FORM 10-K/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 91-29382934
(State of Incorporation) (I.R.S. Employer Ident. No.)
Address of principal offices : N. 10220 Nevada, Suite 230
Spokane, Washington 99218
Registrant's Telephone No.: 509/466-3144
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: _____
As of October 4, 1996 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 ($1.08)
on such date was $6,519,721.
As of October 4, 1996, the Registrant had outstanding
10,646,482 shares of common stock ($.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 __.
----------- Page --------------
TABLE OF CONTENTS
PAGE
ITEM NUMBER AND CAPTION NO.
PART I
ITEM 1. Business . . . . . . . . . . . . . . . . . . . .
ITEM 2. Properties . . . . . . . . . . . . . . . . . . .
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . .
ITEM 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . .
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . .
ITEM 6. Selected Financial Data. . . . . . . . . . . . .
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation . . . . . . . . . . . . . . . . . . .
ITEM 8. Financial Statements and Supplementary Data . .
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . .
PART III
ITEM 10. Directors and Executive Officers of the
Company . . . . . . . . . . . . . . . . . . .
ITEM 11. Executive Compensation . . . . . . . . . . . .
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . .
ITEM 13. Certain Relationships and Related Transaction .
PART IV
ITEM 14. Exhibits, Financial Statement Schedules,
and Reports of Form 8-K. . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . .
----------- Page --------------
PART I
ITEM 1. BUSINESS
GENERAL
Royal Silver Mines, Inc. (generally referred to as 'Royal' or
'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, Royal 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'). Unless indicated differently by the
context, all references to 'the Company' and 'Royal' in this
report shall be read to refer to Royal Silver Mines, Inc.,
the corporate entity that resulted from the business combination
of Consolidated Royal Mines, Inc. and Celebration Mining
Company.
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 has been accounted for as a purchase
by Celebration of Royal. Celebration is treated as the
acquiring company for financial reporting purposes because
its shareholders constitute greater than 50 percent of the
combined shareholder group. 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, Royal is deemed to be the
acquiring corporation, and Celebration is now a wholly-
owned subsidiary of Royal. Prior to the Reorganization, Royal
had been a majority-owned subsidiary of Centurion Mines
Corporation ('Centurion'). Currently, however, Centurion holds
an approximate 14 percent shareholder interest in Royal and is
an affiliate and related party 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. There currently
are several business arrangements, joint venture prospects,
and potential property sales from which the Company expects
to receive income. The Company has owned royalty interests
in properties situated in Utah's Gold Belt. There has been no
assurance that the Company would receive royalties from
these properties; it received no royalty income during the ten
month period ended September 30, 1995 ("Fiscal 1995").
The Company currently has no revenues. At September 30, 1995,
the Company's accumulated deficit was $962,735. 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, 1995, the Company had a cash balance of
$151,698 and a deficit working capital of $665,274, as compared
to a cash balance of $30,076 and working capital of $25,754
at November 30, 1994. Royal will need capital resources
of approximately $25,000-30,000 per month to meet its
estimated expenditures for the ensuing twelve months. The Board
of Directors has instructed management to consult with
experienced financial and investment advisory firms to
formulate arrangements for such capital fund raising.
Currently, the Company is pursuing various alternatives,
including, if necessary, the private placement of stock.
During the nine months ended June 30, 1996, the Company placed
1,226,832 shares of its common stock for $1,945,779 in cash.
The Company also issued 406,050 shares of its common stock in lieu
of outstanding debt. The stock was issued at $1.50 per share for
a total value of $609,075. At the end of September, 1996, the Company
reached an agreement with Centurion Mines Corporation, a related
affiliate, for an option to purchase or assign up to 800,000 shares of
Royal common stock, presently owned by Centurion Mines and representing
approximately seven and one-half percent of currently outstanding shares,
at an exercise price of $1.75 per share. The re-purchase option expires
October 1, 1998.
As discussed in greater detail below in the section entitled
'The Company's Strategy and Business Plan,' a substantial
portion of Royal's assets consist of investments in
mineral properties for which additional exploration is required
to determine if they contain mineralization that is economi-
cally recoverable. The realization of these investments is
contingent to a large extent upon the success of Royal'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 Royal cannot assure that the outcome of
these uncertain events will not have a material impact and
result in adverse consequences to the Company. If Royal 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
will revise its business activities accordingly.
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. Royal complied with the
Securities and Exchange Commission reporting requirements
until August 1986, at which time Royal filed Form 15 with
the Commission and suspended further reporting requirements.
On January 31, 1992, Centurion owned 82.3 percent of the
Company's common stock (see the section entitled
'Centurion's Acquisition and Control of the Company,' below.)
Also on January 31, 1992, the Company shareholders authorized a
5-for-1 reverse 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.
THE COMPANY'S STRATEGY AND BUSINESS PLAN
Royal's management 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, Royal had concentrated its main
exploration efforts in the northern Utah Gold Belt because of
that area's history of profitable metal production and because
of Royal's exploration experience in the western United
States. After the Reorganization, the Company acquired a number
of significant mineral properties focusing on silver
resources. The Company expects to concentrate its main
exploration efforts during Fiscal 1996 in Idaho's Coeur d'
Alene and Lakeview Mining Districts, and Utah's Ashbrook
Mining District where the Company is involved in a joint venture
at the Vipont Mine property. The Company also is involved in
a joint venture in Australia through an agreement
between Celebration and an Australian company.
Royal's corporate strategy is directed toward the acquisition
of land positions for the exploration of mineralization
in established mining districts that have had large and
profitable production histories. This approach is referred to
in the mining industry as 'headframe geology,' which is defined
as concentrating efforts near previously known, profitable
ore deposits. Royal does not currently have sufficient capital
of its own to carry out its strategy and business plan.
In addition to the properties of the two joint ventures
mentioned above, the Company controls other mineral
properties. Its business plan is to explore and develop
mineral deposits on those properties in conjunction with larger
and better financed companies. It expects in this way to
achieve a major increase in the value of its assets and to
obtain production income with less risk of its own funds
for development expenditures and capital investment in
production facilities. However, because it currently does not
have sufficient capital, if the Company is not successful
in obtaining suitable joint venture commitments and funds, there
is no assurance that the Company otherwise will obtain the
capital it would need to achieve its business plan.
The Company's plan of operation for Fiscal 1996 is to proceed
with its joint ventures and current exploration efforts and to
seek business arrangements that, in conjunction with the funds
of other companies or business entities, will provide
sufficient funding to meet the initial expenditures required
for the exploration of mineralization on such properties and
to acquire land positions or other interests in mineral
properties. As a consequence of the Company's plans, management
expects a reversal of the current trend of diminishing cash flow.
During September 1996, the Company completed its due diligence review
and signed an option agreement with the Placer Mining Corporation
of Kellogg, Idaho, to purchase a 100 percent ownership interest in
the Bunker Hill Mine, a silver-lead-zinc mine in Shoshone County,
Idaho. The Bunker Hill Mine is the largest mine in northern Idaho's
historic Coeur d'Alene Mining District, which currently has four
major silver mines in production. The Bunker Hill Mine has
produced over 35 million tons of ore over a one hundred year period.
Under the terms of the option, the Company can acquire the mine by making
payment through one of two alternative purchase arrangements: the Company
may either (1) pay $7 million and issue 500,000 shares of its restricted
common stock to Placer Mining on or before May 10, 1997; or (2) pay
$4 million and issue 500,000 shares to Placer Mining on or before
May 10, 1997, and then pay an additional $3.5 million on or before
May 10, 1998. Under either alternative, Placer Mining will retain a
2-3/4 percent net smelter return royalty on the property. The Company
intends to raise the necessary funds via equity and/or debt financing.
The Board of Directors reasonably believes that the Company is
able to engage in nearly any size operation or scope of
mining activity depending on the circumstances and merits of
each proposed operation or mining activity. Accordingly, the
Board has not limited the size of operation or scope of
project which it believes is reasonable for management to
consider in achieving the Company's business plan. Following
that direction, management of the Company pursued a vigorous
and fruitful program during the last quarter of Fiscal
1995, acquiring interests in seven distinct parcels of
mineral property. Further, management has been authorized
to consider and review all reasonable proposals and, upon
satisfactory assessment, to then make a specific determination
as to an estimated range of funding amounts that each such
proposal reasonably might require.
By further direction of the Board of Directors, management
may enter into new mining arrangements with joint
venturers, partners, or other third parties. Such arrangements
may be multi-party ventures to which the Company will
contribute stock, cash, and/or mineral interests. In
such arrangements, the Company's participation in revenues
and profits, if any, will be reduced. At this time, the
Company has no agreement or understanding with any third
parties for the formation of a joint venture mining operation
other than those described herein. The Company will
encounter significant competition from firms currently engaged
in the mining industry. In general, all of these companies
are substantially larger than the Company, and have substan-
tially greater resources and operating histories. (See
'Risk Factors,' below.)
Management, together with such professional advisors which
the Company deems appropriate, will investigate prospec-
tive properties through on-site examination, reviewing
available geologic reports or publications relating to
the property, and a general field reconnaissance to secure
preliminary information regarding characteristics of the
property. If, from such preliminary reviews, management deems
it advisable to further investigate the property, the Company
may determine the condition of title and ownership by
using abstractors or title companies, and may obtain a prelimi-
nary feasibility study by one or more geologists, mining
engineers, or accountants. If, after the foregoing
preliminary investigation, management determines that the
property does not meet the Company's acquisition criteria,
efforts to acquire the property would be abandoned, in which
case costs incurred in conducting the investigation would not
be recoverable. It should be noted, however, that the Company
has only a limited amount of funds available for working
capital which could be used for future exploration expendi-
tures. Thus, if future exploration is desired, additional
funds would be needed. Only a limited amount of such funds
have currently been identified and there can be no assurance
that such funds would be available at an acceptable cost, if
at all.
Inasmuch as the eventual project, operation or mining
activity could be of any size or scope, management is not able
at this time to provide more exact amounts or a detailed listing
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 fees it
may receive or savings it may realize through corporate
restructuring. Funds required to finance the Company's
exploration and development of mineral properties are expected
to come primarily from joint venture participant contributions
with the remainder provided by funds generated from such
joint venture and other lease or royalty arrangements.
Management has budgeted approximately $360,000 for Fiscal 1996
for general and administrative expenses and other operating
costs. To date, the Company 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 and contractors that provide its personnel, office
space, and equipment needs. The Company currently is
seeking additional sources of working capital sufficient
to continue its present level of funding its general
and administrative expenses and meet ongoing payment obligations
for its leases to governmental bodies. Operating costs are
largely dependent upon the level of exploration and develop-
ment activity engaged in, which, in turn, is dependent upon
availability of funds. The Company has determined not to incur
any operating costs related to exploration and development
until sufficient funds are available for payment.
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. In October 1995, the Company
completed a private placement of 200,000 shares through
a Regulation S offering at a price of $1.50 per share for a
total of $300,000. In December 1995, the Company completed a
private placement of 135,000 shares through a Regulation S
offering at a price of $1.50 per share for a total of $202,500.
In the event that amendments are made to certain Regulation
S registration provisions relating to a 40 day period, during
which securities cannot come back to U.S. persons, the Company
has granted, at its expense, certain registration rights.
Subsequent to the end of Fiscal 1995, the Company completed
a private placement of approximately 506,000 shares of common
stock at a price of $1.50 per share, in conversion of approxi-
mately $570,920 of principal, plus interest, related to out-
standing debt of certain notes payable. During the nine months
ended June 30, 1996, the Company placed 1,226,832 shares of its
common stock for $1,945,779 in cash. The Company also issued
406,050 shares of its common stock in lieu of outstanding debt. The
stock was issued at $1.50 per share for a total value of $609,075.
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. The Company
is unable to ascertain the exact number of such competitor companies,
however, the Company believes that with the acquisition of significant
properties in the Coeur d'Alene Mining District of Northern Idaho, USA,
its competitive position for exploring and developing such properties for
silver mineralization should improve. Nevertheless, the Company may be
unable to acquire attractive mining properties on terms it considers
acceptable. Accordingly, there can be no assurance that the Company's
programs will yield commercially minable reserves.
