<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1998 Commission File No.
Silver Assets, Inc. 0-8405
- ---------------------------------------------- -------------------
(Name of small business issuer in its charter)
California 95-2369956
- ---------------------------------------------- -------------------
(State of other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
P.O. Box 199, Sonoma, CA 95476
- ---------------------------------------------- ----------
(Mailing Address) (Zip Code)
19320 Sonoma Highway, Sonoma, CA 95476 (707)935-3284
- ---------------------------------------------- ---------- -------------------
(Address of Principal executive offices) (Zip Code) (Issuer's telephone
number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
Check whether the issuer (1) filed all reports 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___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ___
State issuer's revenues for its most recent fiscal year $ 2,372
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of February 5, 1999, which was $
167,355.51
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at
----- February 5, 1999
Common Stock, $.001 par value ----------------
55,692,946
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None.
Transitional Small Business Disclosure Format:
Yes___ No_X_
<PAGE> 2
SILVER ASSETS, INC.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
(a) General
-------
Silver Assets, Inc. ("Silver Assets" or "Registrant") was founded in
1932. Largely inactive for a number of years, Registrant's principal
business has been natural resource investments and operations. In 1996,
Registrant, then named Belcor, Inc., acquired an 80.7% equity interest
in a private Nevada corporation, Rio Grande Mining Company ("Rio
Grande"). Rio Grande's sole asset is its ownership of the
Shafter-Presidio Silver Mine (the "Silver Mine") in Shafter, Texas.
The Silver Mine, which has produced to date in excess of 30 million
ounces of high grade silver, is presently non-operating and is being
prepared to restart operations. In addition to the approximately 3,400
acres of Silver Mine property, mining properties controlled by
Registrant (via Rio Grande) additionally include certain rights on a
contiguous 16,000 acre property (the "Option Property") which
incorporates the Red Hills Property, a copper-molybdenum prospect. The
Silver Mine property and the Option Property are on private land.
Silver Assets now owns approximately 88% of Rio Grande.
Silver Assets' 1996 acquisition of the majority interest of Rio Grande
was accomplished by a series of transactions initiated by Coastal
Capital Partners, LP ("Coastal LP" or "Coastal"). Coastal LP was, in
1996, the controlling stockholder of Silver Assets and the majority
stockholder of Rio Grande. Coastal LP exchanged its majority interest
in Rio Grande for additional shares of Silver Assets. This exchange
resulted in Silver Assets becoming the majority stockholder of Rio
Grande, and in Coastal LP becoming the majority stockholder of Silver
Assets. This transaction represented the culmination of several years
of effort, preceding Coastal LP's involvement, by Silver Assets and Rio
Grande, to effect a combination of interests.
In early 1993, Rio Grande made a down payment to Gold Fields Mining
Company on the purchase of the Silver Mine. This down payment was
funded by Silver Assets. Subsequent payments were funded by private
investors in Rio Grande. In late 1993, Rio Grande and Silver Assets
agreed to a business combination subject to the completion of financing
for the purchase of the Silver Mine. Coastal LP supplied $1.2 million
of the total $1.6 million purchase price in October 1994, at which time
Rio Grande completed the purchase of the Silver Mine. Coastal became
the controlling stockholder of Rio Grande in October 1994, and the
majority stockholder in June, 1995; and the controlling stockholder of
Silver Assets in June, 1996. Rio Grande became a subsidiary of Silver
Assets via the above-referenced exchange transaction in October 1996.
Silver Assets and Rio Grande share substantially overlapping boards and
management. While third party funding has been investigated, Silver
Assets is currently funded by Coastal LP and Silver Assets is currently
the sole funding source for Rio Grande and mine related activities.
During 1997 and 1998, Silver Assets invested approximately $2.5 million
in Rio Grande. There is no assurance that Coastal LP will continue to
fund Silver Assets.
<PAGE> 3
(b) Business Plan
-------------
Silver Assets' mission is to create and realize value on the Silver
Mine and related properties via:
Preparation for mine production including:
o investments in options on contiguous, mineralized land
o investments in mine plan and study activities
o investments in options on capital equipment to be used for
putting the Silver Mine into production
o mitigation of environmental risks
o repurchase of royalty interests on the Silver Mine
o permitting, environmental, and regulatory compliance
activities preparatory to production
Registrant's corporate development-related activities including:
o creation and promotion of a Silver Assets website
(www.silverassets.com)
o financing discussions with banks and investors relative to
putting the Silver Mine into production
o merger, joint venture and sale discussions with prospective
mining company partners and buyers
Silver Assets' principal constraint as a public company is its small
size and relative lack of trading liquidity. Management believes that
financing and putting the Silver Mine into production at silver prices
of six dollars ($6) per ounce or above may materially increase
Registrant's value and public market liquidity. Alternatively, a
merger, acquisition of a producing silver mine, joint venture or sale
may provide realization of value for Registrant's stockholders.
(c) Financial Information About Industry Segments
---------------------------------------------
Not applicable.
(d) Raw Materials
-------------
Registrant does not consider its operation to be dependent on any
single supplier for any raw material.
(e) Major Customers
---------------
Not applicable.
(f) Employees
---------
Silver Assets and Rio Grande have three employees and several full and
part time mining consultants and financial advisors.
<PAGE> 4
(g) Governmental Regulation
-----------------------
Registrant's activities are subject to extensive federal, state, and
local laws and regulations controlling not only the exploration and
mining of mineral properties, but also the actual or potential effects
of such activities upon the environment. Compliance with such laws and
regulations may necessitate significant capital outlays, may materially
affect the economics of development of the Silver Mine and related
property or may cause material changes or delays in its intended
activities. New or different standards imposed by any governmental
authority in the future may adversely affect mining activities. Any
commencement in production will require various Texas state permits and
compliance with federal regulations. No assurances can be given that
such permits and authorizations can be obtained. Laws and regulations
(including environmental laws and regulations) may be adopted and
enacted, or more stringently enforced, in the future, which may have an
adverse impact on the Silver Mine.
In connection with the acquisition of the Silver Mine, Rio Grande
acquired ownership of the Tailings Site that contained tailings from
past mining operations at the Silver Mine. In addition, Rio Grande
became the mineral lessee of the Mill Site on which the old mill was
located. These sites are contiguous to other portions of the Silver
Mine.
In 1995, the Tailings Site was remediated by prior owners pursuant to
Texas regulatory standards, and Rio Grande quitclaimed its interest in
the Tailings Site to Amax Exploration, Inc. (an affiliate of Cyprus
Amax) and terminated the lease that included the Mill Site. Rio Grande
could be subject to claims of liability from the State of Texas and
others for conditions at the Tailings Site and Mill Site by virtue of
its former interests. While Management views this as unlikely owing to
Rio Grande's short ownership tenure of the Tailings Site and Mill Site,
the cost of defending such claims, and any adverse judgment resulting
therefrom, could have a material adverse effect on Rio Grande. No such
claims have been asserted.
(h) Risks and Insurance
-------------------
The Silver Mine's principal risk is the uncertainty that silver prices
will sustainably render the Silver Mine economic.
Other risks include the uncertainties associated with: environmental,
regulatory and permitting activities; with financing the continued
working capital deficit of the Silver Mine and associated business
activities; and with Management's ability to execute value-realizing
transactions such as an acquisition, merger, joint venture or sale
involving Registrant, Rio Grande, or the Silver Mine and related
assets. The market for silver mine acquisitions is highly competitive
and is materially dependent on the acquirer's ability to fund
acquisitions with cash or securities attractive to sellers.
Additionally, the business of mining is generally subject to a variety
of risks and hazards, including environmental hazards, industrial
accidents, unusual or unexpected rock formations, cave-ins, flooding,
precious metal bullion losses, and periodic interruptions due to
inclement or hazardous weather conditions. Such risks could result in
damage to, or destruction of, mineral properties or production
facilities, personal injury, environmental damage, delays in mining,
monetary losses, and possible legal liability. No assurance can be
given that insurance to cover these risks will be available at
economically feasible premiums. The Silver Mine is a closed mine,
containing vertical mining shafts, underground tunnels and holes in the
surface from prior operations which could pose a hazard to persons
entering them, including unauthorized third parties (such as curiosity
seekers). Although Management believes that adequate steps have been
taken to discourage unauthorized third parties from entering those
shafts, tunnels and holes, there is a risk that an unauthorized third
party could enter the Silver Mine and those shafts, tunnels and holes
and be injured notwithstanding the steps taken to discourage such
conduct. Rio Grande has obtained a commercial general liability policy
with general aggregate limits of $1,000,000, personal injury limits of
$1,000,000, and occurrence limits of $1,000,000. There can be no
assurance that these insurance policies will be adequate to cover any
future claims against Rio Grande. Rio Grande does not have insurance
against environmental hazards (including potential for pollution or
other hazards as a result of the disposal of waste products occurring
from production), as such insurance is not generally available to
companies within the mining industry.
<PAGE> 5
(i) Competition
-----------
The principal method of competition in the silver mining industry is
the ability to mine and process silver in sufficient scale and grade to
achieve production costs materially below world silver prices. If the
Silver Mine were to commence mineral production, it would be in
competition with all producers of similar minerals in the international
market. Many of these companies have established production histories
and substantially greater resources than Registrant. In the event the
Registrant would seek to acquire other mining properties, it may be at
a competitive disadvantage since other competing individuals and
companies have greater financial resources and larger technical staffs.
Also, the number of persons skilled in the evaluation, operation and
development of mining properties is limited, and significant
competition exists for such individuals. As a result of this
competition, the Registrant may find it difficult to attract skilled
individuals.
(j) Backlog
-------
Backlog is not meaningful to operations.
(k) Executive Officers of the Registrant
------------------------------------
The following officers are presently officers of the Registrant and
their terms expire at the annual organizational meeting of the Board of
Directors. No person, other than the directors of the Company, acting
solely in that capacity, is responsible for the naming of an officer.
Name Office and Age Year First Elected or
---- -------------- Appointed to Office
---------------------
Andrew K. Simpson President and Chief 1996
Executive Officer, 50
John S. Durkin Chief Financial 1999
Officer, 53
Theresa C. Morris Secretary and Assistant 1996
Treasurer, 46
ITEM 2. DESCRIPTION OF PROPERTY
The Shafter-Presidio Silver Mine
--------------------------------
The Shafter-Presidio Silver Mine (the "Silver Mine") is comprised of
both the old Presidio Mine workings and the contiguous more recently
developed mine property lying to the east. The Silver Mine, excluding
the Option Property and Red Hills Property, is composed of
approximately 3,430 acres of land located near the town of Shafter in
Presidio County, Texas. Of these 3,430 acres, Rio Grande owns
approximately 1,380 acres (surface and minerals), leases the mineral
estate to approximately 750 acres (of which Rio Grande owns the surface
estate to approximately 360 acres), and owns the surface estate, but
does not own or lease the mineral rights to approximately 1,300 acres.
Access to the mine site is afforded from U.S. Highway 67 via short
gravel roads, which are maintained as needed.
