<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended JANUARY 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
0-8425
------
Commission File Number
SILVER ASSETS, INC.
-------------------
(Exact name of small business issuer as specified in its charter)
California 95-2369956
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
19320 Sonoma Highway, Sonoma, CA 95476
--------------------------------------
(Address of principal executive offices)
(707) 935-3284
--------------
(Issuer's telephone number)
Not Applicable
--------------
(former address and former fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the close of the latest practicable date: As of April 30, 1999
Common Stock, $.001 Par Value 60,750,080 shares
----------------------------- -----------------
Traditional Small Business Disclosure Format (check one):
Yes_____ No __X__
<PAGE>
SILVER ASSETS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, Registrant believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Registrant's
latest Annual Report on Form 10-KSB.
In the opinion of the Registrant, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position of the
Registrant as of January 31, 1999, and the results of its operations and changes
in its cash flows for the three month periods ended January 31, 1999 and 1998,
have been made. The results of operations for such interim periods are not
necessarily indicative of the results to be expected for the entire year.
2
<PAGE>
<TABLE>
Silver Assets, Inc. and Subsidiaries
Consolidated Balance Sheets
January 31, 1999 and October 31, 1998
UNAUDITED
<CAPTION>
January 31, October 31,
1999 1998
------------------ ------------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 227,285 $ 550,915
Accounts receivable 1,744 1,463
Due from affiliates 17,561 23,276
Prepaid expenses 35,001 43,080
------------------ ------------------
Total current assets 281,591 618,734
------------------ ------------------
Property and equipment:
Real estate 63,861 63,861
Mineral properties 2,052,807 2,052,807
Equipment 708,336 661,336
Furniture and fixtures, net 0 145
------------------ ------------------
Net property and equipment 2,825,004 2,778,149
------------------ ------------------
Other assets:
Investment in Land 25,500 25,500
Organization costs 2,364 2,363
------------------ ------------------
Total other assets 27,864 27,863
------------------ ------------------
Total Assets $ 3,134,459 $ 3,424,746
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $ 30,637 $ 30,000
Payable to affiliates 150,911 7,523
Accounts payable 30,629 35,845
Accrued expenses 40,891 146,442
Current portion of long-term debt 85,832 113,328
------------------ ------------------
Total current liabilities 338,900 333,138
Long-term debt, net of current portion 331,364 332,118
Minority interest in consolidated subsidiary 106,519 150,128
Stockholders' equity:
Common stock, $.001 par value; 100,000,000 shares
authorized; 60,750,080 shares issued and outstanding
at January 31, 1999 and 55,692,944 issued and
outstanding at October 31, 1998 60,632 55,693
Additional paid-in capital 22,527,535 22,394,219
Accumulated deficit (20,230,491) (19,840,550)
------------------ ------------------
Total stockholders' equity 2,357,676 2,609,362
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 3,134,459 $ 3,424,746
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
Silver Assets, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months ended January 31, 1999 and 1998
UNAUDITED
For the Quarter Ended
January 31,
1999 1998
------------- -------------
Revenue:
Net sales
Other $ 379 $ 991
------------- -------------
379 991
------------- -------------
Costs and Expenses:
Salaries and benefits 82,162 48,669
Consulting fees 174,113 90,609
Legal expense 15,575 26,202
Accounting and auditing 12,368 26,987
Depreciation and amortization 145 529
Other general and administrative expenses 142,618 81,829
------------- -------------
426,980 274,825
Loss from Operations (426,601) (273,834)
Other income(expense):
Interest income (expense), net (7,024) (33,826)
Other, net 75 75
------------- -------------
Loss from Operations before
income taxes (433,550) (307,585)
Provision for income taxes 0 0
Minority Interests in Losses of Subsidiary 43,610 55,365
------------- -------------
Net Loss $ (389,940) $ (252,220)
Net Loss per Share $ (0.01) $ (0.01)
Weighted average common shares outstanding 56,766,738 29,053,464
The accompanying notes are an integral part of these financial statements
4
<PAGE>
Silver Assets, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
For the Three Months Ended January 31, 1999 and 1998
UNAUDITED
Quarter ended January 31,
1999 1998
---------- ----------
From Operating Activities:
Net loss ($389,940) ($208,295)
