<PAGE> 1
As filed with the Securities and Exchange Commission on
___________________, 1997. Registration No. 333-_________________.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------------------
ROYAL SILVER MINES, INC.
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(Exact name of Registrant specified in charter)
Utah 1330 87-0306609
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(State of (Primary Industrial (I.R.S. Employer
Incorporation) Classification) I.D.#)
10220 N. Nevada
Suite 270
Spokane, Washington 99218
Tel: (509) 466-3144
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(Address, including zip code of principal place of business and
telephone number, including area code of Registrant's principal
executive offices.)
Conrad C. Lysiak
Attorney and Counselor at Law
West 601 First Avenue, Suite 503
Spokane, Washington 99204
(509) 624-1475
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(Name, address, including zip code and telephone number, including area
code of agents for service.)
Approximate date of commencement date or proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box [x].
The Exhibit Index for this Registration Statement begins on sequential
page number 145.
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Proposed Proposed
Title of Maximum maximum
each class of offering aggregate
securities to Amount to be price per offering Amount of
be registered registered Share [1] price registration fee
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<S> <C> <C> <C> <C>
Units each
consisting of: 6,000,000 $ 1.00 $ 6,000,000 $ 1,818.18
(a)
6,000,000 Shares
of Common Stock
$0.01 par value 6,000,000 $ 0.00 $ 0 $ 0.00
(b)
6,000,000 Redeemable
Common Stock Purchase
Warrants exercisable
three years from the
effective date
of the offering 6,000,000 $ 1.40 $ 8,400,000 $ 2,545.45
(c)
Shares of Common
Stock Issuable
Upon the Exercise
of Redeemable
Common Stock
Purchase Warrants
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TOTAL REGISTRATION FEE $14,400,000 $ 4,363.63
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</TABLE>
[1] Estimated solely for the purpose of calculating the registration
fee.
The Registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that the registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
this registration statement shall be come effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE> 3
ROYAL SILVER MINES, INC.
CROSS REFERENCE SHEET PURSUANT TO
RULE 404 (a) AND ITEM 501 (b) OF REGULATION S-B
Form S-B Item #
and Caption Caption in Prospectus
- ----------------------------------------------------------------
1 Front of Registration
Statement and Outside Front
Cover of Prospectus FACING PAGE; CROSS REFERENCE SHEET;
OUTSIDE FRONT COVER PAGE
2 Inside Front and
Outside Back Cover of
Pages of Prospectus INSIDE FRONT COVER PAGE; OUTSIDE
BACK COVER PAGE
3 Summary Information and
Risk Factors PROSPECTUS SUMMARY; RISK FACTORS;
THE COMPANY
4 Use of Proceeds PROSPECTUS SUMMARY; USE OF PROCEEDS
5 Determination of
Offering Price OUTSIDE FRONT COVER PAGE; PLAN OF
DISTRIBUTION
6 Dilution DILUTION
7 Selling Securityholders NOT APPLICABLE
8 Plan of Distribution INSIDE FRONT COVER PAGE; PLAN OF
DISTRIBUTION
9 Legal Proceedings BUSINESS
10 Directors, Executive
Officers, Promoters
and Control Persons MANAGEMENT
11 Security Ownership of
Certain Beneficial
Owners and Management MANAGEMENT
12 Description of
Securities OUTSIDE FRONT COVER PAGE;
DESCRIPTION OF SECURITIES; PLAN OF
DISTRIBUTION
13 Interest of Named Experts
and Counsel LEGAL MATTERS; EXPERTS
<PAGE> 4
Form S-B Item #
and Caption Caption in Prospectus
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14 Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities BUSINESS
15 Organization Within
Last 5 Years THE COMPANY; BUSINESS
16 Description of Business PROSPECTUS SUMMARY; BUSINESS
17 Management's Discussion
and Analysis or Plan of
Operation MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
18 Description of Property BUSINESS
19 Certain Relationships and
Related Transactions MANAGEMENT
20 Market for Common Equity
and Related Stockholder
Matters DIVIDEND POLICY; PRINCIPAL
SHAREHOLDERS; SHARES AVAILABLE FOR
FUTURE SALES
21 Executive Compensation MANAGEMENT
22 Financial Statements FINANCIAL STATEMENTS
23. Changes In and Disagreements
with Accountants on
Accounting and Financial
Disclosures NOT APPLICABLE
<PAGE> 5
SUBJECT TO COMPLETION SEPTEMBER 11, 1997
(Red Herring Language to be added at right is on following page.)
PROSPECTUS
6,000,000 UNITS - $_________ Maximum
ROYAL SILVER MINES, INC.
EACH UNIT CONSISTING OF 6,000,000
SHARES OF COMMON STOCK,
6,000,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
Each Unit consists of six million (6,000,000) shares of Common
Stock, $0.01 par value, and six million (6,000,000) Redeemable Common
Stock Purchase Warrants (the "Units"). The Common Stock, Redeemable
Common Stock Purchase Warrants are being offered as a Unit. They are
immediately detachable and separately tradeable. Each Redeemable
Warrant ("Redeemable Warrant") entitles the holder to purchase one
share of Common Stock at a price of $1.40, until September 1, 2000.
The Redeemable Warrants are callable by the Company upon thirty (30)
days written notice provided that the bid price of the Company's Common
Stock trades above $3.00 per share for ninety (90) consecutive trading
days. The Redeemable Warrants and the terms of exercise thereof are
more fully described herein. See "Description of Securities." The
Units are being offered on a best efforts no minimum, 6,000,000 Units
maximum basis. The offering period is ninety (90) days from the
effective date. The offering period can be extended by the Company up
to one hundred eighty (180) days from the effective date.
Shares of the Company's Common Stock are quoted on the OTC
Bulletin Board (the "Bulletin Board"), operated by the National
Association of Securities Dealers, Inc., under the symbol "RSMI." On
August 27, 1997 the last sale price of the Common as reported on the
Bulletin Board was $0.75.
THIS SECURITIES ARE HIGHLY SPECULATIVE. THEY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. THEY SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A TOTAL LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" (at page 9) AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Proceeds to
Public[1] Commission [2] Company [2]
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Per Unit
Maximum Offering
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<PAGE> 6
Red Herring Language to be added to right front cover is as follows:
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be
sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
[1] The Company intends to offer the Units directly to the public
through its officers and directors on a "best efforts-non minimum
basis - 6,000,000 Units maximum." The Company may also offer the
Units through brokers and dealers who are members of or registered
with the National Association of Securities Dealers, Inc ("NASD"),
who will receive a commission of up to $____ per Unit sold.
Payment for the Units shall be made by check or money order
payable to the Company and must be delivered to the Company along
with a duly executed subscription agreement in the form attached
hereto to 10220 N. Nevada, Suite 270, Spokane, Washington 99218.
[2] The figures for commission to be paid and proceeds assumes a 10%
commission will be paid on all Units sold in this Offering and
does not reflect the payment of expenses in connection with this
Offering estimated at $________.
The Company currently plans to offer the Units for sale in the
states of ____________________ and possibly in the United Kingdom,
Switzerland, France, Netherlands and Canada. No assurances can be
given that the Units will in fact be available for offer and sale in
any such jurisdictions. The Company may also seek to offer and sell
the Units in other jurisdictions.
ROYAL SILVER MINES, INC.
10220 North Nevada
Suite 270
Spokane, Washington 99218
(509) 466-3144
The date of this Prospectus is ___________________________, 1997.
THE OFFERING IS MADE SUBJECT TO WITHDRAWAL, CANCELLATION, OR
MODIFICIATION BY THE COMPANY WITHOUT NOTICE. THE COMPANY RESERVES THE
RIGHT, IN ITS SOLD DISCRETION, TO REJECT ANY AND ALL SUBSCRIPTIONS, AND
NO SUBSCRIPTION WILL BE EFFECTIVE UNTIL ACCEPTED BY THE COMPANY.
FEDERAL LAW REQUIRES THAT ANY BROKER OR DEALER PARTICIPATING IN
THE ISSUANCE OF CERTAIN SECURITIES, INCLUDING THOSE OFFERED HEREBY,
DELIVER A COPY OF THE PRELIMINARY PROSPECTUS TO ANY PERSON WHO IS
EXPECTED TO RECEIVE A CONFIRMATION OF SALE AT LEAST 48 HOURS PRIOR TO
THE MAILING OF SUCH CONFIRMATION.
<PAGE> 7
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY
ANYONE TO ANY PERSON IN ANY STATE, TERRITORY, OR POSSESSION OF THE
UNITED STATES IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED BY
THE LAWS THEREOF, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
AS HERETOFORE INDICATED, THE UNITS OFFERED BY THIS PROSPECTUS ARE
PURELY SPECULATIVE IN NATURE, THE COMPANY MAKES NO GUARANTEES,
WARRANTIES OR OTHER REPRESENTATIONS TO THE CONTRARY.
<PAGE> 8
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PROSPECTUS SUMMARY
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THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
The Company 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, lead, copper, zinc and other
mineralization, with a primary emphasis on base
metals. See "Business."
The Company's offices are located at 10220 N.
Nevada, Suite 270, Spokane, Washington 99218. The
Company's telephone number is (509) 466-3144.
The Offering The Company is selling 6,000,000 Units consisting
of six million (6,000,000) shares of Common Stock,
$0.01 par value, and six million (6,000,000)
Redeemable Common Stock Purchase Warrants (the
"Redeemable Warrants"). Each Redeemable Warrant
entitles the holder to purchase one share of
Common Stock at a price of $1.40, until September
1, 2000. The Redeemable Warrants are callable by
the Company upon thirty (30) days written notice
provided that the bid price of the Company's
Common Stock trades above $3.00 per share for
ninety (90) consecutive trading days. The Units
are being offered on a "best efforts, no minimum -
6,000,000 Units maximum" basis. See "Description
of Securities."
<TABLE>
<CAPTION>
50% of the 100% of the
Offering sold Offering sold
<S> <C> <C>
Units being Offered. . . 3,000,000 6,000,000
Shares Outstanding . . . . 13,406,732 13,406,732
Shares to be Outstanding[1] . . 16,406,732 19,406,732
Gross Proceeds from the
Offering . . . . .
Estimated Expenses of the Offering
including Selling Commissions .
Net Proceeds to the Company After
Deducting Estimated Expenses . .
</TABLE>
<PAGE> 9
[1] Does not include 6,000,000 shares reserved for issuance upon the
exercise of the Redeemable Warrants. In the event that some or
all of the 6,000,000 additional shares are issued through exercise
of the Redeemable Warrants, of which there can be no assurance,
the public investors' percent of ownership would increase while
the private investors percent of ownership would decrease.
Use of Proceeds The net proceeds available to the Company upon
completion of this offering and after deducting
the commissions and estimated offering expenses
will be approximately $______________ if 50% of
the Units are sold and $__________ if 100% of the
Units are sold. The Company intends to use the
proceeds to finance its work programs in Chile,
Argentina and Mexico; for administrative expenses;
and, for working capital. See "Use of Proceeds"
and "Proposed Business."
Risk Factors Investment in the Units should be considered
highly speculative. The Company has no current
operating history and is subject to all of the
inherent risks of a developing business
enterprise. The Company is in need of additional
capital and has no revenues. There are non-arms
length transactions with affiliates involving
conflicts of interest. The Company does not
anticipate paying any dividends on its Common
Stock.
Price Per Unit $
Selected Financial
Information The Company has no operating history and maybe
considered a developmental enterprise. The
Company has no revenues and there is no assurance
that the Company will ever have material revenues
or that its operations will be profitable. The
following financial data summarizes certain
information concerning the Company is based upon
the financial statements and notes, thereto,
contained in this Prospectus. See "Financial
Statements."
<PAGE> 10
Balance Sheet at September 30, 1996 (Audited) and June 30, 1997
(Unaudited):
<TABLE>
09/30/1997 06/30/1997
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current Assets . . . . $ 806,440 $ 1,234,713
Total Assets . . . . . 5,605,357 6,174,102
Current Liabilities . . . 119,867 33,342
Stockholders' Equity . . . 5,485,490 6,140,760
Total Liabilities
& Stockholders' Equity. . . . 5,605,357 6,174,102
Net Tangible Book Value Per Share . $ 0.52 $ 0.46
</TABLE>
Transfer Agent OTC Stock Transfer
2310 East 2100 South
Salt Lake City, Utah 84115
(801) 485-5555
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RISK FACTORS
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THE UNITS BEING OFFERED INVOLVE A HIGH DEGREE OF RISK AND,
THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT
BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS
OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD READ THE
ENTIRE PROSPECTUS AND CAREFULLY CONSIDER AMONG THE OTHER FACTORS AND
FINANCIAL DATA DESCRIBED HEREIN, THE FOLLOWING RISK FACTORS DESCRIBED
HEREIN:
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
<PAGE> 11
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.
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.
<PAGE> 12
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 Deficits; Accumulated Deficit; Working
Capital Deficit; Auditor's Report. Although it commenced operations
more than two years ago, the Company remains in the development stage.
At June 30, 1997, the Company had a working capital of $1,201,371 and
an accumulated deficit of $4,505,108, which deficits and losses are
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. See "Proposed
Business" and "Management."
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.
The shareholders purchasing in this offering may be further diluted in
their percentage ownership of the Company in the event additional
<PAGE> 13
shares are issued by the Company in the future. 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. Public Shareholders will Suffer the Greatest Losses if the
Company is Unsuccessful. If the Company's future operations are
successful, the present shareholders will realize substantial benefits
from the Company's growth. If the Company's future operations are
unsuccessful, the persons who purchase the Warrants and Shares offered
hereby will sustain the principal losses of such cash investment. See
"Dilution."
12. Potential Future Sales Pursuant to Rule 144. Approximately
13,406,732 shares of Common Stock. At June 30, 1997, there are issued
and outstanding of which 6,339,594 shares are "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. See "Description of
Securities - Shares Eligible for Future Sale."
13. No Escrow - No Minimum Offering - Funds Immediately Available
for Use by the Company. There is no minimum number of shares that must
be sold in this Offering and there is no escrow of funds, accordingly,
the proceeds from this Offering will be immediately available to the
Company and there will be no refunds.
14. 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. See "Dividend Policy" and "Description of Securities."
15. Substantial and Immediate Dilution. Purchasers of Units will
incur immediate and substantial dilution in the net tangible book value
of the shares. The shares purchased in this offering will be diluted
by $____ from the offering price of $____, if the minimum offering is
sold and $____ if the maximum offering is sold. See "Dilution."
<PAGE> 14
16. No Firm Commitment to Purchase Units. The Units offered
herein are offered on a best efforts basis by the Company and no
commitment exists by anyone to purchase all or any portion of the
Units being offered, and the Company can give no assurance that any
Units will be sold. See "Plan of Offering."
17. Warrants. The exercise by the holders of the Warrants to be
sold pursuant to this offering is subject to the Company either
maintaining the effectiveness of the registration statement, of which
this Prospectus forms a part, on a current basis or filing an effective
registration statement with the Securities and Exchange Commission and
complying with the appropriate state securities laws. While the
Company has agreed to use its best efforts to so make the underlying
stock available for the Warrantholders, no assurance can be given that
at the time that a Warrantholder seeks to exercise the right to
purchase the Company's stock that an effective registration statement
will in fact be in, effect. The Company is obligated under the Warrant
Agreements to maintain this Prospectus current by making such
post-effective amendments as may be necessary from time to time. See
"Description of Securities - Redeemable Warrants."
18. Redeemable Warrants. The Warrants are by the Company. Each
Redeemable Warrant entitles the holder to purchase one share of Common
Stock at a price of $1.40, until September 1, 2000. The Warrants are
callable by the Company upon thirty (30) days written notice provided
that the bid price of the Company's Common Stock trades above $3.00 for
ninety (90) consecutive trading days, if the holder does not exercise
the Redeemable Warrants, the Redeemable Warrants will loose all value.
See "Description of Securities - Redeemable Warrants."
19. No Underwriter. The Company has not retained an underwriter
to assist in offering the Units. The Units are being offered by the
Company and selected dealers and there is no assurance the Company and
selected broker/dealers are capable of selling all, or any, of the
Units offered. The Company's Officers have experience in the
securities industry, and some of the Officers were employed as
representatives in the securities industries, however, the Officers and
Directors of the Company have no experience in the offer and sale of
securities on behalf of an issuer and, consequently, may be unable to
complete the sale of the Units even with the assistance of selected
dealers. In the event an underwriter is retained by the Company, this
Offering would be suspended until the Company's registration statement,
including this Prospectus, was amended to reflect such retention. The
registration statement would then require additional review and
clearances by regulatory authorities, and the Company could be expected
to incur significant additional legal and accounting cost. See "Plan
of Offering."
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE
PURCHASE OF THE UNITS OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
ANY PERSON CONSIDERING AN INVESTMENT IN THE UNITS OFFERED HEREBY SHOULD
BE AWARE OF THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE
SHARES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A
TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A
RETURN ON THEIR INVESTMENT.
<PAGE> 15
- ---------------------------------------------------------------------
DILUTION
- ---------------------------------------------------------------------
As of June 30, 1997, the Company had 13,406,732 shares of Common
Stock outstanding with a net tangible book value of approximately $0.46
per share.
The discussion and computations which follow do not give effect to
the exercise of Common Stock Redeemable Warrants to be issued to
investors in this offering. There may be additional dilution with the
exercise of the Common Stock Redeemable Warrants. See "Financial
Statements."
As of June 30, 1997, the net tangible book value of the Company
was $___________ or approximately $_____ per share. Assuming the sale
by the Company of all offered Units (6,000,000) at the public offering
price of $____ per Unit, and assuming no other changes to the Company's
financial position, the net tangible book value of the Company would be
$_________ or approximately $_____ per share. This represents an
immediate dilution of $_____ per share to new investors; and an
immediate increase in the net tangible book value of shares held by
present shareholders of $_____ per share.
Assuming the sale by the Company of fifty percent of the offering
three million (3,000,000) Units and assuming no other changes to the
Company's financial position, the net tangible book value of the
Company would be $__________ or approximately $_____ per share. This
represents an immediate dilution of $_____ per share to new investors;
and an immediate increase in the net tangible book value of Units held
by present shareholders of $_____ per share.
"Net tangible book value" is the amount that results from
subtracting the total liabilities, deferred costs, and intangible
assets of the Company from its total assets. "Dilution" is the
difference between the public offering price and the net tangible book
value of the shares immediately after the offering. Additionally,
dilution is calculated based on book value of the Company's assets,
which may not necessarily reflect the actual market value of such
assets.
<PAGE> 16
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
Assuming 50% Assuming 100%
of the Units of the Units
Sold Sold
<S> <C> <C>
Public offering price per
share [1]
Net tangible book value per
share before offering [2]
Increase per share attri-
attributable to
existing investors
Net tangible book value per
share after offering
Dilution of net tangible
book value per share to
new investors
</TABLE>
[1] Offering price before deduction of offering expenses.
[2] Determined by dividing the number of shares of Common Stock
outstanding into the net tangible book value of the Company.
[3] Does not give effect to the issuance of up to 6,000,000 shares of
Common Stock reserved for issuance upon exercise of the Redeemable
Warrants held by investors in this offering.
[4] All computations are on a per share basis.
- ---------------------------------------------------------------------
SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------
The selected financial data presented below has been derived from
the financial statements of the Company, which financial statements
have been examined by Williams & Webster, P. S., independent public
accountants, as indicated in their report included elsewhere herein.
The information below should be read in conjunction with the Company's
Financial Statements and the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." For the reasons set forth in the "Prospectus Summary -
Risk Factors" the information shown below may not be indicative of the
Company's future results of operations.
<PAGE> 17
<TABLE>
<CAPTION>
June 30 June 30 September September November
1997 1996 30, 1996 30, 1995 30, 1994
(Unaudited) (Unaudited) (Audited) (Audited) (Audited)
<S> <C> <C> <C> <C> <C>
Statement of Operations and
Accumulated Deficit Data:
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Operating Expenses $ 391,713 $ 278,055 $ 2,045,082 $ 962,735 $ 211,796
Net loss $ 375,523 $ 280,214 $(2,045,082) $ (962,735) $(211,796)
Net Loss per share $ 0.03 $ 0.03 $ (0.22) $ (0.15) $ (0.03)
Balance Sheet Data:
Work Captial
(Deficit) $ 1,201,371 $ 261,027 $ 686,573 $ (665,274) $ 25,754
Total Assets $ 6,174,102 $ 5,243,891 $ 5,605,357 $ 4,056,698 $ 366,620
Long-term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Stockholders'
Equity $ 6,140,760 $ 5,188,755 $ 5,485,490 $ 3,235,376 $ 276,321
</TABLE>
- ---------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------------
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 amount of money on a property
before it is possible to make a final determination as to whether or
not the property contains economically minable ore bodies. The
economic viability of a property cannot be finally determined until
extensive exploration and development work, plus a detailed economic
feasibility study, has been performed. Also, the market prices for
mineralization produced are subject to fluctuation and uncertainty,
which may negatively affect the economic viability of properties on
which expenditures have been made. During the development stage of the
Company, from inception to June 30, 1997, the Company accumulated a
deficit of $4,455,108.
