<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM:
__________________________________
Commission File Number: 0-25170
__________________________________
ROYAL SILVER MINES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0306609
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
10220 N. Nevada, Suite 230, Spokane, WA 99218
(Address of Principal Executive Offices) (Zip Code)
(509) 466-3144
(Registrant's telephone number, including area code)
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 ______
The number of shares outstanding at June 30, 1997: 13,423,904
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS OF ROYAL SILVER MINES, INC.
(Hereinafter referred to as Registrant or Company)
Condensed financial statements, and an accompanying independent
accountants' report, are filed as part of this Quarterly Report at
pages F-1 to F-22. In management's opinion, these financial
statements present fairly in all material respects Registrant's
financial condition and changes in condition as of June 30, 1997 and
September 30, 1996, and the results of operations, stockholders'
equity and cash flows for the nine months ended June 30, 1997 and
1996, and from inception on February 17, 1994 through June 30, 1997,
in conformance with generally accepted accounting principles.
The accompanying financial statements consolidate the financial
statements of Celebration Mining Company and Royal Silver Mines, Inc.
due to the Reorganization discussed in Note 1 of the financial
statements following this Report. All significant intercompany
accounts and transactions have been eliminated. Also, the
consolidation required a change in fiscal year-end, from November 30
(Celebration) to September 30 (Royal). The financial statements
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. The
accompanying financial statements represent the activities of Royal
Silver Mines and Celebration, but are not considered consolidated
financial statements since Royal Silver is the successor to
Celebration.
As discussed in greater detail under Item 2 below, a substantial
portion of Registrant's assets consist of investments in mineral
properties for which additional exploration is required to determine
if they contain ore reserves that are economically recoverable. The
realization of these investments is contingent to large extent upon
the success of Registrant's property transactions as a whole, 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. Accordingly, the
accompanying financial statements make no provision for any asset
impairment or other adjustment that might result from the outcome of
this uncertainty.
<PAGE> 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.
There is considerable risk in any mining venture, and there can
be no assurance that the Company's operations will be successful or
profitable. Exploration for commercially 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, geophysicists, and engineers in
determining whether to acquire an interest in a specific property, or
whether or not to commence exploration or development work. These
estimates are not always scientifically exact, and in some instances
result in the expenditure of substantial amount of money on a
property before it is possible to make a final determination as to
whether or not the property contains economically 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 mineralization produced are subject to fluctuation and
uncertainty, which may negatively affect the economic viability of
properties on which expenditures have been made. During the
development stage of the Company, from inception to June 30, 1997,
the Company accumulated a deficit of $4,455,108.
At June 30, 1997, $4,472,096 of the Company's total assets of
$6,174,102 were investments in mineral properties. Additional
exploration is required to substantiate or determine whether these
mineral properties contain ore reserves that are economically
recoverable. The realization of these investments is dependent upon
the success of future property sales, the existence of economically
recoverable reserves, the ability of the Company to obtain financing,
the Company's success in carrying out its present plans or making
other arrangements for development, and upon future profitable
production. The ultimate outcome of these investments cannot be
determined at this time; accordingly, no provision for any asset
impairment that may result, in the event the Company is not
successful in developing or selling these properties, has been made
in the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES.
The Company currently has no revenues but, as explained above,
has an accumulated deficit. Although it has recurring losses from
operations, the Company has increased its operating capital and
improved its financial condition and ability. Regarding its losses
from operations, the Company cannot assure that it will be able to
fully carry out its plans as budgeted without additional operating
capital. At June 30, 1997, the Company had working capital of
$1,201,371. This amount is a significant improvement in liquidity
and capital resources from its working capital position of $390,852
at December 31, 1996 and of $686,573 at September 30, 1996. In the
nine months ending June 30, 1997, the Company's working capital has
<PAGE> 4
increased by $514,798 primarily because of the cash stock sales of
$1,868,250 in the second quarter and the reduction of all remaining
short-term debt, which are partially offset by funding of the
Company's general and administrative expenses. During the same nine
month period, the Company's cash increased from $688,716 to
$1,123,602.
In the second quarter of fiscal 1997, the Company reduced its
short-term debt position to $0 by paying off a $35,000 promissory
note. The Company has continued to reduce its accrued expenses and
accounts payable. Accordingly, the Company's current liabilities
shrank from $119,867 at September 30, 1996 to $33,342 at June 30,
1997. The Company has no long-term debt.
The Company has estimated that it will need minimal capital
resources of approximately $40,000-50,000 per month to meet its
estimated expenditures for fiscal 1997. In 1996, acting on
instructions from the Board, several key members of management, in
particular the CEO of the Company, met with experienced financial and
investment firms through out Europe and North America and negotiated
preliminary terms and arrangements for such capital fund raising.
During the second fiscal quarter of 1997, the Company raised
$1,871,250 in funds, primarily through the private placement of
shares and warrants. The Company is continuing with the previously
described negotiations and various alternatives to raise capital.
