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: December 31, 1996
( ) 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 December 31, 1996: 10,721,104
1
<PAGE>
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 7 to 33. In
management's opinion, these financial statements present fairly in all
material respects Registrant's financial condition and changes in condition as
of December 31, 1996 and September 30, 1996, and the results of operations,
stockholders' equity and cash flows for the three months ended December 31,
1996 and 1995, and from inception on February 17, 1994 through December
31,1996, 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.
2
<PAGE>
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 December 31, 1996, the Company accumulated a deficit of $3,397,141.
At December 31, 1996, $4,801,941 of the Company's total assets of $5,286,472
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 December 31,
1996, the Company had working capital of $390,852. This amount is a
significant improvement in liquidity and capital resources from its position
of negative working capital of ($3,068) at December 31, 1995. In the three
months ending December 31, 1996, the Company's working capital has decreased
by $295,721 (from $686,573 at September 30) because of the absence of cash
stock sales in this quarter, the presence of ongoing administrative expenses
being funded by diminishing cash resources, and the reduction of short-term
debt. During the same three month period, the Company's cash decreased from
$688,716 to $347,505.
In the first quarter of fiscal 1997, the Company reduced its short-term
debt position from $60,000 to $35,000 by paying off a $25,000 promissory note.
In the same quarter, the Company reduced its accrued expenses and accounts
payable. Accordingly, the Company's current liabilities shrank from $119,867
at September 30, 1996 to $81,245 at December 31, 1996.
3
<PAGE>
The Company has estimated that it will need 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 the preliminary terms and arrangements for such capital fund
raising. During the third fiscal quarter of 1996, the Company raised $876,053
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 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.
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 THREE MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1996,
RESPECTIVELY. General and administrative expenses decreased from $363,359
during the first quarter of fiscal 1996 to $340,173 during the first quarter
of fiscal 1997. This decrease is principally due to reductions in consulting
expenses and amortization expense which in aggregate more than offset
increased compensation to officers and directors. As a result, during the
first quarter of fiscal 1996 compared to the first quarter of 1997, the net
loss decreased from $366,109 to $339,324, while the net loss per share
decreased from $0.05 to $0.03.
4
<PAGE>
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.
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.
5
<PAGE>
_____________________________________________________________________________
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.
ROYAL SILVER MINES, INC.
/s/ Howard Crosby February 13, 1997
____________________________________ Dated: _________________
By: Howard Crosby
Its: Chief Executive Officer
/s/ Robert Jorgensen February 13, 1997
___________________________________ Dated: _________________
By: Robert Jorgensen
Its: Principal Accounting Officer
6
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Financial Statements
December 31, 1996 and September 30, 1996
7
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S
<S> <C>
Independent Auditor's Report F1
Balance Sheets F2-3
Statements of Operations F4
Statements of Stockholders' Equity F5-10
Statements of Cash Flows F11-13
Notes to the Financial Statements F14
</TABLE>
8
<PAGE>
(Company Logo)
Williams & Webster, P.S.
Certified Public Accountants
Seafirst Financial Center
601 W. Riverside, Suite 1970
Spokane, WA 99201-0611
Tel: (509) 838-5111
Fax: (509) 624-5001
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Royal Silver Mines, Inc. (a
development stage company) as of September 30, 1996, and the related
statements of operations, shareholders' equity, and cash flows for the year
then ended, and from inception on February 17, 1994 through September 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Royal Silver
Mines, Inc. as of September 30, 1995 were audited by other auditors whose
report dated December 5, 1995 expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Royal Silver Mines, Inc. as
of September 30, 1996, and the results of their operations and their cash
flows for the year then ended and from inception on February 17, 1994 through
September 30, 1996 in conformity with generally accepted accounting
principles.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
December 13, 1996
F-1
9
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
(Unaudited) (Audited)
______________ _____________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 347,505 $ 688,716
Note receivable 100,000 100,000
Interest receivable 4,166 333
Prepaid expenses 20,426 17,391
______________ _____________
TOTAL CURRENT ASSETS 472,097 806,440
______________ _____________
MINERAL PROPERTIES 4,801,941 4,785,665
PROPERTY AND EQUIPMENT
Furniture and equipment 15,185 15,802
Less - accumulated depreciation (2,985) (2,809)
______________ _____________
TOTAL PROPERTY AND EQUIPMENT 12,200 12,993
______________ _____________
OTHER ASSETS
Deferred debt issuance costs, net - -
Organization costs, net 234 259
______________ _____________
TOTAL OTHER ASSETS 234 259
______________ _____________
TOTAL ASSETS $ 5,286,472 $ 5,605,357
============== =============
The accompanying notes are an integral part of these financial statements.
