<PAGE>
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, 1999 Commission File No.
Silver Assets, Inc. 0-8405
- ------------------------------------------------- -------------------
(Name of small business issuer in its charter)
California 95-2369956
- ------------------------------------------------- ----------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation 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. $2,294.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity as of
February 22, 2000: $626,341
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 22, 2000
----- --------------------------------
Common Stock, $.001 par value 63,040,806
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
1
<PAGE>
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. Silver
Assets, through its 90.6% ownership interest in privately held Rio
Grande Mining Company ("Rio Grande"), owns the Shafter-Presidio Silver
Mine (the "Silver Mine") in Shafter, Texas.
The Silver Mine, which had produced for prior owners 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
Rio Grande, include certain surface 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 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 its mine related activities.
During 1998 and 1999, Silver Assets invested approximately $2.85
million in Rio Grande. There is no assurance that Coastal LP will
continue to fund Silver Assets.
(b) Business Plan
-------------
Silver Assets' mission is to create and realize value on the Silver
Mine, the Red Hills property 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 buyout of royalty interests on the Silver Mine
o permitting, environmental and regulatory compliance activities
preparatory to production
Silver Assets' 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 evaluating potential gold, copper and zinc mineralization at
the option property
o merger, joint venture and /or sale discussions with
prospective mining company partners and buyers
2
<PAGE>
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 Silver
Assets' 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 or
part time mining and environmental consultants and financial advisors.
(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 of 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 in 1994, Rio
Grande acquired ownership of the Tailings Site that contained tailings
from past mining operations at the Silver Mine. In addition, Rio Grande
became a 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.
3
<PAGE>
(h) Risks and Insurance
-------------------
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
merger, joint venture or sale arrangements. 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.
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. At present, the Silver Mine is a closed
mine, containing vertical mining shafts, underground tunnels and holes
to 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 through those shafts, tunnels
and/or 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.
(i) Competition
-----------
Competition in the silver mining industry is dependent upon 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.
4
<PAGE>
(j) Backlog
-------
Backlog is not meaningful to operations.
(k) Executive Officers of the Registrant
------------------------------------
The following persons 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.
Year First Elected or
Name Office and Age Appointed to Office
---- -------------- ---------------------
Andrew K. Simpson President and Chief 1996
Executive Officer, 51
John S. Durkin Chief Financial Officer, 54 1999
Theresa C. Morris Secretary and Assistant 1996
Treasurer, 47
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 to the
remaining 1300 acres, but does not own or lease the mineral rights
thereto. Access to the mine site is afforded from U.S. Highway 67 via
short gravel roads, which are maintained as needed.
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 a possible undeveloped
copper and molybdenum resource located approximately four miles west of
the Silver Mine.
The option on the Option Property was acquired by Rio Grande in 1998.
Its principal terms include:
o 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.
5
<PAGE>
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) Geological and Engineering Studies
----------------------------------
Rio Grande's decision to purchase the Silver Mine was based in large
measure on the data that had been accumulated by the previous owner,
Gold Fields Mining Company ("Gold Fields"), including drilling,
assaying, engineering and mine feasibility studies performed by Gold
Fields 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.
In view of the fact that Registrant and Rio Grande have no current
complete independent 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.
A program designed to obtain certain environmental permits was started
in 1999 and continues.
In 1997, a detailed study was completed on the copper-moly occurrence
at Red Hills, an intrusion four miles west of Shafter. Copies of
previous drill programs by several major companies were obtained and
utilized to prepare a preliminary production flowsheet utilizing the
heap-leach concept followed with a small SX-EW facility to make a
marketable copper product. Since no core was available for leach
testing, a core-sampling program is needed to confirm leachability.
Three high-grade drill holes intersect +100 feet depth of 3 to 9%
copper indicating a resource potential that could justify additional
drilling to determine width and tonnage.