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 numerous 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 Company has not yet determined in detail the
specifications of the project, operation or mining activity that it
intends to undertake, management is not able at this time to provide
a detailed listing or exact range of operation costs, including
increases in general and administrative expense, if any. However,
the Company plans to fund any substantial 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 the contributions of
its joint venture participants, and from the funds generated from
such joint ventures and other lease or royalty arrangements.
<PAGE> 5
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it
interacts with, and has met its obligations to the entities which
provide its personnel, office space, and equipment needs. The
Company currently is seeking alternate sources of working capital
sufficient to increase the funding of additional general and
administrative expenses that may become necessary as the Company's
business plan develops, and to continue meeting its ongoing payment
obligations for its leases to governmental entities.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997,
RESPECTIVELY.
General and administrative expenses increased from $929,984
during the first three quarters of fiscal 1996 to $1,463,455 during
the first three quarters of fiscal 1997. This increase is
principally due to an increased level of expenditures in acquiring
and exploring the Company's recent acquisitions in Argentina and
Chile. Also, during the second quarter of fiscal 1997 the Company
wrote off $238,887 of mineral properties associated with its
investment in the Bunker Hill Mine. As a result, during the nine
months of fiscal 1996 compared to the first nine months of fiscal
1997, the Company's net loss increased from $937,393 to $1,447,291,
while the net loss per share increased from $0.11 to $0.12 per share.
The Company is unable to fully determine the impact of future
transactions on its operating capital. Hence, the Company has
determined not to incur and does not have any commitments or plans
for material capital expenditures during the remainder of its current
fiscal year for which it does not have a reasonably available source
of payment. It is uncertain what effect this decision may have with
respect to restricting capital expenditures.
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, while the Company continues to seek
a joint venture participant and additional sources of capital for
financing operations during the remainder of its current fiscal year,
the Company will continue to carefully monitor its capital
expenditures.
<PAGE> 6
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements 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 this 5th day of August, 1997.
ROYAL SILVER MINES, INC.
By: /s/ Howard Crosby
Its: Chief Executive Officer
By: /s/ Robert Jorgensen
Its: Principal Accounting Officer
<PAGE> 7
ROYAL SILVER MINES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
June 30, 1997 and September 30, 1996
<PAGE> 8
C O N T E N T S
Accountant's Review Report F-1
Balance Sheets F-2 - F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5 - F-9
Statements of Cash Flows F-10 - F-11
Notes to the Financial Statements F-12 - F-24
<PAGE> 9
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Royal Silver
Mines, Inc. (a development stage company) as of June 30, 1997, and
the related statements of operations, shareholders' equity, and cash
flows for the nine months ended June 30, 1997 and 1996, and for the
period from February 17, 1994 (inception) through June 30, 1997. The
review was conducted in a accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these
financial statements is the representation of the management of Royal
Silver Mines, Inc.
A review consists principally of inquiries of Company personnel
and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles.
The balance sheet for the year ended September 30, 1996 was audited
by us and we expressed an unqualified opinion on it in our report
dated December 13, 1996. We have not performed any auditing
procedures since that date.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
July 23, 1997
F-1
<PAGE> 10
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,123,602 $ 688,716
Note receivable 100,000 100,000
Interest receivable 5,958 333
Prepaid expenses 5,153 17,391
----------- -----------
TOTAL CURRENT ASSETS 1,234,713 806,440
----------- -----------
MINERAL PROPERTIES 4,727,096 4,785,665
----------- -----------
PROPERTY AND EQUIPMENT
Mining equipment 133,534 -
Furniture and equipment 15,185 15,802
Less
accumulated depreciation (6,610) (2,809)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 142,109 12,993
----------- -----------
OTHER ASSETS
Investments 70,000 -
Organization costs, net 184 259
----------- -----------
TOTAL OTHER ASSETS 70,184 259
----------- -----------
TOTAL ASSETS $ 6,174,102 $ 5,605,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 11
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION> June 30, September 30,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,355 $ 25,135
Payable to related parties - 289
Accrued expenses 17,987 34,443
Notes payable - 60,000
----------- -----------
TOTAL CURRENT LIABILITIES 33,342 119,867
----------- -----------
LONG-TERM DEBT - -
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
13,423,904 and 10,649,854 shares
issued and outstanding,
respectively 133,751 106,499
Additional paid-in capital 10,512,117 8,436,808
Deficit accumulated during
development stage (4,505,108) (3,057,817)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 6,140,760 5,485,490
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,174,102 $ 5,605,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 12
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Operations, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
June 30, June 30,
1997 1996
<S> <C> <C>
REVENUES $ - $ -
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral properties 22,732 2,758
Depreciation and amortization 10,683 616
Officers and directors compensation 85,499 54,999
Other general and administrative 272,799 219,682
------------ -----------
Total expenses 391,713 278,055
------------ -----------
OPERATING (LOSS) (391,713) (278,055)
------------ -----------
OTHER INCOME (EXPENSES)
Interest income 16,190
Interest expense - (2,159)
Loss on disposition of assets - -
------------ -----------
Total other income (expenses) 16,190 (2,159)
------------ -----------
NET LOSS $ (375,523) $ (280,214)
------------ -----------
NET LOSS PER COMMON SHARE $ (0.03) $ (0.03)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,423,904 9,396,915
============ ===========
The accompanying notes are an integral part of these financial
statements.
