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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 0-25170
ROYAL SILVER MINES, INC.
(Exact name of Registrant as specified in its charter)
Utah 87-0306609
(State of Incorporation) (I.R.S. Employer I.D.#)
Address of principal offices: 1010 Ironwood Drive, Suite 105
Coeur, d'Alene, Idaho 83814
Registrant's Telephone No.: (208) 769-7340
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value, $0.01
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K: [ x ]
As of December 15, 1998 the aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average
of the bid and ask price ($0.06) on such date was $841,025.
As of December 15, 1998, the Registrant had outstanding 19,932,565
shares of common stock ($0.01 par value). An index of the documents
incorporated herein by reference and/or annexed as exhibits to the
signed originals of this report appears beginning on page 84.
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TABLE OF CONTENTS
ITEM NUMBER PAGE
AND CAPTION NUMBER
PART I
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 30
ITEM 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . 30
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . 31
ITEM 6. Selected Financial Data. . . . . . . . . . . . . . . . . 31
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation . . . . . . . . . . . . . . . . . . . . . . . 32
ITEM 8. Financial Statements and Supplementary Data . . . . . . 35
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . 74
PART III
ITEM 10. Directors and Executive Officers of the
Company . . . . . . . . . . . . . . . . . . . . . . . . 74
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . 77
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 80
ITEM 13. Certain Relationships and Related Transaction . . . . . 82
PART IV
ITEM 14. Exhibits, Financial Statement Schedules,
and Reports of Form 8-K . . . . . . . . . . . . . . . . 83
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PART I
ITEM 1. BUSINESS
GENERAL
Royal Silver Mines, Inc. (the "Company"), formerly known as
Consolidated Royal Mines, Inc., and also, Royal Minerals, Inc., is a
U.S. mineral resource company incorporated under the laws of the State
of Utah. The Company is engaged in the business of acquiring and
exploring mineral properties containing silver, gold, copper, and other
mineralization, with a primary emphasis on silver. Prior to September
30, 1995, the Company acquired all of the outstanding securities of
Celebration Mining Company ("Celebration"), a development stage
company, pursuant to a share exchange agreement and plan of
reorganization ("Reorganization").
Prior to the Reorganization, Celebration was a non-public, closely
held Washington corporation. It was formed in February 1994 to
identify and acquire mineral properties for subsequent exploration and
development, if warranted, through equity financing and joint venture
arrangements. The Reorganization was accounted for as a purchase by
Celebration of the Company. Celebration was treated as the acquiring
company for financial reporting purposes because its shareholders
constituted greater than 50% of the combined shareholder group at the
time of reorganization. In conformity with generally accepted
accounting principles and the Company's accounting policy, Celebration
is recognized as the predecessor entity. Consequently, Celebration's
assets and liabilities were not adjusted in the accompanying financial
statements. On the other hand, for purposes of reporting statutory and
corporate authority, the Company is deemed to be the acquiring
corporation, and Celebration is now a wholly-owned subsidiary of the
Company. Prior to the Reorganization, the Company had been a majority-
owned subsidiary of Centurion Mines Corporation ("Centurion").
Currently, Centurion owns approximate 1% of the outstanding shares of
Common Stock of the Company.
The Company operates its business as an exploration stage company,
meaning that it intends to receive income from property sales, joint
ventures, or other business arrangements with larger companies, rather
than developing and placing its properties into production on its own.
The Company currently has no revenues. At September 30, 1998, the
Company's accumulated deficit was $7,466,096. Regarding its losses
from operations, the Company cannot assure that it will be able to
carry out its plans as budgeted without additional operating capital.
At September 30, 1998, the Company had a cash balance of $3,147 and
working capital of $303,600 as compared to a cash balance of $594,577
and working capital of $671,355 at September 30, 1997.
The Company will need additional capital resources to continue
operations and has reduced monthly expenditures to approximately $4,000
per month. The industry took a tremendous and very significant
downturn in 1997 and 1998 primarily a result of the fall-out from the
Bre-X scandal which resulted in substantial losses for investors and
has placed a deep chill upon the ability of exploration companies to
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raise capital. Secondly, the impact of a steadily declining gold price
through 1997 placed added downward pressure on prices of mining shares
in general. Further, as the Asian crises unfolded in 1998, prices for
copper, lead, zinc and silver plunged to multi-year lows. As a whole,
the entire industry has suffered an unprecedented decline.
Given this unprecedented decline in both metal prices and the
entire exploration sector, the directors of the Company have been
forced to adopt a major austerity program. The Company closed its
office in Spokane and laid off all of its remaining employees as of
August 1998. The two principal officers of the Company have continued
to work without cash compensation, and the office has been relocated to
Coeur d'Alene, Idaho, where the Company is sub-letting space from one
of its officers for $200 a month.
The Company intends to continue to operate at a very low
expenditure level until such time as recovery in the exploration sector
becomes evident. The Company will continue to eschew any long term
debt in order to protect the long term viability of the Company's
assets.
During the twelve months ended September 30, 1998, the Company
placed 4,923,333 shares of its common stock for $344,500 in cash and
$700,000 in notes receivable. However, in the current depressed
market, it is believed that future placements will be much more
difficult, if not impossible to complete.
As discussed in greater detail below in the section entitled
"Strategy and Business Plan" a substantial portion of the Company's
assets consist of investments in mineral properties for which
additional exploration is required to determine if they contain
mineralization that is economically recoverable. The realization of
these investments is contingent to a large extent upon the success of
the Company's property transactions as a whole, the existence of
economically recoverable metals and other mineralized material, the
ability of the Company to obtain financing or make other arrangements
for development, and upon future profitable production. The likelihood
and extent to which these contingencies may be material is uncertain,
and the Company cannot assure that the outcome of these uncertain
events will not have a material impact and result in adverse
consequences to the Company. If the Company does not receive suitable
financing or funds from its present or future business arrangements to
develop these properties, and continues to suffer losses from
operations, the Company may have to cease operations entirely.
HISTORY
The Company was incorporated in Utah on April 6, 1969, as Royal
Resources, Inc. for the purpose of acquiring and developing mineral
properties. The Company changed its name to Royal Minerals, Inc., on
January 6, 1983, and became a public company in July 1984. The Company
complied with the Securities and Exchange Commission reporting
requirements until August 1986, at which time the Company filed Form 15
with the Commission and suspended further reporting requirements. On
January 31, 1992, Centurion owned 82.3% of the Company's common stock.
See "Centurion's Acquisition and Control of the Company." Also on
January 31, 1992, the Company shareholders authorized a 5-for-1 reverse
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stock split, and on March 4, 1994, authorized a 4-for-1 reverse stock
split of the common stock of the Company. On March 17, 1994, the
Company changed its name to Consolidated Royal Mines, Inc. On November
22, 1994, the Company filed a registration statement on Form 10 and
renewed its reporting requirements, effective January 23, 1995. During
the fourth quarter of Fiscal 1995, the Company revised its business
plan to concentrate on the acquisition of silver properties. That
change in focus prompted Consolidated Royal Mines, Inc. and Celebration
Mining Company to implement the Reorganization, which closed on August
8, 1995, and to change the Company's name to Royal Silver Mines, Inc.,
effective September 18, 1995.
STRATEGY AND BUSINESS PLAN
The Company believes that control of land and mineral rights is the
key ingredient for financial success in the exploration and development
phases of the mining business. Previously, the Company had
concentrated its main exploration efforts in Idaho's Coeur d'Alene
Mining District and to a much lesser extent in the Lakeview Mining
District, and Utah's Ashbrook Mining District where the Company owns a
25% interest in the Vipont Mine property. During fiscal 1998, the
Company shifted its strategy and toward the acquisition of properties
and exploration in Chile, Mexico, and Argentina. The Company does not
currently have sufficient capital to carry out its strategy and
continue this business plan.
The Company's plan of operation for fiscal 1999 is to conserve its
resources and protect its assets consistent with the lowest possible
level of expenditure.
The Board of Directors will continue to evaluate opportunities for
the Company, and will seek to pursue opportunities to enhance
shareholder value, however, any such opportunities must be viewed in
the context of the Company's very limited liquidity, as well as the
stated goal of protecting the Company's balance sheet.
PRIVATE PLACEMENTS.
In July 1995, the Company completed a private placement of 8,700
shares through two Regulation S offerings, both at a price of $2.00 per
share, for a total of $17,400. During September 1995, the Company
completed a private placement of 179,000 shares of common stock through
a domestic offering at a price of $1.50 per share for a total of
$241,650 after expenses. During the twelve months ended September 30,
1996, the Company placed 1,949,332 shares of its common stock for
$2,958,314 in cash. The Company also issued 406,050 shares of its
common stock in lieu of outstanding debt of $570,919, plus accrued
interest. The stock was issued at $1.50 per share for a total value of
$609,075.
On the 30th day of January, 1997, the Company sold to Britannia
Holdings Limited ("Britannia"), Channel Islands, 200,000 Units, at
$0.75 per Unit or a total of $150,000. The Registrant also granted
Britannia an option to purchase an additional 335,000 Units on February
14, 1997 and an additional 800,000 Units on March 3, 1997. Each Unit
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consists of one share of Common Stock and one warrant to purchase one
additional share of Common Stock at $1.25 per share. The Units were
issued in reliance upon the transaction exemption afforded by
Regulation S, as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, as amended. Britannia Holdings
Limited exercised all of these warrants.
On the 14th day of February, 1997, the Registrant sold to
Britannia, 335,000 Units, at $0.75 per Unit or a total of $251,250.
The Registrant previously granted Britannia an option to purchase an
additional 800,000 Units on March 3, 1997. The option exercise date of
March 3, 1997 was extended by mutual agreement of the parties to March
24, 1997 and the option was increased to 1,200,000 units. On March 24,
1997, Britannia Holdings exercised its option and purchased 1,600,000
units at $0.75 per unit, for a total of $1,200,000. Each Unit consists
of one share of Common Stock and one warrant to purchase one additional
share of Common Stock at $1.25 per share. The warrants will expire two
years from the date of closing of each transaction. The Units were
issued in reliance upon the transaction exemption afforded by
Regulation S, as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, as amended. As of the 19th day of
December, 1997, Britannia Holdings Limited had not exercised any
warrants.
On the 26th day of February, 1997, the Company sold to Louk Jongen,
("Jongen"), Holland, 100,000 Units, at $0.75 per Unit or a total of
$75,000. Each Unit consists of one share of Common Stock and one
warrant to purchase one additional share of Common Stock at $1.25 per
share. The warrants will expire two years from the date of closing.
The Units were issued in reliance upon the transaction exemption
afforded by Regulation S, as promulgated by the Securities and Exchange
Commission, under the Securities Act of 1933, as amended. As of the
6th day of March, 1997, Jongen had not exercised any warrants.
On the 5th day of March, 1997, the Company sold to NCL Investments
Limited ("NCL"), London, England, 136,000 Units, at $0.75 per Unit or
a total of $102,000. Each Unit consists of one share of Common Stock
and one warrant to purchase one additional share of Common Stock at
$1.25 per share. The warrants will expire two years from the date of
closing. The Units were issued in reliance upon the transaction
exemption afforded by Regulation S, as promulgated by the Securities
and Exchange Commission, under the Securities Act of 1933, as amended.
As of the 6th day of March, 1997, NCL had not exercised any warrants.
In November 1997, the Company sold 10,000 "restricted" shares to a
non-affiliate for $0.75 per share for a total of $7,500, pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
In April 1998, the Company sold 913,333 "restricted" shares to a
director, a major shareholder and a non-affiliated investor at $0.15
per share for a total of $136,999, pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
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In June 1998, the Company sold 3,000,000 "restricted" shares to
Pines International for $0.25 per share, payable as $50,000 cash down
and a note for $700,000. Subsequent to the fiscal year end, the Company
and Pines International negotiated a settlement agreement whereby Pines
International returned 2,000,000 shares to the Company and the note was
canceled, pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
COMPETITION.
The mining industry is very competitive. There is a high degree of
competition to obtain favorable mining properties and suitable mining
prospects for drilling, exploration, development and mining operations.
The Company encounters competition from a handful of other similarly-
situated mining companies in the silver mining industry in connection
with the acquisition of properties capable of profitably producing
silver and other mineralization.
RISK FACTORS.
The following risk factors with respect to the Company and its
operations may affect its strategy and business plan:
1. Going Concern. The Company's auditors have raised the issue
that the Company may not be able to continue as a going concern as a
result of net losses; a significant accumulated deficit; and, a
significant change in the Company's liquidity.
2. Recent Status as a Public Reporting Company. The Company
became a fully reporting public company on January 23, 1995. The
Company has no current operating history and is subject to all risks
inherent in a developing business enterprise. The likelihood of
success of the Company must be considered in light of the problems,
expenses, difficulties, complications, and delays frequently
encountered in connection with a new business in general and those
specific to the natural resource industry and the competitive and
regulatory environment in which the Company will operate.
3. Exploration Stage Company. Mineral exploration, particularly
for gold and silver, is highly speculative in nature, frequently is
nonproductive, and involves many risks, often greater than those
involved in the actual mining of mineralization. Such risks can be
considerable and may add unexpected expenditures or delays to the
Company's plans. There can be no assurance that the Company's mineral
exploration activities will be successful or profitable. Once
mineralization is discovered, it may take a number of years from the
initial phase of drilling until production is possible, during which
time the economic feasibility of production may change. A related
factor is that exploration stage companies use the evaluation work of
professional geologists, geophysicists, and engineers for estimates in
determining whether to acquire an interest in property or to commence
exploration or development work. These estimates generally rely on
scientific estimates and economic assumptions, and in some instances
may not be correct, and could result in the expenditure of substantial
amounts of money on a property before it can be determined whether or
not the property contains economically recoverable mineralization. The
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economic viability of a property cannot be determined until extensive
exploration and development has been conducted and a comprehensive
feasibility study performed. The Company currently does not have any
such feasibility studies, and has not yet prepared feasibility studies
on any of its properties. Moreover, the market prices of any minerals
produced are subject to fluctuation, which may negatively affect the
economic viability of properties on which expenditures have been made.
The Company is not able to determine at present whether or not, or the
extent to which, such risks may adversely affect the Company's strategy
and business plans.
4. Lack of Revenue. The Company needs additional capital but
currently has no revenues. Substantial expenditures are required to
establish ore reserves through drilling, to determine metallurgical
processes to extract the mineralization from the ore and, in the case
of new properties, to construct mining and processing facilities. The
Company lacks a constant and continual flow of revenue. The Company
currently holds certain royalty interests in several mining properties
previously sold, but there is no assurance that the Company will
receive royalty payments, or that the Company will otherwise receive
adequate funding to be able to finance its exploration activities. The
Company is looking for revenue sources on an on-going basis, but there
can be no assurance that such sources can be found or that, if
available, the terms of such financing will be commercially acceptable
to the Company. Because of the Company's need for additional capital
to fund its present operations, to complete the acquisition of certain
mineral rights, and to provide for further exploration and development,
the lack of consistent revenue could be a detrimental factor in the
progress of the Company.
5. Realization of Investments in Mineral Properties and Additional
Capital Needs. The ultimate realization of the Company's investments
in mineral properties is dependent upon the success of future property
sales, the existence of economically recoverable reserves, the ability
of the Company to obtain financing or make other arrangements for
development and upon future profitable production. The Company expects
to finance its operations for Fiscal 1999 through the sale of equity
securities, joint venture arrangements (including project financing),
and the sale of interests in mineral properties. The Company does not
have sufficient capital of its own to explore and develop its mineral
properties and there can be no assurance that the Company will be
successful in obtaining the required funds to finance its long-term
capital needs.
6. Retention and Attraction of Key Personnel. The Company's
success will depend, in large part, on its ability to retain and
attract highly qualified personnel. The Company's success in
attracting qualified personnel will depend on many factors, including
its ability to provide them with competitive compensation arrangements,
equity participation and other benefits. There is no assurance that
the Company will be successful in retaining or attracting highly
qualified individuals in key management positions.
7. Regulatory Concerns. Environmental and other government
regulations at the federal, state and local level pertaining to the
Company's business and properties may include: (a) surface impact; (b)
water acquisition; (c) site access; (d) reclamation; (e) wildlife
9
preservation; (f) licenses and permits; and, (e) maintaining the fees
for unpatented mining claims. See "Business - Government Regulation
and Environmental Concerns."
8. Working Capital; Accumulated Deficit; Auditor's Report.
Although it commenced operations more than two years ago, the Company
remains in the development stage. At September 30, 1998, the Company
had working capital of $303,600 and an accumulated deficit of
$7,466,096, with deficits and losses expected to continue for the
foreseeable future. The Company's operations are subject to numerous
risks associated with the mining industry.
9. Reliance Upon Directors and Officers. The Company is wholly
dependent, at the present, upon the personal efforts and abilities of
its Officers and Directors who exercise control over the day to day
affairs of the Company. There can be no assurance as to the volume of
business, if any, which the Company may succeed in obtaining, nor that
its proposed operations will prove to be profitable.