RISK FACTORS
The following risk factors with respect to the Company and
its operations may affect its strategy and business plan:
1. 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.
2. Exploration Stage Company. Mineral exploration, particu-
larly for gold and silver, is highly speculative in
nature, frequently is nonproductive, and involves many risks,
often greater than those involved in the discovery 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 explora-
tion 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 develop-
ment work. These estimates are not always scientifically
exact, 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 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.
3. 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 mineraliza-
tion 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 sold, but there is no assurance that the Company
will receive royalty payments, or that the Company will other-
wise receive adequate funding to be able to finance its explora-
tion 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.
4. 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 1996 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.
5. 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 retaining its present staff and in attracting additional
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.
6. Regulatory Concerns. Environmental and other government
regulations at the federal, state and local level pertaining to
the Company's business and properties may include: 1) Surface
Impact, 2) Water Acquisition, 3) Site Access, 4) Reclamation,
5) Wildlife Preservation, 6) Licenses and Permits, and 7)
Maintaining the Fees for unpatented mining claims. For a
detailed explanation of the term 'unpatented mining claim' see
the section below entitled 'Government Regulation and Environmen-
tal Concerns,' which also provides a comprehensive discussion
of the risks related to this factor that may affect the
Company's strategy and business plan.
TRANSACTIONS WITH CENTURION
The Company has disclosed pertinent information and financial
data with respect to its transactions with Centurion in its
presentation found at Item 13 of this Report, entitled
'Certain Relationships and Related Transactions.'
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.
Please refer to the Glossary of Mining Terms at the end of
Item 1 for a definition of the term "patented mining claims",
as well as for the definitions of other mining terminology
as it relates to this Annual Report.
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 regula-
tions. The Company's activities 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 environ-
ment. 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 legisla-
tion and regulation could cause additional expense, capital
expenditures, restrictions and delays in the development of
the Company's properties, including those with respect to
unpatented mining claims.
As used in this Annual Report, the term 'unpatented mining
claim' refers to a mining claim on federal lands which has not
been converted into full fee ownership in the name of a
private person or entity. The process of converting ownership
was established under the (U.S.) General Mining Law of 1872,
as amended (the 'General Mining Law'), and requires that
certain conditions be met. Once met, and all other require-
ments are satisfied, the U.S. government transfers ownership of
the underlying property (held to that point in the public trust)
to the private person or entity by granting fee simple and
conveying full private ownership of the subject mineral
property, including mineral rights, surface, subsurface and
appurtenant rights, subject to any vested and accrued water
rights. The act of granting full fee ownership is accomplished
by a duly endorsed instrument referred to as a 'patent.'
Until such time as a mining claim on federal land may be
'patented,' the claim is deemed an 'unpatented mining claim'
and ownership is held in the public trust by the U.S. govern-
ment subject to existing federal mining laws and other
applicable statutory or regulatory provisions as may be
implemented by the federal bureaucracy.
In 1992, the U.S. Congress passed a number of amendments to
the General Mining Law which governs mining claims and
related activities on federal lands. A holding fee of $100 and
a filing assessment of $35 per claim was imposed upon
unpatented mining claims located on federal lands. Since 1992,
a variety of legislation has been proposed to further amend
the General Mining Law. The proposed legislation would,
among other things, impose royalties and add requirements
affecting reclamation, environmental controls, and restoration.
Although such legislative proposals are not currently in
effect, the likelihood or extent of subsequent enactments is
not presently known and the potential impact on the Company as
a result of congressional action is difficult to predict.
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 environmen-
tal permitting, 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. While it is possible that the costs
and delays associated with the compliance of such laws,
regulations, and permits could become such that the Company
would not proceed with the development or operation of a mine,
the Company is not presently aware of any material environmen-
tal constraint affecting its properties that would preclude
the economic development or operation of any specific property.
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 environ-
mental controls, measures and facilities as may be required
in its future activities.
As the Company becomes more active on its properties, it is
reasonable to expect that compliance with environmental regula-
tions will substantially 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.
Future costs of compliance may depend upon the extent and type
of exploration and testing required. Moreover, there is no
assurance that the Company will be able to comply with require-
ments imposed on future development, or that the Company will
be able to economically develop operating mines under such
regulations. Therefore, management is not able to estimate
those amounts at this time.
NUMBER OF EMPLOYEES
The Company has five employees. The Company arranges for much
of its work through contracts with various consultants and,
in addition, leases personnel services, on an hourly basis,
from Centurion Exploration, Incorporated. The Company may
contract with additional consultants from time to time, as
required by its operations. Consultants are treated as indepen-
dent contractors.
CENTURION'S ACQUISITION AND CONTROL OF THE COMPANY
In October 1991, Centurion entered into negotiations with the
officers and directors of Royal 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 Royal's principal shareholders, whereby Centurion
exchanged 174,743 restricted shares of Centurion stock and
$1,600 cash for shares of Royal common stock constituting
37.2 percent ownership of Royal's outstanding shares. On
January 10, 1992, Royal's Board of Directors authorized the
exchange of 100,000 post-split shares of Royal'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 Royal 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 Royal common stock. This acquisition of
shares gave Centurion an 82.3 percent controlling interest in
Royal. Because of the changes in the control of shareholdings
brought about by the Reorganization with Celebration, Centurion
currently holds approximately 14 percent of Royal's outstanding
common stock.
SUBSIDIARIES
The Company currently has one subsidiary, Celebration Mining
Company, of which Royal currently is the sole shareholder.
Celebration was incorporated in the State of Washington in
February 1994. It is authorized to issue 20,000,000 shares of
common stock, par value $.0025, of which as of December 19,
1995, 2,762,500 shares are issued and outstanding and wholly
owned by Royal.
Royal's Reorganization With Celebration.
In May and June 1995, Royal's 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. Royal would acquire 100 percent
of Celebration's interest in the Vipont Mine Joint Venture, the Crescent
Mine Lease, the Australia Joint Venture, and the option rights to acquire
up to 50 percent 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 percent of the issued and out-
standing Celebration shares, Royal agreed to issue to the
Celebration shareholders 4,143,750 shares of Royal common
stock that together would represent ownership of 63 percent
of Royal shareholdings outstanding immediately following the
Reorganization. Also, Royal 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 Royal common stock. If all of the
various stock rights were exercised immediately upon closing
the Reorganization and that amount of shares were to be added
to the initial group of 4,143,750 shares, that would result in
a total issuance from the share exchange of approximately
5,898,750 shares, or 71 percent ownership by the Celebration
shareholders. 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
506,000 shares in full satisfaction of the debt.
Termination of Intent to Acquire Fausett International.
On October 18, 1995, the Company entered into an agreement with
Fausett International, an Idaho corporation, which the Company
proposed acquiring as an 81 percent-owned consolidated subsidiary.
However, as of the date of this filing, management has determined
not to pursue this acquisition because of changes in Fausett
International's financial circumstances, and a projected reduction in its
operations. Thus, the Company provides the following information for
background purposes only.
Fausett International, through its wholly-owned subsidiary Fausett
Mine Services, provides contract mining services throughout the western
United States. Those services include shaft sinking, underground mine
development, diamond drilling and contract mining. Fausett International
has had a diverse customer base over the past twenty five years,
including several major mining companies. Royal's management originally
approved the intended acquisition because of the view that Fausett's
experienced organization of seasoned professionals would be expected to
provide Royal with the capability to proceed with development of various
underground silver mines. Thus, during the beginning of Fiscal 1996, the
Company entered into negotiations and a lengthy period of due diligence.
The general terms of the acquisition proposal involved the purchase of all
of the issued and outstanding shares of Fausett International in exchange
for 850,000 Royal shares. However, as of the date of this filing, because
of concerns about the financial circumstances presented by the audited
financial statements of Fausett International, Royal's management has
determined that it is not in the Company's best interests to further
pursue this acquisition.
ACQUISITION AND DISPOSITION OF MINERAL PROPERTIES.
Royalty Properties. On January 10 and January 31, 1992, Royal
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 Royal common stock. The term 'unpatented mining claim'
is described above in the section entitled 'Government Regula-
tion and Environmental Concerns'.
During the nine months ended September 30,1992, the Company
sold unpatented mining claims and state and private mineral
lease properties to Kennecott Copper Corporation, a Unit of
RTZ, London ('Kennecott'). The Company sold four unpatented
mining claims (80 acres) to Kennecott in January 1992, for
$100,000 retaining a 5 percent production royalty. In July
of 1992, Royal sold approximately 16,880 acres of mining
claims and state and private mineral leases to Kennecott
for $250,000 retaining a 2 1/2 percent production royalty.
On September 30, 1992, Kennecott purchased 6,320 acres of
mining claims for $250,000, on which Royal retained a 2 1/2
percent production royalty.
Montanore Project. On March 29, 1994, Royal entered into
a preliminary agreement to acquire Montana Reserves
Company ('Montana Reserves'), a privately held corporation based
in Spokane, Washington. At the time of the agreement,
Montana Reserves owned a 5 percent net proceeds interest in
the Montanore Project, a silver and copper mineral property
located in Lincoln and Sanders counties in Montana.
Montana Reserves also had an option to acquire a 45 percent
working interest in the Montanore Project from Noranda
Minerals Corp. for approximately $28 million. At the date
of closing the agreement, June 15, 1994, material conditions
had not been met and the agreement was automatically
terminated without recourse of liability between or among
the parties. Efforts to complete the transaction were
continued through September 1994, but ultimately were
not successful.
GLOSSARY OF CERTAIN MINING TERMS
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.
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.
EXPLORATION -- Work involved in searching for ore, usually
by drilling or driving a drift.
GRADE -- The average assay of a ton of ore, reflecting metal
content.
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.
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.
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.
ORE -- Material that can be mined and processed at a positive cash flow.
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.
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.
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 percent.
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.
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.
STOPE -- An underground excavation from which ore has been extracted
either above or below mine level.
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.
WASTE -- Barren rock in a mine, or mineralized material that is too low in
grade to be mined and milled at a profit.
ITEM 2. PROPERTIES
OVERVIEW
The properties in which the Company has an interest are
divided into the following areas:
A. CRESCENT MINE
B. CONJECTURE MINE
C. VIPONT MINE
D. OTHER IDAHO PROPERTIES
E. OTHER PROPERTIES
F. UTAH GOLD BELT AND ROYALTY INTERESTS
G. OPTION TO PURCHASE BUNKER HILL MINE
H. OFFICES
A. CRESCENT MINE
In February 1995, Celebration 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 by 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.
The Coeur d'Alene 'Silver Belt' ore structures are
frequently narrow, fragmented, and sinuous. 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 and 2 Idaho state leases located immediately adjacent to
and west of the world-famous Sunshine Mine (Sunshine
Mining Company, SSC-NYSE). The Sunshine Mine has produced
nearly 400 million ounces of silver since its inception, making
it the largest primary silver mine in the world. 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
2 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.
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 re-habilitate
the stopes. At December 14, 1995, the Comex Spot price for
silver was $5.15. 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.
B. CONJECTURE MINE
In late August of 1995, the Company completed two
acquisitions which included 6 patented and 6 unpatented
mining claims comprising the Conjecture Mine property. Then,
in September of 1995, the Company acquired property covering
the 12,000 foot long Conjecture Shear zone by staking an
additional 44 unpatented claims.
The Conjecture property is located in the Lakeview Mining
District of Idaho, some 30 miles to the northwest of the
Coeur d'Alene mining district. The rock groups of the
Lakeview District are the same Precambrian belt series
associated with the world-class silver deposits of the Coeur
d' Alene mining district to the south.
The history of the Lakeview District in general, and the
Conjecture Mine in particular, has shown sporadic high grade
silver production from shallow workings since the late
1800's. Most recent production on a neighboring property
occurred as recently as 1987. However, within the District,
only the Conjecture Mine itself has been developed to
any significant depth.
In the late 1950's and early 1960's, Federal Resources of Salt
Lake City, Utah invested approximately $3 million in shaft
sinking and underground development at the Conjecture Mine.