<PAGE> 18
At June 30, 1997, $4,472,096 of the Company's total assets of
$6,174,102 were investments in mineral properties. Additional
exploration is required to substantiate or determine whether these
mineral properties contain ore reserves that are economically
recoverable. The realization of these investments is dependent upon
the success of future property sales, the existence of economically
recoverable reserves, the ability of the Company to obtain financing,
the Company's success in carrying out its present plans or making other
arrangements for development, and upon future profitable production.
The ultimate outcome of these investments cannot be determined at this
time; accordingly, no provision for any asset impairment that may
result, in the event the Company is not successful in developing or
selling these properties, has been made in the Company's financial
statements.
Liquidity and Capital Resources.
The Company currently has no revenues but, as explained above, has
an accumulated deficit. Although it has recurring losses from
operations, the Company has increased its operating capital and
improved its financial condition and ability. Regarding its losses
from operations, the Company cannot assure that it will be able to
fully carry out its plans as budgeted without additional operating
capital. At June 30, 1997, the Company had working capital of
$1,201,371. This amount is a significant improvement in liquidity and
capital resources from its working capital position of $390,852 at
December 31, 1996 and of $686,573 at September 30, 1996. In the nine
months ending June 30, 1997, the Company's working capital has
increased by $514,798 primarily because of the cash stock sales of
$1,868,250 in the second quarter and the reduction of all remaining
short-term debt, which are partially offset by funding of the Company's
general and administrative expenses. During the same nine month
period, the Company's cash increased from $688,716 to $1,123,602.
In the second quarter of fiscal 1997, the Company reduced its
short-term debt position to $0 by paying off a $35,000 promissory note.
The Company has continued to reduce its accrued expenses and accounts
payable. Accordingly, the Company's current liabilities shrank from
$119,867 at September 30, 1996 to $33,342 at June 30, 1997. The
Company has no long-term debt.
The Company has estimated that it will need minimal capital
resources of approximately $40,000-50,000 per month to meet its
estimated expenditures for fiscal 1997. In 1996, acting on
instructions from the Board, several key members of management, in
particular the CEO of the Company, met with experienced financial and
investment firms through out Europe and North America and negotiated
preliminary terms and arrangements for such capital fund raising.
During the second fiscal quarter of 1997, the Company raised $1,871,250
in funds, primarily through the private placement of shares and
warrants. The Company is continuing with the previously described
negotiations and various alternatives to raise capital.
<PAGE> 19
The Board of Directors reasonably believes that the Company is
able to engage in nearly any size operation or scope of mining activity
depending on the circumstances and merits of each proposed operation or
mining activity. Accordingly, the Board has not limited the size of
operation or scope of project which it believes is reasonable for
management to consider in achieving the Company's business plan.
Therefore, management has been authorized to consider and review
numerous proposals and, upon satisfactory assessment, to then make a
specific determination as to an estimated range of funding amounts that
each such proposal reasonably might require.
Inasmuch as the Company has not yet determined in detail the
specifications of the project, operation or mining activity that it
intends to undertake, management is not able at this time to provide a
detailed listing or exact range of operation costs, including increases
in general and administrative expense, if any. However, the Company
plans to fund any substantial increases in general and administrative
expense principally from joint venture revenues or funds it may receive
or savings it may realize through corporate restructuring or business
combination arrangements. Funds required to finance the Company's
exploration and development of mineral properties are expected to come
primarily from the contributions of its joint venture participants, and
from the funds generated from such joint ventures and other lease or
royalty arrangements.
As a result of negotiations in July and August 1997, the Company
reached an amended 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 Nine Months Ended June 30, 1996 and June 30, 1997,
Respectively.
General and administrative expenses increased from $929,984 during
the first three quarters of fiscal 1996 to $1,463,455 during the first
three quarters of fiscal 1997. This increase is principally due to an
increased level of expenditures in acquiring and exploring the
<PAGE> 20
Company's recent acquisitions in Argentina and Chile. Also, during the
second quarter of fiscal 1997 the Company wrote off $238,887 of mineral
properties associated with its investment in the Bunker Hill Mine. As
a result, during the nine months of fiscal 1996 compared to the first
nine months of fiscal 1997, the Company's net loss increased from
$937,393 to $1,447,291, while the net loss per share increased from
$0.11 to $0.12 per share.
The Company is unable to fully determine the impact of future
transactions on its operating capital. Hence, the Company has
determined not to incur and does not have any commitments or plans for
material capital expenditures during the remainder of its current
fiscal year for which it does not have a reasonably available source of
payment. It is uncertain what effect this decision may have with
respect to restricting capital expenditures.
On the one hand, if the Company were to continue such restriction,
the likely effect might be adverse to the preservation of its assets
and capital base, thereby narrowing the scope of plans for future
operations and constricting liquidity. On the other hand, if the
Company were to discontinue such restriction without an increase in
sustained cash flow, the likely effect of that might be an increase in
accumulated deficits which could be adverse to the Company's financial
condition with respect to liabilities and stockholders' equity.
Therefore, while the Company continues to seek a joint venture
participant and additional sources of capital for financing operations
during the remainder of its current fiscal year, the Company will
continue to carefully monitor its capital expenditures.
- ---------------------------------------------------------------------
USE OF PROCEEDS
- ---------------------------------------------------------------------
The proceeds from the sale of the Units offered hereby will be
approximately $1,075,000 if 25% of the Units are sold, approximately
$2,200,000 if 50% of the Units are sold, approximately $3,325,000 if
75% of the Units are sold and $4,450,000 if 100% of Units are sold.
The Company intends to utilize the proceeds from the sale of the Units
to finance its work programs in Chile, Argentina and Mexico; for
administrative expenses; and, for working capital as follows:
<PAGE> 21
<TABLE>
<CAPTION> Assuming Assuming Assuming Assuming
Sale of Sale of Sale of Sale of
100% of 75% of 50% of 25% of
Shares Shares Shares Shares
<S> <C> <C> <C> <C>
Exploration - Mocha Project $ 300,000 $ 300,000 $ 200,000 $ 0
Exploration/Development
Mexico $ 1,200,000 $ 750,000 $ 300,000 $ 100,000
Property Payments $ 350,000 $ 350,000 $ 350,000 $ 350,000
General and Administrative $ 400,000 $ 400,000 $ 400,000 $ 400,000
Working Capital
and General Corporate $ 2,050,000 $ 1,375,000 $ 450,000 $ 175,000
Equipment Purchases $ 150,000 $ 150,000 $ 100,000 $ 50,000
Total $ 4,450,000 $ 3,325,000 $ 2,200,000 $1,075,000
</TABLE>
The figures set forth above are estimated and cannot be calculated
precisely at the present time. Until required for working capital, the
net proceeds may be invested temporarily in short-term obligations such
as certificates of deposit issued by banks and short term government
obligations. The Company reserves the right to amend the use of
proceeds, by vote of a majority of the Board of Directors.
It is anticipated that the maximum estimated proceeds from the
Offering will be sufficient to fund operations for a period of
approximately twenty-four (24) months. It is, however, impossible to
predict what additional expenses may be since the costs of operations
associated with development stage companies frequently involve
unanticipated expenditures. Management currently believes that the
Company will require additional capital. If the Company should be
unable to meet currently unanticipated expenses, the Company expects
that it will have cash requirements for working capital which will have
to be met through bank indebtedness or through the private or public
sale of the Company's debt or equity securities. There can be no
assurance that the Company would be able to obtain such financing or
that such financing, if available, would be on terms and conditions
acceptable to the Company. If the Company were unable to obtain needed
funds, it could be forced to curtail or cease its activities. See
"Risk Factors - Need for Additional Financing."
- ---------------------------------------------------------------------
DIVIDEND POLICY
- ---------------------------------------------------------------------
The Company has never paid a cash dividend on its Common Stock and
does not expect to pay a cash dividend in the foreseeable future, but
intends to devote all funds to the operations of its business. See
"Risk Factors - No Dividends Anticipated."
<PAGE> 22
- ---------------------------------------------------------------------
GLOSSARY
- ---------------------------------------------------------------------
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.
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.
<PAGE> 23
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.
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 stopping 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.
<PAGE> 24
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.
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.
<PAGE> 25
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.
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.
<PAGE> 26
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.
<PAGE> 27
Level The horizontal openings on a working horizon
in a mine; it is customary to work mines from
a shaft, establishing levels at regular
intervals, generally about 50 meters or more
apart.
Limestone A bedded, sedimentary deposit consisting
chiefly of calcium carbonate.
Lode A mineral deposit in solid rock.
Metamorphic Rocks Rocks which have undergone a change in
texture or composition as the result of heat
and/or pressure.
Mill A processing plant that produces a
concentrate of the valuable minerals or
metals contained in an ore. The concentrate
must then be treated in some other type of
plant, such as a smelter, to affect recovery
of the pure metal.
Milling Ore Ore that contains sufficient valuable mineral
to be treated by the milling process.
Mineable Reserves Ore reserves that are known to be extractable
using a given mining plan.
Mineral A naturally occurring homogeneous substance
having definite physical properties and
chemical composition and, if formed under
favorable conditions, a definite crystal
form.
Mineralized Material
or Deposit A mineralized body which has been delineated
by appropriate drilling and/or underground
sampling to support a sufficient tonnage and
average grade of metal(s). Under SEC
standards, such a deposit does not qualify as
a reserve until a comprehensive evaluation,
based upon unit cost, grade, recoveries, and
other factors, conclude economic feasibility.
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.
<PAGE> 28
Net Smelter Return A share of the net revenues generated from
the sale of metal produced by a mine.
Open Pit A mine that is entirely on surface. Also
referred to as open-cut or open-cast mine.
Ore Material that can be mined and processed at a
positive cash flow.
Ore Pass Vertical or inclined passage for the downward
transfer of ore connecting a level with the
hoisting shaft or a lower level.
Orebody A natural concentration of valuable material
that can be extracted and sold at a profit.
Ore Reserves The calculated tonnage and grade of
mineralization which can be extracted
profitably; classified as possible, probable
and proven according to the level of
confidence that can be placed in the data.
Oreshott 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.
<PAGE> 29
Porphyry Any igneous rock in which relatively large
crystals, called phenocrysts, are set in a
fine-grained groundness.
Precambrian Shield The oldest, most stable regions of the
Earth's crust, the largest of which is the
Canadian Shield.
Prospect A mining property, the value of which has not
been determined by exploration.
Proven and Probable
Mineral Reserves Reserves that reflect estimates of the
quantities and grades of mineralized material
at a mine which the Company believes could be
recovered and sold at prices in excess of the
cash cost of production. The estimates are
based largely on current costs and on
projected prices and demand for such
mineralized material. Mineral reserves are
stated separately for each such mine, based
upon factors relevant to each mine. Proven
and probable mineral reserves are based on
calculations of reserves provided by the
operator of a property that have been
reviewed but not independently confirmed by
the Company. Changes in reserves represent
general indicators of the results of efforts
to develop additional reserves as existing
reserves are depleted through production.
Grades of ore fed to process may be different
from stated reserve grades because of
variation in grades in areas mined from time
to time, mining dilution and other factors.
Reserves should not be interpreted as
assurances of mine life or of the
profitability of current or future
operations.
Probable Reserves Resources for which tonnage and grade and/or
quality are computed primarily from
information similar to that used for proven
reserves, but the sites for inspection,
sampling and measurement are farther apart or
are otherwise less adequately spaced. The
degree of assurance, although lower than that
for proven reserves, is high enough to assume
continuity between points of observation.
<PAGE> 30
Proven Reserves Resources for which tonnage is computed from
dimensions revealed in outcrops, trenches,
workings or drill holes and for which the
grade and/or quality is computed from the
results of detailed sampling. The sites for
inspection, sampling and measurement are
spaced so closely and the geologic character
is so well defined that size, shape, depth
and mineral content of reserves are well
established. The computed tonnage and grade
are judged to be accurate, within limits
which are stated, and no such limit is judged
to be different from the computed tonnage or
grade by more than 20 percent.
Raise A vertical or inclined underground working
that has been excavated from the bottom
upward.
Rake The trend of an orebody along the direction
of its strike.
Reclamation The restoration of a site after mining or
exploration activity is completed.
Recovery The percentage of valuable metal in the ore
that is recovered by metallurgical treatment.
Replacement Ore Ore formed by a process during which certain
minerals have passed into solution and have
been carried away, while valuable minerals
from the solution have been deposited in the
place of those removed.
Reserves That part of a mineral deposit which could be
economically and legally extracted or
produced at the time of the reserve
determination. Reserves are customarily
stated in terms of "Ore" when dealing with
metalliferous minerals.
Resources 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.
<PAGE> 31
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.
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 unnumberable parallel planes, generally
resulting from pressure and producing such
metamorphic structures as cleavage and
schistosity.
<PAGE> 32
Shrinkage Stopping A stopping 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
G(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 mineralization
horizon or structure along strike or down
dip.
Stockpile Broken ore heaped on surface, pending
treatment or shipment.
Stope 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 or 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.
<PAGE> 33
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.
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 upper portion of an orebody that has been
oxidized.
<PAGE> 34
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BUSINESS
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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, copper and zinc. 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"). Unless indicated differently by the
context, all references to the Company herein shall refer to Royal
Silver Mines, Inc., the corporate entity that resulted from the
business combination of Consolidated Royal Mines, Inc. and Celebration.
Prior to the Reorganization, Celebration was a non-public, closely
held Washington corporation. It was formed in February 1994 to
identify and acquire mineral properties for subsequent exploration and
development, if warranted, through equity financing and joint venture
arrangements. The Reorganization has been accounted for as a purchase
by Celebration of the Company. Celebration was treated as the
acquiring company for financial reporting purposes because its
shareholders constituted greater than 50 percent 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, however, Centurion holds an approximate 8.9%
shareholder interest in the Company and is an affiliate and related
party of the Company.
The Company operates its business as an exploration stage company,
meaning that it intends to receive income from property sales, joint
ventures, or other business arrangements with larger companies, rather
than developing and placing its properties into production on its own.
As discussed in greater detail below in the section entitled
"Business - The Company's 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
<PAGE> 35
existence of economically recoverable metals and other mineralized
material, the ability of the Company to obtain financing or make other
arrangements for development, and upon future profitable production.
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 percent of the Company's common
stock. See "Business - 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's mission is to explore for and, if warranted, develop
its mineral properties. The Company's strategy is to conduct an
initial evaluation of its properties, and after determining the
geological merit of each, proceed with additional exploration either by
utilizing the Company's own funds or by seeking joint ventures with
major mining companies who will then commit their funds in exchange
for an interest in the project. The Company expects in this way to
achieve an increase in the value of its assets and to economize the use
of its own funds.
The Company has determined that it will focus on exploration and
development of base metal and silver properties because management
believes supply/demand fundamentals for these metals are currently
favorable and are projected to remain favorable for the long term.
These supply/demand characteristics are driven primarily by increasing
affluence in developing countries and particularly by demand form the
Far East. Management also believes that base metal and silver deposits
are not being discovered as rapidly as supplies are being depleted.
These factors create a high likelihood of stable and favorable focus
metal prices overall, and possible significant price increases in
selected commodities such as silver and zinc in the near future.
<PAGE> 36
Management intends to expand growth by focusing on silver and base
metal properties in North America, Mexico, Chile and Argentina. The
Company intends to explore, develop, joint venture, discover and
accumulate reserves, identify and acquire undervalued properties and
reserves, and/or operate mining properties. The Company's strategy for
each will vary on a case-by-case basis.
Properties
Chilean Properties - Mocha Prospect
Background
The prospect was submitted in early 1997 to the Company through
one of the directors of the Company and a field exam was made
immediately 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:
1. More than 50% of a known large porphyry system at Mocha is covered
by Tertiary gravels and ignimbrites (post-mineral cover).
2. 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.
3. A large north-south trending aeromagnetic 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
land positions and attempted unsuccessfully to make a deal on the
principal claim group held by the Escala family of Santiago, Chile. In
January of 1997, the Oregon and Chilean Exploration Mining Company,
LTDA, staked 95 "pedimentos" or exploration claims totaling 28,300
hectares surrounding the known Mocha District claims of the Escala
family and Conoco Minerals, and including the large aeromagnetic low
anomaly 5-7 kilometers west of Mocha.
The Company has been successful at consolidating the District.
Final agreements were signed on June 23, 1997 and July 31, 1997 between
the Company and the Escala and Oregon LTDA properties. Negotiations
are also underway for the Conoco Minerals claims which are of lesser
area and importance. Approximately US$75,000 has been spent in
front-end payments. An additional US$75,000 has been spent in claim
staking, legal fees, and geologic studies. Only one US$25,000 payment
is due in the next six months.
The entire and total amount of the Escala property is US$5,000,000
payable as follows:
<PAGE> 37
On signing US$ 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
signing of the option to purchase contract, the price of said contract
shall amount to US$4,510,000 of which the unpaid balance shall be due-
in-full at such time.
In addition to the purchase price stated hereinabove, the Company
will pay annually to the Sellers in equal parts an amount equal to 2%
of the net smelter return obtained by the beneficiary or its cessionary
as a result of the exploitation of any of the properties which are
acquired. The parties agree to negotiate, in good faith, an amount for
the N.S.R. buy-out which will become an integral part of the option to
purchase contract.
Under the terms of the agreement with the Oregon, LTDA, which was
signed on July 31, 1997, the Company can acquire a 100% interest in the
28,300 hectare claim block according to the following schedule:
On signing US$ 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
approximately on the 19E48'30" south meridian at 69E16'30" west
longitude (See Figure 1). This area is within Region I of Chile,
Iquique Province, Comuna de Huara. The prospect is approximately 100
kilometers east-northeast of the coastal city of Iquique and 60
<PAGE> 38
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,
Quebrada Tarapaca, at an average elevation of 2300 meters. The farming
pueblo of Mocha is located near the northeastern corner of the
property.
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 at
Mocha 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
eleven core holes totaling nearly 5000 meters and three rotary holes
totaling approximately 850 meters.
The United Nations and Conoco core drilling activities outlined a
minimum of several 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
biotitization 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
0.51% copper. Some problems may have been encountered with ASARCO'S
RVC drilling as assay results were lower than assays in adjacent core
holes. 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
30-40km (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
(See Figure 2). 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.
<PAGE> 39
The West Fissure is believed to have had a major component of net
left lateral displacement since Mesozoic time. The West Fissure,
however, 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).
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
Blanca-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 (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 aeromagnetic low is present on the prospect,
approximately 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 postmineral cover.
However, even without geophysics at Mocha, a good drilling target
exists immediately west of the known porphyry-type mineralization.
<PAGE> 40
The Company's geologists believe that the potential exists for
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.
The Company is confident the project is of high interest to major
mining companies. This view is based not only upon the geologic factors
discussed above, but also because world demand for copper is growing
rapidly necessitating aggressive exploration for new copper deposits.
The Company has already had numerous contacts with several major
companies confirming this hypothesis. The Company believes that a
property of the size discussed above would ultimately be developed into
a mine, and that the Company's share of the project would be of such
magnitude that it would add very dramatically to stockholder equity.
Strategy for Mocha
Management has determined that a flexible approach to Mocha in the
next six months will maximize its value to the Company. The Company
does not intend to fully explore the property on its own, but will at
some point joint venture the property to a major mining company. The
timing of signing such a joint venture is critical to the Company.
The project will be more valuable to the Company shareholders if
the company undertakes some geophysical work and preliminary drilling
of its own to prove continuity of the mineral system to the west. This
action will improve the Company's negotiating posture dramatically
since the greatest exploration risk of the project is that the
mineralization does not continue to the west, and such work will likely
diminish this risk is successful.
Therefore, the Company strategy can be summarized as follows;
either
1. Immediately (within two months) joint venture the project to a
major mining company, or;
2. Conduct an initial geophysical and drilling program on the project
to be completed within four months and then seek to joint venture
the project to a major mining company, this latter goal to be
completed within seven months.
It is the belief of management that path #2 would be preferable
and would maximize the value of the Mocha property for the Company.