10. Indemnification of Officers and Directors for Securities
Liabilities. The Bylaws of the Company provide that the Company may
indemnify any Director, Officer, agent and/or employee as to those
liabilities and on those terms and conditions as are specified in the
Utah Business Corporation Act. Further, the Company may purchase and
maintain insurance on behalf of any such persons whether or not the
corporation would have the power to indemnify such person against the
liability insured against. The foregoing could result in substantial
expenditures by the Company and prevent any recovery from such
Officers, Directors, agents and employees for losses incurred by the
Company as a result of their actions. Further, the Company has been
advised that in the opinion of the Securities and Exchange Commission,
indemnification is against public policy as expressed in the Securities
Act of 1933, as amended, and is, therefore, unenforceable.
11. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
Cumulative voting in the election of Directors is not provided for.
Accordingly, the holders of a majority of the shares of Common Stock,
present in person or by proxy, will be able to elect all of the
Company's Board of Directors. See "Description of the Securities."
12. Potential Future Sales Pursuant to Rule 144. At December 15,
1998, there were issued and outstanding approximately 19,932,565 shares
of Common Stock of which 8,035,337 shares were "Restricted Securities"
as that term is defined in Rule 144 promulgated under the Securities
Act of 1933, as amended. In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one (1) year
holding period, may sell within any three month period, an amount which
does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume during the four
calendar weeks prior to such sale. Rule 144 also permits the sale of
shares, under certain circumstances, without any quantity limitation,
by persons who are not affiliates of the Company and who have
beneficially owned the shares for a minimum period of two (2) years.
Hence, the possible sale of these restricted shares may, in the future
dilute an investors percentage of free-trading shares and may have a
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depressive effect on the price of the Company's securities and such
sales, if substantial, might also adversely effect the Company's
ability to raise additional equity capital.
13. No Dividends. The holders of the Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefore. To date, the Company has not
paid any cash dividends. The Board does not intend to declare any
dividends in the foreseeable future, but instead intends to retain all
earnings, if any, for use in the Company's business operations. As the
Company will be required to obtain additional financing, it is likely
that there will be restrictions on the Company's ability to declare any
dividends.
14. Impact of Year 2000 Issue. The Company has reviewed its
internal computer systems and products and their capability of
recognizing the year 2000 and years thereafter. The Company expects
that any costs relating to enuring such systems to be a year 2000
compliant will not be material to the financial condition or results of
operations of the Company.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES.
The Company does not own any patents, trademarks, licenses,
franchises, or concessions, except for patented mining claims granted
by governmental authorities and private land owners.
SEASONABILITY.
The Company's business is generally not seasonal in nature except
to the extent that weather conditions at certain times of the year may
affect the Company's access to its properties.
GOVERNMENT REGULATION AND ENVIRONMENTAL CONCERNS.
The Company is committed to complying and, to its knowledge, is in
compliance with all governmental and environmental regulations. The
Company's activities in the United States are subject to extensive
federal, state and local laws and regulations controlling not only the
mining of and exploration for mineral properties, but also the possible
effects of such activities upon the environment. Permits from a
variety of regulatory authorities are required for many aspects of mine
operation and reclamation. The Company cannot predict the extent to
which future legislation and regulation could cause additional expense,
capital expenditures, restrictions and delays in the development of the
Company's U.S. properties, including those with respect to unpatented
mining claims.
The Company's activities are not only subject to extensive federal,
state, and local regulations controlling the mining of and exploration
for mineral properties, but also the possible effects of such
activities upon the environment. Future legislation and regulations
could cause additional expense, capital expenditures, restrictions and
delays in the development of the Company's properties, the extent of
which cannot be predicted. Also, as discussed above, permits from a
variety of regulatory authorities are required for many aspects of mine
operation and reclamation. In the context of environmental permitting,
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including the approval of reclamation plans, the Company must comply
with known standards, existing laws and regulations that may entail
greater or lesser costs and delays depending on the nature of the
activity to be permitted and how stringently the regulations are
implemented by the permitting authority. The Company is not presently
aware of any specific material environmental constraint affecting its
properties that would preclude the economic development or operation of
any specific property. However, the general obstructionist regulatory
environment within the United States impedes development of its
properties and the Company plans to do limited work in the United
States, unless metal prices rise significantly or the regulatory
environment grows dramatically more favorable to industry.
At present, the Company does not have any environmental control
facilities. Thus, the Company has not made any material capital
expenditures for environmental controls, other than the nominal costs
of preparing the plans and contingencies for such environmental
controls, measures and facilities as may be required in its future
activities.
If the Company becomes more active on its U.S. properties, it is
reasonable to expect that compliance with environmental regulations
will increase costs to the Company. Such compliance may include
feasibility studies on the surface impact of the Company's proposed
operations; costs associated with minimizing surface impact; water
treatment and protection; reclamation activities, including
rehabilitation of various sites; on-going efforts at alleviating the
mining impact on wildlife; and permits or bonds as may be required to
ensure the Company's compliance with applicable regulations. It is
possible that the costs and delays associated with such compliance
could become so prohibitive that the Company may decide to not proceed
with the exploration, development, or mining operations on any of its
mineral properties.
OFFSHORE REGULATION.
The Company is aware of comparable environmental regulation in
offshore countries where it was operating. The Company was committed
to full compliance with these regulations and engaged legal counsel in
Mexico, Chile and Argentina who assisted the Company to assure
compliance.
OFFICES
The Company's executive office is located at 1010 Ironwood Drive,
Suite 105, Coeur d'Alene, Idaho 83814. The Company sub-leases its
office from one of its officers for $200.00 per month.
EMPLOYEES
The Company has no employees. The Company, therefore, arranges for
its work through contracts with various consultants. The Company may
contract with additional consultants from time to time, as required by
its operations. Consultants are treated as independent contractors.
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CENTURION'S ACQUISITION AND CONTROL OF THE COMPANY
In October 1991, Centurion entered into negotiations with the
officers and directors of the Company for the acquisition and control
of the Company. In November 1991, Centurion's Board of Directors
approved this acquisition. Subsequently, Centurion entered into
subscription and investment agreements with several of the Company's
principal shareholders, whereby Centurion exchanged 174,743
"restricted" shares of Centurion stock and $1,600 cash for shares of
Company common stock constituting 37.2% ownership of the Company's
outstanding shares. On January 10, 1992, the Company's Board of
Directors authorized the exchange of 100,000 post-split shares of the
Company's common stock for approximately 4,196 acres of unpatented
mining claims and state and private mineral leases from Centurion. On
January 31, 1992, at the Company's Annual Shareholders Meeting, the
shareholders authorized the purchase of approximately 17,000 acres of
mining properties from Centurion for 1,250,000 post-split shares of
Company common stock. This acquisition of shares gave Centurion an
82.3% controlling interest in the Company. Because of the changes in
the control of shareholdings brought about by the Reorganization with
Celebration, Centurion currently holds approximately 4% of the
Company's outstanding common stock.
THE COMPANY'S OWNERSHIP INTEREST IN GRAND CENTRAL SILVER MINES
On November 25, 1997, Centurion issued 5,000,000 (500,000 post-
split) shares of Common Stock to the Company in exchange for certain
patented and unpatented mining claims located in the state of Idaho.
In March 1998,the Company sold its 35% interest in the Sierra Mojada
project to Grand Central Silver Mines (formerly Centurion) in exchange
for 735,000 shares of stock and a $350,000 promissory note (see Mexican
properties). As a result of the foregoing transactions, the Company
owns 11.89% of the outstanding Common Stock of Grand Central Silver
Mines, Inc.
SUBSIDIARIES
The Company currently has four subsidiaries: Celebration Mining
Company, of which the Company currently is the sole shareholder, was
incorporated in the State of Washington in February 1994; Minera Plata
Real, Mexico, which was incorporated in March 1997 and of which the
Company is the principal shareholder; Minera Plata Real, Argentina,
which was incorporated in March 1997 and of which the Company is the
principal shareholder; and, Minera Plata Real, Chile, which was
incorporated in June 1997 and of which the Company is the principal
shareholder.
REORGANIZATION WITH CELEBRATION.
In May and June 1995, Management began negotiations with management
of Celebration regarding a merger or other reorganization plan of the
two companies. On June 28, 1995, the boards of directors of both
companies approved a reorganization and the companies signed an
agreement based on a share exchange. The Company would acquire 100% of
Celebration's interest in the Vipont Mine Joint Venture, the Crescent
Mine Lease, the Australia Joint Venture, and the option rights to
13
acquire up to 50% of the mineral rights on the Prospect Mine Property
in Madison County, Montana.
The Celebration shareholders approved the Reorganization and share
exchange agreement at an August 8, 1995 shareholder meeting. In
exchange for 100% of the issued and outstanding Celebration shares, the
Company agreed to issue to the Celebration shareholders 4,143,750
shares of Company common stock that together would represent ownership
of 63% of Company shareholdings outstanding immediately following the
Reorganization. Also, the Company agreed to honor all of the stock
rights held by various Celebration shareholders and which were subject
to certain conditions and events.
Some of those stock rights had been granted contingent upon the
repayment of notes, and others had been granted as options under
consultant agreements. In total, those stock rights permitted the
purchase or receipt of approximately 1,755,000 additional shares of
Company common stock. If all of the shares underlying various stock
rights were added to the initial group of 4,143,750 shares exchanged in
the Reorganization, that would result in a total issuance from the
share exchange of approximately 5,898,750 shares, or 71% ownership by
the Celebration shareholders. However, to date, none of the
overhanging stock rights have been or are expected to be exercised.
In December 1995, stock rights to receive approximately 190,795
shares were extinguished when the Company converted debt of $570,919 in
principal, plus interest, by issuing common stock. The noteholders of
that debt amount received approximately 406,050 shares in full
satisfaction of the debt.
ACQUISITION AND DISPOSITION OF MINERAL PROPERTIES.
On January 10 and January 31, 1992, the Company obtained from
Centurion a total of 23,300 acres of unpatented mining claims, and
state and private mineral leases in exchange for the equivalent of
1,350,000 post-split shares of Company common stock.
UNPATENTED MINING CLAIMS/STATE LEASES.
In fiscal 1997, the Company allowed to lapse certain Utah state
mineral leases and did not pay the annual maintenance fee on certain
unpatented claims located in the Oquirrh Mountains in Utah due to an
evaluation by the Company that the mineral potential of such property
was low and did not warrant continuing to hold the ground. The Company
continues to held unpatented claims in Idaho.
GLOSSARY OF CERTAIN MINING TERMS.
ACID MINE DRAINAGE Acidic run-off water from mine waste dumps and
mill tailings ponds containing sulfide minerals.
Also refers to ground water pumped to surface from
mines.
ADIT An opening driven horizontally into the side of a
mountain or hill for providing access to a mineral
deposit.
14
ALTERATION Any physical or chemical change in a rock or
mineral subsequent to its formation. Milder and
more localized than metamorphism.
ANTICLINE An arch or fold in layers of rock shaped like the
crest of a wave.
ASSAY A chemical test performed on a sample of ores or
minerals to determine the amount of valuable
metals contained.
BACKFILL Waste material used to fill the void created by
mining an orebody.
BALL MILL A steel cylinder filled with steel balls into
which crushed ore is fed. The ball mill is
rotated, causing the balls to cascade and grind
the ore.
BASEMENT ROCKS The underlying or older rock mass. Often refers
to rocks of Precambrian age which may be covered
by younger rocks.
BASE METAL Any non-precious metal (e.g. copper, lead, zinc,
nickel, etc.).
BEDDING The arrangement of sedimentary rocks in layers.
BLOCK CAVING An inexpensive method of mining in which large
blocks of ore are undercut, causing the ore to
break or cave under its own weight.
BRECCIA A rock in which angular fragments are surrounded
by a mass of fine-grained minerals.
BULK MINING Any large-scale, mechanized method of mining
involving many thousands of tons of ore being
brought to surface per day.
CATHODE A rectangular plate of metal, produced by
electrolytic refining, which is melted into
commercial shapes such as wirebars, billets,
ingots, etc.
CHALCOCITE A sulfide mineral of copper common in the zone of
secondary enrichment.
CHANNEL SAMPLE A sample composed of pieces of vein or mineral
deposit that have been cut out a small trench or
channel, usually about ten cm wide and two cm
deep.
CHUTE An opening, usually constructed of timber and
equipped with a gate, through which ore is drawn
from a stope into mine cars.
15
COMPLEX ORE An ore containing a number of minerals of economic
value. The term often implies that there are
metallurgical difficulties in liberating and
separating the valuable metals.
CONE CRUSHER A machine which crushes ore between a gyrating
cone or crushing head and an inverted, truncated
cone known as a bowl.
CONCENTRATE A fine, powdery product of the milling process
containing a high percentage of valuable metal.
CONGLOMERATE A sedimentary rock consisting of rounded, water-
worn pebble or boulders cemented into a solid
mass.
CONTACT A geological term used to describe the line or
plane along which two different rock formations
meet.
CORE The long cylindrical piece of rock, about an inch
in diameter, brought to surface by diamond
drilling.
CROSSCUT A horizontal opening driven from a shaft and (or
near) right angles to the strike of a vein or
other orebody.
CUT-AND-FILL A method of stoping in which ore is removed in
slices, or lifts, and then the excavation is
filled with rock or other waste material
(backfill), before the subsequent slice is
extracted.
CYANIDATION A method of extracting exposed gold or silver
grains from crushed or ground ore by dissolving it
in a weak cyanide solution. May be carried out in
tanks inside a mill or in heaps of ore out of
doors.
DECLINE An underground passageway connecting one or more
levels in a mine, providing adequate traction for
heavy, self-propelled equipment. Such underground
openings are often driven in an upward or downward
spiral, much the same as a spiral staircase.
DEVELOPMENT Work carried out for the purpose of opening up a
mineral deposit and making the actual ore
extraction possible.
DEVELOPMENT
DRILLING Drilling to establish accurate estimates of
mineral reserves.
16
DIAMOND DRILL A rotary type of rock drill that cuts a core of
rock that is recovered in long cylindrical
sections, two centimeters or more in diameter.
DILUTION (mining) Rock that is, by necessity, removed along with the
ore in the mining process, subsequently lowering
the grade of the ore.
DIP The angle at which a vein, structure or rock bed
is inclined from the horizontal as measured at
right angles to the strike.
DISSEMINATED ORE Ore carrying small particles of valuable minerals
spread more or less uniformly through the hose
rock.
DORE Unparted gold and silver poured into molds when
molten to form buttons or bars. Further refining
is necessary to separate the gold and silver.
DRIFT A horizontal underground opening that follows
along the length of a vein or rock formation as
opposed to a cross-cut which crosses the rock
formation.
DRILL-INDICATED
RESERVES The size and quality of a potential orebody as
suggested by widely spaced drill holes; more work
is required before reserves can be classified as
probable or proven.
DUE DILIGENCE The degree of care and caution required before
making a decision; loosely, a financial and
technical investigation to determine whether an
investment is sound.
ELECTROLYTIC
REFINING The process of purifying metal ingots that are
suspended as anodes in an electrolytic bath,
alternated with refined sheets of the same metal
which act as starters or cathodes.
ENVIRONMENTAL
IMPACT STUDY A written report, compiled prior to a production
decision, that examines the effects proposed
mining activities will have on the natural
surroundings.
EPITHERMAL DEPOSIT A mineral deposit consisting of veins and
replacement bodies, usually in volcanic or
sedimentary rocks, containing precious metals, or,
more rarely, base metals.
EXPLORATION Work involved in searching for ore, usually by
drilling or driving a drift.
17
FACE The end of a drift, crosscut or stope in which
work is taking place.
FISSURE An extensive crack, break or fracture in rocks.
FLOAT Pieces of rock that have been broken off and moved
from their original location by natural forces
such as frost or glacial action.
FLOTATION A milling process in which valuable mineral
particles are induced to become attached to
bubbles and float, and others sink.
FOOTWALL The rock on the underside of a vein or ore
structure.
FRACTURE A break in the rock, the opening of which allows
mineral bearing solutions to enter. A "cross-
fracture" is a minor break extending at more-or-
less right angles to the direction of the
principal fractures.
FREE MILLING Ores of gold or silver from which the precious
metals can be recovered by concentrating methods
without resort to pressure leaching or other
chemical treatment.
GALENA Lead sulfide, the most common ore mineral of lead.
GOSSAN The rust-colored capping or staining of a mineral
deposit, generally formed by the oxidation or
alteration of iron sulfides.
GRAB SAMPLE A sample from a rock outcrop that is assayed to
determine if valuable elements are contained in
the rock. A grab sample is not intended to be
representative of the deposit, and usually the
best-looking material is selected.
GRADE The average assay of a ton of ore, reflecting
metal content.
HANGINGWALL The rock on the upper side of a vein or ore
deposit.
HEAD GRADE The average grade of ore fed into a mill.
HEAP LEACHING A process involving the percolation of a cyanide
solution through crushed ore heaped on an
impervious pad or base to dissolve minerals or
metals out of the ore.
HIGH GRADE Rich ore. As a verb, it refers to selective
mining of the best ore in a deposit.
HOST ROCK The rock surrounding an ore deposit.
18
HYDRO METALLURGY The treatment of ore by wet processes (e.g.,
leaching) resulting in the solution of a metal
and its subsequent recovery.
INTRUSIVE A body of igneous rock formed by the consolidation
of magma intruded into other rocks, in contrast to
lavas, which are extruded upon the surface.
LAGGING Planks or small timbers placed between steel ribs
along the roof of a stope or drift to prevent
rocks from falling, rather than to support the
main weight of the overlying rocks.
