UNITED STATES
SECURITIES ANT) EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period eluded September 30, 2001
WALLACE SILVER INC,
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)
Idaho 82-0291029
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(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
13707 East 23"1t Court, Spokane, WA 99216-2801
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(Adress of principal executive offices) (Zip Code)
Issuer's telephone number (509) 928-5869
Securities registered under Section 12(g) of the Act:
Common stock, par value $0.05 per share
- --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES XX NO
--- ---
The number of outstanding shares of the registrant's common stock at September
30, 2001 was 3,168,066.
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item S. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
PART I
Item 1.
Financial Statements
The reviewed financial statements of the Company for the periods covered by
this report are included elsewhere in this report, beginning at page F/S - 1.
The reviewed financial statements have been prepared by the Company in
accordance with generally accepted accounting principles for interim financial
information with the instructions to form IO-QSB and Item 310(b) of Regulation
S-B. A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objectives of which is the expression of an opinion regarding the financial
statements taken as a whole. In the opinion of the Company's management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six month period
ended September 30, 2001 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 2001.
2
WALLACE SILVER INC.
(a development stage company)
Financial Statements
Nine-Month Periods Ended September 30, 2001 and 2000
and Cumulative from Inception (August 26, 1968)
through September 30, 2001
3
WALLACE SILVER INC.
(a development stage company)
Nine-Month Periods Ended September 30, 2001 and 2000
and Cumulative from Inception (August 26, 1968)
through September 30, 2001
Contents
Independent Accountant's Review Report 5
Financial Statements:
Balance Sheet 6
Statements of Loss 7
Statements of Cash Flows 8
Statements of Stockholders' Equity 9
Summary of Accounting Policies 10-11
Notes to Financial Statements 12-13
4
Independent Accountant's Review Report
Board of Directors
Wallace Silver Inc.
Spokane, Washington
I have reviewed the accompanying balance sheets of Wallace Silver Inc. (a
development stage company) as of September 30, 2001, and the statements of loss,
cash flows, and stockholders' equity for the nine-month periods ended September
30, 2001 and 2000, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Wallace Silver, Inc.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, I do not express such an opinion.
Based on my reviews, I am not aware of any material modifications that should be
made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in acquiring and holding ownership in subsurface mineral
rights, and has not experienced any significant business activity since 1989,
The Company has never shown profits from operations, has $1.17,782 in cumulative
losses since its inception, and has limited working capital at September 30,
2001. These factors raise: substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are described in Note
5. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
/s/ Dan R. Harman, C.P.A., P.S.
- -------------------------------
Dan R. Harman, C.P.A., P.S.
Spolcane, Washington
October 9, 2001
5
WALLACE SILVER INC.
(a development stage company)
Balance Sheet
September 30, 2001
Assets
------
Current asset, cash and cash equivalents $ 682
Office equipment, at cost less $250 accumulated depreciation --
Other assets, mining claims and capitalized promotional,
exploration and development costs (Notes 1 and 2) 100
---------
Total assets $ 782
=========
Liabilities and Stockholders' Deficit
-------------------------------------
Liabilities:
Notes payable to stockholders (Note 4) $ 19,000
Accrued interest due stockholders (Note 4) 930
---------
Total liabilities 19,930
---------
Commitments and contingencies (Notes 3 and 5)
Stockholders' Deficit:
Common stock -- $.05 par; 5,000,000 shares authorized,
3,168,066 shares issued and outstanding (Note 1) 158,403
Adjustment for stock sold for less than par value (Note 1) (59,769)
Deficit accumulated during the development stage (117,782)
---------
Total stockholders' deficit (19,148)
---------
Total liabilities and stockholders' equity $ 782
=========
See accompanying summary of accounting polities, notes lo financial statements
and independent accountant 's review report.
6
WALLACE SILVER INC.
(a development stage company)
Statements of Loss
Cumulative
Nine-Month Nine-Month from Inception
Period Period (August 26,
Ended Ended 1968) through
Sept. 30, Sept. 30, Sept. 30, 2001
2001 2000 ("Unaudited")
--------- --------- --------------
Revenues:
Interest $ 24 $ 312 $ 5,623
Other income 0 0 595
--------- --------- ---------
Total revenues 24 312 6,218
--------- --------- ---------
Expenses:
Write down for impairment of long-
lived assets (Note 2) 0 0 48,918
Legal fees 9,068 5,243 37,889
Accounting fees 7,655 8,956 21,367
Office expenses 2,954 149 3,909
Licenses and fees 2,519 72 3,958
Supplies 0 0 2,215
Salaries 0 0 989
Insurance 0 0 893
Travel 0 0 882
Interest 930 0 1,050
Rent 0 0 500
Advertising 100 0 514
State taxes 10 0 394
Depreciation 0 0 250
Miscellaneous 0 0 107
Printing 0 0 95
Meals and entertainment 0 0 70
--------- --------- ---------
Total expenses 23,236 14,420 124,000
--------- --------- ---------
Net income / (loss) $ (23,212) $ (14,108) $(117,782)
========= ========= =========
Basic earnings / (loss) per share $ (.01) $ (.00) $ (.06)
========= ========= =========
See accompanying summary of accounting policies, notes to financial statements
arid independent accountant s review report.