(ii) Mine-Related Activities
-----------------------
The table below highlights mine-related activities between 1995 and
1999:
<TABLE>
<CAPTION>
Activity 1995 1996 1997 1998 1999
-------- ---- ---- ---- ---- ----
<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
6
<PAGE>
Activity 1995 1996 1997 1998 1999
-------- ---- ---- ---- ---- ----
Update title work on key land holdings at Silver Mine x 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
Drilled & sampled shallow mineralization - potential open pit x
Obtain option on mill equipment x
Pincock, Allen & Holt independent resource
study of both old & new resource blocks x
Begin permitting process
x
</TABLE>
Summary of Key Events
- ---------------------
MINIMIZE ENVIRONMENTAL RISKS FROM OLD OPERATIONS
In July, 1995, Rio Grande quitclaimed its Tailings Site to Amax
Exploration, Inc.
During 1995, Rio Grande took steps to conform the mine site to
appropriate safety standards.
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. Further title reviews on additional properties were
begun in late 1999.
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
7
<PAGE>
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 Gold Fields, 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.
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 Hills 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 1/2
of this note has been repaid as of October 31, 1999; the note was
assumed by Silver Assets in exchange for Rio Grande stock.
8
<PAGE>
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 included:
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.
Rio Grande is reviewing the recent Pincock, Allen & Holt studies to
incorporate new resource data in this mine plan.
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.
OBTAIN OPTION ON MILL EQUIPMENT.
In January 1999, Rio Grande obtained an option on certain mill
equipment that Management believes adequate for the milling operations
at the Silver Mine. Such option has been renewed until June, 2000.
9
<PAGE>
BEGIN PERMITTING PROCESS.
Rio Grande began the permitting process for the Silver Mine in 1999.
(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 Hills 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. Pincock,
Allen & Holt were hired in 1999 to evaluate the drilled silver
resource. Management presently believes that the cash extraction cost,
for the high grade core, 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 and appropriate construction and operating permits are
obtained. 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.
(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; two shaft pumps; a 300 h.p. mine compressor and
service house; a small service building with office; a 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. Rio Grande retains a caretaker for the equipment and the
property.
10
<PAGE>
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. However, 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 was
$525,000; $50,000 paid upon execution; $25,000 paid every three months
commencing July 15, 1997 through October 15, 1999; $50,000 payable
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, 1999 was $225,000.
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).
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.
11
<PAGE>
(viii) Other Royalties; Leases
-----------------------
The State of Texas and a private individual retain certain royalty
rights that are in addition to the Amax royalty. The State of Texas
owns the mineral rights to thirty seven acres and is entitled to 6.25%
royalty for minerals mined therefrom. There is a mining lease with a
private party covering 324 acres with a royalty of 6.25%. Also,
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 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 that began 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, and Gold Fields did not 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.
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 approximately 1,380 acres owned by Rio
Grande and approximately 360 acres subject to mining leases. Rio Grande
believes that these properties contain most of the commercially viable
Shafter Silver 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
12
<PAGE>
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, and only one smaller 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.
(xiii) Purchase of Shafter Residence
-----------------------------
In 1995, Rio Grande also acquired a residence near Shafter, Texas for
approximately $65,000. This facility is currently used for interim
office space and will serve as a residence for the mine manager if
mining operations are under taken.
(xiv) Office lease
------------
Registrant utilizes office space in a single-story building containing
approximately 1,500 square feet in the city of Sonoma, California.
These premises serve as Registrant's executive offices and are leased
on a month to month basis 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. Registrant 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. Registrant believes its
rental to be below market. While the Registrant's chief executive
officer has no present intention to change the present arrangement, he
is not obligated to maintain rentals at the present level or to
continue the lease.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a party to any legal proceeding which would have
a material effect upon the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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).
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
1998:
High $0.03 $0.12 $0.06 $0.10
Low $0.01 $0.05 $0.03 $0.02
1999:
High $0.04 $0.04 $0.035 $0.05
Low $0.03 $0.03 $0.03 $0.02
The last reported bid and asked prices for Registrant's Common Stock on
the OTC Bulletin Board on March 22, 2000, were $.04 and $.06,
respectively. The number of holders of record of Registrant's common
stock as of March 22, 2000, was approximately 1161.