However, the Company would not undertake any further exploration of the
project unless the Company nets in excess of $2.5 million from this
fundraising. The Company has allocated a maximum of $300,000 for
further exploration at Mocha. See "Use of Proceeds."
<PAGE> 41
However, since the Company is already in negotiations with a
number of major companies on Mocha, it is possible, perhaps likely,
that an offer will be received that is so advantageous to the Company
that an immediate joint venture of the project would be both prudent
and fiscally advantageous. Management will continue to evaluate Mocha
closely as new developments occur.
Other Chilean Opportunities
The Company intends to expand its presence in Chile and currently
is evaluating other mining opportunities which have presented
themselves. Many attractive Chilean mining properties are owned or
controlled by established Chilean families, some of whom, so far, have
been unwilling to negotiate with major mining companies. The Company
has not and will not comment on the reasons for these various states of
impasse.
Management has been approached by several large companies to act
as an intermediary between the families and the major company to assist
in negotiations. It is believed that by conducting negotiations and
signing mineral deals, the Company can gain a percentage ownership,
joint venture partnership and/or royalty interest in a number of
ventures in Chile, thereby increasing the Company's chances of
participation in a property that is ultimately successfully developed
into a mine.
Mexican Properties
Manatial Project
The Company has acquired four formerly producing mines; the
Manantial, 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 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. (See Figure 4.)
Mining by the Indians pre-dates Spanish colonization. The Spanish
mined the area and developed a port at San Blas in conjunction with the
mining operation. A German company operated the mines and a smelter
from 1890 to 1910 when they shutdown due to the Mexican Revolution.
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.
<PAGE> 42
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 planning an exploration drilling
program to develop the necessary reserves to re-open the mines. (See
Figure 5.)
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 ounces silver per
tonne. The vein extends for a known strike of 400 meters and is open
down dip and on strike. The vein width and continuity make the
Frazadas vein amenable to high productivity mechanized mining methods.
The Zopilote vein is southwest of and sub-parallel to the Frazada
vein. The mine workings consist of a 160 meter deep shaft with several
levels developed, the extent of which is 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 and Minera Nival
did no work on the vein.
The Jabalina mine consists of a long drift developed on the
westerly strike projection of the Zopilote vein. The workings are
about 300 meters vertically below the Zopilote and terminate 600 meters
from the down dip projection of the Zopilote. The Germans were driving
to develop the vein at a lower elevation, but never reached their
target. 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 per
ton 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 a least five veins averaging 1.5
meters in width and grading 13 to 20 ounces silver per ton with a
significant gold credit. The mine is developed on two levels and is
accessed by crosscuts from the surface. The mine is a complex of sub-
parallel veins of varying strike and dip averaging 50 meters in length.
Minera Nival drilling indicates zones between the veins contain
disseminated and stockwork mineralization. The Manantial vein system
will be explored by drilling to determine if it is a stockwork vein
system and its potential.
Overall, the Company believes the Zopilote District is a large
mineral system that may be part of a volcanic caldera complex. A
$250,000 exploration program is planned for the Summer of 1997.
<PAGE> 43
Argentina Properties
In January of 1997, the Company acquired an option to purchase
twelve separate mine claim groups in La Rioja Province, Argentina.
(See Figures 1 and 2.) Under the terms of the option agreement, the
Company can purchase the properties on or before March 1, 2000 by the
payment of $4.5 million in cash or $5.5 million in the Company's common
shares. The original owners will retain a 1.9% net smelter return
royalty 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.
The acquisition includes 12 separate properties which have all
been advanced to the status of mines, meaning that the title to the
mineral 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
possible via 4-wheel drive vehicle from Jague. The final 15 mile route
to the prospect is currently undergoing improvement. This work is
being partially funded by the Company and partially funded by the
Provincial government of La Rioja Province.
The prospect appears to be a series of stacked siliceous
stratiform sulfide occurrences. The principal host rocks are quartz-
mica 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
sulphide zone can be traced on surface for more than 6000 feet in a
north-south direction, ranges in thickness from 3 feet to more than 60
feet, and dips to the west 30 degrees to 80 degrees, parallel to the
stratigraphy. Abundant oxide iron, copper, and manganese stain define
the zone at surface. The massive to disseminated unoxidized metal
mineralization, principally seen in one short adit, consists of specular
hematite, chalcocite, 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 of silver.
<PAGE> 44
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 of silver.
The Company plans 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, 3000 feet long in
a northeast direction and 2000 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% copper, with
accompanying tin, silver and molybdenum credits. Lower grade copper
values surround this higher grade zone. The Salto de Albi system is
believed to have the potential to host in excess of 100,000,000 tons of
porphyry mineralization.
United States Properties
The Company in 1995 and 1996 had focused its efforts on acquiring
former producing silver properties in the United States with a strategy
of exploring for additional reserves and if justified, re-opening the
properties. However, due to the increasingly difficult regulatory
environment prevalent in the United States, management, consistent with
a majority of the North American mining industry, has chosen to re-
focus the Company's efforts offshore in countries where the regulatory
framework is not punitive and obstructionist, but is evaluated as being
cooperative and amenable to capital investment. Mexico, Chile and
Argentina are viewed as favorable by management.
Although the United States properties host important silver and
base metal mineralization and are long-term assets of the Company, no
work is contemplated on these properties near term unless metal prices
rise sufficiently to offset the regulatory risks of operating in the
United States.
Crescent Mine
In February 1995, Celebration Mining, Inc., ("Celebration") a
wholly owned subsidiary, entered into an agreement to acquire a long
term 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.
<PAGE> 45
Operations of the Crescent Mine began prior to 1917 and produced
in excess of 25 million ounces of silver. The mine is currently not 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 indicated that the Crescent Mine
contained 141,000 tons of probable reserves averaging 31 ounces of
silver per ton of mineralized material. At current silver prices, the
Company cannot assure that any of the mineralization could be mined at
a profit.
The Crescent Mine property consists of 12 patented mining claims,
associated unpatented claims and two Idaho state leases, and is located
immediately adjacent to and west of the world-famous Sunshine Mine
(Sunshine Mining Company, SSC-NYSE). The Sunshine Mine has produced
nearly 400 million ounces of silver since its inception, making it the
largest primary silver mine in the world. The structural and
stratigraphic features which have produced the ore deposits in the
Sunshine Mine are also present in the Crescent Mine.
Host rocks in the Crescent Mine, in common with the rest of the
District, are members of the Precambrian Belt Super Group. Three
formations are present in the mine 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 is developed to a depth of 5,100 feet by two vertical
shafts. The majority of past production from the Crescent Mine
occurred in the Revett formation between the 3,100 level and the 4,300
level. In the mid-1980's, the No. 2 shaft was deepened to the 5,100
level, which opened an additional 800 feet of favorable Revett
quartzites for development of the downward extensions of the East
Footwall and Hook veins, the two major veins in the mine.
The Company's timing to re-establish production from the Crescent
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 rehabilitate the stopes. As
of August 29, 1997, the Comex Spot price for silver was $4.67. The
Company believes that a processing agreement for Crescent ore can be
negotiated with the neighboring Sunshine Mine on a favorable basis.
<PAGE> 46
During the 1996 fiscal year, the Company's field activities at the
Crescent Mine were limited to an 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 1996 fiscal year.
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.
The Vipont Mine has in the past been a significant silver
producer. 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. The
Company has no plans in the immediate future for any further
development of the property.
Conjecture Mine
In late August 1995, the Company acquired 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 southeast
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. Production on
a neighboring property occurred as recently as 1987. However, within
the Lakeview District, only the Conjecture Mine itself has been
developed to any significant depth.
In the 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 vertical shaft and nearly 12,000 feet of
drifts, cross-cuts and raises. This work established 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 a lead and zinc credit.
<PAGE> 47
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 reconfirm these
estimates, although an independent report done in 1981, by Richard W.
Morris, essentially verified the earlier numbers.
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.
Bismark Mine Property
In September 1995, the Company obtained a 10-year lease on three
patented mining claims in Shoshone County, known as the Bismark claims.
The claims lie about one mile south of the main shaft of the Sunshine
Mine and are surrounded by Sunshine holdings. The property is
developed by a 1,500 foot adit which was driven to the northeast to
intersect the Bismark vein. The Company has re-opened and re-timbered
the portal of the Bismark adit to permit accessing and sampling of the
Bismark vein.
The geology of the Bismark claims, given the proximity to the
Sunshine Mine, is highly favorable to ore deposition. The Bismark vein
lies entirely with the Revett formation, which is the most favorable
rock unit for ore emplacement in the Coeur d'Alene mining district.
Limited exploration by Sunshine Mining Company on their 2,600 level
established the downward projection of mineralization in the Bismark
vein structure.
Bismark Mining Company, the property owner and lessor, will
receive a 2.5 percent net smelter return on commercial production from
the claims under the terms of the Company's lease.
Coeur d'Alene Syndicate Property
No significant mineral production has occurred on the Coeur
d'Alene Syndicate property and there are no known reserves. In
September 1995, the Company acquired fee simple ownership of the 24
patented mining claims that comprise the property, located in Burke
Canyon six miles northeast of Wallace, Idaho. The property is an
undeveloped portion of ground centered between the Star-Morning Mine on
the east and the Frisco and Black Bear Mines on the west.
<PAGE> 48
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 the
deep shafts of the Star Mine.
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 Bunker Hill Mine in the Pine Creek area
of the Coeur d'Alene Mining District. At the time the mine was last
operated by Spokane National in the 1960's, that company reported a
defined block of mineralized material totaling 81,000 tons at 12
percent zinc and 2.5 ounces of silver. 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 at this time, and no current reserve
estimates can be given.
Summary of U.S. Properties
Overall, the Company's U.S. properties have low holding costs and
are being held as part of the Company's strategy of acquiring
undervalued base metal and silver assets which are currently out of
favor. As noted above, the Company plans no significant expenditures
on these properties until metal prices, particularly that of silver,
rise significantly and secondly, until the regulatory climate improves
markedly to allow the orderly and cost-effective permitting and
operation of mining properties.
Private Placements
In July 1995, the Company completed a private placement of 8,700
shares through two Regulation S offerings, both at a price of $2.00 per
share, for a total of $17,400. During September 1995, the Company
completed a private placement of 179,000 shares of common stock through
a domestic offering at a price of $1.50 per share for a total of
$241,650 after expenses. During the twelve months ended September 30,
1996, the Company placed 1,949,332 shares of its common stock for
$2,958,314 in cash. The Company also issued 406,050 shares of its
common stock in lieu of outstanding debt of $570,919, plus accrued
interest. The stock was issued at $1.50 per share for a total value of
$609,075.
<PAGE> 49
On January 30, 1997, the Company sold 200,000 Units at $0.75 to
Britannia Holdings Limited ("Britannia"). Each Unit consisted of one
share of Common Stock, and one Warrant. Each Warrant allows Britannia
to purchase one share of Common Stock at $1.25 per share. The Warrants
expire two years from issuance. The Company also granted Britannia the
option to purchase 335,000 Units on or before February 14, 1997 and
600,000 Units on or before March 24, 1997. The Units were sold pursuant
to Reg. S of the Securities Act of 1933.
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. Neither of
the foregoing options has been exercised as of the date hereof. 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
5th day of February, 1997, Britannia Holdings Limited had not exercised
any warrants.
On the 14th day of February, 1997, the Registrant sold to
Britannia Holdings Limited ("Britannia"), Channel Islands, 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 has been extend by mutual agreement of the parties to March 24,
1997. On January 30, 1997, the Registrant sold 200,000 Units to
Britannia in consideration of $150,000 as previously reported on Form
8-K filed with the Commission. 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 26th day of February, 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.
<PAGE> 50
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.
Competition
The mining industry is very competitive. There is a high degree
of competition to obtain favorable mining properties and suitable
mining prospects for drilling, exploration, development and mining
operations. The Company encounters competition from a handful of other
similarly-situated mining companies in the silver mining industry in
connection with the acquisition of properties capable of profitably
producing silver and other mineralization. The Company is unable to
ascertain the exact number of such competitor companies.
Transactions with Centurion
The Company has disclosed pertinent information and financial data
with respect to its transactions with Centurion. See "Certain
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. See "Glossary."
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
U. S. Regulations
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
<PAGE> 51
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 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.
<PAGE> 52
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 professional, 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.
Employees
The Company has seven 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 the Company's
common stock constituting 37.2 percent 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 the
Company's common stock. This acquisition of shares gave Centurion an
82.3 percent 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 14 percent of the Company's outstanding common stock. Of
this, the Company has been granted an assignable option to repurchase
up to half of Centurion's position at a price of $1.75 at any time
prior to October 1, 1998.
<PAGE> 53
Subsidiaries
The Company currently has four subsidiaries. Celebration Mining
Corporation was incorporated in the State of Washington in February
1994. In conjunction with pursuing its activities in Mexico, Chile and
Argentina, the Company has established wholly owned subsidiaries in
each country. Minera Plata Real was incorporated in Mexico in February
1997. Minera Plata Real was incorporated in Chile in June 1997.
Minera Plata Real was incorporated in Argentina in March 1997.
Reorganization with Celebration
In May and June 1995, the Company's management began negotiations
with management of Celebration regarding a merger or other
reorganization plan of the two companies. On June 28, 1995, the boards
of directors of both companies approved a reorganization and the
companies signed an agreement based on a share exchange. The Company
would acquire 100 percent of Celebration's interest in the Vipont Mine
Joint Venture, the Crescent Mine Lease, the Australia Joint Venture,
and the option rights to acquire up to 50 percent of the mineral rights
on the Prospect Mine Property in Madison County, Montana.
The Celebration shareholders approved the Reorganization and share
exchange agreement at an August 8, 1995 shareholder meeting. In
exchange for 100 percent of the issued and outstanding Celebration
shares, the Company agreed to issue to the Celebration shareholders
4,143,750 shares of the Company's common stock that together would
represent ownership of 63 percent of the Company's 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 the
Company's 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 percent
ownership by the Celebration shareholders. However, to date, none of
the overhanging stock rights have been 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> 54
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MANAGEMENT
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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
Ronald Kitching 66 Member of the Board of Directors
Kevin Stulp 41 Member of the Board of Directors
The authorized number of directors of the Company is presently
fixed at ten. Each director serves for a term of one year that expires
at the following annual shareholders' meeting. Each officer serves at
the pleasure of the Board of Directors and until a successor has been
qualified and appointed. There are no family relationships, or other
arrangements or understandings between or among any of the directors,
executive officers or other person pursuant to which such person was
selected to serve as a director or officer.
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
<PAGE> 55
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
Since April 8, 1997, Mr. Ryan has been a member of the Board of
Directors and since September 1996, Mr. Ryan has been Vice President of
Corporate Development. Mr. Ryan is a professional mining engineer.
Mr. Ryan has served as a consultant in mine engineering services, and
will continue in these activities during his tenure, as well as, engage
in other matters in accordance with the direction and assignment of the
Board of Directors. In addition to his professional degree in Mining
Engineering, which he received from the University of Idaho, Mr. Ryan
also holds a juris doctorate (J.D.) law degree from the Boston College
School of Law.
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.
<PAGE> 56
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.
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,
<PAGE> 57
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.
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CERTAIN TRANSACTIONS
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Certain of the directors and/or officers of the Company also serve
as directors and/or officers of other companies involved in natural
resource exploration and development and, consequently, there exists
the possibility for such directors and officers to be in a position of
conflict. Any decision made by such directors and officers involving
the Company, as the case may be, will be made in accordance with their
duties and obligation to deal fairly and in good faith with the Company
and such other companies. In addition, such directors and officers are
required to declare and refrain from voting on any matter in which such
directors and officers may have a conflict of interest. In this
respect, Howard Crosby, who was the President of Celebration and of the
Company at the time of the Reorganization, refrained from voting on any
matter related to the Reorganization or any other matter pertaining to
both companies.
The Company has engaged in transactions with its officers,
directors and principal shareholders, including the issuance of the
initial shares of the Company. Such transactions may be considered as
not having occurred at arm's length. The Company may be engaged in
transactions with management and others involving conflicts of
interest, including conflicts on salaries and other payments to such
parties, as well as business opportunities which may arise. In this
regard, the directors of the Company are involved in other companies
and may have conflicts of interest in allocating time between the
Company and other entities to which they are affiliated.
<PAGE> 58
Relationships and Transactions Pertaining to the Company.
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), 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.
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. Messrs. Crosby and
Jorgensen are considered founders of the Company. The Company has not
received a fairness opinion or other valuation of the rights
transferred in exchange for the shares issued to Mr. Jorgensen and
Extol International Corporation. The cost basis of the rights under
the Montana Property was estimated to be $4,000. The perceived value
of the shares issued was determined as of the time of transfer by
Messrs. Crosby and 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. Messrs. Crosby and Jorgensen also received compensation from
the Company as executive officers.
<PAGE> 59
In August 1994, Thomas Miller, a director of Celebration until
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.
- ---------------------------------------------------------------------
MANAGEMENT REMUNERATION
- ---------------------------------------------------------------------
Summary Compensation.
The following table sets forth the compensation paid by Royal
during each of the last three fiscal years to its Chief Executive
Officer, and to the other four most highly compensated officers and
executive officers, but only if the total annual salary and bonus of
any such executive officer exceeded $100,000 for Fiscal 1995 (the
"Named Executive Officers"). This information includes the dollar
value of base salaries, bonus awards and number of stock options
granted, and certain other compensation, if any.
<TABLE> SUMMARY COMPENSATION TABLE
<CAPTION>
(a) (b) (c) (d) (e) (f)[1] (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crosby 1996 $78,000 $0 $0 $ 0 0 $0 $0
President 1995 $48,000 $0 $0 $ 0 0 $0 $0
1994 $16,000[2] $0 $0 $40,000 0 $0 $0
1993 $0 $0 $0 $ 0 0 $0 $0
Named Executive
Officers
- ------
None n/a n/a n/a n/a n/a n/a n/a n/a
</TABLE>
(a) Name and principal position. (b) Year.
(c) Salary($)(1). (d) Bonus($).
(e) Other annual compensation($).
Long-Term Compensation.
Awards. (f) Restricted stock.
(g) Options.
Payouts.
(h) LTIP payouts($). (i) All other compensation.
[1] The above shares were issued for Directors fees, for service to
the Company. No awards were made for service to Celebration.
[2] This represents salary received as an officer of Celebration,
$4,000 per month, beginning with June 1994.
<PAGE> 60
Other than the Company's Stock Option and Award Plan, there are no
retirement, pension, or profit sharing plans for the benefit of the
Company's officers and directors.
Option/SAR Grants Table.
Information concerning individual grants of stock options, whether
or not in tandem with stock appreciation rights ("SARs"), and
freestanding SARs made during Fiscal 1996 to the CEO and each of the
Named Executive Officers, if any, is reflected in the table below.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Alterative to
Annual Rates of Stock (f) and (g)
Price Appreciation Grant Date
Individual Grants for Option Term Value
(a) (b) (c) (d) (e) (f) (g) (h)
Number of Percent of
Securities Total Options/ Grant
Underlying SARs Granted Exercise Expira- Date
Options/SAR to Employees or Base tion Present
Name Granted (#) in Fiscal Year Price Date 5%($) 10%($) Value $
<S> <C> <C> <C> <C> <C> <C> <C>
Crosby 0 0 n/a n/a n/a n/a n/a
Named Executive
Officers
None n/a n/a n/a n/a n/a n/a n/a
</TABLE>
Aggregated Option/SAR Exercises and Fiscal 1996 Year-End
Option/SAR Value Table. The following table sets forth certain
information with respect to each exercise, if any, of stock options and
SARs during Fiscal 1996 by the CEO and each of the Named Executive
Officers, if any, and the Fiscal 1996 year-end value of unexercised
options and SARs. The dollar values in columns (c) and (e) are
calculated by determining the difference between the fair market value
of the underlying stock and the exercise price or base price of the
options at exercise or Fiscal 1996 year-end, respectively. The stock's
fair market value on September 30, 1996 was $1.1875 per share. There
are no outstanding option awards to management. Even if there were, it
is possible they might never be exercised. Actual gains realized, if
any, on stock option exercises and Common Stock holdings are dependent
on the future performance and value of the Common Stock and overall
stock market conditions. There can be no assurance that projected
gains and values would be realized.
<PAGE> 61
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND OPTION/SAR VALUES AT SEPTEMBER 30, 1996
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End($)
Dollar
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Crosby 0 $0 0/0 0/0
Executive
Officers
None n/a n/a n/a n/a
</TABLE>
Long-Term Incentive Plan Awards.