LENS Generally used to describe a body of ore that is
thick in the middle and tapers towards the ends.
LEVEL The horizontal openings on a working horizon in a
mine; it is customary to work mines from a shaft,
establishing levels at regular intervals,
generally about 50 meters or more apart.
LIMESTONE A bedded, sedimentary deposit consisting chiefly
of calcium carbonate.
LODE A mineral deposit in solid rock.
METAMORPHIC ROCKS Rocks which have undergone a change in texture or
composition as the result of heat and/or pressure.
MILL A processing plant that produces a concentrate of
the valuable minerals or metals contained in an
ore. The concentrate must then be treated in some
other type of plant, such as a smelter, to affect
recovery of the pure metal.
MILLING ORE Ore that contains sufficient valuable mineral to
be treated by the milling process.
MINEABLE RESERVES Ore reserves that are known to be extractable
using a given mining plan.
MINERAL A naturally occurring homogeneous substance having
definite physical properties and chemical
composition and, if formed under favorable
conditions, a definite crystal form.
MINERALIZED MATERIAL
OR DEPOSIT A mineralized body which has been delineated by
appropriate drilling and/or underground sampling
to support a sufficient tonnage and average grade
of metal(s). Under SEC standards, such a deposit
does not qualify as a reserve until a
comprehensive evaluation, based upon unit cost,
grade, recoveries, and other factors, conclude
economic feasibility.
19
MUCK Ore or rock that has been broken by blasting.
NATIVE METAL A metal occurring in nature in pure form,
uncombined with other elements.
NET PROFIT
INTEREST A portion of the profit remaining after all
charges, including taxes and bookkeeping charges
(such as depreciation) have been deducted.
NET SMELTER RETURN A share of the net revenues generated from the
sale of metal produced by a mine.
OPEN PIT A mine that is entirely on surface. Also referred
to as open-cut or open-cast mine.
ORE Material that can be mined and processed at a
positive cash flow.
ORE PASS Vertical or inclined passage for the downward
transfer of ore connecting a level with the
hoisting shaft or a lower level.
OREBODY A natural concentration of valuable material that
can be extracted and sold at a profit.
ORE RESERVES The calculated tonnage and grade of mineralization
which can be extracted profitably; classified as
possible, probable and proven according to the
level of confidence that can be placed in the
data.
ORESHOOT The portion, or length, of a vein or other
structure, that carries sufficient valuable
mineral to be extracted profitably.
OXIDATION A chemical reaction caused by exposure to oxygen
that results in a change in the chemical
composition of a mineral.
PARTICIPATING
INTEREST A company's interest in a mine, which entitles it
to a certain percentage of profits in return for
putting up an equal percentage of the capital cost
of the project.
PATENT The ultimate stage of holding a mineral claim in
the United States, after which no more assessment
work is necessary because all mineral rights have
been earned.
20
PATENTED MINING
CLAIM A parcel of land originally located on federal
lands as an unpatented mining claim under the
General Mining Law, the title of which has been
conveyed from the federal government to a private
party pursuant to the patenting requirements of
the General Mining Law.
PILLAR A block of solid ore or other rock left in place
to structurally support the shaft, walls or roof
of a mine.
PORPHYRY Any igneous rock in which relatively large
crystals, called phenocrysts, are set in a fine-
grained groundness.
PRECAMBRIAN SHIELD The oldest, most stable regions of the Earth's
crust, the largest of which is the Canadian
Shield.
PROSPECT A mining property, the value of which has not been
determined by exploration.
PROVEN AND PROBABLE
MINERAL RESERVES Reserves that reflect estimates of the quantities
and grades of mineralized material at a mine which
the Company believes could be recovered and sold
at prices in excess of the cash cost of
production. The estimates are based largely on
current costs and on projected prices and demand
for such mineralized material. Mineral reserves
are stated separately for each such mine, based
upon factors relevant to each mine. Proven and
probable mineral reserves are based on
calculations of reserves provided by the operator
of a property that have been reviewed but not
independently confirmed by the Company. Changes in
reserves represent general indicators of the
results of efforts to develop additional reserves
as existing reserves are depleted through
production. Grades of ore fed to process may be
different from stated reserve grades because of
variation in grades in areas mined from time to
time, mining dilution and other factors. Reserves
should not be interpreted as assurances of mine
life or of the profitability of current or future
operations.
PROBABLE RESERVES Resources for which tonnage and grade and/or
quality are computed primarily from information
similar to that used for proven reserves, but the
sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower
than that for proven reserves, is high enough to
assume continuity between points of observation.
21
PROVEN RESERVES Resources for which tonnage is computed from
dimensions revealed in outcrops, trenches,
workings or drill holes and for which the grade
and/or quality is computed from the results of
detailed sampling. The sites for inspection,
sampling and measurement are spaced so closely and
the geologic character is so well defined that
size, shape, depth and mineral content of reserves
are well established. The computed tonnage and
grade are judged to be accurate, within limits
which are stated, and no such limit is judged to
be different from the computed tonnage or grade by
more than 20%.
RAISE A vertical or inclined underground working that
has been excavated from the bottom upward.
RAKE The trend of an orebody along the direction of its
strike.
RECLAMATION The restoration of a site after mining or
exploration activity is completed.
RECOVERY The percentage of valuable metal in the ore that
is recovered by metallurgical treatment.
REPLACEMENT ORE Ore formed by a process during which certain
minerals have passed into solution and have been
carried away, while valuable minerals from the
solution have been deposited in the place of those
removed.
RESERVES That part of a mineral deposit which could be
economically and legally extracted or produced at
the time of the reserve determination. Reserves
are customarily stated in terms of "Ore" when
dealing with metalliferous minerals.
RESOURCE The calculated amount of material in a mineral
deposit, based on limited drill information.
RIB SAMPLES Ore taken from rib pillars in a mine to determine
metal content.
ROCKBOLTING The act of supporting openings in rock with steel
bolts anchored in holes drilled especially for
this purpose.
ROCKBURST A violent release of energy resulting in the
sudden failure of walls or pillars in a mine,
caused by the weight or pressure of the
surrounding rocks.
22
ROCK MECHANICS The study of the mechanical properties of rocks,
which includes stress conditions around mine
openings and the ability of rocks and underground
structures to withstand these stresses.
ROOM-AND-PILLAR
MINING A method of mining flat-lying ore deposits in
which the mined-out area, or rooms, are separated
by pillars of approximately the same size.
ROTARY DRILL A machine that drills holes by rotating a rigid,
tubular string of drill rods to which is attached
a bit. Commonly used for drilling large-diameter
blast holes in open pit mines.
ROYALTY An amount of money paid at regular intervals by
the lessee or operator of an exploration or mining
property to the owner of the ground. Generally
based on a certain amount per ton or a percentage
of the total production or profits. Also, the fee
paid for the right to use a patented process.
RUN-OF-MINE A loose term used to describe ore of average
grade.
SAMPLE A small portion of rock or a mineral deposit,
taken so that the metal content can be determined
by assaying.
SECONDARY
ENRICHMENT Enrichment of a vein or mineral deposit by
minerals that have been taken into solution from
one part of the vein or adjacent rocks and
redeposited in another.
SHAFT A vertical or steeply inclined excavation for the
purpose of opening and servicing a mine. It is
usually equipped with a hoist at the top which
lowers and raises a conveyance for handling
personnel and materials.
SHEAR OR SHEARING The deformation of rocks by lateral movement along
numerous parallel planes, generally resulting from
pressure and producing such metamorphic structures
as cleavage and schistosity.
SHRINKAGE STOPING A stoping method which uses part of the broken ore
as a working platform and as support for the walls
of the stope.
SIDERITE Iron carbonate, which when pure, contains 48.2%
iron; must be roasted to drive off carbon dioxide
before it can be used in a blast furnace.
(Roasted product is called sinter.)
23
SKARN Name for the metamorphic rocks surrounding an
igneous intrusive where it comes in contact with a
limestone or dolomite formation.
SOLVENT EXTRACTION-
ELECTRO WINNING
(SX/EW) A metallurgical technique, so far applied only to
copper ores, in which metal is dissolved from the
rock by organic solvents and recovered from
solution by electrolysis.
SPHALERITE A zinc sulfide mineral; the most common ore
mineral of zinc.
STEP-OUT DRILLING Holes drilled to intersect a mineralized horizon
or structure along strike or down dip.
STOCKPILE Broken ore heaped on the surface, pending
treatment or shipment.
STOPE An underground excavation from which ore has been
extracted either above or below mine level.
STRATIGRAPHY Strictly, the description of bedded rock
sequences; used loosely, the sequence of bedded
rocks in a particular area.
STRIKE The direction, or bearing from true north, of a
vein or rock formation measured on a horizontal
surface.
STRINGER A narrow vein or irregular filament of a mineral
or minerals traversing a rock mass.
STRIPPING RATIO The ratio of tons removed as waste relative to the
number of tons of ore removed from an open pit
mine.
SUBLEVEL A level or working horizon in a mine between main
working levels.
SULFIDE A compound of sulfur and some other element.
TAILINGS Material rejected from a mill after more of the
recoverable valuable minerals have been extracted.
TAILINGS POND A low-lying depression used to confine tailings,
the prime function of which is to allow enough
time for heavy metals to settle out or for cyanide
to be destroyed before water is discharged into
the local watershed.
TREND The direction, in the horizontal plane, or a
linear geological feature (for example, an ore
zone), measured from true north.
24
TROY OUNCE Unit of weight measurement used for all precious
metals. The familiar 16-ounce avoirdupois pound
equals 14.583 Troy Ounces.
UNPATENTED
MINING CLAIM A parcel of property located on federal lands
pursuant to the General Mining Law and the
requirements of the state in which the unpatented
claim is located, the paramount title of which
remains with the federal government. The holder
of a valid, unpatented lode mining claim is
granted certain rights including the right to
explore and mine such claim under the General
Mining Law.
VEIN A mineralized zone having a more or less regular
development in length, width and depth which
clearly separates it from neighboring rock.
VOLCANO GENIC A term used to describe the volcanic origin of
mineralization.
VUG A small cavity in a rock, frequently lined with
well-formed crystals. Amethyst commonly forms in
these cavities.
WALL ROCKS Rock units on either side of an orebody. The
hanging-wall and footwall rocks of an orebody.
WASTE Barren rock in a mine, or mineralized material
that is too low in grade to be mined and milled at
a profit.
WINZE An internal shaft.
ZONE OF OXIDATION The portion of an orebody that has been oxidized,
usually in the upper portion of the ore zone.
ITEM 2. MINERAL PROPERTIES
CHILEAN PROPERTIES
Mocha Copper Porphyry
The prospect was submitted in early 1997 to the Company through one
of the directors of the Company and a field exam was made by personnel
working in Argentina at the time. The decision to begin to acquire and
unitize the Mocha District was based on a number of factors. More than
50% of a known large porphyry system at Mocha is covered by Tertiary
gravels and ignimbrites (post-mineral cover). The best grade primary
and oxide copper, noted from surface sampling and drilling, is on the
west side of the prospect just before going under the post-mineral
cover. On average, the cover is believed to be less than 200 meters in
thickness. A large north-south trending aero-magnetic low anomaly west
of Mocha has never been tested by exploratory drilling. These
anomalies are often indicative of major copper porphyry systems.
25
Since 1995, several junior and major mining companies have held
positions and attempted unsuccessfully to make a deal on the claim
group held by the Escala family of Santiago, Chile. In April 1997, the
Oregon and Chilean Exploration Mining Company, staked 95 "pedimentos"
or exploration claims totaling 28,300 hectares and surrounding the
known Mocha District claims of the Escala Family and Conoco Minerals,
and including the large aeromagnetic low 5-7 kilometers west of Mocha.
The Company was successful at consolidating the District.
Agreements were signed on June 23, 1997 and July 31, 1997 between
Company and the Escala and Oregon LTDA properties.
The Company during the 1998 fiscal year expended substantial effort
and financial resources pursing its option on the Mocha Porphyry Copper
project in Northern Chile. In November 1997, the Company commenced
negotiations with the Teck Corporation of Canada, a mining company, and
in February 1998, a joint venture agreement ("Joint Venture") was
signed.
Under the terms of the Joint Venture, Teck would have an initial
due diligence period (to July 1998) during which they would complete an
initial geophysical survey and a minimum of 3,000 feet of reverse
circulation drilling. Once this due diligence period was complete,
Teck could proceed to cover 100% of all expenses through to production
to earn a 60% interest in the project.
In March 1998, Teck's staff completed a geophysical survey and
proceeded, based upon some positive indications, to commence an initial
drilling program. Six holes were completed by April 1, 1998 and all
six holes encountered copper mineralization throughout the holes.
However, the ore grades averaged 0.4% Cu, which was less then hoped
for. Meanwhile, as the date approached for Teck to make their
decision, the world copper price plunged further to a new ten year low.
In mid-July, Teck notified the Company that it would not exercise its
option to proceed.
Upon receiving Teck's decision, the Board of Directors decided to
return the properties to the underlying owners and depart from Chile.
MEXICAN PROPERTIES
Nayarit Property.
In November and December 1997, the Company constructed an eight
hole drilling program at its leased Nayarit property located near Ruiz,
Nayarit, Mexico. The drilling program was designed to delineate
further reserves down-dip on the Frazadas zinc/silver vein, a prolific
mineral structure which had been successfully mined by previous
operators.
Three of the eight holes intersected mineralized zones of
sufficient width and grade to be economically mined. Two of the eight
holes failed to reach the projection of the Frazadas vein, and three
holes intersected either low grade zones or voids which possibly
represent areas previously mined by earlier operators.
26
Due to lower zinc prices and the inability to raise further capital
to continue the drilling program, the Company opted to return the
property to the underlying owners.
Sierra Mojada Project
In March 1998, the Company acquired a 35% participating interest in
a large copper-silver-lead-zinc project in Coahuila, Mexico from Dakota
Mining. The interest was purchased for $100,000 in cash, 200,000
shares of Common Stock and 200,000 shares of Metalline Mining Common
Stock owned by the Company.
In light of the ongoing financing requirements as a minority
participant, in March 1998, the Company elected to sell its interest to
Grand Central Silver Mines for 735,000 Grand Central common shares and
a promissory note for $350,000 due February 15, 1999. The transaction
was reported in the Form 10-Q filing for the period ending June 30,
1998.
ARGENTINA PROPERTIES
The Company held various options on a dozen different mineral
concessions in the La Rioja Province, Argentine. Due to the difficult
financing climate for exploration projects which prevailed throughout
the 1998 fiscal year, the Directors elected to return the properties to
the owners and withdraw from Argentina.
UNITED STATES PROPERTIES
Crescent Mine
In February 1995, Celebration Mining Company entered into an
agreement to acquire a mineral lease on the Crescent Mine. The
Crescent Mine is an underground mine, located in the Coeur d'Alene
Mining District of Shoshone County, Idaho, about five miles east of
Kellogg, Idaho.
Operations of the Crescent Mine began prior to 1917 and, according
to records available to the Company, approximately 25 million ounces of
silver have been produced from the Crescent Mine. The mine is not
currently in operation and is flooded to approximately the 1200 foot
level. The most current ore reserve report that the Company has been
able to obtain was prepared in 1985 by Norman A. Radford, a registered
professional geologist. That report, based on an assumption that
silver prices would remain below ten dollars ($10) per ounce, indicated
that the Crescent Mine contained 141,000 tons of probable reserves
averaging 31 ounces of silver per ton of mineralized material. At
current prices of under six dollars ($6.00), the Company cannot assure
that any of the mineralization could be mined at a profit.
Host rocks in the Crescent Mine, in common with the rest of the
District, are members of the Precambrian Belt Super Group. Within the
Crescent Mine area, three formations are present, in descending order:
Wallace, St. Regis, and Revett. The most favorable rocks in the
Crescent Mine are the Lower St. Regis and Upper Revett quartzites.
These rocks occur in the Crescent Mine from the 1,200-foot level
downward.
27
The Coeur d'Alene "Silver Belt" ore structures are frequently
narrow, fragmented, and sinuous, and have exhibited great vertical
continuity. For this reason, they have been discovered and mined at
levels deeper than is generally the case in other mining districts.
The ore at the Crescent Mine occurs in thin veins steeply dipping to
the south. These veins may vary in thickness from several inches to
several feet. The Alhambra and the Syndicate Faults are major reverse
faults and both are present in the Crescent Mine.
The Crescent Mine property consists of 12 patented mining claims,
nine unpatented claims, and two Idaho state leases located immediately
adjacent to and west of the world-famous Sunshine Mine owned by
Sunshine Mining Company (SSC-NYSE). The Sunshine Mine has produced
nearly 400 million ounces of silver since its inception, making it the
most productive primary silver mine in North America. The major
structural and stratigraphic features which have produced the major ore
deposits in the Sunshine Mine are also present in the Crescent Mine.
The Crescent is developed to a vertical depth of 5,100 feet by two
vertical shafts. The majority of past production from the Crescent
Mine occurred in the Revett formation over 1,200 feet of dip between
the 3,100 level and the 4,300 level. In the mid-1980's, the No. 2
shaft was deepened to the 5,100 level, which opened an additional 800
feet of favorable Revett quartzites for development of the downward
extensions of the East Footwall and Hook veins, which have been the
most productive veins in the Crescent Mine.