<PAGE> 6
The Option Property lies west of the Silver Mine. The Option Property
comprises approximately 16,000 acres of various surface estate, mineral
rights and leaseholds, and includes the surface rights to the Red Hills
Property. Rio Grande owns the mineral rights to the Red Hills Property,
which consists of approximately 1,600 acres of an undeveloped copper
and molybdenum deposit located approximately four miles west of the
Silver Mine.
The Option Property was optioned by Rio Grande in 1998. Its principal
terms include:
o An exploration and lease/purchase option on approximately 16,000
acres of land contiguous to the Silver Mine with an initial lease
term at $45,000 that expired on August 31, 1998.
o Six month renewal options at $30,000 per six month period during
drilling.
o Option renewals in six month periods at $18,000 per six month
period when drilling is not being performed.
o Rio Grande has a purchase price option of $400 per acre, purchases
to be made in 1280 acre blocks, or a purchase option for the entire
ranch at $200 per acre.
o Upon cessation of mining activities for twelve months, and
completion of all reclamation activities, optionor has the right
to repurchase any or all of the land purchased by Rio Grande for
$10 per acre unless Rio Grande has purchased the optionor's entire
ranch, in which case, Rio Grande shall have the right to sell the
ranch to third parties, subject to a right of first refusal held
by optionor.
o Rio Grande has specific responsibilities as to reclamation under
standards set by the federal government, Texas National Resources
Conservation Commission and Texas Railroad Commission.
(i) Old Studies
-----------
Rio Grande's decision to purchase the Silver Mine was based in large
measure on the Old Studies. The Old Studies comprise that body of
drilling, assay, mine engineering, and mine feasibility studies
performed by prior owners and their consultants. As part of the sales
agreement under which the Silver Mine and related properties were sold
to Rio Grande, Gold Fields made no representations or warranties
regarding the truthfulness or accuracy of the Old Studies. Management
believes, based on its review of the Old Studies and the archives of
the drilling program conducted at the Silver Mine, that a mineral
deposit exists in the Silver Mine. According to the Old Studies, the
newly outlined mineralization (the "Shafter Mineralization") defined in
those studies is a tabular deposit at an average depth of 900 feet
below surface which occurs in the Permian Mina Grande Limestone and is
adjacent to the Permian/Cretaceous unconformity. The Old Studies of the
Silver Mine conclude that the "in place" Shafter Mineralization
contains mineralized material of 4,675,000 tons at an average millhead
grade of 5.65 ounces per ton silver (using a 3.0 ounce per ton silver
cut-off grade, a minimum mining height of 8 feet, and a 15% mining
dilution factor). Also, the unmined areas of the up-dip adjacent
portions of the Old Presidio Mine were estimated, by the former owners,
to contain 1,200,000 tons of similar mineralized material. The New
Studies indicate, however, that the amount of mineralized material in
the Silver Mine using a 3.0 ounce per ton silver cut-off grade may be
up to 15% less for current silver market conditions than estimated in
the Old Studies, but the New Studies also indicate the existence of a
higher grade mineralized core. Also, a comparison between the results
of the detailed underground sampling and diamond drilling from the
surface indicates that the actual silver grade may be as much as 10%
higher than the grade determined by surface drilling performed in the
Old Studies. The mineralization figures are estimates based on the Old
Studies, and no assurance can be given that the indicated levels of
silver recovery will be realized if production is commenced.
Mineralized material estimates are expressions of judgment based on
knowledge, experience, and industry practices, and an estimate made at
a given time might significantly change when new information becomes
available.
<PAGE> 7
(ii) New Studies
-----------
During 1995, Rio Grande's management initiated a preliminary evaluation
of the mineralized material of the Silver Mine, including: (i) a review
of the drill hole and assay data for the newly outlined mineralization
called the "Shafter Mineralization" and for the adjacent portions of
the Old Presidio Mine ("Presidio Areas"), (ii) site visits to assess
mining strategies including open pit exploitation of certain areas in
or near the western portion of the old Presidio Mine, and (iii) review
of drill hole and assay data for the Red Hills Property, containing
copper/molybdenum mineralized material (collectively, the "New
Studies"). The data in the New Studies are the same data originally
generated on the Presidio Area or the newly outlined Shafter
Mineralization developed by the prior owners in the Old Studies, or by
the previous owners of the Red Hills Property, but taking into account
current market prices and alternative mining strategies. In light of
the reduced market prices of silver relative to the early 1980s, the
New Studies employ more conservative assumptions with respect to the
resource quality exploitable at the Shafter-Presidio property.
In light of the fact that Registrant and Rio Grande have no current
complete feasibility study regarding the cost of mining the silver of
the Silver Mine, Registrant and Rio Grande have no proven or probable
reserves of silver, as those terms are defined under the rules and
regulations of the Securities and Exchange Commission. Thus, there can
be no assurance that a commercially viable ore body (ore reserve)
exists in the Silver Mine until a final and comprehensive economic
feasibility study based upon present silver prices and mining costs is
favorably concluded.
<PAGE> 8
(iii) Mine-Related Activities
-----------------------
The table below highlights mine-related activities between 1995
and 1998:
<TABLE>
<CAPTION>
Activity 1995 1996 1997 1998
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assemble professional mining team x x x
Minimize environmental risks from old operations x
Acquire, inventory and study Silver Mine data x
Update title work on key land holdings at Silver Mine x
Update Silver Mine maps and digitize its drill logs x
Recalculate silver resources at different cut-offs x
Estimate production options and mine and mill costs x
Acquire Red Hills maps, drill logs and reports x
Re-map and sample old Presidio workings x
Stack and catalog all of the drill hole core x
Continue preliminary analysis of Silver Mine x x
Prepare preliminary analysis of Red Hills' potential x
Acquire Amax Royalty x
Take new samples for metallurgical test x
Review and visit idle mills at other mine sites as
potential low cost capital equipment for Silver Mine x x
Acquire adjacent exploration option-16,000 acres x
Repurchase of Right of First Refusal from third party x
Create Preliminary Mine Plan x
Drilling of open pit area x
</TABLE>
Summary of Key Events
- ---------------------
MINIMIZE ENVIRONMENTAL RISKS FROM OLD OPERATIONS
Beginning in January 1995, Rio Grande worked with Gold Fields and Amax
Exploration, Inc. as they successfully remediated the Shafter Tailings
Site according to standards established by the Texas Natural Resource
Conservation Commission. In July, 1995, Rio Grande quitclaimed the
Tailings Site to Amax Exploration, Inc.
During 1995, Rio Grande took steps to conform the mine site to
appropriate safety standards.
<PAGE> 9
UPDATE TITLE WORK ON KEY LAND
During 1995, Rio Grande retained a Texas law firm with extensive prior
experience with the Silver Mine to update title work on its key
mineralized lands.
UPDATE SILVER MINE MAPS AND DIGITIZE SILVER MINE DRILL LOGS
Rio Grande began work in the summer of 1995 with consulting geologists
who digitized the old Shafter drill logs and developed preliminary
geostatistical resource estimates.
ACQUIRE RED HILLS MAPS, DRILL LOGS AND REPORTS
Rio Grande's acquisition of the Silver Mine in late 1994 included
approximately 1600 acres of mineral rights in an area four miles west
of the Silver Mine, known as Red Hills. The Silver Mine files acquired
from the prior owner did not include drill logs or other technical data
on Red Hills. After several months of research-with Pennzoil's help-the
early 1970's drill logs for Red Hills were finally located in a
Pennzoil storage warehouse. These drill logs were purchased from
Pennzoil in 1995.
CONTINUE PRELIMINARY ANALYSIS OF SHAFTER-PRESIDIO SILVER DEPOSIT
During 1996, Rio Grande continued its preliminary studies of the Silver
Mine site and the Silver Mine data acquired from the prior owner. These
studies resulted in an enhanced understanding of the possible silver
ore body, including the potential existence of a significant higher
grade silver core.
In addition, detailed mapping and sampling of the upper levels of the
old Presidio workings indicated potential sizable tonnage of shallow
silver mineralization with the possibility that a significant open pit
reserve might be developed.
PREPARE PRELIMINARY ANALYSIS OF RED HILLS' POTENTIAL
During 1997, an extensive study was made of the Red Hills possible
copper/molybdenum deposit with the drill log data acquired from a
former owner. Since all previous core samples had been lost, certain
speculative assumptions had to be made to evaluate this possible
deposit's profile. It was assumed, for example, that if the contained
copper were recoverable by leaching, the following tonnages may be
treatable:
o Approximately 20 million tons at 0.4% copper at a strip ratio of
approximately 2.2 to 1
o This resource might be high graded to 5 million tons at 0.6% copper
at a strip ratio of approximately 2.3 to 1
A significant portion of these tonnages may contain 0.06% molybdenum
which might enhance the deposit's value, if recoverable by screening
and flotation.
Previous geologic work indicates that additional potential for another
copper-bearing intrusive may exist under the river gravels which border
Red Hills on the south.
<PAGE> 10
In addition, three vertical drill holes encountered 150 feet of 3.8%
copper, 95 feet of 6.0% copper and 130 feet of 7.7% copper, just west
of the potential open pit copper resource. This target will require
additional drilling to determine the actual resource size and
configuration.
Recent review of geochemical surveys and the regional drilling by a
prior owner indicates that there may be a potential gold resource
related to the Shafter-Red Hill trend structures. Additional field
sampling and offset drilling may be warranted to validate this
resource.
ACQUIRE AMAX ROYALTY
The 1994 acquisition of the Silver Mine carried with it a 6.25% Net
Smelter Return Royalty, payable to Amax Exploration, Inc. out of future
mining revenues. In April 1997, Rio Grande purchased this royalty from
Amax Exploration, Inc. for $50,000 cash and a $475,000 note. About 1/3
of this note has been repaid; the note was assigned to Silver Assets in
exchange for Rio Grande stock.
ACQUIRE ADJACENT EXPLORATION OPTION-16,000 ACRES
The area immediately to the west of the Silver Mine property, including
the surface ownership of Rio Grande's Red Hills mineral rights, was
substantially controlled by a single ranch owner. This area shows
indications of a possible continuous geologic trend between the Silver
Mine and Red Hills. In April, 1998, Management concluded a lease option
on 16,000 acres of this contiguous property with the owner. This lease
option includes specific area exploration, development, and mining
rights, as well as the right to purchase significant portions or all of
the 16,000 acre tract.
REPURCHASE RIGHT OF FIRST REFUSAL ON SHAFTER
In April 1998, Rio Grande repurchased for $30,000 a third party's right
of first refusal which covered a significant portion of the Silver Mine
property.