The Company does not have any formalized long-term incentive plan
(excluding restricted stock, stock option and SAR plans) that provides
compensation intended to serve as incentive for performance to occur
over a period longer than one fiscal year, whether such performance is
measured by reference to financial performance of the Company or an
affiliate, the Company's stock price, or any other measure.
Compensation of Directors.
Directors receive for their services a retainer fee payable in
shares of the Company's Common Stock, currently at the rate of 2,500
shares per quarter of completed service. During Fiscal 1996, 150,000
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.
<PAGE> 62
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 1996, the Company's executive compensation policy
consisted of two elements: base salary and stock awards. The policy
factors which determine the setting of these compensation elements are
largely aimed at attracting and retaining executives considered
essential to the Company's long-term success. The granting of stock is
designed as an incentive for executives to keep management's interests
in close alignment with the interests of shareholders. The Company's
executive compensation policy seeks to engender committed leadership to
favorably posture the Company for continued growth, stability and
strength of shareholder equity.
The Company paid salaries to its officers for the fiscal year-
ended September 30, 1996, as follows:
<TABLE>
<S> <C>
Howard Crosby, $78,000 yearly
President
Robert Jorgensen, $72,000 yearly
Executive Vice President
and Treasurer
Jerry Stacey, $70,000 yearly
Vice President of Operations
John Ryan, $48,000 yearly
Vice President of Corporate
Development
</TABLE>
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 1996.
<PAGE> 63
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 1996.
With respect to stock awards during Fiscal 1996, 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 1996
substantially reflects the Company's compensation policy and the Board
anticipates paying a like sum during the fiscal year ending September
30, 1997.
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.
- ---------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
- ---------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of October 4, 1996, the
beneficial ownership of Common Stock with respect to: (1) All persons
known to the Company to be the beneficial owners of more than five
percent of the outstanding shares of Common Stock (the "Principal
Shareholders"); (2) Each director and director nominee of the Company;
(3) Each Named Executive Officer (as that term is defined in the
section entitled "Executive Compensation," below) who is listed in the
"Summary Compensation Table," below; and, (4) All directors and
executive officers as a group. At August 31, 1997, the number of
shares of common stock of the Company issued and outstanding was
13,406,732.
<PAGE> 64
<TABLE>
<CAPTION>
Common Stock Beneficially Owned No. of Shares Percent of Class
1. Name and Address of
Principal Shareholders
<S> <C> <C>
Centurion Mines Corporation 1,146,180 8.55%
331 South Rio Grande, Suite 201
Salt Lake City, UT 84101
Howard Crosby [1] 606,000 4.52%
105 N. First, Suite 232
Sandpoint, ID 83864
Robert E. Jorgensen [2] 587,000 4.38%
2719 W. Strong Rd.
Spokane, WA 99208
Britannia Holdings Ltd. [3] 2,135,000 15.92%
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
2. Directors
Howard Crosby [1] 606,000 4.52%
Robert E. Jorgensen [2] 587,000 4.38%
Thomas Henricksen [4] 5,550 0.04%
John Ryan [5] 30,000 0.22%
Ronald Kitching 157,500 1.17%
Kevin Stulp 164,000 1.22%
3. Named Executive Officers (Excluding
Any Director Named Above)
Jerry Stacy [6] 22,800 0.17%
4. All Directors and Executive Officers
as a Group (7 Persons) 1,572,800 11.72%
</TABLE>
All shares are owned beneficially and of record, unless otherwise
noted.
[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
<PAGE> 65
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.
- ---------------------------------------------------------------------
DESCRIPTION OF THE SECURITIES
- ---------------------------------------------------------------------
Description of Units
Each Unit consists of six million (6,000,000) shares of the
Company's Common Stock, $0.01 par value per share, and six million
(6,000,000) Redeemable Common Stock Purchase Warrants (the "Redeemable
Warrants"). Each Redeemable Warrant ("Redeemable Warrant") entitles
the holder to purchase one share of Common Stock at a price of $1.40,
until September 1, 2000. The Warrants are callable by the Company upon
thirty (30) days written notice provided that the bid price of the
Company's Common Stock trades above $3.00 for ninety (90) consecutive
trading days. No fractional shares will be issued upon exercise of
the Redeemable Warrants. The exercise price of the Redeemable Warrants
is subject to adjustment in certain cases and the Company has the
option of extending the Redeemable Warrant exercise dates. The Common
Stock and Redeemable Warrants will be separately transferable
immediately upon issuance.
The Company is presently authorized to issue 100,000,000 shares of
its $0.01 par value Common Stock. Presently 13,406,732 shares are
issued and outstanding and a maximum of 6,000,000 Units are offered for
sale pursuant to this Prospectus. The holders of the Company's Common
Stock are entitled to one vote per share on each matter submitted to
vote at any meeting of shareholders. Shares of Common Stock do not
carry cumulative voting rights and, therefore, a majority of the
<PAGE> 66
outstanding Common Stock will be able to elect the entire Board of
Directors and, if they do so, minority shareholders would not be able
to elect any members to the Board of Directors. Upon the close of the
offering, the public shareholders may be able to elect the Board of
Directors.
Rights of Common Stock Shareholders
Shares of Common Stock do not carry cumulative voting rights and,
therefore, a majority of the outstanding Common Stock will be able to
elect the entire Board of Directors and, if they do so, minority
shareholders would not be able to elect any members to the Board of
Directors. See "Capitalization" and "Risk Factors - Cumulative Voting,
Preemptive Rights and Control."
Shareholders of the Company have no preemptive rights to acquire
additional shares of Common Stock or other securities. The Common
Stock is not subject to redemption and carries no subscription or
conversion rights. In the event of liquidation of the Company, the
shares of Common Stock are entitled to share equally in corporate
assets after satisfaction of all liabilities. The shares of Common
Stock, when issued, will be fully paid and non-assessable.
There are no outstanding options, warrants or rights to purchase
shares of the Company's Common Stock, other than as disclosed herein.
Dividends
Holders of Common Stock are entitled to receive such dividends as
the Board of Directors may from time to time declare out of funds
legally available for the payment of dividends. The Company seeks
growth and expansion of its business through the reinvestment of
profits, if any, and does not anticipate that it will pay dividends in
the foreseeable future.
Description of Redeemable Warrants
The Redeemable Warrants will be issued under warrant certificates
(the "Warrant Certificate") to be dated as of the date of this
Prospectus, between the Company and OTC Stock Transfer, as Warrant
Agent (the "Warrant Agent"). A copy of the Redeemable Warrant
Certificate is filed as an exhibit to the registration statement and
also may be examined at the office of the Company or of the Warrant
Agent. The following summary of certain provisions of the Warrant
Certificate does not purport to be complete and is qualified in its
entirety by reference to the Warrant Certificates.
Each Redeemable Warrant entitles the holder to purchase one share
of Common Stock at a price of $1.40 per share, until September 1, 2000.
The Redeemable Warrants are callable by the Company upon thirty (30)
days written notice provided that the bid price of the Company's Common
Stock is above $3.00 per share for ninety (90) consecutive trading
<PAGE> 67
days. At the time a Redeemable Warrant is exercised, the exercise
price for the Redeemable Warrant shall be paid in full. Prior to
expiration, the Redeemable Warrants may be exchanged, transferred or
exercised by the registered Warrantholder by presenting the Redeemable
Warrants to the Warrant Agent. See "Risk Factors - Redeemable
Warrants."
The Redeemable Warrants do not confer on the holders thereof any
voting or other rights of a stockholder of the Company.
The Company will have authorized and reserved for sale the stock
purchasable upon exercise of the Redeemable Warrants. When delivered,
such shares of stock shall be fully paid and non-assessable.
The Exercise Price and the number of shares issuable upon exercise
of the Redeemable Warrants are subject to adjustment upon the
occurrence of certain events, including the issuance of any Common
Stock as a dividend or any stock split or reverse split as a dividend.
Adjustments in the number of shares issuable or in the Exercise Price
or both shall also be made in the event of any merger other
reorganization.
The Warrant Certificates will provide that the Company and the
Warrant Agent may, without the consent of the holders of the Redeemable
Warrants, make changes in the Warrant Certificates which do not
adversely effect, alter or change the rights, privileges or immunities
of the registered holders of the Redeemable Warrants.
The Company may pay a solicitation fee of 10% of the exercise
price of the Warrants to any NASD registered representative who, if
after one year from the effective date of the registration statement
the Warrants are called, causes the exercise thereof prior to the
expiration as set forth in the Warrant Agreement, subject however, to
the provisions of the NASD Notice to Members 81-38 (September 22,
1981). NASD Notice to Member 81-38 provides that an NASD registered
representative may not receive compensation as a result of any of the
following transactions: (1) the exercise of Redeemable Warrants where
the market price of the underlying security is lower than the exercise
price; (2) the exercise of Redeemable Warrants held in any
discretionary account (3) the exercise of Redeemable Warrants where
disclosure of compensation arrangements has not been made in documents
provided to customers both as part of the original offering and at the
time of exercise; and, (4) the exercise of Redeemable Warrants in
unsolicited transactions.
Unless granted an exemption from Rule 10b-6 of the Securities and
Exchange Act of 1934, the Selling Agent and any soliciting
broker/dealers will be prohibited from engaging in any market making
activities with regards to the Company's securities for the period from
nine (9) business days prior to any solicitation of the exercise of any
Warrants until the later of the termination of the solicitation
activity or the termination (by waiver or otherwise) of any right that
<PAGE> 68
the Selling Agent and soliciting broker/dealers may have to receive a
fee for the exercise of Warrants following such solicitation. As a
result, the Selling Agent and soliciting broker/dealers may be unable
to continue to provide a market for the Company's securities during
certain periods while the Warrants are exercisable.
Other Warrants
Currently, there are Warrants to purchase 6,686,666 shares of
Common Stock at various prices.
Transfer Agent
OTC Stock Transfer, 2310 East 2100 South, Salt Lake City, Utah
84115 is the transfer agent for the Company's $0.01 par value Common
Stock and Redeemable Warrants.
The Company's Common Stock is traded on the Bulletin Board
operated by the National Association of Securities Dealers, Inc. under
the symbol RSMI. The prices listed below were obtained from the
National Quotation Bureau, Inc., and are the highest and lowest bids
reported during each fiscal quarter for the period December 31, 1994,
through September 30, 1996. These bid prices are over-the-counter
market quotations based on interdealer bid prices, without markup,
markdown, or commission and may not necessarily represent actual
transactions:
<TABLE>
Fiscal Quarter Ended High Bid ($) 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
</TABLE>
On September 3, 1997, the average of the high bid and low ask
quotation for the Company's common shares as quoted on the NASDAQ
Bulletin Board was $0.72.
The approximate number of holders of common stock of record on
September 10, 1997, was 605.
<PAGE> 69
Since its inception, the Company has not paid any dividends on its
common shares. The Company does not anticipate that dividends will be
paid in the foreseeable future.
Market for the Company's Securities
There is no market for the Warrants and none is expected to
develop. See "Risk Factors - No Market for the Warrants."
- ---------------------------------------------------------------------
PLAN OF OFFERING
- ---------------------------------------------------------------------
The Company through its Officers and Directors is offering to the
public 6,000,000 Units of the Company consisting of 6,000,000
(6,000,000) shares of $0.01 par value Common Stock, and six million
(6,000,000) Redeemable Common Stock Warrants. The Units are offered on
a "best efforts - no Units minimum - 6,000,000 Units maximum" basis, at
a purchase price of $____ per Unit. The Company will use its best
efforts to find purchasers for the Units offered hereby within a period
of ninety (90) days from the date of this Prospectus, subject to an
extension for an additional period not to exceed ninety (90) days (a
total of one hundred eighty (180) days). The Company's Officers and
Directors will receive no commissions or any other form of remuneration
in connection with the sale of the Units.
The Company may utilize the services of registered broker/dealers
(the "Selling Agents") who are licensed members of the National
Association of Securities Dealers (the "NASD") to sell the Units
offered hereby. In that event, such Selling Agents will receive up to
ten percent (10%) of the purchase price as expenses and sales
commissions. If no Selling Agents are utilized, the net proceeds to
the Company of the offering will be increased accordingly and added to
the Company's working capital.
The Company has not received any indications of interest from any
member of the NASD. No assurance can be given that any NASD member
will participate in the offering, and even if they do participate there
is no commitment as to the actual amount of participation.
<PAGE> 70
- ---------------------------------------------------------------------
LITIGATION
- ---------------------------------------------------------------------
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. 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.
- ---------------------------------------------------------------------
LEGAL MATTERS
- ---------------------------------------------------------------------
Legal matters in connection with the Common Stock of the Company
to be issued in connection with the offering will be passed upon for
the Company by Conrad C. Lysiak, Attorney and Counselor at Law, West
601 First Avenue, Suite 503, Spokane, Washington 99204.
- ---------------------------------------------------------------------
EXPERTS
- ---------------------------------------------------------------------
The financial statements of the Company appearing in this
Prospectus and the Registration Statement have been examined by the
accounting firm of Williams & Webster, P.S., Certified Public
Accountants, 601 West Riverside, Suite 1970, Spokane, Washington 99201,
as indicated in its report contained herein. Such financial statements
are included in this Prospectus in reliance upon the said report, given
upon such firm's authority as an expert in auditing and accounting.
- ---------------------------------------------------------------------
ADDITIONAL INFORMATION
- ---------------------------------------------------------------------
The Company has filed with the Securities and Exchange Commission,
450 Fifth Street, N.W. Washington D.C. 20549, a registration statement
under the Act, as amended with respect to the Units offered hereby.
This Prospectus does not contain all of the information set forth in
the registration statement, exhibits and schedules thereto. For
further information with respect to the Company and the Units,
reference is made to the registration statement, exhibits and
schedules, copies of which may be obtained from the Commission's
principals officers in Washington, D.C., upon payment of the fees
prescribed by the Commission.
<PAGE> 71
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Audited Financial Statements
September 30, 1996 and 1995
<PAGE> 73
C O N T E N T S
Independent Auditors' Reports . . . . . . F-1
Balance Sheets . . . . . . . . . F-2
Statements of Operations . . . . . . . . F-3
Statements of Stockholders' Equity . . . . . . F-4
Statements of Cash Flows . . . . . . . F-10
Notes to the Financial Statements . . . . . . F-13
<PAGE> 73
Williams & Webster, P.S.
Certified Public Accountants
Seafirst Financial Center
601 W. Riverside, Suite 1970
Spokane, WA 99201-0611
Tel: (509) 838-5111
Fax: (509) 624-5001
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Royal Silver Mines,
Inc. (a development stage company) as of September 30, 1996, and the
related statements of operations, shareholders' equity, and cash flows
for the year then ended, and from inception on February 17, 1994
through September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Royal
Silver Mines, Inc. as of September 30, 1996, and the results of their
operations and their cash flows for the year then ended and from
inception on February 17, 1994 through September 30, 1996 in conformity
with generally accepted accounting principles.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
December 13, 1996
F-1
<PAGE> 74
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, September 30,
<S> 1996 1995
ASSETS <C> <C>
CURRENT ASSETS
Cash $ 688,716 $ 151,698
Note receivable 100,000 -
Interest receivable 333 -
Prepaid expenses 17,391 4,350
__________ ___________
TOTAL CURRENT ASSETS 806,440 156,048
__________ ___________
MINERAL PROPERTIES 4,785,665 3,869,515
PROPERTY AND EQUIPMENT
Furniture and equipment 15,802 11,629
Less - accumulated depreciation (2,809) (589)
__________ ___________
TOTAL PROPERTY AND EQUIPMENT 12,993 11,040
__________ ___________
OTHER ASSETS
Deferred debt issuance costs, net - 19,736
Organization costs, net 259 359
__________ ___________
TOTAL OTHER ASSETS 259 20,095
__________ ___________
TOTAL ASSETS $ 5,605,357 $ 4,056,698
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 25,135 $ 60,026
Payable to related parties 289 289
Accrued expenses 34,443 90,088
Notes payable 60,000 670,919
__________ __________
TOTAL CURRENT LIABILITIES 119,867 821,322
__________ ___________
LONG-TERM DEBT - -
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
10,649,854 and 7,757,063 shares
issued and outstanding,
respectively 106,499 77,571
Additional paid-in capital 8,436,808 4,120,540
Deficit accumulated during
development stage (3,057,817) 962,735
__________ ___________
TOTAL SHAREHOLDERS' EQUITY 5,485,490 3,235,376
__________ ___________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,605,357 $ 4,056,698
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 75
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
February 17,
1994
Ten months (inception)
Year ended ended through
September 30, September 30, September 30,
1996 1995 1996
_____________ _____________ _____________
<S> <C> <C> <C>
REVENUES $ - $ - $ -
____________ ___________ ___________
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral leases 8,122 843 8,965
Depreciation and amortization 35,736 59,822 98,069
Officers and directors compensation 492,715 209,733 831,948
Other administrative expenses 1,298,975 273,246 1,652,006
___________ ___________ ___________
Total expenses 1,835,548 543,644 2,590,988
___________ ___________ ___________
OPERATING LOSS (1,835,548) (543,644) (2,590,988)
___________ ___________ ___________
OTHER EXPENSES
Interest expense (9,534) (62,557) (72,091)
Loss on disposition of assets (200,000) (144,738) (344,738)
___________ ___________ ___________
Total other expenses (209,534) (207,295) (416,829)
___________ ___________ ___________
NET LOSS $(2,045,082) $ (750,939) $(3,007,817)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.22) $ (0.17) $ (0.53)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,221,191 6,342,816 5,596,841
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 76
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance
02/17/94 - $ - $ - $ - $ -
_________ ________ _________ __________ __________
Issuance in
May 1994
of shares
at $.002
per share
to officers
and directors
in exchange
for assignment
of mining
property
option 2,250,000 22,500 (18,500) - 4,000
Issuance in
July 1994 of
shares for
cash at $.402
in private
placement, net
of costs 1,050,000 10,500 411,116 - 421,616
Issuance in
August 1994
of shares to
a director
in exchange
for services,
valued at
$.417 per
share 150,000 1,500 61,000 - 62,500
Net loss for
the year
ended
November
30, 1994 - - - (211,796) (211,796)
_________ ________ __________ __________ _________
Balance,
November 30,
1994 3,450,000 34,500 453,616 (211,796) 276,320
_________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE> 77
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, forward
11/30/94 3,450,000 34,500 453,616 (211,796) 276,320
_________ ________ __________ __________ _________
Issuance of
shares in
debt offering
at $.03
per share 416,250 4,163 9,712 - 13,875
Issuance of
shares for
mineral
properties
valued at
$1.00 per
share 262,500 2,625 259,875 - 262,500
Issuance of
shares for
cash at $1.00
per share 15,000 150 14,850 - 15,000
Stock issuance
costs - - (58,202) - (58,202)
Issuance of
shares to
acquire
Consolidated
Royal Mines,
Inc. at $.15
per share 2,434,563 24,346 335,750 - 360,096
Issuance of
shares to
directors and
employees for
services at
prices ranging
from $2.00
to $2.50
per share 12,750 127 29,473 - 29,600
_________ ________ __________ __________ _________
Balance
forward 6,591,063 65,911 1,045,074 (211,796) 899,189
_________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE> 78
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance,
forward 6,591,063 65,911 1,045,074 (211,796) 899,189
_________ ________ __________ __________ _________
Issuance of
shares in
exchange for
mineral
properties
at prices
ranging
from $3.13
to $3.25
per share 800,000 8,000 2,530,126 - 2,538,126
Issuance of
shares for
cash at
prices
ranging from
$1.50 to
$2.00 per
share 166,000 1,660 247,340 - 249,000
Issuance of
shares in
exchange for
debt at $1.50
per share 200,000 2,000 298,000 - 300,000
Net loss for
the ten
months ended
September
30, 1995 - - - (750,939) (750,939)
_________ ________ __________ __________ _________
Balance,
September 30,
1995 7,757,063 $ 77,571 $4,120,540 $ (962,735) $3,235,376
_________ ________ __________ __________ _________
Issuance of
shares for
cash at
$1.50 per
share 1,176,832 11,769 1,754,010 - 1,765,779
_________ ________ __________ __________ _________
Balance
forward 8,933,895 89,340 5,874,550 (962,735) 5,001,155
_________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-6
<PAGE> 79
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION> Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance,
forward 8,933,895 89,340 5,874,550 (962,735) 5,001,155
_________ ________ __________ __________ _________
Issuance of
shares to
directors and
employees for
services at
$1.50
per share 222,700 2,227 331,823 - 334,050
Issuance of
shares in
exchange for
debt and accrued
interest at $1.50
per share 406,050 4,060 605,015 - 609,075
Issuance of
shares for
cash at
$2.20
per share 150,000 1,500 328,500 - 330,000
Issuance of
warrants
for cash
at $.05 per
warrant - - 41,068 - 41,068
Issuance of
shares for
cash at
$1.62 per
share 65,000 650 104,650 - 105,300
Issuance of
shares for
cash to
directors and
employees
at prices
ranging
from $1.62
to $2.08 per
share 107,500 1,075 181,175 - 182,250
_________ ________ __________ __________ _________
Balance
forward 9,885,145 98,852 7,466,781 (962,735) 6,602,830
_________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-7
<PAGE> 80
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance,
forward 9,885,145 98,852 7,466,781 (962,735) 6,602,830
_________ ________ __________ __________ _________
Issuance of
shares for
cash at
$0.75 per
share 200,000 2,000 147,985 - 149,985
Issuance of
shares for
cash at $1.70
per share 250,000 2,500 422,500 - 425,000
Cancellation
of 35,000
shares
received in
exchange for
return of
mining
property (35,000) (350) (109,025) - (109,375)
Payment to
Centurion Mines
for option to
repurchase
stock - - - (50,000) (50,000)
Issuance of
shares for
joint venture
in mining
property
at $1.50
per share 100,000 1,000 149,000 - 150,000
Repurchase of
25,000 shares
issued for
joint venture
at $1.40
per share (25,000) (250) (34,750) - (35,000)
_________ ________ __________ __________ _________
Balance
forward 10,375,145 103,752 8,042,491 (1,012,735) 7,133,508
__________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-8
<PAGE> 81
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance,
forward 10,375,145 103,752 8,042,491 (1,012,735) 7,133,508
_________ ________ __________ __________ _________
Issuance of
shares for
mining
property
at $1.50
per share 20,000 200 29,800 - 30,000
_________ ________ __________ __________ _________
Issuance of
shares to
noteholders
for extension
of notes
at $1.50
per share 39,375 394 58,669 - 59,063
Issuance of
shares for
services at
$1.50 per
share 215,334 2,153 320,848 - 323,001
Stock
issuance
costs - - (15,000) - (15,000)
Net loss for
the year
ended
September
30, 1996 - - - (2,045,082) (2,045,082)
_________ ________ __________ __________ _________
Balance,
September 30,
1996 10,649,854 $106,499 $8,436,808 $(3,057,817) $5,485,490
========== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-9
<PAGE> 82
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
February 17,
For the year For the Ten 1994 (Inception)
Ended Months Ended Through
September 30, September 30, September 30,
1996 1995 1996
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (2,045,082) $ (750,939) $ (3,007,817)
______________ ______________ ______________
Adjustments to reconcile
net loss to net cash used
by operating activities:
Depreciation and
amortization 35,736 59,822 100,616
Issuance of common stock
for services 657,051 29,600 749,151
Write-off of joint
venture costs 150,000 - 150,000
Changes in assets and liabilities:
Note receivable (100,000) - (100,000)
Interest receivable (333) - (333)
Prepaid expenses (13,041) 22,627 (17,391)
Other assets 19,836 (23,137) (3,801)
Accounts payable (34,891) 53,727 25,135
Accrued expenses (55,645) 90,088 34,443
Payable to
related parties - 300,289 300,289
______________ ______________ ______________
Net cash used in operating
activities (1,386,369) (217,923) (1,769,708)
______________ ______________ ______________
Cash flows from investing
activities:
Purchase and development of
mineral properties (979,043) (455,418) (1,604,836)
Purchase of
fixed assets (4,173) (11,629) (15,802)
______________ ______________ ______________
Net cash provided used in
investing activities (983,216) (467,047) (1,620,638)
______________ ______________ ______________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-10
<PAGE> 83
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION> From
February 17,
For the year For the Ten 1994 (Inception)
Ended Months Ended Through
September 30, September 30, September 30,
1996 1995 1996
<S> <C> <C> <C>
Cash flows from financing
activities:
Stock issuance and offering
costs (15,000) (58,202) (144,835)
Proceeds received on
long-term debt - 675,000 675,000
Payments made on
notes payable (40,000) (74,206) (114,206)
Issuance of common stock
for cash 2,958,314 264,000 3,659,814
Payment for option to re-
purchase stock (50,000) - (50,000)
Issuance of common
stock for accrued
interest 38,158 - 38,158
Issuance of common stock for
extension of notes payable
maturation 59,063 - 59,063
Payment for return of stock
issued for mining property
interest (35,000) - (35,000)
Payment of joint
venture costs (50,000) - (50,000)
Issuance of warrants
for cash 41,068 - 41,068
______________ ______________ ______________
Net cash provided by financing
activities 2,906,603 806,592 4,079,062
Net increase - cash $ 537,018 $ 121,622 $ 688,716
______________ ______________ ______________
Cash, beginning
of period 151,698 30,076 -
Cash, end of period $ 688,716 $ 151,698 $ 688,716
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-11
<PAGE> 84 ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION> From
February 17,
For the year For the Ten 1994 (Inception)
Ended Months Ended Through
September 30, September 30, September 30,
1996 1995 1996
______________ ______________ ______________
<S> <C> <C> <C>
Supplemental cashflow disclosure:
Income taxes $ - $ 250 $ 350
Interest $ 5,715 $ 17,683 $ 23,398
Non-cash financing activities:
Common stock issued for
services rendered $ 657,051 $ 29,600 $ 749,151
Common stock issued
for mineral
properties $ 180,000 $ 2,800,626 $ 2,980,626
Common stock issued for
exchange for debt $ 570,917 $ 313,875 $ 922,950
Common stock issued in
acquisition of
Consolidated Royal
Mines, Inc. $ - $ 360,096 $ 360,096
Option rights acquired
in exchange for a
payable $ - $ - $ 79,000
Common stock issued for
assignment of mining
property options $ - $ - $ 4,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-12
<PAGE> 85 ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS.
Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969
under the laws of the State of Utah primarily for the purpose of
acquiring and developing mineral properties. Royal conducts its
business as a "junior" natural resource company, meaning that it
intends to receive income from property sales or joint ventures with
larger companies.
Celebration Mining Company (Celebration), currently a wholly-owned
subsidiary of Royal was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration was
organized on February 17, 1994 as a Washington Corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an Agreement and
Plan of Reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration control the company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of the
assets or liabilities of Royal in the exchange as the market value
approximated the net carrying value.
Royal is the acquiring entity for legal purposes and Celebration is the
surviving entity for accounting purposes.
The $4,785,665 cost of mineral properties included in the accompanying
balance sheet as of September 30, 1996 is related to exploration
properties. The Company has not determined whether the exploration
properties contain ore reserves that are economically recoverable. The
ultimate realization of the Company's investment in exploration
properties is dependent upon the success of future property sales, the
existence of economically recoverable reserves, the ability of the
Company to obtain financing or make other arrangements for development
and upon future profitable production. The ultimate realization of the
Company's investment in exploration properties cannot be determined at
this time and, accordingly, no provision for any asset impairment that
may result, in the event the Company is not successful in developing or
selling these properties, has been made in the accompanying financial
statements. F-13
<PAGE> 86
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS - continued.
The Company is actively seeking additional capital and management
believes the properties can ultimately be sold or developed to enable
the Company to continue its operations. However, there are inherent
uncertainties in mining operations and management cannot provide
assurances that it will be successful in this endeavor. Furthermore,
the Company is in the development stage as it has not realized any
significant revenues from its planned operations.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Accounting Method.
The Company's financial statements are prepared using the accrual
method of accounting.
Loss Per Share.
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year The weighted
average number of shares was calculated by taking the number of shares
outstanding and weighing them by the amount of time they were
outstanding.
The outstanding warrants were not included in the computation of loss
per share because the exercise price of the outstanding warrants is
higher than the market price of the stock, thereby causing the warrants
to be antidilutive.
Cash Equivalents.
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Mineral Properties.
Costs of acquiring, exploring and developing mineral properties are
capitalized by project area. Costs to maintain the mineral rights and
leases are expensed as incurred. When a property reaches the
production stage, the related capitalized costs will be amortized,
using the units of production method on the basis of periodic estimates
of ore reserves. Mineral properties are periodically assessed for
impairment of value and any losses are charged to operations at the
time of impairment.
F-14
<PAGE> 87
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued.
Mineral Properties - continued.
Should a property be abandoned, its capitalized costs are charged to
operations. The Company charges to operations the allocable portion of
capitalized costs attributable to properties sold. Capitalized costs
are allocated to properties sold based on the proportion of claims sold
to the claims remaining within the project area.
Concentration of Risk.
The Company maintains its cash accounts in primarily one commercial
bank in Spokane, Washington. Accounts are guaranteed by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000. The Company's
cash balance exceeds that amount by $588,716 at September 30, 1996.
Provision For Taxes.
At September 30, 1996, the Company had net operating loss carryforwards
of approximately $3,130,000 that may be offset against future taxable
income through 2011 No tax benefit has been reported in the financial
statements as the Company believes there is a 50% or greater chance the
net operating loss carryforwards will expire unused. Accordingly, the
potential tax benefits of the net operating loss carryforwards are
offset by a valuation allowance of the same amount.
Recently Issued Accounting Standards.
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets."
This new standard is effective for years beginning after December 15,
1995 and would change the Company's method of determining impairment of
long-lived assets. Although the Company has not performed a detailed
analysis of the impact of this new standard on the Company's financial
statements, the Company does not believe that adoption of the new
standard will have a material effect on the financial statements.
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.
F-15
<PAGE> 88
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued.
Recently Issued Accounting Standards - continued.
FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value. Companies that do
not adopt the fair value accounting rules must disclose the impact of
adopting the new method in the notes to the financial statements.
Transactions in equity instruments with non-employees for goods or
services must be accounted for on the fair value method. The Company
currently intends to adopt the fair value accounting prescribed by FAS
123. However, the Company intends to continue its analysis of FAS 123
to determine its ultimate effect in the future.
Restatement.
The restatement of the financial statements have resulted in certain
changes in presentation which have no effect on the net losses or
shareholder's equity for September 30, 1995 or the year then ended.
NOTE 3 - MINERAL PROPERTIES.
Utah Mining Property Joint Venture.
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the State
of Utah. Under the terms of the agreement, United contributed real
properties for an initial 75% interest in the joint venture, and
Celebration was to remove all liens associated with the real properties
by paying $175,000 to a bank which was the primary lien holder for its
initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned promissory
note. The property was auctioned in a public auction in May, 1995 and
by virtue of Celebration's first position lien, Celebration was able to
successfully bid the full amount of the underlying promissory note.
Although additional expenditures have been made on the property through
September 30, 1996, no further funds toward the joint venture have been
expended by Celebration, which owns an undivided 25% interest in the
property.
F-16
<PAGE> 89
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 3 - MINERAL PROPERTIES (Continued).
Shoshone County Idaho Mineral Lease.
In February 1995, Celebration entered into an agreement to acquire a
fifty-year renewable mineral lease on a property in Shoshone County,
Idaho. The mining property consists of twelve patented claims and
associated Idaho state leases. In connection with this lease,
Celebration paid $50,000 and issued 175,000 shares of common stock. In
addition, 10,000 shares were issued to a new director for his
assistance in obtaining this lease. Celebration subsequently paid
$950,000 for the option of extending its lease for an additional
forty-nine years. When, and if, the property achieves gross sales of
$40,000,000, Celebration will be obligated to pay an additional .5%
royalty on future sales. Furthermore, beginning after September 1,
1995, and at such time as the average price of silver has reached $6.00
per ounce for a 30-day period, Celebration is obligated to spend not
less than $2,000,000 during the subsequent 36 months to de-water and
repair the mine. Thereafter, Celebration will be required to maintain
the mine in a condition to allow it to be put into production within
sixty days. There are certain claims by the U.S. Environmental
Protection Agency and the County on this property for which the lessor
is obligated to pay. In the event these claims are not satisfactorily
resolved, they may effect Celebration's rights to the property.
Australian Mineral Property Joint Venture.
In March 1995, Celebration entered into a joint venture agreement with
an Australian company for exploration of a certain mineral property in
Australia.
Under the original terms of the joint venture agreement, Celebration
acquired a 10% interest by paying $100,000 in April 1995. No
additional funds where paid or required to be paid subsequent to the
initial payment.
Washington and Idaho Mineral Properties.
During the year ended September 30, 1995, Celebration purchased through
the issuance of 800,000 shares of its common stock, various mineral
properties located in the States of Washington and Idaho. The mineral
properties were recorded at the fair market value of the shares paid on
the date of issuance ranging from $3.13 to $3.25 per share for a total
purchase price of $2,538,126.
F-17
<PAGE> 90
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 3 - MINERAL PROPERTIES (Continued).
In May 1996, the Company sold back the Frisco Standard Silver Mine to
its original seller in exchange for the same price (35,000 shares of
Royal stock) received by the seller when the mine was purchased. The
shares received were cancelled and no gain or loss was recorded on the
transaction.
The Company's proposed future mining activities will be subject to
laws and regulations controlling not only the exploration and mining of
mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may necessitate
additional capital outlays, affect the economics of a project, and
cause changes or delays in the Company's activities.
The total mineral properties at September 30, 1996 are
classified as follows:
Mineral properties under joint ventures $ 366,510
Other mineral properties 4,419,155
____________
Total Mineral Properties $ 4,785,665
============
The Company's mineral properties are valued at the lower of cost or net
realizable value.
NOTE 4 - PROPERTY AND EQUIPMENT.
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and
repairs that do not increase the useful life of the assets are expensed
as incurred. Depreciation of property and equipment is determined
using the straight-line method over the expected useful lives of the
assets of five years.
NOTE 5 - INTANGIBLE ASSETS.
Deferred debt issuance costs and organization costs are recorded at
cost. Amortization of these intangible assets is determined using the
straight-line method over the expected useful lives of the assets as
follows:
Description Useful Lives
___________________________ ____________
Deferred debt issuance costs 1 year
Organization costs 5 years
F-18
<PAGE> 91
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 6 - COMMON STOCK.
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.003 to $.625 per share, which is the fair market value of the shares
on the date of issuance.
During the year ended September 30, 1995, the Company issued 12,750
shares of common stock to directors and employees for services
rendered, valued at prices ranging from $2.00 to $2.50 per share, which
is the fair market value of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000
shares of common stock in exchange for mineral properties (See Note 3)
and sold 176,000 shares of common stock for $264,000 cash.
The Company issued 200,000 shares of its common stock during the year
ended September 30, 1995 in lieu of outstanding debt that was owed to
Centurion Mines Corporation (Centurion), a related entity. The stock
was issued at $1.50 per share in payment of $300,000 of the then
outstanding debt (See Note 10). The Company also issued 277,500 shares
in connection with the issuance of notes payable (See Note 9). (See
also the disclosure in Note 1).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock for $2,958,314 in cash. The Company also
issued 222,700 shares to directors and employees for services rendered
valued at $1.50 per share, which is the fair market value of the shares
on the date of issuance.
Also during the year ended September 30, 1996, the Company issued
100,000 shares of its common stock for a joint venture in a mining
property and 20,000 common shares for a mining property (See Note 12).
The stock issued was valued at $1.50 per share, which is the fair
market value to the shares at the date of issuance.
In the same twelve-month period, the Company also issued 406,050 shares
of its common stock in payment of outstanding debt of $570,917 and
accrued interest of $38,158. The stock was issued at $1.50 per share
for a total value of $609,075. In addition, the Company issued 39,375
shares of common stock to noteholders for extending the maturity date
of their loans. Again, the shares were valued at $1.50 each, which is
the fair market value of the shares when issued.
F-19
<PAGE> 92
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS.
In January 1992, the shareholders of Royal approved a 1992 Stock Option
and Stock Award Plan under which up to ten percent of the issued and
outstanding shares of the Company's common stock could be awarded based
on merit of work performed. As of September 30, 1996, 12,750 shares of
common stock have been awarded under the Plan.
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.
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, 1996, none of these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999.
On March 22, 1996, the Board of Directors approved the issuance of
warrants to an investor to purchase 625,000 shares of common stock of
the Company in partial completion of a private placement of stock.
These warrants are exercisable until September 30, 1998, at a price of
$1.50 per share, which is 67% of the closing price on March 22, 1996.
On April 10, 1996, following the close of the second quarter of fiscal
1996, the Board of Directors authorized the issuance of 420,666
warrants to unaffiliated investors as part of the private placement of
stock. These warrants are exercisable until April 12, 1997 at prices
ranging from $2.50 to $2.625 per share. As of September 30, 1996,
320,666 warrants have been issued (but not exercised) for a total
amount of $41,068.
F-20
<PAGE> 93
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 8 - ADDITIONAL PAID-IN CAPITAL.
The following is a summary of additional paid-in capital at September
30, 1996 and September 30, 1995:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
_____________ _____________
<S> <C> <C>
Applicable to:
Common stock $8,395,740 $4,120,540
Stock warrants 41,068 -
__________ __________
$8,436,808 $4,120,540
========== ==========
</TABLE>
NOTE 9 - NOTES PAYABLE.
In February 1995, Celebration raised $555,000 through the issuance of
promissory notes. During the second quarter ended March 31, 1996,
$470,000 of the total amount plus accrued interest of $29,265 was
converted into 332,800 shares of the Company's common stock, leaving an
amount owing of $85,000, which was further reduced by cash payments to
$60,000 at September 30, 1996.
The notes bear interest at 10% per annum and will be due on the earlier
of January 1, 1997 or the closing of any public offering of equity
securities by the Company. The note holders also received 277,500
shares of Celebration's common stock. A 10% commission was charged by
an underwriter on the sale of almost all of the notes.
In April 1995, Celebration raised $120,000 in 10% convertible
debentures. In late 1995, $105,000 of the total amount plus accrued
interest of $4,810 was converted into 73,250 shares of the Company's
common stock, leaving an amount owing of $15,000. During the third
quarter ended September 30, 1996, this remaining $15,000 plus accrued
interest was paid.
NOTE 10 - RELATED PARTY TRANSACTIONS.
After receiving advances from a related party for payment of operating
expenses, the Company approved the issuance of 200,000 shares of common
stock in payment of $300,000 of the then outstanding balance (See Note
6). The balance outstanding at September 30, 1996 was $289.
F-21
<PAGE> 94
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 11 - FUTURE LEASE OBLIGATIONS.
The Company is obligated under its lease arrangements to make
additional lease payments subsequent to September 30, 1996 as follows:
Year Ended
September 30, Amount
_____________ _________
1997 $ 9,440
1998 4,500
1999 4,500
2000 and thereafter 22,500
_________
Total $ 40,940
=========
NOTE 12 - OPTIONS WITH PLACER MINING CORPORATION.
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a
silver-lead-zinc mine in Shoshone County, Idaho. After issuing 100,000
shares valued at $1.50 per share and spending a non-refundable $50,000
on this option, the Company elected to renegotiate this option
agreement and entered into a second option agreement with Placer on
September 18, 1996.
In the second agreement, the Company paid $100,000 in September 1996
for the nonassignable option of acquiring a 100% interest in the Bunker
Hill Mine. In order to exercise this option, the Company must issue
500,000 shares of its common stock to Placer by May 10, 1997 and pay
Placer either $7,000,000 by that date or $4,000,000 by that date and
$3,500,000 by May 10, 1998. Under the terms of this agreement, the
Company will pay Placer a 2 3/4% net smelter return royalty in
perpetuity with stipulated annual advance minimum royalty payments to
Placer ranging from $100,000 (in 1999) to $250,000 (in years 2002
through 2010). All advance minimum royalties paid are to be credited
against actual production royalties.
At September 30, 1996, the Company had expended $101,715 in option and
related expenses toward the purchase of the Bunker Hill Mine. These
costs are included in the cost of mineral properties (Note 3) on the
Company's balance sheet.
F-22
<PAGE> 95
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 13 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION.
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an option
from Centurion to purchase up to 800,000 shares of its common stock
held by Centurion for the exercise price of $1.75 per share during the
two-year period ending September 30, 1998. The cost of this two-year
stock purchase option was $50,000, which was paid by the Company and
charged to stockholders' equity (accumulated deficit).
At September 30, 1996, no shares were acquired from Centurion under
this option agreement.
