<PAGE> 1
__________________________________________________________________
__________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM:
__________________________________
Commission File Number: 0-25170
----------------------------------
ROYAL SILVER MINES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0306609
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
10220 North Nevada
Suite 270A
Spokane, Washington 99218
(Address of Principal Executive Offices, including Zip Code)
(509) 466-3144
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares outstanding at June 30, 1998: 18,585,065 shares.
___________________________________________________________________
___________________________________________________________________
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS OF ROYAL SILVER MINES, INC.
(Hereinafter referred to as Registrant or Company)
Condensed financial statements, and an accompanying independent
accountants' report, are filed as part of this Quarterly Report at
pages 1 to 28. In management's opinion, these financial
statements present fairly in all material respects Registrant's
financial condition and changes in condition as of June 30, 1998 and
September 30, 1997, and the results of operations, stockholders' equity
and cash flows for the nine months ended June 30, 1998 and 1997, and
from inception on February 17, 1994 through June 30, 1998, in
conformance with generally accepted accounting principles.
The accompanying financial statements consolidate the financial
statements of Celebration Mining Company and Royal Silver Mines, Inc.
due to the Reorganization discussed in Note 1 of the financial
statements following this Report. All significant intercompany
accounts and transactions have been eliminated. Also, the
consolidation required a change in fiscal year-end, from November 30
(Celebration) to September 30 (Royal). The financial statements
account for the Reorganization using the purchase method of accounting
(see Note 1 to the financial statements). Celebration is treated as
the acquiring company for financial reporting purposes because its
shareholders constitute greater than 50 percent of the combined
shareholder group. In conformity with generally accepted accounting
principles and the Company's accounting policy, Celebration is
recognized as the predecessor entity. Consequently, Celebration's
assets and liabilities were not adjusted in the accompanying financial
statements. The financial statements for the period from the inception
of Celebration on February 17, 1994 to November 30, 1994 ("Fiscal
1994") do not include the balance sheet data or results of operations
of Consolidated Royal Mines, Inc. The accompanying financial
statements represent the activities of Royal Silver Mines and
Celebration, but are not considered consolidated financial statements
since Royal Silver is the successor to Celebration.
As discussed in greater detail under Item 2 below, a substantial
portion of Registrant's assets consist of investments in mineral
properties for which additional exploration is required to determine if
they contain ore reserves that are economically recoverable. The
realization of these investments is contingent to large extent upon the
success of Registrant's property transactions as a whole, the existence
of economically recoverable reserves, the ability of the Company to
obtain financing or make other arrangements for development, and upon
future profitable production. Accordingly, the accompanying financial
statements make no provision for any asset impairment or other
adjustment that might result from the outcome of this uncertainty.
<PAGE> 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES. There is
considerable risk in any mining venture, and there can be no assurance
that the Company's operations will be successful or profitable.
Exploration for commercially mineable 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, 1998, the Company accumulated a
deficit of $4,083,112.
At June 30, 1998, $3,177,148 of the Company's total assets of
$7,112,162 were investments in mineral properties and $1,500,000 of the
Company's assets is an investment in Grand Central Silver Mines, Inc.,
a minerals exploration company traded on NASDAQ. 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, 1998, the Company had
working capital of $464,724. This amount represents some deterioration
from the working capital of $671,355 at September 30, 1997. In the
nine months ending June 30, 1998, the Company's working capital has
<PAGE> 4
decreased by $206,631 primarily because of decreased cash received by
the Company from its sales of common stock. During the same nine-month
period, the Company's cash decreased from $594,577 to $45,851 while the
Company's notes receivable and investments both increased
substantially.
In the third quarter of fiscal 1998, the Company's current liabilities
increased to $61,651 as accrued expenses and accounts payable both
increased slightly from their September 30, 1997 and March 31, 1998
levels. The Company's current liabilities of $61,651 at June 30, 1998
represent an unfavorable increase from the Company's current
liabilities of $41,341 at September 30, 1997. The Company has no
long-term debt.