CREATE PRELIMINARY MINE PLAN
In July 1998, Management completed a preliminary plan for the
commercial development of the Silver Mine. The main points include:
o An estimated mineable silver resource of approximately 20 million
ounces at an average grade of approximately 10 ounces per ton.
o Plans to acquire an idle, suitable mill to support low capital cost
exploitation of the silver resource.
o Production, first, of the remaining shallow, potentially
open-pittable Presidio silver ores, and existing ore grade waste
dumps, to accelerate early year cash flow.
o Utilization of the Silver Mine's existing surface facilities,
including shafts and hoist, plus existing underground development,
to minimize overall capital costs.
o Immediately after production of the shallow Presidio resources and
waste dumps, production of the higher grade underground Shafter
ore blocks to maximize cash flow.
o Utilization of low cost labor potentially available in the Presidio
County area, which has high unemployment.
o Utilization of the existing power grid and low cost power from the
local supplier.
<PAGE> 11
In October 1998, mining consultants were retained to commence
preliminary feasibility studies. The projected capital cost of
approximately $ 12 million assumes the availability of suitable used
mill equipment. In January 1999, Rio Grande optioned a suitable mill to
secure its availability for potential production startup.
DRILLING OF OPEN PIT AREA
In November 1998, a potential open pit area in and around the uplifted
outcrop of the old Presidio Mine Workings was drilled with 88 reverse
circulation holes, which indicated a mineable resource of 1.1 million
ounces at a grade of 10 ounces per ton. The July 1998 preliminary plan
projected two million ounces at a grade of 10 ounces per ton for the
open pit resource.
(iv) Previous Operations
-------------------
The Silver Mine was discovered and production of silver began during
the 1880s. Production continued until 1930, when the mine was closed
during the Depression. The mine reopened in 1934 and continued
production until 1942, when it was closed by government order at the
onset of World War II. Total silver production during the Silver Mine's
active life exceeded 30 million ounces. The mine has remained closed
since 1942.
Gold Fields acquired development rights to the Silver Mine in 1977 and
commenced significant exploration efforts on the property. From 1978
through 1983, Gold Fields explored the eastern extension of the
mineralization of the Silver Mine and explored for silver and other
minerals at the Red Hill Property. However, Gold Fields did not
commence commercial production at either the Silver Mine or the Red
Hills Property.
(v) Silver Prices and Operating Costs
---------------------------------
Management is investigating whether the capital and operating costs
(including a reasonable return on equity) of producing silver at the
Silver Mine may be profitable at the current price of silver.
Management presently believes that the cash extraction cost will be
less than $4.00 per ounce. However, the extraction cost of silver
estimated in a 1982 feasibility study for a 5.6 ounce per ton mill
grade and a high cost mine sand fill operation was $6.91 per ounce
(including factors for operating contingencies and a cost escalation
for approximately two years). This is higher than the current price of
silver. There can be no assurance that silver prices will go materially
higher or that the mine will begin production or that the mine will be
profitable if production were to be commenced. In the event that the
price of silver fails to rise, this could have a material adverse
impact on the ability of Registrant to operate or sell the mine.
If the mine were to be placed into production, stockholders should note
the extreme volatility of silver prices. Assuming that sufficient
financing were available, Management estimates that it may take up to
two years to commence production at the Silver Mine after such a
decision is made. During this period, the price of silver could
fluctuate significantly and could decline. No hedging program would
fully protect operations from price fluctuation risk, and there are
risks associated with hedging programs. If production were to begin,
subsequent reductions in silver prices could necessitate cessation of
production.
<PAGE> 12
(vi) Equipment and Plant
-------------------
Equipment, machinery, and buildings now in place at the Silver Mine
include an assay lab building, two core sample warehouses, a hoist
house with a 600 h.p. electrical Nordberg hoist servicing the single
compartment, seven foot diameter, 1,050 foot deep production shaft, a
small diesel powered hoist with escape capsule for the 940 foot deep
ventilation shaft; and two shaft pumps, a 300 h.p. mine compressor and
its service house, a small service building with office, small
warehouse and shop, a 900 foot water well capable of producing in
excess of 200 GPM, and a two-bedroom house. While the equipment has not
been utilized since 1982, it has been examined by Management and
Management believes it to be in acceptable condition, although such
equipment has not been tested. Gold Fields previously employed, and Rio
Grande now retains, a caretaker for the equipment and the property.
The above described equipment and the existing shafts, coupled with the
5000 feet of underground drifting and station work, and the old
Presidio Area workings that extend down to the 900 foot level which
could be accessed for an escape way and ventilation, would reduce the
amount of work required for Registrant or a purchaser of the property
to commence mining operations, although additional equipment and
construction activities would be required. There can be no assurance
that Registrant will have sufficient funds to pay for such equipment
and construction.
(vii) Royalty Payments
----------------
Substantially all of Registrant's rights in and to the minerals
underlying the Silver Mine were subject to an obligation to pay
royalties to a prior owner (in the case of owned property) or to the
respective lessors (in the case of leased property). The royalty
generally was 6.25% or, in the case of one lease, 6.5% of the value as
defined in the respective agreements and leases of the silver produced
from the property. Depending on the price of silver, the royalty
payments could have a significant adverse effect on the ability of
Registrant to sell the Silver Mine, the value of the Silver Mine to a
potential purchaser, the determination to actually begin mining
operations at the Silver Mine and the ultimate profitability of the
Silver Mine. In April, 1997, Rio Grande consummated an agreement with
Amax Exploration, Inc., a former owner of Shafter, to repurchase Amax's
6.25% royalty interest in Shafter. Under the terms of this agreement,
the purchase price for this royalty interest is $525,000; $50,000 paid
upon execution; $25,000 payable every three months commencing July 15,
1997 through October 15, 1999; $50,000 every three months from January
15, 2000 through July 15, 2000; and a final payment of $75,000 on
October 15, 2000. Each payment is to be accompanied by an additional
payment of interest on the unpaid principal balance at eight percent
per annum. In July 1998, Registrant assumed the remaining liability of
approximately $350,000, in exchange for the issuance of Rio Grande
common stock to Silver Assets. The balance at October 31, 1998, was
$325,000.
Amax is to convey to Registrant undivided interests in the royalty
after aggregate principal payments have been made as follows: 16% after
an aggregate amount of $275,000 is paid; an additional 16% after an
aggregate of $350,000; an additional 16% after an aggregate of
$450,000; and the remaining 52% after the final payment is made.
During the term of the agreement, Registrant has the right to control
all operations on the property and has agreed to indemnify Amax against
damages or liabilities related to either the Registrant's or Rio
Grande's ownership of, or present or future operations on, the property
subject to a maximum monetary amount of $250,000; and to indemnify Amax
against any environmental liabilities related to the property, subject
to a maximum monetary amount of $200,000 (which amount is included
within the total $250,000 limit described above).
<PAGE> 13
In the event of any default by the Registrant or Rio Grande, Amax's
sole remedy is to terminate the agreement and retain all payments
previously made. Amax, however, remains obligated to deliver to Rio
Grande deeds conveying any portion of the royalty interest previously
paid.
(viii) Other Royalties; Leases
-----------------------
The State of Texas and a private individual retain certain royalty
rights more modest in scale than the Amax royalty. Approximately 750
acres of the Silver Mine are owned by third parties who lease their
interests to Rio Grande pursuant to certain mineral leases and who are
entitled to monthly rental payments and royalty payments for any silver
produced from their property. The current aggregate annual rentals
(including delay rentals) payable under these leases is approximately
$9,000 (subject to certain increases if production commences). Delay
rentals with respect to one lease increase from $5,000 per year to
$8,000 per year in 2001 (increasing annually thereafter to $11,600 in
2010). The loss of one or more of these leases for failure to make
timely rental payments could have a material adverse effect on the
value of or the operations at the Silver Mine. Some of the leases
remain in effect as long as Rio Grande pays rentals, advance royalties
or production royalties provided in the leases. Other leases expire
after the year 2000, including a lease from the State of Texas (which
expires in 2011 but continues in force for so long thereafter as
minerals are produced in paying quantities). Most of the leases
covering the smaller tracts of land (such as town lots) expire at
various dates beginning in 1999, subject to Rio Grande's right to
extend those leases for up to two additional 20-year terms if it is
diligently exploring the property. In connection with the acquisition,
Rio Grande did not obtain estoppel certificates from any of the lessees
confirming the continuing validity and enforceability of those leases,
nor did Gold Fields represent or warrant such validity or
enforceability. One lessor, who had claimed that his lease with Gold
Fields had terminated prior to the date of the sale to Rio Grande, did
not accept Rio Grande's tender of its lease payment; Rio Grande did not
consider that lease to be material, and has voluntarily terminated its
interests under that lease.
(ix) Limited Recourse Against Gold Fields
------------------------------------
Rio Grande acquired Gold Fields' rights in the Silver Mine and the Red
Hills Property on an "AS IS, WHERE IS" basis (without any
representations or warranties concerning the title or condition of the
property). Gold Fields made no representations or warranties concerning
the property, claims for damages or injuries relating to the property,
prior operations or environmental matters. Pursuant to its purchase
agreements with Gold Fields, Rio Grande agreed to indemnify Gold Fields
for claims arising after the closing and for claims, if any, which
arose prior to the closing (excluding those pertaining to the
remediation of the Tailings Site).
(x) Title to the Silver Mine
------------------------
Gold Fields conveyed its interest in and to the Silver Mine and Red
Hills Property without any representations or warranties regarding
ownership or title, nor did Gold Fields agree to defend or indemnify
Rio Grande if there are deficiencies in title. Thus, Rio Grande would
have no recourse against Gold Fields if a third party successfully
asserted any rights to the Silver Mine that are adverse to Rio Grande's
rights.
<PAGE> 14
At the time of acquisition, Rio Grande did not obtain title insurance
or title opinions on the property. During 1995, Rio Grande received
title opinions from a Texas law firm experienced in mineral title
matters and which had dealt with the Silver Mine for more than 20
years. These title options cover the approximately 1,370 acres owned by
Rio Grande and approximately 360 acres subject to mining leases. Rio
Grande believes that these properties contain the "old Shafter
Mineralization" and most of the "new Shafter Mineralization". Rio
Grande also received a title opinion on approximately 640 acres of
which it owns the surface estate but not the mineral rights. These
opinions confirm Rio Grande's fee or leasehold ownership, as the case
may be, in the property covered by those opinions, subject to certain
title exceptions noted by the Texas law firm. Although Rio Grande does
not consider the title exceptions to materially affect Rio Grande's
right, title or interest in or to the property, there is a risk that
adverse claims could be asserted against Rio Grande's ownership of the
Silver Mine, the resolution of which could be costly and disruptive to
Rio Grande's business. Rio Grande has not received title opinions on
the remaining part of the Silver Mine, and there can be no assurance
regarding Rio Grande's rights, title or interest therein, if any.