F-2
10
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS (Continued)
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
(Unaudited) (Audited)
______________ _____________
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,083 $ 25,135
Payable to related parties - 289
Accrued expenses 31,162 34,443
Notes payable 35,000 60,000
______________ _____________
TOTAL CURRENT LIABILITIES 81,245 119,867
______________ _____________
LONG-TERM DEBT - -
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
10,721,104 and 10,649,854 shares
issued and outstanding, respectively 107,211 106,499
Additional paid-in capital 8,495,157 8,436,808
Deficit accumulated during
development stage (3,397,141) (3,057,817)
______________ _____________
TOTAL SHAREHOLDERS' EQUITY 5,205,227 5,485,490
______________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,286,472 $ 5,605,357
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
11
<PAGE>
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
February 17,
1994
Three months Three months (inception)
ended ended through
December 31, December 31, December 30,
1996 1995 1996
_____________ _____________ _____________
<S> <C> <C> <C>
REVENUES $ - $ - $ -
_____________ _____________ _____________
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral leases - 2,270 8,965
Depreciation and amortization 9,587 20,448 107,656
Officers and directors
compensation 73,625 42,600 905,573
General and administrative 256,961 298,041 1,908,967
_____________ _____________ _____________
Total expenses 340,173 363,359 2,931,161
_____________ _____________ _____________
OPERATING LOSS (340,173) (363,359) (2,931,161)
_____________ _____________ _____________
OTHER EXPENSES
Interest income 3,833 - 3,833
Interest expense (1,215) (2,750) (73,306)
Loss on disposition of assets (1,769) - (346,507)
_____________ _____________ _____________
Total other expenses 849 (2,750) (415,980)
_____________ _____________ _____________
NET LOSS $ (339,324) $ (366,109) $ (3,347,141)
============= ============= =============
NET LOSS PER COMMON SHARE $ (0.03) $ (0.05) $ (0.51)
============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,701,742 8,009,916 6,621,722
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
12
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock Total
_________________________ Additional Stock-
Number Paid-in Accumulated holders
of Shares Amount Capital Deficit Equity
___________ ___________ ____________ ____________ ____________
<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 assignment
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
____________ ___________ ____________ ____________ ____________
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
13
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock Total
_________________________ Additional Stock-
Number Paid-in Accumulated holders
of Shares Amount Capital Deficit Equity
___________ ___________ ____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Balance, forward
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 15,000 150 14,850 - 15,000
Stock issuance
costs - - (58,202) - (58,202)
Issuance of
shares to
acquire
Consolidated
Royal Mines,
Inc. at $.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
____________ ___________ ____________ ____________ ____________
Balance
forward 6,591,063 65,911 1,045,074 (211,796) 899,189
____________ ___________ ____________ ____________ ____________
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
14
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock Total
_________________________ Additional Stock-
Number Paid-in Accumulated holders
of Shares Amount Capital Deficit Equity
___________ ___________ ____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Balance,
forward 6,591,063 65,911 1,045,074 (211,796) 899,189
____________ ___________ ____________ ____________ ___________
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
____________ ___________ ____________ ____________ ____________
Issuance of
shares for
cash at
$1.50 per
share 1,176,832 11,769 1,754,010 - 1,765,779
____________ ___________ ____________ ____________ ____________
Balance
forward 8,933,895 89,340 5,874,550 (962,735) 5,001,155
____________ ___________ ____________ ____________ ____________
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
15
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock Total
_________________________ Additional Stock-
Number Paid-in Accumulated holders
of Shares Amount Capital Deficit Equity
___________ ___________ ____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Balance,
forward 8,933,895 89,340 5,874,550 (962,735) 5,001,155