The Company has estimated that it will need minimal capital resources
of approximately $20,000 per month to meet its estimated expenditures
for fiscal 1998. In 1996 and in 1997, 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 throughout
Europe and North America and negotiated preliminary terms and
arrangements for such capital fund raising. During the fiscal year
ending September 30, 1997, the Company raised $1,843,750 in funds
primarily through the private placement of shares and warrants. In the
third fiscal quarter of 1998, the Company raised $50,000 in cash and
$700,000 in notes, primarily through the private placement of shares.
The Company is continuing with the previously described negotiations
and various alternatives to raise capital. The Board of Directors
reasonably believes that the Company is able to engage in nearly any
size operation or scope of mining activity depending on the
circumstances and merits of each proposed operation or mining activity.
Accordingly, the Board has not limited the size of operation or scope
of project which it believes is reasonable for management to consider
in achieving the Company's business plan. Therefore, management has
been authorized to consider and review numerous proposals and, upon
satisfactory assessment, to then make a specific determination as to an
estimated range of funding amounts that each such proposal reasonably
might require.
Inasmuch as the Company has not yet determined in detail the
specifications of the project, operation or mining activity that it
intends to undertake, management is not able at this time to provide a
detailed listing or exact range of operation costs, including increases
in general and administrative expense, if any. However, the Company
plans to fund any increases in general and administrative expense
principally from joint venture revenues or funds it may receive or
savings it may realize through corporate restructuring or business
combination arrangements. Funds required to finance the Company's
exploration and development of mineral properties are expected to come
primarily from the contributions of its joint venture participants, and
from the funds generated from such joint ventures and other lease or
royalty arrangements.
<PAGE> 5
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities which provide its
personnel, office space, and equipment needs. The Company currently is
seeking alternate sources of working capital sufficient to increase the
funding of additional general and administrative expenses that may
become necessary as the Company's business plan develops, and to
continue meeting its ongoing payment obligations for its leases to
governmental entities.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1998,
RESPECTIVELY. General and administrative expenses decreased from
$843,070 during the first nine months of fiscal 1997 to $382,493 during
the first three quarters of fiscal 1998. This decrease is principally
due to decreased salaries and a decrease in the cost of fundraising
associated with the Company's recent private placements of its stock.
Also, during the first nine months of fiscal 1997, the Company incurred
officers/directors compensation of $329,911 while such compensation
expenses were reduced to $117,652 in the first nine months of fiscal
1998. As a principal result of the Company's cost reduction efforts in
fundraising and compensation, total expenses of $1,463,455 for the
first nine months of fiscal 1997 decreased to $765,460 (total expenses)
in the first nine months of fiscal 1998.
In the second quarter of fiscal 1998, the Company sold some patented
mining properties for common stock valued at $1,500,000, which resulted
in a gain of $406,250. In this same quarter the Company sold a 35%
working interest in a minerals exploration joint venture in exchange
for stock valued at $1,424,062 and a promissory note for $350,000. The
transaction resulted in a gain of $1,604,063, which was the principal
contributor to the Company's net income of $1,662,615 for the second
quarter and net income of $745,415 for the nine months ended June 30,
1998. There were no comparable transactions in the prior year, which
posted a loss of $1,447,291 for the nine months ended June 30, 1997.
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
<PAGE> 6
increase in sustained cash flow, the likely effect of that might be an
increase in accumulated deficits which could be adverse to the
Company's financial condition with respect to liabilities and
stockholders' equity.
Therefore, while the Company continues to seek a joint venture
participant and additional sources of capital for financing operations
during the remainder of its current fiscal year, the Company will
continue to carefully monitor its capital expenditures.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a defendant in a lawsuit filed by some of its
shareholders for alleged violations of securities laws. The suit was
filed in the U.S. District Court in Denver on January 22, 1998 with
Rounds et al as plaintiffs vs. Royal Silver Mines, Inc. et al as
defendants. Plaintiffs seek damages and attorneys' fees in their
lawsuit, which alleges that defendants made false/misleading statements
and omitted material disclosures in connection with public trading of
Royal's common stock during the period May 1996 through August 1997.