F-4a
<PAGE> 13
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Operations, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS (Continued)
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
REVENUES $ - $ - $ -
------------ ----------- ------------
GENERAL AND ADMINISTRATIVE
EXPENSES
Mineral properties 261,619 8,122 270,584
Depreciation and
amortization 28,855 21,776 126,924
Officers and directors
compensation 329,911 266,215 1,161,859
Other general and
administrative 843,070 633,871 2,495,076
------------- ----------- ------------
Total expenses 1,463,455 929,984 4,054,443
------------- ----------- ------------
OPERATING (LOSS) (1,463,455) (929,984) (4,054,443)
------------- ----------- ------------
OTHER INCOME (EXPENSES)
Interest income 20,190 20,190
Interest expense (2,257) (7,409) (74,348)
Loss on disposition of
assets (1,769) - (346,507)
------------- ----------- ------------
Total other income
(expenses) 16,164 (7,409) (400,665)
------------- ----------- ------------
NET LOSS $ (1,447,291) $ (937,393) $ (4,455,108)
------------- ----------- ------------
NET LOSS PER
COMMON SHARE $ (0.12) $ (0.11) $ (0.64)
============= =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 11,804,654 8,742,325 6,974,672
============= =========== ============
</TABLE>
F-4b
<PAGE> 14
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance February 17, 1994 - $ -
Issuance in May 1994 of shares at
$0.002 per share to officers and
directors in exchange for assignment
of mining property option 2,250,000 22,500
Issuance in July 1994 of shares
for cash at $0.402 in private
placement, net of costs. 1,050,000 10,500
Issuance in August 1994 of shares
to a director in exchange for
services, valued at $0.417 150,000 1,500
Net loss for the year ended
November 30, 1994 - -
--------- --------
Balance, November 30, 1994 3,450,000 34,500
Issuance of shares in debt
offering at $0.03 per share 416,250 4,163
Issuance of shares for mineral
properties valued at $1.00 per
share 262,500 2,625
Issuance of shares for cash at
$1.00 per share 15,000 150
Stock issuance costs - -
--------- --------
Balance forward 4,143,750 41,438
--------- --------
The accompanying notes are an integral part of these financial
statements.
F-5a
<PAGE> 15
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance February 17, 1994 $ - $ - $ -
Issuance in May 1994 of shares
at $0.002 per share to
officers and directors in
exchange for assignment
of mining property option (18,500) - 4,000
Issuance in July 1994 of
shares for cash at $0.402
in private placement,
net of costs. 411,116 - 421,616
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $0.417 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - (211,796) (211,796)
--------- ---------- ----------
Balance, November 30, 1994 453,616 (211,796) 276,320
Issuance of shares in debt
offering at $0.03 per share 9,712 - 13,875
Issuance of shares for mineral
properties valued at $1.00
per share 259,875 - 262,500
Issuance of shares for cash at
$1.00 per share 14,850 - 15,000
Stock issuance costs (58,202) - (58,202)
--------- ---------- ----------
Balance forward $ 679,851 $ (211,796) $ 509,493
--------- ---------- ----------
</TABLE>
F-5b
<PAGE> 16
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 4,143,750 $ 41,438
Issuance of shares to acquire
Consolidated Royal Mines, Inc.
at $0.15 per share 2,434,563 24,346
Issuance of shares to directors
and employees for services at
prices ranging from $2.00 to
$2.50 per share 12,750 127
Issuance of shares in exchange for
mineral properties at prices ranging
from $3.13 to $3.25 per share 800,000 8,000
Issuance of shares for cash at
prices ranging from $1.50 to
$2.00 per share 166,000 1,660
Issuance of shares in exchange for
debt at $1.50 per share 200,000 2,000
Net loss for the ten months ended
September 30, 1995 - -
--------- --------
Balance, September 30, 1995 7,757,063 $ 77,571
--------- --------
The accompanying notes are an integral part of these financial
statements.
F-6a
<PAGE> 17
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 679,851 $ (211,796) $ 509,493
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$0.15 per share 335,750 - 360,096
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to
$2.50 per share 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13 to
$3.25 per share 2,530,126 - 2,538,126
Issuance of shares for
cash at prices ranging
from $1.50 to $2.00 per
share 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 298,000 - 300,000
Net loss for the ten
months ended September
30, 1995 - (750,939) (750,939)
----------- ---------- -----------
Balance,
September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376
----------- ---------- -----------
</TABLE>
F-6b
<PAGE> 18
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward September 30, 1995 7,757,063 $ 77,571
Issuance of shares for cash at
$1.50 per share 1,176,832 11,769
Issuance of shares to directors
and employees for services at
$1.50 per share 222,700 2,227
Issuance of shares in exchange
for debt and accrued interest
at $1.50 per share 406,050 4,060
Issuance of shares for cash at
$2.20 per share 150,000 1,500
Issuance of warrants for cash
at $0.05 per warrant - -
Issuance of shares for cash at
$1.62 per share 65,000 650
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 107,500 1,075
Issuance of shares for cash at
$0.75 per share 200,000 2,000
Issuance of shares for cash at
$1.70 per share 250,000 2,500
---------- ---------
Balance forward 10,335,145 $ 103,352
---------- ---------
The accompanying notes are an integral part of these financial
statements.