___________ ___________ ____________ ____________ ____________
Issuance of
shares to
directors and
employees for
services at
$1.50
per share 222,700 2,227 331,823 - 334,050
Issuance of
shares in
exchange for
debt and accrued
interest
at $1.50
per share 406,050 4,060 605,015 - 609,075
Issuance of
shares for
cash at
$2.20
per share 150,000 1,500 328,500 - 330,000
Issuance of
warrants for
cash at $.05
per warrant - - 41,068 - 41,068
Issuance of
shares for
cash at
$1.62
per share 65,000 650 104,650 - 105,300
Issuance of
shares for cash
to directors and
employees
at prices
ranging
from $1.62
to $2.08
per share 107,500 1,075 181,175 - 182,250
____________ ___________ ____________ ____________ ____________
Balance
forward 9,885,145 98,852 7,466,781 (962,735) 6,602,898
____________ ___________ ____________ ____________ ____________
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
16
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock Total
_________________________ Additional Stock-
Number Paid-in Accumulated holders
of Shares Amount Capital Deficit Equity
___________ ___________ ____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Balance,
forward 9,885,145 98,852 7,466,781 (962,735) 6,602,898
___________ ___________ ____________ ____________ ____________
Issuance of
shares for
cash at
$0.75
per share 200,000 2,000 147,985 - 149,985
Issuance of
shares for
cash at $1.70
per share 250,000 2,500 422,500 - 425,000
Cancellation
of 35,000
shares
received in
exchange for
return of
mining
property (35,000) (350) (109,025) - (109,375)
Payment to
Centurion Mines
for option to
repurchase
stock - - - (50,000) (50,000)
Issuance of
shares for
joint venture
in mining
property
at $1.50
per share 100,000 1,000 149,000 - 150,000
Repurchase of
25,000 shares
issued for
joint venture
at $1.40
per share (25,000) (250) (34,750) - (35,000)
____________ ___________ ____________ ____________ ____________
Balance
forward 10,375,145 103,752 8,042,491 (1,012,735) 7,133,508
____________ ___________ ____________ ____________ ____________
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
17
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock Total
_________________________ Additional Stock-
Number Paid-in Accumulated holders
of Shares Amount Capital Deficit Equity
___________ ___________ ____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Balance,
forward 10,375,145 103,752 8,042,491 (1,012,735) 7,133,508
___________ ___________ ____________ ____________ ____________
Issuance of
shares for
mining
property
at $1.50
per share 20,000 200 29,800 - 30,000
Issuance of
shares to
noteholders
for extension
of notes
at $1.50
per share 39,375 394 58,669 - 59,063
Issuance of
shares for
services at
$1.50
per share 215,334 2,153 320,848 - 323,001
Stock
issuance
costs - - (15,000) - (15,000)
Net loss for
the year
ended
September
30, 1996 - - - (2,045,082) (2,045,082)
____________ ___________ ____________ ____________ ____________
Balance,
September 30,
1996 10,649,854 $ 106,499 $ 8,436,808 $ (3,057,817) $ 5,485,490
____________ ___________ ____________ ____________ ____________
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
18
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock Total
_________________________ Additional Stock-
Number Paid-in Accumulated holders
of Shares Amount Capital Deficit Equity
___________ ___________ ____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Balance,
forward 10,649,854 $ 106,499 $ 8,436,808 $ (3,057,817) $ 5,485,490
___________ ___________ ____________ ____________ ____________
Stock issuance
costs - - (30,000) - (30,000)
Issuance of
shares for
services at
$1.25 per
share 71,250 712 88,349 - 89,061
Net loss for
the three
months ended
December 31,
1996 - - - (339,324) (339,324)
___________ ___________ ____________ ____________ ____________
10,721,104 $ 107,211 $ 8,495,157 $ (3,397,141) $ 5,205,227
=========== =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-11
19
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
</TABLE>
<TABLE>
<CAPTION> From
February 17,
Three Months Three Months 1994 (Inception)
Ended Ended Through
December 31, December 31, December 31,
1996 1995 1996
______________ ______________ ______________
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (339,324) $ (366,109) $ (3,347,141)
______________ ______________ ______________
Adjustments to reconcile
net loss to net cash used
by operating activities:
Gain on sale of equipment 1,769 - 1,769
Depreciation and
amortization 9,587 20,448 110,203
Issuance of common stock
for services 89,061 78,600 838,214
Write-off of joint
venture costs - - 150,000
Changes in assets and liabilities:
Note receivable - - (100,000)
