<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period ended
APRIL 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
0-8425
------
Commission File Number
SILVER ASSETS, INC.
-------------------
(Exact name of small business issuer as specified in its charter)
California 95-2369956
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
19320 Sonoma Highway, Sonoma, CA 95476
--------------------------------------
(Address of principal executive offices)
(707) 935-3284
--------------
(Issuer's telephone number)
Not Applicable
--------------
(former address and former fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the close of the latest practicable date:
As of April 30, 2000:
Common Stock, $.001 Par Value 63,040,806 shares
----------------------------- -----------------
Traditional Small Business Disclosure Format (check one):
Yes [ ] No [X]
1
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SILVER ASSETS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have
been prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, Registrant believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Registrant's latest Annual Report on Form 10-KSB.
In the opinion of the Registrant, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position of the
Registrant as of April 30, 2000, and the results of its operations and changes
in its cash flows for the three and six month periods ended April 30, 2000 and
1999, have been made. The results of operations for such interim periods are not
necessarily indicative of the results to be expected for the entire year.
2
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<TABLE>
SILVER ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2000 AND OCTOBER 31, 1999
UNAUDITED
<CAPTION>
APRIL 30, OCTOBER 31,
2000 2000
------------- -------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 46,155 $ 355,035
Accounts receivable 4,140 479
Due from affiliates 0
Prepaid expenses 38,666 41,197
------------- -------------
Nonrefundable Option Payments 394,000 244,000
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Total current assets 482,961 640,711
------------- -------------
Property and equipment:
Real estate 63,861 63,861
Mineral properties 2,052,807 2,052,807
Equipment 671,336 661,336
Furniture and fixtures, net 0 0
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Net property and equipment 2,788,004 2,778,004
Other assets:
Investment in Land 25,500 25,500
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Total other assets 25,500 25,500
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Total Assets $ 3,296,465 $ 3,444,215
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable
Payable to affiliates $ 2,775,118 $ 1,851,962
Accounts payable 100,370 147,254
Accrued expenses 16,135 39,105
Current portion of long-term debt 128,965 247,531
------------- -------------
Total current liabilities 3,020,588 2,285,852
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Long-term debt, net of current portion 113,479 113,479
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3,134,067 2,399,331
Minority interest in consolidated subsidiary 104,947 174,951
Stockholders' equity:
Common stock, $.001 par value; 100,000,000 shares
authorized; 63,040,808 shares issued and
at April 30, 2000 and October 31, 1999 63,041 63,041
Additional paid-in capital 22,607,307 22,607,307
Accumulated deficit (22,612,897) (21,800,415)
------------- -------------
Total stockholders' equity 57,451 869,933
------------- -------------
Total Liabilities and Stockholders' Equity $ 3,296,465 $ 3,444,215
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SILVER ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999
UNAUDITED
Three Months Ended
April 30,
2000 1999
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Revenue:
Net sales
Other $ 0 $ 523
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910 523
------------- -------------
Costs and Expenses:
Salaries and benefits 50,230 52,742
Consulting fees 200,730 189,113
Legal expense 76,052 27,667
Accounting and auditing 10,410 14,856
Depreciation and amortization 0 0
Other general and administrative expenses 68,171 85,863
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405,593 370,241
Loss from Operations (404,683) (369,718)
Other income(expense):
Interest income (expense), net (55,108) (11,633)
Other, net 100 75
------------- -------------
Loss from Operations before
income taxes (459,691) (381,276)
Provision for income taxes 0 0
Minority Interests in Losses of Subsidiary 37,290 34,897
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Net Loss ($422,401) ($346,379)
============= =============
Net Loss per Share ($0.01) ($0.01)
============= =============
Weighted average common shares outstanding 63,040,808 60,750,080
============= =============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SILVER ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999
UNAUDITED
Six Months Ended
April 30,
2000 1999
------------- -------------
Revenue:
Net sales
Other $ 1,627 $ 902
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1,627 902
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Costs and Expenses:
Salaries and benefits 100,947 134,904
Consulting fees 405,950 363,226
Legal expense 119,690 43,242
Accounting and auditing 19,786 27,224
Depreciation and amortization 0 145
Other general and administrative expenses 135,031 228,481
------------- -------------
781,404 797,222
Loss from Operations (779,777) (796,320)
Other income(expense):
Interest income (expense), net (102,084) (18,657)
Other, net 175 150
------------- -------------
Loss from Operations before
income taxes (881,686) (814,827)
Provision for income taxes (800) 0
Minority Interests in Losses of Subsidiary 70,004 78,507
------------- -------------
Net Loss ($812,482) ($736,320)
============= =============
