UNITED STATES
SECURITIES AND 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 ended September 30, 2002
WALLACE RESOURCES, INC. (Formerly Wallace Silver, Inc.)
- --------------------------------------------------------------------------------
(Name of Small Business Issuer to its charter)
Idaho 82-0291029
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13707 East 23rd Court, Spokane, WA 99216-2801
- --------------------------------------------------------------------------------
(Address 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 $0.00 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, 2002 was 4,711,686.
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements 2-11
Item 2. Management's Discussion and Analysis 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
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 10-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 period ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2002.
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Financial Statements
Nine-Month Periods Ended September 30, 2002 and 2001
and Cumulative from Inception (August 26, 1968Y
through September 30, 2002
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Nine-Month Periods Ended September 30, 2002 and 2001
and Cumulative from inception (August 26, 1968)
through September 30, 2002
Contents
Independent Accountant's Review Report 3
Financial Statements:
Balance Sheet 4
Statements of Loss 5
Statements of Cash Flows 6
Statements of Stockholders' Equity 7
Summary of Accounting Policies 8-9
Notes to Financial Statements 10-11
-2-
DAN R. HARMAN, C.P.A., P.S.
ACCOUNTING AND BUSINESS CONSULTING
818 W. Riverside Ave., Suite 720
Spokane, WA 99201
Phone (509) 456-6466
Fax (509) 838-8209
Independent Accountant's Review Report
Board of Directors
Wallace Resources Inc.
Formerly Wallace Silver Inc.
Spokane, Washington
I have reviewed the accompanying balance sheets of Wallace Resources Inc.,
formerly Wallace Silver lnc. (a development stage company) as of September 30,
2002, and the statements of loss, cash flows, and stockholders' equity for the
nine-month periods ended September 30, 2002 and 2001, 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
Resources, 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 accounting principles generally accepted in the United States.
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 $136,328 in cumulative
losses since its inception, and has limited working capital at September 30,
2002. 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.
Spokane, Washington
October 21, 2002
-3-
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Balance Sheet
September 30, 2002
Assets
------
Current asset, cash and cash equivalents $ 796
Office equipment, at cost less $250 accumulated depreciation --
Other assets, mining claims and capitalized promotional,
exploration and development costs (Notes 2 and 3) 100
-----------
Total assets $ 896
===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities: $ 0
Commitments and contingencies (Notes 2, 4 and 5)
Stockholders' Equity:
Common stock -- no par; 150,000,000 shares authorized,
4,711,686 shares issued and outstanding (Notes 1 and 2) 137,224
Deficit accumulated during the development stage (136,328)
-----------
Total stockholders' equity 896
-----------
Total liabilities and stockholders' equity $ 896
===========
See accompanying summary of accounting policies, notes to financial statements
and independent accountant's review report.
-4-
WALLACE RESOURCES INC.
Formerly 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, 2002
2002 2001 ("Unaudited")
----------- ----------- --------------
Revenues:
Interest $ 3 $ 24 $ 5,628
Other income 0 0 595
----------- ----------- -----------
Total revenues 3 24 6,223
----------- ----------- -----------
Expenses:
Write down for impairment of long
lived assets (Note 2) 0 0 48,918
Legal fees 1,755 9,068 40,049
Accounting fees 9,850 7,655 32,322
Office expenses 1,998 2,954 5,906
Licenses and fees 1,812 2,519 6,307
Supplies 0 0 2,215
Salaries 0 0 989
Insurance 0 0 893
Travel 669 0 1,551
Interest 0 930 1,461
Rent 0 0 500
Advertising 0 100 514
State taxes 10 10 404
Depreciation 0 0 250
Miscellaneous 0 0 107
Printing 0 0 95
Meals and entertainment 0 0 70
----------- ----------- -----------
Total expenses 16,094 23,236 142,551
----------- ----------- -----------
Net loss $ (16,091) $ (23,212) $ (136,328)
=========== =========== ===========
Basic loss per share $ (.00) $ (.O1) $ (.07)
=========== =========== ===========
See accompanying summary of accounting policies, notes to financial statements
and independent accountant's review report.