(xi) Rights of First Refusal; Repurchase Right
-----------------------------------------
Certain of Rio Grande's properties acquired from Gold Fields were
subject to various rights of first refusal and repurchase rights
retained by prior owners of those properties that could have affected
the future marketability of those properties. The first refusal and
repurchase right of the major landowner was acquired by Rio Grande in
1998. Only one small area remains in this category.
(xii) Red Hills Property
------------------
Rio Grande acquired all of Gold Fields' right, title, and interest, if
any, in and to approximately 1,600 acres of land comprising the Red
Hills Property, located approximately four miles from the western
boundary of the Silver Mine. Although Rio Grande has not obtained title
opinions on the property, a preliminary title report reflected that Rio
Grande owns the mineral estate (excluding oil, gas and liquid or
liquifiable hydrocarbons), but not the surface estate, of the Red Hills
Property. In 1998, Rio Grande purchased an option on the Option
Property which includes the surface estate of Red Hills. If mining is
done, Rio Grande will need to exercise or partially exercise its option
on the Option Property to gain effective access to, and use of, Red
Hills. Files purchased by Rio Grande in 1995 from a prior owner
indicate that the Red Hills Property was explored for copper,
molybdenum and silver by several major companies, but commercial
production was never commenced on the property. Rio Grande has not
determined whether the Red Hills Property contains any commercially
viable levels of copper or molybdenum, and there can be no assurance
that a commercially viable mineralization (ore reserve) of copper
and/or molybdenum exists in the Red Hills Property. No such
determination can be made without drilling, assaying and preparing a
comprehensive economic feasibility study based upon present copper and
molybdenum prices and mining costs. At this time, Rio Grande does not
intend to incur the costs of such a feasibility study, but may do more
investigation of the property to better estimate the resource's
commercial potential.
In 1995, Rio Grande also acquired a residence near Shafter, Texas for
approximately $65,000.
<PAGE> 15
(xiii) Office Lease
------------
Registrant utilizes office space in a single-story building containing
approximately 2,000 square feet in the city of Sonoma, California.
These premises serve as Registrant's executive offices and are subject
to a one year sub-lease which terminates in October, 1999, at a rental
of $1,200 per month which is allocated one-third to Registrant,
one-third to Rio Grande, and one-third to Coastal Capital Partners,
Inc., the general partner of Registrant's controlling shareholder,
Coastal LP. The lessee is required to pay utilities on the building.
Registrant believes the space to be adequate for its needs in the
foreseeable future. The premises are leased from the owner by the
Registrant's chief executive officer, and sub-leased to the Registrant.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a party to any legal proceeding which would have
a material effect upon the Registrant.
The Registrant authorized the issuance of 1,711,000 shares of its
common stock to a consultant to Rio Grande in settlement of any and all
claims against Registrant and Rio Grande on account of injuries
sustained by the consultant in an automobile accident which occurred
while he was enroute to the Silver Mine. Registrant was issued
1,447,769 shares by Rio Grande. Rio Grande also paid $53,000 in cash to
the consultant in connection with the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock is traded in the over-the-counter market
and is listed in the OTC Bulletin Board under the symbol CILV. The
following table shows the range of high and low closing bid quotations
for the Registrant's common stock for the periods indicated, as
reported by Nasdaq Trading & Market Services. The prices represent
quotations between dealers, do not include retail markups, markdowns or
commissions and do not necessarily represent actual transactions.
(Prices are presented for fiscal quarters).
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997:
High $0.14 $0.10 $0.16 $0.03
Low $0.08 $0.10 $0.06 $0.02
1998:
High $0.03 $0.12 $0.06 $0.10
Low $0.01 $0.05 $0.03 $0.02
</TABLE>
The last reported bid and asked prices for Registrant's Common Stock on
the OTC Bulletin Board on March 25, 1999, were $.06 and $.06,
respectively. The number of holders of record of Registrant's common
stock as of October 31, 1998, was approximately 1166.
The Registrant has never paid a dividend on its common stock and the
Registrant's Board of Directors has no present plan to pay any cash
dividends in the foreseeable future. Any future cash dividends on
Registrant's common stock will depend on Registrant's earnings, capital
requirements, financial condition, its ability to recover prior years'
losses and other factors deemed relevant by Registrant's Board of
Directors.
During the fiscal year ended October 31, 1998, Registrant issued the
following securities without registering the securities under the
Securities Act to Coastal Capital Partners, LP (see "Item 12"). No
underwriters were involved and the issuances were exempt pursuant to
Section 4(2) of the Securities Act. On May 1, 1998, Registrant
authorized the issuance of 26,639,482 shares of its common stock which
shares were subsequently issued to Coastal Capital Partners, LP in
exchange for cash and cancellation of indebtedness for cash previously
advanced aggregating $2,930,343 ($.11 per share). In September, 1998,
Coastal Capital partners, LP paid Registrant $80,000 in consideration
for which it received a three year warrant to purchase up to 10,000,000
shares of the Registrant's common stock at an exercise price of $.15
per share.
<PAGE> 17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
1998 1997
------------ ------------
Net Revenues $2,372 $5,859
Net Loss ($1,332,386) ($903,513)
Net Loss per share ($.04) ($.03)
Working Capital (Deficiency) $ 285,596 ($1,160,966)
Total Assets $3,424,746 $2,848,282
Long-Term Debt $ 332,118 $ 398,780
Stockholders' Equity $2,609,362 $ 931,405
Plan of Operation:
------------------
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 a non-operating silver property located in Presidio County,
Texas known as the "Shafter-Presidio 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 Item 2.
"Description of Property - The Silver Mine". Registrant and Rio Grande
incurred substantial expenses in 1998 and 1997 in connection with the
Silver Mine. However, 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 exceed their net realizable values.
Net revenues in 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 have been incurred over the past two years in
connection with the acquisition and/or evaluation of the Silver Mine.
Legal expenses were $130,441 and $ 274,826 for 1998 and 1997,
respectively. A significant portion of the 1997 legal expenses related
to costs incurred to settle, in Registrant's favor, certain disputed
billings from one of Rio Grande's law firms.
Consulting fees were $558,531 and $267,826 for 1998 and 1997,
respectively. Consulting fees in both 1998 and 1997 were primarily for
economic and engineering services regarding the Silver Mine. The
increase from 1997 to 1998 is attributable to the increased activity in
Registrant's efforts to begin mining operations or to sell the
property.
Accounting and auditing expense was $75,053 and $90,661 in 1998 and
1997, respectively. Such expenses were incurred for auditing and record
keeping services for the Registrant and Rio Grande.
Other general and administrative expenses totaled $233,371 and $192,707
for 1998 and 1997, respectively. Registrant, in April 1998, agreed to
exercise its option to lease the surface rights to the Red Hills
Property and incurred $58,014 of lease expense therefore. In addition,
the increased activity in Registrant's efforts to finance, mine or sell
the property incurred increased travel costs and other expenses related
to these activities.
<PAGE> 18
Registrant had approximately $550,000 of cash as of 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, in
January 1999, optioned certain used mill property that should be
appropriate for potential mining operations.
During 1998 and 1997, the funding of expenses was dependent upon
support from Coastal LP, Registrant's major shareholder. In 1998 and
1997, Coastal LP provided funding to Registrant and Rio Grande totaling
over $1,866,000 and $1,175,000, respectively, through the issuance of
notes and advances (which were later refinanced with the issuance of
common stock by 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 these properties in anticipation
of increases in their market prices 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.
Forward-Looking Statements
--------------------------
The forward-looking statements contained herein are based on current
expectations 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
Silver Mine, that significant mineral resources exist and can be
economically developed which can be 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
the 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 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 Annual Report on Form 10-KSB, 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.
<PAGE> 19
ITEM 7. FINANCIAL STATEMENTS
The financial statements listed in Part III, Item 13 and the related
report of independent certified public accountants are included herein
following page 28.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change of or disagreement with accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following persons served as directors of the Registrant:
Principal Occupation for Past 5 Years.
Name of Director Certain Other Directorships & Age Director Since
- ---------------- -------------------------------------- --------------
Andrew K. Simpson Chairman of the Board and Chief Executive 1996
Officer; merchant banking and corporate
finance; Director, Coastal Capital, Inc.;
Partner, Coastal Capital Partners LP;
Chairman, Chief Executive Officer and
Director, Rio Grande Mining Company; 50
Theresa C. Morris Director; commodities trading and fund 1996
management; Director, Coastal Capital,
Inc.; Director, Rio Grande Mining
Company; 46
David C. Fraser Director; self-employed management 1996
consultant; Retired Director,
Texas State Optical; 56
Edward T. Dunne Director; commodities trading and fund 1998
management; 55
Information Regarding Late Filing Pursuant to Section 16
--------------------------------------------------------
Section 16 of the Securities Exchange Act of 1934 requires timely
filing of notice of transactions in the Registrant's securities by
officers, directors and holders of 10% or more of the Registrant's
outstanding securities. During the applicable period of the
Registrant's fiscal year ended October 31, 1998, the Registrant was
advised that Coastal Capital Partners, LP, a shareholder owning more
than 10% of Registrant's common stock, was late in reporting an
acquisition of 26,639,482 shares of Registrant's common stock in
exchange for cash and forgiveness of debt for cash previously advanced
aggregating $2,430,343 ($.11 per share) and in reporting a three year
warrant to purchase up to 10,000,000 shares of Registrant's common
stock at an exercise price of $.15 per share in September, 1998.
<PAGE> 20
ITEM 10. EXECUTIVE COMPENSATION
The following information is furnished on an accrual basis as to
compensation paid by the Registrant during the two fiscal years ended
October 31, 1998, to the Registrant's president and chief executive
officer and to each of the Registrant's executive officers receiving at
least $100,000 in the latest fiscal year end.
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------------ ----- ------------
Andrew K. Simpson 1998 $102,900 (1) -
Chairman of the Board and 1997 $124,800 (1) -
Chief Executive Officer (1)
- -----------
(1) Includes $68,616 in 1998 and $89,492 in 1997 applicable to Mr.
Simpson's salary as Chief Executive Officer of Rio Grande Mining
Company, a significant subsidiary of the Registrant. Mr. Simpson's
salary is allocated one-third to Registrant and two-thirds to Rio
Grande based on his time spent as an executive officer of each entity.
In fiscal 1997, Registrant and Rio Grande paid Andrew K. Simpson
$10,400 per month to serve as chief executive officer and president of
both entities. On May1, 1998, this amount was reduced to approximately
$7,000 per month.
Coastal Capital Partners, Inc., the general partner of Coastal LP
(Coastal LP is controlling stockholder of Registrant) maintains a
separate merchant banking business apart from its activities on
behalf of Registrant and Rio Grande. Coastal Capital Partners, Inc.
separately engages in the origination of private equity investment
transaction opportunities. Coastal Capital Partners, Inc. pays Andrew
K. Simpson a monthly fee to review investment opportunities for
Coastal LP's own account.
Notwithstanding their separate activities, Coastal Capital Partners,
Inc. and Coastal LP have incurred unreimbursed direct expenses or
costs in connection with Registrant and Rio Grande in excess of
$500,000 since October 1994, which have not been charged to either the
Registrant or Rio Grande. In addition, Coastal LP made a capital
contribution of $100,000 to the Registrant in June 1996, for which no
securities were issued.