Net Loss per Share ($0.01) ($0.01)
============= =============
Weighted average common shares outstanding 63,040,808 58,758,409
============= =============
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SILVER ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999
UNAUDITED
Six months ended April 30,
2000 1999
----------- -----------
>From Operating Activities:
Net loss ($812,482) ($736,320)
Adjustments to reconcile net loss to net
cash from operations:
Depreciation 0 145
Issuance of common stock for services 0 138,255
Minority interest in consolidated subsidiary (70,004) (78,507)
(Increase) decrease in accounts receivable (3,661) (238)
(Increase) decrease in other current assets 2,531 8,414
Increase (decrease) in accounts payable (46,884) 49,099
Increase (decrease) in accrued expenses (22,970) (112,667)
----------- -----------
Net Cash used by Operating Activities (953,470) (731,819)
----------- -----------
Cash Flows from Investing Activities:
Additions to mineral properties and equipment (10,000) 0
Non-Refundable Option Payment (150,000) (197,000)
----------- -----------
Net Cash used by Investing Activities (160,000) (197,000)
----------- -----------
Cash Flows from Financing Activities:
Borrowings from affiliate, net 923,156 783,252
Principal payments on long-term debt, net (118,566) (54,520)
----------- -----------
Net Cash provided from Financing Activities 804,590 728,732
----------- -----------
Increase(Decrease) in Cash and Cash Equivalents (308,880) (200,087)
Cash and Cash Equivalents, beginning of year 355,035 550,915
----------- -----------
Cash and Cash Equivalents, end of period $ 46,155 $ 350,828
=========== ===========
Supplemental Disclosures:
Non-cash investing and financing activities:
None
Cash paid for interest and taxes is as follows:
Interest $ 4,557 $ 10,134
Taxes 800 800
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
SILVER ASSETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000
1. Basis of Presentation
---------------------
The accompanying unaudited condensed financial consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-QSB and Article 10 of Regulation S-B. Accordingly, they do not include all
financial information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals and estimates) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended April 30, 2000 are not necessarily indicative
of the results that may be expected for the full fiscal year ending October 31,
2000. For further information, the reader should refer to the financial
statements and notes thereto included in the Company's annual report on Form
10-KSB for the year ended October 31, 1999.
The accompanying financial statements include the accounts of the
Company, Rio Grande Mining Company ("Rio Grande"), its 90.6 % owned subsidiary
and Rio Grande Silver ("Silver"), a 100% owned Nevada corporation. Silver had no
assets as of April 30, 2000. All significant intercompany accounts and
transactions have been eliminated.
Rio Grande is deemed to be a development stage company as that term is
defined by Statement of Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises." See page 8 for supplemental disclosure relating
to Rio Grande's changes in stockholders' equity from inception through April 30,
2000.
2. Management's Plans
------------------
The Company's principal assets are its investments in the
Shafter-Presidio Silver Mine (the "Silver Mine") and Red Hills mineral
properties through its majority ownership of Rio Grande Mining Company. The
Company has not commenced business operations, has no current source of revenue
and has incurred significant losses. The continuing existence of the Company is
dependent upon its ability to find a merger partner and/or raise sufficient
additional capital in order to meet its current obligations and fund the
recovery of start-up costs. And, ultimately, the price of silver and/or copper
must reach levels which provide for adequate profitability from the production
of minerals. The Silver Mine's principal risk is the uncertainty that silver
prices will sustainably render the Silver Mine economic. In the event the
Company is unable to finance production start-up due to weak silver prices,
permitting delays or other factors, the Company may enter into a merger, joint
venture or sale arrangement or a combination thereof. In such event, there can
be no assurances that current carrying values of assets, or even current stock
price levels, will be recovered by the Company's stockholders. 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.
7
<PAGE>
Coastal Capital Partners, LP ("Coastal") is the majority shareholder of
the Company, controls the election of the Board of Directors and can effectively
cause a sale of the Company or other significant business transaction to occur.
Coastal has supported the Company and Rio Grande in the past by providing
working capital through debt and equity financing. The Company from time to time
has investigated third party financing. The Company is likely to be dependent
upon continued support from Coastal for the foreseeable future; however, Coastal
is under no obligation to provide such support and there can be no assurance it
will continue to do so.
The Company is presently seeking third party relationships, potentially
including, but not limited to, investors or mining company merger partners, to
help fund the remaining permit application process and the initiation of mine
production activities. In the event that such a relationship is not established,
initiation of production at the properties will not be able to be undertaken, if
at all, until the Company has obtained such a relationship with an experienced
mining operator who has the ability to finance operations. At this time, there
can be no assurance that any of these alternatives can be achieved on terms
acceptable to the Company.