The Company believes that this lawsuit is completely without merit.
The Company is not aware of any similar actions(s) contemplated or
instituted by governmental authorities.
The Company is also a defendant in a lawsuit filed by Thomas F. Miller
(et al.), in the First Judicial Court in and for Box Elder County,
State of Utah. The suit, which alleges that the Company failed to
transfer common stock in exchange for a mining interest, asks for
actual and punitive damages. The Company believes that this lawsuit is
without merit and has filed a countersuit alleging fraudulent
misrepresentation. The Company is seeking both full title to the
aforementioned mineral property and punitive damages, and believes its
countersuit will prevail.
In July 1998, the Company filed an action in federal court in Boise,
Idaho for declaratory judgment regarding the validity of its Crescent
Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. Management believes that there is a good likelihood of
prevailing in this matter.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
<PAGE> 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
__________________________________________________________________
SIGNATURES
__________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated this 14th day of August, 1998
ROYAL SILVER MINES, INC.
/s/ Howard Crosby
BY: Howard Crosby
Its: Chief Executive Officer
<PAGE> 8
ROYAL SILVER MINES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
June 30, 1998 and September 30, 1997
Williams & Webster, P.S.
Certified Public Accountants
Seafirst Financial Center
W. 601 Riverside, Suite 1970
Spokane, WA 99201
(509) 838-5111
<PAGE> 9
ROYAL SILVER MINES, INC.
TABLE OF CONTENTS
ACCOUNTANTS' REVIEW REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2-3
Statements of Operations 4
Statements of Cash Flows 5-6
Statements of Stockholders' Equity 7-11
Notes to the Financial Statements 12-28
<PAGE> 10
(LOGO) Williams & Webster, P.S.
Certified Public Accountants
Seafirst Financial Center
601 W. Riverside, Suite 1970
Spokane, WA 99201-0611
(509) 838-5111 FAX (509) 624-5001
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, 1998 and the
related statements of operations, shareholders' equity, and cash
flows for the nine months ended June 30, 1998 and 1997, and for the
period from February 17, 1994 (inception) through June 30, 1998. The
review was conducted in 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, 1997 was audited
by us and we expressed an unqualified opinion on it in our report
dated December 15, 1997. We have not performed any auditing
procedures since that date.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
July 31, 1998
1
<PAGE> 11
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 45,851 $ 594,577
Notes receivable 450,000 100,000
Interest receivable 22,507 7,583
Prepaid expenses 8,017 10,536
------------ ------------
TOTAL CURRENT ASSETS 526,375 712,696
------------ ------------
MINERAL PROPERTIES 3,177,148 4,915,579
------------ ------------
PROPERTY AND EQUIPMENT
Mining equipment 183,889 188,888
Furniture and equipment 12,762 15,185
Less accumulated depreciation (39,808) (17,005)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 156,843 187,068
------------ ------------
OTHER ASSETS
Investments 3,236,562 70,000
Deposit for joint venture 10,000 -
Organizational costs, net 5,234 6,184
------------ ------------
TOTAL OTHER ASSETS 3,251,796 76,184
------------ ------------
TOTAL ASSETS $ 7,112,162 $ 5,891,527
============ ============
</TABLE>
See accountants' report and accompanying notes.
2
<PAGE> 12
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
BALANCE SHEETS
June 30, September 30,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 44,506 $ 20,355
Accrued expenses 17,145 20,986
----------- -----------
TOTAL CURRENT LIABILITIES 61,651 41,341
----------- -----------
LONG TERM DEBT - -
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
100,000,000 shares authorized,
18,585,065 and 13,482,232 shares
issued and outstanding,
respectively 185,851 134,822
Additional paid-in capital 11,647,772 10,543,892
Stock subscription receivable (700,000) -
Deficit accumulated during
development stage (4,083,112) (4,828,528)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,050,511 5,850,186
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,112,162 $ 5,891,527
=========== ===========
</TABLE>
See accountants' report and accompanying notes.