In all, Federal Resources completed a 2,000 foot deep,
3 compartment vertical shaft and nearly 12,000 feet of
drifts, cross-cuts and raises to establish a block of mineralized
material of 336,000 tons at a grade of 11 ounces per ton of silver,
and .03 ounces of gold.
An additional block of 370,000 tons of similar grade was listed
as a possible block of mineralization between the levels. Since
obtaining the property, the Company has not been able to re-confirm
these reserve estimates of mineralized material, although an
independent reserve report done in 1981 essentially verified the
earlier numbers. That independent reserve report was prepared by
Richard W. Morris, a registered professional geologist, for a com-
pany known as Minerals Management, Inc. Nevertheless, no assurance
can be made that this mineralized material constitutes a proven or
probable 'ore reserve', if at all, until it can be re-verified.
The Company's geologists have noted the striking
similarities between the Lakeview District and the nearby
Coeur d'Alene District. High grade silver mineralization has
been shown to extend laterally for over 2 miles, and vertically
for over 3,000 feet in the Conjecture Mine. The same rock
unit sequence (i.e., Wallace, St. Regis, Revett) is found in
both districts, with the same important ore minerals (tetrahe-
drite, galena, sphalerite) defining productive ore
shoots. However, within the Lakeview District, only the
Conjecture shaft has penetrated the less favorable
Wallace formation into the better quartzite units.
If adequate financing is available, of which there can be no
assurance, the Company intends to conduct additional
exploration along the Conjecture Shear zone. This program
would incorporate surface geochemistry, trenching and drilling,
as well as underground rehabilitation and sampling. Because of
heavy snows in the winter of 1995 and spring of 1996, exploration
activities at the Conjecture were delayed.
C. VIPONT MINE
The Vipont Mine is located in the Ashbrook Mining District,
a remote area in the extreme northwestern corner of Box
Elder County, Utah, approximately 10 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 owned by Celebration Mining Company and United Silver
Mines.
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' mineralization body in the crests
of folds (crenulations) superimposed upon a shallowly dipping
(22 degrees) syncline. The continuity of the mineralization
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 mineralization deposits on the
Vipont Property: the oxide deposit and the sulphide 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
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 report of Marston and Marston, completed in 1981, provides
different grades and tonnage. Marston and Marston did not have
access to additional drilling results completed subsequent to their
report; however, based on the information then available, Marston
and Marston reported 1.5 million tons of mineralized material at a silver
grade of 4.47 ounces per ton. Because the mineralization is oxidized, it
is believed that recovery of the precious metals can be
achieved with cyanide heap leaching. It is also believed
that mining can be accomplished with open pit methods. The
Company will evaluate its plans for development of the
Vipont Property after further review of all technical data.
Any development is anticipated to require amendments to the
United Silver Mines permits to allow construction of leaching
pads, completion of engineering design of the leach pads
and recovery plant, selection of a mining contractor, building
and installing crushing circuits, agglomerating unit, leach
pads, and recovery plant.
The sulphide 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 sulphide deposits
will represent the long-term future of the Vipont Mine.
D. OTHER IDAHO PROPERTIES
Bismark Mine Property. In September of 1995, the Company
obtained a 10-year lease on 3 patented mining claims in
Shoshone County, known as the Bismark claims. The claims
lie about one mile south of the main shaft of the Sunshine Mine
and are surrounded by Sunshine holdings. The property is
developed by a 1,500 foot adit which was driven to the northwest
to intersect the Bismark vein. Royal has re-opened and
re-timbered the portal of the Bismark adit to permit accessing
and sampling of the Bismark vein. This work is planned for
the 1996 field season.
The geology of the Bismark claims, given the proximity to
the Sunshine Mine, is highly favorable to ore deposition.
The Bismark vein lies entirely with the Revett formation, which
is the most favorable rock unit for ore emplacement in the
Coeur d'Alene mining district. Limited exploration by
Sunshine Mining Company on the 2,600 level established the
downward projection of mineralization in the Bismark
vein structure.
Bismark Mining Company, the property owner and lessor, will
receive a 2.5 percent net smelter return on commercial
production from the claims, under the terms of the Company's
lease.
Coeur d' Alene Syndicate Property. No significant mineral
production has to date occurred on the Coeur d'Alene
Syndicate property and there are no known proven or
probable reserves. In September of 1995, the Company acquired
fee simple ownership of the 24 patented mining claims that
comprise the Coeur d'Alene Syndicate property, located in
Burke Canyon some six miles northeast of Wallace, Idaho.
The property is near the eastern end of the Coeur d'Alene
mining district, and is an undeveloped portion of a
major mineralized trend running through the Star-Morning Mines
and on to the Frisco and Black Bear Mines.
Geologists have long considered the Syndicate property to be
an outstanding exploration target where the highly productive
Star fault turns to the southwest and intersects the
Commander fault. This structural anomaly, occurring in
favorable Revett and Burke formation quartzite rocks is
exactly what develops major ore shoots within the Coeur
d'Alene district.
The property is currently developed by an adit from the Black
Bear property, but could ultimately be accessed by deep shafts
on either end of the strike.
Subsequent to September 30, 1995, the Company entered into
an agreement with an independent timber company to sell the
mature timber for cash. The transaction was expected to
close in Fiscal 1996, but has not reached final implementation.
The Liberal King Mine. In the fourth quarter of
Fiscal 1995, the Company acquired fee simple ownership of the
the Liberal King Mine, consisting of 5 patented claims
located southwest of the famous Bunker Hill Mine in the Pine
Creek area of the Coeur d'Alene Mining District. At the time
the mine was last operated by Spokane National in the 1960's,
that company reported a defined block of mineralized material
totaling 81,000 tons at 12 percent zinc and 2.5 ounces of silver.
Royal has not been able to evaluate this property as yet, and no
current reserve estimates can be given.
In the early 1980's, Cominco-American conducted an
exploration program on the Liberal King property in search of
a large, stratabound zinc-silver deposit. Such potential has
not been fully explored at this time.
E. OTHER PROPERTIES
Frisco Standard Silver Mine. As of the first quarter of
fiscal 1995, the Company has fully divested itself of any
ownership in the Frisco Standard Mine. In September 1995,
the Company had acquired fee simple ownership of the 7
patented claims that comprised this property.
New Departure Mine. There are no known proven or probable
reserves identified at the New Departure Mine. In August 1995,
the Company acquired a long term mineral lease for the
New Departure Mine in Beaverhead County, Montana. This property
is located in southeastern Montana near the town of Bannock.
The property consists of eight patented claims and has a history
of very high grade silver production. Royal management has not
as yet developed an exploration plan for the property, which
was acquired by lease in September 1995, subject to a 3 percent
net smelter return.
Australia Joint Venture Property. There are no known proven
or probable reserves identified at the Australia Joint
Venture Property. On March 21, 1995, Celebration entered into
a joint venture with Metallurgical Refining & Development PTY,
LTD. ('Metallurgical'), of Brisbane, Queensland, Australia, for
the exploration of EL 3854, a prospecting license in western
New South Wales. For the past three years Metallurgical has
been engaged in an active program of geophysics, geo-
chemistry, satellite reconnaissance, and other
proprietary exploration methods seeking to identify large,
buried, polymetallic deposits. In July of 1995, the joint
venture completed an exploratory diamond drill hole to a depth
of 700 meters (2100 feet). While the hole did not
encounter significant mineralization, there was geologic
indication that a large porphyry system may be nearby. Results
of additional scientific testing of the core are being
evaluated before conducting further magnetics and geophysics
to determine plans for further drilling.
F. UTAH GOLD BELT 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. Subject to the progress
of Royal's plan for Fiscal 1996 regarding its mineral properties,
the Company does not anticipate pursuing significant exploration
activities within the Utah Gold Belt properties during Fiscal 1996.
The Utah Gold Belt is a major mineralized north-south
zone, including the Oquirrh Mountain range, situated on the
west side of the Salt Lake valley. The Utah Gold Belt is close
to Salt Lake City, and major highways and railroads make up a
well-developed infrastructure. The Utah Gold Belt includes
the well-known Bingham and Mercur mining districts, plus
smaller Ophir, Stockton, and Greeley districts.
The Utah Gold Belt has been a major producer of copper,
gold, silver, and other metals since the late 1800's.
Discovery and profitable production of new ore bodies has
continued up to the present time. Indeed, important new gold
mines have been developed within the last decade.
Centurion initiated a land acquisition program in 1987 and
Royal subsequently purchased Utah Gold Belt properties
because management recognized that these properties had not
been fully explored and it offered excellent potential for
the discovery of new gold ore bodies.
Mayflower/West Canyon Project. This project covers
approximately 3,060 acres, which are held as private mining
leases and state mineral leases. The most important portion
of this property is the Mayflower Gold Mine, which was
operated about 1900 and is known to contain gold mineraliza-
tion. Royal engineers have excavated the Mayflower Mine portal
and have carried out underground mapping and sampling.
Geological and geochemical surveys and exploratory drilling
have been carried out on the surface.
Central Oquirrh Project. The Central Oquirrh Project
covers approximately 9,030 acres, which are held as private
mining leases and state mineral leases. This project is
located in the central Oquirrh Mountains of Utah and
Tooele Counties.
Bates Canyon. This property consists of approximately 360
acres held as unpatented lode mining claims which Kennecott
re-assigned to the Company in December 1995 after paying
federal claim rental fees through August 31, 1996.
The Company sold various Utah Gold Belt mining properties
to Kennecott during 1992, which are described in the
following paragraphs (the quoted acreage represent what
Kennecott currently holds). The Company has retained
production royalty interests on these properties. These
sold properties are contiguous to or near properties
held previously by Kennecott in the Utah Gold Belt.
Management of the Company believed it was to the
Company's advantage to allow the ownership of these properties
to pass to Kennecott, with the Company retaining a
production royalty interest. At present gold prices (about
$380 per ounce), the Company would receive $3.80 for each
one percent royalty interest for each ounce of gold produced
by Kennecott from these properties without any commitment on
the part of the Company to contribute to the exploration,
development, or mining of these properties. The Company
has retained royalty interests which varies from property
to property, within the range of 5 percent of the gross value
of metals produced. There is no assurance that the Company
will receive or continue to receive royalties from
these properties, or of the amount, if any, of such royalties.
Barneys Canyon. In January 1992, Kennecott purchased this
80-acre property underlying, in part, the Barney's Canyon
South operating gold mine. This property consists of four
unpatented lode mining claims, and is situated in the
active excavation and dump portion of said mine which is
currently under development. The Company retained a five
percent production royalty. management of the Company has no
knowledge as to whether or not gold will be produced from this
80-acre property, and if gold is produced, when this will occur.
Lion Hill. This property consists of approximately 1,450
acres held as unpatented mining claims, and is situated of the
west flank of the Central Oquirrh Range, just south of the
community of Ophir. This property has been the site for the
drilling of twelve exploratory hole by the former Centurion
Mines Corporation-Crown Resources Corporate Joint Venture.
Some gold mineralization was encountered, but no commercially
minable ore deposits were found. The Company retains a two and
one-half percent production royalty on this property.
North Oquirrh Project. This property consists of
approximately 2,800 acres held as private and state mineral
leases situated on the west slope of the Northern Oquirrh Range
and is relatively unexplored. The Company retains a two and
one-half percent production royalty.
Barneys Canyon North. This property consist of approximately
720 acres held as unpatented mining claims. Untested gold
exploration targets have been identified on this property.
The Company retains a two and one-half percent production
royalty on this property.
Barneys Canyon South. This property consists of approximately
720 acres held as unpatented lode mining claims and
contains untested gold exploration targets. The Company
maintains a two and one-half percent production royalty on
this property.
Harkers Canyon. This property consists of approximately
2,200 acres held as unpatented lode mining claims. Centurion's
geologists have identified two anomalous gold-bearing zones
which represent exploration targets. Kennecott has committed
to carrying out exploratory work on this property during 1993.
The Company retains a two and one-half percent production
royalty.