7
WALLACE SILVER INC.
(a development stage company)
Statements of Gash Flows
Cumulative
Nine-Month Nine-Month from Inception
Period Period (August 26,
Increase / (Decrease) in Cash Ended Ended 1968) through
Sept. 30, Sept. 30, Sept. 30, 2001
2001 2000 ("Unaudited")
--------- --------- --------------
Operating activities:
Net loss $ (23,212) $ (14,108) $(117,782)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 0 0 250
Write-off of mining properties and
exploration costs 0 0 48,918
Accrued interest due stockholders 930 0 930
--------- --------- ---------
Net cash used in operating activities (22,282) (14,108) (67,684)
--------- --------- ---------
Investing activities:
Purchases of capital assets 0 0 (49,268)
--------- --------- ---------
Financing activities:
Sale of common stock 0 0 98,634
Loans from stockholders 19,000 0 19,000
--------- --------- ---------
Net cash provided by financing activities 19,000 0 117,634
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (3,282) (14,108) 682
Cash and cash equivalents, beginning of
the period 3,964 18,838 0
--------- --------- ---------
Cash and cash equivalents, end of the
period $ 682 $ 4,730 $ 682
========= ========= =========
Supplemental cash flow information:
Cash paid during the period for interest $ 0 $ 0 $ 121
Noncash investing and financing activity:
Acquisition of fixed assets using stock $ 0 $ 0 $ 49,018
Write-off of impaired assets $ 0 $ 0 $ (48,918)
See accompanying summary of accounting policies, notes to financial statements
and independent accountant's review report.
8
WALLACE SILVER INC.
development stage company)
Statement of Stockholders' Equity / (Deficit)
Inception (August 26, 1968) through September 30, 2001
Adjustment Deficit accum. Total
Number of for stock sold during the stockholder's
shares Common for less than development equity
outstanding stock par value stage (deficit)
----------- ----------- -------------- -------------- -------------
Inception (August 26, 1968)
through December 31, 1998:
Stock issued for mineral rights
at $,05 per share (Note 1) 192,559 $ 9,627 $ -- $ -- $ 9,627
Inception (August 26, 1968)
through December 31, 1998:
Stock issued for cash , legal
fees, and other expenses 1,075,507 53,776 (15,769) -- 38,007
December 8, 1987: Stock
issued to the City of Wallace,
Idaho for mining lease at $.05
per share (Note 1) 100,000 5,000 -- -- 5,000
Inception (August 26, 1968)
through December 31, 1998:
Stock issued for promotional,
exploration and development
costs 700,000 35,000 -- -- 35,000
Cumulative losses from
inception (August 26, 1968)
through December 31, 1997 -- -- -- (77,966) (77,966)
----------- ----------- ----------- ----------- -----------
Balances at December 31,
1998 ("Unaudited") 2,068,066 103,403 (15,769) (77,966) 9,668
November 4, 1999 -Stock
issued for cash at $,0l per share 1,100,000 55,000 (44,000) -- 11,000
Net loss for the year ended
December 31, 1999 -- -- -- (1,730) (1,730)
----------- ----------- ----------- ----------- -----------
Balances at December
31, 1999 3,168,066 158,403 (59,769) (79,696) 18,938
Net loss for the year ended
December 31, 2000 -- -- -- (14,874) (14,874)
----------- ----------- ----------- ----------- -----------
Balances at December
31, 2000 3,168,066 158,403 (59,769) (94,570) 4,064
Net loss for the nine-month
period ended September 30, 2001 -- -- -- (23,212) (23,212)
----------- ----------- ----------- ----------- -----------
Balances at September 30, 2001 3,168,066 $ 158,403 $ (59,769) $ (117,782) $ (19,148)
=========== =========== =========== =========== ===========
See accompanying summary of accounting policies, notes to financial statements
and independent accountant's review report.
9
WALLACE SILVER INC.
(a development stage company)
Summary of Accounting Policies
Nine-Month Periods Ended September 30, 2001 and 2000
and Cumulative from Inception (August 26,1968)
through September 30, 2001
The Company as a Development Stage Company:
- -------------------------------------------
Wallace Silver Inc. ("the Company") was incorporated according to the laws of
the State of Idaho on August 26, 1968. The Company, currently located in
Spokane, Washington, was originally incorporated for the primary purpose of
acquiring and holding the ownership of subsurface mineral rights and the. right
to extract and mine ores and minerals beneath the surface of the incorporated
City of Wallace in Shoshonc County, Idaho, and underneath adjoining or adjacent
parcels of land in either public or private ownership.