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.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
1999 1998
---- ----
Net Revenues $2,294 $2,372
Net Loss $(1,744,175) $(1,505,936)
Net Loss per share $(.03) $(.05)
Working Capital (Deficiency) $(1,645,141) $285,596
Total Assets $3,471,423 3,417,223
Long-Term Debt $113,479 $332,118
Stockholders' Equity $869,933 $2,393,672
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 1999 and 1998 in connection with the
Silver Mine.
Net revenues in 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 have been incurred over the past two years in
connection with the acquisition and/or evaluation of the Silver Mine.
Legal expenses were $113,230 and $130,441 for 1999 and 1998,
respectively.
Consulting fees were $1,047,738 and $558,531 for 1999 and 1998,
respectively. Consulting fees in both 1999 and 1998 were primarily for
economic and engineering services regarding the Silver Mine or the
permitting thereof. The substantial increase from 1998 to 1999 is
attributable to the increased activity in Registrant's efforts to begin
mining operations or to sell the property, especially as they related
to obtaining operating permits.
Accounting and auditing expense was $50,631 and $75,053 in 1999 and
1998, respectively. Such expenses were incurred for auditing and record
keeping services for the Registrant and Rio Grande.
Other general and administrative expenses totaled $366,038 and $233,371
for 1999 and 1998, respectively. Registrant, in April 1998, agreed to
exercise its option to lease the surface rights to the Red Hills
Property and certain contiguous land. In connection therewith,
Registrant incurred $58,014 of lease expense in 1998 and $43,954 in
1999. 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.
15
<PAGE>
Registrant had approximately $355,000 of cash as of October 31, 1999.
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 1999 and 1998, the funding of expenses was dependent upon
support from Coastal LP, Registrant's major shareholder. In 1999 and
1998, Coastal LP provided funding to Registrant and Rio Grande totaling
over $1,785,460 and $1,866,720, respectively, through the issuance of
notes and advances. The advances made in 1998 were refinanced with the
issuance of common stock by the 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, 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
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.
16
<PAGE>
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 21.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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:
<TABLE>
<CAPTION>
Principal Occupation for Past 5 Years,
Name of Director Certain Other Directorships & Age Director Since
- ---------------- --------------------------------- --------------
<S> <C> <C>
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; 51
Theresa C. Morris Director; commodities trading and fund 1996
management; Director, Coastal Capital,
Inc.; Director, Rio Grande Mining
Company; 47
David C. Fraser Director; self-employed management 1996
consultant; Retired Director, Texas State
Optical; 57
Edward T. Dunne Director; commodities trading and fund 1998
management; 56
</TABLE>
17
<PAGE>
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 Registrant's fiscal year ended
October 31, 1999, based solely upon copies of reports on form 4
delivered to the Registrant, the Registrant was not advised that any
required filings were not made.
The officers are elected annually and serve at the discretion of the
Board of Directors. There are no family relationships among any of the
officers or directors. During the fiscal year ended October 31,1999,
while the Board of Directors held numerous meetings, they took board
action by unanimous written consent on four occasions.
The Board does not presently have an audit committee.
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, 1999, 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.
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- ------- ----- ------------
<S> <C> <C> <C> <C>
Andrew K. Simpson 1999 $ 84,000 (1) -
Chairman of the Board and 1998 $ 102,900 (1) -
Chief Executive Officer(1)
</TABLE>
-----------
(1) Includes $27,972 in 1999 and $68,616 in 1998 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 1998, Registrant and Rio Grande paid Andrew K. Simpson
$10,400 per month to serve as chief executive officer and president of
both entities until May 1, 1998. Effective May 1, 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. Mr. Simpson separately engages in other business activities
for his own account and is lessee of the Sonoma offices where
Registrant and Rio Grande Mining Company conduct their principal
administrative activities.