F-7a
<PAGE> 19
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward
September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376
Issuance of shares for
cash at $1.50 per share 1,754,010 - 1,765,779
Issuance of shares to
directors and employees
for services at $1.50
per share 331,823 - 334,050
Issuance of shares in
exchange for debt and
accrued interest at
$1.50 per share 605,015 - 609,075
Issuance of shares for
cash at $2.20 per share 328,500 - 330,000
Issuance of warrants for cash
at $0.05 per warrant 41,068 - 41,068
Issuance of shares for
cash at $1.62 per share 104,650 - 105,300
Issuance of shares for
cash to directors and
employees at prices
ranging from $1.62
to $2.08 per share 181,175 - 182,250
Issuance of shares for
cash at $0.75 per share 147,985 - 149,985
Issuance of shares for
cash at $1.70 per share 422,500 - 425,000
----------- ---------- -----------
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
----------- ---------- -----------
</TABLE>
F-7b
<PAGE> 20
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 10,335,145 $ 103,352
Cancellation of 35,000 shares
received in exchange for return
of mining property (35,000) (350)
Payment to Centurion Mines for
options to repurchase stock - -
Issuance of shares for joint venture
in mining property at $1.50 per share 100,000 1,000
Repurchase of 25,000 shares issued for
joint venture at $1.40 per share (25,000) (250)
Issuance of shares for mining
property at $1.50 per share 20,000 200
Issuance of shares to noteholders for
extension of notes at $1.50 per share 39,375 394
Issuance of shares for services at
$1.50 per share 215,334 2,153
Stock issuance costs - -
Net loss for the year ended
September 30, 1996 - -
---------- ---------
Balance, September 30, 1996 10,649,854 $ 106,499
---------- ---------
The accompanying notes are an integral part of these financial
statements.
F-8a
<PAGE> 21
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
Cancellation of 35,000
shares received in
exchange for return of
mining property (109,025) - (109,375)
Payment to Centurion
Mines for options to
repurchase stock - (50,000) (50,000)
Issuance of shares for joint
venture in mining property
at $1.50 per share 149,000 - 150,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (34,750) - (35,000)
Issuance of shares for mining
property at $1.50 per share 29,800 - 30,000
Issuance of shares to
noteholders for extension of
notes at $1.50 per share 58,669 - 59,063
Issuance of shares for services
at $1.50 per share 320,848 - 323,001
Stock issuance costs (15,000) - (15,000)
Net loss for the year ended
September 30, 1996 - (2,045,082) (2,045,082)
----------- ------------ ------------
Balance, 09/30/96 $ 8,436,808 $(3,057,817) $ 5,485,490
----------- ----------- -----------
</TABLE>
F-8b
<PAGE> 22
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 10,649,854 $ 106,499
Issuance of shares for cash at
$0.75 per share 2,491,000 24,910
Stock issuance costs - -
Issuance of shares to directors
and employees for services at
$1.00 per share 80,000 800
Issuance of shares for services
at $1.25 per share 98,250 982
Payment for extension of warrants
for one year - -
Issuance of shares to directors
and employees for services at
$1.00 per share 30,500 305
Issuance of shares for services
at $1.00 per share 25,500 255
Payment for extension of warrants
for one year - -
Net loss for the nine months
ended June 30, 1997 - -
---------- ---------
Balance, June 30, 1997 13,375,104 $ 133,751
========== =========
The accompanying notes are an integral part of these financial
statements.
F-9a
<PAGE> 23
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 8,436,808 $ (3,057,817) $ 5,485,490
Issuance of shares for
cash at $0.75 per share 1,843,340 - 1,868,250
Stock issuance costs (30,000) - (30,000)
Issuance of shares to
directors and employees
for services at $1.00
per share 79,200 - 80,000
Issuance of shares for services
at $1.25 per share 121,829 - 122,811
Payment for extension of
warrants for one year 3,000 - 3,000
Issuance of shares to
directors and employees for
services at $1.00 per share 30,195 - 30,500
Issuance of shares for services
at $1.00 per share 25,245 - 25,500
Payment for extension of
warrants for one year 2,500 - 2,500
Net loss for the nine months
ended June 30, 1997 - (1,447,291) (1,447,291)
------------ ------------ -----------
Balance, June 30, 1997 $ 10,512,117 $ (4,505,108) $ 6,140,760
============ ============ ===========
</TABLE>
F-9b
<PAGE> 24
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (1,447,291) $ (937,393) $ (4,455,108)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Loss on sale of equipment 1,769 - 1,769
Depreciation and
amortization 28,855 21,776 129,471
Issuance of common stock
for services 258,811 239,850 1,007,964
Write-off of joint
venture costs - - 150,000
Changes in assets and liabilities:
Note receivable - - (100,000)
Prepaid expenses (11,563) 547 (28,956)
Interest receivable (5,625) - (5,958)
Mineral properties 238,887 - 238,887
Other assets - - (3,801)
Accounts payable (9,780) (56,489) 15,355
Accrued expenses (16,456) (15,622) 17,987
Payable to related parties (289) - 300,000
------------ ----------- ------------
Net cash used in
operating activities (962,682) (747,331) (2,732,390)
------------ ----------- ------------
Cash flows from investing activities:
Sale of assets 500 - 500
Purchase and development of
mineral properties (180,318) (975,851) (1,785,154)
Purchase of investments (70,000) - (70,000)
Purchase of fixed assets (136,364) (3,003) (152,166)
------------ ----------- ------------
Net cash provided used in
investing activities (386,182) (978,854) (2,006,820)
------------ ----------- ------------
The accompanying notes are an integral part of these financial
statements.