Coastal Capital Partners, Inc. provides Registrant and Rio Grande
administrative services including treasury, cash management, corporate
secretary functions and investment banking advisory services for which
it pays out of pocket costs averaging in excess of $5,000 a month and
for which Coastal Capital Partners, Inc. receives no reimbursement from
Registrant or Rio Grande.
John H. Bailey, an officer and director of Rio Grande is periodically
paid advisory fees by Coastal Capital Partners, Inc. in connection with
mine related projects for Coastal LP's account. Rio Grande pays Mr.
Bailey $6,500 a month in salary.
<PAGE> 21
Information Concerning Stock Options
------------------------------------
As of October 31, 1998, the Registrant had not adopted any stock option
or any other form of incentive plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1998, the Common Stock of the Registrant is owned
beneficially and of record by the following principal shareholders
known by the Registrant to own five percent or more of the total Common
Stock outstanding as of the record date, as well as the following
directors and executive officers:
Amount and Nature of
Beneficial Owner Beneficial Ownership (1) Percent of Class
- ---------------- ------------------------ ----------------
Coastal Capital Partners, LP 60,114,429(2) 91.09%
101 Morgan Lane, Suite 180
Plainsboro, NJ 08536
Andrew K. Simpson 60,114,429(2)(3) 91.09%
P.O. Box 199
Sonoma, CA 95476
Theresa C Morris 150,000 (4) (5)
101 Morgan Lane, Suite 180
Plainsboro, NJ 08536
David C. Fraser 150,000 (4) (5)
2108 S. Linden Drive
Olathe, KS 66062
All Officers and Directors 60,414,429(3)(6) 91.55%
as a group (four persons)
(1) Subject to applicable community property statues, and except as
otherwise hereinafter set forth, all persons shown have sole voting
and investment power over all shares listed.
(2) Includes 10,000,000 shares subject to a three year warrant expiring
September 2001, exercisable at $.15 per share.
(3) Reflects Mr. Simpson's position as chief executive officer of the
corporate general partner of Coastal LP.
(4) Warrants exercisable at $0.15 per share within 60 days.
(5) Less than 1%.
(6) Includes 300,000 warrants exercisable at $0.15 per share within 60
days.
<PAGE> 22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
1. Coastal LP
----------
Coastal LP is the controlling shareholder and "Parent" of the
Registrant which in turn is the controlling shareholder and "Parent" of
Rio Grande. In October 1994, in consideration of Coastal LP's
$1,387,500 investment in Rio Grande, an agreement regarding a credit
facility for Registrant and a Coastal LP payment of a $25,000 purchase
price for a Registrant stock purchase warrant, Registrant (i) issued
the Coastal Warrant to Coastal LP to purchase up to 3,000,000 shares of
Registrant's common stock; and (ii) granted to Coastal LP certain
"demand", "piggyback" and "resale" registration rights with respect to
the shares issuable upon exercise of the Coastal Warrant and any other
shares issued in connection therewith. Coastal LP also had the right
for one year following such a termination to propose alternative
transactions to Registrant's Board of Directors to realize the public
value of Registrant, during which period Coastal LP's consent was
required as to any material transaction that would affect the
suitability of Registrant for a merger or acquisition transaction. As
of October 31, 1997, Coastal LP had paid Registrant $289,500 and
exercised the Coastal Warrant as to 1,930,000 shares of Registrant's
common stock. Additionally, Coastal LP has transferred the right to
acquire 600,000 shares to certain parties with which it is affiliated
and canceled the right to acquire 470,000 shares pursuant to the
Amended and Restated Investor's Rights Agreement. In June 1996, Coastal
LP made a $100,000 capital contribution to Registrant for which it
received no stock or other securities.
On September 16, 1998, Coastal LP paid Registrant $80,000 in
consideration of the issuance to it of a three year warrant to purchase
10,000,000 shares of Registrant's common stock at an exercise price of
$.15 per share.
On May 1, 1998, Registrant authorized and later issued 26,639,482 of
its shares of Common Stock to Coastal LP in exchange for and
forgiveness of debt for cash advanced aggregating $2,930,343 ($.11 per
share).
2. Relationship Between Rio Grande and Coastal LP
----------------------------------------------
On October 20,1994, Rio Grande, Coastal LP, and others entered into an
agreement which provided that Coastal LP would purchase from Rio Grande
(i) 87.95 shares of Rio Grande common stock, $100 par value, at a
purchase price of $7,675 per share, (ii) a warrant, exercisable in
whole or in part, to purchase an aggregate 35.18 shares of Rio Grande
common stock at an exercise price of $7,675 per share of Rio Grande
common stock, for a purchase price of $12,500, and (iii) a secured
promissory note in a principal amount of $700,000 earning interest at
8-1/2 % per annum, payable in full on October 20, 1995, and convertible
(including accrued but unpaid interest) at any time at holder's option
into shares of Rio Grande common stock at the rate, subject to
adjustment in certain circumstances, of $7,675 per share ("Securities
Purchase Agreement"). In accordance with the terms of the Securities
Purchase Agreement, Coastal LP received from the then principal
shareholder of Rio Grande a (i) stock restriction agreement, under
which he agreed, without the prior written consent of Coastal LP
received from the then principal shareholder not to sell, assign,
transfer, pledge or otherwise encumber any of his rights in or to
shares of Rio Grande common stock purchased by Coastal LP, or any
unpaid dividends or other distributions or payments with respect
thereto or grant a lien in any thereof, and (ii) a proxy to Coastal LP,
<PAGE> 23
with respect to all shares of Rio Grande capital stock owned by him. In
addition, Coastal LP, as long as it maintained a certain minimum
investment in Rio Grande, was granted veto power, through October 20,
1997, over the ability of Rio Grande to enter into any significant
transaction affecting Rio Grande without the prior written consent of
Coastal LP. The proceeds received by Rio Grande pursuant to the
Securities Purchase Agreement were used to fund the final payment
obligations to Gold Fields. As part of the Securities Purchase
Agreement, David Fraser, a current director of Registrant, was paid a
finder's fee equal to $70,000 in cash, 3.39 shares of Rio Grande common
stock and acquired from Coastal LP warrants to purchase 150,000 shares
of Registrant's common stock.
As of October 11, 1996, conversion of the convertible promissory note,
partial exercise of the warrant and further purchase of Rio Grande
common stock had given Coastal LP approximately 15.5 million shares of
Rio Grande's voting stock.
3. The Coastal LP Transaction
--------------------------
Effective October 11, 1996, the Registrant's Board of Directors
approved the acquisition of 80.74% of the common stock of Rio Grande.
As a result of the transaction, Coastal LP increased its ownership in
the Registrant from approximately 16% to slightly over 80%. This
transaction was the culmination of numerous transactions contemplated
and effected between Coastal LP and the Registrant (see "Item 1.").
The Registrant acquired the Rio Grande stock in the following manner:
(a) Coastal LP contributed 15,500,000 of its Rio Grande shares to
Registrant in exchange for 22,475,000 newly issued common
shares of Registrant based on an exchange ratio of one share
of Rio Grande for 1.45 shares of Registrant.
(b) In exchange for 9,000,000 Rio Grande common shares, Registrant
canceled its outstanding 10-year Settlement Warrant to
purchase 17,000,000 Rio Grande shares at 0.24 per share. The
terms of the Agreement whereby the Settlement Warrant was
acquired were set forth in Registrant's Form 8-K dated June
26, 1996.
(c) Registrant agreed to sell its mineral prospects known as Red
Hills Property (also obtained by the Registrant as part of the
Agreement referred to in the June 26, 1996 Form 8-K), to Rio
Grande for 2,500,000 newly issued Rio Grande shares. At the
time of the transaction, the Red Hills Property was carried on
Registrant's balance sheet at a value of $116,000 and was
subject to a three-year option by Rio Grande to purchase the
property for $600,000.
<PAGE> 24
(d) Registrant converted a note for $484,810 for 3,729,307 shares
of newly issued Rio Grande Stock in fiscal 1997.
(e) Registrant assumed the obligations of Rio Grande under a
certain note payable to AMAX of approximately $382,000
(including interest) for 2,936,484 newly issued Rio Grande
shares.
(f) Registrant accepted 7,675,917 newly issued shares of Rio
Grande as payment for outstanding advances.
(g) As a result of the transactions described above, Registrant
has acquired 47,594,676 Rio Grande common shares, or
approximately 88.08% of the total Rio Grande shares
outstanding.
4. Director Relationships
----------------------
Registrant's Board of Directors comprises four members, all of whom are
also directors of Rio Grande and three of whom are consultants to or
employees of Coastal Inc. or its affiliates. Rio Grande's Board of
Directors comprises five members, four of which are directors of the
Registrant and the fifth is an executive officer of Rio Grande. The
general partner of Coastal LP is Coastal Capital Partners, Inc., a
Delaware Corporation. Two of Registrant's directors are directors of
Coastal LP's general partner and one is a partner in Coastal LP.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K
(a)(1) Financial Statements
--------------------
The following financial statements of the Registrant are filed herewith
(page numbers refer to page numbers of financial statements):
Page
- ----
F-1 Report of Independent Accountants
F-3 Consolidated Balance Sheets - October 31, 1998 and 1997
F-4 Consolidated Statements of Operations - Years ended October 31, 1998
and 1997
F-5 Consolidated Statements of Stockholder's Equity - Years ended October
31, 1998 and 1997
F-6 Consolidated Statements of Cash Flows - Years ended October 31, 1998
and 1997
F-7 Notes to Consolidated Financial Statements, October 31, 1998
(a)(2) Exhibits Required to be Filed by Item 601 of Regulation S-B
-----------------------------------------------------------
<PAGE> 25
(3)(i)(a) Articles of Incorporation as amended to date including 1990
amendments regarding one-for-five reverse stock split and merger of Belcor
Financial, Inc., into Registrant filed with Form 10-K for year ended October 31,
1990. Incorporated by Reference.
(i)(b) Amendment to Articles of Incorporation filed July 29, 1998,
changing Registrant's name and increasing authorized capital, filed herewith.
(ii) Bylaws filed with Form 10K for one year ended October 31, 1990.
Incorporated by Reference.
(10)(a) Copy of January 31, 1993, Severance and Retirement Agreement and
Consulting Agreement with M. Douglas Caffey filed as an exhibit to Form 10K for
year ended October 31, 1993. Incorporated by Reference.
(b) Agreement and Plan of Reorganization, dated as of December 1, 1993,
between SilTex Resources, Incorporated and Registrant, filed as an
exhibit to Form 8-K dated October 20, 1994. Incorporated by Reference.
(c) Copy of Warrant Purchase and Investor's Rights Agreement, dated as
of October 20, 1994, between Coastal Capital Partners, L.P., Registrant
and Mark S. Isaacs, filed as an exhibit to Form 8-K dated October 20,
1994. Incorporated by Reference.
(d) Copy of Letter Agreement, dated October 20, 1994, by Coastal
Capital Partners, L.P. regarding possible $100,000 secured loan to
Registrant, filed as an exhibit to Form 8-K dated October 20, 1994.
