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 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
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>
SILVERTHORNE PRODUCTION COMPANY
Commission File Number: 0-11730
Quarter Ended September 30, 1999
FORM 10-QSB
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 7
Part II - OTHER INFORMATION.............................................Page 11
Signatures..............................................................Page 13
<PAGE>
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
Stock options granted for services to non
employees .............................. -- 5,836,724
Sales, general and administrative ....... -- 502,548
------------ ------------
Total operating expenses ............... -- 6,986,952
------------ ------------
Loss from operations ...................... -- (6,102,108)
Other income (expense)
Interest expense ........................ 16,953 35,550
------------ ------------
Loss before income taxes .................. (16,953) (6,137,658)
Income taxes .............................. 4,132 --
------------ ------------
Net loss .................................. $ (12,821) $ (6,137,658)
============ ============
Loss per common share - basic and diluted . $ -- $ (.25)
============ ============
Weighted average number of common shares
outstanding - basic and diluted .......... 2,000 24,123,524
============ ============
See notes to unaudited consolidated financial statements.
- 1 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Unaudited Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
----------- -----------
Assets
<S> <C> <C>
Current assets
Cash .................................................... $ -- $ 286,199
Accounts receivable ..................................... -- 390,528
Inventory ............................................... -- 20,993
Other current assets .................................... -- 752
----------- -----------
Total current assets ................................... -- 698,472
----------- -----------
Property and equipment .................................... -- 67,137
----------- -----------
Other assets
Intangibles and other assets ............................ 1,316,551 1,529,223
----------- -----------
Total other assets ..................................... 1,316,551 1,529,223
----------- -----------
Total assets .............................................. $ 1,316,551 $ 2,294,832
=========== ===========
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Interest payable ........................................ $ 67,814 $ 103,364
Current portion of long-term debt ....................... 700,000 1,190,000
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 1,669,919
Long-term debt ............................................ 600,000 285,000
----------- -----------
Total liabilities ...................................... 1,367,814 1,954,919
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) equity ........................... (51,283) (6,378,941)
----------- -----------
Total stockholders' (deficit) equity ................... (51,263) 339,913
----------- -----------
Total liabilities and stockholders' (deficit) equity ....... $ 1,316,551 $ 2,294,832
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
- 2 -
<PAGE>
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) $(6,137,658)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization .............. -- 14,891
Stock options granted for services to
non employees ............................. -- 5,836,724
Changes in assets and liabilities
Accounts receivable ....................... -- (111,021)
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 5,833,320
Net cash used in operations ............. -- (304,338)
----------- -----------
Cash flows from investing activities
Cash acquired in acquisition ................ -- 21,248
----------- -----------
Net cash provided by investing
activities ............................. -- 21,248
----------- -----------
Cash flows from financing activities
Proceeds from subscriptions received ........ -- 884,289
Payments on notes payable ................... -- (315,000)
----------- -----------
Net cash provided by financing
activities ............................. -- 569,289
----------- -----------
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 Holding 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>
SILVERTHORNE PRODUCTION COMPANY
Notes to Unaudited Consolidated Financial Statements
1) 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 month periods ended September 30, 1999 and 1998,
respectively, (b) the consolidated financial position at September 30,1999
and (c) the consolidated statements of cash flows for the three month periods
ended September 30, 1999 and 1998, respectively, in order to make the
financial statements not misleading.
2) 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-KSB filed with the Securities and
Exchange Commission.
3) These unaudited consolidated financial statements include the accounts of
Inter-American Telecommunications Corporation, Inter-American
Telecommunications Holding Corporation (ITHC), Cognigen Corporation and
the Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
4) 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.
5) 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). ITHC is considered the surviving
entity and the historical financial statements prior to the merger 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 its 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.
- 4 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Notes to Unaudited Consolidated Financial Statements
The Company will be the legal survivor and plans to change its name to
Cognigen Networks, Inc.
Additionally, 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 $190,000.
6) Company officers from time to time obtained funds from shareholders to pay
for expenses and to pursue Company business opportunities.
7) In January 2000, the Company entered into a letter of intent to acquire
Aquila International Telecommunications, Inc., subject to the execution of a
definitive agreement and other conditions. This letter of intent terminated
on February 29, 2000.
8) On July 1, 1999, ITHC entered into an agreement with Cognigen Corporation
(Cognigen) to purchase all of Cognigen's net assets. The purchase price
included 5,500 shares of ITHC common stock ($.01 par value), a $300,000 note
payable due October 1, 1999, a four year employment contract for the founder
of Cognigen with an annual base salary of $ 175,000, and a commitment to
provide future working capital of $600,000 over a three year period to cover
business expansion. 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.
ITHC had various working capital funding commitments in the amount of
$850,000 with related parties entered into in connection with acquisitions of
various customer lists.
9) 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 $0.36 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 $90,000
towards the total fee due.
- 5 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Notes to Unaudited Consolidated Financial Statements
10) 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.
- 6 -
<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.
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.
- 7 -
<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
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)
=========
- 8 -
<PAGE>
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 $357,571, or 247%, to
$502,548 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 associated costs.
The Company incurred a loss from operations of $6,102,108 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 $6,137,658, or $(.25)
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 $971,447.
- 9 -
<PAGE>
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 $304,338. A primary component of the use of
cash during the three months was the Company's net loss of $6,137,658 adjusted
for non-cash adjustments of depreciation and amortization of approximately
$14,891 and stock option expense of $5,836,724. Additional uses of operating
cash for the three months included increases in the Company's accounts
receivable of $111,021. 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 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.
- 10 -
<PAGE>
SILVERTHORNE PRODUCTION COMPANY
Commission File Number: 0-11730
Quarter Ended September 30, 1999
Form 10-QSB
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
$0.36 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.
- 11 -
<PAGE>
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.
- 12 -
<PAGE>
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
March 13, 2000
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 286,199
<SECURITIES> 0
<RECEIVABLES> 390,528
<ALLOWANCES> 0
<INVENTORY> 20,993
<CURRENT-ASSETS> 698,472
<PP&E> 146,627
<DEPRECIATION> 79,490
<TOTAL-ASSETS> 2,294,832
<CURRENT-LIABILITIES> 1,669,919
<BONDS> 0
0
0
<COMMON> 72,506
<OTHER-SE> 267,407
<TOTAL-LIABILITY-AND-EQUITY> 2,294,832
<SALES> 884,844
<TOTAL-REVENUES> 884,844
<CGS> 0
<TOTAL-COSTS> 6,986,952
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,550
<INCOME-PRETAX> (6,137,658)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,137,658)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.25)
</TABLE>
