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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 0-25170
ROYAL SILVER MINES, INC.
(Exact name of Registrant as specified in its charter)
Utah 87-0306609
(State of Incorporation) (I.R.S. Employer I.D.#)
Address of principal offices: 10220 N. Nevada, Suite 270
Spokane, Washington 99218
Registrant's Telephone No.: (509) 466-3144
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value, $0.01
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
YES [ x ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K: [ ]
As of December 15, 1997 the aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average
of the bid and ask price ($0.52) on such date was $4,556,371.
As of December 15, 1997, the Registrant had outstanding 13,580,232
shares of common stock ($0.01 par value). An index of the documents
incorporated herein by reference and/or annexed as exhibits to the
signed originals of this report appears beginning on page 91.
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TABLE OF CONTENTS
ITEM NUMBER PAGE
AND CAPTION NUMBER
PART I
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 40
ITEM 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . 40
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . 41
ITEM 6. Selected Financial Data. . . . . . . . . . . . . . . . . 42
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation . . . . . . . . . . . . . . . . . . . . . . . 42
ITEM 8. Financial Statements and Supplementary Data . . . . . . 46
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . 80
PART III
ITEM 10. Directors and Executive Officers of the
Company . . . . . . . . . . . . . . . . . . . . . . . . 82
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . 85
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 87
ITEM 13. Certain Relationships and Related Transaction . . . . . 89
PART IV
ITEM 14. Exhibits, Financial Statement Schedules,
and Reports of Form 8-K . . . . . . . . . . . . . . . . 91
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Royal Silver Mines, Inc. (the "Company"), formerly known as
Consolidated Royal Mines, Inc., and also, Royal Minerals, Inc., is a
U.S. mineral resource company incorporated under the laws of the State
of Utah. The Company is engaged in the business of acquiring and
exploring mineral properties containing silver, gold, copper, and other
mineralization, with a primary emphasis on silver. Prior to September
30, 1995, the Company acquired all of the outstanding securities of
Celebration Mining Company ("Celebration"), a development stage
company, pursuant to a share exchange agreement and plan of
reorganization ("Reorganization").
Prior to the Reorganization, Celebration was a non-public, closely
held Washington corporation. It was formed in February 1994 to
identify and acquire mineral properties for subsequent exploration and
development, if warranted, through equity financing and joint venture
arrangements. The Reorganization was accounted for as a purchase by
Celebration of the Company. Celebration was treated as the acquiring
company for financial reporting purposes because its shareholders
constituted greater than 50% of the combined shareholder group at the
time of reorganization. In conformity with generally accepted
accounting principles and the Company's accounting policy, Celebration
is recognized as the predecessor entity. Consequently, Celebration's
assets and liabilities were not adjusted in the accompanying financial
statements. On the other hand, for purposes of reporting statutory and
corporate authority, the Company is deemed to be the acquiring
corporation, and Celebration is now a wholly-owned subsidiary of the
Company. Prior to the Reorganization, the Company had been a majority-
owned subsidiary of Centurion Mines Corporation ("Centurion").
Currently, Centurion owns approximate 7% of the outstanding shares of
Common Stock of the Company.
The Company operates its business as an exploration stage company,
meaning that it intends to receive income from property sales, joint
ventures, or other business arrangements with larger companies, rather
than developing and placing its properties into production on its own.
The Company currently has no revenues. At September 30, 1997, the
Company's accumulated deficit was $4,828,528. Regarding its losses
from operations, the Company cannot assure that it will be able to
fully carry out its plans as budgeted without additional operating
capital. At September 30, 1997, the Company had a cash balance of
$594,577 and working capital of $671,355, as compared to a cash balance
of $688,716 and working capital of $686,573 at September 30, 1996.
The Company will need additional capital resources to continue
operations as they are now conducted or will have to reduce monthly
expenditures of approximately $20,000 per month. The industry took a
tremendous and very significant downturn in 1997 primarily a result of
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the fall-out from the Bre-X scandal which resulted in substantial
losses for investors and has placed a deep chill upon the ability of
exploration companies to raise capital. Secondly, the impact of a
steadily declining gold price through 1997 has placed added downward
pressure on prices of mining shares in general. As a whole, the entire
industry has suffered a substantial decline.
On the positive side prices of silver and zinc have been performing
well. Silver has resisted gold's decline and it appears that the metal
is now trading on supply/demand fundamentals and has shed its link with
gold to a great degree. Zinc rose substantially in 1997 in response to
shortages in the Far East and though it has now declined, remains at
attractive prices, again responding to positive supply/demand
fundamentals. The Company has significant property holdings containing
commercial quantities of zinc and silver and has an active exploration
program in Mexico exploring for both of these metals.
The Company also believes the long-term outlook for copper is
positive due to increases in worldwide demand associated with the
adoption of free market principles which should continue to boost
consumer and industrial demand for copper. The Company's project in
Chile called "Mocha" is a large copper porphyry and is located in the
North Chilean copper belt. This project has recently been joint
ventured with Teck Corporation, a major Canadian mining company
headquartered in Vancouver, British Columbia.
The Company expects that as it continues to advance its business
plan and if the markets for silver, zinc, copper, and lead remain
strong, investor interest will develop in the Company which will allow
the Company to raise additional capital. However, to date, the Company
remains mired in the general downdraft affecting the entire industry as
explained above. In response to this continuing adverse climate, the
Board of Directors has instructed management to take appropriate
measures to cut overhead costs including personnel salaries. The Board
has approved a measure to pay officers of the Company in common stock
until the capital resources of the Company are sufficient to pay
compensation in cash. Currently, the Company is pursuing various
financing alternatives, including, if necessary, the private placement
of stock.
During the twelve months ended September 30, 1997, the Company
placed 2,491,000 shares of its common stock for $1,868,250 in cash.
However, in the current depressed market, it is believed that future
placements will be much more difficult, if not impossible to complete.
As discussed in greater detail below in the section entitled
"Strategy and Business Plan" a substantial portion of the Company's
assets consist of investments in mineral properties for which
additional exploration is required to determine if they contain
mineralization that is economically recoverable. The realization of
these investments is contingent to a large extent upon the success of
the Company's property transactions as a whole, the existence of
economically recoverable metals and other mineralized material, the
ability of the Company to obtain financing or make other arrangements
<PAGE> 5
for development, and upon future profitable production. The likelihood
and extent to which these contingencies may be material is uncertain,
and the Company cannot assure that the outcome of these uncertain
events will not have a material impact and result in adverse
consequences to the Company. If the Company does not receive suitable
financing or funds from its present or future business arrangements to
develop these properties, and continues to suffer losses from
operations, the Company may have to cease operations entirely.
HISTORY
The Company was incorporated in Utah on April 6, 1969, as Royal
Resources, Inc. for the purpose of acquiring and developing mineral
properties. The Company changed its name to Royal Minerals, Inc., on
January 6, 1983, and became a public company in July 1984. The Company
complied with the Securities and Exchange Commission reporting
requirements until August 1986, at which time the Company filed Form 15
with the Commission and suspended further reporting requirements. On
January 31, 1992, Centurion owned 82.3% of the Company's common stock.
See "Centurion's Acquisition and Control of the Company." Also on
January 31, 1992, the Company shareholders authorized a 5-for-1 reverse
stock split, and on March 4, 1994, authorized a 4-for-1 reverse stock
split of the common stock of the Company. On March 17, 1994, the
Company changed its name to Consolidated Royal Mines, Inc. On November
22, 1994, the Company filed a registration statement on Form 10 and
renewed its reporting requirements, effective January 23, 1995. During
the fourth quarter of Fiscal 1995, the Company revised its business
plan to concentrate on the acquisition of silver properties. That
change in focus prompted Consolidated Royal Mines, Inc. and Celebration
Mining Company to implement the Reorganization, which closed on August
8, 1995, and to change the Company's name to Royal Silver Mines, Inc.,
effective September 18, 1995.
STRATEGY AND BUSINESS PLAN
The Company believes that control of land and mineral rights is the
key ingredient for financial success in the exploration and development
phases of the mining business. Previously, the Company had
concentrated its main exploration efforts in Idaho's Coeur d'Alene
Mining District and to a much lesser extent in the Lakeview Mining
District, and Utah's Ashbrook Mining District where the Company owns a
25% interest in the Vipont Mine property. During 1997, the Company
shifted its strategy and toward the acquisition of properties and
exploration in Chile, Mexico, and Argentina. The Company does not
currently have sufficient capital to carry out its strategy and
business plan.
The Company's plan of operation for Fiscal 1998 is to proceed with
its exploration efforts and to seek business arrangements that, in
conjunction with the funds of other companies or business entities,
will provide sufficient funding to meet the initial expenditures
required for the exploration of mineralization on such properties and
to acquire land positions or other interests in mineral properties. It
expects in this way to achieve an increase in the value of its assets
<PAGE> 6
and to obtain production income with less risk of its own funds for
development expenditures and capital investment in production
facilities. There is no assurance, however, that the Company will be
able to obtain additional financing to continue its operations.
As a consequence of the Company's plans, management expects a
reversal of the current trend of diminishing cash flow. However,
because it currently does not have sufficient capital, if the Company
is not successful in obtaining suitable joint venture commitments and
funds, there is no assurance that the Company otherwise will obtain the
capital it would need to achieve its business plan.
The 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.
Further, management has been authorized to consider and review all
reasonable proposals and, upon satisfactory assessment, to then make a
specific determination as to an estimated range of funding amounts that
each such proposal reasonably might require.
By further direction of the Board of Directors, management may
enter into new mining arrangements via joint ventures, partners, or
other third parties. Such arrangements may be multi-party ventures to
which the Company will contribute stock, cash, and/or mineral
interests. In such arrangements, the Company's participation in
revenues and profits, if any, will be reduced. At this time, the
Company has no agreement or understanding with any third parties for
the formation of a joint venture mining operation other than those
described herein. The Company will encounter significant competition
from firms currently engaged in the mining industry. In general, all
of these companies are substantially larger than the Company, and have
substantially greater resources and operating histories. See "Risk
Factors."
Management, together with such professional advisors which the
Company deems appropriate, will investigate prospective properties
through on-site examination, reviewing available geologic reports or
publications relating to the property, and a general field
reconnaissance to secure preliminary information regarding
characteristics of the property. If, from such preliminary reviews,
management deems it advisable to further investigate the property, the
Company may determine the condition of title and ownership by using
abstractors or title companies, and may obtain a preliminary
feasibility study by one or more geologists, mining engineers, or
accountants. If, after the foregoing preliminary investigation,
management determines that the property does not meet the Company's
acquisition criteria, efforts to acquire the property will be
abandoned, in which case costs incurred in conducting the investigation
would not be recoverable. It should be noted, however, that the
Company has only a limited amount of funds available for working
capital which could be used for future exploration expenditures. Thus,
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if future exploration is desired, additional funds would be needed.
Only a limited amount of such funds have currently been identified and
there can be no assurance that such funds would be available at an
acceptable cost, if at all.
Inasmuch as the eventual project, operation or mining activity
could be of any size or scope, the Company is not able at this time to
provide more exact amounts or a detailed listing of operation costs,
including increases in general and administrative expense, if any.
However, the Company plans to fund any increases in general and
administrative expense principally from joint venture revenues, fees it
may receive, or additional funds it may receive from debt or equity
financing. Funds required to finance the Company's exploration and
development of mineral properties are expected to come primarily from
joint venture participant contributions with the remainder provided by
funds generated from such joint venture and other lease or royalty
arrangements.
To date, the Company has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities and contractors that
provide its personnel, office space, and equipment needs. The Company
currently is seeking additional sources of working capital sufficient
to continue its present exploration work programs and meet its ongoing
payment obligations for its leases and unpatented claim fees to various
governmental bodies.
The Company is taking active and immediate steps to reduce its
general and administrative expenses. Management has budgeted
approximately $200,000 for calendar 1998 for general and administrative
expenses and other operating costs. Operating costs are largely
dependent upon the level of exploration and development activities
which the Company performs, which in turn, is dependent upon
availability of funds. Inasmuch as the Company intends to rely more
heavily upon joint venture partners to explore and develop its
properties in the near term, it therefore expects a reduction in
operating costs in Fiscal 1998.
However, if the Company is successful in its capital raising
activities in Fiscal 1998, of which there is no assurance, it will
likely then expand its exploration and development activities which
will result in a renewed and associated rise in operating costs. Even
so, the Company intends to continue to pursue a program of minimizing
general and administrative costs. The Company intends to maximize its
chances of exploration success by putting its dollars into its
projects.
PRIVATE PLACEMENTS.
In July 1995, the Company completed a private placement of 8,700
shares through two Regulation S offerings, both at a price of $2.00 per
share, for a total of $17,400. During September 1995, the Company
completed a private placement of 179,000 shares of common stock through
a domestic offering at a price of $1.50 per share for a total of
<PAGE> 8
$241,650 after expenses. During the twelve months ended September 30,
1996, the Company placed 1,949,332 shares of its common stock for
$2,958,314 in cash. The Company also issued 406,050 shares of its
common stock in lieu of outstanding debt of $570,919, plus accrued
interest. The stock was issued at $1.50 per share for a total value of
$609,075.
On the 30th day of January, 1997, the Company sold to Britannia
Holdings Limited ("Britannia"), Channel Islands, 200,000 Units, at
$0.75 per Unit or a total of $150,000. The Registrant also granted
Britannia an option to purchase an additional 335,000 Units on February
14, 1997 and an additional 800,000 Units on March 3, 1997. Each Unit
consists of one share of Common Stock and one warrant to purchase one
additional share of Common Stock at $1.25 per share. The Units were
issued in reliance upon the transaction exemption afforded by
Regulation S, as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, as amended. Britannia Holdings
Limited exercised all of these warrants.
On the 14th day of February, 1997, the Registrant sold to
Britannia, 335,000 Units, at $0.75 per Unit or a total of $251,250.
The Registrant previously granted Britannia an option to purchase an
additional 800,000 Units on March 3, 1997. The option exercise date of
March 3, 1997 was extended by mutual agreement of the parties to March
24, 1997 and the option was increased to 1,200,000 units. On March 24,
1997, Britannia Holdings exercised its option and purchased 1,600,000
units at $0.75 per unit, for a total of $1,200,000. Each Unit consists
of one share of Common Stock and one warrant to purchase one additional
share of Common Stock at $1.25 per share. The warrants will expire two
years from the date of closing of each transaction. The Units were
issued in reliance upon the transaction exemption afforded by
Regulation S, as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, as amended. As of the 19th day of
December, 1997, Britannia Holdings Limited had not exercised any
warrants.
On the 26th day of February, 1997, the Company sold to Louk Jongen,
("Jongen"), Holland, 100,000 Units, at $0.75 per Unit or a total of
$75,000. Each Unit consists of one share of Common Stock and one
warrant to purchase one additional share of Common Stock at $1.25 per
share. The warrants will expire two years from the date of closing.
The Units were issued in reliance upon the transaction exemption
afforded by Regulation S, as promulgated by the Securities and Exchange
Commission, under the Securities Act of 1933, as amended. As of the
6th day of March, 1997, Jongen had not exercised any warrants.
On the 5th day of March, 1997, the Company sold to NCL Investments
Limited ("NCL"), London, England, 136,000 Units, at $0.75 per Unit or
a total of $102,000. Each Unit consists of one share of Common Stock
and one warrant to purchase one additional share of Common Stock at
$1.25 per share. The warrants will expire two years from the date of
closing. The Units were issued in reliance upon the transaction
exemption afforded by Regulation S, as promulgated by the Securities
and Exchange Commission, under the Securities Act of 1933, as amended.
As of the 6th day of March, 1997, NCL had not exercised any warrants.
<PAGE> 9
COMPETITION.
The mining industry is very competitive. There is a high degree of
competition to obtain favorable mining properties and suitable mining
prospects for drilling, exploration, development and mining operations.
The Company encounters competition from a handful of other similarly-
situated mining companies in the silver mining industry in connection
with the acquisition of properties capable of profitably producing
silver and other mineralization.
RISK FACTORS.
The following risk factors with respect to the Company and its
operations may affect its strategy and business plan:
1. Recent Status as a Public Reporting Company. The Company
became a fully reporting public company on January 23, 1995. The
Company has no current operating history and is subject to all risks
inherent in a developing business enterprise. The likelihood of
success of the Company must be considered in light of the problems,
expenses, difficulties, complications, and delays frequently
encountered in connection with a new business in general and those
specific to the natural resource industry and the competitive and
regulatory environment in which the Company will operate.
2. Exploration Stage Company. Mineral exploration, particularly
for gold and silver, is highly speculative in nature, frequently is
nonproductive, and involves many risks, often greater than those
involved in the actual mining of mineralization. Such risks can be
considerable and may add unexpected expenditures or delays to the
Company's plans. There can be no assurance that the Company's mineral
exploration activities will be successful or profitable. Once
mineralization is discovered, it may take a number of years from the
initial phase of drilling until production is possible, during which
time the economic feasibility of production may change. A related
factor is that exploration stage companies use the evaluation work of
professional geologists, geophysicists, and engineers for estimates in
determining whether to acquire an interest in property or to commence
exploration or development work. These estimates generally rely on
scientific estimates and economic assumptions, and in some instances
may not be correct, and could result in the expenditure of substantial
amounts of money on a property before it can be determined whether or
not the property contains economically recoverable mineralization. The
economic viability of a property cannot be determined until extensive
exploration and development has been conducted and a comprehensive
feasibility study performed. The Company currently does not have any
such feasibility studies, and has not yet prepared feasibility studies
on any of its properties. Moreover, the market prices of any minerals
produced are subject to fluctuation, which may negatively affect the
economic viability of properties on which expenditures have been made.
The Company is not able to determine at present whether or not, or the
extent to which, such risks may adversely affect the Company's strategy
and business plans.
<PAGE> 10
3. Lack of Revenue. The Company needs additional capital but
currently has no revenues. Substantial expenditures are required to
establish ore reserves through drilling, to determine metallurgical
processes to extract the mineralization from the ore and, in the case
of new properties, to construct mining and processing facilities. The
Company lacks a constant and continual flow of revenue. The Company
currently holds certain royalty interests in several mining properties
previously sold, but there is no assurance that the Company will
receive royalty payments, or that the Company will otherwise receive
adequate funding to be able to finance its exploration activities. The
Company is looking for revenue sources on an on-going basis, but there
can be no assurance that such sources can be found or that, if
available, the terms of such financing will be commercially acceptable
to the Company. Because of the Company's need for additional capital
to fund its present operations, to complete the acquisition of certain
mineral rights, and to provide for further exploration and development,
the lack of consistent revenue could be a detrimental factor in the
progress of the Company.
4. Realization of Investments in Mineral Properties and Additional
Capital Needs. The ultimate realization of the Company's investments
in mineral properties is dependent upon the success of future property
sales, the existence of economically recoverable reserves, the ability
of the Company to obtain financing or make other arrangements for
development and upon future profitable production. The Company expects
to finance its operations for Fiscal 1997 through the sale of equity
securities, joint venture arrangements (including project financing),
and the sale of interests in mineral properties. The Company does not
have sufficient capital of its own to explore and develop its mineral
properties and there can be no assurance that the Company will be
successful in obtaining the required funds to finance its long-term
capital needs.