G. OPTION TO PURCHASE THE BUNKER HILL MINE
In September 1996, the Company completed its due diligence review and
successfully exercised its option with the Placer Mining Corporation
of Kellogg, Idaho, to purchase a 100 percent ownership interest in
the Bunker Hill Mine, a silver-lead-zinc mine in Shoshone County,
Idaho and the largest mine in northern Idaho's historic Coeur d'Alene
Mining District. The Bunker Hill Mine has produced over 35 million
tons of ore over a one hundred year period. Option terms and financing
alternatives regarding the purchase are explained above in more detail
in the section within Item 1 entitled "The Company's Strategy and
Business Plan."
The Bunker Hill complements Royal's silver focus. The Bunker Hill has
historically produced in excess of 165 million ounces of silver,
making it the second most productive silver mine in United States
history. Preliminarily, the Company has identified seven near-term
exploration-development projects of potentially high-grade silver zones.
These targets were also identified by past operators. Detailed
exploration plans for these projects are available to the Company in the
records at the mine.
The Bunker Hill Mine property consists of over 6,500 acres of
patented mining claims, much of which is completely unexplored.
The largest deposit of zinc mineralization in the mine, the Quill,
is open on strike to the west and down dip. The largest and highest
grade deposit of lead-silver mineralization, the Francis, the "J",
and the Emery are all open to depth. Given the extensive vertical
continuity of mineralized material in the Coeur d' Alene Mining
District, the Company believes that the existence of additional
mineralized material at depth that may be economically profitable
is a rational basis for conducting further exploration and development.
Management of the Company notes that the other four largest mines in
the district have been mined and developed at least one thousand
feet deeper, in reference to sea level, than the Bunker Hill Mine.
The Bunker Hill Mine was discovered in 1885 and produced continuously
until its first closure in 1981. Historical production from the mine
exceeded 39,600,000 tons at a grade of 4.5 ounces per ton of silver,
8.6 percent lead and 3.7 percent zinc. At present metal prices, this
prior production would have exceeded approximately 5 billion dollars.
Placer Mining acquired the Bunker Hill Mine in 1991 and is
currently producing approximately 50 tons per day of high-
grade lead-silver ore. Over the next 24 months, the Company
intends to expand production to approximately 500 tons per day
of lead-zinc-silver ores, as well as to undertake a major underground
diamond drilling program to better define, evaluate, and expand
reserves and other mineralized material.
The proven and probable reserves are contained within 18 known ore
zones. Historically, the Bunker Hill Mine has been mined from over
60 individual ore zones extending within a broad area approximately
1500 feet wide, 11,000 feet long, and 7000 feet deep. Substantial
inferred resources and potential extensions are believed to be present
within the mine complex. The Company believes also that projected mining
activities at the Bunker Hill Mine will benefit from the presence of three
workable shafts and over 150 miles of drifts, crosscuts and raises,
which in today's dollars represents an infrastructure that could
cost in excess of $300 million dollars to duplicate.
During Royal's extensive due diligence review, of more than 6 months,
technical staff of the Company completed an extensive review of mine maps,
drill logs, and other technical data which presents a preliminary
overview that approximately 8 million tons of silver and other mineralized
material may be present and economically recoverable from within the mine.
Thus, the Company is preparing plans to implement reasonably significant
exploration activities upon exercise of the option to purchase the mine.
Exploration targets are believed to consist of large tonnage,
bulk-minable deposits as well as high-grade vein deposits.
According to consulting Royal geologist Daniel Gorski, extensive,
minable bulk tonnages may be indicated by prior drilling results.
Management believes that implementation of the option purchase
agreement will allow the Company to extend its exploration
strategy for silver and other mineralized material in a
known mining district.
H. OFFICES
The Company's executive office is located at North 10220
Nevada, Suite 230, Spokane, Washington 99218. In addition,
the Company maintains its registered corporate office at 331
South Rio Grande Street, Suite 208, Salt Lake City, Utah 84101.
The Company leases its principal office in Spokane, Washington,
on a renewable one-year term with rental costs of $970 per
month, including basic maintenance and janitorial services.
The Company does not currently have any other branch offices.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings
incidental to the Company or any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through
the solicitation of proxies or otherwise during the fourth
quarter of Fiscal 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common shares are traded on the NASDAQ Bulletin
Board under the symbol RSMI. The prices listed below were
obtained from the National Quotation Bureau, Inc., and are
the highest and lowest bids reported during each fiscal quarter
for the period December 31, 1993, through September 30,
1995. These bid prices are over-the-counter market
quotations based on interdealer bid prices, without
markup, markdown, or commission and may not necessarily
represent actual transactions:
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Bid ($) Low Bid ($)
- -------------------- ------------ -----------
<S> <C> <C>
December 31, 1993 2.124 1.500
March 31, 1994 2.50 1.000
June 30, 1994 4.250 4.250
September 30, 1994 7.750 4.250
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
</TABLE>
On October 4, 1996, the average of the high bid and low ask
quotation for the Company's common shares as quoted on the
NASDAQ Bulletin Board was $1.08.
The approximate number of holders of common stock of record on October
4, 1996, was approximately 350.
Since its inception, the Company has not paid any dividends on
its common shares. The Company does not anticipate that
dividends will be paid in the foreseeable future.
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.
<TABLE>
<CAPTION>
For the Ten From Inception From Inception
Months Ended on 2/17/94 on 2/17/94
9/30/95 to 11/30/94 to 9/30/95
------------- ------------- --------------
Results of Operations:
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
Net Income (loss) $ (750,939) $(211,795) $(962,735)
Net income (loss) per
common share $ (.12) $ (.07) $ (.15)
Balance Sheet Data:
Total Assets $ 4,056,698 $ 366,620 $4,056,698
Working Capital
(deficit) $ (665,274) $ 25,754 $ (665,274)
Long-Term debt $ -0- $ 59,000 $ 0
Stockholders' equity $3,235,376 $ 276,321 $3,235,376
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
GENERAL
Pursuant to the Reorganization discussed above in Item 1 of this
Report, the accompanying consolidated financial statements
include those of Celebration Mining Company and Royal Silver
Mines, Inc., which was known as Consolidated Royal Mines,
Inc. before the Reorganization. All significant intercompany
accounts and transactions have been eliminated. The accounting
of financial statements following the Reorganization also
required a change in fiscal year-end date, namely, from November 30
(Celebration's) to September 30 (Royal's). The financial state-
ments account for the Reorganization using the purchase method
of accounting. (See Note 1 to the financial statements.)
Celebration is treated as the acquiring company for financial
reporting purposes because its shareholders constitute greater
than 50 percent of the combined shareholder group. 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. The financial statements for the period
from the inception of Celebration on February 17, 1994 to
November 30, 1994 ('Fiscal 1994') do not include the balance
sheet data or results of operations of Consolidated Royal
Mines, Inc.
There is considerable risk in any mining venture, and there can
be no assurance that the Company's operations will be successful
or profitable. From inception of the Company to September 30,
1995, the Company has an accumulated deficit of
$962,735. Exploration for commercially minable 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, geo-
physicists, 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 minable
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 minerali-
zation produced are subject to fluctuation and uncertainty,
which may negatively affect the economic viability of properties
on which expenditures have been made.
As of September 30, 1995, $3,869,515 of the Company's total
assets of $4,056,698 are investments in mineral properties
for which additional exploration is required to substantiate
or determine whether they 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 this matter
cannot be determined at this time; 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. At September 30, 1995,
the Company's accumulated deficit was $962,735. 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, 1995, the Company had negative working capital
of approximately $665,270. The following factors explain
the principal increases and decreases in working capital
during Fiscal 1995.
The deficit in working capital was primarily due to a change in
the recording of approximately $670,920 of long term debt to
an accounting as current notes payable. The debt
obligations consisted of promissory notes and
convertible debentures issued by Celebration prior to and
unrelated to the Reorganization. However, it should be noted
that subsequent to the end of Fiscal 1995, the Company
retired approximately $570,920 of debt principal, plus interest,
by issuing approximately 506,000 shares of common stock to
the noteholders. On the other hand, the Company's cash
balance increased significantly from November 30, 1994 to
September 30, 1995, largely as a result of funds received from
the private placement of stock. However, during Fiscal 1995,
the Company accrued significantly more in expenses, many of
which were a result of the changes brought about by
the Reorganization and the subsequent activity acquiring
mineral properties. In addition, during Fiscal 1994, the
Company had prepaid approximately $26,980 in expenses,
mostly general and administrative expenses. In contrast,
during Fiscal 1995, the majority of those expenses became due
and the Company only had approximately $4,350 of prepaid
expenses. Also, 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 Royal to
Centurion, which Royal 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, the Company owed only $289 to Centurion.
The Company has estimated that it will need capital resources
of approximately $25,000 to 30,000 per month to meet its
estimated expenditures for the ensuing twelve months. The Board
of Directors has instructed management to consult with
experienced financial and investment advisory firms to
formulate arrangements for such capital fund raising.
Currently, the Company is pursuing various alternatives,
including, if necessary, the private placement of common
stock.
The Board of Directors reasonably believes that the Company is
able to engage in nearly any size operation or scope of
mining activity depending on the circumstances and merits of
each proposed operation or mining activity. Accordingly, the
Board has not limited the size of operation or scope of
project which it believes is reasonable for management to
consider in achieving the Company's business plan.
Therefore, management has been authorized to consider and
review all reasonable proposals and, upon satisfactory
assessment, to then make a specific determination as to an
estimated range of funding amounts that each such proposal
reasonably might require.
Inasmuch as the eventual project, operation or mining
activity could be of any size and scope, 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 funds it may receive
or savings it may realize through corporate restructuring
or business combination arrangements. Funds required to
finance the Company's exploration and development of mineral
properties are expected to come primarily from joint venture
participant contributions with the remainder provided by funds
generated from such joint venture and other lease or
royalty arrangements.
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 bodies.
Results of Operations
Fiscal 1995 as Compared to Fiscal 1994
General and administrative expenses and compensation to
officers and directors increased from $209,285 during Fiscal
1994 to $482,979 during Fiscal 1995. The increase is
principally due to an increase in the amount of stock issued
to officers, directors, and a consultant as compensation
for services and bonus. As a result, from Fiscal 1994 to
Fiscal 1995, the net loss increased from $(211,795) to
$(750,939) and the net loss per share increased from $(.07)
to $(.03), respectively.
It is uncertain and the Company is unable to fully determine
the impact of the Company's current lack of operating
capital. Hence, other than as described herein, in particular
with respect to the option to purchase the Bunker Hill Mine,
the Company has determined not to incur and does not have any
commitments or plans for material capital expenditures during
Fiscal 1996 for which it does not have a reasonably available source
or basis for making payment. For additional information regarding the
Company's present commitments and plans for which it does have reasonably
definable and available payment sources, for example the option to
purchase the Bunker Hill Mine, please refer to the "Properties"
discussion under Item 2 above, at Section G, entitled "Option to
Purchase The Bunker Hill Mine".
It is uncertain what the scope or impact will be of the decision
to restrict capital expenditures. On the one hand, if
the Company were to continue such restriction, the likely
effect might be adverse to the preservation of its assets
and capital base, thereby narrowing the scope of plans for
future operations and constricting liquidity. On the other
hand, if the Company were to discontinue such restriction
without an increase in sustained cash flow, the likely effect
of that might be an increase in accumulated deficits which could
be adverse to the Company's financial condition with respect
to liabilities and stockholders' equity. Therefore, the
Company's plan for the next twelve months is to closely monitor
its capital expenditures while it pursues a joint
venture participant or other sources of capital for
financing operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and the Report of
Independent Public Accountants are filed as part of this report
on pages F-1 through F-19.
C O N T E N T S
Independent Auditors' Reports . . . . . . . . . . . . .F-3
Consolidated Balance Sheets . . . . . . . . . . . . . . F-5
Consolidated Statements of Operations . . . . . . . . . F-7
Consolidated Statements of Stockholders' Equity . . . . F-8
Consolidated Statements of Cash Flows . . . . . . . . . F-10
Notes to the Consolidated Statements . . . . . . . . . .F-12
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 a result of the Reorganization, the Company changed its
engagement of principal independent accountant to audit its
financial statements. The former principal accountant, Hein
& Associates LLP, was engaged by the predecessor company,
Celebration. Following the Reorganization, the CPA firm of
Jones, Jensen & Company, the auditor for Royal, assumed
the relationship of principal independent accountant for the
reorganized Company. This decision was not based on any
disagreement between or among Celebration, Royal, or Hein &
Associates, nor was it based on any information that would have
led Hein & Associates to resign or decline to stand for
re-election.