The Company's plans to re-establish significant silver production
from the Crescent Mine will be dependent upon silver prices.
Management estimates that a price of at least $6.00 per ounce would
need to be sustained for a period of six months to justify the capital
investment necessary to de-water the lower workings of the mine and to
rehabilitate the stopes. At December 9, 1997, the Comex Spot price for
silver was $5.36. Absent a $6.00 silver price, the Company intends to
pursue development and exploration efforts in the upper Crescent. The
workings of the upper Crescent Mine are above the water table, and
therefore can be developed without major capital investment. The
Company believes that a processing agreement for Crescent ore can be
negotiated with the neighboring Sunshine Mine on a favorable basis.
During the 1996 fiscal year, the Company's field activities at the
Crescent Mine were limited to are unsuccessful attempt to re-open the
#3 level portal. The portal was filled with unconsolidated glacial
till and it was determined that a much more expensive program will be
required given the bad ground. Due to the low silver price, no attempt
to dewater the lower mine was contemplated during the 1997 fiscal year.
Any further developments on the Crescent Mine for fiscal 1999 will
depend upon the price of silver, as well as the Company's available
capital.
In June 1998, the Company sought to clarify a long standing
possible cloud on its Crescent Mine lease resulting from the lessor's
acquisition of the property at a Bankruptcy Court proceeding in 1991.
Through its counsel in June 1998, the Company filed a lawsuit in
28
Federal Court in Boise, Idaho against the lessor Fawsett
International, Shoshone County and the U. S. Environmental Protection
Agency as defendants. The Company is seeking a declaratory judgment
from the Court as to the validity of its lease.
Counsel has told the Company that its case is strong and management
believes the Company will prevail in this matter.
Conjecture and Liberal King Mines
In July 1998, the Company sold its interest in the Conjecture and
Liberal King Mines to a third party in exchange for 60,000 shares of
Synfuels Technology stock valued at $480,000.
Vipont Mine
The Vipont Mine, which is owned by Celebration Mining Company, is
located in the Ashbrook Mining District, a remote area in the extreme
northwestern corner of Box Elder County, Utah, approximately ten miles
east of the Nevada state line and one mile south of the Idaho state
line near the headwaters of the Little Birch Creek. It is accessible
by asphalt, gravel, and dirt roads. The mine property consists of 53
patented (deeded) mining claims covering nearly 1,000 acres with a 25%
undivided interest owned by Celebration Mining Company (a wholly-owned
subsidiary of the Company.)
The Vipont Mine was at one time one of the foremost silver-
producing mines in the State of Utah. Its greatest period of activity
was from 1919 through mid-1923 after the passage of the Pittman Silver
Purchase Act ("Pittman Act") which authorized the purchase of
200,000,000 ounces of silver. The Mine closed in August 1923 with the
expiration of the Pittman Act after producing nearly 1,000,000 ounces
of silver per year. Some leasing was done in the 1930's and the Mine
was closed in 1942 when Congress passed War Order L-208 closing all
gold and silver mines. From 1977 through 1987, United Silver Mines
began further development and leached the old mill tailings.
The mineralization in the Mine occurs predominantly as the mineral
argentite in the Vipont limestone. Two other units, the Phelan
limestone, and the Sentinel limestone have produced high-grade ore.
Neither the Phelan nor the Sentinel have been seriously explored for
additional ore.
The mineralization in the Vipont limestone occurs as a continuous
tabular "manto" mineralized body in the crests of folds (crenulations)
superimposed upon a shallowly dipping (22 degrees) syncline. The
continuity of the mineral down-dip has been shown by past mining
operations and by a line of drill holes below the old workings. It is
thought by geologists that the mineralization will continue to down-dip
toward an igneous intrusive 4,600 feet southwest of the old mine.
There are two distinct mineralized deposits on the Vipont Property:
the oxide deposit and the sulfide deposit. The characteristics of each
are unique and require different approaches to development and
exploration. According to a 1994 report by Dr. Armond H. Beers, the
oxide deposit contains 1,100,000 tons of mineralized material grading
6.9 ounces per ton in silver and with a small gold credit. The Company
29
has not independently re-verified those findings and cannot and does
not make any assurance as to their accuracy or compliance with
regulatory standards.
The sulfide deposit is currently defined in the Beers Report as
478,000 tons of mineralized material at an estimated average grade of
13.52 ounces per ton in silver. Geologic interpretation of the manto-
type replacement deposit, however, may establish upon further
exploration that this mineralized resource may be larger. The
Company's management and professional staff believe that the sulfide
deposits will represent the long-term future of the Vipont Mine.
During the 1996 fiscal year, the Company elected not to proceed
further with the Vipont joint venture, but as a result of the Company's
successful effort at removing all liens on the property at a Box Elder
County Sheriff's sale, the Company's wholly-owned subsidiary now owns
a 25% undivided interest in the property. The company has no plans to
proceed further with the Vipont until such time as silver prices
improve significantly.
The Company is also a defendant in a lawsuit filed by Thomas F.
Miller (et al.), in the First Judicial Court in and for Box Elder
County, State of Utah. The suit, which alleges that the Company failed
to transfer common stock in exchange for a mining interest, asks for
actual and punitive damages. The Company believes that this lawsuit is
without merit and has filed a countersuit alleging fraudulent
misrepresentation. The Company is seeking both full title to the
aforementioned mineral property and punitive damages, and believes its
countersuit will prevail.
Coeur d'Alene Syndicate Property.
In November 1997, the Company sold these 24 patented claims to
Centurion Mines Corporation for 5,000,000 shares of Centurion Common
Stock. Subsequently, in January 1998, Centurion underwent a 1-for-10
reverse split and changed its name to Grand Central Silver Mines, Inc.
Shoshone County Claims
The Company continues to hold nine unpatented mining claims in
Shoshone County, Idaho which lie immediately adjacent to the holdings
of Sterling Mining Company just south of the Galena Mine, which is
owned and operated by Silver Valley Resources.
Utah Properties and Royalty Interests.
The Company is not currently involved in active exploration with
respect to any of the property holdings or royalty interests within the
Utah Gold Belt. During Fiscal 1997, the Company engaged an independent
geologist to evaluate the mineral potential of the Company's holdings.
Based upon his recommendations, the company dropped some property and
has held onto only claims and leases which are low-cost to hold and
evaluated as having some mineral merit. The Company does not anticipate
pursuing significant exploration activities on the Utah Gold Belt
properties during Fiscal 1998.
30
ITEM 3. LEGAL PROCEEDINGS
The Officers and Directors of the Company certify that to the best
of their knowledge, neither the Company nor any of its Officers and
Directors are parties to any legal proceeding or litigation. Further,
the Officers and Directors know of no threatened or contemplated legal
proceedings or litigation with the exception of the following:
(1) The Company is a defendant in a lawsuit filed by some of its
shareholders for alleged violations of securities laws. The suit was
filed in the U.S. District Court in Denver on January 22, 1998 with
Rounds et al as plaintiffs vs. Royal Silver Mines, Inc. et al as
defendants. Plaintiffs seek damages and attorneys' fees in their
lawsuit, which alleges that defendants made false/misleading statements
and omitted material disclosures in connection with public trading of
Royal's common stock during the period May 1996 through August 1997.
The Company believes that this lawsuit is completely without merit.
The Company is not aware of any similar actions(s) contemplated or
instituted by governmental authorities. The trial court sustained the
Company's motion for summary judgment dismissing claims against it for
omissions of material disclosures.
(2) The Company is also a defendant in a lawsuit filed by Thomas
F. Miller (et al.), in the First Judicial Court in and for Box Elder
County, State of Utah. The suit, which alleges that the Company failed
to transfer common stock in exchange for a mining interest, asks for
actual and punitive damages. The Company believes that this lawsuit is
without merit and has filed a countersuit alleging fraudulent
misrepresentation. The Company is seeking both full title to the
aforementioned mineral property and punitive damages, and believes its
countersuit will prevail.
(3) In July 1998, the Company filed an action in federal court in
Boise, Idaho for declaratory judgment regarding the validity of its
Crescent Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. Management believes that there is a good likelihood of
prevailing in this matter.
None of the Officers and Directors have been convicted of a felony
or none have been convicted of any criminal offense, felony and
misdemeanor relating to securities or performance in corporate office.
To the best of the knowledge of the Officers and Directors, no
investigations of felonies, misfeasance in office or securities
investigations are either pending or threatened at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has been no vote of security holders during the annual period
ended September 30, 1998.
31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common shares are traded on the Bulletin Board
Operated by the National Association of Securities Dealers, Inc. under
the symbol "RSMI." The prices listed below were obtained from the
National Quotation Bureau, Inc., and are the highest and lowest bids
reported during each fiscal quarter for the period December 31, 1994,
through September 30, 1998. These bid prices are over-the-counter
market quotations based on inter-dealer bid prices, without markup,
markdown, or commission and may not necessarily represent actual
transactions:
Fiscal Quarter Ended High Bid($) Low Bid ($)
-------------------- --------- -----------
[S] [C] [C]
December 31, 1994 4.125 3.000
March 31, 1995 2.500 1.125
June 30, 1995 3.750 0.875
September 29, 1995 3.124 2.750
December 31, 1995 2.87 2.43
March 31, 1996 2.75 2.25
June 30, 1996 2.94 1.62
September 30, 1996 2.12 1.00
December 31, 1996 1.35 0.75
March 31, 1997 1.56 0.91
June 30, 1997 1.15 0.63
September 30, 1997 0.97 0.69
December 31, 1997 0.62 0.56
March 31, 1998 0.45 0.42
June 30, 1998 0.20 0.18
September 30, 1998 0.10 0.09
On December 15, 1998, the average of the high bid and low ask
quotation for the Company's common shares as quoted on the Bulletin
Board was $0.06.
The approximate number of holders of common stock of record on
December 15, 1998, was approximately 366.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included in the following table have
been derived from and should be read in conjunction with and are
qualified by the Company's financial statements and notes set forth
elsewhere in this report. Historical financial data for certain
periods may be derived from financial statements not included herein.
32
[CAPTION]
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94
(Audited) (Audited) (Audited) (Audited) (Audited)
Statement of Operations and
Accumulated Deficit Data:
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Operating
Expenses $ 1,063,715 $ 1,558,823 $ 1,835,548 $ 962,735 $ 211,796
Net loss $(2,637,568) $(1,770,771) $(2,045,082) $ (962,735) $(211,796)
Net Loss
per share $ (0.16) $ (0.14) $ (0.22) $ (0.15) $ (0.03)
Balance Sheet Data:
Work Capital
(Deficit) $ 303,600 $ 671,355 $ 686,573 $ (665,274) $ 25,754
Total Assets $ 3,982,592 $ 5,891,527 $ 5,605,357 $ 4,056,698 $ 366,620
Long-term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Stockholders'
Equity $ 3,913,777 $ 5,850,186 $ 5,485,490 $ 3,235,376 $ 276,321
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Financial Condition, Liquidity and Capital Resources.
There is considerable risk in any mining venture, and there can be
no assurance that the Company's operations will be successful or
profitable. Exploration for commercially mineable ore deposits is
highly speculative and involves risks greater than those involved in
the discovery of mineralization. Mining companies use the evaluation
work of professional geologists, geophysicists, and engineers in
determining whether to acquire an interest in a specific property, or
whether or not to commence exploration or development work. These
estimates are not always scientifically exact, and in some instances
result in the expenditure of substantial amount of money on a property
before it is possible to make a final determination as to whether or
not the property contains economically mineable ore bodies. The
economic viability of a property cannot be finally determined until
extensive exploration and development work, plus a detailed economic
feasibility study, has been performed. Also, the market prices for
mineralization produced are subject to fluctuation and uncertainty,
which may negatively affect the economic viability of properties on
which expenditures have been made. During the development stage of
the Company, from inception to September 30, 1998, the Company
accumulated a deficit of $7,466,096.
At September 30, 1998, $2,229,411 of the Company's total assets of
$3,982,593 were investments in mineral properties and $926,250 of the
Company's assets is an investment in Grand Central Silver Mines, Inc.,
a minerals exploration company traded on NASDAQ. Additional
exploration is required to substantiate determine whether these mineral
properties contain ore reserves that are economically recoverable. The
realization of these investments is dependent upon the success of
future property sales, the existence of economically recoverable
reserves, the ability of the Company to obtain financing, the Company's
success in carrying out its present plans or making other arrangements
for development, and upon future profitable production. The ultimate
outcome of these investments cannot be determined at this time;
33
accordingly, no provision for any asset impairment that may result, in
the event the Company is not successful in developing or selling these
properties, has been made in the Company's financial statements.
Liquidity and Capital Resources.
The Company currently has no revenues but, as explained above, has
an accumulated deficit. Although it has recurring losses from
operations, the Company has increased its operating capital and
improved its financial condition and ability. Regarding its losses
from operations, the Company cannot assure that it will be able to
fully carry out its plans as budgeted without additional operating
capital. At September 30, 1998, the Company had working capital of
$303,600. This amount represents severe deterioration from the working
capital of $671,355 at September 30, 1997. In the year ending
September 30, 1998, the Company's working capital has decreased by
$367,755 primarily because of decreased cash received by the Company
from its sales of common stock. During the same twelve-month period,
the Company's cash decreased from $594,577 to $3,147 while the
Company's notes receivable and investments both increased
substantially. Due to the foregoing conditions, the Company's
independent certified public accountants included a paragraph in the
Company's financial statements relative to a going concern uncertainty.
In fiscal year 1998, the Company's current liabilities increased by
$27,474 primarily due to a build up of accounts payable from the
September 30, 1997 level. The Company's current liabilities of $68,815
at September 30, 1998 represent an unfavorable increase from the
Company's current liabilities of $41,341 at September 30, 1997. The
Company has no long-term debt. The Company has estimated that it will
need minimal capital resources of approximately $4,000 per month to
meet its estimated expenditures for fiscal 1999. In 1997 and in 1998,
management met with experienced financial and investment firms
throughout Europe and North America and negotiated arrangements for
capital fund raising. During the fiscal year ending September 30,
1997, the Company raised $1,843,750 in funds primarily through the
private placement of shares and warrants. In fiscal 1998, the Company
raised $344,500 in cash and $700,000 in notes, primarily through the
private placement of shares. The Company is continuing with the
previously described negotiations and various alternatives to raise
capital.
Inasmuch as the Company has not yet determined in detail the
specifications of the project, operation or mining activity that it
intends to undertake, management is not able at this time to provide a
detailed listing or exact range of operation costs, including increases
in general and administrative expense, if any. However, the Company
plans to fund any increases in general and administrative expense
principally from joint venture revenues or private placement funds.
Financing for the Company's exploration and development of mineral
properties is expected to come primarily from the contributions of its
joint venture participants and from the funds generated from such joint
ventures and other lease or royalty arrangements.
34
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities which provide its
personnel, office space, and equipment needs. The Company currently is
seeking alternate sources of working capital sufficient to increase
the funding of additional general and administrative expenses that may
become necessary as the Company's business plan develops, and to
continue meeting its ongoing payment obligations for its leases to
governmental entities.
RESULTS OF OPERATIONS
Comparison of the Year Ended September 30, 1997 and September 30, 1998,
Respectively.
General and administrative expenses decreased from $1,079,160
during fiscal 1997 to $616,600 during fiscal 1998. This decrease is
principally due to decreased salaries and a decrease in the cost of
fundraising associated with the Company's recent private placements of
its stock. Also, during the twelve months of fiscal 1997, the Company
incurred officers/directors compensation of $403,660 while such
compensation expenses were reduced to $117,652 in the twelve months of
fiscal 1998. As a principal result of the Company's cost reduction
efforts in fundraising and compensation, total expenses of $1,558,823
for fiscal 1997 decreased to $1,063,715 (total expenses) in fiscal
1998.
In the second quarter of fiscal 1998, the Company sold some
patented mining properties for common stock valued at $1,500,000,
which resulted in a gain of $406,250. In this same quarter the Company
sold a 35% working interest in a minerals exploration joint venture in
exchange for stock valued at $1,424,062 and a promissory note for
$350,000, resulting in a gain of $1,454,062. There were no comparable
transactions in the prior year. In the last quarter of fiscal 1998, the
Company elected to withdraw from most of its foreign mineral
concessions and accordingly recorded losses of $592,065 by writing off
its exploration properties in Chile, Argentina and Mexico. In the
same quarter, the Company elected to sell its Conjecture Mine in
Washington state and incurred a loss of $830,700 on this disposition.
Also in the fourth quarter of fiscal 1998, the value of the Company's
common stock investment in Grand Central Silver Mines, Inc. dropped
significantly and the Company posted a loss of $1,997,812 on the
decreased value of its investments.
The Company is unable to fully determine the impact of future
transactions on its operating capital. Hence, the Company has
determined not to incur and does not have any commitments or plans for
material capital expenditures in the near future for which it does not
have a reasonably available source of payment. It is uncertain what
effect this decision may have with respect to restricting capital
expenditures.