5. Retention and Attraction of Key Personnel. The Company's
success will depend, in large part, on its ability to retain and
attract highly qualified personnel. The Company's success in retaining
its present staff and in attracting additional qualified personnel will
depend on many factors, including its ability to provide them with
competitive compensation arrangements, equity participation and other
benefits. There is no assurance that the Company will be successful in
retaining or attracting highly qualified individuals in key management
positions.
6. Regulatory Concerns. Environmental and other government
regulations at the federal, state and local level pertaining to the
Company's business and properties may include: (a) surface impact; (b)
water acquisition; (c) site access; (d) reclamation; (e) wildlife
preservation; (f) licenses and permits; and, (e) maintaining the fees
for unpatented mining claims. See "Business - Government Regulation
and Environmental Concerns."
7. Working Capital; Accumulated Deficit; Auditor's Report.
Although it commenced operations more than two years ago, the Company
remains in the development stage. At September 30, 1997, the Company
<PAGE> 11
had working capital of $671,355 and an accumulated deficit of
$4,828,528, with deficits and losses expected to continue for the
foreseeable future. The Company's operations are subject to numerous
risks associated with the mining industry.
8. Reliance Upon Directors and Officers. The Company is wholly
dependent, at the present, upon the personal efforts and abilities of
its Officers and Directors who exercise control over the day to day
affairs of the Company. There can be no assurance as to the volume of
business, if any, which the Company may succeed in obtaining, nor that
its proposed operations will prove to be profitable.
9. Indemnification of Officers and Directors for Securities
Liabilities. The Bylaws of the Company provide that the Company may
indemnify any Director, Officer, agent and/or employee as to those
liabilities and on those terms and conditions as are specified in the
Utah Business Corporation Act. Further, the Company may purchase and
maintain insurance on behalf of any such persons whether or not the
corporation would have the power to indemnify such person against the
liability insured against. The foregoing could result in substantial
expenditures by the Company and prevent any recovery from such
Officers, Directors, agents and employees for losses incurred by the
Company as a result of their actions. Further, the Company has been
advised that in the opinion of the Securities and Exchange Commission,
indemnification is against public policy as expressed in the Securities
Act of 1933, as amended, and is, therefore, unenforceable.
10. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
Cumulative voting in the election of Directors is not provided for.
Accordingly, the holders of a majority of the shares of Common Stock,
present in person or by proxy, will be able to elect all of the
Company's Board of Directors. See "Description of the Securities."
11. Potential Future Sales Pursuant to Rule 144. At December 15,
1997, there were issued and outstanding approximately 13,580,232 shares
of Common Stock of which 4,738,926 shares were "Restricted Securities"
as that term is defined in Rule 144 promulgated under the Securities
Act of 1933, as amended. In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one (1) year
holding period, may sell within any three month period, an amount which
does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume during the four
calendar weeks prior to such sale. Rule 144 also permits the sale of
shares, under certain circumstances, without any quantity limitation,
by persons who are not affiliates of the Company and who have
beneficially owned the shares for a minimum period of two (2) years.
Hence, the possible sale of these restricted shares may, in the future
dilute an investors percentage of free-trading shares and may have a
depressive effect on the price of the Company's securities and such
sales, if substantial, might also adversely effect the Company's
ability to raise additional equity capital.
<PAGE> 12
12. No Dividends. The holders of the Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefore. To date, the Company has not
paid any cash dividends. The Board does not intend to declare any
dividends in the foreseeable future, but instead intends to retain all
earnings, if any, for use in the Company's business operations. As the
Company will be required to obtain additional financing, it is likely
that there will be restrictions on the Company's ability to declare any
dividends.
TRANSACTIONS WITH CENTURION.
The Company has disclosed pertinent information and financial data
with respect to its transactions with Centurion in its presentation
found at Item 13 of this Report, entitled "Certain Relationships and
Related Transactions."
PATENTS, TRADEMARKS, LICENSES, FRANCHISES.
The Company does not own any patents, trademarks, licenses,
franchises, or concessions, except for patented mining claims granted
by governmental authorities and private land owners.
SEASONABILITY.
The Company's business is generally not seasonal in nature except
to the extent that weather conditions at certain times of the year may
affect the Company's access to its properties.
GOVERNMENT REGULATION AND ENVIRONMENTAL CONCERNS.
The Company is committed to complying and, to its knowledge, is in
compliance with all governmental and environmental regulations. The
Company's activities in the United States are subject to extensive
federal, state and local laws and regulations controlling not only the
mining of and exploration for mineral properties, but also the possible
effects of such activities upon the environment. Permits from a
variety of regulatory authorities are required for many aspects of mine
operation and reclamation. The Company cannot predict the extent to
which future legislation and regulation could cause additional expense,
capital expenditures, restrictions and delays in the development of the
Company's U.S. properties, including those with respect to unpatented
mining claims.
The Company's activities are not only subject to extensive federal,
state, and local regulations controlling the mining of and exploration
for mineral properties, but also the possible effects of such
activities upon the environment. Future legislation and regulations
could cause additional expense, capital expenditures, restrictions and
delays in the development of the Company's properties, the extent of
which cannot be predicted. Also, as discussed above, permits from a
variety of regulatory authorities are required for many aspects of mine
operation and reclamation. In the context of environmental permitting,
including the approval of reclamation plans, the Company must comply
<PAGE> 13
with known standards, existing laws and regulations that may entail
greater or lesser costs and delays depending on the nature of the
activity to be permitted and how stringently the regulations are
implemented by the permitting authority. The Company is not presently
aware of any specific material environmental constraint affecting its
properties that would preclude the economic development or operation of
any specific property. However, the general obstructionist regulatory
environment within the United States impedes development of its
properties and the Company plans to do limited work in the United
States, unless metal prices rise significantly or the regulatory
environment grows dramatically more favorable to industry.
At present, the Company does not have any environmental control
facilities. Thus, the Company has not made any material capital
expenditures for environmental controls, other than the nominal costs
of preparing the plans and contingencies for such environmental
controls, measures and facilities as may be required in its future
activities.
If the Company becomes more active on its U.S. properties, it is
reasonable to expect that compliance with environmental regulations
will increase costs to the Company. Such compliance may include
feasibility studies on the surface impact of the Company's proposed
operations; costs associated with minimizing surface impact; water
treatment and protection; reclamation activities, including
rehabilitation of various sites; on-going efforts at alleviating the
mining impact on wildlife; and permits or bonds as may be required to
ensure the Company's compliance with applicable regulations. It is
possible that the costs and delays associated with such compliance
could become so prohibitive that the Company may decide to not proceed
with the exploration, development, or mining operations on any of its
mineral properties.
Offshore Regulation.
The Company is aware of comparable environmental regulation in
offshore countries where it operates. The Company is committed to full
compliance with these regulations and has engaged legal counsel in
Mexico, Chile and Argentina who will, in part, assist the Company to
assure compliance.
The Company is prepared to engage additional professionals, if
necessary, to ensure regulatory compliance but in the near term expects
its activities to require minimal regulatory oversight. If the Company
expends the scope of its activities in the future it is reasonable to
expect expenditures on compliance to rise. Based upon the experience
of other companies with which the Company is familiar, management
believes the costs of environmental regulation offshore will be
somewhat lower than costs typical of the United States.
<PAGE> 14
OFFICES
The Company's executive office is located at 10220 North Nevada,
Suite 270, Spokane, Washington 99218. The Company leases its principal
office in Spokane, Washington, on a renewable one-year term with rental
costs of $2,600 per month, including basic maintenance and janitorial
services. The Company does not currently have any other branch
offices. Due to fiscal constraints, the Company is currently
evaluating other office arrangements to reduce costs and conserve cash.
EMPLOYEES
The Company has five employees. The Company arranges for much of
its work through contracts with various consultants. The Company may
contract with additional consultants from time to time, as required by
its operations. Consultants are treated as independent contractors.
CENTURION'S ACQUISITION AND CONTROL OF THE COMPANY
In October 1991, Centurion entered into negotiations with the
officers and directors of the Company for the acquisition and control
of the Company. In November 1991, Centurion's Board of Directors
approved this acquisition. Subsequently, Centurion entered into
subscription and investment agreements with several of the Company's
principal shareholders, whereby Centurion exchanged 174,743
"restricted" shares of Centurion stock and $1,600 cash for shares of
Company common stock constituting 37.2% ownership of the Company's
outstanding shares. On January 10, 1992, the Company's Board of
Directors authorized the exchange of 100,000 post-split shares of the
Company's common stock for approximately 4,196 acres of unpatented
mining claims and state and private mineral leases from Centurion. On
January 31, 1992, at the Company's Annual Shareholders Meeting, the
shareholders authorized the purchase of approximately 17,000 acres of
mining properties from Centurion for 1,250,000 post-split shares of
Company common stock. This acquisition of shares gave Centurion an
82.3% controlling interest in the Company. Because of the changes in
the control of shareholdings brought about by the Reorganization with
Celebration, Centurion currently holds approximately 9% of the
Company's outstanding common stock. Of this, the Company has been
granted an assignable option to repurchase up to 800,000 shares of
Centurion's position at a price of $1.50 at any time prior to September
30, 1999.
THE COMPANY'S OWNERSHIP INTEREST IN CENTURION
On November 25, 1997, Centurion issued 5,000,000 shares of Common
Stock to the Company in exchange for certain patented and unpatented
mining claims located in the state of Idaho. As a result of the
foregoing transaction, the Company owns 13.71% of the outstanding
Common Stock of Centurion.
<PAGE> 15
SUBSIDIARIES
The Company currently has four subsidiaries: Celebration Mining
Company, of which the Company currently is the sole shareholder, was
incorporated in the State of Washington in February 1994; Minera Plata
Real, Mexico, which was incorporated in March 1997 and of which the
Company is the principal shareholder; Minera Plata Real, Argentina,
which was incorporated in March 1997, and of which the Company is the
principal shareholder; and, Minera Plata Real, Chile, which was
incorporated in June 1997 and of which the Company is the principal
shareholder.
REORGANIZATION WITH CELEBRATION.
In May and June 1995, Management began negotiations with management
of Celebration regarding a merger or other reorganization plan of the
two companies. On June 28, 1995, the boards of directors of both
companies approved a reorganization and the companies signed an
agreement based on a share exchange. The Company would acquire 100% of
Celebration's interest in the Vipont Mine Joint Venture, the Crescent
Mine Lease, the Australia Joint Venture, and the option rights to
acquire up to 50% of the mineral rights on the Prospect Mine Property
in Madison County, Montana.
The Celebration shareholders approved the Reorganization and share
exchange agreement at an August 8, 1995 shareholder meeting. In
exchange for 100% of the issued and outstanding Celebration shares, the
Company agreed to issue to the Celebration shareholders 4,143,750
shares of Company common stock that together would represent ownership
of 63% of Company shareholdings outstanding immediately following the
Reorganization. Also, the Company agreed to honor all of the stock
rights held by various Celebration shareholders and which were subject
to certain conditions and events.
Some of those stock rights had been granted contingent upon the
repayment of notes, and others had been granted as options under
consultant agreements. In total, those stock rights permitted the
purchase or receipt of approximately 1,755,000 additional shares of
Company common stock. If all of the shares underlying various stock
rights were added to the initial group of 4,143,750 shares exchanged in
the Reorganization, that would result in a total issuance from the
share exchange of approximately 5,898,750 shares, or 71% ownership by
the Celebration shareholders. However, to date, none of the
overhanging stock rights have been or are expected to be exercised.
In December 1995, stock rights to receive approximately 190,795
shares were extinguished when the Company converted debt of $570,919 in
principal, plus interest, by issuing common stock. The noteholders of
that debt amount received approximately 406,050 shares in full
satisfaction of the debt.
<PAGE> 16
ACQUISITION AND DISPOSITION OF MINERAL PROPERTIES.
On January 10 and January 31, 1992, the Company obtained from
Centurion a total of 23,300 acres of unpatented mining claims, and
state and private mineral leases in exchange for the equivalent of
1,350,000 post-split shares of Company common stock.
UNPATENTED MINING CLAIMS/STATE LEASES.
In fiscal 1997, the Company allowed to lapse certain Utah state
mineral leases and did not pay the annual maintenance fee on certain
unpatented claims located in the Oquirrh Mountains in Utah due to an
evaluation by the Company that the mineral potential of such property
was low and did not warrant continuing to hold the ground.
GLOSSARY OF CERTAIN MINING TERMS.
ACID MINE DRAINAGE Acidic run-off water from mine waste dumps and
mill tailings ponds containing sulfide minerals.
Also refers to ground water pumped to surface from
mines.
ADIT An opening driven horizontally into the side of a
mountain or hill for providing access to a mineral
deposit.
ALTERATION Any physical or chemical change in a rock or
mineral subsequent to its formation. Milder and
more localized than metamorphism.
ANTICLINE An arch or fold in layers of rock shaped like the
crest of a wave.
ASSAY A chemical test performed on a sample of ores or
minerals to determine the amount of valuable
metals contained.
BACKFILL Waste material used to fill the void created by
mining an orebody.
BALL MILL A steel cylinder filled with steel balls into
which crushed ore is fed. The ball mill is
rotated, causing the balls to cascade and grind
the ore.
BASEMENT ROCKS The underlying or older rock mass. Often refers
to rocks of Precambrian age which may be covered
by younger rocks.
BASE METAL Any non-precious metal (e.g. copper, lead, zinc,
nickel, etc.).
BEDDING The arrangement of sedimentary rocks in layers.
<PAGE. 17
BLOCK CAVING An inexpensive method of mining in which large
blocks of ore are undercut, causing the ore to
break or cave under its own weight.
BRECCIA A rock in which angular fragments are surrounded
by a mass of fine-grained minerals.
BULK MINING Any large-scale, mechanized method of mining
involving many thousands of tons of ore being
brought to surface per day.
CATHODE A rectangular plate of metal, produced by
electrolytic refining, which is melted into
commercial shapes such as wirebars, billets,
ingots, etc.
CHALCOCITE A sulfide mineral of copper common in the zone of
secondary enrichment.
CHANNEL SAMPLE A sample composed of pieces of vein or mineral
deposit that have been cut out a small trench or
channel, usually about ten cm wide and two cm
deep.
CHUTE An opening, usually constructed of timber and
equipped with a gate, through which ore is drawn
from a stope into mine cars.
COMPLEX ORE An ore containing a number of minerals of economic
value. The term often implies that there are
metallurgical difficulties in liberating and
separating the valuable metals.
CONE CRUSHER A machine which crushes ore between a gyrating
cone or crushing head and an inverted, truncated
cone known as a bowl.
CONCENTRATE A fine, powdery product of the milling process
containing a high percentage of valuable metal.
CONGLOMERATE A sedimentary rock consisting of rounded, water-
worn pebble or boulders cemented into a solid
mass.
CONTACT A geological term used to describe the line or
plane along which two different rock formations
meet.
CORE The long cylindrical piece of rock, about an inch
in diameter, brought to surface by diamond
drilling.
<PAGE> 18
CROSSCUT A horizontal opening driven from a shaft and (or
near) right angles to the strike of a vein or
other orebody.
CUT-AND-FILL A method of stoping in which ore is removed in
slices, or lifts, and then the excavation is
filled with rock or other waste material
(backfill), before the subsequent slice is
extracted.
CYANIDATION A method of extracting exposed gold or silver
grains from crushed or ground ore by dissolving it
in a weak cyanide solution. May be carried out in
tanks inside a mill or in heaps of ore out of
doors.
DECLINE An underground passageway connecting one or more
levels in a mine, providing adequate traction for
heavy, self-propelled equipment. Such underground
openings are often driven in an upward or downward
spiral, much the same as a spiral staircase.
DEVELOPMENT Work carried out for the purpose of opening up a
mineral deposit and making the actual ore
extraction possible.
DEVELOPMENT
DRILLING Drilling to establish accurate estimates of
mineral reserves.
DIAMOND DRILL A rotary type of rock drill that cuts a core of
rock that is recovered in long cylindrical
sections, two centimeters or more in diameter.
DILUTION (mining) Rock that is, by necessity, removed along with the
ore in the mining process, subsequently lowering
the grade of the ore.
DIP The angle at which a vein, structure or rock bed
is inclined from the horizontal as measured at
right angles to the strike.
DISSEMINATED ORE Ore carrying small particles of valuable minerals
spread more or less uniformly through the hose
rock.
DORE Unparted gold and silver poured into molds when
molten to form buttons or bars. Further refining
is necessary to separate the gold and silver.
DRIFT A horizontal underground opening that follows
along the length of a vein or rock formation as
opposed to a cross-cut which crosses the rock
formation.
<PAGE> 19
DRILL-INDICATED
RESERVES The size and quality of a potential orebody as
suggested by widely spaced drill holes; more work
is required before reserves can be classified as
probable or proven.
DUE DILIGENCE The degree of care and caution required before
making a decision; loosely, a financial and
technical investigation to determine whether an
investment is sound.
ELECTROLYTIC
REFINING The process of purifying metal ingots that are
suspended as anodes in an electrolytic bath,
alternated with refined sheets of the same metal
which act as starters or cathodes.
ENVIRONMENTAL
IMPACT STUDY A written report, compiled prior to a production
decision, that examines the effects proposed
mining activities will have on the natural
surroundings.
EPITHERMAL DEPOSIT A mineral deposit consisting of veins and
replacement bodies, usually in volcanic or
sedimentary rocks, containing precious metals, or,
more rarely, base metals.
EXPLORATION Work involved in searching for ore, usually by
drilling or driving a drift.
FACE The end of a drift, crosscut or stope in which
work is taking place.
FISSURE An extensive crack, break or fracture in rocks.
FLOAT Pieces of rock that have been broken off and moved
from their original location by natural forces
such as frost or glacial action.
FLOTATION A milling process in which valuable mineral
particles are induced to become attached to
bubbles and float, and others sink.
FOOTWALL The rock on the underside of a vein or ore
structure.
FRACTURE A break in the rock, the opening of which allows
mineral bearing solutions to enter. A "cross-
fracture" is a minor break extending at more-or-
less right angles to the direction of the
principal fractures.
<PAGE> 20
FREE MILLING Ores of gold or silver from which the precious
metals can be recovered by concentrating methods
without resort to pressure leaching or other
chemical treatment.
GALENA Lead sulfide, the most common ore mineral of lead.
GOSSAN The rust-colored capping or staining of a mineral
deposit, generally formed by the oxidation or
alteration of iron sulfides.
GRAB SAMPLE A sample from a rock outcrop that is assayed to
determine if valuable elements are contained in
the rock. A grab sample is not intended to be
representative of the deposit, and usually the
best-looking material is selected.
GRADE The average assay of a ton of ore, reflecting
metal content.
HANGINGWALL The rock on the upper side of a vein or ore
deposit.
HEAD GRADE The average grade of ore fed into a mill.
HEAP LEACHING A process involving the percolation of a cyanide
solution through crushed ore heaped on an
impervious pad or base to dissolve minerals or
metals out of the ore.
HIGH GRADE Rich ore. As a verb, it refers to selective
mining of the best ore in a deposit.
HOST ROCK The rock surrounding an ore deposit.
HYDROMETALLURGY The treatment of ore by wet processes (e.g.,
leaching) resulting in the solution of a metal and
its subsequent recovery.
INTRUSIVE A body of igneous rock formed by the consolidation
of magma intruded into other rocks, in contrast to
lavas, which are extruded upon the surface.