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.
18
<PAGE>
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.
Information Concerning Stock Options
------------------------------------
As of October 31, 1999, 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 October 31,1999, 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 well as the following directors and executive
officers:
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Owner Beneficial Ownership (1) Percent of Class
---------------- ------------------------ ----------------
<S> <C> <C>
Coastal Capital Partners, LP 60,513,993(2) 82.85%
101 Morgan Lane Suite180
Plainsboro, NJ 08536
Andrew K. Simpson 60,513,993(2)(3) 82.85%
P. O. Box 199
Sonoma, CA 95476
All Officers and Directors 60,513,993(2)(3) 82.85%
as a group (four persons)
</TABLE>
(1) Subject to applicable community property statutes, 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.
19
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
1. Coastal LP
----------
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).
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.
2. 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
-----------------------------------------------------------
(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 year ended October 31, 1990. Incorporated by
Reference.
(10) 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.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
20
<PAGE>
SILVER ASSETS, INC.
AND SUBSIDIARIES
Financial Statements
October 31, 1999 and 1998
<PAGE>
SILVER ASSETS, INC.
AND SUBSIDIARIES
Table of Contents
REPORT OF INDEPENDENT ACCOUNTANTS.............................................1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets..............................................3
Consolidated Statements of Operations....................................4
Consolidated Statements of Stockholders' Equity..........................5
Consolidated Statements of Cash Flows....................................6
NOTES TO FINANCIAL STATEMENTS.................................................7
<PAGE>
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, 1999 and 1998, 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, 1999 and 1998, 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 12, 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.
1
<PAGE>
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 12. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/S/ STARR AND WALTERS
ACCOUNTANCY CORPORATION
Santa Ana, California
January 27, 2000
2
<PAGE>
<TABLE>
Silver Assets, Inc. and Subsidiaries
Consolidated Balance Sheets
October 31, 1999 and 1998
Assets
1999 1998
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 355,035 $ 550,915
Accounts receivable 479 1,463
Due from affiliate 0 15,753
Prepaid expenses 41,197 43,080
Non-refundable option payment 244,000 0
---------------- ----------------
Total Current Assets 640,711 611,211
---------------- ----------------
Property and Equipment:
Real estate 63,861 63,861
Mineral properties 2,052,807 2,052,807
Equipment 661,336 661,336
Furniture and fixtures, net 0 145
---------------- ----------------
Net Property and Equipment 2,778,004 2,778,149
---------------- ----------------
Other Assets:
Investment in land 25,500 25,500
Organization costs 0 2,363
---------------- ----------------
Total Other Assets 25,500 27,863
---------------- ----------------
Total Assets $ 3,444,215 $ 3,417,223
================ ================
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt $ 247,531 $ 113,328
Accounts payable 147,254 35,845
Accrued expenses 39,105 146,442
Payable to affiliate 1,851,962 0
Note payable 0 30,000
---------------- ----------------
Total Current Liabilities 2,285,852 325,615
Long-term debt, net of current portion 113,479 332,118
---------------- ----------------
Total Liabilities 2,399,331 657,733
---------------- ----------------
Minority interest in consolidated subsidiary 174,951 365,818
Stockholders' Equity:
Common stock, $0.001 par value, 100,000,000 shares
authorized; 63,040,806 and 55,692,944 shares
issued and outstanding in 1999 and 1998 63,041 55,693
Additional paid-in capital 22,607,307 22,394,219
Accumulated deficit (21,800,415) (20,056,240)
---------------- ----------------
Total Stockholders' Equity 869,933 2,393,672
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 3,444,215 $ 3,417,223
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
Silver Assets, Inc. and Subsidiaries
Consolidated Statement of Operations