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
C O N T E N T S
Independent Auditor's Report . . . . . . . . . . . . . . . F-1
Balance Sheets . . . . . . . . . . . . . . . . . . . F-2 - F-3
Statement of Operations . . . . . . . . . . . . . . . . . . F-4
Statement of Shareholders' Equity . . . . . . . . . .F-5 - F-10
Statement of Cash Flows . . . . . . . . . . . . . . F-11 - F-12
Notes to the Financial Statements . . . . . . . . . F-13 - F-27
36
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Royal Silver Mines,
Inc. (a development stage company) as of September 30, 1998 and 1997,
and the related statements of operations, shareholders' equity, and
cash flows for the years then ended, and from inception on February 17,
1994 through September 30, 1998. 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 the audit
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 financial position of Royal
Silver Mines, Inc. as of September 30, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended and
from inception on February 17, 1994 through September 30, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 19 to
the financial statements, the Company's significant operating losses
raise substantial doubt about its ability to continue as a going
concern. The financial statement do not include any adjustments that
might result from the outcome of this uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
December 21, 1998
37
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
September 30, September 30,
ASSETS 1998 1997
------------- -------------
CURRENT ASSETS
Cash $ 3,147 $ 594,577
Note receivable 350,000 100,000
Interest receivable 17,106 7,583
Prepaid expenses 2,162 10,536
----------- -----------
TOTAL CURRENT ASSETS 372,415 712,696
----------- -----------
MINERAL PROPERTIES 2,229,411 4,915,579
----------- -----------
PROPERTY AND EQUIPMENT
Mining equipment 83,889 188,888
Furniture and equipment 12,761 15,185
Less accumulated
depreciation (19,868) (17,005)
----------- -----------
TOTAL PROPERTY
AND EQUIPMENT 76,782 187,068
----------- -----------
OTHER ASSETS
Investments 1,298,750 70,000
Organization costs, net 5,234 6,184
----------- -----------
TOTAL OTHER ASSETS 1,303,984 76,184
----------- -----------
TOTAL ASSETS $ 3,982,592 $ 5,891,527
=========== ===========
The accompanying notes are an integral part of these
financial statements.
F-2
38
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
September 30, September 30,
LIABILITIES AND 1998 1997
SHAREHOLDERS' EQUITY ------------- -------------
CURRENT LIABILITIES
Accounts payable $ 65,815 $ 20,355
Accrued expenses 3,000 20,986
----------- -----------
TOTAL CURRENT LIABILITIES 68,815 41,341
----------- -----------
LONG TERM DEBT - -
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
SHAREHOLDERS' EQUITY
Common stock,$.01 par value;
40,000,000 shares authorized,
19,003,565 and 13,482,232 shares
issued and outstanding,
respectively 190,035 134,822
Additional paid-in capital 11,889,838 10,543,892
Stock subscription receivable (700,000) -
Deficit accumulated during
development stage (7,466,096) (4,828,528)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 3,913,777 5,850,186
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,982,592 $ 5,891,527
=========== ===========
The accompanying notes are an integral part of these
financial statements.
F-3
39
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Operations, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Year Ended Year Ended
September 30, September 30,
1998 1997
------------- -------------
REVENUES $ - $ -
----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property expense 276,476 31,378
Depreciation and amortization 52,987 44,625
Officers' and directors'
compensation 117,652 403,660
General and administrative 616,600 1,079,160
----------- -----------
Total expenses 1,063,715 1,558,823
----------- -----------
OPERATING LOSS (1,063,715) (1,558,823)
----------- -----------
OTHER INCOME (EXPENSES)
Interest income 27,582 31,025
Interest expense - (2,257)
Loss on disposition of assets (3,476,716) (240,656)
Grain on property interest sold 1,875,281 -
----------- -----------
Total other income (expense) (1,573,853) (211,888)
----------- -----------
NET LOSS $(2,637,568) $(1,770,711)
----------- -----------
NET LOSS PER COMMON SHARE $ (0.16) $ (0.14)
=========== ===========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 16,348,120 12,305,987
=========== ===========
The accompanying notes are an integral part of these
financial statements.
F-4a
40
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Operations, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
February 17,
Year Ended 1994 (Inception)
September 30, Through
1996 September 30, 1998
------------- ------------------
REVENUES $ - $ -
----------- ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property expense 8,122 555,706
Depreciation and amortization 35,736 195,681
Officers' and directors'
Compensation 492,715 1,353,260
General and administrative 1,298,975 3,397,765
----------- ------------
Total expenses 1,835,548 5,502,412
----------- ------------
OPERATING LOSS (1,835,548) (5,502,412)
----------- ------------
OTHER INCOME (EXPENSES)
Interest income - 58,607
Interest expense (9,534) (74,348)
Loss on disposition of assets (200,000) (3,823,223)
Gain on property interest sold - 1,963,683
----------- ------------
Total other income (expense) (209,534) (1,963,683)
----------- ------------
NET LOSS $(2,045,082) $ (7,466,095)
----------- ------------
NET LOSS PER COMMON SHARE $ (0.22) $ (0.79)
=========== ============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 9,221,191 9,431,759
=========== ============
The accompanying notes are an integral part of these
financial statements.
F-4b
41
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
Number
of Shares Amount
----------- -----------
Balance
February 17, 1994 - $ -
Issuance in May 1994 of
shares at $.002 per share
to officers and directors in
exchange for assignment of
mining property option 2,250,000 22,500
Issuance in July 1994 of
shares for cash at $.402
in private placement, net
of costs 1,050,000 10,500
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $.417 per share 150,000 1,500
Net loss for the year ended
November 30, 1994 - -
--------- --------
Balance,
November 30, 1994 3,450,000 34,500
Issuance of shares in debt
offering at $.03 per share 416,250 4,163
Issuance of shares for
mineral properties valued
at $1.00 per share 262,500 2,625
Issuance of shares for cash
at $1.00 per share 15,000 150
Stock issuance costs - -
--------- --------
Balance forward 4,143,750 $ 41,438
--------- --------
The accompanying notes are an integral part of these
financial statements.
F-5a
42
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Deficit Stockholders'
Capital Accumulated Equity
Balance
February 17, 1994 $ - $ - $ -
--------- ----------- ----------
Issuance in May 1994 of
shares at $.002 per share
to officers and directors in
exchange for assignment
of mining property option (18,500) - 4,000
Issuance in July 1994 of
shares for cash at $.402
in private placement, net
of costs 411,116 - 421,616
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $.417 per share 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - (211,796) (211,796)
--------- ---------- ----------
Balance,
November 30, 1994 453,616 (211,796) 276,320
Issuance of shares in debt
offering at $.03 per share 9,712 - 13,875
Issuance of shares for
mineral properties valued
at $1.00 per share 259,875 - 262,500
Issuance of shares for cash
at $1.00 per share 14,850 - 15,000
Stock issuance costs (58,202) - (58,202)
--------- ----------- ----------
Balance forward $ 679,851 $ (211,796) $ 509,493
--------- ---------- ----------
The accompanying notes are an integral part of these
financial statements.
F-5b
43
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
Number
of Shares Amount
---------- --------
Balance forward 4,143,750 $ 41,438
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$.15 per share 2,434,563 24,346
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to $2.50
per share 12,750 127
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13 to
$3.25 per share 800,000 8,000
Issuance of shares for
cash at prices ranging
from $1.50 to $2.00
per share 166,000 1,660
Issuance of shares in
exchange for debt at
$1.50 per share 200,000 2,000
Net loss for the ten
months ended September
30, 1995 - -
--------- --------
Balance, September
30, 1995 7,757,063 $ 77,571
--------- --------
The accompanying notes are an integral part of these
financial statements.
F-6a
44
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Deficit Stockholders'
Capital Accumulated Equity
------------- ----------- -------------
Balance forward $ 679,851 $ (211,796) $ 509,493
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$.15 per share 335,750 - 360,096
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to $2.50
per share 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13
to $3.25 per share 2,530,126 - 2,538,126
Issuance of shares for cash
at prices ranging from $1.50
to $2.00 per share 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 298,000 - 300,000
Net loss for the ten
months ended September
30, 1995 - (750,939) (750,939)
----------- ---------- -----------
Balance,
September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376
----------- ---------- -----------
The accompanying notes are an integral part of these
financial statements.
F-6b
45
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
Number
of Shares Amount
------------ ----------
Balance forward 7,757,063 $ 77,571
Issuance of shares for
cash at $1.50 per share 1,176,832 11,769
Issuance of shares to
directors and employees
for services at $1.50
per share 222,700 2,227
Issuance of shares in
exchange for debt at $1.50
per share 406,050 4,060
Issuance of shares for cash
at $2.20 per share 150,000 1,500
Issuance of warrants for cash
at $.05 per warrant - -
Issuance of shares for cash
at $1.62 per share 65,000 650
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 107,500 1,075
Issuance of shares for cash at
$0.75 per share 200,000 2,000
Issuance of shares for cash at
$1.70 per share 250,000 2,500
---------- ---------
Balance forward 10,335,145 $ 103,352
---------- ---------
The accompanying notes are an integral part of these
financial statements.
F-7a
46
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Deficit Stockholders'
Capital Accumulated Equity
----------- ------------ -------------
Balance forward $ 4,120,540 $ (962,735) $ 3,235,376
Issuance of shares for
cash at $1.50 per share 1,754,010 - 1,765,779
Issuance of shares to
directors and employees
for services at $1.50
per share 331,823 - 334,050
Issuance of shares in
exchange for debt at $1.50
per share 605,015 - 609,075
Issuance of shares for cash
at $2.20 per share 328,500 - 330,000
Issuance of warrants for cash
at $.05 per warrant 41,068 - 41,068
Issuance of shares for cash
at $1.62 per share 104,650 - 105,300
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 181,175 - 182,250
Issuance of shares for cash at
$0.75 per share 147,985 - 149,985
Issuance of shares for cash at
$1.70 per share 422,500 - 425,000
----------- ---------- -----------
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
----------- ---------- -----------
The accompanying notes are an integral part of these
financial statements.
F-7b
47
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
Number
of Shares Amount
----------- -----------
Balance forward 10,335,145 $ 103,352
Cancellation of 35,000 shares
received in exchange for
return of mining property (35,000) (350)
Payment of Centurion Mines
for option to repurchase
stock - -
Issuance of shares for joint
venture in mining property
at $1.50 per share 100,000 1,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (25,000) (250)
Issuance of shares for
mining property at
$1.50 per share 20,000 200
Issuance of shares for
noteholders for
extension of notes at
$1.50 per share 39,375 394
Issuance of shares for
services at $1.50 per share 215,334 2,153
Stock issuance costs - -
Net loss for the year
ended September 30, 1996 - -
---------- -----------
Balance, September 30, 1996 10,649,854 $ 106,499
---------- -----------
The accompanying notes are an integral part of these
financial statements.
F-8a
48
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Deficit Stockholders'
Capital Accumulated Equity
----------- ------------ ------------
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
Cancellation of 35,000 shares
received in exchange for
return of mining property (109,025) - (109,375)
Payment of Centurion Mines
for option to repurchase
stock - (50,000) (50,000)
Issuance of shares for joint
venture in mining property
at $1.50 per share 149,000 - 150,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (34,750) - (35,000)
Issuance of shares for
mining property at
$1.50 per share 29,800 - 30,000
Issuance of shares for
noteholders for
extension of notes at
$1.50 per share 58,669 - 59,063
Issuance of shares for
services at $1.50 per share 320,848 - 323,001
Stock issuance costs (15,000) - (15,000)
Net loss for the year
ended September 30, 1996 - (2,045,082) (2,045,082)
----------- ----------- -----------
Balance, September 30, 1996 $ 8,436,808 $(3,057,817) $ 5,485,490
----------- ----------- -----------
The accompanying notes are an integral part of these
financial statements.
F-8b
49
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
A Development Stage Company
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
Number
of Shares Amount
---------- ----------
Balance forward 10,649,854 $ 106,499
Issuance of shares for
cash at $0.75 per share 2,491,000 24,910
Stock issuance costs - -
Issuance of shares to directors
and employees for services:
at $1.00 per share 110,500 1,105
at $0.75 per share 25,000 250
Issuance of shares for services
at $1.25 per share 98,250 982
Payment for extension of warrants
for one year - -
Issuance of shares for mining
property at $1.00 per share 60,000 600
Cancellation of 25,000 shares
received in exchange for
return of mining property (25,000) (250)
Issuance of shares for services:
at $1.00 per share 25,500 255
at $0.75 per share 47,128 471
Payment for extension of warrants
for one year - -
Net loss for the year ended
September 30, 1997 - -
---------- ---------
Balance, September 30, 1997 13,482,232 $ 134,822
========== =========
The accompanying notes are an integral part of these
financial statements.
F-9a
50
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
A Development Stage Company
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
---------- ------------ ------------
Balance forward $ 8,436,808 $ (3,057,817) $ 5,485,490
Issuance of shares for
cash at $0.75 per share 1,843,340 - 1,868,250
Stock issuance costs (30,000) - (30,000)
Issuance of shares to directors
and employees for services:
at $1.00 per share 109,395 - 110,500
at $0.75 per share 18,500 - 18,750
Issuance of shares for services
at $1.25 per share 121,829 - 122,811
Payment for extension of warrants
for one year 3,000 - 3,000
Issuance of shares for mining
property at $1.00 per share 59,400 - 60,000
Cancellation of 25,000 shares
received in exchange for
return of mining property (81,000) - (81,250)
Issuance of shares for services:
at $1.00 per share 25,245 - 25,500
at $0.75 per share 34,875 - 35,346
Payment for extension of warrants
for one year 2,500 - 2,500
Net loss for the year ended
September 30, 1997 - (1,770,711) (1,770,711)
----------- ------------ -----------
Balance, September 30, 1997 $ 10,543,892 $ 4,828,528 $ 5,850,186
============ ============ ===========
The accompanying notes are an integral part of these
financial statements.
F-9b
51
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
A Development Stage Company
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock Additional
Number Paid-in
of Shares Amount Capital
--------- ------ ----------
Balance forward 13,482,232 $ 134,822 $ 10,543,892
Issuance of share for
cash at $0.75 per share 10,000 100 7,400
Issuance of shares to directors,
consultants and employees for
services:
at prices varying from $0.34
per share to $0.91 per share 398,000 3,980 202,680
Issuance of shares for mining
property at $0.75 per share 200,000 2,000 148,000
Issuance of shares for cash
at $0.75 1,913,333 19,133 267,866
Issuance of shares in exchange
for cash and note at $0.25
per share 3,000,000 30,000 720,000
Net loss for year ended
September 30, 1998 - - -
---------- ---------- ----------
Balance at September 30, 1998 19,003,565 $ 190,035 $11,889,838
========== ========== ===========
The accompanying notes are an integral part of these
financial statements.
F-10a
52
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
A Development Stage Company
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Total
Subscription Accumulated Stockholders'
Receivable Deficit Equity
------------ ----------- --------------
Balance forward $ - $ (4,828,528) $ 5,850,186
Issuance of shares
for cash at $0.75
per share - - 7,500
Issuance of shares to
directors, consultants
and employees for
services:
at prices varying from
$0.34 per share to
$0.91 per share - - 206,660
Issuance of shares for
mining property at
$0.75 per share - - 150,000
Issuance of shares for
cash at $0.15 per share - - 286,999
Issuance of shares in
exchange for cash and
note at $0.25 per share (700,000) - 50,000
Net loss for year ended
September 30, 1998 - (2,637,568) (2,637,568)
---------- ----------- -----------
Balance at
September 30, 1998 $ (700,000) $(7,466,096) $3,913,777
========== =========== ===========
The accompanying notes are an integral part of these
financial statements.
F-10b
53
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across four pages. This is
page 1 of 4.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Year For the Year
Ended Ended
September 30, September 30,
1998 1997
------------ ------------
Cash flows from operating activities:
Net loss $ (2,637,568) $ (1,770,711)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 45,649 44,625
Issuance of common stock for services 206,658 312,907
Write off of joint venture costs 10,000 -
Loss on sale of equipment 12,585 -
Write off of option costs 517,871 -
Write off of mineral properties 1,097,737 -
Loss on devaluation of investments 1,997,813 -
Changes in assets and liabilities:
Note receivable (250,000) -
Interest receivable (9,523) (7,250)
Prepaid expenses 5,831 (19,040)
Other assets - (6,000)
Mineral properties (4,674) -
Accounts payable 45,460 (4,780)
Accrued expenses (18,798) (13,457)
Payable to related parties - (289)
---------- ----------
Net cash provided (used)
operating activities 1,019,041 (1,463,995)
---------- ----------
Cash flows from investing activities:
Purchase of investments (2,934,062) (70,000)
Purchase and development
of mineral properties (185,690) (151,164)
Purchase of fixed assets (4,154) (193,230)
Sale of investments 70,000 -
Sale of fixed assets 5,185 500
Sale of mineral properties 1,093,750 -
------------ ------------
Net cash used in
investing activities (1,954,971) (413,894)
------------ ------------
F-11a
54
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across four pages. This is
page 2 of 4.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Year For the Year
Ended Ended
September 30, September 30,
1998 1997
------------ ------------
Cash flows from financing activities:
Stock issuance and offering costs - (30,000)
Proceeds received on long-term debt - -
Payments made on notes payable - (60,000)
Issuance of common stock for cash 344,500 1,868,250
Payment for option to repurchase stock - -
Issuance of common stock
for accrued interest - -
Issuance of common stock for extension
of notes payable maturation - -
Payment for return of stock issued
for mining property interest - -
Payment of joint venture costs - -
Issuance of warrants or
warrants extensions for cash - 5,500
------------ ------------
Net cash provided by
financing activities 344,500 1,783,750
------------ ------------
Net increase (decrease) in cash $ (591,430) $ (94,139)
------------ ------------
The accompanying notes are an integral part of these
financial statements.