LAGGING Planks or small timbers placed between steel ribs
along the roof of a stope or drift to prevent
rocks from falling, rather than to support the
main weight of the overlying rocks.
LENS Generally used to describe a body of ore that is
thick in the middle and tapers towards the ends.
LEVEL The horizontal openings on a working horizon in a
mine; it is customary to work mines from a shaft,
establishing levels at regular intervals,
generally about 50 meters or more apart.
<PAGE> 21
LIMESTONE A bedded, sedimentary deposit consisting chiefly
of calcium carbonate.
LODE A mineral deposit in solid rock.
METAMORPHIC ROCKS Rocks which have undergone a change in texture or
composition as the result of heat and/or pressure.
MILL A processing plant that produces a concentrate of
the valuable minerals or metals contained in an
ore. The concentrate must then be treated in some
other type of plant, such as a smelter, to affect
recovery of the pure metal.
MILLING ORE Ore that contains sufficient valuable mineral to
be treated by the milling process.
MINEABLE RESERVES Ore reserves that are known to be extractable
using a given mining plan.
MINERAL A naturally occurring homogeneous substance having
definite physical properties and chemical
composition and, if formed under favorable
conditions, a definite crystal form.
MINERALIZED MATERIAL
OR DEPOSIT A mineralized body which has been delineated by
appropriate drilling and/or underground sampling
to support a sufficient tonnage and average grade
of metal(s). Under SEC standards, such a deposit
does not qualify as a reserve until a
comprehensive evaluation, based upon unit cost,
grade, recoveries, and other factors, conclude
economic feasibility.
MUCK Ore or rock that has been broken by blasting.
NATIVE METAL A metal occurring in nature in pure form,
uncombined with other elements.
NET PROFIT
INTEREST A portion of the profit remaining after all
charges, including taxes and bookkeeping charges
(such as depreciation) have been deducted.
NET SMELTER RETURN A share of the net revenues generated from the
sale of metal produced by a mine.
OPEN PIT A mine that is entirely on surface. Also referred
to as open-cut or open-cast mine.
ORE Material that can be mined and processed at a
positive cash flow.
<PAGE> 22
ORE PASS Vertical or inclined passage for the downward
transfer of ore connecting a level with the
hoisting shaft or a lower level.
OREBODY A natural concentration of valuable material that
can be extracted and sold at a profit.
ORE RESERVES The calculated tonnage and grade of mineralization
which can be extracted profitably; classified as
possible, probable and proven according to the
level of confidence that can be placed in the
data.
ORESHOOT The portion, or length, of a vein or other
structure, that carries sufficient valuable
mineral to be extracted profitably.
OXIDATION A chemical reaction caused by exposure to oxygen
that results in a change in the chemical
composition of a mineral.
PARTICIPATING
INTEREST A company's interest in a mine, which entitles it
to a certain percentage of profits in return for
putting up an equal percentage of the capital cost
of the project.
PATENT The ultimate stage of holding a mineral claim in
the United States, after which no more assessment
work is necessary because all mineral rights have
been earned.
PATENTED MINING
CLAIM A parcel of land originally located on federal
lands as an unpatented mining claim under the
General Mining Law, the title of which has been
conveyed from the federal government to a private
party pursuant to the patenting requirements of
the General Mining Law.
PILLAR A block of solid ore or other rock left in place
to structurally support the shaft, walls or roof
of a mine.
PORPHYRY Any igneous rock in which relatively large
crystals, called phenocrysts, are set in a fine-
grained groundness.
PRECAMBRIAN SHIELD The oldest, most stable regions of the Earth's
crust, the largest of which is the Canadian
Shield.
PROSPECT A mining property, the value of which has not been
determined by exploration.
<PAGE> 23
PROVEN AND PROBABLE
MINERAL RESERVES Reserves that reflect estimates of the quantities
and grades of mineralized material at a mine which
the Company believes could be recovered and sold
at prices in excess of the cash cost of
production. The estimates are based largely on
current costs and on projected prices and demand
for such mineralized material. Mineral reserves
are stated separately for each such mine, based
upon factors relevant to each mine. Proven and
probable mineral reserves are based on
calculations of reserves provided by the operator
of a property that have been reviewed but not
independently confirmed by the Company. Changes in
reserves represent general indicators of the
results of efforts to develop additional reserves
as existing reserves are depleted through
production. Grades of ore fed to process may be
different from stated reserve grades because of
variation in grades in areas mined from time to
time, mining dilution and other factors. Reserves
should not be interpreted as assurances of mine
life or of the profitability of current or future
operations.
PROBABLE RESERVES Resources for which tonnage and grade and/or
quality are computed primarily from information
similar to that used for proven reserves, but the
sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower
than that for proven reserves, is high enough to
assume continuity between points of observation.
PROVEN RESERVES Resources for which tonnage is computed from
dimensions revealed in outcrops, trenches,
workings or drill holes and for which the grade
and/or quality is computed from the results of
detailed sampling. The sites for inspection,
sampling and measurement are spaced so closely and
the geologic character is so well defined that
size, shape, depth and mineral content of reserves
are well established. The computed tonnage and
grade are judged to be accurate, within limits
which are stated, and no such limit is judged to
be different from the computed tonnage or grade by
more than 20%.
RAISE A vertical or inclined underground working that
has been excavated from the bottom upward.
RAKE The trend of an orebody along the direction of its
strike.
<PAGE> 24
RECLAMATION The restoration of a site after mining or
exploration activity is completed.
RECOVERY The percentage of valuable metal in the ore that
is recovered by metallurgical treatment.
REPLACEMENT ORE Ore formed by a process during which certain
minerals have passed into solution and have been
carried away, while valuable minerals from the
solution have been deposited in the place of those
removed.
RESERVES That part of a mineral deposit which could be
economically and legally extracted or produced at
the time of the reserve determination. Reserves
are customarily stated in terms of "Ore" when
dealing with metalliferous minerals.
RESOURCE The calculated amount of material in a mineral
deposit, based on limited drill information.
RIB SAMPLES Ore taken from rib pillars in a mine to determine
metal content.
ROCKBOLTING The act of supporting openings in rock with steel
bolts anchored in holes drilled especially for
this purpose.
ROCKBURST A violent release of energy resulting in the
sudden failure of walls or pillars in a mine,
caused by the weight or pressure of the
surrounding rocks.
ROCK MECHANICS The study of the mechanical properties of rocks,
which includes stress conditions around mine
openings and the ability of rocks and underground
structures to withstand these stresses.
ROOM-AND-PILLAR
MINING A method of mining flat-lying ore deposits in
which the mined-out area, or rooms, are separated
by pillars of approximately the same size.
ROTARY DRILL A machine that drills holes by rotating a rigid,
tubular string of drill rods to which is attached
a bit. Commonly used for drilling large-diameter
blastholes in open pit mines.
ROYALTY An amount of money paid at regular intervals by
the lessee or operator of an exploration or mining
property to the owner of the ground. Generally
based on a certain amount per ton or a percentage
of the total production or profits. Also, the fee
paid for the right to use a patented process.
<PAGE> 25
RUN-OF-MINE A loose term used to describe ore of average
grade.
SAMPLE A small portion of rock or a mineral deposit,
taken so that the metal content can be determined
by assaying.
SECONDARY
ENRICHMENT Enrichment of a vein or mineral deposit by
minerals that have been taken into solution from
one part of the vein or adjacent rocks and
redeposited in another.
SHAFT A vertical or steeply inclined excavation for the
purpose of opening and servicing a mine. It is
usually equipped with a hoist at the top which
lowers and raises a conveyance for handling
personnel and materials.
SHEAR OR SHEARING The deformation of rocks by lateral movement along
numerous parallel planes, generally resulting from
pressure and producing such metamorphic structures
as cleavage and schistosity.
SHRINKAGE STOPING A stoping method which uses part of the broken ore
as a working platform and as support for the walls
of the stope.
SIDERITE Iron carbonate, which when pure, contains 48.2%
iron; must be roasted to drive off carbon dioxide
before it can be used in a blast furnace.
(Roasted product is called sinter.)
SKARN Name for the metamorphic rocks surrounding an
igneous intrusive where it comes in contact with a
limestone or dolomite formation.
SOLVENT EXTRACTION-
ELECTROWINNING
(SX/EW) A metallurgical technique, so far applied only to
copper ores, in which metal is dissolved from the
rock by organic solvents and recovered from
solution by electrolysis.
SPHALERITE A zinc sulfide mineral; the most common ore
mineral of zinc.
STEP-OUT DRILLING Holes drilled to intersect a mineralized horizon
or structure along strike or down dip.
STOCKPILE Broken ore heaped on the surface, pending
treatment or shipment.
<PAGE> 26
STOPE An underground excavation from which ore has been
extracted either above or below mine level.
STRATIGRAPHY Strictly, the description of bedded rock
sequences; used loosely, the sequence of bedded
rocks in a particular area.
STRIKE The direction, or bearing from true north, of a
vein or rock formation measured on a horizontal
surface.
STRINGER A narrow vein or irregular filament of a mineral
or minerals traversing a rock mass.
STRIPPING RATIO The ratio of tons removed as waste relative to the
number of tons of ore removed from an open pit
mine.
SUBLEVEL A level or working horizon in a mine between main
working levels.
SULFIDE A compound of sulfur and some other element.
TAILINGS Material rejected from a mill after more of the
recoverable valuable minerals have been extracted.
TAILINGS POND A low-lying depression used to confine tailings,
the prime function of which is to allow enough
time for heavy metals to settle out or for cyanide
to be destroyed before water is discharged into
the local watershed.
TREND The direction, in the horizontal plane, or a
linear geological feature (for example, an ore
zone), measured from true north.
TROY OUNCE Unit of weight measurement used for all precious
metals. The familiar 16-ounce avoirdupois pound
equals 14.583 Troy Ounces.
UNPATENTED
MINING CLAIM A parcel of property located on federal lands
pursuant to the General Mining Law and the
requirements of the state in which the unpatented
claim is located, the paramount title of which
remains with the federal government. The holder
of a valid, unpatented lode mining claim is
granted certain rights including the right to
explore and mine such claim under the General
Mining Law.
VEIN A mineralized zone having a more or less regular
development in length, width and depth which
clearly separates it from neighboring rock.
<PAGE> 27
VOLCANOGENIC A term used to describe the volcanic origin of
mineralization.
VUG A small cavity in a rock, frequently lined with
well-formed crystals. Amethyst commonly forms in
these cavities.
WALL ROCKS Rock units on either side of an orebody. The
hanging-wall and footwall rocks of an orebody.
WASTE Barren rock in a mine, or mineralized material
that is too low in grade to be mined and milled at
a profit.
WINZE An internal shaft.
ZONE OF OXIDATION The portion of an orebody that has been oxidized,
usually in the upper portion of the ore zone.
ITEM 2. MINERAL PROPERTIES
CHILEAN PROPERTIES
Mocha Copper Porphyry
The prospect was submitted in early 1997 to the Company through one
of the directors of the Company and a field exam was made by personnel
working in Argentina at the time. The decision to begin to acquire and
unitize the Mocha District was based on a number of factors. More than
50% of a known large porphyry system at Mocha is covered by Tertiary
gravels and ignimbrites (post-mineral cover). The best grade primary
and oxide copper, noted from surface sampling and drilling, is on the
west side of the prospect just before going under the post-mineral
cover. On average, the cover is believed to be less than 200 meters in
thickness. A large north-south trending aero-magnetic low anomaly west
of Mocha has never been tested by exploratory drilling. These
anomalies are often indicative of major copper porphyry systems.
Since 1995, several junior and major mining companies have held
positions and attempted unsuccessfully to make a deal on the claim
group held by the Escala family of Santiago, Chile. In April 1997, the
Oregon and Chilean Exploration Mining Company, staked 95 "pedimentos"
or exploration claims totaling 28,300 hectares and surrounding the
known Mocha District claims of the Escala Family and Conoco Minerals,
and including the large aeromagnetic low 5-7 kilometers west of Mocha.
The Company has been successful at consolidating the District.
Agreements were signed on June 23, 1997 and July 31, 1997 between
Company and the Escala and Oregon LTDA properties. Negotiations also
underway for the Conoco Minerals claims which are of lesser importance.
Approximately US$75,000 has been spent in land payments. An additional
US$75,000 has been spent in claim, legal fees, and geologic studies.
The entire and total purchase amount of the Escala property is
US$5,000,000 as follows:
<PAGE> 28
On signing US$ 50,000
6 months US$ 100,000
12 months US$ 160,000
18 months US$ 300,000
24 months US$ 300,000
30 months US$ 500,000
36 months US$ 800,000
48 months US$1,395,000
60 months US$1,395,000
Notwithstanding the preceding, should the Company exercise the option
to purchase within the terms of 48 months from the date of the option
to purchase contract, the price of said contract shall amount to
US$4,510,000 of which the unpaid balance shall be due in full at such
time. In addition to the purchase price stated herein above, the
Company will pay annually to the Sellers in equal parts an amount equal
to 2% of the net smelter return obtained by the beneficiary or its
cessionary as a result of the exploitation of any of the properties
which are acquired. The parties agree to negotiate, in good faith, an
amount for the N.S.R. buy-out which will become an integral part of the
option to purchase contract.
Under the terms of the agreement with the Oregon, LTDA, which was
signed on July 31, 1997, the Company can acquire a 100% interest in the
28,300 hectare claim block according to the following schedule:
On signing US$ 25,000
3 months US$ 25,000
6 months US$ 25,000
9 months US$ 25,000
12 months US$ 25,000
15 months US$ 25,000
18 months US$ 25,000
21 months US$ 25,000
36 months US$ 156,000
60 months US$ 500,000
72 months US$1,000,000
84 months US$1,000,000
96 months US$1,500,000
The Company is further obligated to spend $200,000 in work commitments
in the first three years.
Location and Access
The Mocha District is located in northern Chile and lies on the
19E48'30" south meridian at 69E16'30" west. This area is within Region
I of Chile, Province, Comuna de Huara. The prospect is approximately
100 kilometers east-northeast of the coastal city of Iquique and 60
kilometers west of the Bolivian border. Access is by paved and gravel
roads which requires about three hours to drive from Iquique via Huara.
The property lies along a southwesterly trending intermittent stream,
Tarapaca, at an average elevation of 2300 meters. The farming pueblo
of Mocha is located near the northeastern corner of the property.
<PAGE> 29
History of the Prospect
Prospect pits, shallow shafts, and small adits were driven into the
oxide copper showings at Mocha many years ago, probably pre-1940. The
first systematic exploration for porphyry-type mineralization was
carried out by the United Nations special fund mineral survey in late
1961 and 1962 and included geologic mapping, soil sampling, and six
shallow diamond drill holes.
Conoco Minerals, Inc., optioned the prospect in late 1980 and in
1981 conducted geology, geochemistry, and geophysics culminating in
core holes totaling nearly 5000 meters and three rotary holes totaling
approximately 850 meters. The United Nations and Conoco core drilling
activities outlined a mineralized resource of excess of two hundred
million tons with an overall grade of 0.4%-0.6% copper as a mixture of
primary sulfides, secondary sulfides, and oxides. Conoco personnel
recognized the importance of intense biotization hosting the primary
sulfides.
ASARCO optioned the property in 1995 and drilled thirty-three
shallow RVC (reverse circulation) angle holes within the previously
drilled and exposed area with the hope of increasing the
secondary-enriched copper resource. ASARCO was only able to delineate
a secondary enriched global resource approximately 41.9 million tons of
.51% copper. Some problems may have been encountered with ASARCO'S
drilling as assay results were lower than assays in adjacent core. No
attempt was made by ASARCO to discover higher grade primary sulfides,
oxide copper, or explore the vast covered area to the west.
Geology
The Mocha District is located within and on the west side of a
30-40 kilometer (19.25 mile) wide, north-south trending up-thrown block
of Mesozoic and Paleozoic rocks. This structural block extends at
least 500 km to the south and includes the El Abra and Chuquicamata
Districts. The block was uplifted in later Tertiary time offsetting
Tertiary gravels and ignimbrites believed to be 10-15 million years in
age. A major north-south fault zone locally known as the West Fissure
occupies an axial position within the Mesozoic-Paleozoic block.
The West Fissure is believed to have had a major component of net
left lateral displacement since Mesozoic time. The West Fissure, fails
to displace a 4.3 million year ignimbrite near Quebrada Blanca, and
therefore has been inactive since that time. Spatial regional
relationships suggest that the West Fissure, or its ancestral
equivalent, influenced the localization of the porphyry copper deposits
not only in the El Abra-Chuquicamata-Tesoro region, but also the
cluster of deposits in the Copaquiri-Quebrada Blanca-Collahuasi region.
The West Fissure is covered by gravels north of Copaquiri but also may
correspond to northerly trending structural zones near Cerro Colorado
and Mocha. The West Fissure also extends for several hundred
kilometers to the south of Chuquicamata. Therefore, the location of
several distinct regional clusters of porphyry copper deposits appear
to have been influenced by this important fault zone extending over a
strike length of at least 500 km (310 miles).
<PAGE> 30
In recent years, a more subtle east-west structural component has
also been recognized in several of the important porphyry copper
districts along the West Fissure trend. In the
Copaquiri-Quebrada-Collahuasi, Cerro Colorado, and Mocha Districts, the
overall trend of copper mineralization and/or the alignment of known
prospects appears to be at least in part east-west and partially offset
by north-south faults. The east-west controlling structure at Mocha
may extend as far to the east as the famous Potosi district in Bolivia.
Exploration Potential
The drilling programs in 1961 (United Nations), 1981 (Conoco), and
1995 (ASARCO), demonstrated that a large sulfide copper resource
(250,000,000 tons) of overall grade between 0.4% - 0.6% copper exists
mostly within intensive biotized rocks in the exposed portion of the
Mocha District.
A preliminary examination of existing data and subsequent field
work by the Company indicates that this large resource is only
partially exposed. The overall trend of better copper grades (above
0.4% Cu) appears to be 700 meters wide, trending east-west, with better
values of oxide and primary sulfides to the west, and heading under
post-mineral cover. A separate and distinct secondary sulfide zone is
also possible to the west, as is additional oxide copper. Also, a
large north-south trending aero-magnetic low is present on the
prospect, seven (7) kilometers west of Mocha. This anomaly could
represent another porphyry system or possibly a faulted extension of
Mocha.
A ground magnetic survey is recommended to further delineate this
anomaly. Additional geophysics, including gravity to help estimate the
thickness of the overburden, could be useful. An IP survey could aid
in delineating the extent of sulfides under the post-mineral cover.
However, even without geophysics at Mocha, a good drilling target
exists immediately west of the known porphyry-type mineralization.
The Company's geologists believe that the potential exists for the
discovery of a deposit in excess of 750 million tons at grades
exceeding 0.5% copper. This estimate is based on known data and
extrapolation of the size of the potential zone to the west and to
depth. This estimate is also in line with other major copper deposits
in Chile and to the south of Mocha within the same trend.
Subsequent to the end of the fiscal year end, on October 27, 1997
the Company signed a letter of intent with Teck Corporation of
Vancouver, British Columbia for a joint venture to explore and develop
the Mocha property. Although the final terms and conditions will be
more fully described in a final agreement which has not yet been
completed, the joint venture will involve an initial drilling phase to
be funded by Teck, followed by a series of staged investments by Teck
into the Company with 85% of the funds being used by the Company to
fund exploration at Mocha, followed by an earn-in to 60% by Teck for
funding all costs through bankable feasibility.