Incorporated by Reference.
(e) Copy of Investor's Rights Agreement, dated as of October 3, 1995,
between Coastal Capital Partners, L.P., the Registrant, Rio Grande
Mining Company and certain other security holders of the Registrant,
filed as an exhibit to Form 8-K dated October 3, 1995. Incorporated by
Reference.
(f) Copy of Termination Agreement dated as of October 3, 1995, between
Rio Grande Mining Company and Registrant, filed as an exhibit to Form
8-K dated October 3, 1995. Incorporated by Reference.
(g) Amended and Restated Termination Agreement, dated as of May 31,
1996 between Rio Grande Mining Company and Registrant filed as an
exhibit to Form 8-K dated June 26, 1996. Incorporated by Reference.
(h) Amended and Restated Investor's Rights Agreement, dated as of May
31, 1996 between Coastal Capital Partners, L.P., Registrant, Rio Grande
Mining Company and certain other security holders of Registrant, filed
as an exhibit to Form 8-K dated June 26, 1996. Incorporated by
Reference.
(i) Securities Purchase Agreement dated October 11, 1996, between
Registrant and Coastal Capital Partners, L.P., filed as an exhibit to
Form 8-K dated October 14, 1996. Incorporated by Reference.
<PAGE> 26
(j) Agreement of Purchase and Sale of Real Property dated October 11,
1996, between Rio Grande Mining Company and Registrant, filed as an
exhibit to Form 8-K dated October 14, 1996. Incorporated by Reference.
(k) Warrant Purchase Agreement dated October 11, 1996, between Rio
Grande Mining Company and Registrant, filed as an exhibit to Form 8-K
dated October 14, 1996. Incorporated by Reference.
(l) Mining Royalty Purchase Agreement dated April 24, 1997, between Rio
Grande Mining Company and AMAX Exploration Inc., filed as an exhibit to
Form 8-K dated May 5, 1997. Incorporated by Reference.
(21) Rio Grande Mining Company, a Nevada corporation.
(23) Consent of independent public accountants.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report except that on or about September 29,
1998, under Item 5, Registrant filed, for informational purposes only,
under cover of Form 8-K a copy of report by the president of Registrant
which was sent to Registrant's stockholders advising them as to the
Registrant's plan and programs.
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunder duly authorized.
SILVER ASSETS, INC.
By: /s/ Andrew K. Simpson
April 8, 1999 --------------------------------------
Andrew K. Simpson, President
By: /s/ John S. Durkin
April 8, 1999 --------------------------------------
John S. Durkin, Chief Financial Officer
Pursuant to the requirement of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons in behalf of the
Registrant and in the capacities and as of the dates indicated.
/s/ Andrew K. Simpson
- ---------------------------- Director, April 8, 1999
Andrew K. Simpson
/s/ Theresa C. Morris
- ---------------------------- Director, April 8, 1999
Theresa C. Morris
/s/ Edward T. Dunne
- ---------------------------- Director, _______, 1999
Edward T. Dunne
/s/ David C. Fraser
- ---------------------------- Director, April 12, 1999
David C. Fraser
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Silver Assets, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Silver Assets, Inc. and Subsidiaries as of October 31, 1998 and
1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform our audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Silver Assets, Inc. and Subsidiaries as of
October 31, 1998 and 1997, and the consolidated results of their
operations and cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 10, the Company has not commenced business
operations, thus has no operating revenues and has a significant
working capital deficit. The continued existence of the Company
is dependent upon a) its ability to raise capital in order to
meet its current obligations, b) its ability to fund the initial
capital start-up costs and c) may ultimately depend upon mineral
prices, particularly silver, exceeding their extraction costs.
F-1
<PAGE> 29
These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 10. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
STARR AND WALTERS
ACCOUNTANCY CORPORATION
Santa Ana, California
February 25, 1999
F-2
<PAGE> 30
SILVER ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1998 and 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1) $ 550,915 $ 20,276
Accounts receivable 1,463 94
Due from affiliate (Note 3) 23,276 28,029
Prepaid expenses 43,080 23,244
------------- ---------------
Total Current Assets 618,734 71,643
-------------- ---------------
Property and Equipment (Notes 1 and 2):
Real estate 63,861 62,372
Mineral properties 2,052,807 2,022,807
Equipment 661,336 661,336
Furniture and fixtures, net 145 2,261
-------------- ---------------
Net Property and Equipment 2,778,149 2,748,776
-------------- ---------------
Other Assets:
Investment in land 25,500 25,500
Organization costs 2,363 2,363
-------------- ---------------
Total Other Assets 27,863 27,863
-------------- ---------------
Total Assets $ 3,424,746 $ 2,848,282
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 6) $ 113,328 $ 163,931
Accounts payable 35,845 39,766
Accrued expenses 146,442 27,417
Payable to affiliate (Note 5) 7,523 953,830
Note payable 30,000 30,000
-------------- ---------------
Total Current Liabilities 333,138 1,214,944
Long-term debt, net of current portion (Note 6) 332,118 398,780
-------------- ---------------
Total Liabilities 665,256 1,613,724
-------------- ---------------
Minority Interest in Consolidated Subsidiary
(Note 1) 150,128 303,153
Stockholders' Equity (Note 8):
Common stock, $0.001 par value,
100,000,000 shares authorized;
55,692,944 issued and outstanding
in 1998; and $0.10 par value,
30,000,000 shares authorized;
29,053,464 shares issued and
outstanding in 1997 55,693 2,905,347
Additional paid-in capital 22,394,219 16,534,222
Accumulated deficit (19,840,550) (18,508,164)
-------------- ---------------
Total Stockholders' Equity 2,609,362 931,405
-------------- ---------------
Total Liabilities and
Stockholders' Equity $ 3,424,746 $ 2,848,282
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 31
SILVER ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Revenue $ 2,372 $ 5,859
-------------- ---------------
Costs and Expenses:
Salaries and benefits 180,565 162,094
Consulting fees 558,531 267,826
Legal expense 130,441 274,983
Accounting and auditing 75,053 90,661
Depreciation and amortization 2,116 2,144
Other general and administrative expenses 346,610 192,707
Total Costs and Expenses -------------- ---------------
1,293,316 990,415
-------------- ---------------
Loss from Operations (1,290,944) (984,556)
Other Income (Expense):
Interest expense, net (96,918) (48,495)
Settlement expense (Note 7) (104,330) -
Other, net 8,553 1,407
-------------- ---------------
Total Other Income (Expense) (192,695) (47,088)
-------------- ---------------
Loss from Operations Before
Income Taxes and Minority Interests (1,483,639) (1,031,644)
Provision for Income Taxes (1,772) (2,076)
Minority Interests in Losses of Subsidiary 153,025 130,207
-------------- ---------------
Net Loss $ (1,332,386) $ (903,513)
============== ===============
Net Loss Per Common Share (Note 1) $ (0.04) $ (0.03)
============== ===============
Weighted average common shares outstanding 31,273,421 28,521,798
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 32
SILVER ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
------------ ------------ --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1996 27,990,132 $ 2,799,013 $ 16,481,206 $(17,604,651) $ 1,675,568
Exercise of warrants 1,063,332 106,334 53,016 - 159,350
Net loss for the year - - - (903,513) (903,513)
------------ ------------ --------------- ------------- ------------
Balance, October 31, 1997 29,053,464 2,905,347 16,534,222 (18,508,164) 931,405
Reduction of par value - (2,876,293) 2,876,293 - -
Purchase of stock warrant - - 80,000 - 80,000
Exchange debt for stock 26,639,480 26,639 2,903,704 - 2,930,343
Net loss for the year - - - (1,332,386) (1,332,386)
------------ ------------ --------------- ------------- ------------
Balance October 31, 1998 55,692,944 $ 55,693 $ 22,394,219 $(19,840,550) $ 2,609,362
============ ============ =============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 33
SILVER ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,332,386) $ (903,513)
Adjustments to reconcile net loss to net cash
provided by operations:
Depreciation and amortization 2,116 2,144
Decrease in minority interest (153,025) (130,207)
(Increase) decrease in accounts receivable (1,369) 4,891
(Increase) decrease in other current assets (19,836) 246,812
Decrease in accounts payable (3,921) (35,357)
Increase (decrease) in accrued expenses 119,025 (75,902)
-------------- ---------------
Net Cash Used by Operating Activities (1,389,396) (891,132)
-------------- ---------------
Cash Flows from Investing Activities:
Additions to mineral properties and equipment (31,489) -
Other, net - 2,450
-------------- ---------------
Net Cash Provided (Used) by Investing Activities (31,489) 2,450
-------------- ---------------
Cash Flows from Financing Activities:
Borrowings from affiliate, net 1,988,789 827,900
Exercise of warrants to purchase common stock - 159,350
Contribution to capital for warrants 80,000 -
Principal payments on long-term debt (117,265) (118,849)
-------------- ---------------
Net Cash Provided by Financing Activities 1 ,951,524 868,401
-------------- ---------------
Increase (decrease) in Cash and Cash Equivalents 530,639 (20,281)
Cash and Cash Equivalents, Beginning of Year 20,276 40,557
-------------- ---------------
Cash and Cash Equivalents, End of Year $ 550,915 $ 20,276
============== ===============
</TABLE>
Supplemental Disclosures:
Non-cash investing and financing activities:
In September 1998, Silver Assets issued 26,639,482 shares of common
stock in satisfaction of a note payable plus accrued interest to
Coastal in the amount of $2,930,343.
In April 1997, Rio acquired a mineral royalty interest from Amax
Exploration, Inc. for a note payable of $525,000 (See Notes 2 and 6).
In July 1997, Rio issued 3,727,307 shares of common stock to Silver in
satisfaction of a portion of a convertible note payable plus accrued
interest payable to Coastal in the amount of $484,810.
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C> <C>
Cash paid for interest and taxes is as follows:
Interest $ 38,697 $ 15,643
Taxes 1,776 2,876
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 34
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------------
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
- --------------------------------------------
Silver Assets, Inc. (formerly Belcor, Inc.) (the "Company") was incorporated
under the laws of California on June 18, 1932. Prior to November 1, 1995, the
Company's principal business had been natural resource investment and
operations. Effective November 1, 1995, the Company sold its then remaining oil
and gas interests to the contract operator of the properties. No further
operations were undertaken by the Company for the remainder of fiscal year 1996,
except that in October 1996, Silver Assets became the majority owner of Rio
Grande Minding Company. In July 1998, the Company amended its Articles of
Incorporation, changing its name to Silver Assets, Inc., increasing the number
of authorized shares of common stock to 100,000,000 and reducing the par value
thereof to $0.001.
On October 11, 1996, through a series of stock exchanges, the Company acquired
80.74% of the common stock of Rio Grande Mining Company ("Rio"), a Nevada
corporation and a development stage company. Rio's principal assets are
non-operating silver and copper mineral properties located in Presidio County,
Texas known as "the Shafter Presidio Silver Mine" and "Red Hills," respectively.