3
<PAGE> 13
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
02/17/94
Three months ended Nine months ended (inception)
June 30, June 30, June 30, June 30, through
1998 1997 1998 1997 06/30/98
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ - $ -
----------- ----------- ---------- ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property
expense 34,795 22,732 228,492 261,619 507,722
Depreciation and
amortization 9,157 10,683 36,823 28,855 179,517
Officers' and directors'
compensation 12,375 85,499 117,652 329,911 1,353,260
General and
administrative 81,603 272,799 382,493 843,070 3,110,969
----------- ----------- ---------- ----------- -----------
TOTAL EXPENSES 137,930 391,713 765,460 1,463,455 5,151,468
----------- ----------- ---------- ----------- -----------
OPERATING LOSS (137,930) (391,713) (765,460) (1,463,455) (5,151,468)
----------- ----------- ---------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest income 8,913 16,190 20,495 20,190 51,520
Interest expense - - - (2,257) (74,348)
Gain on property
interest sold - - 2,010,313 - 2,010,313
Loss on option
costs (403,530) - (517,871) - (517,871)
Loss on disposal
of assets (1,352) - (2,062) (1,769) (351,259)
----------- ----------- ---------- ----------- -----------
Total other income
(expense) (395,969) 16,190 1,510,875 16,164 1,118,355
----------- ----------- ---------- ----------- -----------
NET INCOME
(LOSS) $ (533,899) $ (375,523) $ 745,415 $(1,447,291) $(4,033,113)
=========== =========== ========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE $ (0.03) $ (0.03) $ 0.05 $ (0.12) $ (0.46)
=========== =========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 17,575,398 13,423,904 15,272,251 11,804,654 8,793,327
========== ========== ========== ========== =========
</TABLE>
See accountants' report and accompanying notes.
4
<PAGE> 14
(In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statement of Cash
Flows (Unaudited) has been formatted to fit across two pages. This
is page 1 of 2.)
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
From
February 17,
Nine months ended 1994 (Inception)
June 30, June 30, Through
1998 1997 June 30, 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 745,415 $ (1,447,291) $ (4,033,113)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Loss on sale of equipment 1,352 1,769 1,352
Depreciation and amortization 36,823 28,855 182,064
Issuance of common stock
for services 110,408 258,811 1,172,466
Write-off of option costs 517,871 - 517,871
Write-off of joint venture costs - - 150,000
Changes in assets and liabilities:
Note receivable (350,000) - (450,000)
Accounts receivable - - -
Prepaid expenses (24) (11,563) (36,455)
Other assets - - (9,801)
Interest receivable (14,924) (5,625) (22,507)
Mineral properties (4,674) 238,887 (4,674)
Accounts payable 24,151 (9,780) 44,506
Accrued expenses (4,653) (16,456) 16,333
Payable to related parties - (289) 300,000
----------- ------------ ------------
Net cash provided (used) in
operating activities 1,061,745 (962,682) (2,171,958)
----------- ------------ ------------
Cash flows from investing activities:
Sale of assets 5,185 500 5,685
Sale of investment 70,000 - 70,000
Sale of mineral properties 1,093,750 - 1,093,750
Purchase of investments (2,934,062) (70,000) (3,004,062)
Purchase and development
of mineral properties (185,690) (180,318) (1,941,690)
Purchase of fixed assets (4,154) (136,364) (213,186)
----------- ------------ ------------
Net cash used in investing
activities (1,954,971) (386,182) (3,989,503)
---------- ------------ ------------
See accountants' report and accompanying notes.
5A
<PAGE> 15
(In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statement of Cash
Flows (Unaudited) has been formatted to fit across two pages. This
is page 1 of 2.)