For the Years ended October 31, 1999 and 1998
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenue $ 2,294 $ 2,372
-------------- --------------
Costs and Expenses:
Salaries and benefits 257,040 180,565
Consulting fees 1,047,738 558,531
Legal expense 113,230 130,441
Accounting and auditing 50,631 75,053
Depreciation and amortization 2,508 2,116
Other general and administrative expenses 375,102 346,610
-------------- --------------
Total Costs and Expenses 1,846,249 1,293,316
-------------- --------------
Loss from Operations (1,843,955) (1,290,944)
Other Income (Expense):
Interest income 44,555 93,041
Interest expense (136,024) (189,959)
Settlement expense 0 (104,330)
Other 1,182 8,553
-------------- --------------
Total Other Income (Expense) (90,287) (192,695)
-------------- --------------
Loss from Operations before Income
Taxes and Minority Interests (1,934,242) (1,483,639)
Provision for Income Taxes (800) (1,772)
Minority Interests in Losses of Subsidiary 190,867 (20,525)
-------------- --------------
Net Loss $ (1,744,175) $ (1,505,936)
============== ==============
Net Loss per Common Share $ (0.03) $ (0.05)
============== ==============
Weighted average common shares outstanding 59,182,290 31,273,421
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
Silver Assets, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Years ended October 31, 1999 and 1998
<CAPTION>
Common Stock
----------------------------- Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
-------------- -------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1997, as previously reported 29,053,464 $ 2,905,347 $ 16,534,222 $ (18,508,164) $ 931,405
Minority interest calculation 0 0 0 (42,140) (42,140)
Balance, October 31, 1997, as restated (see Note 12) 29,053,464 2,905,347 16,534,222 (18,550,304) 889,265
Reduction of par value 0 (2,876,293) 2,876,293 0 0
Purchase of stock warrant 0 0 80,000 0 80,000
Exchange stock for debt 26,639,480 26,639 2,903,704 0 2,930,343
Net loss for the year, as restated 0 0 0 (1,505,936) (1,505,936)
-------------- -------------- ----------------- --------------- ---------------
Balance, October 31, 1998, as restated (see Note 12) 55,692,944 55,693 22,394,219 (20,056,240) 2,393,672
Settlement of litigation 1,711,000 1,711 49,619 0 51,330
Employee stock grants 2,946,136 2,946 85,438 0 88,384
Mine equipment option 800,000 800 23,200 0 24,000
Stock exchange offer 1,890,726 1,891 54,831 0 56,722
Net loss for the year 0 0 0 (1,744,175) (1,744,175)
-------------- -------------- ----------------- --------------- ---------------
Balance, October 31, 1999 63,040,806 $ 63,041 $ 22,607,307 $ (21,800,415) $ 869,933
============== ============== ================= =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
Silver Assets, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
For the Years ended October 31, 1999 and 1998
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (1,744,175) $ (1,505,936)
Adjustments to reconcile net loss to net cash
from operations:
Depreciation and amortization 2,508 2,116
Minority interest in consolidated subsidiary (190,867) 20,525
Non-cash compensation expense 88,384 0
(Increase) decrease in accounts receivable 984 (1,369)
(Increase) decrease in other current assets 1,883 (19,836)
(Increase) decrease in accounts payable 111,409 (3,921)
Increase (decrease) in accrued expenses (29,285) 119,025
---------------- ----------------
Net Cash Used by Operating Activities (1,759,159) (1,389,396)
---------------- ----------------
Cash Flows from Investing Activities:
Additions to mineral properties 0 (31,489)
Non-refundable Option Payment (220,000) 0
---------------- ----------------
Net Cash Used by Investing Activities (220,000) (31,489)
---------------- ----------------
Cash Flows from Financing Activities:
Borrowings from affiliate, net 1,867,715 1,988,789
Contribution to capital for warrants 0 80,000
Principal payments on long-term debt (84,436) (117,265)
---------------- ----------------
Net Cash Provided by Financing Activities 1,783,279 1,951,524
---------------- ----------------
Increase (decrease) in Cash and Cash Equivalents (195,880) 530,639
Cash and Cash Equivalents, Beginning of Year 550,915 20,276
---------------- ----------------
Cash and Cash Equivalents, End of Year $ 355,035 $ 550,915
================ ================
</TABLE>
Supplemental Disclosures:
Non-cash investing and financing activities:
In April 1999 and September 1999, Silver issued common shares totaling
800,000 in connection with an option to purchase mining equipment.