Depreciation 145 867
Issuance of common stock for services 138,255
Decrease in minority interest (43,609) (30,543)
Changes in current assets and liabilities:
Accounts receivable 5,434 4,731
Other current assets, net 8,079 214,795
Accounts payable (5,216) (2,350)
Accrued expenses (105,551) (36,796)
Note payable to affiliate 143,388 (33,363)
Other current liabilities, net 635
---------- ----------
Net Cash used by Operating Activities (248,380) (90,954)
---------- ----------
Cash Flows from Investing Activities:
Additions to mineral properties and equipment (47,000)
---------- ----------
Net Cash used by Investing Activities (47,000)
---------- ----------
Cash Flows from Financing Activities:
Increase in Notes and Advances from Affiliate 88,290
Principal payments on long-term debt, net (28,250) (2,329)
---------- ----------
Net Cash provided from Financing Activities (28,250) 85,961
---------- ----------
Net Increase(Decrease) in Cash and Cash Equivalents (323,629) (4,993)
Cash and Cash Equivalents, beginning of year 550,915 40,557
---------- ----------
Cash and Cash Equivalents, end of period $ 227,286 $ 35,564
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SILVER ASSETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
1. Basis of Presentation
---------------------
The accompanying unaudited condensed financial consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-QSB and
Article 10 of Regulation S-B. Accordingly, they do not include all financial
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals and estimates) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended January 31, 1999 are not necessarily indicative of the results that
may be expected for the full fiscal year ending October 31, 1999. For further
information, the reader should refer to the financial statements and notes
thereto included in the Company's annual report on Form 10-KSB for the year
ended October 31, 1998.
The accompanying financial statements include the accounts of the Company, Rio
Grande Mining Company ("Rio Grande"), its 88.9 % owned subsidiary and Rio Grande
Silver ("Silver"), a 100% owned Nevada corporation. Silver had no assets as of
January 31, 1999. All significant intercompany accounts and transactions have
been eliminated.
Rio Grande is deemed to be a development stage company as that term is defined
by Statement of Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises." See page 8 for supplemental disclosure relating
to Rio Grande's changes in stockholders' equity from inception through January
31, 1999.
2. Stock issuances
---------------
The Company authorized the issuance of 1,711,000 shares of common stock on
December 29, 1998, to settle a personal injury claim against the Company's
subsidiary Rio Grande. Rio Grande issued 1,447,769 shares of its common stock to
the Company in exchange for the Company's issuance to the claimant.
The Company issued 2,946,136 shares of common stock on January 12, 1999 to
certain key employees and consultants to the Company and Rio Grande in
accordance with prior agreements to issue such stock for services rendered. The
number of shares issued was based upon a fair market value of $.03 per share. Of
these shares, 2,396,136 were issued in exchange for 2,027,500 shares of Rio
Grande common stock to the Company in connection with Rio Grande employees and
consultants who had initially received Rio Grande shares.
The Company authorized the issuance of 400,000 shares of common stock on January
29, 1999, to a mining company as partial payment for an option to acquire
certain mill equipment for use by Rio Grande. Rio Grande issued 338,461 shares
of its common stock to the Company in consideration of the Company's delivery of
its shares for the option.
3. Management's Plans
------------------
The Company's principal assets are its investments in the Shafter-Presidio
Silver Mine (the "Silver Mine") and Red Hills mineral properties through its
majority ownership of Rio Grande Mining Company. The Company has not commenced
business operations, has no current source of revenue and has incurred
6
<PAGE>
significant losses. The continuing existence of the Company is dependent upon
its ability to raise sufficient additional capital in order to meet its current
obligations, to fund the recovery of start-up costs and ultimately, the price of
silver and/or copper reaching levels which provide for adequate profitability
from production of minerals. These factors raise considerable doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Coastal Capital Partners, LP ("Coastal") is the majority shareholder of the
Company, controls the election of the Board of Directors and can effectively
cause a sale of the Company or other significant business transaction to occur.