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
From
February 17,
Nine months ended 1994 (Inception)
June 30, June 30, Through
1998 1997 June 30, 1998
<S> <C> <C> <C>
Cash flows from financing activities:
Stock issuance and offering costs - (30,000) (174,835)
Proceeds received on long-term debt - - 675,000
Payments made on notes payable - (60,000) (174,206)
Issuance of common stock for cash 344,500 1,868,250 5,872,564
Payment for extension of warrants - 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 - - 46,568
----------- ----------- ------------
Net cash provided by financing
activities 344,500 1,783,750 6,207,312
----------- ----------- ------------
Net increase (decrease) in cash $ (548,726) $ 434,886 $ 45,851
----------- ----------- ------------
</TABLE>
See accountants' report and accompanying notes.
5B
<PAGE> 16
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
From
02/17/94
Nine months ended (Inception)
June 30, June 30, Through
1998 1997 June 30, 1998
<S> <C> <C> <C>
Net increase (decrease) in cash
(balance forward) $ (548,726) $ 434,886 $ 45,851
Cash, beginning of period 594,577 688,716 -
---------- ----------- -----------
Cash, end of period $ 45,851 $ 1,123,602 $ 45,851
========== =========== ===========
Supplemental cash flow disclosure:
Income taxes $ - $ - $ 350
Interest $ - $ 6,042 $ 25,655
Non-cash financing activities:
Common stock issued for
services rendered $ 136,108 $ 258,811 $ 1,198,166
Common stock issued for
mineral properties $ - $ - $ 3,040,626
Common stock issued in
exchange for debt $ 700,000 $ - $ 1,622,950
Common stock issued in
acquisition of Consolidated $ - $ - $ 360,096
Royal Mines, Inc.
Option rights acquired in
exchange for a payable $ - $ - $ 79,000
Common stock issued for assignment
of mining property options $ - $ - $ 4,000
</TABLE>
See accountants' report and accompanying notes.
6
<PAGE> 17
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number of Paid-in Accumulated Stockhold-
Shares Amount Capital Deficit ers'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, 11/30/94 3,450,000 34,500 453,616 (211,796) 276,320
Issuance of share 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
--------- -------- ----------- ---------- ---------
Balance forward 6,578,313 $ 65,784 $ 1,015,601 $ (211,796) $ 869,589
--------- -------- ----------- ---------- ---------
</TABLE>
See accountant's report and accompanying notes.
7
<PAGE> 18
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number of Paid-in Accumulated Stockhold-
Shares Amount Capital Deficit ers'Equity
<S> <C> <C> <C> <C> <C>
Balance forward 6,578,313 $ 65,784 $ 1,015,601 $ (211,796) $ 869,589
--------- -------- ----------- ---------- ----------
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00
to $2.50 per share 12,750 127 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13 to
$3.25 per share 800,000 8,000 2,530,126 - 2,538,126
Issuance of shares for
cash at prices ranging
from $1.50 to $2.00
per share 166,000 1,660 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 200,000 2,000 298,000 - 300,000
Net loss for the ten
months ended
September 30, 1995 - (750,939) (750,939)
--------- -------- ----------- ---------- ----------
Balance, 09/30/95 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
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 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
--------- -------- ----------- ---------- ----------
Balance forward 9,712,645 $ 97,127 $ 7,180,956 $ (962,735) $6,315,348
--------- -------- ----------- ---------- ----------
</TABLE>
See accountants' report and accompanying notes.
8
<PAGE> 19
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number of Paid-in Accumulated Stockhold-
Shares Amount Capital Deficit ers'Equity
<S> <C> <C> <C> <C> <C>
Balance forward 9,712,645 $ 97,127 $ 7,180,956 $ (962,735) $ 6,315,348
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
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)
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 share
for services at
$1.50 per share 215,334 2,153 320,848 - 323,001
---------- --------- ----------- ----------- -----------
Balance forward 10,649,854 $ 106,499 $ 8,451,808 $(1,012,735) $ 7,545,572
---------- --------- ----------- ----------- -----------
</TABLE>
See accountants' report and accompanying notes.