<PAGE> 96
ROYAL SILVER MINES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
June 30, 1997 and September 30, 1996
<PAGE> 978
C O N T E N T S
Accountant's Review Report F-1
Balance Sheets F-2 - F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5 - F-9
Statements of Cash Flows F-10 - F-11
Notes to the Financial Statements F-12 - F-24
<PAGE> 98
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Royal Silver
Mines, Inc. (a development stage company) as of June 30, 1997, and
the related statements of operations, shareholders' equity, and cash
flows for the nine months ended June 30, 1997 and 1996, and for the
period from February 17, 1994 (inception) through June 30, 1997. The
review was conducted in a accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these
financial statements is the representation of the management of Royal
Silver Mines, Inc.
A review consists principally of inquiries of Company personnel
and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles.
The balance sheet for the year ended September 30, 1996 was audited
by us and we expressed an unqualified opinion on it in our report
dated December 13, 1996. We have not performed any auditing
procedures since that date.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
July 23, 1997
F-1
<PAGE> 100
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,123,602 $ 688,716
Note receivable 100,000 100,000
Interest receivable 5,958 333
Prepaid expenses 5,153 17,391
----------- -----------
TOTAL CURRENT ASSETS 1,234,713 806,440
----------- -----------
MINERAL PROPERTIES 4,727,096 4,785,665
----------- -----------
PROPERTY AND EQUIPMENT
Mining equipment 133,534 -
Furniture and equipment 15,185 15,802
Less
accumulated depreciation (6,610) (2,809)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 142,109 12,993
----------- -----------
OTHER ASSETS
Investments 70,000 -
Organization costs, net 184 259
----------- -----------
TOTAL OTHER ASSETS 70,184 259
----------- -----------
TOTAL ASSETS $ 6,174,102 $ 5,605,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 101
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION> June 30, September 30,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,355 $ 25,135
Payable to related parties - 289
Accrued expenses 17,987 34,443
Notes payable - 60,000
----------- -----------
TOTAL CURRENT LIABILITIES 33,342 119,867
----------- -----------
LONG-TERM DEBT - -
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
13,423,904 and 10,649,854 shares
issued and outstanding,
respectively 133,751 106,499
Additional paid-in capital 10,512,117 8,436,808
Deficit accumulated during
development stage (4,505,108) (3,057,817)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 6,140,760 5,485,490
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,174,102 $ 5,605,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 102
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Operations, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
June 30, June 30,
1997 1996
<S> <C> <C>
REVENUES $ - $ -
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral properties 22,732 2,758
Depreciation and amortization 10,683 616
Officers and directors compensation 85,499 54,999
Other general and administrative 272,799 219,682
------------ -----------
Total expenses 391,713 278,055
------------ -----------
OPERATING (LOSS) (391,713) (278,055)
------------ -----------
OTHER INCOME (EXPENSES)
Interest income 16,190
Interest expense - (2,159)
Loss on disposition of assets - -
------------ -----------
Total other income (expenses) 16,190 (2,159)
------------ -----------
NET LOSS $ (375,523) $ (280,214)
------------ -----------
NET LOSS PER COMMON SHARE $ (0.03) $ (0.03)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,423,904 9,396,915
============ ===========
The accompanying notes are an integral part of these financial
statements.
F-4a
<PAGE> 103
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Operations, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS (Continued)
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
REVENUES $ - $ - $ -
------------ ----------- ------------
GENERAL AND ADMINISTRATIVE
EXPENSES
Mineral properties 261,619 8,122 270,584
Depreciation and
amortization 28,855 21,776 126,924
Officers and directors
compensation 329,911 266,215 1,161,859
Other general and
administrative 843,070 633,871 2,495,076
------------- ----------- ------------
Total expenses 1,463,455 929,984 4,054,443
------------- ----------- ------------
OPERATING (LOSS) (1,463,455) (929,984) (4,054,443)
------------- ----------- ------------
OTHER INCOME (EXPENSES)
Interest income 20,190 20,190
Interest expense (2,257) (7,409) (74,348)
Loss on disposition of
assets (1,769) - (346,507)
------------- ----------- ------------
Total other income
(expenses) 16,164 (7,409) (400,665)
------------- ----------- ------------
NET LOSS $ (1,447,291) $ (937,393) $ (4,455,108)
------------- ----------- ------------
NET LOSS PER
COMMON SHARE $ (0.12) $ (0.11) $ (0.64)
============= =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 11,804,654 8,742,325 6,974,672
============= =========== ============
</TABLE>
F-4b
<PAGE> 103
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance February 17, 1994 - $ -
Issuance in May 1994 of shares at
$0.002 per share to officers and
directors in exchange for assignment
of mining property option 2,250,000 22,500
Issuance in July 1994 of shares
for cash at $0.402 in private
placement, net of costs. 1,050,000 10,500
Issuance in August 1994 of shares
to a director in exchange for
services, valued at $0.417 150,000 1,500
Net loss for the year ended
November 30, 1994 - -
--------- --------
Balance, November 30, 1994 3,450,000 34,500
Issuance of shares in debt
offering at $0.03 per share 416,250 4,163
Issuance of shares for mineral
properties valued at $1.00 per
share 262,500 2,625
Issuance of shares for cash at
$1.00 per share 15,000 150
Stock issuance costs - -
--------- --------
Balance forward 4,143,750 41,438
--------- --------
The accompanying notes are an integral part of these financial
statements.
F-5a
<PAGE> 104
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance February 17, 1994 $ - $ - $ -
Issuance in May 1994 of shares
at $0.002 per share to
officers and directors in
exchange for assignment
of mining property option (18,500) - 4,000
Issuance in July 1994 of
shares for cash at $0.402
in private placement,
net of costs. 411,116 - 421,616
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $0.417 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - (211,796) (211,796)
--------- ---------- ----------
Balance, November 30, 1994 453,616 (211,796) 276,320
Issuance of shares in debt
offering at $0.03 per share 9,712 - 13,875
Issuance of shares for mineral
properties valued at $1.00
per share 259,875 - 262,500
Issuance of shares for cash at
$1.00 per share 14,850 - 15,000
Stock issuance costs (58,202) - (58,202)
--------- ---------- ----------
Balance forward $ 679,851 $ (211,796) $ 509,493
--------- ---------- ----------
</TABLE>
F-5b
<PAGE> 105
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 4,143,750 $ 41,438
Issuance of shares to acquire
Consolidated Royal Mines, Inc.
at $0.15 per share 2,434,563 24,346
Issuance of shares to directors
and employees for services at
prices ranging from $2.00 to
$2.50 per share 12,750 127
Issuance of shares in exchange for
mineral properties at prices ranging
from $3.13 to $3.25 per share 800,000 8,000
Issuance of shares for cash at
prices ranging from $1.50 to
$2.00 per share 166,000 1,660
Issuance of shares in exchange for
debt at $1.50 per share 200,000 2,000
Net loss for the ten months ended
September 30, 1995 - -
--------- --------
Balance, September 30, 1995 7,757,063 $ 77,571
--------- --------
The accompanying notes are an integral part of these financial
statements.
F-6a
<PAGE> 106
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 679,851 $ (211,796) $ 509,493
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$0.15 per share 335,750 - 360,096
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to
$2.50 per share 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13 to
$3.25 per share 2,530,126 - 2,538,126
Issuance of shares for
cash at prices ranging
from $1.50 to $2.00 per
share 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 298,000 - 300,000
Net loss for the ten
months ended September
30, 1995 - (750,939) (750,939)
----------- ---------- -----------
Balance,
September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376
----------- ---------- -----------
</TABLE>
F-6b
<PAGE> 107
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward September 30, 1995 7,757,063 $ 77,571
Issuance of shares for cash at
$1.50 per share 1,176,832 11,769
Issuance of shares to directors
and employees for services at
$1.50 per share 222,700 2,227
Issuance of shares in exchange
for debt and accrued interest
at $1.50 per share 406,050 4,060
Issuance of shares for cash at
$2.20 per share 150,000 1,500
Issuance of warrants for cash
at $0.05 per warrant - -
Issuance of shares for cash at
$1.62 per share 65,000 650
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 107,500 1,075
Issuance of shares for cash at
$0.75 per share 200,000 2,000
Issuance of shares for cash at
$1.70 per share 250,000 2,500
---------- ---------
Balance forward 10,335,145 $ 103,352
---------- ---------
The accompanying notes are an integral part of these financial
statements.
F-7a
<PAGE> 108
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward
September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376
Issuance of shares for
cash at $1.50 per share 1,754,010 - 1,765,779
Issuance of shares to
directors and employees
for services at $1.50
per share 331,823 - 334,050
Issuance of shares in
exchange for debt and
accrued interest at
$1.50 per share 605,015 - 609,075
Issuance of shares for
cash at $2.20 per share 328,500 - 330,000
Issuance of warrants for cash
at $0.05 per warrant 41,068 - 41,068
Issuance of shares for
cash at $1.62 per share 104,650 - 105,300
Issuance of shares for
cash to directors and
employees at prices
ranging from $1.62
to $2.08 per share 181,175 - 182,250
Issuance of shares for
cash at $0.75 per share 147,985 - 149,985
Issuance of shares for
cash at $1.70 per share 422,500 - 425,000
----------- ---------- -----------
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
----------- ---------- -----------
</TABLE>
F-7b
<PAGE> 109
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 10,335,145 $ 103,352
Cancellation of 35,000 shares
received in exchange for return
of mining property (35,000) (350)
Payment to Centurion Mines for
options to repurchase stock - -
Issuance of shares for joint venture
in mining property at $1.50 per share 100,000 1,000
Repurchase of 25,000 shares issued for
joint venture at $1.40 per share (25,000) (250)
Issuance of shares for mining
property at $1.50 per share 20,000 200
Issuance of shares to noteholders for
extension of notes at $1.50 per share 39,375 394
Issuance of shares for services at
$1.50 per share 215,334 2,153
Stock issuance costs - -
Net loss for the year ended
September 30, 1996 - -
---------- ---------
Balance, September 30, 1996 10,649,854 $ 106,499
---------- ---------
The accompanying notes are an integral part of these financial
statements.
F-8a
<PAGE> 110
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
Cancellation of 35,000
shares received in
exchange for return of
mining property (109,025) - (109,375)
Payment to Centurion
Mines for options to
repurchase stock - (50,000) (50,000)
Issuance of shares for joint
venture in mining property
at $1.50 per share 149,000 - 150,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (34,750) - (35,000)
Issuance of shares for mining
property at $1.50 per share 29,800 - 30,000
Issuance of shares to
noteholders for extension of
notes at $1.50 per share 58,669 - 59,063
Issuance of shares for services
at $1.50 per share 320,848 - 323,001
Stock issuance costs (15,000) - (15,000)
Net loss for the year ended
September 30, 1996 - (2,045,082) (2,045,082)
----------- ------------ ------------
Balance, 09/30/96 $ 8,436,808 $(3,057,817) $ 5,485,490
----------- ----------- -----------
</TABLE>
F-8b
<PAGE> 111
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 10,649,854 $ 106,499
Issuance of shares for cash at
$0.75 per share 2,491,000 24,910
Stock issuance costs - -
Issuance of shares to directors
and employees for services at
$1.00 per share 80,000 800
Issuance of shares for services
at $1.25 per share 98,250 982
Payment for extension of warrants
for one year - -
Issuance of shares to directors
and employees for services at
$1.00 per share 30,500 305
Issuance of shares for services
at $1.00 per share 25,500 255
Payment for extension of warrants
for one year - -
Net loss for the nine months
ended June 30, 1997 - -
---------- ---------
Balance, June 30, 1997 13,375,104 $ 133,751
========== =========
The accompanying notes are an integral part of these financial
statements.
F-9a
<PAGE> 112
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 8,436,808 $ (3,057,817) $ 5,485,490
Issuance of shares for
cash at $0.75 per share 1,843,340 - 1,868,250
Stock issuance costs (30,000) - (30,000)
Issuance of shares to
directors and employees
for services at $1.00
per share 79,200 - 80,000
Issuance of shares for services
at $1.25 per share 121,829 - 122,811
Payment for extension of
warrants for one year 3,000 - 3,000
Issuance of shares to
directors and employees for
services at $1.00 per share 30,195 - 30,500
Issuance of shares for services
at $1.00 per share 25,245 - 25,500
Payment for extension of
warrants for one year 2,500 - 2,500
Net loss for the nine months
ended June 30, 1997 - (1,447,291) (1,447,291)
------------ ------------ -----------
Balance, June 30, 1997 $ 10,512,117 $ (4,505,108) $ 6,140,760
============ ============ ===========
</TABLE>
F-9b
<PAGE> 113
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (1,447,291) $ (937,393) $ (4,455,108)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Loss on sale of equipment 1,769 - 1,769
Depreciation and
amortization 28,855 21,776 129,471
Issuance of common stock
for services 258,811 239,850 1,007,964
Write-off of joint
venture costs - - 150,000
Changes in assets and liabilities:
Note receivable - - (100,000)
Prepaid expenses (11,563) 547 (28,956)
Interest receivable (5,625) - (5,958)
Mineral properties 238,887 - 238,887
Other assets - - (3,801)
Accounts payable (9,780) (56,489) 15,355
Accrued expenses (16,456) (15,622) 17,987
Payable to related parties (289) - 300,000
------------ ----------- ------------
Net cash used in
operating activities (962,682) (747,331) (2,732,390)
------------ ----------- ------------
Cash flows from investing activities:
Sale of assets 500 - 500
Purchase and development of
mineral properties (180,318) (975,851) (1,785,154)
Purchase of investments (70,000) - (70,000)
Purchase of fixed assets (136,364) (3,003) (152,166)
------------ ----------- ------------
Net cash provided used in
investing activities (386,182) (978,854) (2,006,820)
------------ ----------- ------------
The accompanying notes are an integral part of these financial
statements.
F-10a
<PAGE> 114
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Cash flows from financing activities:
Stock issuance and
offering costs (30,000) (15,000) (174,835)
Proceeds received on
long-term debt - - 675,000
Payments made on notes
payable (60,000) (15,000) (174,206)
Issuance of common stock for
cash 1,868,250 1,945,779 5,528,064
Payment for extension of
warrants 5,500 - 5,500
Payment for option to
repurchase stock - - (50,000)
Issuance of common stock for
accrued interest - - 38,158
Issuance of common stock for
extension of notes payable
maturation - - 59,063
Payment for return of stock
issued for mining property
interest - - (35,000)
Payment of joint venture
costs - - (50,000)
Issuance of warrants for
cash - 41,068 41,068
------------ ------------ ------------
Net cash provided by
financing activities 1,783,750 1,956,847 5,862,812
------------ ------------ ------------
Net increase in cash $ 434,886 $ 230,662 $ 1,123,602
------------ ------------ ------------
</TABLE>
F-10b
<PAGE> 115
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Net increase in cash
(balance forward) $ 434,886 $ 230,662 $ 1,123,602
Cash, beginning of period 688,716 151,698 -
----------- --------- -----------
Cash, end of period $ 1,123,602 $ 382,360 $ 1,123,602
=========== ========= ===========
Supplemental cashflow disclosure:
Income taxes $ - $ - $ 350
Interest $ 6,042 $ - $ 29,440
Non-cash financing activities:
Common stock issued for
services rendered $ 258,811 $ 239,850 $ 1,007,964
Common stock issued for
mineral properties $ - $ - $ 2,980,626
Common stock issued for
exchange for debt $ - $ 609,075 $ 922,950
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. $ - $ - $ 360,096
Option rights acquired in
exchange for a payable$ - $ - $ 79,000
Common stock issued for
assignment of mining
property options $ - $ - $ 4,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-11
<PAGE> 116 ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969
under the laws of the State of Utah primarily for the purpose of
acquiring and developing mineral properties. Royal conducts its
business as a "junior" natural resource company, meaning that it
intends to receive income from property sales or joint ventures with
larger companies.
Celebration Mining Company (Celebration), currently a wholly-owned
subsidiary of Royal was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration
was organized on February 17, 1994 as a Washington Corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an Agreement and
Plan of Reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration control the company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of
the assets or liabilities of Royal in the exchange as the market
value approximated the net carrying value. Royal is the acquiring
entity for legal purposes and Celebration is the surviving entity for
accounting purposes.
The $4,727,096 cost of mineral properties included in the
accompanying balance sheet as of June 30, 1997 is related to
exploration properties. The Company has not determined whether the
exploration properties contain ore reserves that are economically
recoverable. The ultimate realization of the Company's investment in
exploration properties is dependent upon the success of future
property sales, the existence of economically recoverable reserves,
the ability of the Company to obtain financing or make other
arrangements for development and upon future profitable production.
The ultimate realization of the Company's investment in exploration
properties cannot be determined at this time and, accordingly, no
provision for any asset impairment that may result, in the event the
Company is not successful in developing or selling these properties,
has been made in the accompanying financial statements.
F-12
<PAGE> 117
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Company is actively seeking additional capital and management
believes the properties can ultimately be sold or developed to enable
the Company to continue its operations. However, there are inherent
uncertainties in mining operations and management cannot provide
assurances that it will be successful in this endeavor. Furthermore,
the Company is in the development stage as it has not realized any
significant revenues from its planned operations.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Loss Per Share
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year The weighted
average number of shares was calculated by taking the number of
shares outstanding and weighing them by the amount of time they were
outstanding.
The outstanding warrants were not included in the computation of loss
per share because the exercise price of the outstanding warrants is
higher than the market price of the stock, thereby causing the
warrants to be antidilutive.
Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Mineral Properties
Costs of acquiring, exploring and developing mineral properties are
capitalized by project area. Costs to maintain the mineral rights
and leases are expensed as incurred. When a property reaches the
production stage, the related capitalized costs will be amortized,
using the units of production method on the basis of periodic
estimates of ore reserves. Mineral properties are periodically
assessed for impairment of value and any losses are charged to
operations at the time of impairment.
F-13
<PAGE> 118
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Should a property be abandoned, its capitalized costs are
charged to operations. The Company charges to operations the
allocable portion of capitalized costs attributable to properties
sold. Capitalized costs are allocated to properties sold based on
the proportion of claims sold to the claims remaining within the
project area.
Concentration of Risk
The Company maintains its cash accounts in primarily one commercial
bank in Spokane, Washington. Accounts are guaranteed by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000. One of the
Company's cash accounts is a business checking account with a balance
of $104,037 and a certificate of deposit in the amount of $5,000 at
June 30, 1997 which in aggregate exceed the FDIC threshold by $9,037.
The remaining cash account is a "liquid asset account" in the amount
of $1,014,565, which is invested in a portfolio of U.S. Treasury
notes/bonds.
Provision For Taxes
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $4,100,000 that may be offset against future taxable
income through 2011. No tax benefit has been reported in the
financial statements as the Company believes there is a 50% or
greater chance the net operating loss carryforwards will expire
unused. Accordingly, the potential tax benefits of the net operating
loss carryforwards are offset by a valuation allowance of the same
amount.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets."
This new standard is effective for years beginning after December 15,
1995. In complying with this standard, the Company has reviewed its
long-lived assets at June 30, 1997 and concluded that no events or
changes in circumstances have transpired which indicate that the
carrying value of its assets may not be recoverable. The Company
does not believe that adoption of the new standard will have a
material effect on its financial statements in the current fiscal
year.
F-14
<PAGE> 119 ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In October 1995, the Financial Accounting Standards Board issued a
new statement titled "Accounting for Stock-Based Compensation" (FAS
123). The new statement is effective for fiscal years beginning
after December 15, 1995. FAS 123 encourages, but does not require,
companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on
fair value. Companies that do not adopt the fair value accounting
rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be
accounted for on the fair value method. The Company currently
intends to adopt the fair value accounting prescribed by FAS 123.
However, the Company intends to continue its analysis of FAS 123 to
determine its ultimate effect in the future.
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the
State of Utah. Under the terms of the agreement, United contributed
real properties for an initial 75% interest in the joint venture, and
Celebration was to remove all liens associated with the real
properties by paying $175,000 to a bank which was the primary lien
holder for its initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned
promissory note. The property was auctioned in a public auction in
May, 1995 and by virtue of Celebration's first position lien,
Celebration was able to successfully bid the full amount of the
underlying promissory note. Although additional expenditures have
been made on the property through June 30, 1997, no further funds
toward the joint venture have been expended by Celebration, which
owns an undivided 25% interest in the property.
Shoshone County Idaho Mineral Lease (Crescent Mine)
In February 1995, Celebration entered into an agreement to acquire a
fifty-year renewable mineral lease on a property in Shoshone County,
Idaho. The mining property consists of twelve patented claims and
associated Idaho state leases. In connection with this lease,
Celebration paid $50,000 and issued 175,000 shares of common stock.