Option payments were $220,000 cash and $24,000 stock.
In June 1999, Rio issued shares of its common stock in satisfaction of
a note payable of $30,000 plus accrued interest of $14,350.
In August 1999, Silver issued 1,890,726 shares of common stock to
acquire additional shares of Rio, its consolidated subsidiary.
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.
Cash paid for interest and taxes is as follows: 1999 1998
---- ----
Interest $ 63,262 $ 38,697
Taxes 800 1,776
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 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 90.56% 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, 1999. 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 14 - 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.
Cash and Cash Equivalents
- -------------------------
For purposes of reporting cash flows, cash and cash equivalents include checking
accounts and money market account deposits.
7
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued):
- ----------------------------------------------------------------
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.
Reclassifications
- -----------------
Certain reclassficiations have been made to the prior period's financial
statements in order for them to conform to the classifications used for the
current year.
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.
8
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued):
- ----------------------------------------------------------------
Earnings (Loss) per Share
- -------------------------
The computations of loss per share are based on the weighted average number of
outstanding shares during the periods presented. Outstanding warrants have not
been included because their effect would be anti- dilutive.
Comprehensive Income
- --------------------
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements and is effective for fiscal years
beginning after December 15, 1997. SFAS 130 had no effect on the Company's
financial statements as it had no comprehensive income components.
Segment Information
- -------------------
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information about
segments of their business in their annual financial statements and requires
them to report select segment information in their quarterly reports issued to
stockholders. SFAS 131 had no effect on the Company's financial statements as it
had no reportable segments.
Note 2 - Property and Equipment:
- --------------------------------
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. Mining extraction has not commenced at this time.
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). Funding for the initial
payment of $50,000 was advanced by Coastal LP, Registrant's controlling
shareholder. 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
will occur after certain aggregate principal payments have been made during the
term of the agreement.
9
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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.
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.
10
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3 - Related Party Transactions (continued):
- ------------------------------------------------
Exchange Transactions
- ---------------------
Silver Assets has acquired additional shares of Rio's common stock as follows:
In May 1998, Rio issued 6,253,001 of its common shares 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 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 to Silver
Assets as payment for advances and accrued interest from Silver Assets.
In April 1999, Rio issued 2,027,500 of its common shares to Silver
Assets as payment for compensation of key people.
In April 1999, Rio issued 1,447,769 of its common shares to Silver
Assets as part of the legal settlement agreed to in January 1999 (see
Note 10).
In April 1999 and September 1999, Rio issued a total of 676,924 of its
common shares to Silver Assets in connection with the option to
purchase mining equipment (see Note 4).
In August 1999, Silver acquired 1,303,946 of previously issued Rio
shares from minority shareholders in exchange for Silver shares.
Due from/Payable to Affiliate
- -----------------------------
The Company obtains working capital from advances made by its majority
shareholder, Coastal Capital Partners, LP. In addition, certain expenses are
allocated among the Company, Rio and Coastal. As a result, amounts payable to
affiliate at October 31, 1999 were $1,851,962. Amounts due from affiliate at
October 31, 1998 were $15,753.
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 in 1995
(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.
11
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Non-refundable Option Payment:
- ---------------------------------------
Rio has entered into an option agreement to purchase certain milling equipment
and facilities located at Silver Peak, Esmeralda County, Nevada. A total of
$244,000 for this option as of October 31, 1999, comprised of cash of $220,000
and 800,000 of the Company's common shares. Under the terms of the agreement,
Rio extended this option until June 14, 2000 for an additional payment of
$150,000 in December 1999. If Rio chooses to terminate this option, all funds
previously paid are non-refundable. If Rio chooses to exercise its option to
purchase, an additional payment of $1,300,000 is due, over and above previously
mentioned option payments.