Coastal has supported the Company and Rio Grande in the past by providing
working capital through debt and equity financing. The Company from time to time
has investigated third party financing. The Company is likely to be dependent
upon continued support from Coastal for the foreseeable future; however, Coastal
is under no obligation to provide such support and there can be no assurance it
will continue to do so.
The Company's present objectives are to retain its interests in its properties
and to make necessary preparations for the profitable production of minerals
from these properties in anticipation of increases in their market prices.
Alternatively, the Company may consider a merger or sale of all or part of its
assets or the Company as a whole to achieve its profit objectives. Initiation of
production at the properties will require substantial additional capital. In
order to commence such production, the Company will need to raise sufficient
capital or undertake a joint venture with an experienced mining operator who has
the ability to finance operations. At this time, there can be no assurance that
either of these alternatives can be achieved on terms acceptable to the Company.
4. Company in the Development Stage
--------------------------------
The supplementary information on the following page is presented for Rio Grande
Mining Company for the period from inception on September 28, 1992 through
January 31, 1999.
7
<PAGE>
<TABLE>
Silver Assets, Inc. and Susidiaries
Supplemental Disclosure-Company in the Development Stage
Rio Grande Mining Company
Schedule of Stockholders' Equity
For the Period from Inception on September 28, 1992 through January 31, 1999
<CAPTION>
Deficit
Accumulated
Additional during the
Preferred Stock Common Stock Paid in Development
Shares Amount Shares Amount Capital Stage Total
-------- -------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception, September 28, 1992 0 0 0 0 0 0 0
Stock issuances:
For services(1) 5,087,400 $ 50,874 $ (38,874) $ 12,000
For cash 1,833,584 18,336 414,164 432,500
Net loss for the period (135,623) (135,623)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 6,920,984 69,210 375,290 (135,623) 308,877
Stock issuances:
For services(1) 42,395 424 8,413 8,837
For cash 3,834,628 38,346 591,654 630,000
Issuance of warrants for cash 12,500 12,500
Net loss for the period (215,341) (215,341)
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1994 10,798,007 107,980 987,857 (350,964) 744,873
Stock issuances:
For cash 397 4 1,954,888 19,549 319,076 338,629
Refinance of note payable 4,074,965 40,750 696,963 737,713
Restore amount due from affiliate 17,675 17,675
Net loss for the period (271,300) (271,300)
-------- -------- ------------ ------------ ------------ ------------ ------------
Balance, October 31, 1995 397 4 16,827,860 168,279 2,003,896 (604,589) 1,567,590
Purchase of warrant for cash
Stock issuances: 25,000 25,000
For note receivable 1,041,667 10,417 239,583 250,000
Refinance of note payable 4,070,833 40,708 936,292 977,000
Transfer of Red Hills mineral property 2,500,000 25,000 (25,000)
Cancellation of settlement warrant 9,000,000 90,000 (90,000)
Redemption of preferred stock (397) (4) (4)
Net loss for the period (569,533) (569,533)
-------- -------- ------------ ------------ ------------ ------------ ------------
Balance, October 31, 1996 33,440,360 334,404 3,089,771 (1,174,122) 2,250,053
Refinance of note payable 3,729,307 37,293 447,517 484,810
Net loss for the period (742,403) (742,403)
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1997 37,169,667 371,697 3,537,288 (1,916,525) 1,992,460
Stock issuances:
Refinance of note payable with equity 6,253,001 62,530 750,360 812,890
Transfer of note payable 2,936,484 29,364 323,014 352,378
For Cash 7,675,917 76,759 921,110 997,869
Issuance of stock warrants 80,000 80,000
Net loss for the period (1,054,567) (1,054,567)
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1998 54,035,069 540,350 5,611,772 (2,971,092) 3,181,030
Stock issuances:
For services(1) 2,027,500 20,275 31,055 51,330
Settlement of lawsuit 1,447,769 14,478 43,947 58,425
Purchase of option 338,461 3,385 8,615 12,000
Net loss for the period (356,410) (356,410)
-------- -------- ------------ ------------ ------------ ------------ ------------
Balance, January 31, 1999 0 0 57,848,799 $ 578,488 $ 5,695,389 $(3,327,502) $ 2,946,375
Notes:
(1) Based on value of services rendered.