<PAGE> 31
MEXICAN PROPERTIES
The Company has acquired four formerly producing mines; the
Frazadas, Zopilote, Jabalina and Frazadas located in the El Zopilote
District, Nayarit, Mexico. The Company acquired the property from
Roberto Whetton, the owner of the previous operator of the mines,
Minera Nival. Under the terms of the acquisition the Company will
spend a minimum of $250,000 annually on exploration and/or development
until the mines are brought back into production. The Company will
then pay a 10% net profits royalty to Minera Nival to a maximum of
$5,000,000.
The Manantial Project consists of four concessions which total 458
hectares and is located 25 kilometers east of Ruiz, Nayarit, Mexico.
Ruiz is 200 kilometers south of Mazatlan and 150 kilometers north of
Puerto Vallarta. Tepic, the capital of Nayarit, is 65 kilometers south
of Ruiz.
Mining by the Indians pre-dates Spanish colonization. The Spanish
mined the area and developed a port at San Blas in conjunction with
their operation. A German company operated the mines and a smelter
from 1890 to 1910 when they shutdown due to the Mexican Revolution.
Production records indicate the Germans were mining high grade silver
ores grading 1.5 kilograms silver per tonne (about 45 ounces) and an
undisclosed amount of gold.
The mines are developed on silver, lead and zinc veins in andesite
volcanic rocks and which are named the Manantial, Zopilote, Jabalina
and Frazadas veins. The Minera Nival data indicate that reserves
sufficient to operate a profitable mining operation can be developed by
further exploration. The Company is now conducting an exploration
drilling program to develop the necessary reserves to re-open the
mines.
The Frazadas vein was being mined by Minera Nival and is developed
on two levels, with 100 meters between levels. The vein averages 3
meters in width and grades 14% zinc, 2% lead, and 3-5 ounces silver per
ton. The vein extends for a known strike of 400 meters and is open on
dip and on strike. The vein width and continuity make the vein
amenable to high productivity mechanized mining methods.
The Zopilote vein is southwest of and sub-parallel to the Frazadas.
The mine workings consist of a 160 meter deep shaft with several levels
developed, the extent of which are unknown. The German company records
indicate that high grade silver with some lead and zinc were mined, and
it appears that most of the early district production came from the
Zopilote. The Zopilote mine is inaccessible at this time and Minera
Nival did no work on the vein.
The Jabalina mine consists of a long drift developed on the strike
projection of the Zopilote vein. The workings are 300 meters
vertically below the Zopilote and terminate 600 meters from the down
dip projection of the Zopilote. The Germans were driving a drift to
develop the vein at a lower elevation, but never reached their target.
<PAGE> 32
They did mine on at least two other different veins within this trend.
While conducting exploration from the Jabalina tunnel, Minera Nival
sampled a one meter vein that assayed 0.19 ounces gold and 19.3 ounce
silver per ton. The Company believes that reserves can be developed by
extending the Jabalina drift 600 meters to the dip projection of the
Zopilote and evaluating this 300 by 600 meter block of ground by
drilling and raising. The Company also believes other targets may be
of interest within the Jabalina mine.
The Manantial vein consists of at least five veins averaging 1.5
meters in width and grading 13 to 20 ounces silver per ton with a good
gold credit. The mine is developed on two levels and is developed by
crosscuts from the surface. The mine is a complex of sub-veins of
varying strike and dip averaging 50 meters in length. Minera Nival
drilling indicates zones between the veins contain disseminated and
stock-work mineralization. The Manantial vein system will be explored
by drilling to determine if it is a stockwork vein system and its
potential.
In October 1997, the Company began a drilling program of the
project. Phase I of the drilling program consisted of drilling 5,000
feet of diamond core hole to test the downward projection of the
Frazadas vein. The Company has completed 80% of this program and is
now awaiting assay results. Upon receipt of results the Company will
evaluate them and geologists will recommend a further drilling program,
probably of about 8,000 feet of drilling if warranted. Phase II, if
executed, will consist of further drilling of the Frazadas and drilling
to test the Zopilote, Manantial, and Jabalina targets.
The Company has utilized its own Hagby 1,000 drill and drill crews
for the project and has drilled Phase I at a substantial savings in
operating costs compared to the use of a drilling contractor. The
program has proceeded very well and the crews obtained a rapid rate of
advance and achieved nearly 100% core recoveries.
The Company believes the El Zopilote District is a large mineral
system that may be part of a volcanic caldera complex. The geology of
the region is a favorable environment for volcanogenic massive
sulfides. Because of the favorable outlook for the region, the Company
has began negotiations to acquire a much larger nearby exploration
concession now owned by another company.
ARGENTINA PROPERTIES
In January 1997, the Company acquired an option to purchase twelve
separate mine claim groups in La Rioja Province, Argentina. Under the
terms of the option agreement, the Company can purchase the properties
on or before March 1, 2000 by the paying either $4.5 million in cash or
$5.5 million in the Company's common stock. The original owners will
retain a 1.9% net smelter return on future production. The Company is
required to spend $200,000 on the property prior to May 1, 1998, an
additional $300,000 prior to March 1, 1999 and an additional $400,000
prior to March 1, 2000.
<PAGE> 33
The acquisition includes 12 separate properties which have all been
advanced to the status of mines, meaning that the title to the mining
rights has been deeded. A brief description of the most advanced
properties, which are known as Veta Capricho and Salto de Albi is
included here. These properties are located at an average elevation of
about 10,000 feet above sea level.
Veta Capricho
The Veta Capricho prospect, located in the Los Metalitos gorge, was
acquired by the current owners in the early 1970's and has been held
for approximately 25 years. Access to the region is generally via
4-wheel drive vehicle from Jague. The final 15 mile route to the
prospect is currently undergoing improvement. This work is partially
being funded by the Company and partially funded by the government of
La Rioja Province.
The prospect appears to be a series of stacked siliceous sulfide
occurrences. The principal host rocks are quartz-schists, feldspathic
gneisses and lesser amphibolite of the Precambrian Espinal Formation.
Structure is dominated by a large north-south trending anticline,
parallel to the gorge. The principal zone can be traced on surface for
more than 6,000 feet in a south direction, ranges in thickness from 3
feet to more than 60, and dips to the west 30 degrees to 80 degrees.
Abundant oxide iron, copper and manganese stain define the at surface.
The massive to disseminated unoxidized metal mineralization,
principally seen in one short adit, consists of specular hematite,
bornite, chalcopyrite, galena and sphalerite. Quartz and possible
carbonate minerals are the gangue minerals. Thirteen samples taken by
Company personnel in January were located along approximately 1500 feet
of strike length of the prospect. These samples returned an average
grade of over 7.5% copper, 5% combined lead-zinc and 4 ounces per ton
silver.
In a detailed surface sampling program conducted by the Company's
personnel in April 1997, some 20 channel samples were collected which
averaged 1.75% copper, 6% combined lead-zinc and 2 ounces per ton
silver. The Company is seeking a joint venture partner to conduct a
diamond drilling programs to test the down-dip extension of this
promising zone.
Salto de Albi
The Salto de Albi porphyry copper system is located within the Albi
ravine. The complex is roughly oval in shape, 3,000 feet long in a
northeast direction, and 2,000 feet wide. Surface outcrops are
oxidized yellow and red-brown. Northeast-trending quartz-feldspar
porphyry dikes, as much as tens of feet in width, are common along the
northwest border of the complex. Copper-molybdenum mineralization
appears to be best defined near the quartz-feldspar porphyry dikes and
within intense potassically altered volcanic rocks. Historic sampling
in the vicinity of the porphyry dikes has indicated a near vertical
mineralized zone at surface exceeding 500 feet in width and 2500 feet
in length with overall copper grades possibly exceeding 1%, with
<PAGE> 34
associated tin, silver and molybdenum credits. Lower grade copper
values surround this higher grade zone. The Salto de Albi porphyry
system is believed to have the potential to host in excess of
100,000,000 tons of mineral resources. The Company is seeking a joint
venture partner to explore this project as well.
UNITED STATES PROPERTIES
Crescent Mine
In February 1995, Celebration Mining Company entered into an
agreement to acquire a mineral lease on the Crescent Mine. The
Crescent Mine is an underground mine, located in the Coeur d'Alene
Mining District of Shoshone County, Idaho, about five miles east of
Kellogg, Idaho.
Operations of the Crescent Mine began prior to 1917 and, according
to records available to the Company, approximately 25 million ounces of
silver have been produced from the Crescent Mine. The mine is not
currently in operation and is flooded to approximately the 1200 foot
level. The most current ore reserve report that the Company has been
able to obtain was prepared in 1985 by Norman A. Radford, a registered
professional geologist. That report, based on an assumption that
silver prices would remain below ten dollars ($10) per ounce, indicated
that the Crescent Mine contained 141,000 tons of probable reserves
averaging 31 ounces of silver per ton of mineralized material. At
current prices of under six dollars ($6.00), the Company cannot assure
that any of the mineralization could be mined at a profit.
Host rocks in the Crescent Mine, in common with the rest of the
District, are members of the Precambrian Belt Super Group. Within the
Crescent Mine area, three formations are present, in descending order:
Wallace, St. Regis, and Revett. The most favorable rocks in the
Crescent Mine are the Lower St. Regis and Upper Revett quartzites.
These rocks occur in the Crescent Mine from the 1,200-foot level
downward.
The Coeur d'Alene "Silver Belt" ore structures are frequently
narrow, fragmented, and sinuous, and have exhibited great vertical
continuity. For this reason, they have been discovered and mined at
levels deeper than is generally the case in other mining districts.
The ore at the Crescent Mine occurs in thin veins steeply dipping to
the south. These veins may vary in thickness from several inches to
several feet. The Alhambra and the Syndicate Faults are major reverse
faults and both are present in the Crescent Mine.
The Crescent Mine property consists of 12 patented mining claims,
nine unpatented claims, and two Idaho state leases located immediately
adjacent to and west of the world-famous Sunshine Mine owned by
Sunshine Mining Company (SSC-NYSE). The Sunshine Mine has produced
nearly 400 million ounces of silver since its inception, making it the
most productive primary silver mine in North America. The major
structural and stratigraphic features which have produced the major ore
deposits in the Sunshine Mine are also present in the Crescent Mine.
<PAGE> 35
The Crescent is developed to a vertical depth of 5,100 feet by two
vertical shafts. The majority of past production from the Crescent
Mine occurred in the Revett formation over 1,200 feet of dip between
the 3,100 level and the 4,300 level. In the mid-1980's, the No. 2
shaft was deepened to the 5,100 level, which opened an additional 800
feet of favorable Revett quartzites for development of the downward
extensions of the East Footwall and Hook veins, which have been the
most productive veins in the Crescent Mine.
The Company's plans to re-establish significant silver production
from the Crescent Mine will be dependent upon silver prices.
Management estimates that a price of at least $6.00 per ounce would
need to be sustained for a period of six months to justify the capital
investment necessary to de-water the lower workings of the mine and to
rehabilitate the stopes. At December 9, 1997, the Comex Spot price for
silver was $5.36. Absent a $6.00 silver price, the Company intends to
pursue development and exploration efforts in the upper Crescent. The
workings of the upper Crescent Mine are above the water table, and
therefore can be developed without major capital investment. The
Company believes that a processing agreement for Crescent ore can be
negotiated with the neighboring Sunshine Mine on a favorable basis.
During the 1996 fiscal year, the Company's field activities at the
Crescent Mine were limited to are unsuccessful attempt to re-open the
#3 level portal. The portal was filled with unconsolidated glacial
till and it was determined that a much more expensive program will be
required given the bad ground. Due to the low silver price, no attempt
to dewater the lower mine was contemplated during the 1997 fiscal year.
Further developments on the Crescent Mine for fiscal 1998 will depend
upon the price of silver, as well as the Company's available capital.
Conjecture Mine
In late August 1995, the Company completed two acquisitions which
included six patented and six unpatented mining claims comprising the
Conjecture Mine property.
The Conjecture property is located in the Lakeview Mining District
of Idaho, some 30 miles to the northwest of the Coeur d'Alene mining
district. The rock groups of the Lakeview District are the same
Precambrian belt series associated with the world-class silver deposits
of the Coeur d' Alene mining district to the south.
The history of the Lakeview District in general, and the Conjecture
Mine in particular, has shown sporadic high grade silver production
from shallow workings since the late 1800's. Most recent production on
a neighboring property occurred as recently as 1987. However, within
the District, only the Conjecture Mine itself has been developed to any
significant depth.
In the late 1950's and early 1960's, Federal Resources of Salt Lake
City, Utah invested approximately $3 million in shaft sinking and
underground development at the Conjecture Mine. In all, Federal
Resources completed a 2,000 foot deep, three compartment vertical shaft
<PAGE> 36
and nearly 12,000 feet of drifts, cross-cuts and raises to establish a
block of mineralized material of 336,000 tons at a grade of 11 ounces
per ton of silver, and .03 ounces of gold, with some lead and zinc.
An additional block of 370,000 tons of similar grade was listed as
a possible block of mineralization between the levels. Since obtaining
the property, the Company has not been able to re-confirm these reserve
estimates of mineralized material, although an independent reserve
report done in 1981 essentially verified the earlier numbers.
That independent reserve report was prepared by Richard W. Morris,
a registered professional geologist, for a company known as Minerals
Management, Inc. Nevertheless, no assurance can be made that this
mineralized material constitutes a proven or probable "ore reserve," if
at all, until it can be verified.
The Company's geologists have noted the striking similarities
between the Lakeview District and the nearby Coeur d'Alene District.
High grade silver mineralization has been shown to extend laterally for
over two miles, and vertically for over 3,000 feet in the Conjecture
Mine. The same rock unit sequence (i.e., Wallace, St. Regis, Revett)
is found in both districts, with the same important ore minerals
(tetrahedrite, galena, sphalerite) defining productive ore shoots.
However, within the Lakeview District, only the Conjecture shaft has
penetrated the less favorable Wallace formation into the better
quartzite units.
The Company did not conduct any exploration activities at the
Conjecture Mine during 1997 and absent a higher silver price, nothing
is contemplated for Fiscal Year 1998.
Vipont Mine
The Vipont Mine is located in the Ashbrook Mining District, a
remote area in the extreme northwestern corner of Box Elder County,
Utah, approximately ten miles east of the Nevada state line and one
mile south of the Idaho state line near the headwaters of the Little
Birch Creek. It is accessible by asphalt, gravel, and dirt roads. The
mine property consists of 53 patented (deeded) mining claims covering
nearly 1,000 acres with a 25% undivided interest owned by Celebration
Mining Company (a wholly-owned subsidiary of the Company.)
The Vipont Mine was at one time one of the foremost silver-
producing mines in the State of Utah. Its greatest period of activity
was from 1919 through mid-1923 after the passage of the Pittman Silver
Purchase Act ("Pittman Act") which authorized the purchase of
200,000,000 ounces of silver. The Mine closed in August 1923 with the
expiration of the Pittman Act after producing nearly 1,000,000 ounces
of silver per year. Some leasing was done in the 1930's and the Mine
was closed in 1942 when Congress passed War Order L-208 closing all
gold and silver mines. From 1977 through 1987, United Silver Mines
began further development and leached the old mill tailings.
<PAGE> 37
The mineralization in the Mine occurs predominantly as the mineral
argentite in the Vipont limestone. Two other units, the Phelan
limestone, and the Sentinel limestone have produced high-grade ore.
Neither the Phelan nor the Sentinel have been seriously explored for
additional ore.
The mineralization in the Vipont limestone occurs as a continuous
tabular "manto" mineralized body in the crests of folds (crenulations)
superimposed upon a shallowly dipping (22 degrees) syncline. The
continuity of the mineral down-dip has been shown by past mining
operations and by a line of drill holes below the old workings. It is
thought by geologists that the mineralization will continue to down-dip
toward an igneous intrusive 4,600 feet southwest of the old mine.
There are two distinct mineralized deposits on the Vipont Property:
the oxide deposit and the sulfide deposit. The characteristics of each
are unique and require different approaches to development and
exploration. According to a 1994 report by Dr. Armond H. Beers, the
oxide deposit contains 1,100,000 tons of mineralized material grading
6.9 ounces per ton in silver and with a small gold credit. The Company
has not independently re-verified those findings and cannot and does
not make any assurance as to their accuracy or compliance with
regulatory standards.
The sulfide deposit is currently defined in the Beers Report as
478,000 tons of mineralized material at an estimated average grade of
13.52 ounces per ton in silver. Geologic interpretation of the manto-
type replacement deposit, however, may establish upon further
exploration that this mineralized resource may be larger. The
Company's management and professional staff believe that the sulfide
deposits will represent the long-term future of the Vipont Mine.
During the 1996 fiscal year, the Company elected not to proceed
further with the Vipont joint venture, but as a result of the Company's
successful effort at removing all liens on the property at a Box Elder
County Sheriff's sale, the Company's wholly-owned subsidiary now owns
a 25% undivided interest in the property. The company has no plans to
proceed further with the Vipont joint venture until such time as silver
prices improve significantly.
Coeur d'Alene Syndicate Property.
No significant mineral production has to date occurred on the Coeur
d'Alene Syndicate property and there are no known proven or probable
reserves. In September 1995, the Company acquired fee simple ownership
of the 24 patented mining claims that comprise the Coeur d'Alene
Syndicate property, located in Burke Canyon some six miles northeast of
Wallace, Idaho. The property is near the eastern end of the Coeur
d'Alene mining district, and is an undeveloped portion of a major
mineralized trend running through the Star-Morning Mines and on to the
Frisco and Black Bear Mines.
<PAGE> 38
Geologists have long considered the Syndicate property to be an
outstanding exploration target where the highly productive Star fault
turns to the southwest and intersects the Commander fault. This
structural anomaly, occurring in favorable Revett and Burke formation
quartzite rocks is exactly what develops major ore shoots within the
Coeur d'Alene district.
The property is currently developed by an adit from the Black Bear
property, but could ultimately be accessed by deep shafts on either end
of the strike if agreements could be made with the respective companies
who own the Star and Frisco Mines. Subsequent to September 30, 1995,
the Company entered into an agreement with an independent timber
company to sell the mature timber for cash. The transaction was
expected to close in Fiscal 1996, but was not concluded as a timber
consultant recommended allowing the timber crop to achieve greater
maturity prior to harvesting. The Company plans to re-evaluate the
timber potential of the property during fiscal 1998.
Subsequent to the end of the Fiscal Year which ended on September
30, 1997, the Company sold the Coeur d'Alene Syndicate property along
with 3 additional patented claims and several unpatented claims to
Centurion Mines Corporation in exchange for 5 million shares of
Centurion common stock valued at .30 per share.
The Liberal King Mine.
In the fourth quarter of Fiscal 1995, the Company acquired fee
simple ownership of the Liberal King Mine, consisting of five patented
claims located southwest of the famous Bunker Hill Mine in the Pine
Creek area of the Coeur d'Alene Mining District. At the time the mine
was last operated by Spokane National in the 1960's, that company
reported a defined block of mineralized material totaling 81,000 tons
at 12% zinc and 2.5 ounces of silver. In the early 1980's, Cominco-
American conducted an exploration program on the Liberal King property
in search of a large, stratabound zinc-silver deposit. Such potential
has not been fully explored at this time. The Company has not been
able to evaluate this property as of the date of this filing, and no
current reserve estimates can be given.