Throughout its history, the Company's activities have been limited to
promotional, exploration, development and capital raising activities. No actual
operations have taken place. The Company is, therefore, a development stage,
company, as defined by Statement of Financial Accounting Standards ("SFAS") No.
7.
Cash Equivalents
- ----------------
For purposes of balance sheet classification and the statements of cash flows,
the Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Equipment:
- ----------
The Company's only equipment is office furniture, which is fully depreciated as
of September 30, 2001.
Carrying Value of Other Assets:
- -------------------------------
In accordance with SEAS No. 121, costs associated with the acquisition of mining
claims and related promotional, exploration and development activities were
deemed to have been permanently impaired and nonrecoverable prior to January 1,
1998, and were therefore written off as of December 31, 1997.
Comprehensive Income:
- ---------------------
The Company has no items of comprehensive income other than those reported on
the statement of operations.
Taxes
- -----
The Company has no income tax liability or expense for any year from inception
(August 26, 1968) through September 30, 2001 due to tax losses generated or
carried forward from prior years, As of December 31, 2400, the Company has tax
net operating loss carryforwards aggregating $78,495, which expire through the
year 2020. A valuation allowance has been recorded for the full value of the
deferred tax asset for loss carryforwards since realization in future years is
uncertain. Tie valuation allowance increased by $713 in 2000 due to the net loss
of $14,874 for the year, less $14,161 in expiring loss carryforwards.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
(he reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
See accompanying independent accountant's review report and notes to financial
statements.
10
WALLACE SILVER INC.
(a development stage company)
Summary of Accounting Policies
Nine-Month Periods Ended September 30, 2001 arid 2000
and Cumulative from Inception (August 26, 1968)
through September 30, 2001
Earnings / (Loss) Per Share
- ---------------------------
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS") that established
standards for the computation, presentation and disclosure of earnings per
share, replacing the presentation of Primary EPS with a presentation of Basic
EPS. It also requires dual presentation of Basic FPS and Diluted EPS of the face
of the income statement for entities with complex capital structures. Basic FPS
is based on the weighted average number of common shares outstanding during the
period presented, which aggregated 3,1.68,066 for the quarters ended September
30, 2001 and 2000, and 1,853,280 for the cumulative period from inception
(August 26, 1968) through September 30, 2001. The Company did not present
Diluted EPS, since the result was either immaterial or anti-dilutive.
See accompanying independent accountant's review report and notes to financial
statements.
11
WALLACE SILVER INC.
(a development stage company)
Notes to Financial Statements
Nine-Month Periods Ended September 30, 2001 and 2000
and Cumulative from Inception (August 26, 1968)
through September 30, 2001
Note 1 - Transactions with Stockholders:
- ----------------------------------------
In 1969 and again in 1984 the Company made offerings of its common stock
pursuant to the Regulation t1 exemption to the Registration requirements of the
Securities Act of 1933. During 1968-1987 the Company acquired ownership of
subsurface mineral rights from property owners within the Wallace, Idaho city
limits and surrounding area, and from the City of Wallace, Idaho, through the
issuance of 292,559 shares of common stock on the basis of one share of stock
for each 25 square feet of property owned, at a price of $.05 per share, for
total costs of $14,628.
In addition to the issuance of stock for subsurface mineral rights the Company
gave the landowners options to acquire additional shares for $.05 per share.
During the period from inception (August 26, 1968) through December 31, 1998,
1,775,507 shares of common stock were issued for cash, promotional, exploration,
development, legal and other expenses totaling $73,006.
On November 4, 1999, 1,100,000 shares of common stock were sold to three
individuals for $11,000 cash ($.O1 per share). Two of these three persons are
now members of the Board of Directors, one of which serves as the President and
Chairman of the Board of the Company.
Note 2 - Impairment of Long-lived Assets:
- -----------------------------------------
Costs associated with the acquisition of mining claims and related promotional,
exploration and development activities, which aggregated $49,018, were deemed to
have been permanently impaired and nonrecoverable prior to January 1, 1998, and
were therefore written off as of December 31, 1997, except for a minimal
carrying amount of $100 relating to the acquisition costs of the mining claims.
Note 3 - Commitment and Contingency
- -----------------------------------
In order to acquire the mineral rights on property owned by the City of Wallace,
Idaho, on December 8, 1987, the Company issued 100,000 shares of common stock to
the City of Wallace in exchange for a 25year mining lease which granted the
Company the exclusive right and privilege to mine for and extract any and all
minerals which may underlie the surface of the real property within the exterior
geographical boundaries of the City of Wallace, Idaho. This lease is renewable
for an additional 25 years if the Company is and has been pursuing efforts to
interest a third party to explore and develop the property, taking into account
economic conditions existing and the condition of the mining industry in
general, including the market price of precious metals. In addition to the stock
which was issued, the City of Wallace retained a 30% interest in any and all
gross payments received under any lease or other mining agreement pertaining to
any production, exploration, development, or rights of access for any of the
property. As of September 30, 2001, no such payments had been made or were owed
in connection with this agreement.