Note 5 - Note Payable:
- ----------------------
Rio held a $30,000 note payable bearing interest at 8% issued in July 1994 to
one of its former minority shareholders. The note was originally due in January
1995. In June, 1999, the Company repaid the note plus accrued interest through
the issuance of Rio common shares. These shares were subsequently exchanged for
shares of the Company's common stock (see Note 3).
Note 6 - Long-term Debt:
- ------------------------
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
Silver Assets
- -------------
<S> <C> <C>
Amount payable to a former officer in annual amounts
over twenty years, discounted at 7.3%;
final payment in 2012. $ 92,767 $ 71,283
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. 225,000 325,000
Mortgage payable to a bank; 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. 43,243 46,667
Loan payable to bank; due in equal monthly
payments of $635 including interest at 9.75%;
due in February 1999. - 2,496
---------- ----------
361,010 445,446
Less: Current portion 247,531 113,328
---------- ----------
Long-term Portion of Notes Payable $ 113,479 $ 332,118
========== ==========
</TABLE>
12
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Long-term Debt (continued):
- ------------------------------------
Future maturities of these obligations are as follows:
Year Ending
October 31
-----------
2000 $247,531
2001 12,618
2002 12,423
2003 12,311
2004 12,284
Thereafter 63,843
---------
$361,010
=========
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
with respect to such surface and mineral rights amounted to $53,288 and $66,975
in 1999 and 1998, respectively.
The Company rents its administrative office from a related party on a
month-to-month basis. 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 $10,811 and $10,166 in 1999 and 1998,
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.
13
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7 - Contingencies (continued):
- -----------------------------------
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.
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.
Note 8 - Stockholders' Equity:
- ------------------------------
The Company issued warrants to Coastal, its controlling shareholder, to purchase
a total of 10,000,000 shares of its common stock at $0.15 per share through
September 22, 2001 in exchange for payment of $80,000.
In addition, certain former officers and directors of the Company hold warrants
to purchase an aggregate of 700,000 common shares at exercise prices of $0.18 to
$0.20 per share.
Note 9 - Earnings (Loss) Per Share:
- -----------------------------------
<TABLE>
Basic and diluted loss per common share is computed as follows:
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Numerator for basic and diluted earnings (loss) per
common share: Net Loss $ (1,744,175) $ (1,505,936)
============= =============
Denominator for basis and diluted earnings (loss) per common
share: Weighted Average Common Shares Outstanding 59,182,290 31,273,421
============= =============
Basis and diluted net loss per common share $ (0 03) $ (0 01)
============= =============
</TABLE>
Note 10 - Settlement Expense:
- -----------------------------
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 paid cash of
$53,000 and the Company issued 1,711,000 shares of its common stock to the
individual. Rio issued 1,447,769 of its common stock to the Company.
14
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Income Taxes:
- -----------------------
The provision for income taxes is as follows:
1999 1998
-------------- --------------
Current:
Federal $ - $ -
State 800 800
-------------- --------------
800 800
-------------- --------------
Deferred (Benefit):
Federal (657,914) (504,972)
State (149,647) (104,687)
-------------- --------------
(807,561) (609,659)
-------------- --------------
Increase in valuation allowance 807,561 609,659
-------------- --------------
$ 800 $ 800
============== ==============
Deferred income taxes for the years ended October 31, 1999 and 1998 reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes.
The sources of the temporary differences and their effect on the net deferred
tax asset is as follows:
1999 1998
-------------- --------------
Net operating loss carryforward $ 186,103 $ 231,264
Section 197 capitalized costs 621,458 378,395
Valuation allowance (807,561) (609,659)
-------------- --------------
$ - $ -
============== ==============
Subsequent to October 11, 1996, the company has net operating losses which
expire as follows:
Expires Federal State
---------------- -------------- --------------
2012 $ 365,163 $ 182,582
2013 601,936 300,968
2014 484,392 242,196
-------------- --------------
$ 1,451,491 $ 725,746
============== ==============
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 2000
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 generated prior to
October 11, 1996 is likely to be significantly limited.