Hein & Associates' report on the financial statements from
inception of Celebration on February 17, 1994 to the end of
Celebration's fiscal year on November 30, 1994, did not contain
an adverse opinion or a disclaimer of opinion, nor was its
report qualified as to uncertainty, audit scope, or
accounting principles. That report contained an explanatory
paragraph regarding Celebration's ability to continue as a going
concern. During the period described above and up through August
8, 1995, for the period preceding such dismissal:
(1) The Company had no disagreements with Hein & Associates
on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure;
(2) Hein & Associates did not advise the Company that
the internal controls necessary for the Company to develop
financial statements do not exist;
(3) Hein & Associates did not advise the Company of any
information leading Hein & Associates to be unable to rely on
management's representations, or unwilling to be associated with
the financial statements prepared by management;
(4) Hein & Associates did not advise the Company of any need
to significantly expand the scope of its audit, or of any
information that may or would (i) materially affect the fairness
or reliability of, or prevent it from rendering an unqualified
opinion regarding, its audit report or any of the underlying
financial statements, or (ii) cause Hein & Associates to be
unwilling to rely on management's representations or be
associated with the Company's financial statements; and
(5) Hein & Associates did not, as a result of its
dismissal, expand its audit or conduct any investigation of
information that came to its attention of the type referred to
above in subparagraph (4), or have any issues that were
unresolved to its satisfaction prior to dismissal.
The Company has provided Hein & Associates with a copy of the
above disclosures in a timely manner and requested and received
from Hein & Associates a letter addressed to the Commission
stating Hein & Associates' agreements with these disclosures. A
copy of such letter is attached to this registration statement
and filed as Exhibit 16.2.
C. Designation of New Accountant.
The Company has designated the continuing services of the
accounting firm of Jones, Jensen & Company to serve as principal
independent accountant for the Company effective August 8,
1995. During the period of Hein & Associates' engagement as
principal independent accountant and up to August 8, 1995, prior
to designating Jones, Jensen & Company as principal accountant:
(1) Neither the Company nor any person or entity acting on
its behalf has consulted Jones, Jensen & Company regarding
the application of accounting principles to any specified trans-
action, or the type of audit opinion that might be rendered on
the Company's financial statements, or any matter characterized
as a 'disagreement' or 'reportable event' (as defined by
Regulation S-K, Item 304(a)(1)(iv) and (v)); and
(2) Jones, Jensen & Company did not provide the Company
with either a written report or oral advice containing any
conclusions by Jones, Jensen & Company of any important factors
considered by the Company in reaching a decision as to any
accounting, auditing, or financial reporting issues.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
On March 31, 1995, the Company restructured its Board of
Directors and management. The Board formally named Howard Crosby
as President, Hal Cameron as Vice President, LaRoy Orr as
Treasurer and Carlos M. Chavez as Secretary. On August 8, 1995,
in accordance with the terms of the Reorganization with
Celebration, the Board appointed Robert E. Jorgensen as Director
and Executive Vice President; Ronald Kitching and James W. Prier
as Directors; and Jerry Stacey as Vice President of Operations.
On August 31, 1995, upon receiving the resignation of Mr. Orr,
the Board appointed Mr. Jorgensen to the position of Treasurer.
In September 1996, the Board appointed John Ryan to the position of
Vice President, Corporate Development.
Information Regarding Directors and Executive Officers. The
following table sets forth the name, age, position, and length of
service for each of Royal's present directors and executive
officers:
<TABLE>
<CAPTION>
Name Age Position(s) Held Director Since
- ----------------- ---- ------------------------------- --------------
<S> <C> <C> <C>
Howard M. Crosby 43 President and Director February 1994
E. Hal Cameron 77 Vice President and Director April 1969
Spenst Hansen 62 Director November 1991
Carlos M. Chavez 43 Corporate Secretary and Director March 1995
Robert E. Jorgensen 42 Executive Vice President,
Treasurer and Director August 1995
Jerry Stacey 51 Vice President, Operations August 1995
John Ryan 34 Vice President, Corp. Dev. September 1996
Ronald Kitching 65 Director August 1995
James W. Prier 48 Director August 1995
</TABLE>
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.
Set forth below is certain biographical information regarding
each director and executive officer of the Company:
HOWARD M. CROSBY received a B.A. degree from the University of
Idaho in 1974. 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 currently serves 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.
HAL CAMERON founded the Company in 1969, has held the position of
President and Director, and was engaged, virtually full-time, in
the business affairs of the Company from May 1983 up through
November 1991. Mr. Cameron is a graduate of West High School in
Salt Lake City, Utah, and has been involved in the natural
resource field since 1953, including the active management of
publicly-held natural resource exploration and development
companies. In 1953, Mr. Cameron was one of the founders of
Federal Uranium Corp., now a publicly-held Nevada corporation
known as Federal Resources Corporation, and served as an
independent consultant to Federal Resources from 1955 to 1960.
He was also one of the founders and a director of Cherokee Utah
Uranium, a publicly-held Utah corporation, in 1954, and served as
a consultant until 1960 to its successor, Beaver Mesa Uranium.
From 1964 until 1974, Mr. Cameron was the vice-president and
a licensed commercial real estate salesman for Meeks-Wirthlin
Real Estate Company in Salt Lake City, Utah. From 1974 to
the present, Mr. Cameron has been engaged in commercial real
estate acquisitions, sales, and development for himself. Mr.
Cameron was president of Cameo Minerals, Inc., a publicly-held
Utah corporation, from its inception in 1969 until its merger in
1981 with Hendon Exploration, Inc., a Texas oil and gas company.
SPENST HANSEN was awarded a Ph.D. degree in geology from the
University of Missouri, Columbia, Missouri; a Masters degree in
mining engineering from the Missouri School of Mines, Rolla,
Missouri; and a Bachelor of Science degree in geological
engineering from the University of Utah, Salt Lake City, Utah.
Dr. Hansen is a registered professional geologist in
California (#2067) and Idaho (#38). Dr. Hansen has been
principally employed by Centurion Mines Corporation since
November, 1984, where he is currently President, Chief
Executive Officer, a Director, and Chairman of the Board of
Directors. Dr. Hansen has worked on mining projects in the
western United States for more than 20 years. From 1982 to 1989,
he also conducted an independent geophysical and geologic
contracting business as a sole proprietorship under the name
Axis Geophysics Company. Dr. Hansen still retains ownership of
this company.
CARLOS M. CHAVEZ has been principally employed as Centurion's in-
house legal counsel since March 1994. Mr. Chavez received his
J.D. in 1980 from Stanford Law School, Palo Alto, California, and
has been admitted to the Utah State Bar and the Bar of the
District of Columbia. From 1991 to his employment with
Centurion, Mr. Chavez was employed with Suitter, Axland & Hanson
and Jay Gurmankin, Esq., P.C., law firms in Salt Lake City, Utah.
During 1989 and 1990, Mr. Chavez taught full-time as a Visiting
Assistant Professor of Law on the faculty of the Whittier
College School of Law, Los Angeles, California. Prior to that
position, Mr. Chavez taught and supervised the academic
support program as Adjunct Professor of Law on the faculty of
the University of Utah College of Law, and also served in the
dual capacity as assistant attorney general for Higher Education
and as associate legal counsel for the University of Utah. Mr.
Chavez also serves as a director of Dotson Exploration Company.
ROBERT E. JORGENSEN received a degree in Business Administration
from the University of Idaho. He has served as vice-
president, secretary and director of Celebration Mining Company
since its inception. In May 1992, Mr. Jorgensen retired from
the brokerage business and has since been a private investor.
From 1987 to 1991, Mr. Jorgensen was an investment broker and
owner of RCL Northwest, Inc., a regional investment firm. He was
a broker with Cohig & Associates, Inc., from January 1992 to May
1992. Mr. Jorgensen filed for protection under Chapter 7 of the
Bankruptcy Code in August 1992.
JERRY STACEY is a professional mining engineer with over 20
years experience in open pit and underground mining. He earned a
B.S. Degree in Mining Engineering from Montana Tech in 1974
while working in Butte, Montana mines. 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 and has continued full time
as Vice President of Operations with Royal. 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.
JOHN RYAN, a professional mining engineer, was recently appointed to
the position of Vice President of Corporate Development for the
Company. Up through his appointment, Mr. Ryan has served most
recently as a consultant in mine engineering services, and will
continue in these activities during his tenure as Vice President
of Corporate Development, as well as engage in other matters in
accordance with the direction and assignment of the Board of
Directors. 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 the
Boston College School of Law.
RONALD KITCHING resides in Australia. Prior to his retirement
five years ago, Mr. Kitching was involved in he mining industry
from 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. He has
served as a director for Celebration Mining Company since May
1994.
JAMES W. PRIER has been active in the Canadian resource industry
for the past 14 years as a principal and through his consulting
firm, James Prier & Associates, Ltd. From 1986 to 1990, Mr.
Prier was associated with Energex Minerals, Ltd., a natural
resource company listed on the Toronto Stock Exchange, serving as
vice-president of corporate development from 1987 to 1990. While
with Energex, Mr. Prior participated in the development,
evaluation and sale of an open-pit gold deposit in northern
British Columbia and the subsequent acquisition of a
Houston-based oil and gas company. Mr. Prier was a founding
director of Minerex Resources Ltd., a gold producer listed on the
Toronto Stock Exchange. He served as vice-president of corporate
development for Black Swan Gold Mines Ltd., a Toronto Stock
Exchange listed resource company, from 1991 to 1993. He is
a principal and director of Argosy Mining Corp., a Vancouver-
based resource company engaged in a US $8.5 million diamond
exploration joint venture in Zimbabwe and Tanzania. Mr. Prier is
a director and corporate secretary of Urandel Minerals
Corporation, listed on the Vancouver Stock Exchange. Prior to
1979, Mr. Prier was a financial analyst for a private Ontario
investment group.
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 regulation
s 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, 1994, and September 29, 1995, or with respect to
transactions which occurred between October 1, 1993, and
September 30, 1994, and should have been reported in Fiscal 1994
but were not, or were untimely reported and that untimeliness was
not disclosed in the Form 10-K for Fiscal 1994, and on
representations that no other transactions were required to be
reported and no other Forms were required to be filed, the
Company has determined that the pertinent officers, directors,
and principal shareholders have complied with all applicable
Section 16(a) requirements, except as follows:
Howard Crosby, President, CEO and a Director of the Company,
filed Form 5 for Fiscal 1995 on December 22, 1995. That form
should have been filed by November 14, 1995. The Form 5 reported
two September 1995 transactions.
Robert E. Jorgensen, Executive Vice President, Treasurer and a
Director of the Company, filed Form 3 on December 22, 1995. That
Form 3 should have been filed by August 18, 1995. A Form 5 for
Fiscal 1995 was filed on December 22, 1995. That Form 5 should
have been filed by November 14, 1995. The Form 5 reported two
September 1995 transactions.
Jerry Stacey, a Vice President and a Director of the Company,
filed Form 3 on December 22, 1995. The Form 3 should have been
filed by August 18, 1995.
Carlos M. Chavez, Secretary and a Director of the Company, filed
Form 5 for Fiscal 1995 on December 22, 1995. That form and the
two exempt transactions it reported should have been filed
and disclosed by November 14, 1995.
Spenst Hansen, a Director of the Company, should have filed a
Form 5 for Fiscal 1995 by November 14, 1995. Registrant believes
that the Form 5 has not been filed, but is unaware of any other
Form 4 or Form 5 transactions that should be reported on that
Form 5 or that otherwise have not been filed.
Ronald Kitching, a Director of the Company, should have filed a
Form 3 for Fiscal 1995 by November 14, 1995. Registrant believes
the that Form 3 has not been filed, but is unaware of any Form 4
or Form 5 transactions that have not been filed.