(2) For a description of the Company's development activities,
see Notes 2,7 and 11 in the Company's October 31, 1998 10-KSB.
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation:
- ------------------
January 31, 1999 January 31, 1998
Net Revenues $ 379 $ 991
Net Loss ($ 389,940) ($ 252,220)
Net Loss per share ($.01) ($.01)
Working Capital (Deficiency) ($ 57,309) ($ 1,440,033)
Total Assets $ 3,134,459 $ 2,849,751
Long-Term Debt $ 331,364 $ 371,920
Stockholders' Equity $ 2,357,676 $ 679,184
The Registrant's 88.9% owned subsidiary, Rio Grande, is deemed to be a
"company in the development stage" as that term is defined in Statement of
Accounting Standards No. 7, "Accounting and Reporting by Development Stage
Enterprises". Rio Grande's principal asset is the Shafter-Presidio Silver Mine,
a non-operating silver property located in Presidio County, Texas referred to as
the "Silver Mine" consisting of approximately 3,430 acres of owned and leased
surface and/or mineral rights and an option on approximately 16,000 acres known
as the Option Property which includes the Red Hills Property. See Form 10-KSB
(for the fiscal year ended October 31, 1998) Item 2 "Description of Property -
The Silver Mine". Registrant and Rio Grande incurred substantial expenses in
prior years in connection with the Silver Mine. Management has obtained recent
updates of independent appraisals performed for the Silver Mine and Red Hills
Property which indicate that the carrying values of these mineral properties do
not presently exceed their net realizable values.
Net revenues for the first quarter of 1998 and 1997 represent
miscellaneous items of income, primarily small amounts of royalties from
previous investments in oil and gas working interests and neither Registrant nor
Rio Grande anticipate any revenues from operations in the next fiscal year.
Substantial expenses were incurred during the first quarter of fiscal
1999, as well as the first quarter of fiscal 1998, in connection with the
acquisition and/or evaluation of the Silver Mine. However, total expenses for
the first quarter of fiscal 1999 were 155% of those incurred during the same
period of fiscal 1998. This substantial increase is due to the significant
expansion of activities related to the preparation of the Silver Mine for the
profitable production of minerals. Legal and accounting expenses decreased by $
25,246, quarter to quarter, as Registrant improved efficiencies in its
administrative functions. However, salaries, employee benefits, consulting fees
and other mine related expenses increased by $177,402, quarter to quarter, as a
result of costs incurred in preparing the Silver Sine for mineral production.
9
<PAGE>
Registrant had approximately $227,285 of cash as of January 31, 1999
compared to $550,915 at October 31, 1998. Monthly operating expenses, including
those required to maintain Rio Grande's properties, are expected to exceed
$125,000 per month, prior to the startup of any mining operations, over the next
several months. Registrant has no current source of revenue sufficient to meet
these expenses other than its current cash. Start-up production at the mine site
will require substantial additional capital. In order to commence such
production, Registrant will need to raise sufficient additional capital or
undertake a joint venture with an experienced mining operator who has the
ability to finance operations. Registrant is currently determining the viability
of proceeding with a production plan at the Silver Mine and in that regard, in
January 1999, optioned certain used mill property that should be appropriate for
the anticipated mining operations.
In the past, the funding of expenses was dependent upon support from
Coastal LP, Registrant's major shareholder. In fiscal 1998, Coastal LP provided
funding to Registrant and Rio Grande totaling over $1,866,000, through the
issuance of notes and advances (which were later converted to common stock in
Registrant) and the purchase and/or exercise of warrants. Registrant has
investigated third party financing but may continue to be dependent upon Coastal
LP for funding. However, Coastal LP is under no obligation to continue such
funding to either Registrant or Rio Grande.