15
<PAGE>
Silver Assets, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Restatement of Minority Interest in Consolidated Subsidiary and
- -------------------------------------------------------------------------
Minority Interests in Losses of Subsidiary:
- -------------------------------------------
The Company has restated its financial statements for a calculation error in the
minority interest as presented on the balance sheet at October 31, 1998. An
adjustment has been made to shareholders' equity as of the beginning of the
earliest period presented. An adjustment has been made to the minority interests
in losses of subsidiary and thus, net loss for the year ended October 31, 1998.
The effect of these adjustments on the Company's financial results as originally
reported is summarized as follows:
As Reported As Restated
----------- -----------
Net Loss $(1,332,386) $(1,505,936)
============ ============
Net Loss per Common Share $ (0.04) $ (0.05)
============ ============
Note 13 - 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 3, the Company has received significant funding from
Coastal, its controlling shareholder, primarily in the form of loans and equity
investments. Management anticipates Coastal will convert some or all of these
notes in the future. Coastal is reviewing other means of financing the Company;
however, no definitive plan has yet been made for this financing.
16
<PAGE>
Silver Asset, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 14 - COMPANY IN THE DEVELOPMENT STAGE:
- -------------------------------------------
The following supplementary information is presented for Rio Grande Mining
Company from inception on September 28, 1992 through October 31, 1999:
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Additional during the
--------------- -------------------------- 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
(continued on page 18)
17
<PAGE>
Silver Assets, Inc. and Subsidiaries
Note 14 - COMPANY IN THE DEVELOPMENT STAGE (continued):
- -------------------------------------------------------
Deficit
Accumulated
Preferred Stock Common Stock Additional during the
--------------- -------------------------- Paid in Development
Shares Amount Shares Amount Capital Stage Total
------ ------ ------------ ------------ ------------ ------------ ------------
Subtotal from page 17 0 $ 0 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
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 0 0 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 expense - - 1,447,769 14,478 36,852 - 51,330
Purchase of option - - 676,922 6,796 17,231 - 24,000
Convert shareholder note
and accrued interest - - 392,478 3,925 40,425 - 44,350
Net loss for the period - - - - - (1,519,304) (1,519,304)
------ ------ ------------ ------------ ------------ ------------ ------------
Balance, October 31, 1999 0 $ 0 58,579,738 $ 585,797 $ 5,757,889 $(4,490,396) $ 1,853,290
====== ====== ============ ============ ============ ============ ============
</TABLE>
(1) Based on value of services rendered.
(2) For a description of the Company's development
activities, See Notes 2, 7 and 12.
* Net of $45,000 in transaction fees.
18
<PAGE>
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.
April 11, 2000 By: /S/ Andrew K. Simpson
----------------------------------------
Andrew K. Simpson, President
April 11, 2000 By: /S/ John S. Durkin
----------------------------------------
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 11, 2000
- ----------------------------
Andrew K. Simpson
/S/ Theresa C. Morris Director, April 11, 2000
- ----------------------------
Theresa C. Morris
/S/ Edward T. Dunne Director, April 11, 2000
- ----------------------------
Edward T. Dunne
/S/ David C. Fraser Director, April 11, 2000
- ----------------------------
David C. Fraser
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 355,035
<SECURITIES> 0
<RECEIVABLES> 479
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 640,711
<PP&E> 2,778,004
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,444,215
<CURRENT-LIABILITIES> 2,285,852
<BONDS> 0
0
0
<COMMON> 63,041
<OTHER-SE> 806,892
<TOTAL-LIABILITY-AND-EQUITY> 3,444,215
<SALES> 2,294
<TOTAL-REVENUES> 2,294
<CGS> 0
<TOTAL-COSTS> 1,846,249
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,024
<INCOME-PRETAX> (1,934,242)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,744,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,744,175)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