-5-
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Statements of Cash 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, 2002
2002 2001 ("Unaudited")
----------- ----------- --------------
Operating activities:
Net loss $ (16,091) $ (23,212) $ (136,328)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock issued for consulting fees 1,250 0 1,250
Depreciation and amortization 0 0 250
Write-off of mining properties and
exploration costs 0 0 48,918
Accrued interest due stockholders 0 930 1,340
----------- ---------- ----------
Net cash used in operating activities (14,841) (22,282) (84,570)
----------- ---------- ----------
Financing activities:
Sale of common stock 5,000 0 85,366
Loans from stockholders 0 19,000 0
----------- ---------- ----------
Net cash provided by financing activities 5,000 19,000 85,366
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (9,841) (3,282) 796
Cash and cash equivalents, beginning of
the period 10,637 3,964 0
----------- ---------- ----------
Cash and cash equivalents, end of the
period $ 796 $ 682 $ 796
=========== ========== ==========
Supplemental cash flow information:
Cash paid during the period for interest $ 0 $ 0 $ 121
Noncash investing and financing activity:
Stock issued for consulting fees $ 1,250 $ 0 $ 1,250
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.
-6-
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Statement of Stockholders' Equity / (Deficit)
Inception (August 26, 1968) through September 30, 2002
Adjustment Deficit
for stock accum. Total
Number of sold for during the stockholder's
shares Common 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
November 4, 1999 - Stock
issued for cash at $.O1 per share 1,100,000 55,000 (44,000) -- 11,000
Cumulative losses from inception
(August 26, 1968) through
December 31, 2000 -- -- -- (94,570) (94,570)
December 24, 2001 - Stock
issued for cash and stockholder
notes at $.025 per share 1,293,620 64,681 (32,341) -- 32,340
Net loss for the year ended
December 31, 2001 -- -- -- (25,667) (25,667)
----------- ----------- ----------- ----------- -----------
Balances at December 31, 2001 4,461,686 223,084 (92,110) (120,237) 10,737
June 13, 2002 - Recapitalization
of $.05 per common stock into no
par stock (Note 1) -- (92,110) 92,110 -- --
June 13, 2002 - Stock issued for
cash at $.025 per skate (Note 2) 200,000 5,000 -- -- 5,000
August 8, 2002 - Stock issued for
consulting at $.025 per share (Note 2) 50,000 1,250 -- -- 1,250
Net loss for the nine-month period
ended September 30, 2002 -- -- -- (16,091) (16,091)
----------- ----------- ----------- ----------- -----------
Balances at June 30, 2002 4,711,686 $ 137,224 $ -- $ (136,328) $ 896
=========== =========== =========== =========== ===========
See accompanying summary of accounting policies, notes to financial statements
and independent accountant's review report.
-7-
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Summary of Accounting Policies
Nine-Month Periods Ended September 30, 2002 and 2001
and Cumulative from Inception (August 26,1968)
through September 30, 2002
The Company as a Development Stage Company:
- -------------------------------------------
Wallace Silver Inc. was incorporated according to the laws of the State of Idaho
on August 26, 1968. On June 13, 2002 Wallace Silver Inc, changed its name to
Wallace Resources Inc. ("the Company"). 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 Shoshone 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, 2002.
Carrying Value of Other Assets:
- -------------------------------
In accordance with SFAS 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, 2002 due to tax losses generated or
carried forward from prior years. As of December 31, 2001, the Company has tax
net operating loss carryforwards aggregating $98,090, which expire through the
year 2022. 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. The valuation allowance increased by $19,595 in 2001 due to the net
loss of $25,667 for the year, less $6,072 in expiring loss canyforwards.
See accompanying independent accountant's review report and notes to financial
statements.