James W. Prier, a Director of the Company, filed Form 3 on
December 22, 1995. That form should have been filed by August
18, 1995.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth the
compensation paid by Royal 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 $100,000 for Fiscal 1995 (the 'Named Executive
Officers'). This information includes the dollar value of base
salaries, bonus awards and number of stock options granted,
and certain other compensation, if any.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Secur
and Restric ities
Prin- Other ted Under LTIP All
cipal Annual Stock lying Pay Other
Posi- Compen Award (1) Options/ Outs Compen
tion Year Salary Bonus sation ($) SAR's(#) ($) sation
- ----- ---- ------ ----- ------- --------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO
- -----
Howard 1995 $48,000 $0 $0 $---- 0 $0 $0
Crosby 1994 $16,000(2) $0 $0 $40,000 0 $0 $0
1993 $0 $0 $0 $0 0 $0 $0
Named
Execu-
tive
Officers
- ------
None n/a n/a n/a n/a n/a n/a n/a n/a
(1) The above shares were issued for Directors fees, for service to Royal.
No awards were made for service to Celebration.
(2) This represents salary received as an officer of Celebration, $4,000 per
month, beginning with June 1994.
</TABLE>
Other than the Company's Stock Option and Award Plan, there
are no retirement, pension, or profit sharing plans for the
benefit of the Company's officers and directors.
Option/SAR Grants Table. Information concerning individual
grants of stock options, whether or not in tandem with
stock appreciation rights ('SARs'), and freestanding SARs made
during Fiscal 1995 to the CEO and each of the Named
Executive Officers, if any, is reflected in the table below.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL 1995
Potential Realizable Alterna-
Value at Assumed An- tive to
nual Rates of Stock (f) and
Price Appreciation (g) Grant
Individual Grants for Option Term Date Value
- ------------------------------------------------- ---------------- ---------
(a) (b) (c) (d) (e) (f) (g) (h)
Number of Percent of
Securities Total Options/ Grant
Underlying SARs Granted Exercise Expira- Date
Options/SARs to Employees or Base tion Present
Name Granted (#) in Fiscal Year Price Date 5%($) 10%($) Value $
- ---- ------------ ------------- -------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CEO
- ----
Howard
Crosby 0 0 N/A --- N/A N/A N/A
Named
Execu-
tive
Officers
- ------
None n/a n/a n/a n/a n/a n/a n/a
</TABLE>
Aggregated Option/SAR Exercises and Fiscal 1995 Year-End
Option/SAR Value Table. The following table sets forth
certain information with respect to each exercise, if any, of
stock options and SARs during Fiscal 1995 by the CEO and each
of the Named Executive Officers, if any, and the Fiscal 1995
year-end value of unexercised options and SARs. The dollar
values in columns (c) and (e) are calculated by determining
the difference between the fair market value of the underlying
stock and the exercise price or base price of the options at
exercise or Fiscal 1995 year-end, respectively. The stock's
fair market value on September 30, 1995 was $2.50 per share.
There are no outstanding option awards to management. Even if
there were, it is possible they might never be exercised.
Actual gains realized, if any, on stock option exercises and
Common Stock holdings are dependent on the future performance
and value of the Common Stock and overall stock market
conditions. There can be no assurance that projected gains and
values would be realized.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995
AND OPTION/SAR VALUES AT SEPTEMBER 30, 1995
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at FY-End($)
at FY-End (#)
Dollar
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
- ---- --------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
CEO
- ----
Howard
Crosby 0 $0 0/0 0/0
Execu-
tive
Officers
- ---------
None n/a n/a n/a n/a
</TABLE>
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 provide 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 1995, 42,500 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.
Compensation Committee Interlocks and Insider Participation.
There are no compensation committee interlocks. With respect
to insider participation, Howard Crosby, Hal Cameron and Carlos
Chavez (fourth quarter only), participated in deliberations of
the Company's Board of Directors during Fiscal 1995,
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 1995, including the Reorganization with Celebration
and its compensation history and policies, 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.
As consequence of the Reorganization with Celebration, the
Company continued the payment of salaries paid by Celebration
to its officers. The President and CEO, Howard Crosby, receives
$48,000 yearly, the Executive Vice President and Treasurer,
Robert Jorgensen, receives $60,000 yearly, and the Vice President
of Operations, Jerry Stacey, receives $70,000 yearly. These
amounts were approved by the Board in recognition of the work
and efforts committed to completing the Reorganization and in
completing the acquisition of a large number of silver
mining properties prior to the end of Fiscal 1995. Further, the
Board recognized the significant role of these three 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 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 1995.
With respect to stock awards during Fiscal 1995, 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
1995 substantially reflects the Company's compensation policy.
Performance Graph. The Company is not presently able to provide a
line graph covering five consecutive years that compares (1) the yearly
percentage change in the Company's cumulative total shareholder return
on its Common Stock with (2) the cumulative total return of a broad
equity market index and (3) the cumulative total return of an industry
index, peer line-of-business index, or a group of similarly
capitalized issuer companies. The Company has made every reasonable
effort to compile or locate commercially available and reliable
data of its historical stock price for the period required by the SEC,
or to compile such data for a lesser period of sufficient range
in time from which the Company could be able to prepare a meaningful
performance graph. However, the Company has been unable to obtain this
information or prepare such a performance graph. Nevertheless, the
Company continues its search for such data.
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 October 4, 1996, the
beneficial ownership of Common Stock with respect to: (1) All
persons known to the Company to be the beneficial owners of more
than five percent of the outstanding shares of Common Stock
(the 'Principal Shareholders'); (2) Each director and director
nominee of the Company; (3) Each Named Executive Officer (as that
term is defined in the section entitled 'Executive Compensa-
tion', below) who is listed in the 'Summary Compensation
Table', below, and (4) All directors and executive officers
as a group. At October 4, 1996, the number of shares of common stock
of the Company issued and outstanding was 10,646,482.
<TABLE>
<CAPTION>
Common Stock Beneficially Owned
No. of Shares Percent of Class
1. Name and Address of
Principal Shareholders
<S> <C> <C>
Centurion Mines Corporation 1,537,267 14%
331 South Rio Grande
Suite 201
Salt Lake City, UT 84101
Howard Crosby 531,000(1) 5.0%
105 N. First, Ste. 232
Sandpoint, ID 83864
James Kontes 635,000(2) 8%
P.O. Box 112
Firth, ID 83236
Thomas Miller 600,000(3) 7.6%
2508 Zinfadel Dr.
Rancho Cordova, CA 95670
Robert E. Jorgensen 552,500(4) 5.2%
W. 2719 Strong Rd.
Spokane, WA 99208
2. Directors
Howard Crosby 531,000 5.0%
Robert E. Jorgensen 552,500 5.2%
Ronald Kitching 150,000 1.9%
Hal Cameron 45,528 *
Spenst Hansen 42,500 *
Jerry Stacey 9,500 *
Carlos M. Chavez 10,000 *
John Ryan * *
3. Named Executive Officers (Excluding
Any Director Named Above)
NONE N/A N/A
4. All Directors and Executive Officers
as a Group (8 Persons) 1,341,028 12.1%
</TABLE>
All shares are owned beneficially and of record, unless
otherwise noted. Percentage ownership of less than 1% is marked
with an asterisk (*).
(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 of the Company during Fiscal
1995.
(2) Mr. Kontes owns 35,000 issued and outstanding shares, but
received options to purchase 600,000 restricted shares in
exchange for the options he had held in Celebration. None
of these options have been exercised, but are exercisable
within 60 days. For purposes of reporting beneficial
ownership in this Item 12 only, the securities underlying
Mr. Kontes' options are deemed outstanding and have been added
to the 6,371,513 actual shares outstanding to compute the
percentage owned.
(3) Mr. Miller does not own any of the actual shares that are
outstanding, but received options to purchase 600,000
restricted shares in exchange for the options he had held
in Celebration. None of these options have been exercised,
but are exercisable within 60 days. For purposes of
reporting beneficial ownership in this Item 12 only, the
securities underlying Mr. Miller's options are deemed
outstanding and have been added to the 6,371,513 actual
shares outstanding to compute the percentage owned.
(4) The Company notes that in addition to the awards of shares
for his service as a director and officer of the Company, Mr.
Jorgensen initially received 550,000 restricted shares as part
of the share exchange with Celebration.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships and Transactions Pertaining to Royal 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 Royal 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 Royal. 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 1993, the Company carried over the previous balance of
$240,891 owed by Centurion, and loaned Centurion $282,200 with
$19,219 of interest, resulting in cumulative total advances
made by Royal to Centurion of $542,310. Also during 1993,
Centurion paid $70,020 of Royal expenses, paid Royal land
costs of $127,405, and conveyed properties to Royal with an
historical cost of $339,830, resulting in total advances
made by Centurion to Royal of $537,255. Thus, for 1993
transactions between Royal and Centurion, including the balance
carried over from 1992 transactions, the net cumulative result
was a balance of $5,055 owed by Centurion to Royal.
During Fiscal 1994, Royal carried over the previous balance
owed by Centurion of $5,055 and loaned Centurion $8,075,
resulting in cumulative total advances made by Royal to
Centurion of $13,130. Also during Fiscal 1994, Centurion
accrued $54,335 of Royal taxes, loaned $83,700 to Royal,
and paid $140,932 of Royal expenses (including certain land
costs of Royal), resulting in total advances made by Centurion
to Royal 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 Royal and Centurion,
including balance carryovers, the net cumulative result was a
balance of $265,838 owed by Royal to Centurion.
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 Royal to Centurion, which Royal
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, the
Company owed only $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
A. Index to Supplemental Schedules and Exhibits.
1. Supplemental Schedule No. I --
Weighted Average Shares, For the Ten Months Ended September 30, 1995
Days Weighted
Date Issued Shares Outstanding Average Shares
------------- --------- ----------- --------------
Feb. 17, 1994 3,450,000 304.00 3,450,000
Jan. 17, 1995 416,250 256.00 350,526
Mar. 21, 1995 262,500 193.00 166,653
Mar. 25, 1995 15,000 189.00 9,326
Aug. 8, 1995 2,434,563 53.00 424,447
Sep. 13, 1995 166,000 17.00 9,283
Sep. 29, 1995 800,000 1.00 2,632
Sep. 29, 1995 12,750 1.00 42
Sep. 29, 1995 200,000 1.00 658
TOTAL SHARES: 7,757,063 WEIGHTED AVERAGE: 4,413,566
========= =========
2. Supplemental Schedule No. II --
Weighted Average Shares, For the Period From Inception on
February 17, 1994, Through November 30, 1994
Days Weighted
Date Issued Shares Outstanding Average Shares
------------- --------- ----------- --------------
Feb. 17, 1994 0 286.00 0
May 1, 1994 2,250,000 213.00 1,675,699
Jul. 16, 1994 1,050,000 137.00 502,972
Aug. 20, 1994 150,000 102.00 53,497
TOTAL SHARES: 3,450,000 WEIGHTED AVERAGE: 2,232,168
========= =========
2. Supplemental Schedule No. III --
Weighted Average Shares, For the Period From Inception on
February 17, 1994 Through September 30, 1995
Days Weighted
Date Issued Shares Outstanding Average Shares
------------- --------- ----------- --------------
Feb. 17, 1994 0 590.00 0
May 1, 1994 2,250,000 517.00 1,971,610
Jul. 16, 1994 1,050,000 441.00 784,831
Aug. 20, 1994 150,000 406.00 103,220
Jan. 17, 1995 416,250 256.00 180,610
Mar. 21, 1995 262,500 193.00 85,869
Mar. 25, 1995 15,000 189.00 4,805
Aug. 8, 1995 2,434,563 53.00 218,698
Sep. 13, 1995 166,000 17.00 4,783
Sep. 29, 1995 800,000 1.00 1,356
Sep. 29, 1995 12,750 1.00 22
Sep. 29, 1995 200,000 1.00 339
TOTAL SHARES: 7,757,063 WEIGHTED AVERAGE: 3,356,143
========= =========
All other schedules have been omitted because they are not
applicable or the required information is included in the
financial statements, or notes thereto, or in the above schedules.
B. Reports on Form 8-K
Royal filed one report on Form 8-K, dated August 8, 1995, during
the last quarter of the period covered by this report.
