. The primary increase in the loss from
operations during the current period is mostly related to the increased staff
costs and the charge for stock options granted to non employees.
Net interest expense for the three months ended September 30, 1999 of $35,550
compares to net interest expense during the same three months ended September
30, 1998 of $0. The reason for this increase is due to increased borrowings
during the three months ended September 30, 1999. After interest expense, the
net loss for the three months ended September 30, 1999 was $6,270,675, or $(.26)
per share, compared to a net loss of $35,353 for the three months ended
September 30, 1998.
Liquidity and Capital Resources:
The Company has funded its operations to date primarily from shareholder
advances and stock subscriptions received. At September 30, 1999, the Company
had cash and cash equivalents of approximately $286,199 and a working capital
deficit of $1,081,447.
- 12 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cash used by the Company for operating activities during the three months ended
September 30, 1999 was approximately $229,338. A primary component of the use of
cash during the three months was the Company's net loss of $6,270,675 adjusted
for non-cash adjustments of depreciation and amortization of approximately
$22,908 and stock option expense of $5,836,724. Sources of operating cash were
the increase in payables and deferred revenue of $86,717 and $1,926,
respectively. Additional sources of cash include $21,248 from the acquisition of
Cognigen. Additional sources and uses of cash during the three months ended
September 30, 1999 included net proceeds from the receipt of stock subscriptions
of $884,289, proceeds from notes payable of $150,000 and payments on notes
payable of $315,000.
The Company believes its current liquidity requirement primarily will be to meet
working capital requirements. Cash generated from operations was not sufficient
to meet working capital requirements for the three months ended December 31,
1999, 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.
The Company accepted an additional $4,873,895 in stock subscriptions after
September 30, 1999.
- 13 -
<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Commission File Number: 0-11730
Quarter Ended September 30, 1999
Form 10-QSB/A
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
On August 20, 1999, Silverthorne Production Company (Silverthorne) completed the
first closing of the acquisition of all of the assets of Inter-American
Telecommunications Holding Corporation (ITHC) in exchange for 29,242,953 shares
of Silverthorne's common stock. On December 27, 1999, Silverthorne and ITHC
agreed that the total number of shares of Silverthorne's common stock that were
to be issued at the first closing was 11,742,953 shares rather than 29,242,953
shares and that the total number of shares to be issued by Silverthorne to ITHC
at the second closing is 37,298,444 shares. Further, Silverthorne and ITHC made
it clear that Silverthorne was acquiring all of the assets and assuming all of
the liabilities of ITHC as of August 20, 1999. The shares were issued in
reliance upon the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended ("Securities Act"). ITHC had available to it
full information concerning Silverthorne and the certificates representing the
shares have a legend prohibiting transfer unless the shares are registered under
the Securities Act or the transfer is exempt from the registration requirements
thereof. No underwriter was involved in the transaction. Silverthorne issued
5,000,000 shares of Silverthorne's common stock as finders' fees in connection
with the transaction.
During the three months ended September 30, 1999, Silverthorne received
subscriptions for 2,708,472 shares of Silverthorne's common stock at a price of
$0.38 per share from various persons. The subscriptions were received as a
result of offers that were made pursuant to Regulation S adopted under the
Securities Act. The subscriptions were accepted after September 30, 1999. All of
the offers and sales of the shares were made in "offshore transactions" as
defined in Regulation S and appropriate "offering restrictions" as defined in
Regulation S were implemented in connection with the sales. Further, all of the
stock certificates issued to the purchasers have a legend prohibiting transfer
of the shares unless the shares are registered under the Securities Act or the
transfer is exempt from the registration requirements thereof. The Company paid
a fee of 12% of the total proceeds received from the sale of the common stock to
a distributor and later agreed to issue warrants to purchase 1,500,000 shares of
Silverthorne's common stock to various persons in connection with the sales and
subsequent sales made by the Silverthorne. Further, ITHC and another Company
transferred 200,000 shares of the Silverthorne's common stock to two persons in
connection with all of the sales.
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<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY SILVERTHORNE PRODUCTION COMPANY)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K:
On September 20, 1999, a Current Report on Form 8-K was filed that
reported a change in control under Item 1 and the acquisition of the
assets of Inter-American Telecommunications Holding Corporation under
Item 2 and that included the stock purchase and asset acquisition
agreement relating to the acquisition of the assets as an exhibit under
Item 7.
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<PAGE>
COGNIGEN NETWORKS, INC.
(FORMERLY 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.
COGNIGEN NETWORKS, INC. (FORMERLY SILVERTHORNE PRODUCTION COMPANY)
By:/s/ Darrell H. Hughes
-------------------
Darrell H. Hughes
President and Chief Executive
Officer
By: /s/ David G. Lucas
-------------------
David G. Lucas
Chief Financial Officer
Denver, Colorado
November __, 2000
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