Also, as a result of the stock exchanges, Coastal Capital Partners, LP,
("Coastal") a Delaware limited partnership and a significant shareholder of both
the Company and Rio, acquired slightly over 80% of the common stock of the
Company.
Because Coastal had direct or indirect control of the Company and Rio prior to
the consummation of the stock exchanges referred to above, the transactions did
not constitute a business combination as that term is defined in Accounting
Principles Board Opinion No. 16. As a result, the transactions were accounted
for at their respective historical costs (similar to the accounting for a
pooling of interests).
The accompanying consolidated financial statements include the accounts of the
Company, Rio (its 88.08% owned subsidiary) and Rio Grande Silver, a
recently-formed Nevada corporation 100% owned by the Company. Although
incorporated, Rio Grande Silver had no assets as of October 31, 1998. All
significant intercompany accounts and transactions have been eliminated.
Rio 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." In accordance with the requirements of that
Statement, certain additional disclosures are included in these financial
statements pertaining to Rio's activities (see Note 11 - Company in the
Development Stage).
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
(Continued to page 8)
See accompanying accountants' report.
F-7
<PAGE> 35
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
- ----------------------------------------------------------------
CASH AND CASH EQUIVALENTS
- -------------------------
For purposes of reporting cash flows, cash and cash equivalents include checking
accounts and money market account deposits.
CONCENTRATION OF CREDIT RISK
- ----------------------------
The Company is subject to credit risk through cash and cash equivalents. Such
amounts are placed with high credit quality financial institutions.
PROPERTY AND EQUIPMENT
- ----------------------
Costs associated with the acquisition of mineral properties are capitalized but
not in excess of net realizable value. Management periodically evaluates the
carrying value of these properties by obtaining independent appraisals. Such
appraisals take into account the estimates of the ore reserves, the quality and
estimated yield of the ore and the market value of the minerals which could be
produced from the ore. Based on appraisals made as of January 18, 1996 (Shafter
Presidio Silver Mine) and May 1, 1996 (Red Hills copper prospect) and both as
updated on May 1, 1998, the carrying values of these properties did not exceed
their respective net realizable values.
Equipment is comprised of an assay lab, a core sample warehouse, a large
Nordberg hoist and other mine related machinery and is recorded at cost. No
depletion of mineral properties or depreciation of equipment has been recorded
as the mines are not operational.
Office furniture and equipment is recorded at cost and is depreciated over
estimated lives of five years using the straight-line method. Costs and
accumulated depreciation of office furniture and equipment sold are removed from
the accounts and any gain or loss is included in income. Maintenance and repairs
are charged to current operations as incurred.
COMPENSATED ABSENCES
- --------------------
The Company does not accrue compensated absences as management considers the
amounts to be immaterial.
(Continued to page 9)
See accompanying accountants' report.
F-8
<PAGE> 36
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
INCOME TAXES
- ------------
In February 1992, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 109, "Accounting for Income Taxes." This Statement
requires a change in the method of accounting for income taxes from the deferred
method to an asset and liability approach. Under this approach, deferred tax
assets and liabilities are recognized for the expected future tax consequences
attributable to differences between the carrying amounts of existing assets and
liabilities on the financial statements and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which these differences are expected to
be recovered or settled. Under Statement No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date. The Company adopted Statement No. 109 at its
inception.
LOSS PER SHARE
- --------------
The computations of loss per share are based on the weighted average number of
outstanding shares during the periods presented which include the effect of the
exchange transactions as more fully described in Note 3. Outstanding warrants
have not been included because their effect would be anti-dilutive.
NOTE 2 - PROPERTY AND EQUIPMENT:
- --------------------------------
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C> <C>
Real Estate $ 63,861 $ 62,372
Mineral Properties 2,052,807 2,022,807
Mining Equipment 661,336 661,336
Office Furniture and Fixtures 27,598 27,598
-------------- ---------------
2,805,602 2,774,113
Less: Accumulated Depreciation 27,453 25,337
-------------- ---------------
$ 2,778,149 $ 2,748,776
============== ===============
</TABLE>
Mineral Properties consist of the Shafter Presidio Silver Mine ("Shafter")
located in Presidio County, Texas and Red Hills Property ("Red Hills") located a
few miles from Shafter. The Red Hills asset represents the mineral rights (but
not the surface rights) to approximately 1,600 acres of an undeveloped copper
deposit. Shafter consists of approximately 3,430 acres of land of which Rio owns
or leases certain of the surface and/or mineral estate. The original ore body,
mined between 1883 and 1942, produced in excess of 30 million ounces of silver.
The existing Shafter project includes acreage to provide for possible reserve
extensions. No mining operations have commenced at this time, because no
reliable feasibility studies have been performed and no plans for production
have been undertaken.
(Continued to page 10)
See accompanying accountants' report.
F-9
<PAGE> 37
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 2 - PROPERTY AND EQUIPMENT (continued):
- --------------------------------------------
The Shafter properties are subject to certain rental and royalty agreements with
a previous owner of the property and other current property lessors covering
substantially all of the acreage contained within the project. In the event
mineral production were to commence in the future, these agreements become
effective. In April 1997, the most significant of these agreements, which
required Rio to pay royalties to Amax Exploration, Inc. ("Amax"), the previous
owner, of 6.25% of the net value of silver produced was purchased by Rio for
$525,000, payable in varying quarterly principal installments plus interest at
8% per annum over three and one-half years. (See Note 6) An initial payment of
$50,000 was made in April 1997. In July, 1998, the remaining principal balance
on the note of $350,000, plus accrued interest of $2,378 was assumed by the
Company in exchange for 2,936,484 shares of Rio common stock. Conveyances of the
royalty interests to Rio will occur after certain aggregate principal payments
have been made during the term of the agreement.
NOTE 3 - RELATED PARTY TRANSACTIONS:
- ------------------------------------
AMENDED AND RESTATED TERMINATION AGREEMENT
- ------------------------------------------
On June 26, 1996, Silver Assets and Rio entered into an Amended and Restated
Termination Agreement which, among other terms, called for Rio to: 1) repay the
balance of certain funds advanced by Silver Assets, 2) issue a ten-year warrant
in favor of Silver Assets to purchase up to 17 million shares of Rio common
stock at $0.24 per share in return for a cash payment by Silver Assets of
$25,000 for the warrant, and 3) convey to Silver Assets, all of Rio's rights,
title and interest to the Red Hills property, (see Note 2), subject to an option
for Rio to repurchase such rights within three years for a fixed price of
$600,000.
Concurrent with the execution of the Amended and Restated Termination Agreement
described above, Coastal Capital Partners, LP ("Coastal"), Rio's controlling
shareholder, and certain other shareholders of Silver Assets entered into an
amended and restated Investors' Rights Agreement whereby Silver Assets: 1)
canceled certain financing obligations of Coastal to fund Silver Assets, 2)
accepted the resignations of the existing Silver Assets directors and replaced
them with four Coastal nominees, 3) appointed a new chief executive officer who
is a limited partner in Coastal and the chief executive officer of Rio, 4)
waived certain rights to cause early termination of a previous warrant issued to
Coastal, 5) executed an irrevocable proxy in favor of Coastal to vote any shares
obtained by Silver Assets as a result of exercising any portion of the
seven-year warrant issued by Rio under the Termination Agreement (see above),
and 6) agreed to provide certain registration rights for certain unregistered
shares of, or warrants to purchase, Silver Assets common stock held by Coastal
and two of Silver Assets' former directors.
(Continued to page 11)
See accompanying accountants' report.
F-10
<PAGE> 38
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS (continued):
- ------------------------------------------------
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
- ------------------------------------------------
In addition to the above mentioned Investors' Rights Agreement, Coastal agreed
to make a capital contribution to Silver Assets of $100,000 in cash without the
issuance of any Silver Assets securities and cancel existing warrants held by
Coastal to purchase 470,000 shares of Silver Assets common stock.
In connection with the Investors' Rights Agreement, Silver Assets entered into
one-year consulting agreements with its former chief executive officer and
another former director whereby the former chief executive officer received a
cash payment of $25,000 plus warrants to purchase 100,000 Silver Assets common
shares at $0.20 per share and the former director received warrants to purchase
150,000 Silver Assets common shares, also at $0.20 per share. All of these
warrants are currently exercisable.
EXCHANGE TRANSACTIONS
- ---------------------
Silver Assets has acquired additional shares of Rio's common stock as follows:
In July 1997, Silver Assets acquired 3,729,307 additional shares of
Rio's common stock through conversion of a note payable to Coastal (see
Note 5) at $0.13 per share.
In May 1998, Rio issued 6,253,001 of its common shares at $0.13 per
share to Silver Assets as payment for advances and accrued interest
from Silver Assets.
In July 1998, Rio issued 2,936,484 of its common shares at $0.12 per
share to Silver Assets as payment for the assumption of the Amax debt
by Silver Assets.
In September 1998, Rio issued 7,675,917 of its common shares at $0.13
per share to Silver Assets as payment for advances and accrued interest
from Silver Assets.
<TABLE>
<CAPTION>
DUE FROM AFFILIATE
- ------------------
1998 1997
-------- --------
<S> <C> <C>
Notes receivable from Coastal for purchase
of Rio Common Stock $23,276 $17,675
Receivable from Coastal for reimbursement of
expenses, net - 10,354
-------- --------
$23,276 $28,029
======== ========
</TABLE>
(Continued to page 12)
See accompanying accountants' report.
F-11
<PAGE> 39
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS (continued):
- ------------------------------------------------
OTHER
- -----
Rio holds an 8%, $30,000 note receivable from its former chairman and president
which became due in September 1996. The note is collateralized by 254,370 shares
of Rio's common stock owned by this individual. The note was not paid on its due
date and was fully reserved on Rio's books.
In addition, Silver Assets made certain advances to this same individual (who
was also the president of Silver Assets at that time) amounting to $32,873 which
have not been repaid. This amount was also fully reserved.
NOTE 4 - NOTE PAYABLE
- ---------------------
Rio has a $30,000 note payable bearing interest at 8% issued in July 1994 to one
of its minority shareholders. The note was originally due in January 1995. The
Company is in discussions with the shareholder regarding the disposition of this
note. Until the appropriate disposition is determined, the Company is continuing
to accrue interest on the note.
<TABLE>
<CAPTION>
NOTE 5 - PAYABLE TO AFFILIATE:
- ------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Silver note payable to Coastal at 8.5%
interest; payable on demand or by July
31, 1998; convertible into Silver common
stock (price to be determined). (a) $ - $600,000
Silver advances from Coastal, including
accrued interest at 8.5%. (b) 351,430
Due to Coastal for miscellaneous expenses
advanced. 7,523 2,400
--------- ---------
$ 7,523 $953,830
========= =========
</TABLE>
(a) In July 1997, the Company executed a new $600,000 note payable to Coastal.