F-10a
<PAGE> 25
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Cash flows from financing activities:
Stock issuance and
offering costs (30,000) (15,000) (174,835)
Proceeds received on
long-term debt - - 675,000
Payments made on notes
payable (60,000) (15,000) (174,206)
Issuance of common stock for
cash 1,868,250 1,945,779 5,528,064
Payment for extension of
warrants 5,500 - 5,500
Payment for option to
repurchase stock - - (50,000)
Issuance of common stock for
accrued interest - - 38,158
Issuance of common stock for
extension of notes payable
maturation - - 59,063
Payment for return of stock
issued for mining property
interest - - (35,000)
Payment of joint venture
costs - - (50,000)
Issuance of warrants for
cash - 41,068 41,068
------------ ------------ ------------
Net cash provided by
financing activities 1,783,750 1,956,847 5,862,812
------------ ------------ ------------
Net increase in cash $ 434,886 $ 230,662 $ 1,123,602
------------ ------------ ------------
</TABLE>
F-10b
<PAGE> 26
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Net increase in cash
(balance forward) $ 434,886 $ 230,662 $ 1,123,602
Cash, beginning of period 688,716 151,698 -
----------- --------- -----------
Cash, end of period $ 1,123,602 $ 382,360 $ 1,123,602
=========== ========= ===========
Supplemental cashflow disclosure:
Income taxes $ - $ - $ 350
Interest $ 6,042 $ - $ 29,440
Non-cash financing activities:
Common stock issued for
services rendered $ 258,811 $ 239,850 $ 1,007,964
Common stock issued for
mineral properties $ - $ - $ 2,980,626
Common stock issued for
exchange for debt $ - $ 609,075 $ 922,950
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. $ - $ - $ 360,096
Option rights acquired in
exchange for a payable$ - $ - $ 79,000
Common stock issued for
assignment of mining
property options $ - $ - $ 4,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-11
<PAGE> 27
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969
under the laws of the State of Utah primarily for the purpose of
acquiring and developing mineral properties. Royal conducts its
business as a "junior" natural resource company, meaning that it
intends to receive income from property sales or joint ventures with
larger companies.
Celebration Mining Company (Celebration), currently a wholly-owned
subsidiary of Royal was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration
was organized on February 17, 1994 as a Washington Corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an Agreement and
Plan of Reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration control the company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of
the assets or liabilities of Royal in the exchange as the market
value approximated the net carrying value. Royal is the acquiring
entity for legal purposes and Celebration is the surviving entity for
accounting purposes.
The $4,727,096 cost of mineral properties included in the
accompanying balance sheet as of June 30, 1997 is related to
exploration properties. The Company has not determined whether the
exploration properties contain ore reserves that are economically
recoverable. The ultimate realization of the Company's investment in
exploration properties is dependent upon the success of future
property sales, the existence of economically recoverable reserves,
the ability of the Company to obtain financing or make other
arrangements for development and upon future profitable production.
The ultimate realization of the Company's investment in exploration
properties cannot be determined at this time and, accordingly, no
provision for any asset impairment that may result, in the event the
Company is not successful in developing or selling these properties,
has been made in the accompanying financial statements.
F-12
<PAGE> 28
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
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
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Loss Per Share
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year The weighted
average number of shares was calculated by taking the number of
shares outstanding and weighing them by the amount of time they were
outstanding.
The outstanding warrants were not included in the computation of loss
per share because the exercise price of the outstanding warrants is
higher than the market price of the stock, thereby causing the
warrants to be antidilutive.
Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
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.
F-13
<PAGE> 29
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Should a property be abandoned, its capitalized costs are
charged to operations. The Company charges to operations the
allocable portion of capitalized costs attributable to properties
sold. Capitalized costs are allocated to properties sold based on
the proportion of claims sold to the claims remaining within the
project area.
Concentration of Risk
The Company maintains its cash accounts in primarily one commercial
bank in Spokane, Washington. Accounts are guaranteed by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000. One of the
Company's cash accounts is a business checking account with a balance
of $104,037 and a certificate of deposit in the amount of $5,000 at
June 30, 1997 which in aggregate exceed the FDIC threshold by $9,037.