Frisco Standard Silver Mine.
As of the first quarter of fiscal 1997, the Company has fully
divested itself of any ownership in the Frisco Standard Mine. In
September 1995, the Company had acquired fee simple ownership of the
seven patented claims that comprised this property.
New Departure Mine.
There are no known proven or probable reserves identified at the
New Departure Mine. In August 1995, the Company acquired a long term
mineral lease for the New Departure Mine in Beaverhead County, Montana.
This property is located in southeastern Montana near the town of
Bannock. The property consists of eight patented claims and has a
history of very high grade silver production. After an evaluation of
<PAGE> 39
the data on the property, and a field examination by Company personnel
and a consulting geologist, the decision was made in October 1997 to
drop the lease, and therefore all capitalized leasehold costs were
written off at September 30, 1997.
Utah Properties and Royalty Interests.
The Company is not currently involved in active exploration with
respect to any of the property holdings or royalty interests within the
Utah Gold Belt. During Fiscal 1997, the Company engaged an independent
geologist to evaluate the mineral potential of the Company's holdings.
Based upon his recommendations, the company dropped some property and
has held onto only claims and leases which are low-cost to hold and
evaluated as having some mineral merit. The Company does not anticipate
pursuing significant exploration activities on the Utah Gold Belt
properties during Fiscal 1998.
The "Utah Gold Belt" is a major mineralized north-south zone,
including the Oquirrh Mountain range, situated on the west side of the
Salt Lake valley. The Utah Gold Belt is close to Salt Lake City, and
major highways and railroads make up a well-developed infrastructure.
The Utah Gold Belt includes the well-known Bingham and Mercur mining
districts, plus smaller Ophir, Stockton, and Greeley districts.
The Utah Gold Belt has been a major producer of copper, gold,
silver, and other metals since the late 1800's. Discovery and
profitable production of new ore bodies has continued up to the present
time. Important new gold mines have been developed within the last
decade. Centurion Mines initiated a land acquisition program in 1987
and the Company subsequently purchased Utah Gold Belt properties
because management recognized that these properties had not been fully
explored and they offered some potential for the discovery of new gold
ore bodies.
The Company sold various Utah Gold Belt mining properties to
Kennecott Corporation during 1992, and has retained production royalty
interests on these properties. These properties are contiguous to or
near properties held previously by Kennecott in the Utah Gold Belt.
Management of the Company believed it was to the Company's
advantage to allow the ownership of these properties to pass to
Kennecott, with the Company retaining a production royalty interest.
The Company is not now receiving any royalties, and there is no
assurance that the Company will ever receive royalties from these
properties, and cannot predict the amount, if any, of such royalties.
The Company's land holdings in the Utah Gold Belt consist of Utah
State mineral leases, fee leases and unpatented lode mining claims
totaling over 5,000 acres. The Company did not undertake any
exploration efforts on these holdings during fiscal 1997 and does not
plan any activities during fiscal 1998.
<PAGE> 40
ITEM 3. LEGAL PROCEEDINGS
The Officers and Directors of the Company certify that to the best
of their knowledge, neither the Company nor any of its Officers and
Directors are parties to any legal proceeding or litigation. Further,
the Officers and Directors know of no threatened or contemplated legal
proceedings or litigation with the exception of the following:
(1) A threatened lawsuit by a disgruntled shareholder. The
Company believes that the shareholder's claims are spurious and
utterly without merit. In the event the shareholder initiates
an action against the Company and/or its officers and
directors, the Company intends to defend the same vigorously.
Further, the amount of the shareholder's claim is not material
to the operation of the Company's business.
(2) On December 22, 1997, the Company was advised that unless
the Company returned its 25% interest in the Vipont Mine and pay
$500,000 on or before January 5, 1998, Thomas F. Miller, James
Kontes and United Silver Mines, Inc., were going to file suit
against the Company, Celebration Mining Company and Howard Crosby,
the Company's President, in the First Judicial District Court in
and for Box Elder County, State of Utah to recover the Vipont Mine
together with incidental and consequential damages or in the
alternative, consequential, incidental and compensatory damages
together with punitive damages, costs and attorney's fees. Messrs.
Miller and Kontes and United Silver Mines allege that the Company
did not issue 2,000,000 shares which were due United Silver Mines
and James Kontes as part of the consideration for the acquisition
of the Vipont Mines. The Company believes the foregoing is totally
wihtout merit and the Company intends to defend vigorously any
action which might be initiated.
None of the Officers and Directors have been convicted of a felony or
none have been convicted of any criminal offense, felony and
misdemeanor relating to securities or performance in corporate office.
To the best of the knowledge of the Officers and Directors, no
investigations of felonies, misfeasance in office or securities
investigations are either pending or threatened at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May
29, 1997, the following proposals were voted upon and passed:
1. The election of six directors;
2. A proposal to amend the Company's Articles of Incorporation.
The proposed amendment would increase the authorized Common Stock of
the Company from 40,000,000 shares, par value $0.01 per share, to
100,000,000 shares of Common Stock, $0.01 par value per share;
<PAGE> 41
3. A proposal to amend the Articles of Incorporation to authorize
ten million shares of Preferred Stock, $0.01 par value per share, for
possible issuance from time-to-time and in such series and upon such
terms as shall be determined by the Board of Directors;
4. The appointment of Williams & Webster, Certified Public
Accountants, to audit the financial statements of the Company for the
year ending September 30, 1997; and,
5. To act upon such other matters as may properly come before the
meeting and any adjournment thereof.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common shares are traded on the OTC Bulletin Board
under the symbol RSMI. The prices listed below were obtained from the
National Quotation Bureau, Inc., and are the highest and lowest bids
reported during each fiscal quarter for the period December 31, 1994,
through September 30, 1997. These bid prices are over-the-counter
market quotations based on inter-dealer bid prices, without markup,
markdown, or commission and may not necessarily represent actual
transactions:
<TABLE>
Fiscal Quarter Ended High Bid($) Low Bid ($)
-------------------- --------- -----------
<S> <C> <C>
December 31, 1994 4.125 3.000
March 31, 1995 2.500 1.125
June 30, 1995 3.750 0.875
September 29, 1995 3.124 2.750
December 31, 1995 2.87 2.43
March 31, 1996 2.75 2.25
June 30, 1996 2.94 1.62
September 30, 1996 2.12 1.00
December 31, 1996 1.35 0.75
March 31, 1997 1.56 0.91
June 30, 1997 1.15 0.63
September 30, 1997 0.97 0.69
</TABLE>
On December 15, 1997, the average of the high bid and low ask
quotation for the Company's common shares as quoted on the OTC Bulletin
Board was $0.52.
The approximate number of holders of common stock of record on
December 15, 1997, was approximately 605.
<PAGE> 42
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included in the following table have
been derived from and should be read in conjunction with and are
qualified by the Company's financial statements and notes set forth
elsewhere in this report. Historical financial data for certain
periods may be derived from financial statements not included herein.
<TABLE>
<CAPTION>
September September September November
30, 1997 30, 1996 30, 1995 30, 1994
(Audited) (Audited) (Audited) (Audited)
<S> <C> <C> <C> <C>
Statement of Operations and
Accumulated Deficit Data:
Revenues $ 0 $ 0 $ 0 $ 0
Operating Expenses $ 1,558,823 $ 1,835,548 $ 962,735 $ 211,796
Net loss $(1,770,771) $(2,045,082) $ (962,735) $ (211,796)
Net Loss per share $ (0.14) $ (0.22) $ (0.15) $ (0.03)
Balance Sheet Data:
Work Capital
(Deficit) $ 671,355 $ 686,573 $ (665,274) $ 25,754
Total Assets $ 5,891,527 $ 5,605,357 $ 4,056,698 $ 366,620
Long-term Debt $ 0 $ 0 $ 0 $ 0
Stockholders'
Equity $ 5,850,186 $ 5,485,490 $ 3,235,376 $ 276,321
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
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 amounts of money on a property
before it is possible to determine whether 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
September 30, 1997, the Company accumulated a deficit of $4,828,528.
<PAGE> 43
At September 30, 1997, $4,915,579 of the Company's total assets of
$5,891,527 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 September 30, 1997, the Company had working capital of
$671,355. This amount is reasonably consistent with the working
capital position of $686,573 at September 30, 1996. In the year ending
September 30, 1997, the Company's working capital has decreased by
$15,218 primarily because of the expenditures for general and
administrative expenses, mining equipment, investments and debt
reduction exceeding the cash received from stock sales of $1,868,250.
During the same twelve month period, the Company's cash decreased from
$688,716 to $594,577.
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 $41,341 at September 30, 1997. The
Company has no long-term debt.
The Company has estimated that it will need minimal capital
resources of approximately $40,000 per month to meet its estimated
expenditures for fiscal 1998. Over the last two years, several key
members of management have met with experienced financial and
investment firms through out Europe and North America and negotiated
both tentative and actual arrangements for 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
<PAGE> 44
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.
As a result of negotiations in July and August 1997, the Company
reached a modified agreement with Oregon LTDA on one of the mining
properties in Chile. As part of this agreement, the Company can obtain
the mineral rights to this portion of the Mocha concession for
payments of $500,000 by July 31, 2002, $1,000,000 by July 31, 2003,
$1,000,000 by July 31, 2004, $1,500,000 by July 31, 2005, with Oregon
LTDA retaining no residual rights.
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities which provide its
personnel, office space, and equipment needs. The Company currently is
seeking alternate sources of working capital sufficient to increase the
funding of additional general and administrative expenses that may
become necessary as the Company's business plan develops, and to
continue meeting its ongoing payment obligations for its leases to
governmental entities.
RESULTS OF OPERATIONS
Comparison of the Year Ended September 30, 1996 and September 30, 1997,
respectively.
General and administrative expenses decreased from $1,835,548
during fiscal 1996 to $1,558,823 during fiscal 1997. This decrease is
principally due to reduced levels of consulting and compensation
expenditures on a year-to-year basis. Additionally, the Company's
write off of $238,887 of mineral properties associated with its
investment in the Bunker Hill Mine is roughly consistent with its write
off of $200,000 of mineral property in the preceding fiscal year. The
Company's net loss decreased from $2,045,082 to $1,770,711, while the
net loss per share increased from $0.22 to $0.14 per share.
<PAGE> 45
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Financial Statements
September 30, 1997 and 1996
<PAGE> 46
C O N T E N T S
Accountant's Audit Report . . . . . . . . . . . . . . . . . . F-1
Balance Sheets . . . . . . . . . . . . . . . . . . . . F-2 - F-3
Statement of Operations . . . . . . . . . . . . . . . . . . . F-4
Statement of Stockholders' Equity . . . . . . . . . . . F-5 - F-9
Statement of Cash Flows . . . . . . . . . . . . . . . F-10 - F-11
Notes to the Financial Statements . . . . . . . . . . F-12 - F-25
<PAGE> 47
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
ACCOUNTANT'S AUDIT REPORT
We have audited the accompanying balance sheet of Royal Silver Mines,
Inc. (a development stage company) as of September 30, 1997 and 1996,
and the related statements of operations, shareholders' equity, and
cash flows for the years then ended, and from inception on February 17,
1994 through September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
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, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended and
from inception on February 17, 1994 through September 30, 1997 in
conformity with generally accepted accounting principles.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
December 15, 1997
<PAGE> 47
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, September 30,
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 594,577 $ 688,716
Note receivable 100,000 100,000
Interest receivable 7,583 333
Prepaid expenses 10,536 17,391
----------- -----------
TOTAL CURRENT ASSETS 712,696 806,440
----------- -----------
MINERAL PROPERTIES 4,915,579 4,785,665
=========== ===========
PROPERTY AND EQUIPMENT
Mining equipment 188,888 -
Furniture and equipment 15,185 15,802
Less accumulated
depreciation (17,005) (2,809)
----------- -----------
TOTAL PROPERTY
AND EQUIPMENT 187,068 12,993
----------- -----------
OTHER ASSETS
Investments 70,000 -
Organization costs, net 6,184 259
----------- -----------
TOTAL OTHER ASSETS 76,184 259
----------- -----------
TOTAL ASSETS $ 5,891,527 $ 5,605,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-2
<PAGE> 48
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, September 30,
LIABILITIES AND 1997 1996
SHAREHOLDERS' EQUITY ------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 20,355 $ 25,135
Payable to related parties - 289
Accrued expenses 20,986 34,443
Notes payable - 60,000
----------- -----------
TOTAL CURRENT LIABILITIES 41,341 119,867
----------- -----------
LONG TERM DEBT - -
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
SHAREHOLDERS' EQUITY
Common stock,$.01 par value;
40,000,000 shares authorized,
13,482,232 and 10,649,854 shares
issued and outstanding,
respectively 134,822 106,499
Additional paid-in capital 10,543,892 8,436,808
Deficit accumulated during
development stage (4,828,528) (3,057,817)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 5,850,186 5,485,490
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,891,527 $ 5,605,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-3
<PAGE> 50
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>
Year Ended Year Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
REVENUES $ - $ -
----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property expense 31,378 8,122
Depreciation and amortization 44,625 35,736
Officers' and directors'
compensation 403,660 492,715
General and administrative 1,079,160 1,298,975
----------- -----------
Total expenses 1,558,823 1,835,548
----------- -----------
OPERATING LOSS (1,558,823) (1,835,548)
----------- -----------
OTHER INCOME (EXPENSES)
Interest income 31,025 -
Interest expense (2,257) (9,534)
Loss on disposition of assets (240,656) (200,000)
------------ -----------
Total other income (expense) (211,888) (209,534)
------------ -----------
NET LOSS $ (1,770,711) $ (2,045,082)
------------ ------------
NET LOSS PER COMMON SHARE $ (0.14) $ (0.22)
=========== ============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 12,305,987 9,221,191
=========== ===========
The accompanying notes are an integral part of these
financial statements.
F-4a
<PAGE> 51
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
Period From
Ten Months February 17,
Ended 1994 (Inception)
September 30, Through
1995 September 30, 1997
-------------- ------------------
<S> <C> <C>
REVENUES $ - $ -
----------- ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property expense 843 279,230
Depreciation and amortization 59,822 142,694
Officers' and directors'
Compensation 209,733 1,235,608
General and administrative 273,246 2,731,166
----------- ------------
Total expenses 543,644 4,388,698
----------- ------------
OPERATING LOSS (543,644) (4,388,698)
----------- ------------
OTHER INCOME (EXPENSES)
Interest income - 31,025
Interest expense (62,557) (74,348)
Loss on disposition of assets (144,738) (346,507)
----------- ------------
Total other income (expense) (207,295) (389,830)
----------- ------------
NET LOSS $ (750,939) $ (4,778,528)
----------- ------------
NET LOSS PER COMMON SHARE $ (0.12) $ (0.64)
=========== ============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 6,342,816 7,426,608
=========== ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-4b
<PAGE> 52
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
----------- -----------
<S> <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
Issuance in July 1994 of
shares for cash at $.402
in private placement, net
of costs 1,050,000 10,500
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $.417 per share 150,000 1,500
Net loss for the year ended
November 30, 1994 - -
--------- --------
Balance,
November 30, 1994 3,450,000 34,500
Issuance of shares in debt
offering at $.03 per share 416,250 4,163
Issuance of shares for
mineral properties valued
at $1.00 per share 262,500 2,625
Issuance of shares for cash
at $1.00 per share 15,000 150
Stock issuance costs - -
--------- --------
Balance forward 4,143,750 $ 41,438
--------- --------
The accompanying notes are an integral part of these
financial statements.
F-5a
<PAGE> 52
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Deficit Stockholders'
Capital Accumulated Equity
<S> <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 (18,500) - 4,000
Issuance in July 1994 of
shares for cash at $.402
in private placement, net
of costs 411,116 - 421,616
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $.417 per share 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - (211,796) (211,796)
--------- ---------- ----------
Balance,
November 30, 1994 453,616 (211,796) 276,320
Issuance of shares in debt
offering at $.03 per share 9,712 - 13,875
Issuance of shares for
mineral properties valued
at $1.00 per share 259,875 - 262,500
Issuance of shares for cash
at $1.00 per share 14,850 - 15,000
Stock issuance costs (58,202) - (58,202)
--------- ----------- ----------
Balance forward $ 679,851 $ (211,796) $ 509,493
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-5b
<PAGE> 54
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<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
$.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> 55
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Deficit Stockholders'
Capital Accumulated Equity
------------- ------------ -------------
<S> <C> <C> <C>
Balance forward $ 679,851 $ (211,796) $ 509,493
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$.15 per share 335,750 - 360,096
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to $2.50
per share 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13
to $3.25 per share 2,530,126 - 2,538,126
Issuance of shares for cash
at prices ranging from $1.50
to $2.00 per share 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 298,000 - 300,000
Net loss for the ten
months ended September
30, 1995 - (750,939) (750,939)
----------- ---------- -----------
Balance,
September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376
----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-6b
<PAGE> 56
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
------------ ----------
<S> <C> <C>
Balance forward 7,757,063 $ 77,571
Issuance of shares for
cash at $1.50 per share 1,176,832 11,769
Issuance of shares to
directors and employees
for services at $1.50
per share 222,700 2,227
Issuance of shares in
exchange for debt at $1.50
per share 406,050 4,060
Issuance of shares for cash
at $2.20 per share 150,000 1,500
Issuance of warrants for cash
at $.05 per warrant - -
Issuance of shares for cash
at $1.62 per share 65,000 650
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 107,500 1,075
Issuance of shares for cash at
$0.75 per share 200,000 2,000
Issuance of shares for cash at
$1.70 per share 250,000 2,500
---------- ---------
Balance forward 10,335,145 $ 103,352
---------- ---------
The accompanying notes are an integral part of these
financial statements.
F-7a
<PAGE> 57
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Deficit Stockholders'
Capital Accumulated Equity
----------- ------------ -------------
<S> <C> <C> <C>
Balance forward $ 4,120,540 $ (962,735) $ 3,235,376
Issuance of shares for
cash at $1.50 per share 1,754,010 - 1,765,779
Issuance of shares to
directors and employees
for services at $1.50
per share 331,823 - 334,050
Issuance of shares in
exchange for debt at $1.50
per share 605,015 - 609,075
Issuance of shares for cash
at $2.20 per share 328,500 - 330,000
Issuance of warrants for cash
at $.05 per warrant 41,068 - 41,068
Issuance of shares for cash
at $1.62 per share 104,650 - 105,300
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 181,175 - 182,250
Issuance of shares for cash at
$0.75 per share 147,985 - 149,985
Issuance of shares for cash at
$1.70 per share 422,500 - 425,000
----------- --------- -----------
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-7b
<PAGE> 58
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<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 of Centurion Mines
for option to repurchase
stock - -
Issuance of shares for joint
venture in mining property
at $1.50 per share 100,000 1,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (25,000) (250)
Issuance of shares for
mining property at
$1.50 per share 20,000 200
Issuance of shares for
noteholders for
extension of notes at
$1.50 per share 39,375 394
Issuance of shares for
services at $1.50 per share 215,334 2,153
Stock issuance costs - -
Net loss for the year
ended September 30, 1996 - -
---------- -----------
Balance,
September 30, 1996 10,649,854 $ 106,499
---------- -----------
The accompanying notes are an integral part of these
financial statements.