Interest receivable (3,833) - (4,166)
Prepaid expenses (11,241) (3,195) (28,636)
Other assets - - (3,801)
Accounts payable (10,053) 30,748 15,083
Accrued expenses (3,282) 10,092 31,162
Payable to related parties (289) - 300,000
______________ ______________ ______________
Net cash used in operating
activities (267,605) (229,416) (2,037,313)
______________ ______________ ______________
Cash flows from investing
activities:
Sale of assets 500 - 500
Purchase and development of
mineral properties (16,276) (237,191) (1,621,112)
Purchase of fixed assets (2,830) (2,117) (18,632)
______________ ______________ ______________
Net cash provided used in
investing activities (18,606) (239,308) (1,639,244)
______________ ______________ ______________
The accompanying notes are an integral part of these financial statements.
F-12
20
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
</TABLE>
<TABLE>
<CAPTION> From
February 17,
Three Months Three Months 1994 (Inception)
Ended Ended Through
December 31, December 31, December 31,
1996 1995 1996
______________ ______________ ______________
<S> <C> <C> <C>
Cash flows from financing
activities:
Stock issuance and offering
costs (30,000) - (174,835)
Proceeds received on
long-term debt - - 675,000
Payments made on notes payable (25,000) - (139,206)
Issuance of common stock for
cash - 559,500 3,659,814
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
______________ ______________ ______________
Net cash provided by financing
activities (55,000) 559,500 4,024,062
______________ ______________ ______________
Net increase in cash $ (341,211) $ 90,776 $ 347,505
Cash, beginning of period 688,716 151,698 -
______________ ______________ ______________
Cash, end of period $ 347,505 $ 242,474 $ 347,505
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
F-13
21
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
</TABLE>
<TABLE>
<CAPTION> From
February 17,
Three Months Three Months 1994 (Inception)
Ended Ended Through
December 31, December 31, December 31,
1996 1995 1996
______________ ______________ ______________
<S> <C> <C> <C>
Supplemental cashflow disclosure:
Income taxes $ - $ - $ 350
Interest $ 5,000 $ - $ 28,398
Non-cash financing activities:
Common stock issued for
services rendered $ 89,061 $ 78,600 $ 838,212
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-14
22
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
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 $4,801,941 cost of mineral properties included in the accompanying balance
sheet as of December 31, 1996 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.
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.
F-15
23
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
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.
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. The Company's cash balance exceeds that
amount by $247,505 at December 31, 1996.
F-16
24
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
Provision For Taxes
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $3,130,000 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 December 31, 1996,
and concluded that no events or change 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.
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.
F-17
25
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE 3 - MINERAL PROPERTIES (Continued)
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 December 31, 1996, 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
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 $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.
F-18
26
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE 3 - MINERAL PROPERTIES (Continued)
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 December 31, 1996 are classified as follows:
<TABLE>
<S> <C>
Mineral properties under joint ventures $ 366,510
Other mineral properties 4,435,431
_____________
Total Mineral Properties $ 4,801,941
=============
</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.
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.
F-19
27
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE 6 - COMMON STOCK (Continued)
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 to 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.
During the three months ended December 31, 1996, the Company issued 71,250
shares of its common stock for services received. The shares were valued at
$1.25 per share, which was the fair market value at the date of issuance.
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 December 31, 1996, 12,750 shares of common stock have been
awarded under the Plan.