-8-
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Summary of Accounting Policies
Nine-Month Periods Ended September 30, 2002 and 2001
and Cumulative from Inception (August 26,1968)
through September 30, 2002
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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings / (Loss) Per Share
- ---------------------------
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SEAS") 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 EPS and Diluted EPS of the face
of the income statement for entities with complex capital structures. Basic EPS
is based on the weighted average number of common shares outstanding during the
period presented, which aggregated 4,668,946 and 3,168,066 for the nine-month
periods ended September 30, 2002 and 2001, respectively, and 2,088,342 for the
cumulative period from inception (August 26, 1968) through September 30, 2002.
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.
-9-
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Summary of Accounting Policies
Nine-Month Periods Ended September 30, 2002 and 2001
and Cumulative from Inception (August 26,1968)
through September 30, 2002
Note 1 - Recapitalization and Name Change:
- ------------------------------------------
On June 13, 2002, the Board of Directors of Wallace Silver Inc. approved the
following actions:
o Increased the authorized number of common shares from 5,000,000 to
150,000,000;
o Changed all authorized and issued and outstanding shares from $.05 per
share par value to no par;
o Changed the Company's name to Wallace Resources Inc.; and
o Authorized the sale of 200,000 shares of stock, as described in Note
2.
Note 2 - Transactions with Stockholder:
- ---------------------------------------
In 1969 and again in 1984 the Company made offerings of its common stock
pursuant to the Regulation A 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.
On December 24, 2001, the Company approved the sale of 400,000 shares of common
stock to three stockholders for $10,000 cash ($.025 per share). Two of these
three persons are members of the Board of Directors, one of which serves as the
President and Chairman of the Board of the Company.
During 2001, two stockholders loaned the Company $21,000 to finance the
Company's operations. The loans were unsecured, due on demand, with interest at
8% per annum. On December 24, 2001, the Company approved the conversion of these
loans plus $1,340.48 in accrued interest into 893,620 shares of common stock at
$.025 per share. One of these stockholders is the President and Chairman of the
Board of the Company.
On June 13, 2002, the Company approved the sale of 200,000 shares of common
stock to two stockholders for $5,000 cash ($.025 per share). One of these
stockholders is the President and Chairman of the Board of the Company. On
August 8, 2002, the Company issued 50,000 shares of common stock to a consultant
for $1,250 of services rendered in connection with a proposed merger. If the
merger is consummated in the future, the consultant will receive an additional
50,000 shares of common stock.
See accompanying independent accountant's review report.
-10-
WALLACE RESOURCES INC.
Formerly WALLACE SILVER INC.
(a development stage company)
Summary of Accounting Policies
Nine-Month Periods Ended September 30, 2002 and 2001
and Cumulative from Inception (August 26,1968)
through September 30, 2002
Note 3 - 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 4 - 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 25-year training 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, 2002, no such payments had been made or were owed
in connection with this agreement.
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 $136,328 in cumulative
losses since its inception, and has limited working capital at September 30,
2002. These factors raise substantial doubt about its ability to continue as a
going concern. Management has been willing in the past to loan money to the
Company to fund costs related to maintaining the Company's SEC-reporting status.
As additional funds are needed to finance the Company's continuing existence,
management intends to make additional personal loans to the Company, sell
additional shares of stock, and/or arrange for other borrowings as needed. 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
-11-
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 Annual Form 10-KSB on
March 5, 2002, and its First and Second Quarter Form 10-QSB on May 22, 2002 and
August 21, 2002, respectively. The Company has limited working capital as of
September 30, 2002. 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 Resources, Inc. has been
operationally inactive for the past 16 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 Resources, Inc.'s with an eye to a
business alliance to explore our joint property potentials.
The Company does not plan 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 make.
-12-
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.
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. On August 7, 2002, the registrant issued 50,000 shares of restricted
common stock for services to an unrelated party through a private placement.
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.
-13-
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 RESOURCES, INC.
Date: November 22, 2002 By: /S/ Lewis R. Higgins
---------------------------------
Lewis R. Higgins, President
-14-