In addition, 10,000 shares were issued to a new director for his
assistance in obtaining this lease. Celebration subsequently paid
F-15
<PAGE> 120
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
$950,000 for the option of extending its lease for an additional
forty-nine years. When, and if, the property achieves gross sales of
$40,000,000, Celebration will be obligated to pay an additional 0.5%
royalty on future sales. Furthermore, beginning after September 1,
1995, and at such time as the average price of silver has reached
$6.00 per ounce for a 30-day period, Celebration is obligated to
spend not less than $2,000,000 during the subsequent 36 months to
de-water and repair the mine. Thereafter, Celebration will be
required to maintain the mine in a condition to allow it to be put
into production within sixty days. There are certain claims by the
U.S. Environmental Protection Agency and the County on this property
for which the lessor is obligated to pay. In the event these claims
are not satisfactorily resolved, they may effect Celebration's rights
to the property.
Australian Mineral Property Joint Venture
In March 1995, Celebration entered into a joint venture agreement
with an Australian company for exploration of a certain mineral
property in Australia. Under the original terms of the joint venture
agreement, Celebration acquired a 10% interest by paying $100,000 in
April 1995. No additional funds where paid or required to be paid
subsequent to the initial payment.
Washington and Idaho Mineral Properties
During the year ended September 30, 1995, Celebration purchased
through the issuance of 800,000 shares of its common stock, various
mineral properties located in the States of Washington and Idaho.
The mineral properties were recorded at the fair market value of the
shares paid on the date of issuance ranging from $3.13 to $3.25 per
share for a total purchase price of $2,538,126.
In May 1996, the Company sold back the Frisco Standard Silver Mine to
its original seller in exchange for the same price (35,000 shares of
Royal stock) received by the seller when the mine was purchased. The
shares received were canceled and no gain or loss was recorded on the
transaction.
The Company's proposed future mining activities will be subject to
laws and regulations controlling not only the exploration and mining
of mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may
necessitate additional capital outlays, affect the economics of a
project, and cause changes or delays in the Company's activities.
F-16
<PAGE> 121
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
Chilean Properties
During the quarter ended June 30, 1997, the Company acquired options
on a 100-square mile concession in northern Chile known as Mocha.
The Mocha prospect is a large porphyry copper system at the northern
end of one of the world's most prolific copper belts.
Under the terms of the first of the option agreements, the Company
can acquire a 100% interest in the concession by cash payments of
$371,000 and work commitments of $200,000 on or before August 1,
2000.
In another agreement on an adjoining privately owned property, which
covers the bulk of the known resource at Mocha, Royal Silver has the
option to acquire a 100% interest in the property, less a 2% retained
net smelter return royalty, for cash payments of $5,000,000 in a
series of payments ending June 23, 2002.
Argentina Properties
On February 10, 1997 the Company announced that it has negotiated an
option to buy 12 different potential mine sites in Argentina. Under
the agreement, the Company can buy the properties on or before March
1, 2000, by paying $4,500,000 in cash or $5,500,000 in Royal Silver
common stock, subject to certain conditions including the Seller's
retention of a 1.95% net smelter royalty on the mines. To date, none
of the properties have been acquired.
Mexico Properties
On January 20, 1997, the Company executed an agreement to acquire
four mining concessions in Nayarit, Mexico. The agreement calls for
a purchase price of $5,000,000 to be paid at the rate of 10% of
pre-tax net profits from production. Under the agreement, the
Company is obligated to pay the property owner $50,000 per year or,
alternatively, to spend $250,000 on exploration and development
annually until the properties are brought into production or
forfeited.
At June 30, 1997, no funds had been expended to maintain,
acquire, explore or develop the aforementioned Mexican properties.
F-17
<PAGE> 122
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
Mexico Properties (continued)
The total mineral properties of the Company at June 30, 1997 are
classified as follows:
Mineral properties under joint ventures $ 366,510
Other mineral properties 4,360,586
Total Mineral Properties $ 4,727,096
The Company's mineral properties are valued at the lower of cost or
net realizable value.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and
repairs that do not increase the useful life of the assets are
expensed as incurred. Depreciation of property and equipment is
determined using the straight-line method over the expected useful
lives of the assets of five years.
NOTE 5 - INVESTMENTS
During the quarter ended June 30, 1997, the Company invested $70,000
in 200,000 shares of Metalline Mining stock. This investment
represents approximately 5.7% of the total outstanding stock in
Metalline Mining at the time of purchase. This stock is being valued
at cost, which is substantially less than the market value of $1.68
per share at June 30, 1997.
NOTE 6 - INTANGIBLE ASSETS
Deferred debt issuance costs and organization costs are
recorded at cost. Amortization of these intangible assets is
determined using the straight-line method over the expected useful
lives of the assets as follows:
Description Useful Lives
Deferred debt issuance costs 1 year
Organization costs 5 years
F-18
<PAGE> 123 ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 7 - COMMON STOCK
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.003 to $.625 per share, which is the fair market value of the
shares on the date of issuance.
During the year ended September 30, 1995, the Company issued
12,750 shares of common stock to directors and employees for services
rendered, valued at prices ranging from $2.00 to $2.50 per share,
which is the fair market value of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000
shares of common stock in exchange for mineral properties (See Note
3) and sold 176,000 shares of common stock for $264,000 cash.
The Company issued 200,000 shares of its common stock during the year
ended September 30, 1995 in lieu of outstanding debt that was owed to
Centurion Mines Corporation (Centurion), a related entity. The stock
was issued at $1.50 per share in payment of $300,000 of outstanding
debt (See Note 9). The Company also issued 277,500 shares in
connection with the issuance of notes payable (See Note 9). (See
also the disclosure in Note 1).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock for $2,958,314 in cash. The Company also
issued 222,700 shares to directors and employees for services
rendered valued at $1.50 per share, which is the fair market value of
the shares on the date of issuance.
Also during the year ended September 30, 1996, the Company issued
100,000 shares of its common stock for a joint venture in a mining
property and 20,000 common shares for a mining property (See Note
11.) The stock issued was valued at $1.50 per share, which is the
fair market value of the shares at the date of issuance.
In the same twelve-month period, the Company also issued 406,050
shares of its common stock in payment of outstanding debt of $570,917
and accrued interest of $38,158. The stock was issued at $1.50 per
share for a total value of $609,075. In addition, the Company issued
39,375 shares of common stock to noteholders for extending the
maturity date of their loans. Again, the shares were valued at $1.50
each, which is the fair market value of the shares when issued.
Also during the year ended September 30, 1996, the Company issued
215,334 shares of its common stock for services received. The shares
were valued at $1.50 per share, which was the fair market value of
the shares at the date of issuance.
F-19
<PAGE> 124
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 7 - COMMON STOCK (Continued)
On January 30, 1997, the Company sold 200,000 "units" at $0.75 per
unit for $150,000 cash. Each unit consists of one share of common
stock and one warrant to purchase one additional share of common
stock at $1.25 per share within the next two years. The Company also
granted the purchaser an option to purchase an additional 335,000
units, which were exercised on February 14, 1997 for $0.75 per unit,
and an additional 1,600,000 units which were exercised on March 17,
1997 for $0.75 per unit.
On February 7, 1997, The Company filed Form SB-2 with the Securities
and Exchange Commission in order to register 625,000 warrants,
625,000 common stock shares issuable upon the exercise of those
warrants, and 166,000 shares of common stock held outside the
Company.
During the nine months ended June 30, 1997, the Company issued
234,250 shares of its common stock for services received. The shares
were valued at prices ranging from $1.00 to $1.25 per share, which
was the fair market value of the shares at the date of issuance.
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS
In January 1992, the shareholders of Royal approved a 1992 Stock
Option and Stock Award Plan under which up to ten percent of the
issued and outstanding shares of the Company's common stock could be
awarded based on merit of work performed. As of June 30, 1997,
12,750 shares of common stock have been awarded under the Plan.
Celebration, prior to the exchange agreement with Royal, had granted
securities to certain shareholders which represented rights to
purchase or receive shares of Celebration's common stock. These
options were assumed by the Company after the merger at a rate of 1.5
shares for each option still outstanding. Thus, the Company has
granted options, with varying conditions and requirements, to
purchase a total of 1,455,000 shares of its common stock. There are
255,000 of the stock options exercisable at $1.50 per share which
expire March 21, 2000. The remaining 1,200,000 stock options are
exercisable at $0.42 per share and expire on August 31, 2001. As of
June 30, 1997, none of these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999. As of June 30, 1997, none of these
warrants have been exercised.
F-20
<PAGE> 125
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
On March 22, 1996, the Board of Directors approved the issuance of
warrants to an investor to purchase 625,000 shares of common stock of
the Company in partial completion of a private placement of stock.
These warrants are exercisable until September 30, 1998, at a price
of $1.50 per share, which is 67% of the closing price on March 22,
1996.
On April 10, 1996, following the close of the second quarter of
fiscal 1996, the Board of Directors authorized the issuance of
420,666 warrants to unaffiliated investors as part of the private
placement of stock. These warrants were originally exercisable until
April 12, 1997 at prices ranging from $2.50 to $2.625 per share.
120,000 of these warrants were extended for one year (until April 12,
1998) in exchange for cash payments received of $3,000 in March and
April 1997. The balance of these warrants expired unexercised at
April 12, 1997.
On October 15, 1996, the Board of Directors approved the issuance of
warrants to employees and consultants to purchase 600,000 shares of
the Company's common stock at a price of $1.50 per share. The
warrants, which are exercisable for a five-year period , were issued
as compensation for services performed. As of June 30, 1997, none of
the warrants have been exercised.
On February 15, 1997, the Board of Directors approved the issuance of
warrants to employees and consultants to purchase 750,000 shares of
the Company's common stock at a price of $1.20 per share. As of June
30, 1997, none of the warrants have been exercised.
In the three months ended March 31, 1997, the Board of Directors
approved the issuance of warrants to investors to purchase 2,491,000
shares of the Company's common stock as part of the private placement
of stock. These warrants are exercisable until March 26, 1999 at a
price of $1.25 per share. None of these warrant have been exercised
as of June 30, 1997.
On April 25, 1997, the Board of Directors approved the issuance of
warrants to consultants to purchase 200,000 shares of the Company's
common stock at a price of $1.125 per share during the three-year
period ending April 30, 2000. As of June 30, 1997, none of these
warrants have been exercised.
F-21
<PAGE> 126
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 9 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at June 30,
1997 and September 30, 1996:
June 30, September 30,
1997 1996
Applicable to:
Common stock $ 10,465,549 $ 8,395,740
Stock warrants 46,568 41,068
------------ -----------
$ 10,512,117 $ 8,436,808
============ ===========
NOTE 10 - NOTES PAYABLE
In February 1995, Celebration raised $555,000 through the issuance of
promissory notes. During the second quarter ended March 31, 1996,
$470,000 of the total amount plus accrued interest of $29,265 was
converted into 332,800 shares of the Company's common stock, leaving
an amount owing of $85,000, which was further reduced by cash
payments to $35,000 at December 31, 1996. The notes bear interest at
10% per annum and are payable upon demand. The note holders also
received 277,500 shares of Celebration's common stock. A 10%
commission was charged by an underwriter on the sale of almost all of
the notes.
In April 1995, Celebration raised $120,000 in 10% convertible
debentures. In late 1995, $105,000 of the total amount plus accrued
interest of $4,810 was converted into 73,250 shares of the Company's
common stock, leaving an amount owing of $15,000. During the fourth
quarter ended September 30, 1996, this remaining $15,000 plus accrued
interest was paid.
NOTE 11 - RELATED PARTY TRANSACTIONS
After receiving advances from a related party for payment of
operating expenses, the Company approved the issuance of 200,000
shares of common stock in payment of $300,000 of the then outstanding
balance (See Note 6). The balance outstanding at June 30, 1997 was
$0.
F-22
<PAGE> 127
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 12 - FUTURE LEASE OBLIGATIONS
The Company is obligated under its lease arrangements to make
additional lease payments subsequent to June 30, 1997 as follows:
Year Ended
September 30, Amount
1997 $ 5,351
1998 4,500
1999 4,500
2000 and thereafter 22,500
--------
Total $ 36,851
========
NOTE 13- OPTIONS WITH PLACER MINING CORPORATION
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a
silver-lead-zinc mine in Shoshone County, Idaho. After issuing
100,000 shares valued at $1.50 per share and spending a
non-refundable $50,000 on this option, the Company elected to
re-negotiate this option agreement and entered into a second option
agreement with Placer on September 18, 1996.
In the second agreement, the Company paid $100,000 in September 1996
for the non-assignable option of acquiring a 100% interest in the
Bunker Hill Mine. In order to exercise this option, the Company must
issue 500,000 shares of its common stock to Placer by May 10, 1997
and pay Placer either $7,000,000 by that date or $4,000,000 by that
date and $3,500,000 by May 10, 1998. Under the terms of this
agreement, the Company will pay Placer a 2 3/4% net smelter return
royalty in perpetuity with stipulated annual advance minimum royalty
payments to Placer ranging from $100,000 (in 1999) to $250,000 (in
years 2002 through 2010). All advance minimum royalties paid are to
be credited against actual production royalties.
Subsequent to March 31, 1997, due to regional environmental concerns
and the prospect of related litigation, the Company concluded that it
would not exercise its option on the Bunker Hill Mine. Accordingly,
the $238,887 in option costs and related expenses toward the purchase
of this property were written off during the quarter ended March 31,
1997.
F-23
<PAGE> 128
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 14 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an
option from Centurion to purchase up to 800,000 shares of its common
stock held by Centurion for the exercise price of $1.75 per share
during the two-year period ending September 30, 1998. The cost of
this two-year stock purchase option was $50,000, which was paid by
the Company and charged to stockholders' equity (accumulated
deficit).
Effective April 15, 1997, the aforementioned stock option agreement
was renegotiated (at no cost to the Company) and amended to extend
the exercise period until September 30, 1999 and to revise the
exercise price to $1.50 per share during this same period.
At June 30, 1997, no shares were acquired from Centurion under this
option agreement.
F-24
<PAGE> 129
UNTIL __________, 1997, (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS.
TABLE OF CONTENTS
Prospectus Summary . . 8 ROYAL SILVER MINES, INC.
Risk Factors . . . 10
Dilution . . . . 15 6,000,000 Units consisting of
Selected Financial Data . 16 6,000,000 shares of Common Stock
Management's Discussion and 6,000,000 Redeemable Common
and Analysis of Stock Warrants
Financial Condition and
Results of Operations . 17
Use of Proceeds . . 20
Dividend Policy . . 21
Glossary . . . 22
Business . . . . 34 __________________________
Management . . . 54 PROSPECTUS
Certain Transactions . 57 __________________________
Management Remuneration . 59
Principal Shareholders . 63 DATED: ___________________
Description of the Securities65
Plan of Distribution . . 69 ROYAL SILVER MINES, INC.
Litigation . . . 70 10220 North Nevada
Legal Matters . . . 70 Suite 270
Experts . . . . 70 Spokane, Washington 99218
Additional Information . 70 (509) 466-3144
Financial Statements . F-1
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained
in this Prospectus in connection with the offer contained in this
Prospectus and, if given or made, such information must not be relied
upon as having been authorized by the Company. Neither the deliver nor
any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company
since the date hereof. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy an security other than the
shares of Common Stock offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of an offer to buy the
shares of Common Stock by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so, to any person to
whom it is unlawful to make such offer or solicitation.
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 22. Indemnification of Directors and Officers.
The only statutes, charter provisions, bylaws or other
arrangements under which any controlling person, Director or Officer of
the Registrant is insured or indemnified in any manner against
liability which he may incur in his capacity as such are set forth
below.
The Utah Statutes provides for indemnification where a person who
was or is a party or is threatened to be made a party to any
threatened, pending or contemplated action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than action by
or in right of a corporation), by reason of fact he is or was a
Director, Officer, employee or agent of a corporation or serving
another corporation at the request of the corporation, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by him if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interest of the corporation and, with respect to criminal
action or proceeding, had no reasonable cause to believe his conduct
unlawful. Lack of good faith is not presumed from settlement or nolo
contendere plea. Indemnification of expenses (including attorneys'
fees) allowed in derivative actions except in the case of misconduct in
performance of duty to corporation unless the Court decides
indemnification is proper. To the extent any such person succeeds on
the merits or otherwise, he shall be indemnified against expenses
(including attorneys' fees). Determination that the person to be
indemnified met applicable standards of conduct, if not made by the
Court, is made by the Board of Directors by majority vote of quorum
consisting of the Directors not party to such action, suit or
proceeding or, if a quorum is not obtainable or a disinterested quorum
so directs, by independent legal counsel or by the stockholders.
Expenses may be paid in advance upon receipt of undertakings to repay
unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation. The Corporation may purchase indemnity
insurance. In so far as indemnification for liability arising from the
Securities Act of 1933 may be permitted to Directors, Officers or
persons controlling the Company, it has been informed that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
<PAGE> 131
ITEM 23. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses in connection with the
issuance and distribution of the shares being registered. All the
amounts shown are estimates, except the registration fee.
[S] [C]
Registration Fee - SEC . . . . $ 4,363.63
NASD Fee . . . . . . . 5,000.00
Printing and Engraving . . . . 2,000.00
Legal Fees and Disbursements . . . 15,000.00
Accounting Fees . . . . . 2,000.00
Transfer Agent Fees . . . . . 1,000.00
Blue Sky Fees and Expenses . . . 636.37
Selling Agent Commission . . . . 600,000.00
TOTAL . . . . . . . $630,000.00
<PAGE> 132
ITEM 24. Recent Sales of Unregistered Securities.