The remaining cash account is a "liquid asset account" in the amount
of $1,014,565, which is invested in a portfolio of U.S. Treasury
notes/bonds.
Provision For Taxes
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $4,100,000 that may be offset against future taxable
income through 2011. No tax benefit has been reported in the
financial statements as 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.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets."
This new standard is effective for years beginning after December 15,
1995. In complying with this standard, the Company has reviewed its
long-lived assets at June 30, 1997 and concluded that no events or
changes in circumstances have transpired which indicate that the
carrying value of its assets may not be recoverable. The Company
does not believe that adoption of the new standard will have a
material effect on its financial statements in the current fiscal
year.
F-14
<PAGE> 30
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In October 1995, the Financial Accounting Standards Board issued a
new statement titled "Accounting for Stock-Based Compensation" (FAS
123). The new statement is effective for fiscal years beginning
after December 15, 1995. FAS 123 encourages, but does not require,
companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on
fair value. Companies that do not adopt the fair value accounting
rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be
accounted for on the fair value method. The Company currently
intends to adopt the fair value accounting prescribed by FAS 123.
However, the Company intends to continue its analysis of FAS 123 to
determine its ultimate effect in the future.
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the
State of Utah. Under the terms of the agreement, United contributed
real properties for an initial 75% interest in the joint venture, and
Celebration was to remove all liens associated with the real
properties by paying $175,000 to a bank which was the primary lien
holder for its initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned
promissory note. The property was auctioned in a public auction in
May, 1995 and by virtue of Celebration's first position lien,
Celebration was able to successfully bid the full amount of the
underlying promissory note. Although additional expenditures have
been made on the property through June 30, 1997, no further funds
toward the joint venture have been expended by Celebration, which
owns an undivided 25% interest in the property.
Shoshone County Idaho Mineral Lease (Crescent Mine)
In February 1995, Celebration entered into an agreement to acquire a
fifty-year renewable mineral lease on a property in Shoshone County,
Idaho. The mining property consists of twelve patented claims and
associated Idaho state leases. In connection with this lease,
Celebration paid $50,000 and issued 175,000 shares of common stock.
In addition, 10,000 shares were issued to a new director for his
assistance in obtaining this lease. Celebration subsequently paid
F-15
<PAGE> 31
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
$950,000 for the option of extending its lease for an additional
forty-nine years. When, and if, the property achieves gross sales of
$40,000,000, Celebration will be obligated to pay an additional 0.5%
royalty on future sales. Furthermore, beginning after September 1,
1995, and at such time as the average price of silver has reached
$6.00 per ounce for a 30-day period, Celebration is obligated to
spend not less than $2,000,000 during the subsequent 36 months to
de-water and repair the mine. Thereafter, Celebration will be
required to maintain the mine in a condition to allow it to be put
into production within sixty days. There are certain claims by the
U.S. Environmental Protection Agency and the County on this property
for which the lessor is obligated to pay. In the event these claims
are not satisfactorily resolved, they may effect Celebration's rights
to the property.
Australian Mineral Property Joint Venture
In March 1995, Celebration entered into a joint venture agreement
with an Australian company for exploration of a certain mineral
property in Australia. Under the original terms of the joint venture
agreement, Celebration acquired a 10% interest by paying $100,000 in
April 1995. No additional funds where paid or required to be paid
subsequent to the initial payment.
Washington and Idaho Mineral Properties
During the year ended September 30, 1995, Celebration purchased
through the issuance of 800,000 shares of its common stock, various
mineral properties located in the States of Washington and Idaho.
The mineral properties were recorded at the fair market value of the
shares paid on the date of issuance ranging from $3.13 to $3.25 per
share for a total purchase price of $2,538,126.
In May 1996, the Company sold back the Frisco Standard Silver Mine to
its original seller in exchange for the same price (35,000 shares of
Royal stock) received by the seller when the mine was purchased. The
shares received were canceled and no gain or loss was recorded on the
transaction.
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.
F-16
<PAGE> 32
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
Chilean Properties
During the quarter ended June 30, 1997, the Company acquired options
on a 100-square mile concession in northern Chile known as Mocha.
The Mocha prospect is a large porphyry copper system at the northern
end of one of the world's most prolific copper belts.
Under the terms of the first of the option agreements, the Company
can acquire a 100% interest in the concession by cash payments of
$371,000 and work commitments of $200,000 on or before August 1,
2000.
In another agreement on an adjoining privately owned property, which
covers the bulk of the known resource at Mocha, Royal Silver has the
option to acquire a 100% interest in the property, less a 2% retained
net smelter return royalty, for cash payments of $5,000,000 in a
series of payments ending June 23, 2002.
Argentina Properties
On February 10, 1997 the Company announced that it has negotiated an
option to buy 12 different potential mine sites in Argentina. Under
the agreement, the Company can buy the properties on or before March
1, 2000, by paying $4,500,000 in cash or $5,500,000 in Royal Silver
common stock, subject to certain conditions including the Seller's
retention of a 1.95% net smelter royalty on the mines. To date, none
of the properties have been acquired.