F-11b
55
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages. This is page
3 of 4.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
From
02/17/94
For the Year (Inception)
Ended Through
09/30/96 09/30/98
------------ -----------
Cash flows from operating activities:
Net loss $ (2,045,082) $(7,416,095)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 35,736 190,890
Issuance of common stock for services 657,051 1,268,716
Write off of joint venture costs 150,000 160,000
Loss on sale of equipment - 12,585
Write off of option costs - 517,871
Write off of mineral properties - 1,097,737
Loss on devaluation of investments - 1,997,813
Changes in assets and liabilities:
Note receivable (100,000) (350,000)
Interest receivable (333) (17,106)
Prepaid expenses (13,041) (30,600)
Other assets 19,836 (9,801)
Mineral properties - (4,674)
Accounts payable (34,891) 65,815
Accrued expenses (55,645) 2,188
Payable to related parties - 300,000
---------- -----------
Net cash provided (used)
operating activities (1,386,369) (2,214,661)
---------- -----------
Cash flows from investing activities:
Purchase of investments - (3,004,062)
Purchase and development of
mineral properties (979,043) (1,941,690)
Purchase of fixed assets (4,173) (213,187)
Sale of investments - 70,000
Sale of fixed assets - 5,685
Sale of mineral properties - 1,093,750
----------- -----------
Net cash provided (used) in
investing activities (983,216) (3,989,504)
F-11c
56
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across four pages. This is
page 4 of 4.
For the Year For the Year
Ended Ended
September 30, September 30,
1998 1997
------------ ------------
Cash flows from financing activities:
Stock issuance and offering costs (15,000) (174,835)
Proceeds received on long-term debt - 675,000
Payments made on notes payable (40,000) (174,206)
Issuance of common stock for cash 2,958,314 5,872,564
Payment for option to repurchase stock (50,000) (50,000)
Issuance of common stock
for accrued interest 38,158 38,158
Issuance of common stock for extension of
notes payable maturation 59,063 59,063
Payment for return of stock issued for mining
property interest (35,000) (35,000)
Payment of joint venture costs (50,000) (50,000)
Issuance of warrants or warrants
extensions for cash 41,068 46,568
----------- -----------
Net cash provided by
financing activities 2,906,603 6,207,312
----------- -----------
Net increase (decrease) in cash $ 537,018 $ 3,147
----------- -----------
The accompanying notes are an integral part of these
financial statements.
F-11d
57
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages. This is page
1 of 2.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year For the Year
Ended Ended
September 30, September 30,
1998 1997
-------------- --------------
Net decrease in cash
(balance forward) $(591,430) $ (94,139)
Cash, beginning of period 594,577 688,716
--------- ---------
Cash, end of period $ 3,147 $ 594,577
========= =========
Supplemental cashflow disclosure:
Income taxes $ - $ -
Interest $ - $ 2,257
Non-cash financing activities:
Common stock issued for
services rendered $ 206,660 $ 312,907
Common stock issued for
mineral properties $ 150,000 $ 60,000
Common stock issued for
exchange for debt $ - $ -
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. $ - $ -
Option rights acquired in
exchange for a payable $ - $ -
Common stock issued for
assignment of mining
property options $ - $ -
The accompanying notes are an integral part of these
financial statements.
F-12a
58
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages. This is page
2 of 2.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year From
Ended 02/17/94
September 30, Through
1996 09/30/98
------------- ----------------
Net decrease in cash
(balance forward) $ 537,018 $ 3,147
Cash, beginning of period 151,698 -
------------ -------------
Cash, end of period $ 688,716 $ 3,147
============ =============
Supplemental cashflow disclosure:
Income taxes $ - $ 350
Interest $ 5,715 $ 25,655
Non-cash financing activities:
Common stock issued for
services rendered $ 657,051 $ 1,268,718
Common stock issued for
mineral properties $ 180,000 $ 3,190,626
Common stock issued for
exchange for debt $ 570,917 $ 922,950
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. $ - $ 360,096
Option rights acquired in
exchange for a payable $ 360,096 $ 79,000
Common stock issued for
assignment of mining
property options $ - $ 4,000
The accompanying notes are an integral part of these
financial statements.
F-12b
59
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969
under the laws of the state of Utah primarily for the purpose of
acquiring and developing mineral properties. Royal conducts its
business as a "junior" natural resource company, meaning that it
intends to receive income from property sales or joint ventures with
larger companies.
Celebration Mining Company (Celebration), currently a wholly-owned
subsidiary of Royal, was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration
was organized on February 17, 1994 as a Washington corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an Agreement and
plan of reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization, the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration control the Company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of
the assets or liabilities of Royal in the exchange as the market
value approximated the net carrying value. Royal is the acquiring
entity for legal purposes and Celebration is the surviving entity for
accounting purposes.
The $2,229,411 cost of mineral properties included in the
accompanying balance sheet as of September 30, 1998 is related to
exploration properties. The Company has not determined whether the
exploration properties contain ore reserves that are economically
recoverable. The ultimate realization of the Company's investment in
exploration properties is dependent upon the success of future
property sales, the existence of economically recoverable reserves,
the ability of the company to obtain financing or make other
arrangements for development and upon future profitable production.
The ultimate realization of the Company's investment in exploration
properties cannot be determined at this time and, accordingly, no
provision for any asset impairment that may result, in the event the
Company is not successful in developing or selling these properties,
has been made in the accompanying financial statements.
F-13
60
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Company is seeking additional capital and management believes the
properties can ultimately be sold or developed to enable the Company
to continue its operations. However, there are inherent
uncertainties in mining operations and management cannot provide
assurances that it will be successful in this endeavor. Furthermore,
the Company is in the development stage, as it has not realized any
significant revenues from its planned operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Development Stage
The company is in the development stage and has not commenced the
sale of any products.
Year End
The Company's year-end is September 30.
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.
Loss Per Share
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year. The weighted
average number of shares was calculated by taking the number of
shares outstanding and weighting them by the amount of time they were
outstanding.
Loss Per Share (continued)
Outstanding warrants were not included in the computation of loss per
share because the exercise price of the outstanding warrants is
higher than the market price of the stock, thereby causing the
warrants to be antidilutive.
Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
F-14
61
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mineral Properties
Costs of acquiring, exploring and developing mineral properties are
capitalized by project area. Costs to maintain the mineral rights
and leases are expensed as incurred. When a property reaches the
production state, the related capitalized costs will be amortized,
using the units of production method on the basis of periodic
estimates of ore reserves. Mineral properties are periodically
assessed for impairment of value and any losses are charged to
operations at the time of impairment.
Should a property be abandoned, its capitalized costs are charged to
operations. The Company charges to operations the allocable portion
of capitalized costs attributable to properties sold. Capitalized
costs are allocated to properties sold based on the proportion of
claims sold to the claims remaining within the project area.
Provision For Taxes
At September 30, 1998, the Company had net operating loss
carryforwards of approximately $7,400,000 that may be offset against
future taxable income through 2012. No tax benefit has been reported
in the financial statements as the Company believes there is a
significant chance the net operating loss carryforwards will expire
unused. Accordingly, the potential tax benefits of the net operating
loss carryforwards are offset by a valuation allowance of the same
amount.
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Impairment of Long-lived Assets."
This standard is effective for years beginning after December 15,
1995. In complying with this, the Company reviews its long-lived
assets quarterly to determine if any events or changes in
circumstances have transpired which indicate that the carrying value
of its assets may not be recoverable. Because of write-downs and
write-offs taken in the fourth quarter of fiscal 1998, the Company
does not believe any further adjustments are needed to the carrying
value of its assets at September 30, 1998.
F-15
62
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Accounting Standards
In October 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Stock-Based Compensation" (FAS 123).
The statement is effective for fiscal years beginning after December
15, 1995. FAS 123 encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options,
and other equity instruments to employees based on fair value. The
Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.
Principles of Consolidation
The financial statements include those of Royal Silver Mines, Inc.
and Celebration Mining Company. All significant inter-company
accounts and transactions have been eliminated. The financial
statements are not considered consolidated statements since Royal
Silver Mines, Inc. was the successor by merger to Celebration Mining
Company.
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the
State of Utah. Under the terms of the agreement, United was to
contribute real properties for an initial 75% interest in the joint
venture, and Celebration was to remove all liens associated with the
real properties by paying $175,000 to a bank which was the primary
lien holder for its initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned
promissory note. The property was auctioned in a public auction in
May 1995 and by virtue of Celebration's first position lien,
Celebration was able to successfully bid the full amount of the
underlying promissory note. Although additional expenditures have
been made on the property through September 30, 1998, no further
funds towards the joint venture have been expended by Celebration,
which owns an undivided 25% interest in the property. See Note 16 on
related litigation.
Washington and Idaho Mineral Properties
During the year ended September 30, 1995, Celebration purchased,
through the issuance of 800,000 shares of its common stock, various
mineral properties located in the states of Washington and Idaho.
The Mineral Properties were recorded at the fair market value of the
shares paid on the date of issuance ranging from $3.13 to $3.25 per
share for a total purchase price of $2,538,126.
F-16
63
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 3 - MINERAL PROPERTIES (Continued)
Washington and Idaho Mineral Properties (continued)
In May 1996, the Company sold back the Frisco Standard Silver Mine to
its original seller in exchange for the same price (35,000 shares of
Royal stock) received by the seller when the mine was purchased. The
shares received were canceled and no gain or loss was recorded on the
transaction. In the fourth quarter of 1998, the Company disposed of
additional Idaho properties. See Note 4.
Shoshone County Idaho Mineral Lease (Crescent Mine)
In February 1995, Celebration entered into an agreement to acquire a
fifty-year renewable mineral lease on a property in Shoshone County,
Idaho. The mining property consists of twelve patented claims and
associated Idaho unpatented claims. In connection with this lease,
Celebration has paid $50,000 and issued 175,000 share of common
stock. In addition, 10,000 shares were issued to a new director for
his assistance in obtaining this lease. Celebration was originally
obligated to pay $950,000 by September 1, 1995 as "an advance
royalty." The original due date was extended and the Company paid
the aforementioned $950,000 and has the option of extending its lease
for an additional forty-nine years. When, and if, the property
achieves gross sales of $40,000,000, Celebration will be obligated to
pay an additional 0.5% royalty on future sales. Furthermore,
beginning after September 1, 1995, and at such time as the average
price of silver has reached $6.00 per ounce for a 30-day period,
Celebration is obligated to spend not less than $2,000,000 during the
subsequent 36 months to de-water and repair the mine. Thereafter,
Celebration will be required to maintain the mine in a condition to
allow it to be put into production within sixty days. There are
certain claims by the U.S. Environmental Protection Agency and the
County on this property for which the lessor is obligated to pay. In
the event these claims are not satisfactorily resolved, they may
effect Celebration's rights to the property. See Note 16 on
litigation regarding this lease.
Australian Mineral Property Joint Venture
In March 1995, Celebration entered into a joint venture agreement
with an Australian company for exploration of a certain mineral
property in Australia. Under the original terms of the Joint venture
agreement, Celebration could acquire a 10% interest by paying
$100,000 in April 1995. No additional funds were paid or required to
be paid subsequent to the initial payment.
The Company's proposed future mining activities will be subject to
laws and regulations controlling not only the exploration and mining
of mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may
necessitate additional capital outlays, affect the economics of a
project, and cause changes or delays in the Company's activities.
The Company's mineral properties are valued at the lower of cost or
net realizable value.
64
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 4 - MINERAL PROPERTY DISPOSITIONS
Chilean Properties
During 1997, the Company acquired options on a minerals concession
and adjacent property in northern Chile. During the third quarter of
fiscal 1998, following a decision by Teck Exploration Ltd. not to
pursue its joint venture option, the Company elected to drop its
options on the Chilean properties and recorded a loss of $403,530 on
its Chilean investments.
Argentine Properties
On February 10, 1997 the Company negotiated an option to buy 12
different potential mine sites in Argentina. During the second
quarter of fiscal 1998, the Company elected to drop the option,
returned the properties to their owner, and recorded a loss of
$114,341.
Mexican Properties
On January 20, 1997, the Company executed an agreement to acquire
four mining properties in Nayarit, Mexico with stipulated annual
payment to be applied against a purchase price of $5,000,000. In the
fourth quarter of fiscal 1998, the Company elected to forfeit its
interest in the aforementioned Mexican properties and, resultantly,
recorded a loss of $74,194.
On February 19, 1998, the Company sold a working interest in a
Mexican joint venture which resulted in a gain of $1,454,062. This
transaction is more fully described in Note 17.
Conjecture Mine and Liberal King Mine (in U.S.)
On June 26, 1998, the Company traded six patented mining claims
(known as the Liberal King Mine) located in Shoshone County, Idaho
for 50,000 shares of SynFuels Technology, Inc. valued at $8.00 per
share. No gain or loss was recognized on this transaction.
In 1995, the Company issued 280,000 shares of its common stock to
acquire the Conjecture Mine, a silver-bearing property in the state
of Idaho. During the fourth quarter of fiscal 1998, the Company
traded the Conjecture Mine property for 10,000 shares of common stock
in SynFuels Technology, Inc., (subsequently renamed Rigid Airship)
valued at $8.00 per share. This transaction resulted in a recorded
loss on disposition of $830,700.
F-18
65
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and
repairs that do not increase the useful life of the assets are
expensed as incurred. Depreciation of property and equipment is
determined using the straight-line method over the expected useful
lives of the assets of five years.
NOTE 6 - INVESTMENTS
Metalline Mining Company
During the quarter ended June 30, 1997, the Company invested $70,000
in 200,000 shares of Metalline Mining Stock. This investment
represented approximately 5.7% of the total outstanding stock in
Metalline Mining at the time of purchase. This stock was valued at
cost, which is substantially less than the market value of $1.68 per
share at December 31, 1997.
On January 12, 1998, this stock was transferred to Dakota Mining
Corporation plus $100,000 cash in exchange for a 35% working interest
in a joint venture with Metalline Mining co. for exploration and
development of the Sierra Mojada District, Coahuila, Mexico. No gain
or loss was recognized on this transaction. See information below
and Note 20.
Grand Central Silver Mines, Inc.
In the quarter ended March 31, 1998, the Company finalized the sale
of certain patented mining properties to Centurion Mines Corporation
(subsequently renamed Grand Central Silver Mines, Inc.) for 500,000
shares of Centurion's common stock then valued at $1,500,000. This
transaction resulted in a gain of $406,250.
During the quarter ended March 31, 1998, the Company sold a 35%
working interest in a joint venture (with Metalline Mining Co.)
engaged in exploration and development of the Sierra Mojada District,
Coahuila, Mexico. In connection with this transaction, the Company
acquired 735,000 shares of common stock (in Grand Central Silver
Mines, inc.) which was valued at $1,424,062 and also acquired a
promissory note of $350,000 from Grand Central which is
uncollateralized, bears interest at 8%, and matures in 1999. A total
gain of $1,454,062 was realized on this transaction. See Note 15.
The Company currently owns 1,235,000 shares of Grand Central Silver
Mines, Inc. common stock, which is approximately 12% of the total
outstanding shares at September 30, 1998. On September 30, 1998, the
market value of the Company's investment in Grand Central had dropped
to $926,250 ($0.75 per share), at which time the Company recorded a
loss on its investment of $1,997,812 in accordance with the Company's
policy on the impairment of assets.
F-19
66
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 6 - INVESTMENTS (Continued)
SynFuels Technology, Inc.
On June 26, 1998, the Company traded six patented mining claims
acquired in Shoshone County Idaho in 1995 for 50,000 shares of
SynFuels Technology, Inc. which was then trading at $8.00 per share.
The Company acquired an additional 10,000 shares of SynFuels
Technology, Inc. common stock in September 1998 in exchange for
another mining property. (See Note 4). The Company's cost of
$392,000 is the recorded value of this investment at September 30,
1998. SynFuels Technology, Inc. changed its name to Rigid Airship in
November 1998.
Summit Silver, Inc.
In July, 1998, the Company acquired 400,000 shares of Summit Silver
common stock valued at $0.15 per share in exchange for transferring
mining equipment with an original cost of $98,767. This transaction
resulted in a loss of $11,233.
NOTE 7 - INTANGIBLE ASSETS
Deferred debt issuance costs and organization costs are recorded at
cost. Amortization of these intangible assets is determined using
the straight-line method over the expected useful lives of the assets
as follows:
Description Useful Life
----------------------------- -------------
Deferred debt issuance costs 1 year
Organization costs 5 years
NOTE 8 - COMMON STOCK
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.003 to $.625 per share, which is the fair market value of the share
on the date of issuance.
During the year ended September 30, 1995, the Company issued 12,750
shares of common stock to directors and employees for services
rendered, valued at prices ranging from $2.00 to $2.50 per share,
which is the fair market value of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000
shares of common stock in exchange for mineral properties (See Note
3) and sold 176,000 shares of common stock for $264,000 cash.