See accompanying independent accountant's review report.
12
WALLACE SILVER INC.
(a development stage company)
Notes to Financial Statements
Nine-Month Periods Ended September 30, 2001 and 2000
and Cumulative from Inception (August 26,1968)
through September 30, 2001
Note 4 - Related Party Loans
- ----------------------------
On January 5, 2001, the Company borrowed $10,000 from two related parties to
finance the continued efforts to make the Company a fully-reporting SEC entity.
Both individuals are stockholders, and one is also an officer and director of
the Company. The borrowings are unsecured, due on demand, and bear interest at
8% per annum. On February 12, 2001., the Company borrowed an additional $5,000
from the same two related parties on the same terms. On May 3, 2001, the Company
borrowed an additional $2,000 from the same two related parties on the same
terms. On July 31, 2001, the Company borrowed an additional $2,000 from the same
two related parties on the same terms.
Note 5 -- Going Concern
- -----------------------
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development state
enterprise engaged in acquiring and holding ownership in subsurface mineral
rights, and has not experienced any significant business activity since 1989.
The Company has never shown profits from operations, has $117,782 in cumulative
losses since its inception, and has limited working capital at September 30,
2001. These factors raise substantial doubt about its ability to continue as a
going concern. During the nine-month period ended September 30, 2001 management
loaned $19,000 to the Company to fund costs related to bringing the Company into
full SECreporting status. As additional funds are needed to finance the Company,
management will sell additional shares of stock, loan money to the Company, or
arrange for borrowings. If management is unable to accomplish their objectives
within a reasonable timetable, or runs out of funds, the Company will remain
nonoperational until funds are again available to move it forward. In any event,
management will not allow the Company to fall into arrears with regard to its
Idaho state corporate charter.
See accompanying independent accountant's review report.
13
Item 2.
Management's Discussion and Analysis
General
Since incorporation, the Company's, only business activity has been
organizational matters and acquiring interests in subsurface mineral rights. The
Company filed its Form 10-SB on January 22, 2001, its First Quarter Form 10-QSB
on May 21, 2001, and its Second Quarter Form 10-QSB on August 22, 2001. The
Company has limited working capital as of September 30, 2001. During the quarter
ending September 30, 2001 management loaned $2,000.00 to the Company to fund
costs related to continued efforts to make the Company a fully reporting SEC:
entity. The Company feels it has in hand sufficient funds to conduct its
business activities planned for the next twelve months.
Plan of Operation
As a development stage Company, Wallace Silver, Inc. has been operationally
inactive for the past 15 years. Current business plans include conducting an
assessment of assets available to 1) find a business partner to explore and
possibly operate the properties of the Company, and 2) analyze the properties
immediately adjacent to Wallace Silver, Inc.'s with an eye to a business
alliance to explore our joint property potentials.
The Company does not plant to hire any employees over the next twelve
months.
Analysis of Financial Condition and Results of Operations
There were no operations conducted during the past two fiscal years. The
only changes in the company finances were the funds expended to 1) audit the
company books, and 2) retain counsel to assist in the preparation and submission
of Form 10-SB.
If the company were to conduct exploration or other operations within, the
next two years, such activity would be funded by:
o Financing obtained through a joint venture with a major operator already
conducting operations in the area;
o Sale of securities to the general public;
o Private placement of securities;
o Arrange for borrowing;
o Loans which one of the directors and a shareholder have indicated a
willingness to male.
PART II
Item 1.
Legal Proceedings
The Company is not currently involved in any legal proceedings and is not aware
of any pending or potential legal actions.
14
Item 2.
Changes in Securities
Neither the rights of the registrant's security holders nor the rights evidenced
by the registrant's outstanding common stock have been modified, limited or
qualified. There have been no sales of equity securities of the registrant for
the period covered by this report.
Item 3.
Defaults Upon Senior Securities
The registrant has no outstanding senior securities.
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the registrant's security holders during
the period covered by this report.
Item 5.
Other Information
None.
Item 6.
Exhibits and Reports on Form 8-K
Exhibits Exhibit 27.0 Financial data Schedule Reports on Form 8-K No reports on
Form 8-K were filed by the registrant during the period covered by this report.
15
SIGNATURES
In accordance with the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
WALLACE SILVER, INC.
Date: November 13, 2001
/s/ Lewis R. Higgns
-------------------------------------
Lewis R. Higgns, President
17