The following table set forth information as to recent sales of
the Registrant's Common Stock since the formation of the Registrant,
all of which shares were not registered under the Securities Act of
1933, as amended:
<TABLE>
<CAPTION>
Amount of
Shares Consideration Date of
Name of Owner Acquired Cash/Other Sale
- ---------------------------------------------------------------------
<S> <C> <C> <C>
144 "RESTRICTED" SECURITIES
Spenst Hansen 20,000 Director Services 01/01/94
4734 South 2700 West
Salt Lake City, UT 84127
James Kontes 10,000 Director Services 01/01/94
P. O. Box 112
Firth, ID 83236
H. E. Cameron 10,000 Director Services 01/01/94
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Alan Seelos 10,000 Director Services 01/01/94
150 South 600 East
#5-B
Salt Lake City, UT 84102
A. Franklin Adams & 10,000 Officer Services 01/01/94
M. Lee Adams
5738 South Redwood Road
#127
Salt Lake City, UT 84123
Barry F. Katona 10,000 Director Services 01/01/94
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Crosby Enterprises,
Inc. 400,000 Finder's Fee 02/02/94
105 North First Mining Property
Suite 232 Acquisition and
Sandpoint, ID 83864 Montanore
Keystone Surveys, Inc 400,000 Finder's Fee 02/02/94
331 South Rio Grande Mining Property
Suite 208 Acquisition and
Salt Lake City, UT 84101 Montanore
Spenst Hansen 100,000 Officer and 03/17/94
4734 South 2700 West Director Services
Salt Lake City, UT 84127
<PAGE> 133
Hal E. Cameron 50,000 Director Services 03/17/94
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Alan Seelos 50,000 Director Services 03/17/94
150 South 600 East
#5-B
Salt Lake City, UT 84102
James C. Kontes 50,000 Director Services 03/17/94
P. O. Box 112
Firth, ID 83236
Barry F. Katona 50,000 Director Services 03/17/94
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Howard Crosby 5,000 Director Services 04/01/95
105 North First Avenue
Suite 232
Sandpoint, ID 83864
Spenst Hansen 2,500 Director Services 04/01/95
4734 South 2700 West
Salt Lake City, UT 84127
E. Hal Cameron 5,000 Director Services 04/01/95
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Laroy Orr 2,500 Officer Services 04/01/95
1020 Adams Avenue
Ogden, UT 84404
Carlos M. Chavez 5,000 Director Services 05/01/95
815 Yale Avenue
Salt Lake City, UT 84105
R. Allison Carman 1,000 Consulting Services 05/01/95
4287 South 4580 West
Salt Lake City, UT 84120
Howard Crosby 5,000 Director Services 06/30/95
105 North First Avenue
Suite 232
Sandpoint, ID 83864
Spenst Hansen 2,500 Director Services 06/30/95
4734 South 2700 West
Salt Lake City, UT 84127
E. Hal Cameron 5,000 Director Services 06/30/95
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Laroy Orr 2,500 Officer Services 06/30/95
1020 Adams Avenue
Ogden, UT 84404
<PAGE> 134
Extol Inter-
national Corp. 425,000 Officer/Director 06/28/95
105 North First Services and
Suite 232 Founding Stock
Sandpoint, ID 83864
Extol Inter-
national Corp. 1,075,000 Officer/Director 06/28/95
105 North First Services and
Suite 232 Founding Stock
Sandpoint, ID 83864
Lovon Fausett 37,500 Mining Property 06/28/95
P. O. Box 968 Acquisition
Osburne, ID 83849
Fausett International 187,500 Mining Property 06/28/95
P. O. Box 968 Acquisition
Osburne, ID 83849
William Jacobson 37,500 Mining Property 06/28/95
P. O. Box 631 Acquisition
Mullen, ID 83846
Robert E. Jorgensen 200,000 Officer/Director 06/28/95
10220 Nevada Services and
Suite 270 Founding Stock
Spokane, WA 99218
Robert E. Jorgensen 550,000 Officer/Director 06/28/95
10220 Nevada Services and
Suite 270 Founding Stock
Spokane, WA 99218
Craig C. Condron 12,000 Basis is $0.42 06/28/95
7205 West Kendick Road per share, as
Nine Mile Falls, WA 99026 adjusted for splits
Craig C. Condron
& Linda Condron 18,750 Basis is $0.42 06/28/95
7205 West Kendick Road per share, as
Nine Mile Falls, WA 99026 adjusted for splits
Brush Prairie Minerals 25,000 Mining Property 08/30/95
905 North Pines Road Acquisition
Suite A
Spokane, WA 99206
Washington Mining Co. 200,000 Mining Property 08/30/95
905 North Pines Road Acquisition
Suite A
Spokane, WA 99206
Conjecture Silver
Mines, Inc. 80,000 Mining Property 08/30/95
6619 North Cedar Road Acquisition
Suite A
Spokane, WA 99208
Centurion Mines
Corporation 50,000 Debt Conversion 08/31/95
P. O. Box 2365 at $1.50 per share
Salt Lake City, UT 84110
<PAGE> 135
Centurion Mines
Corporation 50,000 Debt Conversion 08/31/95
P. O. Box 2365 at $1.50 per share
Salt Lake City, UT 84110
Centurion Mines
Corporation 50,000 Debt Conversion 08/31/95
P. O. Box 2365 at $1.50 per share
Salt Lake City, UT 84110
Centurion Mines
Corporation 50,000 Debt Conversion 08/31/95
P. O. Box 2365 at $1.50 per share
Salt Lake City, UT 84110
Joyce & Welson Stump
Living Trust 3,000 $1.50 per share 09/05/95
1313 Campbell
Toledo, OH 43607
Carl F. Peterson 10,000 $1.50 per share 09/06/95
27670 Groesbeck Hwy
Roseville, MI 48066
IRA F/B/O
Israel A. Englander 166,000 $1.50 per share 09/07/95
c/o Millennium Partners
111 Broadway
New York, NY 10006
Laroy Orr 2,500 Consulting Services 11/20/95
1020 Adams Avenue
Ogden, UT 84404
Craig C. Condron 18,334 Note Conversion 12/29/95
7205 West Kendick Road
Nine Mile Falls, WA 99026
Elite Discount
Health Foods 18,334 Note Conversion 12/29/95
6700 West Charleston
Las Vegas, NV 89102
Joseph A. Tedesco 18,334 Note Conversion 12/29/95
3904 South Ridgeview
Spokane, WA 99206
Binder 1989 Trust 18,334 Note Conversion 12/29/95
276 East Hillcrest Drive
Suite 203
Thousand Oaks, CA 91360
Peter H. Morkill 18,334 Note Conversion 12/29/95
13212 Bracken Fern Drive
Gig Harbor, WA 98332
F. E. Hambleton 73,334 Note Conversion 12/29/95
920 N.W. View Ridge Court
Camas, WA 98607
Bruce W. Franklin 18,334 Note Conversion 12/29/95
3631 Brookside Drive
Bloomfield, MI 48302
<PAGE> 136
Robert H. Laugen 7,334 Note Conversion 12/29/95
15904 North Scribner Branch Road
Spokane, WA 99207
Howard Stang 7,334 Note Conversion 12/29/95
20307 North Little Spokane Drive
Colbert, WA 99005
Michael L. Wallach 18,334 Note Conversion 12/29/95
12117 Riverwood
Spokane, WA 99218
Paul H. Swy 7,334 Note Conversion 12/29/95
290 Substation Road
Temperance, MI 48182
Robert C. Roosen
Trust 18,334 Note Conversion 12/29/95
2756 North Green Valley Parkway
Suite 700
Henderson, NV 89104
Invest L'Inc Bridge
Fund 18,334 Note Conversion 12/29/95
1901 North Rosette Road
Suite 1030
Schauburg, IL 60195
Charles W. Wafer 36,666 Note Conversion 12/29/95
17684 Los Morros
Rancho Sante Fe, CA 92067
Gregg Longmeier 7,334 Note Conversion 12/29/95
16008 North Dalton Road
Spokane, WA 99208
Frances G. Strickfaden 18,334 Note Conversion 12/29/95
4212 Wellington Drive
Fort Collins, CO 80526
Reisha Forshpan 7,334 Note Conversion 12/29/95
3177 Dona Marta Drive
Studio City, CA 91604
John P. Bender 7,334 Note Conversion 12/29/95
1194 Eagle Nest Court
Milton, MI 48381
James F. O'Connell 7,334 Note Conversion 12/29/95
400 South Jefferson
Suite 450
Spokane, WA 99204
Charles Wafer 22,000 Basis is $0.42 as 12/29/95
17684 Los Morros adjusted for splits
Rancho Santa Fe, CA 92067
D. R. Shipman 22,000 Basis is $0.42 as 12/29/95
716 LaSalle Street adjusted for splits
Ottowa, IL 61350
<PAGE>
<PAGE> 137
Dennis W. Garland & 11,000 Basis is $0.42 as 12/29/95
Alice C. Garland adjusted for splits
13801 North Riverbluff Lane
Spokane, WA 99208
Leonard M. Tweten 22,000 Basis is $0.42 as 12/29/95
1301 Spring Street adjusted for splits
#273
Seattle, WA 98104
Frances G.
Strickfaden 18,750 Basis is $0.42 as 01/11/96
4212 Wellington Drive adjusted for splits
Fort Collins, CO 80526
Fred Hoeppner 12,000 Basis is $0.42 as 01/19/96
1573 South Unita Way adjusted for splits
Denver, CO 80231
Edward A. Gray 7,500 Basis is $0.42 as 01/29/96
11419 115th Lane N.E. adjusted for splits
Kirkland, WA 98033
Edward Gray 3,750 Note Extension 03/20/96
11419 115th Lane N.E.
Kirkland, WA 98033
Paul Brown 9,375 Note Extension 03/20/96
11709 North Fairwood Drive
Spokane, WA 99218
D.R. Shipman 9,375 Note Extension 03/20/96
716 LaSalle Street
Ottowa, IL 61350
Dennis Garland 9,375 Note Extension 03/20/96
13801 N. Riverbluff Lane
Spokane, WA 99208
Howard Crosby 40,000 $1.62 per share 07/23/96
105 North First Avenue
Suite 232
Sandpoint, ID 83864
Robert Jorgensen 17,500 $1.62 per share 07/23/96
2719 West Strong Road
Sandpoint, ID 83864
Spenst Hansen 40,000 $1.62 per share 07/23/96
4734 South 2700 West
Salt Lake City, UT 84127
Centurion Mines
Corporation 100,000 $1.50 per share 07/23/96
P. O. Box 2365
Salt Lake City, UT 84110
John Ryan 10,000 $1.62 per share 07/23/96
619 Lunceford Lane
Couer d'Alene, ID 83814
<PAGE> 138
Ben Pellum 50,000 $1.62 per share 07/23/96
3864 South 1845 West
#E204
West Valley, UT 84119
Keystone Surveys 15,000 $1.62 per share 07/23/96
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Cohig & Associates 15,000 Finder's Fee 07/29/96
6300 S. Syracuse Way Mining Property
Suite 430
Englewood, CO 80111
J. Wylie Harris, Jr. 60,000 Consulting Fees 02/21/97
602 N. Main Street Property
Salem, AK 72576
REGULATION "S" SECURITIES
Metallurgical Refining 3,700 $1.70 per share 07/18/95
P. O. Box 81 Australian JV
Brisbane Market
QLD 4106 Australia
Ages, (AUST) Pty, Ltd. 5,000 $1.70 per share 07/18/95
463 Savages Road Australian JV
Brookfield
Queensland 4609 Australia
Delten Trading, S.A. 200,000 $1.50 per share 10/04/95
60 Market Street
Belize City, Belize
CJC Holdings Pty, Ltd. 20,000 $1.50 per share 12/20/95
16 Ord Street
Western Perth
Western Australia
James Oleynick 50,000 $1.50 per share 12/20/95
1500 - 700 West Georgia Street
Vancouver, B.C.
Canada V7Y 1J1
James W. Prier,
ITF RRSP 15,000 $1.50 per share 12/20/95
1715 - 750 West Pender Street
Vancouver, B.C.
Canada V6C 2T8
Jonathan A. Rubenstein 50,000 $1.50 per share 12/20/95
205 - 10711 Cambie Road
Richmond, B.C.
Canada V6X 3G5
Internation Consultant 25,000 $1.50 per share 12/29/95
475 Keith Road
West Vancouver, B.C.
Canada V7T 1L6
<PAGE> 139
Killeba Holdings, Ltd. 200,000 $1.50 per share 01/11/96
102 Langeherrentaise Street
Antwerten 2018 Belgium
Shelley Mason 20,000 $1.50 per share 03/14/96
3441 Dundas Street
Vancouver, B.C.
Canada V5K 1R5
Pacific Int'l
Securities 34,000 $1.50 per share 04/01/96
1500 - 700 West Georgia Street
Vancouver, B.C.
Canada V7Y 1J1
Jim Oleynick 34,000 $1.50 per share 04/01/96
1500 - 700 West Georgia Street
Vancouver, B.C.
Canada V7Y 1J1
Thomas E. Rafael
& RRSP 23 5,000 $1.50 per share 04/20/96
475 Keith Road
West Vancouver, B.C.
Canada V7T 1L6
Stephen Katz 50,000 $1.50 per share 04/04/96
1758 West 4th Avenue
Vancouver, B.C.
Canada
Int'l Consultants 41,000 $1.50 per share 05/06/96
475 Keith Road
West Vancouver, B.C.
Canada V7T 1L6
Rush & Company 150,000 $2.20 per share 05/14/96
100 Wall Street
New York, NY 10005
Siegler & Co. 250,000 $1.70 per share 07/01/96
Nominees for Femitage Global
Mining Investment Fund, Ltd.
Chemical Bank
Ground Floor/Receiving Window
4 New York Plaza
New York, NY
Newark Sales Corp. 200,000 $0.75 per share 08/19/96
377 Langleleem Street
Antwerten 2018 Belgium
Britannia Holdings 200,000 $0.75 per share 01/29/97
Limited
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
<PAGE> 140
Britannia Holdings 335,000 $0.75 per share 02/14/97
Limited
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
Louk Jongen 100,000 $0.75 per share 02/25/97
Total Investment
Services b.v.
Ooisestraat 4
4054 MN Echteld
Holland
NCL Investment Limited 136,000 $0.75 per share 03/04/97
Barlett House
9 - 12 Basinghall Street
London, England EC2V 5NS
Credit Suisse 100,000 $0.75 per share 03/07/97
(UK) Limited
Five Cabot Square
London, England E14 4QR
Britannia Holdings 1,600,000 $0.75 per share 03/24/97
Limited
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
Portsalon Investment 20,000 $0.75 per share 03/25/97
Seefeldstr. 214
Zurich 8034
Switzerland
<PAGE> 141
ITEM 25. Exhibits.
The following documents are incorporated herein by reference from
the Registrant's Form 10, as filed with the Securities and Exchange
Commission.
Number Document
- ---------------------------------------------------------------------
3.1 Articles of Incorporation.
3.2 Articles of Amendment.
3.3 Amendment to Articles of Incorporation Limiting Director
Liability.
3.4 Bylaws.
10.1 Sale of Mining Properties By Centurion Mines Corporation to
Royal Minerals, Inc. - June 1992 through September 1993.
10.2 Deed with Reservation of Mineral Royalty - January 1992 to
Kennecott.
10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to
Kennecott.
10.4 July 1992 Kennecott Option to Purchase 6,320 acres.
10.5 Deed and Assignment with Reservation of Mineral Royalty -
August 1992 (16,880 acres) to Kennecott.
10.6 Deed and Assignment with Reservation of Mineral Royalty -
December 1992 (6,320 acres) to Kennecott.
The following documents are incorporated herein by reference from
the Registrant's Current Report on Form 8-K, dated August 8, 1995, as
filed with the Securities and Exchange Commission:
2.01 Agreement and Plan of Reorganization.
3.05 Articles of Share Exchange (Utah).
3.06 Articles of Share Exchange (Washington).
4.01 Subscription and Investment Agreement.
4.02 Stock Purchase Option Certificate.
19.01 Material Furnished to Celebration Securityholders.
20.01 Letter from Royal to Share Exchange Securityholders.
<PAGE> 142
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 included as exhibits hereto:
5.1 Opinion of Conrad C. Lysiak.
24.1 Consent of Williams and Webster, P.S.
24.2 Consent of Conrad C. Lysiak.
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> 143
ITEM 26. Undertakings.
A. The undersigned Registrant hereby undertakes: To provide to the
Underwriters, if any, at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
B. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and,
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
C. Insofar as indemnification for liabilities arising under the
securities Act of 1933 may be permitted to Directors, Officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, Officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by a Director, Officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public
policy as expressed in the Act and shall be governed by the final
adjudication of such issue.
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing of this Form SB-2 Registration Statement
and has duly caused this Form SB-2 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Spokane, Washington,
on this 9th day of September, 1997.
ROYAL SILVER MINES, INC.
BY: /s/ Howard M. Crosby, President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Howard M. Crosby as true and lawful attorney-in-fact
and agent, with full power of substitution, for his and in his name, place
and stead, in any and all capacities, to sign any and all amendment
(including post-effective 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 Act of 1933, this Form SB-2
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Howard M. Crosby President and a member September 9, 1997
of Directors
/s/ Robert E. Jorgensen Executive Vice President September 9, 1997
Treasurer and a member
of the Board of Directors
/s/ John Ryan Vice President of September 9, 1997
Corporate Development and
Member of the Board of Directors
/s/ Thomas Henricksen Secretary and a member September 12, 1997
of Board of Directors
/s/ Jerry Stacey Vice President September 12, 1997
of Operations
/s/ Ronald Kitching Member of the Board September 9, 1997
of Directors
_________________________
Kevin Stulp Member of the Board ________, 1997
of Directors
<PAGE> 145
EXHIBIT INDEX
The following documents are incorporated herein by reference from the
Registrant's 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 Sales Agreement of 16,880 acres to
Kennecott.
10.4 July 1992 Kennecott Option to Purchase 6,320 acres.
10.5 Deed and Assignment with Reservation of Mineral Royalty -
August 1992 (16,880 acres) to Kennecott.
10.6 Deed and Assignment with Reservation of Mineral Royalty -
December 1992 (6,320 acres) to Kennecott.
The following documents are incorporated herein by reference from the
Registrant's Current Report on From 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.
<PAGE> 146
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 Vipont 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/Joiont Venture Option.
10.11 Purchase Agreement wtih Imperial Energy Corp.
The following documents are included as exhibits hereto:
5.1 Opinion of Conrad C. Lysiak.
24.1 Consent of Williams and Webster, P.S.
24.2 Consent of Conrad C. Lysiak.
</TABLE>
<PAGE> 1
CONRAD C. LYSIAK
Attorney and Counselor at Law
601 West First Avenue
Suite 503
Spokane, Washington 99204
(509) 624-1478
FAX (509) 747-1770
September 11, 1997
Securities and Exchange Commission
450 Fifth Avenue N.W.
Washington, D. C. 20549
RE: Royal Silver Mines, Inc.
Gentlemen:
Please be advised that, I have reached the following
conclusions regarding the above offering:
1. Royal Silver Mines, Inc., (the "Company") is a duly and
legally organized and exiting Utah state corporation, with its
registered office located in Salt Lake City, Utah and its
principal place of business located in Spokane, Washington. The
Articles of Incorporation and corporate registration fees were
submitted to the Utah Secretary of State's office and filed with
the office on April 6, 1969. The Company's existence and form is
valid and legal pursuant to the representation above.
2. The Company is a fully and duly incorporated Utah
corporate entity. The Company has one class of Common Stock at
this time and one class of preferred stock. No shares of
preferred stock have been issued. Neither the Articles of
Incorporation, Bylaws, and amendments thereto, nor subsequent
resolutions change the non-assessable characteristics of the
Company's common shares of stock. The Common Stock previously
issued by the Company is in legal form and in compliance with the
laws of the State of Utah, and when such stock was issued it was
fully paid for and non-assessable. The Common Stock and Warrants
stock to be sold under this Form SB-2 Registration Statement are
likewise legal under the laws of the State of Utah, and the said
Common Stock, when issued, will be legally issued, fully paid for
and non-assessable.
<PAGE> 2 Securities and Exchange Commission
RE: Royal Silver Mines, Inc.
September 11, 1997
3. To my knowledge, the Company is not a party to any legal
proceedings nor are there any judgments against the Company, nor
are there any actions or suits filed or threatened against it or
its officers and directors, in their capacities as such, other
than as set forth in the registration statement. I know of no
disputes involving the Company and the Company has no claim,
actions or inquires from any federal, state or other government
agency, other than as set forth in the registration statement. I
know of no claims against the Company or any reputed claims
against it at this time, other than as set forth in the
registration statement.
4. The Company's outstanding shares are all common shares.
No preferred shares have been issued. There are no liquidation
preference rights held by any of the Shareholders upon voluntary
or involuntary liquidation of the Company.
5. The directors and officers of the Company are
indemnified against all costs, expenses, judgments and
liabilities, including attorney's fees, reasonably incurred by or
imposed upon them or any of them in connection with or resulting
from any action, suit or proceedings, civil or general, in which
the officer or director is or may be made a party by reason of
his being or having been such a director or officer. This
indemnification is not exclusive of other rights to which such
director or officer may be entitled as a matter of law.
6. All tax benefits to be derived from the Company's
operations shall inure to the benefit of the Company.
Shareholders will receive no tax benefits from their stock
ownership, however, this must be reviewed in light of the Tax
Reform Act of 1986.
7. By director's resolution, the Company has authorized
the issuance of up to 6,000,000 Units, consitsing of 6,000,000
shares of Common Stock and 6,000,000 Redeemable Common Stock
Purchase Warrants to purchase 6,000,000 shares of Common Stock.
The exercise price of each Warrant if $1.40.
The Company's Articles of Incorporation presently provide
the authority to the Company to issue 100,000,000 shares of
Common Stock, $0.01 par value. Therefore, a Board of Directors'
Resolution which authorized the issuance for sale of up to
6,000,000 shares of Common Stock and 6,000,000 Redeemable Common
Stock Purchase Warrants to purchase 6,000,000 shares of Common
Stock thereunder, would be within the authority of the Company's
directors and would result in the legal issuance of said shares.
Yours truly,
/s/ Conrad C. Lysiak
<PAGE> 1
WILLIAMS & WEBSTER, P.S.
Certified Public Accountants
601 West Riverside
Suite 1970
Spokane, Washington 99201-0611
(509) 838-8111
FAX (509) 624-5001
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Royal Silver Mines, Inc.
Spokane, Washington
We consent to the use of our audit report dated December 13,
1996, on the financial statements of Royal Silver Mines, Inc as
of September 30, 1996, and to the use of our review report dated
July 23, 1997, on the financial statements of Royal Silver Mines,
Inc. As of June 30, 1997, and the inclusion of our name under the
headings "Selected Financial Data" and "Experts" in the Form SB-2
Registration Statement filed in September 1997.
/s/ Williams & Webster P.S.
Williams & Webster, P.S.
Spokane, Washington
September 10, 1997
<PAGE> 1
CONRAD C. LYSIAK
Attorney and Counselor at Law
601 West First Avenue
Suite 503
Spokane, Washington 99201
(509) 624-1475
FAX (509) 747-1770
CONSENT
I HEREBY CONSENT to the inclusion of my name in
connection with the Form SB-2 Registration Statment filed
with the Securities and Exchange Commission as attorney for
the registrant, Royal Silver Mines, Inc., and to the
reference to my firm under the subcaption "Legal Matters."
Dated this 11th date of September, 1997.
Yours truly
Conrad C. Lysiak