F-20
67
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 8 - COMMON STOCK (Continued)
The Company issued 200,000 shares of its common stock during the year
ended September 30, 1995 in lieu of outstanding debt that was owed to
Centurion Mines Corporation (Centurion), a related entity. The
stock was issued at $1.50 per share in payment of $300,000 of
outstanding debt (See Note 11). The Company also issued 277,500
shares in connection with the issuance of notes payable (See Note
11). (See also the disclosure in Note 1).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock of $2,958,314 in cash. The Company also
issued 222,700 share to directors and employees for services rendered
valued at $1.50 per share, which is the fair market value of the
share on the date of issuance.
Also during the year ended September 30, 1996, the Company issued
100,000 shares of its common stock for a joint venture in a mining
property and 20,000 common shares for a mining property. The stock
issued was valued at $1.50 per share, which is the fair market value
of the shares at the date of issuance.
In the same twelve-month period, the Company also issued 406,050
shares of its common stock in payment of outstanding debt of $570,917
and accrued interest of $38,158. The stock was issued at $1.50 per
share for a total value of $609,075. In addition, the Company issued
39,375 shares of common stock to noteholders for extending the
maturity date of their loans. Again, the shares were valued at $1.50
each, which was the fair market value of the shares when issued.
Also during the year ended September 30, 1996, the Company issued
215,334 shares of its common stock for services received. The shares
were valued at 41.50 per share, which was the fair market value of
the shares at the date of issuance.
In the year ended September 30, 1997, the Company issued 306,378
shares of its common stock for services received. The shares were
valued at their fair market value at the dates of issuance which
ranged from $0.75 to $1.25 per share.
During the year ended September 30, 1998, the Company issued 398,000
shares of common stock for services received. The shares were valued
at their fair market value at the date of issuance which ranged from
$0.34 to $0.91 per share. Also during the same twelve months, the
Company sold 4,923,333 shares of its common stock for $344,500 in
cash and $700,000 in stock subscriptions receivable.
F-21
68
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 9 - COMMON STOCK OPTIONS AND WARRANTS
In January 1992, the shareholders of Royal approved a 1992 Stock
Option and Stock Award Plan under which up to ten percent of the
issued and outstanding shares of the Company's common stock could be
awarded based on merit of work performed. As of September 30, 1998,
12,750 shares of common stock have been awarded under the Plan.
Celebration, prior to the exchange agreement with Royal, had granted
securities to certain shareholders which represented rights to
purchase or receive shares of Celebration's common stock. These
options were assumed by the Company after the merger at a rate of 1.5
shares for each option still outstanding. Thus, the Company has
granted options, with varying conditions and requirements, to
purchase a total of 1,455,000 share of its common stock. There are
255,000 of the stock options exercisable at $1.50 per share which
expire March 21, 2000. The remaining 1,200,000 stock options are
exercisable at $0.93 per share and expire on August 31, 2001. As of
September 30, 1998, none of these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999.
On March 22, 1996, the Board of Directors approved the issuance of
warrants to purchase 625,000 share of common stock of the Company to
an investor in partial completion of a private placement of stock.
These warrants were exercisable until September 30, 1998, at which
time they expired unused.
On April 10, 1996, following the close of the second quarter of
fiscal 1996, the Board of Directors authorized the issuance of
420,666 warrants to unaffiliated investors as part of the private
placement of stock. These warrants were exercisable until April 12,
1998 at prices ranging from $2.50 to $2.625 per share. As of March
31, 1998, 320,666 warrants have been issued (but not exercised) for a
total amount of $46,568, with the balance of 100,000 warrants
expiring unused.
In the quarter ending March 31, 1997, the Company sold 2,491,000
"units" to unaffiliated investors as part of a private placement of
stock. Each unit consisted of a share of the Company's common stock
and one warrant enabling the investor to purchase one additional
share of common stock for a purchase price of $1.25 per share during
the next two years. At September 30, 1998, none of the warrants had
been exercised.
F-22
69
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 10 - COMPANY STOCK OPTION AND AWARD PLAN
The Company has a stock-based compensation plan whereby the Company's
board of directors may grant common stock to its employees and
directors. At September 30, 1998, no options have been granted under
the plan. Of the total of 1,064,650 common stock shares authorized
for issuance under the plan, 110,500 shares valued at $1.00 per share
were issued to employees and directors during the twelve months ended
September 30, 1997 and 179,000 shares at values ranging from $0.34 to
$0.91 per share were issued to employees and directors during the
twelve months ended September 30, 1998.
NOTE 11 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid in capital at September
30, 1998 and September 30, 1997:
September 30, September 30,
1998 1997
Applicable to: ------------ ------------
Common stock $ 11,843,270 $ 10,497,324
Stock Warrants 46,568 46,568
------------ ------------
$ 11,889,838 $ 10,543,892
============ ============
NOTE 12 - OPTIONS INVOLVING MINERAL PROPERTIES
Option with Placer Mining
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a silver-
lead-zinc mine in Shoshone County, Idaho. After issuing 100,000
shares valued at $1.50 per share and spending a nonrefundable $50,000
on the option, the Company elected to renegotiate this option
agreement and entered into a second option agreement with Placer on
September 18, 1996 for the nonassignable option of acquiring a 100%
interest in the Bunker Hill Mine. In the second agreement, the
Company paid $100,000 in September 1996 for the nonassignable option
of acquiring a 100% interest in the Bunker Hill Mine. In order to
exercise this option, the company must issue 500,000 shares of its
common stock to placer by May 10, 1997 and pay Placer either
$7,000,000 by that date or $4,000,000 by that date and $3,500,000 by
May 10, 1998. Under the terms of this agreement, the Company will
pay Placer a 2 3/4% net smelter return royalty in perpetuity with
stipulated annual advance minimum royalty payments to Placer ranging
from $100,000 (in 1999) to $250,000 (in year 2002 through 2010). All
advance minimum royalties paid are to be credited against actual
production royalties.
F-23
70
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 12 - OPTIONS INVOLVING MINERAL PROPERTIES (Continued)
Option With Placer Mining (continued)
Subsequent to March 31, 1997, due to regional environmental concerns
and the prospect of related litigation, the Company concluded that it
would not exercise its option on the Bunker Hill Mine. Accordingly,
the $238,887 in option costs and related expenses toward the purchase
of this property were written off during the quarter ended March 31,
1997.
Option for Joint Venture
On June 19, 1998, the Company executed an option agreement with
Eastfield Resources (USA) Inc. and Prism Resources Inc. Under the
terms of the three month agreement expiring September 30, 1998,
Eastfield and Prism granted an option to the Company to enter into a
joint venture arrangement with these two firms for the exploration
and development of certain mining properties within the Three Hills
project in the Tonopah mining district of Nevada. At the end of the
option period, the Company dropped its option to acquire a 50%
interest in the joint venture and recorded a loss of $10,000 on its
option deposit.
NOTE 13 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an
option from Centurion to purchase up to 800,000 shares of its common
stock held by Centurion for the exercise price of $1.75 per share
during the two-year period ending September 30, 1998. The Cost of
this two-year stock purchase option was $50,000 which was paid by the
Company and charged to stockholders' equity (accumulated deficit).
Effective April 15, 1997, the aforementioned stock option agreement
was renegotiated (at no cost to the Company) and amended to extend
the exercise period until September 30, 1999 and to revise the
exercise price to $1.50 per share during this same period.
At September 30, 1998, no shares were acquired from Centurion under
this option agreement. See Note 15.
F-24
71
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 14 - LETTER OF INTENT WITH TECK EXPLORATION LTD.
On October 1997, the Company signed a letter of intent with Teck
Corporation (dba Teck Exploration, Ltd.) of Vancouver, B.C. to
jointly explore and develop the Mocha porphyry copper prospect in
region I of northern Chile. The agreement contemplated initial
drilling program funded by Teck.
In July 1998, the Company and Teck mutually agreed to terminate their
option agreement. See Note 4 for related disclosures on Chilean
options.
NOTE 15 - PROSPECTIVE COMBINATION (MERGER) WITH CENTURION MINES
CORPORATION
On November 24, 1997, Royal and Centurion Mines Corporation,
headquartered in Salt Lake City, announced plans to combine the two
companies. Centurion (subsequently renamed Grand Central Silver
Mines, Inc.) is a significant owner of gold, silver, and copper
mining properties in Utah.
As a first stage in the combination of the companies, Centurion
purchased certain Coeur d'Alene, Idaho silver properties plus other
patented mining properties owned by Royal in exchange for Centurion
shares then valued at $1,500,000. See Note 6.
As a result of differences in determining fair valuations, the
directors of the two companies have decided to postpone merger plans
for the foreseeable future; however, the two companies continue to
share one common director and a common officer.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit filed by some of its
shareholders for alleged violations of securities laws. The suit
asks for actual damages. The Company believes the suit is completely
without merit and intends to vigorously defend its position.
The Company is also a defendant in a lawsuit alleging that the
Company failed to transfer common stock in exchange for a mining
property interest. The suit asks for actual and punitive damages.
The Company believes the suit is completely without merit and has
filed a countersuit alleging fraudulent misrepresentation. The
Company is seeking both full title to the aforementioned mineral
property and punitive damages, and believes its countersuit will
prevail.
In July 1998, the Company filed an action in federal court in Boise,
Idaho for declaratory judgment regarding the validity of its Crescent
Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. Management believes that there is a good likelihood
of prevailing in this matter.
72
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 17 - WORKING INTEREST IN JOINT VENTURE WITH METALLINE MINING CO.
On January 15, 1998, the Company acquired a 35% working interest in a
joint venture with Metalline Mining Co. for exploration and
development of the Sierra Mojada District, Coahuila, Mexico. The
project was formerly a joint venture between Metalline and Dakota
Mining Corp. Royal acquired the interest from Dakota in exchange for
$100,000 cash, 200,000 shares of Metalline common stock which Royal
carried on its books as an investment and 200,000 shares of Royal
Silver common stock. Dakota retained a net smelter return royalty on
future production from the project. See Note 6.
On February 19, 1998, the Company sold the 35% working interest for
exploration and development of the Sierra Mojada District, Coahuila,
Mexico to Grand Central Silver Mines (GSLM) in exchange for a note
receivable of $350,000, payable within one year and bearing interest
of 8% per annum, and 735,000 share of GSLM valued at $1,424,062.
(See Note 4). A total gain of $1,454,062 was recognized on this
transaction.
NOTE 18 - NOTES RECEIVABLE
At September 30, 1998, the Company's note receivable consisted of a
$350,000 receivable from Grand Central Silver Mines, Inc. This note
bears interest at 8%, is uncollateralized, and matures February 15,
1999.
At September 30, 1997, the Company's note receivable consisted of a
$100,000 receivable from Grosvenor Capital ltd. This note, together
with accrued interest of $12,458 was later cancelled in lieu of
consulting fees owed at September 30, 1998.
NOTE 19 - GOING CONCERN
As shown in the financial statement, the Company incurred a net loss
of $2,637,568 for the year ending September 30, 1998 and an
accumulated deficit of $7,466,096 since inception. At September 30,
1998, there has been a significant change in the Company's liquidity.
Cash to accumulated deficits has decreased from a ratio of 12.31% as
of September 30, 1997 to 0.04% as of September 30, 1998.
These factors indicate that the company may be unable to continue in
existence. The financial statements do not include any adjustments
related to the recoverability and classification of recorded assets,
or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue existence. The
Company's management has strong beliefs that significant and imminent
private placements will generate sufficient cash for the Company to
operate for the next few years.
F-26
73
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
NOTE 20 - SUBSEQUENT EVENT
In May 1998, the Company sold 3,000,000 shares of its common stock at
$0.25 per share in exchange for $50,000 in cash and a short-term note
in the amount of $700,000. Because of a subsequent decrease in the
market value of the Company's stock, the Company and shareholder
renegotiated the transaction.
In November 1998, the aforementioned shareholder returned 2,000,000
shares of stock to the Company for cancellation and in return the
Company rescinded the $700,000 note, which was recorded as stock
subscriptions receivable at September 30, 1998. The net effect of
the renegotiated stock transaction was a sale of common stock at
$0.05 per share for cash only.
F-27
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
A. Changes or disagreements with Principal Accountant. There have
been no disagreements with the Company's independent public
accountants.
B. Change in Principal Accountant. As of November 8, 1996 there has
been no change in the Company's principal accountants.
C. Designation of New Accountant. The Company designated the
accounting firm of Williams and Webster, P.S. to serve as
principal independent accountant for the Company effective
November 8, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and position of each
Officer and Director of the Company:
Name Age Position
Howard M. Crosby 46 President, Treasurer and a member of the
Board of Directors
John Ryan 35 Vice President, Secretary and a member
of the Board of Directors
Jerry Stacey 52 Vice President of Operations
Ronald Kitching 66 Member of the Board of Directors
Kevin Stulp 41 Member of the Board of Directors
The authorized number of directors of the Company is presently
fixed at ten. Each director serves for a term of one year that
expires at the following annual shareholders' meeting. Each officer
serves at the pleasure of the Board of Directors and until a
successor has been qualified and appointed. There are no family
relationships, or other arrangements or understandings between or
among any of the directors, executive officers or other person
pursuant to which such person was selected to serve as a director or
officer.
75
Set forth below is certain biographical information regarding
each director and executive officer of the Company:
Howard M. Crosby - President, Treasurer and a member of the Board of
Directors.
Since February 1994, Mr. Crosby is the President and a member of
the Board of Directors and since January 1998, Mr. Crosby has been
the Treasurer of Company. Since 1989, Mr. Crosby has been president
of Crosby Enterprises, Inc., a family-owned business advisory and
public relations firm. From September 1992 to May 1993, Mr. Crosby
was employed by Digitran Systems, Inc., of Logan, Utah, in the
marketing department. In May of 1993, Mr. Crosby entered into a
business consulting relationship with Centurion Mines Corporation,
and has served as president and director of Mammoth Mining Company
and Gold Chain Mining Company, both Centurion subsidiaries. In July,
1992, Mr. Crosby filed a Chapter 13 petition for bankruptcy. The
reorganization plan was approved in October 1992. Mr. Crosby
received a B.A. degree from the University of Idaho in 1974.
John Ryan - Vice President, Secretary and a member of the Board of
Directors.
Mr. Ryan has been a member of the Board of Directors since April
1997, has been Vice President of Corporate Development since
September 1996 and has been Secretary since October 1998. Mr. Ryan
is a professional mining engineer. Since June 1996, Mr. Ryan has
been a Vice President and member of the Board of Directors of
Metalline Mining Company. From September 1993 to August 1994, Mr.
Ryan was a registered representative with Shearson Lehman Brothers,
Inc. From August 1994 to April 1995, Mr. Ryan has served as a
consultant in mine engineering services, and will continue in these
activities during his tenure, as well as, engage in other matters in
accordance with the direction and assignment of the Board of
Directors. From April 1995 to April 1996, Mr. Ryan was a registered
representative with Pennaluna Securities Corp., a SEC/NASD registered
broker/dealer. In addition to his professional degree in Mining
Engineering, which he received from the University of Idaho, Mr. Ryan
also holds a juris doctorate (J.D.) law degree from Boston College
School of Law School.
Jerry Stacey - Vice President of Operations
Since August 1995, Mr. Stacey has been the Vice President of
Operations. Mr. Stacey is a professional mining engineer with over
20 years experience in open pit and underground mining. Between 1974
and 1981, Mr. Stacey worked in senior supervisory positions as a
Shift Foreman for the Anaconda Company; as mine superintendent for
Day Mines at the Sherman Mine, mining 1,000 tons per day of silver
ore; as mine manager for Choctaw Mining supervising the construction
and operation of a tungsten mine and mill complex; as mine manager
for Mountain Mineral's barite mines in British Columbia; and as a
mine manager at the Goodnews Bay platinum placer operation. In 1981,
Mr. Stacey formed General Mine Services Corp., a mine consulting and
contracting firm for junior mining and exploration companies, where
he continued as CEO until 1994, when he joined with Celebration
76
Mining Company and has continued full time as Vice President of
Operations with the Company. His current responsibilities focus on
the engineering, design, installation, and operation of complete mine
and metallurgical plants involving base and precious metals and
industrial minerals. Mr. Stacey received a B.S. Degree in Mining
Engineering from Montana Tech in 1974 while working in Butte, Montana
mines.
Ronald Kitching - Member of the Board of Directors
Since August 1995, Mr. Kitching has been a member of the Board of
Directors of the Company. Prior to his retirement five years ago,
Mr. Kitching was involved in the mining industry for over 35 years
holding various positions, including serving as president of Overland
Drilling Company, an Australian exploration drilling company, and as
co-founder of Glindeman-Kitching Enterprises, an exploration drilling
company. Mr. Kitching has served as a director for Celebration
Mining Company since May 1994.
Kevin Stulp - Member of the Board of Directors
Mr. Stulp was appointed to the Board of Directors of the Company
to fill the vacancy created by the resignation of Hal Cameron. Since
August 1995, Mr. Stulp has been an independent consultant in the
fields of volume electronics and manufacturing, general business
consulting, business strategy, business use of the Internet,
automation and integration through computers, and financial analysis.
From July 1994 to July 1995, Mr. Stulp was Director of Manufacturing
Reengineering for Compaq Computer Corporation, Houston, Texas. From
September 1992 to June 1994, Mr. Stulp was Director of Manufacturing
for Compaq Computer Corporation. From September 1986 to September
1992, Mr. Stulp was PCA Operations Manager for Compaq Computer
Corporation. From December 1983 to September 1986, Mr. Stulp held
various positions with Compaq Computer Corporation, including
industrial engineer, new products planner and manufacturing manager.