Mexico Properties
On January 20, 1997, the Company executed an agreement to acquire
four mining concessions in Nayarit, Mexico. The agreement calls for
a purchase price of $5,000,000 to be paid at the rate of 10% of
pre-tax net profits from production. Under the agreement, the
Company is obligated to pay the property owner $50,000 per year or,
alternatively, to spend $250,000 on exploration and development
annually until the properties are brought into production or
forfeited.
At June 30, 1997, no funds had been expended to maintain,
acquire, explore or develop the aforementioned Mexican properties.
F-17
<PAGE> 33
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
Mexico Properties (continued)
The total mineral properties of the Company at June 30, 1997 are
classified as follows:
Mineral properties under joint ventures $ 366,510
Other mineral properties 4,360,586
Total Mineral Properties $ 4,727,096
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.
NOTE 5 - INVESTMENTS
During the quarter ended June 30, 1997, the Company invested $70,000
in 200,000 shares of Metalline Mining stock. This investment
represents approximately 5.7% of the total outstanding stock in
Metalline Mining at the time of purchase. This stock is being valued
at cost, which is substantially less than the market value of $1.68
per share at June 30, 1997.
NOTE 6 - 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
F-18
<PAGE> 34
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 7 - 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 outstanding
debt (See Note 9). The Company also issued 277,500 shares in
connection with the issuance of notes payable (See Note 9). (See
also the disclosure in Note 1).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock for $2,958,314 in cash. The Company also
issued 222,700 shares to directors and employees for services
rendered valued at $1.50 per share, which is the fair market value of
the shares on the date of issuance.
Also during the year ended September 30, 1996, the Company issued
100,000 shares of its common stock for a joint venture in a mining
property and 20,000 common shares for a mining property (See Note
11.) The stock issued was valued at $1.50 per share, which is the
fair market value of the shares at the date of issuance.
In the same twelve-month period, the Company also issued 406,050
shares of its common stock in payment of outstanding debt of $570,917
and accrued interest of $38,158. The stock was issued at $1.50 per
share for a total value of $609,075. In addition, the Company issued
39,375 shares of common stock to noteholders for extending the
maturity date of their loans. Again, the shares were valued at $1.50
each, which is the fair market value of the shares when issued.
Also during the year ended September 30, 1996, the Company issued
215,334 shares of its common stock for services received. The shares
were valued at $1.50 per share, which was the fair market value of
the shares at the date of issuance.
F-19
<PAGE> 35
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 7 - COMMON STOCK (Continued)
On January 30, 1997, the Company sold 200,000 "units" at $0.75 per
unit for $150,000 cash. Each unit consists of one share of common
stock and one warrant to purchase one additional share of common
stock at $1.25 per share within the next two years. The Company also
granted the purchaser an option to purchase an additional 335,000
units, which were exercised on February 14, 1997 for $0.75 per unit,
and an additional 1,600,000 units which were exercised on March 17,
1997 for $0.75 per unit.
On February 7, 1997, The Company filed Form SB-2 with the Securities
and Exchange Commission in order to register 625,000 warrants,
625,000 common stock shares issuable upon the exercise of those
warrants, and 166,000 shares of common stock held outside the
Company.
During the nine months ended June 30, 1997, the Company issued
234,250 shares of its common stock for services received. The shares
were valued at prices ranging from $1.00 to $1.25 per share, which
was the fair market value of the shares at the date of issuance.
NOTE 8 - 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 June 30, 1997,
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. There are
255,000 of the stock options exercisable at $1.50 per share which
expire March 21, 2000. The remaining 1,200,000 stock options are
exercisable at $0.42 per share and expire on August 31, 2001. As of
June 30, 1997, none of these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999. As of June 30, 1997, none of these
warrants have been exercised.
F-20
<PAGE> 36
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
On March 22, 1996, the Board of Directors approved the issuance of
warrants to an investor to purchase 625,000 shares of common stock of
the Company in partial completion of a private placement of stock.
These warrants are exercisable until September 30, 1998, at a price
of $1.50 per share, which is 67% of the closing price on March 22,
1996.
On April 10, 1996, following the close of the second quarter of
fiscal 1996, the Board of Directors authorized the issuance of
420,666 warrants to unaffiliated investors as part of the private
placement of stock. These warrants were originally exercisable until
April 12, 1997 at prices ranging from $2.50 to $2.625 per share.
120,000 of these warrants were extended for one year (until April 12,
1998) in exchange for cash payments received of $3,000 in March and
April 1997. The balance of these warrants expired unexercised at
April 12, 1997.
On October 15, 1996, the Board of Directors approved the issuance of
warrants to employees and consultants to purchase 600,000 shares of
the Company's common stock at a price of $1.50 per share. The
warrants, which are exercisable for a five-year period , were issued
as compensation for services performed. As of June 30, 1997, none of
the warrants have been exercised.