F-20
28
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
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 $0.93 per share and expire on August 31, 2001. As of December 31, 1996,
none of these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of warrants
to two of its officers to purchase a total of 300,000 shares for a purchase
price of $2.50 per share, exercisable from the date of issuance until January
9, 1999.
On March 22, 1996, the Board of Directors approved the issuance of warrants to
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 are exercisable until April 12, 1997 at prices ranging from $2.50 to
$2.625 per share. As of December 31, 1996, 320,666 warrants have been issued
(but not exercised) for a total amount of $41,068.
NOTE 8 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at December 31, 1996
and September 30, 1996:
<TABLE>
<CAPTION> December 31, September 30,
1996 1996
_____________ _____________
<S> <C> <C>
Applicable to:
Common stock $8,454,089 $8,395,740
Stock warrants 41,068 41,068
_____________ _____________
$8,495,157 $8,436,808
============= =============
</TABLE>
F-21
29
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE 9 - 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 will be due on the earlier of
January 1, 1997 or the closing of any public offering of equity securities by
the Company. 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 third quarter ended December 31, 1996, this
remaining $15,000 plus accrued interest was paid.
NOTE 10- FUTURE LEASE OBLIGATIONS
The Company is obligated under its lease arrangements to make additional lease
payments subsequent to December 31, 1996 as follows:
<TABLE>
<CAPTION>
Year Ended
September 30, Amount
_____________ _________
<C> <S>
1997 $ 5,351
1998 4,500
1999 4,500
2000 and thereafter 22,500
_________
Total $ 36,851
=========
</TABLE>
NOTE 11- 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 renegotiate this option agreement and entered into a second option
agreement with Placer on September 18, 1996.
F-22
30
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE 11- OPTIONS WITH PLACER MINING CORPORATION (Continued)
In the second agreement, the Company paid $100,000 in September 1996 for the
nonassignable option of acquiring a 100% interest in the Bunker Hill Mine. In
order to exercise this option, the Company must issue 500,000 shares of its
common stock to Placer by May 10, 1997 and pay Placer either $7,000,000 by
that date or $4,000,000 by that date and $3,500,000 by May 10, 1998. Under
the terms of this agreement, the Company will pay Placer a 2 3/4% net smelter
return royalty in perpetuity with stipulated annual advance minimum royalty
payments to Placer ranging from $100,000 (in 1999) to $250,000 (in years 2002
through 2010). All advance minimum royalties paid are to be credited against
actual production royalties.
At December 31, 1996, the Company had expended $101,715 in option and related
expenses toward the purchase of the Bunker Hill Mine. These costs are
included in the cost of mineral properties (Note 3) on the Company's balance
sheet.
NOTE 12 - 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).
At December 31, 1996, no shares were acquired from Centurion under this option
agreement.
NOTE - 13 SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the following material events have occurred:
1. On February 5, 1997, the Company filed Form 8-K with the Securities and
Exchange Commission in order to report two transactions.
A. On January 25, 1997, two of the Company's officer-directors resigned and
on February 5, 1997 one of those open seats was filled.
B. 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 on February 14, 1997 and an additional
800,000 units on March 3, 1997.
As of February 12, 1997, none of the warrants or options had been exercised.
F-23
31
<PAGE>
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE - 13 SUBSEQUENT EVENTS
2. 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
shares issuable upon the exercise of those warrants, and 166,000 shares of
common stock held outside of the Company.
3. 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.
F-24
32
<PAGE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS
FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 347,505
<SECURITIES> 0
<RECEIVABLES> 100,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 472,097
<PP&E> 15,185
<DEPRECIATION> 2,985
<TOTAL-ASSETS> 5,286,472
<CURRENT-LIABILITIES> 81,245
<BONDS> 0
<COMMON> 107,211
0
0
<OTHER-SE> 5,098,016
<TOTAL-LIABILITY-AND-EQUITY> 5,286,472
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 340,173
<OTHER-EXPENSES> 2,984
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,833
<INCOME-PRETAX> (339,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (339,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (339,324)
<EPS-PRIMARY> (0.03)
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</TABLE>