9
<PAGE> 20
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number of Paid-in Accumulated Stockhold-
Shares Amount Capital Deficit ers'Equity
<S> <C> <C> <C> <C> <C>
Balance forward 10,649,854 $ 106,499 $ 8,451,808 $ (1,012,735) $ 7,545,572
Stock issuance
costs - - (15,000) - (15,000)
Net loss for the
year ended
09/30/96 - - - (2,045,082) (2,045,082)
---------- --------- ----------- ------------ -----------
Balance,
09/30/96 10,649,854 106,499 8,436,808 (3,057,817) 5,485,490
Issuance of shares
for cash at $0.75
per share 2,491,000 24,910 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 110,500 1,105 109,395 - 110,500
$0.75 per share 25,000 250 18,500 - 18,750
Issuance of shares
for services at
$1.25 per share 98,250 982 121,829 - 122,811
Issuance of shares
for mining property
at $1.00 per
share 60,000 600 59,400 - 60,000
Cancellation of
25,000 shares
received in exchange
for return of
mining property (25,000) (250) (81,000) - (81,250)
Issuance of shares
for services at:
$1.00 per share 25,500 255 25,245 - 25,500
$0.75 per share 47,128 471 34,875 - 35,346
Payment for extension
of warrants for
one year - - 2,500 - 2,500
Net loss for
the year ended
09/30/97 - - - (1,770,710) (1,770,710)
---------- --------- ----------- ------------ -----------
Balance,
09/30/97 13,482,232 $ 134,822 $10,543,892 $ (4,828,527) $ 5,850,187
---------- --------- ----------- ------------ -----------
</TABLE>
See accountants' report and accompanying notes.
10
<PAGE> 21
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Sub- Total
Number Paid-in scription Accumulated Stockhold-
of Shares Amount Capital Receivable Deficit ers'Equity
<S> <C> <C> <C> <C> <C> <C>
Balance
forward 13,482,232 $134,822 $10,543,892 $ - $(4,828,527) $5,850,187
Issuance of shares
for cash at $0.75
per share 10,000 100 7,400 - - 7,500
Issuance of shares
to directors and
employees for
services: at
prices varying
from $0.34 per
share to $0.91
per share 179,000 1,796 108,614 - - 101,410
Issuance of shares
for cash at $0.15
per share 1,913,333 19,133 267,866 - - 286,999
Issuance of shares
in exchange
for cash and
note at $0.25
per share 3,000,000 30,000 720,000 (700,000) - 50,000
Net income for nine
months ended June
30, 1998 - - - 745,415 745,415
--------- -------- ----------- --------- ----------- ----------
Balance,
06/30/98 18,585,065 $185,851 $11,647,772 $(700,000) $(4,083,112) $7,050,511
---------- -------- ----------- --------- ----------- ----------
</TABLE>
See accountants' report and accompanying notes.
11
<PAGE> 22
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
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 $3,177,148 cost of mineral properties included in the
accompanying balance sheet as of June 30, 1998 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.
<PAGE> 23
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
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 state, 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.
13
<PAGE> 24
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
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. One of the
Company's cash accounts is a business checking account with a balance
of $39,350 at June 30, 1998. The remaining cash account is a "liquid
asset account" in the amount of $6,501, 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 $4,080,000 that may be offset against future taxable
income through 2012. 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.
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Impairment of Long-lived Assets."
This standard is effective for years beginning after December 15, 1995.
In complying with this, the Company reviews its long-lived assets
quarterly to determine if any events or changes in circumstances have
transpired which indicate that the carrying value of its assets may not
be recoverable. The Company does not believe any adjustments are
needed to the carrying value of its assets at June 30, 1998.
14
<PAGE> 25
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Accounting Standards
In October 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Stock-Based Compensation" (FAS 123).
The statement is effective for fiscal years beginning after December
15, 1995. FAS 123 encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options, and
other equity instruments to employees based on fair value. The Company
has adopted the fair value accounting rules to record all transactions
in equity instruments for good or services.
Principles of Consolidation
The financial statements include those of Royal Silver Mines, Inc. and
Celebration Mining Company. All significant inter-company accounts and
transactions have been eliminated. The financial statements are not
considered consolidated statements since Royal Silver Mines, Inc. was
the successor by merger to Celebration Mining Company.