On February 15, 1997, the Board of Directors approved the issuance of
warrants to employees and consultants to purchase 750,000 shares of
the Company's common stock at a price of $1.20 per share. As of June
30, 1997, none of the warrants have been exercised.
In the three months ended March 31, 1997, the Board of Directors
approved the issuance of warrants to investors to purchase 2,491,000
shares of the Company's common stock as part of the private placement
of stock. These warrants are exercisable until March 26, 1999 at a
price of $1.25 per share. None of these warrant have been exercised
as of June 30, 1997.
On April 25, 1997, the Board of Directors approved the issuance of
warrants to consultants to purchase 200,000 shares of the Company's
common stock at a price of $1.125 per share during the three-year
period ending April 30, 2000. As of June 30, 1997, none of these
warrants have been exercised.
F-21
<PAGE> 37
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 9 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at June 30,
1997 and September 30, 1996:
June 30, September 30,
1997 1996
Applicable to:
Common stock $ 10,465,549 $ 8,395,740
Stock warrants 46,568 41,068
------------ -----------
$ 10,512,117 $ 8,436,808
============ ===========
NOTE 10 - NOTES PAYABLE
In February 1995, Celebration raised $555,000 through the issuance of
promissory notes. During the second quarter ended March 31, 1996,
$470,000 of the total amount plus accrued interest of $29,265 was
converted into 332,800 shares of the Company's common stock, leaving
an amount owing of $85,000, which was further reduced by cash
payments to $35,000 at December 31, 1996. The notes bear interest at
10% per annum and are payable upon demand. The note holders also
received 277,500 shares of Celebration's common stock. A 10%
commission was charged by an underwriter on the sale of almost all of
the notes.
In April 1995, Celebration raised $120,000 in 10% convertible
debentures. In late 1995, $105,000 of the total amount plus accrued
interest of $4,810 was converted into 73,250 shares of the Company's
common stock, leaving an amount owing of $15,000. During the fourth
quarter ended September 30, 1996, this remaining $15,000 plus accrued
interest was paid.
NOTE 11 - RELATED PARTY TRANSACTIONS
After receiving advances from a related party for payment of
operating expenses, 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 June 30, 1997 was
$0.
F-22
<PAGE> 38
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 12 - FUTURE LEASE OBLIGATIONS
The Company is obligated under its lease arrangements to make
additional lease payments subsequent to June 30, 1997 as follows:
Year Ended
September 30, Amount
1997 $ 5,351
1998 4,500
1999 4,500
2000 and thereafter 22,500
--------
Total $ 36,851
========
NOTE 13- OPTIONS WITH PLACER MINING CORPORATION
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a
silver-lead-zinc mine in Shoshone County, Idaho. After issuing
100,000 shares valued at $1.50 per share and spending a
non-refundable $50,000 on this option, the Company elected to
re-negotiate this option agreement and entered into a second option
agreement with Placer on September 18, 1996.
In the second agreement, the Company paid $100,000 in September 1996
for the non-assignable option of acquiring a 100% interest in the
Bunker Hill Mine. In order to exercise this option, the Company must
issue 500,000 shares of its common stock to Placer by May 10, 1997
and pay Placer either $7,000,000 by that date or $4,000,000 by that
date and $3,500,000 by May 10, 1998. Under the terms of this
agreement, the Company will pay Placer a 2 3/4% net smelter return
royalty in perpetuity with stipulated annual advance minimum royalty
payments to Placer ranging from $100,000 (in 1999) to $250,000 (in
years 2002 through 2010). All advance minimum royalties paid are to
be credited against actual production royalties.
Subsequent to March 31, 1997, due to regional environmental concerns
and the prospect of related litigation, the Company concluded that it
would not exercise its option on the Bunker Hill Mine. Accordingly,
the $238,887 in option costs and related expenses toward the purchase
of this property were written off during the quarter ended March 31,
1997.
F-23
<PAGE> 39
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 14 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an
option from Centurion to purchase up to 800,000 shares of its common
stock held by Centurion for the exercise price of $1.75 per share
during the two-year period ending September 30, 1998. The cost of
this two-year stock purchase option was $50,000, which was paid by
the Company and charged to stockholders' equity (accumulated
deficit).
Effective April 15, 1997, the aforementioned stock option agreement
was renegotiated (at no cost to the Company) and amended to extend
the exercise period until September 30, 1999 and to revise the
exercise price to $1.50 per share during this same period.
At June 30, 1997, no shares were acquired from Centurion under this
option agreement.
F-24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at June 30, 1997 (Unaudited) and the
Statement of Income for the nine months ended June 30, 1997 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,123,602
<SECURITIES> 70,000
<RECEIVABLES> 105,958
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,234,713
<PP&E> 148,719
<DEPRECIATION> 6,610
<TOTAL-ASSETS> 6,174,102
<CURRENT-LIABILITIES> 33,342
<BONDS> 0
0
0
<COMMON> 133,751
<OTHER-SE> 6,007,009
<TOTAL-LIABILITY-AND-EQUITY> 6,174,760
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,463,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,257
<INCOME-PRETAX> (1,447,291)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,447,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,447,291)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
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