C. Index to Exhibits
The following documents are incorporated herein by reference
to Royal's Registration Statement on Form 10, as filed with
the Securities and Exchange Commission:
<TABLE>
<CAPTION>
Exh. Sec Name Of
No. No. Document
<S> <C> <C>
3.1 3(i) Articles of Incorporation
3.2 3(i) Articles of Amendment
3.3 3(i) Amendment to Articles of Incorporation
Limiting Director Liability
3.4 3(ii) By-Laws
10.1 10 Sale of Mining Properties By Centurion
Mines Corporation to Royal Minerals,
Inc. - June 1992 through September 1993
10.2 10 Deed with Reservation of Mineral Royalty -
January 1992 to Kennecott
10.3 10 July 1992 Purchase and Sale Agreement of
16,880 acres to Kennecott
10.4 10 July 1992 Kennecott Option to Purchase 6,320 acres
10.5 10 Deed and Assignment with Reservation of
Mineral Royalty - August 1992
(16,880 acres) to Kennecott
10.6 10 Deed and Assignment with Reservation of
Mineral Royalty - December 1992 (6,320
acres) to Kennecott
16.1 16 Letter from Arthur Andersen LLP
Regarding Change in Certifying Accountant
The following documents are incorporated herein by reference
to Royal's Current Report on Form 8-K, dated August 8, 1995,
as filed with the Securities and Exchange Commission:
2.01 2 Agreement and Plan of Reorganization
3.05 3 Articles of Share Exchange ( Utah)
3.06 3 Articles of Share Exchange (Washington)
4.01 4 Subscription and Investment Agreement
4.02 4 Stock Purchase Option Certificate
19.01 19 Material Furnished to Celebration Security Holders
20.01 20 Letter from Royal to Share Exchange Security Holders
The following document was filed with the Annual Report on Form 10-K for
the Fiscal Year ended September 30, 1995, and is incorporated herein
by reference:
16.21 6 Letter From Hein + Associates LLP
Regarding Change in Certifying Accountant
</TABLE>
POWER OF ATTORNEY
The Registrant and each person whose signature appears below
has designated and appointed Howard M. Crosby and Robert E.
Jorgensen and each of them as its or his true attorneys-
in-fact ('Attorneys-in-Fact') with full power to act alone
and authority to execute in the name of each such person, and
to file with the Securities and Exchange Commission, together
with any exhibits thereto and other documents therewith, any
and all amendments to this Form 10-K that may be necessary
or advisable to enable the Registrant to comply with the
Securities Exchange Act of 1934, as amended, and all
rules, regulations and requirements pertaining thereto,
which amendments may make such other changes in the Form 10-K
as the aforesaid Attorneys-in-Fact executing the same
deem appropriate.
- -------------------------------------------------------------
SIGNATURES
- -------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: October 4, 1996
ROYAL SILVER MINES, INC.
By: /s/ Howard Crosby
--------------------------------
Howard Crosby, President
Principal Executive Officer
By: /s/ Robert E. Jorgensen
--------------------------------
Robert E. Jorgensen, Principal
Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities and
on the dates indicated.
DATED: October 4, 1996
ROYAL SILVER MINES, INC.
By: /s/ Howard M. Crosby
--------------------------------------
Howard M. Crosby, Director and Chairman
By: /s/ Robert E. Jorgensen
--------------------------------------
Robert E. Jorgensen, Director
By: /s/ Robert E. Jorgensen
--------------------------------------
E. Hal Cameron, Director
By: /s/ Robert E. Jorgensen
--------------------------------------
Spenst Hansen, Director
By: /s/ Robert E. Jorgensen
--------------------------------------
Carlos M. Chavez, Director
By: /s/ Robert E. Jorgensen
--------------------------------------
Ronald Kitching, Director
By: /s/ Robert E. Jorgensen
--------------------------------------
James W. Prier, Director
- --------------------------------------------------------------
ROYAL SILVER MINES, INC.
(Formerly Celebration Mining Company)
(A Development Stage Company)
Consolidated Financial Statements
September 30, 1995 and November 30, 1994
----------------------- F-1 ------------------------
Letter From Hein & Associates LLP Regarding
Change in Certifying Accountant
----------------------- F-2 ------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Royal Silver Mines, Inc.
(Formerly Celebration Mining Company)
(A Development Stage Company)
Spokane, Washington
We have audited the accompanying consolidated balance sheet
of Royal Silver Mines, Inc. (Formerly Celebration Mining
Company) (a development stage company) as of September 30,
1995 and the related consolidated statements of operations,
cash flows and stockholders' equity for the ten months then
ended, and from inception of February 17, 1994 through
September 30, 1995. These consolidated financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Royal Silver Mines,
Inc. as of September 30, 1995 and the consolidated results
of their operations and their cash flows for the ten months
then ended and from inception on February 17, 1994 through
September 30, 1995 in conformity with generally accepted
accounting principles.
Jones, Jensen & Company
December 5, 1995
----------------------- F-3 ------------------------
C O N T E N T S
Independent Auditors' Report. . . . . . . . . . . . . F-3
Consolidated Balance Sheets . . . . . . . . . . . . . F-5
Consolidated Statements of Operations . . . . . . . . F-7
Consolidated Statements of Stockholders' Equity. . . . F-8
Consolidated Statements of Cash Flows . . . . . . . . F-10
Notes to the Consolidated Financial Statements . . . . F-12
----------------------- F-4 ------------------------
<TABLE>
ROYAL SILVER MINES, INC.
(Formerly Celebration Mining Company)
(A Development Stage Company)
Consolidated Balance Sheets
<CAPTION>
ASSETS
September 30, November 30,
1995 1994
CURRENT ASSETS
<S> <C> <C>
Cash $ 151,698 $ 30,076
Prepaid expenses 4,350 26,977
----------------- ---------------
Total Current Assets 156,048 57,053
MINERAL PROPERTIES (Notes 1, 2 and 3) 3,869,515 253,376
----------------- ---------------
PROPERTY AND EQUIPMENT (Note 4)
Furniture and equipment 11,629 -
Less - accumulated depreciation (589) -
----------------- ---------------
Total Property and Equipment 11,040 -
OTHER ASSETS
Deferred debt issuance costs,
net (Note 5) 19,736 55,748
Organization costs, net (Note 5) 359 442
----------------- ---------------
Total Other Assets 20,095 56,190
TOTAL ASSETS $ 4,056,698 $ 366,619
----------------- ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
----------------------- F-5 ------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, November 30,
1995 1994
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 60,026 $ 6,299
Payable to related parties (Note 9) 289 -
Accrued expenses 90,088 -
Notes payable (Note 8) 670,919 25,000
----------------- ---------------
Total Current Liabilities 821,322 31,299
LONG - TERM DEBT (Note 8) - 59,000
COMMITMENTS AND CONTINGENCIES
(Notes 3 and 10) - -
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
7,757,063 and 3,450,000
shares issued and outstanding,
respectively (Note 6) 77,571 34,500
Additional paid-in capital 4,120,540 453,616
Deficit accumulated during the
development stage (962,735) (211,796)
----------------- ---------------
Total Stockholders' Equity 3,235,376 276,320
----------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,056,698 $ 366,619
</TABLE>
----------------------- F-6 ------------------------
<TABLE>
Consolidated Statements of Operations
From From
Inception on Inception on
For the Ten February 17, February 17,
Months Ended 1994 Through 1994 Through
September 30, November 30, September 30,
1995 1994 1995
<S> <C> <C> <C>
REVENUE $ - $ - $ -
---------------- ---------------- -------------
Total Revenue - - -
---------------- ---------------- -------------
EXPENSES
Mineral leases 843 - 843
Depreciation and amortization 59,822 2,511 62,333
Officers and directors
compensation 209,733 129,500 339,233
General and administrative 273,246 79,785 353,031
---------------- ---------------- -------------
Total Expenses 543,644 211,796 755,440
---------------- ---------------- -------------
OPERATING INCOME (LOSS) (543,644) (211,796) (755,440)
---------------- ---------------- -------------
OTHER INCOME AND (EXPENSES)
Interest expense (62,557) - (62,557)
Loss on disposition of assets (144,738) - (144,738)
---------------- ---------------- -------------
Total Other Income and
(Expenses) (207,295) - (207,295)
---------------- ---------------- -------------
NET INCOME (LOSS) $ (750,939) $ (211,796) $ (962,735)
---------------- ---------------- -------------
NET INCOME (LOSS) PER SHARE $ (0.17) $ (0.09) $ (0.29)
---------------- ---------------- -------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,413,566 2,232,168 3,356,143
---------------- ---------------- -------------
</TABLE>
----------------------- F-7 ------------------------
<TABLE>
ROYAL SILVER MINES, INC.
(Formerly Celebration Mining Company)
(A Development Stage Company)
<CAPTION>
Consolidated Statements of Stockholders' Equity
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Issued Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Balance,
February 17, 1994 - $ - $ - $ - $ -
Issuance in May 1994
of shares at $.002
per share to officers
and directors in
exchange for assign-
ment of mining
property option 2,250,000 22,500 (18,500) - 4,000
Issuance in July
1994 of shares for
cash at $.402 in
private placement,
net of costs 1,050,000 10,500 411,116 - 421,616
Issuance in August
1994 of shares to
a director in
exchange for services,
valued at $.417
per share 150,000 1,500 61,000 - 62,500
Net loss for the
year ended November
30, 1994 - - - (211,796) (211,796)
----------- --------- -------- --------- ---------
Balance,
November 30, 1994 3,450,000 34,500 453,616 (211,796) 276,320
Issuance of shares
in debt offering
at $.03 per share 416,250 4,163 9,712 - 13,875
Issuance of shares for
mineral properties
valued at $1.00
per share 262,500 2,625 259,875 - 262,500
Issuance of shares
for cash at $1.00
per share 15,000 15 14,850 - 15,000
Stock issuance costs - - (58,202) - (58,202)
----------- --------- -------- --------- ---------
Balance forward 4,143,750 $ 41,438 $ 679,851 $ (211,796) $509,493
----------- --------- -------- --------- ---------
----------------------- F-8 ------------------------
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$0.15 per share 2,434,563 24,346 335,750 - 360,096
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to
$2.50 per share 12,750 127 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13
to $3.25 per share 800,000 8,000 2,530,126 - 2,538,126
Issuance of shares for
cash at prices ranging
from $1.50 to $2.00
per share 166,000 1,660 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 200,000 2,000 298,000 - 300,000
Net loss for the ten
months ended
September 30, 1995 - - - (750,939) (750,939)
----------- --------- -------- --------- ---------
Balance,
September 30, 1995 7,757,063 $ 77,571 $4,120,540 $(962,735) $3,235,376
</TABLE>
----------------------- F-9 ------------------------
<TABLE>
ROYAL SILVER MINES, INC.
(Formerly Celebration Mining Company)
(A Development Stage Company)
<CAPTION>
Consolidated Statements of Cash Flows
From From
Inception on Inception on
For the Ten February 17, February 17,
Months Ended 1994 Through 1994 Through
September 30, November 30, September 30,
1995 1994 1995
CASH FLOWS FROM -------------- -------------- --------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (750,939) $ (211,796) $ (962,735)
Adjustments to reconcile
net income(loss)to net
cash provided (used)
by operating activities:
Depreciation and amortization 59,822 5,058 64,880
Issuance of common stock
for services 29,600 62,500 2,100
Change in assets and liabilities:
Prepaid expenses 22,627 (26,977) (4,350)
Other assets (23,137) (500) (23,637)
Accounts payable 53,727 6,299 60,026
Accrued expenses 90,088 - 90,088
Payable to related parties 300,289 - 300,289
------------- ------------- ------------
Net Cash Provided (Used)
By Operating Activities (217,923) (165,416) (383,339)
------------- ------------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase and development of
mineral properties (455,418) (170,375) (625,793)
Purchase of fixed assets (11,629) - (11,629)
Net Cash Provided (Used)
By Investing Activities $ (467,047) $ (170,375) $ (637,422)
------------- ------------- -------------
----------------------- F-10 ------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Stock issuance costs $ (58,202) $ (71,633) $ (129,835)
Proceeds received on
long-term debt 675,000 - 675,000
Payments made on notes payable (74,206) - (74,206)
Issuance of common stock
for cash 264,000 437,500 701,500
Net Cash Provided (Used)
By Financing Activities 806,592 365,867 1,172,459
NET INCREASE (DECREASE) IN CASH 121,622 30,076 151,698
------------- ------------- -------------
CASH, BEGINNING OF YEAR 30,076 - -
------------- ------------- -------------
CASH, END OF YEAR 151,698 30,076 151,698
------------- ------------- -------------
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
NET CASH PAID FOR:
Income taxes 250 100 350
Interest 17,683 - 17,683
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services
rendered 29,600 62,500 92,100
Common stock issued for mineral
properties 2,800,626 - 2,800,626
Common stock issued in exchange
for debt 313,875 - 313,875
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. 360,096 - 360,096
Option rights acquired in exchange
for a payable - 79,000 79,000
Common stock issued for assignment
of mining property options - 4,000 4,000
</TABLE>
----------------------- F-11 ------------------------
ROYAL SILVER MINES, INC.