The note was payable on demand or in one year from the date of issue if no
demand is made and bears interest at 8.5% per annum. The note was convertible by
Coastal into the common stock of the Company at a price to be determined in the
future. Silver Assets utilized $484,810 of the proceeds from this note to
purchase additional common stock in Rio Grande, increasing its interest from
80.74% to 82.67% The stock was purchased at $0.13 per share based on a fairness
opinion received from independent advisors.
(b) In October, 1997, the Company's Board of Directors approved a new note
payable to Coastal in the amount of $1,200,000. The note was convertible by
Coastal into the common stock of the Company at a price to be determined in the
future. In September 1998, Coastal converted its outstanding notes, including
accrued interest, into 26,639,482 shares of the Company's common stock.
See accompanying accountants' report.
F-12
<PAGE> 40
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
<TABLE>
<CAPTION>
NOTE 6 - LONG-TERM DEBT:
- ------------------------
Long-term debt is comprised of the following:
1998 1997
--------- ----------
<S> <C> <C>
Silver Assets
- -------------
Amount payable to a former officer in
annual amounts over twenty years
including imputed interest at 7.3%;
final payment in 2012. $ 71,283 $ 79,563
Note payable to Amax Exploration, Inc.
for purchase of royalty interest; payable
in varying quarterly principal installments
plus interest at 8% per annum; final payment
of $75,000 due October 15, 2000. 325,000 425,000
Note payable to an individual; due in
monthly installments of $500 including
interest at 8%; final payment due in
March 1998; deed of trust on Shafter
real estate held as collateral. - 47,325
Mortgage payable to a bank as a result
of refinancing the above note payable
to an individual; due in 120 monthly
installments of $639.38 including
interest at 10%; final payment due
April 1, 2008. This note is
collateralized by the Shafter property. 46,667 -
Loan payable to bank; due in equal monthly
payments of $635 including interest at 9.75%;
due in February 1999. 2,496 9,499
Other - 1,324
--------- ----------
445,446 562,711
Less: Current portion 113,328 163,931
--------- ----------
Long-term Portion of Notes Payable $332,118 $ 398,780
========= ==========
</TABLE>
Future maturities of these obligations are as follows:
Year Ending
October 31
1999 $113,328
2000 235,640
2001 10,512
2002 10,454
2003 10,470
Thereafter 65,042
---------
$445,446
=========
(Continued to page 15)
See accompanying accountants' report.
F-13
<PAGE> 41
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 6 - LONG-TERM DEBT (continued):
- ------------------------------------
In connection with a severance arrangement provided to the former chief
executive officer of Silver in January 1993, the Board of Directors agreed to
forgive an amount payable to the Company by this individual in the approximate
amount of $370,000 over a twenty year period. In return, this individual is to
provide the Company with consulting services over that period on an as-available
and as-needed basis. In addition, the Company has agreed to reimburse him for
any income taxes due as a result of the amount forgiven. The amount of the
liability recorded by the Company represents the present value of the estimated
income taxes which may become payable to the former officer as a result of this
arrangement calculated using a discount rate of 7.3% which approximated the
long-term Treasury Bond rate at the date the arrangement was approved. Any
amounts which may not be payable due to the absence of a tax liability to the
former officer attributable to the annual amount forgiven will be included in
income when that determination is made.
NOTE 7 - CONTINGENCIES
- ----------------------
LEASES
- ------
Rio leases certain surface and mineral rights related to the Shafter property
under operating leases with varying terms. Rental expense charged to operations
amounted to $66,975 and $9,026 in 1998 and 1997, respectively. Future minimum
rental payments under non-cancelable operating leases with initial or remaining
terms in excess of one year approximate $9,000 in 1999 and thereafter.
The Company sub-leases its administrative office under a one-year sub-lease
which commenced in October 1998. Monthly rental under this lease is $1,200,
which is allocated one-third each to Silver Assets, to Rio Grande and to Coastal
Capital Partners, Inc., the general partner of the Registrant's controlling
shareholder, Coastal LP. The Company is required to pay utilities on the
building. Rental expense charged to operations was $10,166 and $9,733 in 1998
and 1997, respectively.
The Company leases telephone equipment under a twenty-four month lease from June
1998 through May 2000 at a rate of $80 per month.
SHAFTER PROPERTY
- ----------------
In connection with the acquisition of the silver mine, Rio acquired ownership of
the tailings site that contained tailings from past mining operations at the
silver mine. In addition, Rio became the mineral lessee of the mill site on
which the old mill was located. These sites are contiguous to other portions of
the silver mine.
(Continued to page 15)
See accompanying accountants' report.
F-14
<PAGE> 42
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 7 - CONTINGENCIES (continued):
- -----------------------------------
SHAFTER PROPERTY (CONTINUED)
- ----------------------------
In 1995, the tailings site was remediated by prior owners pursuant to Texas
regulatory standards, and Rio quitclaimed its interest in the tailings site to
Amax Exploration, Inc. (an affiliate of Cypress Amax) and terminated the lease
that included the mill site. Rio could be subject to claims of liability from
the State of Texas and others for conditions at the tailings site and mill site
by virtue of its former interests. While management views this as unlikely owing
to Rio's short ownership tenure of the tailings site and the mill site and Rio's
complete lack of operational activities on these properties, the cost of
defending such claims and any adverse judgment resulting therefrom, could have a
material adverse effect on Rio. No such claims have been asserted.
OTHER
- -----
In February 1996, an executive officer and an independent consultant to Rio
sustained serious injuries in an automobile accident while traveling on company
business. No claims were filed by the individual. In January 1999, the Company
entered into a Settlement Agreement and Mutual Release whereby Rio will pay cash
of $53,000 and the Company will issue 1,711,000 shares of its common stock to
the individual. Rio will issue 1,447,769 shares of its common stock to the
Company.
NOTE 8 - STOCKHOLDERS' EQUITY:
- ------------------------------
The Company issued warrants to Coastal, its controlling shareholder, to purchase
a total of 3,000,000 shares of its common stock at $0.15 per share through
October 1999. Through October 31, 1996, Coastal had exercised warrants to
purchase 866,668 shares (700,001 in 1995 and 166,667 in 1996), had transferred
warrants to purchase 600,000 shares to certain individuals, and canceled
warrants to purchase 470,000 shares in connection with the Termination Agreement
(see Note 3). In April 1997, Coastal exercised the balance of its warrants to
acquire 1,063,332 shares of the Company.
In addition, certain former officers and directors of the Company hold warrants
to purchase an aggregate of 700,000 common shares at exercises prices of $0.18
to $0.24 per share.
(Continued to page 16)
See accompanying accountants' report.
F-18
<PAGE> 43
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 8 - STOCKHOLDERS' EQUITY (continued):
- ------------------------------------------
In connection with its investment in Rio common stock in October 1994, Coastal
received warrants to purchase 1,491,414 Rio common shares at approximately $0.18
per share which are exercisable at any time through October 1999.
The Company's Board of Directors approved the issuance of an option to purchase
250,000 shares of the Company's common stock at fair market value to its former
chief financial officer. However, these options were cancelled. In addition, the
Board intends to provide certain employees and advisors to the Company or Rio
with equity incentives in the future. The specific terms and amounts of these
incentives have not yet been determined
NOTE 9 - INCOME TAXES:
- ----------------------
Because the Company and subsidiaries incurred losses for the current year, only
the minimum California franchise tax has been provided for in the accompanying
financial statements.
As of October 31, 1995, the Company had cumulative net operating loss and
investment tax credit carryforwards of approximately $17.2 million and $198,000,
respectively. These losses and credits expire in varying amounts between 1997
and 2010.
In connection a series of exchange transactions, the Company and Rio underwent
ownership changes on October 11, 1996 as that term is defined under income tax
regulations. Because of these changes, the Company's ability to fully utilize
those net operating losses and investment tax credits in the future is likely to
be significantly limited.
Rio has a deferred tax asset related to the capitalization of certain expenses
as pre-operating costs for tax purposes amounting to approximately $575,000 as
of October 31, 1997. Due to the uncertainty regarding its ultimate realization,
this asset has been fully offset by a valuation allowance.
(Continued to page 17)
See accompanying accountants' report.
F-19
<PAGE> 44
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
NOTE 10 - MANAGEMENT'S PLANS:
- -----------------------------
The Company's principal assets are its investments in the Shafter 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 significant losses. The continuing existence of the
Company is dependent on 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 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 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 on continuing 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 objectives are to retain its interests in the Shafter-Presidio
silver mine and Red Hills projects and to make the 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 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 additional 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.
As described in Note 5, the Company has received significant funding from
Coastal, its controlling shareholder, primarily in the form of loans and equity
investments. The Company is reviewing other means of financing; however, no
definitive plan has yet been made for this financing.
See accompanying accountants' report.
F-20
<PAGE> 45
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
<TABLE>
<CAPTION>
NOTE 11 - COMPANY IN THE DEVELOPMENT STAGE
- ------------------------------------------
The following supplementary information is presented for Rio Grande Mining
Company for the period from inception on September 28, 1992 through October 31,
1998:
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, 9/28/92 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 - - - - 25,000 - 25,000
Stock issuances:
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 0 $ 0 37,169,667 $ 371,697 $3,537,288 $(1,916,525) $1,992,460
</TABLE>
(continued on page F-22)
See accompanying accountants' report.
F-21
<PAGE> 46
SILVER ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
<TABLE>
<CAPTION>
NOTE 11 - COMPANY IN THE DEVELOPMENT STAGE (continued):
- -------------------------------------------------------
The following supplementary information is presented for Rio Grande Mining
Company for the period from inception on September 28, 1992 through October 31,
1998:
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>
Subtotal from page 18 0 $ 0 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)
----------- ----------- ----------- ----------- ----------- ----------- -----------
0 $ 0 55,982,569 $ 540,350 $5,611,772 $(2,971,092) $3,181,030
=========== =========== =========== =========== =========== ============ ===========
</TABLE>
(1) Based on value of services rendered.
(2) For a description of the Company's development
activities, See Notes 2, 7 and 10.
* Net of $45,000 in transaction fees.
See accompanying accountants' report.
F-22
As independent public accountants, we hereby consent to the use of our
report dated February 25, 1999, included in and made part of the Form 10-KSB
filing of Silver Assets, Inc. for the year ended October 31, 1998.
/s/ Starr and Walters
STARR AND WALTERS
ACCOUNTANCY CORPORATION
Santa Ana, California
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 550,915
<SECURITIES> 0
<RECEIVABLES> 1,463
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 618,734
<PP&E> 2,778,149
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,434,746
<CURRENT-LIABILITIES> 333,138
<BONDS> 0
0
0
<COMMON> 55,693
<OTHER-SE> 2,553,669
<TOTAL-LIABILITY-AND-EQUITY> 3,424,746
<SALES> 2,372
<TOTAL-REVENUES> 2,372
<CGS> 0
<TOTAL-COSTS> 1,293,316
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,918
<INCOME-PRETAX> (1,483,639)
<INCOME-TAX> (1,772)
<INCOME-CONTINUING> (1,332,386)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,332,386)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