3. Company in the Development Stage
--------------------------------
The supplementary information on the following page is presented for
Rio Grande Mining Company for the period from inception on September 28, 1992
through April 30, 2000.
8
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<TABLE>
SILVER ASSETS, INC. AND SUBSIDIARIES
SUPPLEMENTAL DISCLOSURE-COMPANY IN THE DEVELOPMENT STAGE
RIO GRANDE MINING COMPANY
SCHEDULE OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION ON SEPTEMBER 28, 1992 THROUGH APRIL, 2000
<CAPTION>
Deficit
Accumulated
Additional during the
Preferred Stock Common Stock Paid in Development
Shares Amount Shares Amount Capital Stage Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception,
September 28, 1992 0 0 0 0 0 0 0
Stock issuances:
For services(1) 5,087,400 $ 50,874 $ (38,874) $ 12,000
For cash 1,833,584 18,336 414,164 432,500
Net loss for the period (135,623) (135,623)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 6,920,984 69,210 375,290 (135,623) 308,877
Stock issuances:
For services(1) 42,395 424 8,413 8,837
For cash 3,834,628 38,346 591,654 630,000
Issuance of warrants for cash 12,500 12,500
Net loss for the period (215,341) (215,341)
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1994 10,798,007 107,980 987,857 (350,964) 744,873
Stock issuances:
For cash 397 4 1,954,888 19,549 319,076 338,629
Refinance of note payable 4,074,965 40,750 696,963 737,713
Restore amount due from affiliate 17,675 17,675
Net loss for the period (271,300) (271,300)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, October 31, 1995 397 4 16,827,860 168,279 2,003,896 (604,589) 1,567,590
Purchase of warrant for cash
Stock issuances: 25,000 25,000
For note receivable 1,041,667 10,417 239,583 250,000
Refinance of note payable 4,070,833 40,708 936,292 977,000
Transfer of Red Hills mineral
property 2,500,000 25,000 (25,000)
Cancellation of settlement
warrant 9,000,000 90,000 (90,000)
Redemption of preferred stock (397) (4) (4)
Net loss for the period (569,533) (569,533)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, October 31, 1996 33,440,360 334,404 3,089,771 (1,174,122) 2,250,053
Refinance of note payable 3,729,307 37,293 447,517 484,810
Net loss for the period (742,403) (742,403)
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1997 37,169,667 371,697 3,537,288 (1,916,525) 1,992,460
Stock issuances:
Refinance of note payable
with equity 6,253,001 62,530 750,360 812,890
Transfer of note payable 2,936,484 29,364 323,014 352,378
For Cash 7,675,917 76,759 921,110 997,869
Issuance of stock warrants 80,000 80,000
Net loss for the period (1,054,567) (1,054,567)
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1998 54,035,069 540,350 5,611,772 (2,971,092) 3,181,030
Stock issuances:
For services(1) 2,027,500 20,275 51,609 71,884
Settlement of lawsuit 1,447,769 14,478 36,852 51,330
Purchase of option 676,922 6,769 17,231 24,000
Convert Note and interest
due shareholder 392,478 3,925 40,425 44,350
Net Loss for the period (1,519,304) (1,519,304)
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1999 58,579,738 585,797 5,757,889 (4,490,396) 1,853,290
------------ ------------ ------------ ------------ ------------
Net Loss for the period (346,544) (346,544)
------------ ------------ ------------ ------------ ------------
Balance, January 31, 2000 58,579,738 $ 585,797 $ 5,757,889 ($4,836,940) $ 1,506,746
Net Loss for the period (395,016) (395,016)
------------ ------------ ------------ ------------ ------------
Balance, April 30, 2000 58,579,738 585,797 5,757,889 (5,231,956) 1,111,730
</TABLE>
Notes:
(1) Based on value of services rendered.