(Formerly Celebration Mining Company)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1995 and November 30, 1994
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Royal Silver Mines, Inc. (the Company) was incorporated
in April 1969 under the laws of the State of Utah primarily
for the purpose of acquiring and developing mineral
properties. The Company 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 the Company, 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, the Company 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 stock shares issued and
outstanding.
The acquisition was accounted for as a purchase by
Celebration of the Company, 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 the Company in the exchange as the
market value approximated the net carrying value. The Company
is the acquiring entity for legal purposes and Celebration
is the surviving entity for accounting purposes.
The accompanying consolidated financial statements include
the accounts of the Company and Celebration from August 8,
1995 through September 30, 1995. Prior to August 8, 1995
only the accounts of Celebration are presented. All
transactions entered into subsequent to August 8, 1995 are
those of Royal Silver Mines, Inc., the surviving company.
The $3,869,515 cost of mineral properties included in the
accompanying consolidated balance sheet as of September 30,
1995 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 consolidated
financial statements.
----------------------- F-12 ------------------------
The Company is actively 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
a. Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting.
b. Loss Per Share
The computation of loss per share of common stock is based
on the weighted average number of shares outstanding at the
date of the financial statements.
c. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
d. 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 stage,
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 remaining claims within the project area.
e. Principles of Consolidation
The consolidated financial statements include those of
Royal Silver Mines, Inc. and Celebration Mining Company.
All significant intercompany accounts and transactions
have been eliminated.
----------------------- F-13 ------------------------
f. Concentration of Risk
The Company maintains its cash accounts in primarily one
commercial bank in Washington. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to
$100,000. The Company's cash balance exceeds that amount by
$51,566 at September 30, 1995.
g. Provision For Taxes
At September 30, 1995, the Company had net operating loss
carryforwards of approximately $960,000 that may be offset
against future taxable income through 2010. No tax benefit
has been reported in the consolidated financial statements
because the Company believes there is a 50% or greater 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.
NOTE 3 - MINERAL PROPERTIES
During the year ended September 30, 1993, the Company
received approximately 800 mining claims from a related
party, all located in the northern Oquirrh Mountain range in
the State of Utah. These mineral properties were received
in lieu of payment of a receivable from the related party.
In May 1994, in exchange for 2,250,000 shares of the Company's
common stock, the founders of the Company assigned to the
Company the rights under an option agreement to acquire up
to a 50% interest in the mineral rights on a property located
in Madison County, Montana.
The option agreement was cancelled prior to September 30,
1995. The costs incurred on the property and capitalized
in the financial statements were written off during the
year ended September 30, 1995. All rights under the option
agreement on the mineral properties reverted back to its
original owners.
----------------------- F-14 ------------------------
In October 1994, the Company and United Silver Mine, Inc.,
(United) entered into a joint venture agreement whereby the
Company may 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 the Company 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. The Company will be
granted an additional 25% interest upon providing a $300,000
loan to United. Terms of the loan call for 5% annual interest
over a 15-year period with the principal and interest to be
repaid from the sellers remaining interest in certain
underground minerals, or the loan will be forgiven. The
Company will be granted an additional 30% interest if it
expends $4,000,000 on underground development of the
properties by June 1, 1998. The Company is responsible
for providing 100% of the operating capital of the joint
venture until commercial production commences. Thereafter,
capital contributions will be based upon equity interest in
the venture.
Prior to September 30, 1995, the Company expended $175,000
to purchase the above mentioned promissory note. The
property was auctioned in a public auction in May, 1995 and
by virtue of the Company's first position on the lien, the
Company was able to successfully bid the full amount of the
underlying promissory note. Additional expenditures have
been made on the property through September 30, 1995.
In February 1995, the Company entered into an agreement to
acquire a mineral lease on a property in Shoshone County,
Idaho. In connection with this lease, the Company has paid
$50,000 and issued 175,000 shares of common stock. In
addition, 10,000 share were issued to a new director for
his assistance in obtaining this lease. The Company was
originally obligated to pay $950,000 by September 1, 1995, as
'an advance royalty.' This original due date has been
extended indefinitely because of the proposed acquisition
of Fausett International (See Note 12). When, and if, the
property achieves gross sales of $40,000,000, the Company
will be obligated to pay an additional .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, the Company is obligated
to spend not less than $2,000,000 during the subsequent 36
months to dewater and repair the mine. Thereafter, the
Company 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 the Company's
rights to the property.
----------------------- F-15 ------------------------
In March 1995, the Company 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, the Company could acquire
up to a 50% interest subject to a vesting schedule which
required $100,000 to be paid by April 1995 (which was paid)
for an initial 10% interest. An additional interest can be
obtained by payment of the following: $100,000 within 60
days after receipt of assays from the first drill hole (10%);
$1,000,000 not later than 6 months after the second drill hole
(15%) and; $1,000,000 not later than 12 months after the
prior payment (15%).
During the year ended September 30, 1995, the Company
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 on
the date of issuance ranging from $3.13 to $3.25 per share
for a total purchase price of $2,538,126.
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 total mineral properties at September 30, 1995 and November
30, 1994 are classified as follows:
<TABLE>
<CAPTION>
September 30, November 30,
1995 1994
-------------- --------------
<S> <C> <C>
Mineral properties under
joint ventures $ 352,739 $ -
Other mineral properties 3,516,776 253,376
-------------- --------------
Total Mineral Properties $ 3,869,515 $ 253,376
-------------- --------------
</TABLE>
The Company's mineral properties are valued at the lower of
cost or net realizable value.
NOTE 4 - 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.
----------------------- F-16 ------------------------
NOTE 5 - 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 Lives
-------------- -------------
Deferred debt issuance costs 1 year
Organization costs 5 years
NOTE 6 - 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 shares 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.
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 the then outstanding debt (See Note
9). The Company also issued 277,500 shares in connection
with the issuance of notes payable (See Note 8). (See
also the disclosure in Note 1).
----------------------- F-17 ------------------------
NOTE 7 - 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, 1995, 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 shares of its common stock. 255,000 of
the stock options are exercisable at $1.50 per share and 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, 1995, none of these options
have been exercised.
NOTE 8 - NOTES PAYABLE
In February 1995, the Company raised $555,000 through the
issuance of promissory notes. The notes bear interest at 10%
per annum and will be due on the earlier of January 1, 1996
or the closing of any public offering of equity securities
by the Company. If a public offering is not completed by
January 1, 1996, the Company has the option to extend the
term of the notes for one year. The note holders also
received 277,500 shares of Celebration's common stock. In
the case the notes are extended, the note holders will
receive an additional 245,625 shares of the Company's
common stock. A 10% commission was charged by an underwriter
on the sale of almost all of the notes.
In April 1995, the Company raised $120,000 in 10% convertible
debentures. Interest accrues to maturity in April 1996. The
debentures and accrued interest are convertible into common
stock at a rate of $1.33 per common share.
The notes payable were recorded net of the discount on
issuance of $13,875, which as of September 30, 1995 was
$4,081.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has received advances from a related party in
order to pay ongoing operating expenses. The amount owed
eventually exceeded $300,000 during 1995. Therefore,
the Company approved the issuance of 200,000 shares of
common stock in payment of $300,000 of the then outstanding
balance (See Note 6). The balance outstanding at September
30, 1995 was $289.
----------------------- F-18 ------------------------
NOTE 10 - FUTURE LEASE OBLIGATIONS
The Company is obligated under its lease arrangements to make
additional lease payments subsequent to September 30, 1995
as follows:
<TABLE>
<CAPTION>
Year Ended
September 30, Amount
------------- ---------
<S> <C>
1996 $ 7,800
1997 5,000
1998 5,000
1999 5,000
2000 and thereafter 25,000
---------
Total $ 47,800
</TABLE>
NOTE 11 - PRIVATE STOCK OFFERING
The Company has initiated a private placement of its common
stock of up to 2,000,000 shares at $1.50 per share. The
primary purpose of the offering by the Company is to provide
the Company with the needed capital to commence its mining
operations and joint ventures and for general corporate
purposes.
NOTE 12 - SUBSEQUENT EVENTS
Subsequent to September 30, 1995, the following material
events have occurred:
1 - On October 18, 1995, the Company entered into an
agreement with Fausett International, an Idaho Corporation,
whereby the Company would issue 850,000 shares of its common
stock for 81% of the total outstanding shares of Fausett
International. The proposed acquisition had not been made
final as of the date of this report. Management believes
that the likelihood of completing the acquisition is less
than 50% because of circumstances beyond their control.
Fausett International is a prior shareholder of Celebration
and is considered to be a related party at September 30,
1995.
2 - The Company sold 335,000 shares of its common stock at
$1.50 per share for $502,500 cash.
3 - The holders of the notes payable by the Company have
converted $570,919 of the notes to common stock at $1.50
per share.
----------------------- F-19 ------------------------
NOTE 13 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
The historical information contained herein has been
consolidated on a proforma basis. The purchase of
Celebration Mining Company as described in Note 1 was
effective August 8, 1995. The purchase has been presented as
though it was effective September 30, 1994. All significant
accounting policies for Celebration Mining Company are the
same as the Company's as defined in Note 1. No proforma
adjustments for depreciation and amortization have been
recorded because the market value of Celebration Mining
Company is approximately the same as predecessor cost.
<TABLE>
<CAPTION>
For the
Period Ended
November 30, For the Year Ended
1994 September 30, 1994
-------------- ------------------------------
Celebration Royal Silver Proforma
Mining Company Mines, Inc. Combined
-------------- --------------- ------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
EXPENSES
Mineral leases - 1,661 1,661
Depreciation and
amortization 58 - 58
Officers and directors
compensation 129,500 548,381 77,881
General and administrative 82,238 162,200 244,438
-------------- ------------- ------------
Total Expenses 211,796 712,242 924,038
-------------- ------------ ------------
INCOME (LOSS) FROM
OPERATIONS (211,796) (712,242) (924,038)
-------------- ------------ ------------
OTHER INCOME (EXPENSE)
Interest income - 12 12
Interest expense - (551) (551)
-------------- ------------ ------------
Total Other Income
(Expense) - (539) (539)
-------------- ------------ ------------
NET INCOME (LOSS) $ (211,796) $ (712,781) $ (924,577)
------------- ------------ ------------
EARNINGS (LOSS)
PER SHARE $ (0.07) $ (0.35) $ (0.42)
------------- ------------ ------------
----------------------- F-20 ------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN
REGISTRANT'S
FORM 10-K/A1 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 151,698
<SECURITIES> 0
<RECEIVABLES> 4,350
<ALLOWANCES> 20,095
<INVENTORY> 0
<CURRENT-ASSETS> 156,048
<PP&E> 3,881,144
<DEPRECIATION> (589)
<TOTAL-ASSETS> 4,056,698
<CURRENT-LIABILITIES> 821,322
<BONDS> 0
<COMMON> 77,571
0
0
<OTHER-SE> 3,157,805
<TOTAL-LIABILITY-AND-EQUITY> 4,056,698
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 543,644
<OTHER-EXPENSES> (144,738)
<LOSS-PROVISION> 144,738
<INTEREST-EXPENSE> 62,557
<INCOME-PRETAX> (750,939)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (750,939)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