From July 1980 to December 1983, Mr. Stulp was a financial planner
with Texas Instruments, Houston, Texas. Mr. Stulp holds the degree
of Masters in Business Administration and the degree of Bachelor of
Science Mechanical Engineering, both from the University of Michigan,
and the degree of Bachelor of Science from Calvin College, Grand
Rapids, Michigan.
In January 1998, Mr. Robert E. Jorgensen, the Executive Vice
President, Treasurer and a member of the Board of Directors,
resigned. Mr. Jorgensen did not have any disagreements with the
Company on any matter relating to the Company's operations, policies
or practices.
In October 1998, Mr. Thomas Henricksen, the Secretary and a
member of the Board of Directors, resigned. Mr. Henricksen did not
have any disagreements with the Company on any matter relating to the
Company's operations, policies or practices.
77
Indemnification.
The Company's Bylaws provide that the Company's directors and
officers will be indemnified to the fullest extent permitted by the
Utah Corporation Code, however, such indemnification shall not apply
to acts of intentional misconduct; a knowing violation of law; or,
any transaction where an officer or director personally received a
benefit in money, property, or services to which to the director was
not legally entitled.
The Company has been advised that in the opinion of the
Securities and Exchange Commission indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and
is, therefore, unenforceable.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange Act of 1934 requires
certain defined persons to file reports of and changes in beneficial
ownership of a registered security with the Securities and Exchange
Commission and the National Association of Securities Dealers in
accordance with the rules and regulations promulgated by the
Commission to implement the provisions of Section 16. Under the
regulatory procedure, officers, directors, and persons who own more
than ten percent of a registered class of a company's equity
securities are also required to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on review of the copies of Forms 3, 4, and 5
furnished to the Company for transactions occurring between October
1, 1997 and September 30, 1998, or with respect to transactions which
occurred between October 1, 1997 and September 30, 1998, all reports
which were required to be filed under Section 16(a) of the Exchange
Act were in fact so filed.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation.
The following table sets forth the compensation paid by the
Company during each of the last three fiscal years to its Chief
Executive Officer, and to the other four most highly compensated
officers and executive officers, but only if the total annual salary
and bonus of any such executive officer exceeded $100,000 for Fiscal
1997 (the "Named Executive Officers"). This information includes the
dollar value of base salaries, bonus awards and number of stock
options granted, and certain other compensation, if any.
78
Summary Compensation Table.
Annual Compensation
-------------------
Principal
Name Position Year Salary ($)
- ------------- --------- ---- ----------
Howard Crosby President 1998 $ 78,000 [1]
1997 $ 78,000
1996 $ 78,000
1995 $ 48,000
Named Executive Officers
None n/a n/a
[1] Crosby received four months salary in cash, $19,500, and the
balance in Common Stock.
Other than the Company's Stock Option and Award Plan, there are
no retirement, pension, or profit sharing plans for the benefit of
the Company's officers and directors.
Option/SAR Grants.
No individual grants of stock options, whether or not in tandem
with stock appreciation rights ("SARs"), and freestanding SARs were
made during Fiscal 1997 to the CEO or any Executive Officer.
No stock options were exercised by the CEO or any executive
officers in Fiscal 1998.
Long-Term Incentive Plan Awards.
The Company does not have any formalized long-term incentive plan
(excluding restricted stock, stock option and SAR plans) that
provides compensation intended to serve as incentive for performance
to occur over a period longer than one fiscal year, whether such
performance is measured by reference to financial performance of the
Company or an affiliate, the Company's stock price, or any other
measure.
Compensation of Directors.
Directors receive for their services a retainer fee payable in
shares of the Company's Common Stock, currently at the rate of 2,500
shares per quarter of completed service. During Fiscal 1997, 184,000
shares were awarded to directors as compensation. The Board has not
implemented a plan to award options, authorized under the Company's
Stock Option and Award Plan and none have been granted. There are no
contractual arrangements with any member of the Board of Directors,
other than the employment and salary arrangements for compensating
two of its members for their service as executive officers: Howard
Crosby as President and CEO, and Robert Jorgensen as Executive Vice
President and Treasurer.
79
Compensation Committee Interlocks and Insider Participation.
There are no compensation committee interlocks. With respect to
insider participation, Howard Crosby, Hal Cameron and Carlos Chavez,
participated in deliberations of the Company's Board of Directors
during Fiscal 1996, concerning executive officer compensation.
Board of Directors Report on Executive Compensation.
The following is a summary of the Board of Directors Report:
It is the Board's responsibility to review and set compensation
levels of the executive officers of the Company, evaluate the
performance of management and consider management appointments and
related matters. All decisions are decisions of the full Board. The
Board considers the performance of the Company and how compensation
paid by the Company compares to compensation generally in the mining
industry and among similar companies. In establishing executive
compensation, the Board bases its decisions, in part, on achievement
and performance regarding broad-based objectives and targets relating
to the continued acquisition of favorable silver properties and the
progress of exploration and development of such properties, as well
as the Company's financial performance.
For Fiscal 1998, the Company's executive compensation policy
consisted of two elements: base salary and stock awards. The policy
factors which determine the setting of these compensation elements
are largely aimed at attracting and retaining executives considered
essential to the Company's long-term success. The granting of stock
is designed as an incentive for executives to keep management's
interests in close alignment with the interests of shareholders. The
Company's executive compensation policy seeks to engender committed
leadership to favorably posture the Company for continued growth,
stability and strength of shareholder equity.
The Company paid salaries to its officers for the fiscal year-
ended September 30, 1998, as follows:
Name of Officer Position Salary
Howard Crosby President $78,000 yearly
Robert Jorgensen[1] Executive Vice President $18,000
Jerry Stacey Vice President $70,000 yearly
John Ryan Vice President of $48,000 yearly
Corporate Development
[1] Resigned.
These amounts were approved by the Board in recognition of the
work and efforts and in completing the acquisition of a large number
of silver mining properties prior to the end of fiscal 1998.
Further, the Board recognized the significant role of these four
individuals in managing the Company's principal office in Spokane,
Washington and in raising funds for the Company's exploration and
development activities. Finally, the Board of Directors took into
80
account the reasonableness of these salaries in comparison with
Executive salaries within the mining region. On the basis of the
above factors, the Board determined that these salaries were proper
and fitting. No other officers received a salary during Fiscal 1998.
With respect to stock awards during fiscal 1998, the Board of
Directors did not change the amount of shares, 2,500 per quarter,
which each director is entitled to receive as partial compensation
for service to the Company.
The Board believes that executive compensation during fiscal 1998
substantially reflects the Company's compensation policy and the
Board anticipates paying a like sum during the fiscal year ending
September 30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 15, 1998, the
outstanding Common Stock of the Company owned of record or
beneficially by each person who owned of record, or was known by the
Company to own beneficially, more than 5% of the Company's Common
Stock, and the name and shareholdings of each Officer and Director
and all Officers and Directors as a group. At December 15, 1998, the
number of shares of common stock of the Company issued and
outstanding was 19,932,565.
Percentage
Shares of Common
Name Owned Stock Owned
Howard Crosby [1] 1,535,000 7.70%
105 North First
Suite 232
Sandpoint, ID 83864
John Ryan [2] 425,000 2.13%
200 Riverwood Court
Post Falls, ID 83854
Jerry Stacey [3] 22,800 0.11%
406 N. Stonewall
Spokane, WA 99208
Ronald Kitching 157,500 0.79%
P. O. Box 9809
Frenchville, QD 4701
Australia
Kevin Stulp 494,000 2.48%
5639 Doliver
Houston, TX 77056
81
ALL OFFICERS AND
DIRECTORS AS A GROUP 2,634,300 13.21%
(Five Individuals)
Grand Central Silver
Mines, Inc. 746,180 3.74%
1010 Ironwood Drive
Suite 105
Coeur d'Alene, ID 83814
Britannia Holdings
Ltd. [4] 3,485,000 17.48%
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
All shares are held beneficially and of record and each record
shareholder has sole voting and investment power.
[1] Mr. Crosby is a director, executive officer and 50% shareholder
of Extol International Corp., a privately-held Washington
corporation. As a 50% shareholder, Mr. Crosby holds indirect
beneficial ownership of one-half of the restricted shares
retained by Extol following the closing of the share exchange
with Celebration. Also, the Board approved the release of a
previously authorized grant of 200,000 restricted shares to
Crosby Enterprises, Inc. for its work in putting together for the
Company no fewer than five major business proposals, culminating
in the reorganization with Celebration. Mr. Crosby holds
indirect beneficial ownership of those restricted shares as a
director, executive officer and majority shareholder of Crosby
Enterprises, a private, closely-held Washington corporation. Mr.
Crosby holds all remaining shares in his name, 15,000 shares of
which he received in Fiscal 1995 as partial compensation for his
service as a director and executive officer. Does not include
Warrants to purchase 850,000 shares of Common Stock.
[2] Does not include Warrants to purchase 200,000 shares of Common
Stock.
[3] Does not include Warrants to purchase 300,000 shares of Common
Stock.
[4] Does not include Warrants to purchase 2,135,000 shares of Common
Stock.
82
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships and Transactions pertaining to the Company and
Celebration.
Certain of the directors and/or officers of the Company also
serve as directors and/or officers of other companies involved in
natural resource exploration and development and, consequently, there
exists the possibility for such directors and officers to be in a
position of conflict. Any decision made by such directors and
officers involving the Company, as the case may be, will be made in
accordance with their duties and obligation to deal fairly and in
good faith with the Company and such other companies. In addition,
such directors and officers are required to declare and refrain from
voting on any matter in which such directors and officers may have a
conflict of interest. In this respect, Howard Crosby, who was the
President of Celebration and of the Company at the time of the
Reorganization, refrained from voting on any matter related to the
Reorganization or any other matter pertaining to both companies.
The Company has engaged in transactions with its officers,
directors and principal shareholders, including the issuance of the
initial shares of the Company. Such transactions may be considered
as not having occurred at arm's length. The Company may be engaged
in transactions with management and others involving conflicts of
interest, including conflicts on salaries and other payments to such
parties, as well as business opportunities which may arise. In this
regard, the directors of the Company are involved in other companies
and may have conflicts of interest in allocating time between the
Company and other entities to which they are affiliated.
Relationships and Transactions Pertaining to the Company.
From time to time, at the Company's request, Centurion may, at
its discretion, provide funds to the Company or pay certain expenses
directly. The Company is current in its payments to Centurion and
management intends to continue the immediate repayment to Centurion
as expenses are incurred.
During Fiscal 1994, the Company carried over the previous balance
owed by Centurion of $5,055 and loaned Centurion $8,075, resulting in
cumulative total advances made by the Company to Centurion of
$13,130. Also during Fiscal 1994, Centurion accrued $54,335 of the
Company's taxes, loaned $83,700 to the Company, and paid $140,932 of
the Company's expenses (including certain land costs of the Company),
resulting in total advances made by Centurion to the Company of
$278,967. Centurion repaid these and previous amounts by paying
certain of the Company's expenses and by transferring to the Company
$467,236 of mineral properties. Thus, for Fiscal 1994 transactions
between the Company and Centurion, including balance carryovers, the
net cumulative result was a balance of $265,838 owed by the Company
to Centurion.
83
During Fiscal 1995, Centurion made net total advances to the
Company of $38,086. The net result was a balance of approximately
$300,000 owed by the Company to Centurion, which the Company repaid
prior to the end of Fiscal 1995 by issuing 200,000 shares of its
common stock to Centurion at the then prevailing market price of
$1.50 per share. At September 30, 1995, and at September 30, 1996,
the Company owed $289 to Centurion.
Relationships and Transactions pertaining to Celebration.
In May 1994, Celebration issued, pursuant to Board resolution, an
aggregate of 1,000,000 shares of common stock to Extol International
Corporation, an affiliate of Howard M. Crosby, an officer and
director of the Company, and 500,000 shares of Common Stock to Robert
Jorgensen, an officer and director of the Company, in exchange for a
transfer of the rights under an option on the Montana Property. Mr.
Crosby and Mr. Jorgensen are considered founders of the Company. The
Company has not received a fairness opinion or other valuation of the
rights transferred in exchange for the shares issued to Mr. Jorgensen
and Extol International Corporation. The cost basis of the rights
under the Montana Property was estimated to be $4,000. The perceived
value of the shares issued was determined as of the time of transfer
by Mr. Crosby and Mr. Jorgensen as sole officers and directors of the
Company. The determination was not based on arms length
negotiations. In June 1994, the Company repaid to Crosby
Enterprises, Inc., an affiliate of Howard M. Crosby, $20,000 for
funds advanced on the Montana Property prior to the transfer of the
rights under the option to the Company.
In August 1994, Celebration issued 100,000 shares of Common Stock
to Ronald Kitching, a director, as compensation for his services as a
director. Mr. Crosby and Mr. Jorgensen also received compensation
from the Company as executive officers.
In August 1994, Thomas Miller, a director of Celebration up to
August 8, 1995, received options to purchase up to 400,000 shares as
compensation for his consulting services in field exploration
management through August 1995. Mr. Miller was also an officer,
director and principal shareholder of United Silver Mines, Inc., the
Company's Joint Venture Partner on the Vipont Property and its
subsidiary, Bannock Silver Mining Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
The Company has not filed any reports on Form during the annual
period ended September 30, 1998.
84
INDEX TO EXHIBITS
The following documents are incorporated herein by reference to
the Company's Registration Statement on Form 10, as filed with
the Securities and Exchange Commission:
Number Document
- ---------------------------------------------------------------------
3.1 Articles of Incorporation.
3.2 Articles of Amendment.
3.3 Amendment to Articles of Incorporation Limiting Director
Liability.
3.4 Bylaws.
10.1 Sale of Mining Properties By Centurion Mines Corporation to
Royal Minerals, Inc. - June 1992 through September 1993.
10.2 Deed with Reservation of Mineral Royalty - January 1992 to
Kennecott.
10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to
Kennecott.
10.4 July 1992 Kennecott Option to Purchase 6,320 acres.
10.5 Deed and Assignment with Reservation of Mineral Royalty -
August 1992 (16,880 acres) to Kennecott.
10.6 Deed and Assignment with Reservation of Mineral Royalty -
December 1992 (6,320 acres) to Kennecott.
The following documents are incorporated herein by reference from
the Registrant's Current Report on Form 8-K, dated August 8, 1995, as
filed with the Securities and Exchange Commission:
2.01 Agreement and Plan of Reorganization.
3.05 Articles of Share Exchange (Utah).
3.06 Articles of Share Exchange (Washington).
4.01 Subscription and Investment Agreement.
4.02 Stock Purchase Option Certificate.
19.01 Material Furnished to Celebration Securityholders.
20.01 Letter from Royal to Share Exchange Securityholders.
85
The following documents are incorporated herein by reference from
the Registrant's Form S-8 Registration Statement filed with the
Commission on July 17, 1995.
4.1 1995 Stock Option and Stock Award Plan with Amendment No. 1 to
the Plan.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on February 10, 1997:
10.7 Vipoint Joint Venture Agreement.
10.8 Option to Joint Venture with Placer Mining Corporation, dated
April 19, 1996.
10.9 Amendment to Option to Joint Venture with Placer Mining
Corporation dated the 22nd day of July, 1996.
10.10 Exploration Agreement and Purchase/Joint Venture Option.
10.11 Purchase Agreement with Imperial Energy Corp.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on September 12, 1997:
10.12 Unilateral option to Purchase Mining Concessions from
Sociedad de Exploarciones Y Explotaciones Mineras Oregon
Limitada.
10.13 Modification of Unilateral Purchase Option Contract of Mining
Concessions.
10.14 Unilateral option to Purchase Mining Concessions from
Compania Minera San Enrique S.C.M. Y Otra.
28.1 Warrant Agreement.
28.2 Selling Agent Agreement.
All other schedules and exhibits are omitted, as the required
information is not applicable or is not present in amount sufficient
to require submission of the schedule or because the information
required is included in the financial statements and notes thereto.
86
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K
to be signed on its behalf by the undersigned, hereunto duly
authorized, in Spokane, Washington, on this 28th day of December,
1998.
ROYAL SILVER MINES, INC.
BY: /s/ Howard M. Crosby
Howard M. Crosby, President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Howard M. Crosby, as true and
lawful attorney-in-fact and agent, with full power of substitution,
for his and in his name, place and stead, in any and all capacities,
to sign any and all amendments to this registration statement, and to
file the same, therewith, with the Securities and Exchange
Commission, and to make any and all state securities law or blue sky
filings, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing
requisite or necessary to be done in about the premises, as fully to
all intents and purposes as he might or could do in person, hereby
ratifying the confirming all that said attorney-in-fact and agent, or
any substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Howard M. Crosby 12/28/98
Howard M. Crosby President, Treasurer and
a member of the Board of
Directors
/s/ John P. Ryan
John Ryan Vice President, Secretary 12/28/98
and a member of the Board
of Directors
___________________________ 12/___/98
Jerry Stacey Vice President of
Operations
/s/ Ronald Kitching 12/28/98
Ronald Kitching Member of the Board
of Directors
/s/ Kevin Stulp 12/22/98
Kevin Stulp Member of the Board
of Directors