F-8a
<PAGE> 59
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Deficit Stockholders'
Capital Accumulated Equity
----------- ------------ ------------
<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 of Centurion Mines
for option to repurchase
stock - (50,000) (50,000)
Issuance of shares for joint
venture in mining property
at $1.50 per share 149,000 - 150,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (34,750) - (35,000)
Issuance of shares for
mining property at
$1.50 per share 29,800 - 30,000
Issuance of shares for
noteholders for
extension of notes at
$1.50 per share 58,669 - 59,063
Issuance of shares for
services at $1.50 per share 320,848 - 323,001
Stock issuance costs (15,000) - (15,000)
Net loss for the year
ended September 30, 1996 - (2,045,082) (2,045,082)
----------- ----------- -----------
Balance,
September 30, 1996 $ 8,436,808 $(3,057,817) $ 5,485,490
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-8b
<PAGE> 60
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
A Development Stage Company
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<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 110,500 1,105
at $0.75 per share 25,000 250
Issuance of shares for services
at $1.25 per share 98,250 982
Payment for extension of warrants
for one year - -
Issuance of shares for mining
property at $1.00 per share 60,000 600
Cancellation of 25,000 shares
received in exchange for
return of mining property (25,000) (250)
Issuance of shares for services:
at $1.00 per share 25,500 255
at $0.75 per share 47,128 471
Payment for extension of warrants
for one year - -
Net loss for the year ended
September 30, 1997 - -
---------- ---------
Balance, September 30, 1997 13,482,232 $ 134,822
========== =========
The accompanying notes are an integral part of these
financial statements.
F-9a
<PAGE> 61
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders Equity, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
A Development Stage Company
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
---------- ------------ ------------
<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 109,395 - 110,500
at $0.75 per share 18,500 - 18,750
Issuance of shares for services
at $1.25 per share 121,829 - 122,811
Payment for extension of warrants
for one year 3,000 - 3,000
Issuance of shares for mining
property at $1.00 per share 59,400 - 60,000
Cancellation of 25,000 shares
received in exchange for
return of mining property (81,000) - (81,250)
Issuance of shares for services:
at $1.00 per share 25,245 - 25,500
at $0.75 per share 34,875 - 35,346
Payment for extension of warrants
for one year 2,500 - 2,500
Net loss for the year ended
September 30, 1997 - (1,770,711) (1,770,711)
------------ ------------ -----------
Balance, September 30, 1997 $ 10,543,892 $ 4,828,528 $ 5,850,186
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-9b
<PAGE> 62
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)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
September 30, September 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,770,711) $ (2,045,082)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 44,625 35,736
Issuance of common stock
for services 312,907 657,051
Write off of joint venture costs - 150,000
Changes in assets and liabilities:
Note receivable - (100,000)
Interest receivable (7,250) (333)
Prepaid expenses (19,040) (13,041)
Other assets (6,000) 19,836
Accounts payable (4,780) (34,891)
Accrued expenses (13,457) (55,645)
Payable to related parties (289) -
------------ ------------
Net cash provided (used)
in operating activities (1,463,995) (1,386,369)
------------ ------------
Cash flows from investing activities:
Purchase of investments (70,000) -
Purchase and development
of mineral properties (151,164) (979,043)
Purchase of fixed assets (193,230) (4,173)
Sale of fixed assets 500 -
------------ ------------
Net cash provided (used)
in investing activities (413,894) (983,216)
------------ ------------
Cash flows from financing activities:
Stock issuance and offering costs (30,000) (15,000)
Proceeds received on long-term debt - -
Payments made on notes payable (60,000) (40,000)
Issuance of common stock for cash 1,868,250 2,958,314
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 or
warrants extensions for cash 5,500 41,068
------------ ------------
Net cash provided by financing activities 1,783,750 2,906,603
------------ ------------
Net increase (decrease) in cash $ (94,139) $ 537,018
------------ ------------
The accompanying notes are an integral part of these
financial statements.
F-10a
<PAGE> 63
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)
STATEMENTS OF CASH FLOWS
From
02/17/94
For the Ten (Inception)
Months Ended Through
09/30/95 09/30/97
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (750,939) $(4,778,528)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 59,822 145,241
Issuance of common stock for services 29,600 1,062,058
Write off of joint venture costs - 150,000
Changes in assets and liabilities:
Note receivable - (100,000)
Interest receivable - (7,583)
Prepaid expenses 22,627 (36,431)
Other assets (23,137) (9,801)
Accounts payable 53,727 20,355
Accrued expenses 90,088 20,986
Payable to related parties 300,289 300,000
---------- -----------
Net cash provided (used) in
operating activities (217,923) 3,233,703
Cash flows from investing activities:
Purchase of investments - (70,000)
Purchase and development of mineral properties (455,418) (1,756,000)
Purchase of fixed assets (11,629) (209,032)
Sale of fixed assets - 500
---------- -----------
Net cash provided (used)
in investing activities (467,047) (2,034,532)
Cash flows from financing activities:
Stock issuance and offering costs (58,202) (174,835)
Proceeds received on long-term debt 675,000 675,000
Payments made on notes payable (74,206) (174,206)
Issuance of common stock for cash 264,000 5,528,064
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 or warrants
extensions for cash - 46,568
---------- -----------
Net cash provided by financing activities 806,592 5,862,812
---------- -----------
Net increase (decrease) in cash $ 121,622 $ 594,577
---------- -----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-10b
<PAGE> 64
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)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
September 30, September 30,
1997 1996
-------------- --------------
<S> <C> <C>
Net decrease in cash
(balance forward) $ (94,139) $ 537,018
Cash, beginning of period 688,716 151,698
--------- ---------
Cash, end of period $ 594,577 $ 688,716
========= =========
Supplemental cashflow disclosure:
Income taxes $ - $ -
Interest $ 2,257 $ 5,715
Non-cash financing activities:
Common stock issued for
services rendered $ 312,907 $ 657,051
Common stock issued for
mineral properties $ 60,000 $ 180,000
Common stock issued for
exchange for debt $ - $ 570,917
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. $ - $ -
Option rights acquired in
exchange for a payable $ - $ -
Common stock issued for
assignment of mining
property options $ - $ -
The accompanying notes are an integral part of these
financial statements.
F-11a
<PAGE> 65
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)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Ten From
Months February 17,
September 30, Through
1995 September 30, 1997
------------- ------------------
<S> <C> <C>
Net decrease in cash
(balance forward) $ 121,622 $ 594,577
Cash, beginning of period 30,076 -
------------ -------------
Cash, end of period $ 151,698 $ 594,577
============ =============
Supplemental cashflow disclosure:
Income taxes $ 250 $ 350
Interest $ 17,683 $ 25,655
Non-cash financing activities:
Common stock issued for
services rendered $ 29,600 $ 1,062,058
Common stock issued for
mineral properties $ 2,800,626 $ 3,040,626
Common stock issued for
exchange for debt $ 313,875 $ 922,950
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. $ - $ 360,096
Option rights acquired in
exchange for a payable $ 360,096 $ 79,000
Common stock issued for
assignment of mining
property options $ - $ 4,000
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-11b
<PAGE> 66
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 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 $4,915,579 cost of mineral properties included in the accompanying
balance sheet as of September 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> 67 ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 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.
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.
F-13
<PAGE> 68
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Risk
The Company maintains its cash accounts in primarily one commercial
bank in Washington. Accounts are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. The Company's cash
balance exceeds that amount by $494,577 at September 30, 1997.
Investments
Investments consist of shares of Metalline Mining Company and are
stated at cost that does not exceed estimated net realizable value.
Provision For Taxes
At September 30, 1997, the Company had net operating loss carry
forwards of approximately $4,600,000 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 carry forwards will expire unused.
Accordingly, the potential tax benefits of the net operating loss carry
forwards 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 reviews its long-
lived assets quarterly to determine if any events or changes in
circumstances have transpired which indicate that the carrying value of
its assets may not be recoverable. The Company does not believe that
any adjustment is needed to the carrying value of its assets at
September 30, 1997.
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. The
Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.
F-14
<PAGE> 69
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation
The financial statements include those of Royal Silver Mines, Inc. and
Celebration Mining Company. All significant intercompany accounts and
transactions have been eliminated. The financial statements are not
considered consolidated statements since Royal Silver Mines, Inc. was
the successor by merger to Celebration Mining Company.
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United )
entered into a joint venture agreement, whereby Celebration could have
acquired up to an 80% interest in a mining property located in the
State of Utah. Under the terms of the agreement, United was to
contribute real properties for an initial 75% interest in the joint
venture, and Celebration was to remove all liens associated with the
real properties by paying $175,000 to a bank which was the primary lien
holder for its initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned promissory
note. The property was auctioned in a public auction in May, 1995 and
by virtue of Celebration's first position lien, Celebration was able to
successfully bid the full amount of the underlying promissory note.
Although additional expenditures have been made on the property through
September 30, 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
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 unpatented claims. In connection with this lease,
Celebration has 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 was originally
obligated to pay $950,000 by September 1, 1995, as "an advance
royalty". The original due date was extended and the Company paid the
aforementioned $950,000 and has the option of extending its lease for
an additional forty-nine years. When, and if, the property achieves
gross sales of $40,000,000, Celebration will be obligated to pay an
additional 0.5% royalty on future sales. Furthermore, beginning after
September 1, 1995, and at such time as the average price of silver has
F-15
<PAGE> 70
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
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. At September 30, 1997, due to silver prices not yet
reaching the threshold price of $6.00 per ounce, the Company had not
expended any funds on mine renovation.
Australian Mineral Property Joint Venture
In March 1995, Celebration entered into a joint venture agreement with
an Australian company for exploration of a certain mineral property in
Australia. Under the original terms of the joint venture agreement,
Celebration could acquire up to a 10% interest by paying $100,000 in
April 1995. No additional funds were paid or required to be paid
subsequent to the initial payment.
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.
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.
F-16
<PAGE> 71
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
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. See Note 13 for related information
on options with OCEM and Escala.
Argentina Properties
On February 10, 1997 the Company announced that it had 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. See Note 13 for additional information
on the underlying option.
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 September 30, 1997, a total of $37,017 had been expended to explore
and develop the aforementioned Mexican properties.
The Company's proposed future mining activities will be subject to laws
and regulations controlling not only the exploration and mining of
mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may necessitate
additional capital outlays, affect the economics of a project, and
cause changes or delays in the company's activities. The total mineral
properties at September 30, 1997 are classified as follows:
Mineral properties under joint ventures $ 366,510
Other mineral properties 4,570,319
-----------
Total Mineral Properties $ 4,936,829
===========
The Company's mineral properties are valued at the lower of cost or net
realizable value.
F-17
<PAGE> 72
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
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
September 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
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.
F-18
<PAGE> 73
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 7 - COMMON STOCK (Continued)
The Company issued 200,000 shares of its common stock during the year
ended September 30, 1995 in lieu of outstanding debt that was owed to
Centurion Mines Corporation (Centurion), a related entity. The stock
was issued at $1.50 per share in payment of $300,000 of the then
outstanding debt (See Note 11). The Company also issued 277,500 shares
in connection with the issuance of notes payable (See Note 8). (See
also the disclosure in Note 1.)
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 13).
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 lieu 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 is the fair market value of the
shares at the date of issuance. In the year ended September 30, 1997,
the Company issued 306,378 shares of its common stock for services
received. The shares were valued at their fair market value at the
dates of issuance which ranged from $0.75 to $1.25 per share.
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 September 30, 1997, 12,750 shares of
common stock have been awarded under the Plan.
F-19
<PAGE> 74 ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 8 - 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 September 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.
On March 22, 1996, the Board of Directors approved the issuance of
warrants to purchase 625,000 shares of common stock of the Company to
an investor 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, 1998 at prices
ranging from $2.50 to $2.625 per share. As of September 30, 1997,
320,666 warrants have been issued (but not exercised) for a total
amount of $46,568.
In the quarter ending March 31, 1997, the Company sold 2,491,000
"units" to unaffiliated investors as part of a private placement of
stock. Each unit consisted of a share of the Company's common stock
and one warrant enabling the investor to purchase one additional share
of common stock for a purchase price of $1.25 per share during the next
two years. At September 30, 1997, none of the warrants had been
exercised.
NOTE 9 - COMPANY STOCK OPTION AND AWARD PLAN
The Company has a stock-based compensation plan whereby the Company's
board of directors may grant common stock to its employees and
directors. At September 30, 1997, no options have been granted under
the plan. Of the total of 1,064,650 common stock shares authorized for
issuance under the plan, 110,500 shares valued at $1.00 per share were
issued to employees and directors during the twelve months ended
September 30, 1997.
F-20
<PAGE> 75
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 10 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at September
30, 1997 and September 30, 1996:
September 30, September 30,
1997 1996
Applicable to:
Common stock $ 10,497,324 $ 8,395,740
Stock warrants 46,568 41,068
------------ -----------
$ 10,543,892 $ 8,436,808
============ ===========
NOTE 11 - 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. This amount was paid off in the quarter
ending March 31, 1997. 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 12 - 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
7). The balance outstanding at September 30, 1997 was $0.
F-21
<PAGE> 76
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 13 - FUTURE LEASE OBLIGATIONS
The Company is obligated under its lease arrangements to make lease
payments subsequent to September 30, 1997 as follows:
Year Ended
September 30, Amount
------------- --------
1998 $ 13,869
1999 262
2001 -
2001 and thereafter -
--------
Total $ 14,131
========
NOTE 14 - OPTIONS INVOLVING MINING PROPERTIES
Option With Placer Mining
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a sliver-
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 for the nonassignable option of acquiring a 100% interest in The
Bunker Hill Mine. In the second agreement, the Company paid $100,000
in September 1996 for the nonassignable option of acquiring a 100%
interest in the Bunker Hill Mine. In order to exercise this option,
the Company must issue 500,000 shares of its common stock to Placer by
May 10, 1997 and pay Placer either $7,000,000 by that date or
$4,000,000 by that date and $3,500,000 by May 10, 1998. Under the
terms of this agreement, the Company will pay Placer a 2 3/4% net
smelter return royalty in perpetuity with stipulated annual advance
minimum royalty payments to Placer ranging form $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-22
<PAGE> 77
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 14 - OPTIONS INVOLVING MINING PROPERTIES (Continued)
Option with Oregon and Chilean Exploration Mining Company, LTDA
In June 1997, the Company executed an agreement with Oregon and Chilean
Exploration Mining Company, LTDA (hereinafter "OCEM") whereby the
Company acquired an option from OCEM to purchase a 100% interest in 95
exploration claims totaling 28,300 hectares surrounding the known Mocha
District claims of the Escala family. The option agreement calls for
stipulated, sequential cash option payments over an eight-year time
frame. At September 30, 1997, the Company has expended $50,000 of the
total $3,356,000 option purchase cost.
Remaining option payments are as follows: six successive quarterly
payments of $25,000 each by April 30, 1999; $156,000 in July 2000;
$500,000 in July 2002; $1,000,000 in July 2003 and again in July 2004;
and $1,500,000 in July 2005.
In addition to the aforementioned purchase cost, the Company is
obligated to spend $200,000 in work commitments before August 1, 2000.
At September 30, 1997, the Company had expended $10,000 in work
commitments on this optioned property.
Option With Escala Family
In July 1997, the Company executed an agreement with the Escala family
of Santiago, Chile whereby the Company acquired an option from the
Escalas to purchase a 100% interest (less a 2% net smelter return
royalty) in a mining property in the Mocha District in northern Chile.
The option agreement calls for stipulated, sequential cash option
payments over a five-year time frame. At September 30, 1997, the
Company has expended $50,000 of the total $5,000,000 option purchase
price.
Remaining option payments are as follows: $100,000 in January 1998;
$160,000 in July 1998; $300,000 in January 1999 and again in July 1999;
$500,000 in January 2000; $800,000 in July 2000; $1,395,000 in July
2001 and again in July 2002.
Option in La Rioja Province, Argentina
In January of 1997, the Company acquired an option to purchase twelve
separate mine claims in La Rioja Province, Argentina. Under the terms
of the option agreement, the Company can purchase the properties on or
before March 1, 2000 by the payment of $4,500,000 in cash or $5,500,000
of the Company's shares of common stock. The original owners are to
retain a 1.95% net smelter return royalty on future production.
F-23
<PAGE> 78
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 14 - OPTIONS INVOLVING MINING PROPERTIES (Continued)
In addition to the aforementioned purchase cost, the Company is
obligated to spend the following funds as work commitments on the
optioned property: $200,000 prior to May 1, 1998; $300,000 prior to
March 1, 1999; and $400,000 prior to March 1, 2000. At September 30,
1997, the Company had expended $114,341 in work commitments on the
optioned property.
NOTE 15 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an option
from Centurion to purchase up to 800,000 shares of its common stock
held by Centurion for the exercise price of $1.75 per share during the
two-year period ending September 30, 1998. The cost of this two-year
stock purchase option was $50,000 which was paid by the Company and
charged to stockholders' equity (accumulated deficit).
Effective April 15, 1997, the aforementioned stock option agreement was
renegotiated (at no cost to the Company) and amended to extend the
exercise period until September 30, 1999 and to revise the exercise
price to $1.50 per share during this same period.
At September 30, 1997, no shares were acquired from Centurion under
this option agreement.
NOTE 16 - SUBSEQUENT EVENTS
Letter of Intent with Teck Exploration Ltd.
On October 27, 1997, the Company signed a letter of intent with Teck
Corporation (dba Teck Exploration Ltd.) of Vancouver, B.C. to jointly
explore and develop the Mocha porphyry copper prospect in region I of
northern Chile. The agreement contemplates an initial drilling program
funded by Teck.
The agreement also contemplates that Teck will receive the option to
purchase 1,200,000 "units" from Royal at a price of $.75 per unit.
Each unit will consist of: (a) one share of Royal's common stock; (b)
one A warrant exercisable at a price of $1.50 within twelve months; and
(c) one B warrant exercisable within two years at market price less
allowable discounts.
The agreement further provides that 85% of the proceeds from the units
will be used to explore the aforementioned Mocha property and that Teck
may earn a 60% interest in the property.
F-24
<PAGE> 79
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1997
NOTE 16 - SUBSEQUENT EVENTS (continued)
Prospective Combination (Merger) with Centurion Mines Corporation
On November 24, 1997, Royal and Centurion Mines Corporation,
headquartered in Salt Lake City, announced plans to combine the two
companies. Centurion is a significant owner of gold, silver, and
copper mining properties in Utah.
As a first stage in the combination of the companies, Centurion will
quickly purchase certain Coeur d'Alene silver properties plus other
patented mining properties presently owned by Royal for Centurion
shares presently valued at $1,500,000.
The companies will retain an investment banker to provide valuation of
the assets of the two companies and to prepare a fairness opinion as a
basis for the specific share exchange ratio.
F-25
<PAGE> 80
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
A. Changes or disagreements with Principal Accountant. There have
been no disagreements with the Company's independent public
accountants.