(2) For a description of the Company's development activities,
see Notes 2,7 and 11 in the Company's October 31, 1998 10-KSB.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation:
------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
------------------------------------------------------------------------------------------------------------
April 30, April 30, April 30, April 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues 910 523 1627 902
------------------------------------------------------------------------------------------------------------
Net Loss (422,401) (346,379) (812,482) (736,320)
------------------------------------------------------------------------------------------------------------
Net Loss per share (.01) (.01) (.01) (.01)
------------------------------------------------------------------------------------------------------------
Working Capital (Deficiency) n/a n/a (2,537,627) (392,856)
------------------------------------------------------------------------------------------------------------
Total Assets n/a n/a 3,296,465 3,413,338
------------------------------------------------------------------------------------------------------------
Long-Term Debt n/a n/a 113,479 330,094
------------------------------------------------------------------------------------------------------------
Stockholders' Equity n/a n/a 57,451 2,011,296
------------------------------------------------------------------------------------------------------------
</TABLE>
The Registrant's 90.6% owned subsidiary, Rio Grande, is deemed to be a
"company in the development stage" as that term is defined in Statement of
Accounting Standards No. 7, "Accounting and Reporting by Development Stage
Enterprises". Rio Grande's principal asset is the Shafter-Presidio Silver Mine,
a non-operating silver property located in Presidio County, Texas referred to as
the "Silver Mine" consisting of approximately 3,430 acres of owned and leased
surface and/or mineral rights and an option on approximately 16,000 acres known
as the Option Property which includes the Red Hills Property. See Form 10-KSB
(for the fiscal year ended October 31, 1999) Item 2 "Description of Property -
The Silver Mine". Registrant and Rio Grande incurred substantial expenses in
prior years in connection with the Silver Mine. Management had previously
obtained independent appraisals for the Silver Mine and the Red Hills Property
which indicated that the carrying values of such mineral properties did not
exceed their then net realizable values. Such appraisals are currently being
updated.
Net revenues for the first quarter of 1999 and 1998 represent
miscellaneous items of income, primarily small amounts of royalties from
previous investments in oil and gas working interests and neither Registrant nor
Rio Grande anticipate any revenues from operations in the next fiscal year.
Substantial expenses were incurred during the first two quarters of fiscal 2000,
as well as the first two quarters of fiscal 1999, in connection with the
acquisition and/or evaluation of the Silver Mine. Total operating expenses for
the first two quarters of fiscal 2000 were 98% of those incurred during the same
period of fiscal 1999. This small decrease is primarily due to a reduction in
the drilling activities that took place in the first quarter of fiscal year
1999.
10
<PAGE>
Registrant had approximately $46,155 of cash as of April 30, 2000
compared to $355,035 at October 31, 1999. Monthly operating expenses, including
those required to maintain Rio Grande's properties, are expected to exceed
$100,000 per month, prior to startup of any mining operations or consummation of
a merger, over the next several months. Registrant has no current source of
revenue sufficient to meet these expenses other than its current cash. In
addition, start-up production costs at the mine site will require substantial
additional capital. In order to commence such production, Registrant will need
to raise sufficient additional capital, undertake a joint venture or merge with
an experienced mining operator who has the ability to finance the operations.
In the past, the funding of expenses was dependent upon support from
Coastal LP, Registrant's major shareholder. In the fiscal year 1999, Coastal LP
provided funding to Registrant and Rio Grande totaling over $1,785,000, through
the issuance of notes and advances, and has loaned an additional $834,000 since
the beginning of the current fiscal year. While Registrant has investigated
third party financing, it 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 objective at this time is to consummate a transaction with
a third party, in order to obtain the capital necessary to prepare for the
production of minerals from the Silver Mine and Red Hills Property. At this
time, there can be no assurance that such can be achieved on terms acceptable to
the Registrant.
Cautionary Statement for Purposes of the "Safe Harbor"
------------------------------------------------------
Provisions of the Private Securities Litigation Reform Act of 1995
------------------------------------------------------------------
From time to time the Registrant will make written and oral
forward-looking statements about matters that involve a number of risks and
uncertainties. Such forward-looking statements are based on assumptions that the
Registrant will have adequate financial resources to fund the development of the
Shafter Project, that significant mineral resources exist and can be
economically developed and readily and profitably marketed, and that there will
be no material adverse change in the market for such minerals or in the
Registrant's sources of funding. The foregoing assumptions are based on judgment
with respect to, among other things, information available to the Registrant,
future economic, competitive and market conditions including fluctuations in
mineral prices, unexpected geological conditions, the speculative nature of
mineral exploration and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Registrant's
control. Accordingly, although the Registrant believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized. There are a
number of other risks presented by the Registrant's business and operations
which could cause the Registrant's financial performance to vary markedly from
the results contemplated by the forward-looking statements. Management
decisions, including budgeting, are subjective in many respects and periodic
revisions must be made to reflect actual conditions and business developments,
the impact of which may cause the Registrant to alter its capital investment and
other expenditures, which may also adversely affect the Registrant's results of
operations. In light of significant uncertainties inherent in forward-looking
information included in this Quarterly Report on Form 10-QSB, the inclusion of
such information should not be regarded as a representation by the Registrant or
any other person that the Registrant's objectives or plans will be achieved.
11
<PAGE>
PART II - OTHER INFORMATION
Not Applicable
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
Silver Assets, Inc.
Date: By: /S/ Andrew K. Simpson
------------------ -----------------------------------
Andrew K. Simpson
President and
Chief Executive Officer
Date: /S/ John S. Durkin
------------------ -----------------------------------
John S. Durkin
Chief Financial Officer
12