Registrant's objectives are to make the necessary preparations for the
profitable production of minerals from the Silver Mine and Red Hills Property in
anticipation of increases in the market prices of such minerals even while
considering a sale of all or part of its assets, of Rio Grande, or a sale of
Registrant as a whole to achieve its profit objectives. At this time, there can
be no assurance that any of these alternatives can be achieved on terms
acceptable to the Registrant.
Cautionary Statement for Purposes of the "Safe Harbor"
------------------------------------------------------
Provisions of the Private Securities Litigation Reform Act of 1995
------------------------------------------------------------------
From time to time the Registrant will make written and oral
forward-looking statements about matters that involve a number of risks and
uncertainties. Such forward-looking statements are based on assumptions that the
Registrant will have adequate financial resources to fund the development of the
Shafter Project, that significant mineral resources exist and can be
economically developed and readily and profitably marketed, and that there will
be no material adverse change in the market for such minerals or in the
Registrant's sources of funding. The foregoing assumptions are based on judgment
with respect to, among other things, information available to the Registrant,
future economic, competitive and market conditions including fluctuations in
mineral prices, unexpected geological conditions, the speculative nature of
mineral exploration and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Registrant's
control. Accordingly, although the Registrant believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized. There are a
number of other risks presented by the Registrant's business and operations
which could cause the Registrant's financial performance to vary markedly from
the results contemplated by the forward-looking statements. Management
decisions, including budgeting, are subjective in many respects and periodic
revisions must be made to reflect actual conditions and business developments,
the impact of which may cause the Registrant to alter its capital investment and
other expenditures, which may also adversely affect the Registrant's results of
operations. In light of significant uncertainties inherent in forward-looking
information included in this Quarterly Report on Form 10-QSB, the inclusion of
such information should not be regarded as a representation by the Registrant or
any other person that the Registrant's objectives or plans will be achieved.
10
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) On or about January 12, 1999, the Company authorized the issuance of
2,946,136 shares of its common stock.
(b) The shares were privately sold to ten individuals who were key employees
or consultants to the Company or Rio Grande.
(c) 2,396,136 of said shares were issued in exchange for 2,027,500 shares of
Rio Grande common stock which in turn were issued, together with the
balance of the Company shares for services rendered to Rio Grande and
or/the Company.
(d) The shares were issued pursuant to Section 4(2) of the Securities Act of
1933, as amended as a transaction not involving a public offering.
(a) On or about December 29, 1998, the Company authorized the issuance of
1,711,000 shares of its common stock
(b) The shares were privately sold to one individual.
(c) 1,447,769 shares of Rio Grande were received by the Company in exchange
for the Company shares. The Rio Grande shares and the Company shares in
exchange were issued in settlement of a personal injury claim against
Rio Grande.
(d) The shares were issued pursuant to Section 4(2) of the Securities Act of
1933, as amended as a transaction not involving a public offering.
(a) On or about January 29, 1999, the Company authorized the issuance of
400,000 shares of its common stock.
(b) The shares were privately sold to one company.
(c) The shares were issued in exchange for 338,461 shares of Rio Grande
common stock which had been issued by Rio Grande to that company in
payment of an option to acquire certain mill equipment.
(d) The shares were issued pursuant to Section 4(2) of the Securities Act of
1933, as amended as a transaction not involving a public offering.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
Silver Assets, Inc.
Date: May 4, 1999 By: /s/ Andrew K. Simpson
------------ -----------------------
Andrew K. Simpson
President and
Chief Executive Officer
Date: May 4, 1999 /s/ John S. Durkin
------------ ----------------------
John S. Durkin
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 227285
<SECURITIES> 0
<RECEIVABLES> 1744
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 281591
<PP&E> 2825004
<DEPRECIATION> 0
<TOTAL-ASSETS> 3134459
<CURRENT-LIABILITIES> 338900
<BONDS> 0
0
0
<COMMON> 60632
<OTHER-SE> 2297044
<TOTAL-LIABILITY-AND-EQUITY> 3134459
<SALES> 379
<TOTAL-REVENUES> 379
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 426980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7024
<INCOME-PRETAX> (433550)
<INCOME-TAX> 0
<INCOME-CONTINUING> (389940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (389940)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