B. Change in Principal Accountant. As a result of increased activity
at its executive office in Spokane, the Company changed the
engagement of its principal independent accountant to audit its
financial statements. The former principal accountant, Jones,
Jensen & Company, was replaced by Williams & Webster, P.S. as
principal independent accountant. This decision was not based on
any disagreement between the Company or Jones, Jensen and Company
nor was it based on any information that would have led Jones,
Jensen and Company to resign or decline to stand for reelection.
Jones, Jensen and Company's report on the financial statements of
the Company at September 30, 1995 did not contain an adverse
opinion or a disclaimer of opinion, nor was its report qualified as
to uncertainty, audit scope, or accounting principles. During the
period described above and up through September 30, 1995, for the
period preceding such dismissal:
(1) The Company had no disagreements with Jones, Jensen and
Company on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or
procedure;
(2) Jones, Jensen and Company did not advise the Company that the
internal controls necessary for the Company to develop
financial statements do not exist;
(3) Jones, Jensen and Company did not advise the Company of any
information leading Jones, Jensen and Company to be unable to
rely on management's representations, or unwilling to be
associated with the financial statements prepared by
management;
(4) Jones, Jensen and Company did not advise the Company of any
need to significantly expand the scope of its audit, or of
any information that may or would (i) materially affect the
fairness or reliability of, or prevent it from rendering an
unqualified opinion regarding, its audit report or any of the
underlying financial statements, or (ii) cause Jones, Jensen
and Company to be unwilling to rely on management's
representations or be associated with the Company's financial
statements; and
(5) Jones, Jensen and Company did not, as a result of its
dismissal, expand its audit or conduct any investigation of
information that came to its attention of the type referred
to above in subparagraph (4), or have any issues that were
unresolved to its satisfaction prior to dismissal.
<PAGE> 81
The Company has provided Jones, Jensen and Company with a copy of
the above disclosures in a timely manner and requested and received
from Jones, Jensen and Company a letter addressed to the Commission
stating Jones, Jensen and Company's agreement with these
disclosures. A copy of such letter is attached to this
registration statement and filed as Exhibit 16.2.
C. Designation of New Accountant. The Company has designated the
continuing services of the accounting firm of Williams and Webster,
P.S. to serve as principal independent accountant for the Company
effective November 8, 1996. During the period of Jones, Jensen and
Company engagement as principal independent accountant and up to
November 8, 1996, prior to designating Williams and Webster, P.S.
as principal accountant:
(1) Neither the Company nor any person or entity acting on its
behalf has consulted Williams and Webster, P.S. regarding the
application of accounting principles to any specified
transaction, or the type of audit opinion that might be
rendered on the Company's financial statements, or any matter
characterized as a "disagreement" or "reportable event" (as
defined by Regulation S-K, Item 304(a)(1)(iv) and (v)); and
(2) Williams and Webster, P.S. did not provide the Company with
either a written report or oral advice containing any
conclusions by Williams and Webster, P.S. of any important
factors considered by the Company in reaching a decision as
to any accounting, auditing, or financial reporting issues.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and position of each
Officer and Director of the Company:
Name Age Position
Howard M. Crosby 45 President and a member of the Board of
Directors
Robert E. Jorgensen 44 Executive Vice President, Treasurer and a
member of the Board of Directors
John Ryan 35 Vice President of Corporate Development
and a member of the Board of Directors
Thomas Henricksen 50 Secretary and a member of the Board of
Directors
Jerry Stacey 52 Vice President of Operations and member of
the Board of Directors
Ronald Kitching 66 Member of the Board of Directors
Kevin Stulp 41 Member of the Board of Directors
<PAGE> 82
The authorized number of directors of the Company is presently
fixed at ten. Each director serves for a term of one year that expires
at the following annual shareholders' meeting. Each officer serves at
the pleasure of the Board of Directors and until a successor has been
qualified and appointed. There are no family relationships, or other
arrangements or understandings between or among any of the directors,
executive officers or other person pursuant to which such person was
selected to serve as a director or officer.
Set forth below is certain biographical information regarding each
director and executive officer of the Company:
Howard M. Crosby - President and a member of the Board of Directors.
Since February 1994, Mr. Crosby is the President and a member of
the Board of Directors. Since 1989, Mr. Crosby has been president of
Crosby Enterprises, Inc., a family-owned business advisory and public
relations firm. From September 1992 to May 1993, Mr. Crosby was
employed by Digitran Systems, Inc., of Logan, Utah, in the marketing
department. In May of 1993, Mr. Crosby entered into a business
consulting relationship with Centurion Mines Corporation, and has
served as president and director of Mammoth Mining Company and Gold
Chain Mining Company, both Centurion subsidiaries. In July, 1992, Mr.
Crosby filed a Chapter 13 petition for bankruptcy. The reorganization
plan was approved in October 1992. Mr. Crosby received a B.A. degree
from the University of Idaho in 1974.
Robert E. Jorgensen - Executive Vice President, Treasurer and a member
of the Board of Directors
Since August 1995, Mr. Jorgensen has been the Executive Vice
President, Treasurer and a member of the Board of Directors of the
Company. Mr. Jorgensen has served as vice-president, secretary and
director of Celebration Mining Company, a Nevada public company. From
1987 to 1991, Mr. Jorgensen was an investment broker and owner of RCL
Northwest, Inc., a regional investment firm. Mr. Jorgensen was a
broker with Cohig & Associates, Inc., from January 1992 to May 1992.
In May 1992, Mr. Jorgensen retired from the brokerage business and has
since been a private investor. Mr. Jorgensen filed for protection
under Chapter 7 of the Bankruptcy Code in August 1992. Mr. Jorgensen
received a degree in Business Administration from the University of
Idaho.
John Ryan - Vice President of Corporate Development and a member of the
Board of Directors.
Mr. Ryan has been a member of the Board of Directors since April
1997 and has been Vice President of Corporate Development since
September 1996. Mr. Ryan is a professional mining engineer. Since
June 1996, Mr. Ryan has been a Vice President and member of the Board
of Directors of Metalline Mining Company. From September 1993 to
August 1994, Mr. Ryan was a registered representative with Shearson
Lehman Brothers, Inc. From August 1994 to April 1995, Mr. Ryan has
served as a consultant in mine engineering services, and will continue
<PAGE> 83
in these activities during his tenure, as well as, engage in other
matters in accordance with the direction and assignment of the Board of
Directors. From April 1995 to April 1996, Mr. Ryan was a registered
representative with Pennaluna Securities Corp., a SEC/NASD registered
broker/dealer. In addition to his professional degree in Mining
Engineering, which he received from the University of Idaho, Mr. Ryan
also holds a juris doctorate (J.D.) law degree from Boston College
School of Law School.
Thomas Henricksen - Secretary and a member of the Board of Directors
Since February 5, 1997, has been the Secretary and a member of the
Board of Directors of the Company. Mr. Henricksen is a professional
geologist who is currently working as an independent consulting
geologist specializing in precious and base metal exploration projects
in North and South America. From 1991 to July 1996, Mr. Henricksen was
regional manager for Kennecott Exploration, where he was responsible
for overseeing all exploration activities in Alaska and the Pacific
Northwest. Prior to working for Kennecott, Mr. Henricksen was senior
geologist for U.S. Borax from 1977 to 1991. Mr. Henricksen holds a
Ph.D. in economic geology from Oregon State University and a B.S.
degree in geology from the University of Wisconsin-Oshkosh.
Jerry Stacey - Vice President of Operations
Since August 1995, Mr. Stacey has been the Vice President of
Operations. Mr. Stacey is a professional mining engineer with over 20
years experience in open pit and underground mining. Between 1974 and
1981, Mr. Stacey worked in senior supervisory positions as a Shift
Foreman for the Anaconda Company; as mine superintendent for Day Mines
at the Sherman Mine, mining 1,000 tons per day of silver ore; as mine
manager for Choctaw Mining supervising the construction and operation
of a tungsten mine and mill complex; as mine manager for Mountain
Mineral's barite mines in British Columbia; and as a mine manager at
the Goodnews Bay platinum placer operation. In 1981, Mr. Stacey formed
General Mine Services Corp., a mine consulting and contracting firm for
junior mining and exploration companies, where he continued as CEO
until 1994, when he joined with Celebration Mining Company and has
continued full time as Vice President of Operations with the Company.
His current responsibilities focus on the engineering, design,
installation, and operation of complete mine and metallurgical plants
involving base and precious metals and industrial minerals. Mr. Stacey
received a B.S. Degree in Mining Engineering from Montana Tech in 1974
while working in Butte, Montana mines.
Ronald Kitching - Member of the Board of Directors
Since August 1995, Mr. Kitching has been a member of the Board of
Directors of the Company. Prior to his retirement five years ago, Mr.
Kitching was involved in the mining industry for over 35 years holding
various positions, including serving as president of Overland Drilling
Company, an Australian exploration drilling company, and as co-founder
of Glindeman-Kitching Enterprises, an exploration drilling company.
Mr. Kitching has served as a director for Celebration Mining Company
since May 1994.
<PAGE> 84
Kevin Stulp - Member of the Board of Directors
Mr. Stulp was appointed to the Board of Directors of the Company to
fill the vacancy created by the resignation of Hal Cameron. Since
August 1995, Mr. Stulp has been an independent consultant in the fields
of volume electronics and manufacturing, general business consulting,
business strategy, business use of the Internet, automation and
integration through computers, and financial analysis. From July 1994
to July 1995, Mr. Stulp was Director of Manufacturing Reengineering for
Compaq Computer Corporation, Houston, Texas. From September 1992 to
June 1994, Mr. Stulp was Director of Manufacturing for Compaq Computer
Corporation. From September 1986 to September 1992, Mr. Stulp was PCA
Operations Manager for Compaq Computer Corporation. From December 1983
to September 1986, Mr. Stulp held various positions with Compaq
Computer Corporation, including industrial engineer, new products
planner and manufacturing manager. From July 1980 to December 1983,
Mr. Stulp was a financial planner with Texas Instruments, Houston,
Texas. Mr. Stulp holds the degree of Masters in Business
Administration and the degree of Bachelor of Science Mechanical
Engineering, both from the University of Michigan, and the degree of
Bachelor of Science from Calvin College, Grand Rapids, Michigan.
Indemnification.
The Company's Bylaws provide that the Company's directors and
officers will be indemnified to the fullest extent permitted by the
Utah Corporation Code, however, such indemnification shall not apply to
acts of intentional misconduct; a knowing violation of law; or, any
transaction where an officer or director personally received a benefit
in money, property, or services to which to the director was not
legally entitled.
The Company has been advised that in the opinion of the Securities
and Exchange Commission indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is, therefore,
unenforceable.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange Act of 1934 requires
certain defined persons to file reports of and changes in beneficial
ownership of a registered security with the Securities and Exchange
Commission and the National Association of Securities Dealers in
accordance with the rules and regulations promulgated by the Commission
to implement the provisions of Section 16. Under the regulatory
procedure, officers, directors, and persons who own more than ten
percent of a registered class of a company's equity securities are also
required to furnish the Company with copies of all Section 16(a) forms
they file.
<PAGE> 85
Based solely on review of the copies of Forms 3, 4, and 5 furnished
to the Company for transactions occurring between October 1, 1996 and
September 30, 1997, or with respect to transactions which occurred
between October 1, 1996 and September 30, 1997, all reports which were
required to be filed under Section 16(a) of the Exchange Act were in
fact so filed.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation.
The following table sets forth the compensation paid by the Company
during each of the last three fiscal years to its Chief Executive
Officer, and to the other four most highly compensated officers and
executive officers, but only if the total annual salary and bonus of
any such executive officer exceeded $100,000 for Fiscal 1997 (the
"Named Executive Officers"). This information includes the dollar
value of base salaries, bonus awards and number of stock options
granted, and certain other compensation, if any.
Summary Compensation Table
Annual Compensation
-------------------
Name and
Principal Position Year Salary ($)
- - ------------------ ---- --------------
Howard Crosby 1997 $ 78,000
President 1996 $ 78,000
1995 $ 48,000
Named Executive Officers
None n/a n/a
Other than the Company's Stock Option and Award Plan, there are no
retirement, pension, or profit sharing plans for the benefit of the
Company's officers and directors.
Option/SAR Grants.
No individual grants of stock options, whether or not in tandem
with stock appreciation rights ("SARs"), and freestanding SARs were
made during Fiscal 1997 to the CEO or any Executive Officer.
No stock options were exercised by the CEO or any executive
officers in Fiscal 1997.
Long-Term Incentive Plan Awards.
The Company does not have any formalized long-term incentive plan
(excluding restricted stock, stock option and SAR plans) that provides
compensation intended to serve as incentive for performance to occur
<PAGE> 86
over a period longer than one fiscal year, whether such performance is
measured by reference to financial performance of the Company or an
affiliate, the Company's stock price, or any other measure.
Compensation of Directors.
Directors receive for their services a retainer fee payable in
shares of the Company's Common Stock, currently at the rate of 2,500
shares per quarter of completed service. During Fiscal 1997, 184,000
shares were awarded to directors as compensation. The Board has not
implemented a plan to award options, authorized under the Company's
Stock Option and Award Plan and none have been granted. There are no
contractual arrangements with any member of the Board of Directors,
other than the employment and salary arrangements for compensating two
of its members for their service as executive officers: Howard Crosby
as President and CEO, and Robert Jorgensen as Executive Vice President
and Treasurer.
Compensation Committee Interlocks and Insider Participation.
There are no compensation committee interlocks. With respect to
insider participation, Howard Crosby, Hal Cameron and Carlos Chavez,
participated in deliberations of the Company's Board of Directors
during Fiscal 1996, concerning executive officer compensation.
Board of Directors Report on Executive Compensation.
The following is a summary of the Board of Directors Report:
It is the Board's responsibility to review and set compensation
levels of the executive officers of the Company, evaluate the
performance of management and consider management appointments and
related matters. All decisions are decisions of the full Board. The
Board considers the performance of the Company and how compensation
paid by the Company compares to compensation generally in the mining
industry and among similar companies. In establishing executive
compensation, the Board bases its decisions, in part, on achievement
and performance regarding broad-based objectives and targets relating
to the continued acquisition of favorable silver properties and the
progress of exploration and development of such properties, as well as
the Company's financial performance.
For Fiscal 1997, the Company's executive compensation policy
consisted of two elements: base salary and stock awards. The policy
factors which determine the setting of these compensation elements are
largely aimed at attracting and retaining executives considered
essential to the Company's long-term success. The granting of stock is
designed as an incentive for executives to keep management's interests
in close alignment with the interests of shareholders. The Company's
executive compensation policy seeks to engender committed leadership to
favorably posture the Company for continued growth, stability and
strength of shareholder equity.
<PAGE> 87
The Company paid salaries to its officers for the fiscal year-ended
September 30, 1997, as follows:
Name of Officer Position Salary
Howard Crosby President $78,000 yearly
Robert Jorgensen Executive Vice President $72,000 yearly
and Treasurer
Jerry Stacey Vice President of Operation $70,000 yearly
John Ryan Vice President of Corporate $48,000 yearly
Development
These amounts were approved by the Board in recognition of the work
and efforts and in completing the acquisition of a large number of
silver mining properties prior to the end of Fiscal 1997.
Further, the Board recognized the significant role of these four
individuals in managing the Company's principal office in Spokane,
Washington and in raising funds for the Company's exploration and
development activities. Finally, the Board of Directors took into
account the reasonableness of these salaries in comparison with
Executive salaries within the mining region. On the basis of the above
factors, the Board determined that these salaries were proper and
fitting. No other officers received a salary during Fiscal 1997.
With respect to stock awards during Fiscal 1997, the Board of
Directors did not change the amount of shares, 2,500 per quarter, which
each director is entitled to receive as partial compensation for
service to the Company.
The Board believes that executive compensation during Fiscal 1997
substantially reflects the Company's compensation policy and the Board
anticipates paying a like sum during the fiscal year ending September
30, 1998.
On January 8, 1997, the Company filed a Form S-8 Registration
Statement with the Commission registering 831,775 shares of Common
Stock for resale by certain shareholders of the Company. The Form S-8
is incorporated herein by reference as if set forth in full.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 15, 1997, the
outstanding Common Stock of the Company owned of record or beneficially
by each person who owned of record, or was known by the Company to own
beneficially, more than 5% of the Company's Common Stock, and the name
and shareholdings of each Officer and Director and all Officers and
Directors as a group. At December 15, 1997, the number of shares of
common stock of the Company issued and outstanding was 13,580,232.
<PAGE> 88
Percentage
Shares of Common
Name Owned Stock Owned
Howard Crosby [1] 606,000 4.46%
105 North First
Suite 232
Sandpoint, ID 83864
Robert E. Jorgensen [2] 587,000 4.32%
2719 W. Strong Road
Spokane, WA 99208
John Ryan [5] 30,000 0.22%
200 Riverwood Court
Post Falls, ID 83854
Thomas Henricksen [4] 5,500 0.04%
5812 E. 25th Avenue
Spokane, WA 99223
Jerry Stacey [6] 22,800 0.17%
406 N. Stonewall
Spokane, WA 99208
Ronald Kitching 157,500 1.17%
P. O. Box 9809
Frenchville, QD 4701
Australia
Kevin Stulp 164,000 1.22%
5639 Doliver
Houston, TX 77056
ALL OFFICERS AND 1,572,800 11.58%
DIRECTORS AS A GROUP
(Seven Individuals)
Centurion Mines
Corporation 1,146,180 8.55%
331 South Rio Grande, Suite 201
Salt Lake City, UT 84101
Britannia Holdings
Ltd. [3] 2,135,000 15.92%
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
All shares are held beneficially and of record and each record
shareholder has sole voting and investment power.
<PAGE> 89
[1] Mr. Crosby is a director, executive officer and 50% shareholder of
Extol International Corp., a privately-held Washington corporation.
As a 50% shareholder, Mr. Crosby holds indirect beneficial
ownership of one-half of the restricted shares retained by Extol
following the closing of the share exchange with Celebration.
Also, the Board approved the release of a previously authorized
grant of 200,000 restricted shares to Crosby Enterprises, Inc. for
its work in putting together for the Company no fewer than five
major business proposals, culminating in the reorganization with
Celebration. Mr. Crosby holds indirect beneficial ownership of
those restricted shares as a director, executive officer and
majority shareholder of Crosby Enterprises, a private, closely-held
Washington corporation. Mr. Crosby holds all remaining shares in
his name, 15,000 shares of which he received in Fiscal 1995 as
partial compensation for his service as a director and executive
officer. Does not include Warrants to purchase 850,000 shares of
Common Stock.
[2] The Company notes that in addition to the awards of shares for his
service as a director and officer of the Company, Mr. Jorgensen
initially received 550,000 restricted shares as part of the share
exchange with Celebration. Does not include Warrants to purchase
550,000 shares of Common Stock.
[3] Does not include Warrants to purchase 2,135,000 shares of Common
Stock.
[4] Does not include Warrants to purchase 125,000 shares of Common
Stock.
[5] Does not include Warrants to purchase 200,000 shares of Common
Stock.
[6] Does not include Warrants to purchase 300,000 shares of Common
Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships and Transactions pertaining to the Company and
Celebration.
Certain of the directors and/or officers of the Company also serve
as directors and/or officers of other companies involved in natural
resource exploration and development and, consequently, there exists
the possibility for such directors and officers to be in a position of
conflict. Any decision made by such directors and officers involving
the Company, as the case may be, will be made in accordance with their
duties and obligation to deal fairly and in good faith with the Company
and such other companies. In addition, such directors and officers are
required to declare and refrain from voting on any matter in which such
directors and officers may have a conflict of interest. In this
respect, Howard Crosby, who was the President of Celebration and of the
Company at the time of the Reorganization, refrained from voting on
any matter related to the Reorganization or any other matter pertaining
to both companies.
<PAGE> 90
The Company has engaged in transactions with its officers,
directors and principal shareholders, including the issuance of the
initial shares of the Company. Such transactions may be considered as
not having occurred at arm's length. The Company may be engaged in
transactions with management and others involving conflicts of
interest, including conflicts on salaries and other payments to such
parties, as well as business opportunities which may arise. In this
regard, the directors of the Company are involved in other companies
and may have conflicts of interest in allocating time between the
Company and other entities to which they are affiliated.
Relationships and Transactions Pertaining to the Company.
From time to time, at the Company's request, Centurion may, at its
discretion, provide funds to the Company or pay certain expenses
directly. The Company is current in its payments to Centurion and
management intends to continue the immediate repayment to Centurion as
expenses are incurred.
During Fiscal 1994, the Company carried over the previous balance
owed by Centurion of $5,055 and loaned Centurion $8,075, resulting in
cumulative total advances made by the Company to Centurion of $13,130.
Also during Fiscal 1994, Centurion accrued $54,335 of the Company's
taxes, loaned $83,700 to the Company, and paid $140,932 of the
Company's expenses (including certain land costs of the Company),
resulting in total advances made by Centurion to the Company of
$278,967. Centurion repaid these and previous amounts by paying
certain of the Company's expenses and by transferring to the Company
$467,236 of mineral properties. Thus, for Fiscal 1994 transactions
between the Company and Centurion, including balance carryovers, the
net cumulative result was a balance of $265,838 owed by the Company to
Centurion.
During Fiscal 1995, Centurion made net total advances to the
Company of $38,086. The net result was a balance of approximately
$300,000 owed by the Company to Centurion, which the Company repaid
prior to the end of Fiscal 1995 by issuing 200,000 shares of its common
stock to Centurion at the then prevailing market price of $1.50 per
share. At September 30, 1995, and at September 30, 1996, the Company
owed $289 to Centurion.
Relationships and Transactions pertaining to Celebration.
In May 1994, Celebration issued, pursuant to Board resolution, an
aggregate of 1,000,000 shares of common stock to Extol International
Corporation, an affiliate of Howard M. Crosby, an officer and director
of the Company, and 500,000 shares of Common Stock to Robert Jorgensen,
an officer and director of the Company, in exchange for a transfer of
the rights under an option on the Montana Property. Mr. Crosby and Mr.
Jorgensen are considered founders of the Company. The Company has not
received a fairness opinion or other valuation of the rights
transferred in exchange for the shares issued to Mr. Jorgensen and
Extol International Corporation. The cost basis of the rights under
the Montana Property was estimated to be $4,000. The perceived value
<PAGE> 91
of the shares issued was determined as of the time of transfer by Mr.
Crosby and Mr. Jorgensen as sole officers and directors of the Company.
The determination was not based on arms length negotiations. In June
1994, the Company repaid to Crosby Enterprises, Inc., an affiliate of
Howard M. Crosby, $20,000 for funds advanced on the Montana Property
prior to the transfer of the rights under the option to the Company.
In August 1994, Celebration issued 100,000 shares of Common Stock
to Ronald Kitching, a director, as compensation for his services as a
director. Mr. Crosby and Mr. Jorgensen also received compensation from
the Company as executive officers.
In August 1994, Thomas Miller, a director of Celebration up to
August 8, 1995, received options to purchase up to 400,000 shares as
compensation for his consulting services in field exploration
management through August 1995. Mr. Miller was also an officer,
director and principal shareholder of United Silver Mines, Inc., the
Company's Joint Venture Partner on the Vipont Property and its
subsidiary, Bannock Silver Mining Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
The Company has filed three reports on Form 8-K, dated February 5,
1997, March 6, 1997 and March 28, 1997, during the annual period ended
September 30, 1997.
INDEX TO EXHIBITS
The following documents are incorporated herein by reference to the
Company's Registration Statement on Form 10, as filed with the
Securities and Exchange Commission:
Number Document
- - ---------------------------------------------------------------------
3.1 Articles of Incorporation.
3.2 Articles of Amendment.
3.3 Amendment to Articles of Incorporation Limiting Director
Liability.
3.4 Bylaws.
10.1 Sale of Mining Properties By Centurion Mines Corporation to
Royal Minerals, Inc. - June 1992 through September 1993.
10.2 Deed with Reservation of Mineral Royalty - January 1992 to
Kennecott.
10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to
Kennecott.
<PAGE> 92
10.4 July 1992 Kennecott Option to Purchase 6,320 acres.
10.5 Deed and Assignment with Reservation of Mineral Royalty -
August 1992 (16,880 acres) to Kennecott.
10.6 Deed and Assignment with Reservation of Mineral Royalty -
December 1992 (6,320 acres) to Kennecott.
The following documents are incorporated herein by reference from
the Registrant's Current Report on Form 8-K, dated August 8, 1995, as
filed with the Securities and Exchange Commission:
2.01 Agreement and Plan of Reorganization.
3.05 Articles of Share Exchange (Utah).
3.06 Articles of Share Exchange (Washington).
4.01 Subscription and Investment Agreement.
4.02 Stock Purchase Option Certificate.
19.01 Material Furnished to Celebration Securityholders.
20.01 Letter from Royal to Share Exchange Securityholders.
The following documents are incorporated herein by reference from
the Registrant's Form S-8 Registration Statement filed with the
Commission on July 17, 1995.
4.1 1995 Stock Option and Stock Award Plan with Amendment No. 1 to
the Plan.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on February 10, 1997:
10.7 Vipoint Joint Venture Agreement.
10.8 Option to Joint Venture with Placer Mining Corporation, dated
April 19, 1996.
10.9 Amendment to Option to Joint Venture with Placer Mining
Corporation dated the 22nd day of July, 1996.
10.10 Exploration Agreement and Purchase/Joint Venture Option.
10.11 Purchase Agreement with Imperial Energy Corp.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on September 12, 1997:
10.12 Unilateral option to Purchase Mining Concessions from Sociedad
de Exploarciones Y Explotaciones Mineras Oregon Limitada.
<PAGE> 93
10.13 Modification of Unilateral Purchase Option Contract of Mining
Concessions.
10.14 Unilateral option to Purchase Mining Concessions from Compania
Minera San Enrique S.C.M. Y Otra.
28.1 Warrant Agreement.
28.2 Selling Agent Agreement.
The following documents are incorporated herein:
10.3 Purchase Agreement between Royal Silver Mines, Inc. and
Centurion Mines Corporation dated Novmeber 25, 1997.
10.16 Quit Claim Deed between Royal Silver Mines, Inc. and
Centurion Mines Corporation dated December 9, 1997,
regarding T48N, R5E, Section 16, 17 and 18, Boise
Meridian, County of Shoshone, State of Idaho.
10.17 Quit Claim Deed between Royal Silver Mines, Inc. and
Centurion Mines Corporation dated December 9, 1997,
regarding T48N, R5E, Section 26, Boise Meridian,
County of Shoshone, State of Idaho.
27 Financial Data Schedule.
All other schedules and exhibits are omitted, as the required
information is not applicable or is not present in amount sufficient to
require submission of the schedule or because the information required
is included in the financial statements and notes thereto.
<PAGE> 94 SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized,
in Spokane, Washington, on this 18th day of December, 1997.
ROYAL SILVER MINES, INC.
BY: /s/ Howard M. Crosby, President
BY: /s/ Robert E. Jorgensen, Treasurer and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Howard M. Crosby, as true and
lawful attorney-in-fact and agent, with full power of substitution, for
his and in his name, place and stead, in any and all capacities, to
sign any and all amendments to this registration statement, and to file
the same, therewith, with the Securities and Exchange Commission, and
to make any and all state securities law or blue sky filings, granting
unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite or necessary to be
done in about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying the confirming all that
said attorney-in-fact and agent, or any substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:
Signatures Title Date
/s/ Howard M. Crosby President and a December 22, 1997
member of the Board
of Directors
/s/ Robert E. Jorgensen Vice President, December 22, 1997
Chief Financial Officer,
Treasurer and a member
of the Board of Directors
/s/ John Ryan Vice President December 22, 1997
and a member of the Board
of Directors
/s/ Thomas Henricksen Secretary and a December 22, 1997
member of the
Board of Directors
/s/ Jerry Stacey Vice President December ____, 1997
______________________ Member of the Board ___________, 1997
Ronald Kitching of Directors
______________________ Member of the Board ___________, 1997
Kevin Stulp of Directors
<PAGE> 95
EXHIBIT INDEX
The following documents are incorporated herein by reference from
the Registrant's Form 10-K, as filed with the Securities and Exchange
Commission.
Number Document
- - ---------------------------------------------------------------------
10.15 Purchase Agreement between Royal Silver Mines, Inc., and
Centurion Mines Corproation dated November 25, 1997.
10.16 Quit Claim Deed between Royal Silver Mines, Inc., and Centurion
Mines Corproation dated December 9, 1997, regarding T48N, R5E,
Section 16, 17 and 18, Boise Meridian, County of Shoshone,
State of Idaho.
10.17 Quit Claim Deed between Royal Silver Mines, Inc., and Centurion
Mines Corproation dated December 9, 1997, regarding T48N, R5E,
Section 26, Boise Meridian, County of Shoshone, State of Idaho.
27 Financial Data Schedule.
All other schedules and exhibits are omitted, as the required
information is not applicable or is not present in amount sufficient to
require submission of the schedule or because the information required
is included in the financial statements and notes thereto.
<PAGE> 96
EXHIBIT 10.15
PURCHASE AGREEMENT
This Purchase Agreement (the "Purchase Agreement") is made
and entered into effective as of this 25th day of November, 1997,
(the "Effective Date") by and between ROYAL SILVER MINES ,INC., a
Utah corporation with an address of North 10220 Nevada, Suite
270, Spokane, Washington 99218, ("Seller") and Centurion Mines
Corporation., a Utah corporation, with offices at 860 South, 500
West, Salt Lake City, Utah 84101 ("Buyer").
WITNESSETH:
WHEREAS, Seller is the owner of patented and unpatented
mining claims, situated in Shoshone County, State of Idaho, (the
"Subject Property") and more particularly described in Exhibits
"A", "B", and "C" attached hereto and made a part hereof, and
WHEREAS, Seller desires to sell the Subject Property to
Buyer, and Buyer desires to acquire the Subject Property, all in
accordance with the terms and conditions set forth herein.
NOW, THEREFORE, for 5,000,000 (five million) shares of the
common stock of the Buyer valued at $1,500,000 (one million five
hundred thousand dollars) and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and in further consideration of the promises and
covenants herein contained, the parties hereto agree as follows:
1. Seller agrees to sell to the Buyer the subject mining
properties located in Shoshone County, Idaho, and more fully
described in Exhibits "A", "B", and "C".
2. Seller hereby agrees upon receipt of the aforesaid
5,000,000 (five million)) to execute, acknowledge and deliver to
Buyer good and sufficient Quitclaim Deeds, in the form of the
copy of such instrument which is attached hereto as Exhibit "D".
Seller warrants that it has the power and authority to enter into
and execute said Quitclaim Deeds, and that said Deeds shall be
properly executed and shall be effective for the purposes
intended. Seller also represents and warrants to Buyer that it
is not aware of any liens, encumbrances, third party claims or
outstanding third party interests or rights in or to the Subject
Property or the production of minerals therefrom, that to the
best of Seller's knowledge there are no environmental claims,
liens or other problems affecting or in any way relating to the
Subject Property and that the Subject Property is not a part of
any actual or threatened "superfund" site or otherwise subject to
federal, state or local environmental remediation action or
<PAGE> 97
activities, and that there are no mechanics or materialmens liens
which affect or which may affect the Subject Property, of record
or otherwise. The representations and warranties set forth in
this Purchase Agreement shall survive the delivery of the
Quitclaim Deeds and the subsequent delivery of the 5,000,000
(five million) shares of common stock. Buyer shall have
possession of the Subject Property on the Effective Date.
3. Seller understands that the shares issued in this
transaction shall be restricted and represents and warrants to
Buyer in connection with this transaction that it understands and
accepts the full legal and economic effect and consequences of
taking restricted stock of Buyer in this transaction, that it has
adequately and fully informed itself as to Buyer's business,
financial condition, stock price and other relevant matters with
respect to Buyer, that it has been provided by Buyer with an
opportunity to review such disclosures concerning the Buyer's
business activities, financial condition and operations as Seller
deems necessary or appropriate, that Seller is a sophisticated
and knowledgeable investor which has utilized such accounting and
legal advice and consultants as it deems necessary or appropriate
to evaluate the terms of and protect its interest in this
transaction, and that it is not relying in any way upon the
promises or representations of Buyer with respect to the future
business activities, stock price, saleability of the stock, or
other actions of Buyer. Buyer has not made any representations,
promises or commitments to Seller with respect to any future
release of restrictions on the said 5,000,000 (five million)
shares of Buyer's stock, and Seller understands that said stock
will be issued with a restrictive legend and that as such said
stock will not be marketable or tradeable for the indefinite
future.
3. Seller agrees to deliver to Buyer within thirty (30)
days following the Effective Date, originals or copies of all
data, records and information which it has in its possession or
which are reasonably accessible to it which pertain to the title
to the Subject Property, the geology, mining and exploration
history of the Subject Property, and any other information
relating to the Subject Property.
DATED effective as of the day and year first above written.
ROYAL SILVER MINES, INC.
BY: /s/ Howard M. Crosby
Its President
CENTURION MINES CORPORATION
BY: _________________________________
Its President
<PAGE> 98
STATE of WASHINGTON )
) ss.
COUNTY of SPOKANE )
On the 25th day of November, 1997, personally appeared
before me Howard Crosby who being by me duly sworn, did say that
he, the said President, is the President of Royal Silver Mines,
Inc. a Utah corporation, and that the within and foregoing
instrument was signed on behalf of said corporation by authority
of a resolution of its Board of Directors, and said he duly
acknowledged to me that said corporation executed the same.
/s/ Shari Garber
Spokane, Washington
Commission Expires:
February 6, 1999
STATE OF UTAH )
) ss.
COUNTY of )
On the ____ day of __________, 1997, personally appeared
before me Spenst Hansen who being by me duly sworn, did say that
he, the said President, is the President of Centurion Mines
Corporation, a Utah corporation, and that the within and
foregoing instrument was signed on behalf of said corporation by
authority of a resolution of its Board of Directors, and said
duly acknowledged to me that said corporation executed the same.
<PAGE> 99
EXHIBIT 10.16
QUITCLAIM DEED
ROYAL SILVER MINES, INC., (hereinafter referred to as
"Transferor"), a Utah corporation, whose principal business
address is 10220 North Nevada, Suite 270, Spokane, Washington
99218, in consideration of 4,500,000 shares of Common Stock of
Centurion Mines Corporation (hereinafter referred to as
"Transferee") and other valuable consideration paid to the
Transferor, the receipt of which is hereby acknowledged, hereby
remises, releases, and forever quitclaims to Transferee all of
the interest of Transferor in and to any portion(s) of the
patented mining claims listed on Appendix "A" attached, and which
are located in Township 48 North, Range 5 East, Section 16, 17
and 18, Boise Meridian, County of Shoshone, State of Idaho.
Dated this 9th day of December, 1997.
ROYAL SILVER MINES, INC.
BY: /s/ Howard M. Crosby Attest: John P. Ryan
Title: President Title: Vice President
STATE of WASHINGTON )
) ss.
COUNTY of SPOKANE )
On this day, personally appeared before me Howard Crosby and
John Ryan, known to me to be the President and Vice President,
respectively, of Royal Silver Mines, Inc., the corporation that
executed the foregoing instrument, and acknowledged that said
instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on
oath stated that they are authorized to executed the said
instrument.
Witness my hand and official seal hereto affixed the day and
year first above written.
/s/ Shari Garber
Notary Public in and for the
State of Washington, residing
at Spokane, Washington
Commission Expires:
February 6, 1999
<PAGE> 100
APPENDIX "A"
Survey # Survey Name
1335 Josephine
1354 Snow Drift
2183 Ben Harrison
2506 Ranger
3081 Patrick Henry
3081 Snow Flake Fr. Amended
3081A Black Pine Fr. Amended
3081A Black Pine No. 2
3081A Erin Amended
3081A Gild Edge
3081A Gild Edge Fr. Amended
3081A Iron Silver Fr. Amended
3081A Maid of Erin
3081A McSweeny
3081A Noble Schley
3081A Patrick Henry Amended
3081A Sampson
3081A White Pine Amended
3081B Maid of Erin M.S.
3081B Noble Schley M.S.
1195 Exchequer
1195 Moulton
1195 Toughnut
<PAGE>101
EXHIBIT 10.17
QUITCLAIM DEED
ROYAL SILVER MINES, INC., (hereinafter referred to as
"Transferor"), a Utah corporation, whose principal business
address is 10220 North Nevada, Suite 270, Spokane, Washington
99218, in consideration of 100,000 shares of Common Stock of
Centurion Mines Corporation (hereinafter referred to as
"Transferee") and other valuable consideration paid to the
Transferor, the receipt of which is hereby acknowledged, hereby
remises, releases, and forever quitclaims to Transferee all of
the interest of Transferor in and to any portion(s) of the
patented mining claims described as follows:
Boise Meridian, County of Shoshone, State of Idaho,
Township 48 North, Range 5 East, Section 26, those
portion of the Kildale Mining Claim (USBM claim number
IMC 176715), the Kilkenny Mining Claim (number IMC
176707) and the Killarney Mining Claim (number IMC
176714) contained in Government lot 13 and that are not
in conflict with the Betty mining claim (number IMC
13873).
Dated this 9th day of December, 1997.
ROYAL SILVER MINES, INC.
Attest: John P. Ryan
BY: /s/ Howard M. Crosby Title: Vice President
Title: President
STATE OF WASHINGTON )
) ss.
COUNTY OF SPOKANE )
On this day, personally appeared before me Howard Crosby and
John Ryan, known to me to be the President and Vice President,
respectively, of Royal Silver Mines, Inc., the corporation that
executed the foregoing instrument, and acknowledged that said
instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on
oath stated that they are authorized to execute the said
instrument.
Witness my hand and offical seal hereto affixed the day and
year first above written.
/s/ Shari Garber
Notary Public in and for the
State of Washington, residing
at Spokane, Washington
Commission Expires:
February 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Statement of Financial Condition at September 30, 1997
and the Statement of Income for the twelve months ended September
30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 594,577
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 712,696
<PP&E> 204,073
<DEPRECIATION> 17,005
<TOTAL-ASSETS> 5,891,527
<CURRENT-LIABILITIES> 41,341
<BONDS> 0
0
0
<COMMON> 134,822
<OTHER-SE> 5,715,364
<TOTAL-LIABILITY-AND-EQUITY> 5,891,527
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,558,823
<OTHER-EXPENSES> 240,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,257
<INCOME-PRETAX> (1,770,711)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,770,711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,770,711)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