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the State
of Utah. Under the terms of the agreement, United was to contribute
real properties for an initial 75% interest in the joint venture, and
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, 1998, no further funds toward the joint venture have been
expended by Celebration, which owns an undivided 25% interest in the
property. See Note 18 on related litigation.
15
<PAGE> 26
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTE TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 3 - MINERAL PROPERTIES (Continued)
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 unpatented claims. In connection with this lease,
Celebration has paid $50,000 and issued 175,000 shares of common stock,
In addition, 10,000 shares were issued to a new director for his
assistance in obtaining this lease. Celebration was originally
obligated to pay $950,000 by September 1, 1995 as "an advance royalty."
The original due date was extended and the Company paid the
aforementioned $950,000 and has the option of extending its lease for
an additional forty-nine years. When, and if, the property achieves
gross sales of $40,000,000, Celebration will be obligated to pay an
additional 0.5% royalty on future sales. Furthermore, beginning after
September 1, 1995, and at such time as the average price of silver has
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. See Note 18 on litigation regarding this lease.
Australian Mineral Property Joint Venture
In March 1995, Celebration entered into a joint venture agreement with
an Australian company for exploration of a certain mineral property in
Australia. Under the original terms of the joint venture agreement,
Celebration could acquire a 10% interest by paying $100,000 in April
1995. No additional funds were paid or required to be paid subsequent
to the initial payment.
Washington and Idaho Mineral Properties
During the year ended September 30, 1995, Celebration purchased through
the issuance of 800,000 shares of its common stock, various mineral
properties located in the states of Washington and Idaho. The mineral
properties were recorded at the fair market value of the shares paid on
the date of issuance ranging from $3.13 to $3.25 per share for a total
purchase price of $2,538,126.
16
<PAGE> 27
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 3 - MINERAL PROPERTIES (Continued)
Washington and Idaho 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 canceled and no gain or loss was recorded on the
transaction.
Chilean Properties
During the quarter ended June 30, 1997, the Company acquired options on
a 100-square mile concession in northern Chile known as Mocha. The
Mocha prospect is a large porphyry copper system at the northern end of
one of the world's most prolific copper belts.
Under the terms of the first of the option agreements, the Company can
acquire a 100% interest in the concession by cash payments of $371,000
and work commitments of $200,000 on or before August 1, 2000.
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.
During the third quarter of fiscal 1998, the Company elected to drop
its options on the Chilean properties. See Note 14 for related
information.
Argentina Properties
On February 10, 1997 the Company announced that it had negotiated an
option to buy 12 different potential mine sites in Argentina. Under
the agreement, the Company had the right to 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.
During the second quarter of fiscal 1998, the decision was made to drop
the option (which was not exercised) and the properties were then
returned to their owner. See Note 14 for related information.
17
<PAGE> 28
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 3 - MINERAL PROPERTIES (Continued)
Mexico Properties
On January 20, 1997, the Company executed an agreement to acquire four
mining properties 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 properties' 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 March 31, 1998, a total of $74,194 had been expended to maintain,
acquire, explore or develop the aforementioned Mexican properties.
The Company's proposed future mining activities will be subject to laws
and regulations controlling not only the exploration and mining of
mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may necessitate
additional capital outlays, affect the economics of a project, and
cause changes or delays in the Company's activities. The total mineral
properties at June 30, 1998 are classified as follows:
Mineral properties under joint ventures $ 391,910
Other mineral properties 3,501,268
Total Mineral Properties $ 3,893,178
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.
18
<PAGE> 29
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 5 - INVESTMENTS
Metalline Mining Company
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 was valued at cost, which is
substantially less than the market value of $1.68 per share at December
31, 1997.
On January 12, 1998, this stock was transferred to Dakota Mining
Corporation plus $100,000 cash in exchange for a 35% working interest
in a joint venture with Metalline Mining Co. for exploration and
development of the Sierra Mojada District, Coahuila, Mexico. No gain
or loss was recognized on this transaction. See information below and
Note 19.
Grand Central Silver Mines, Inc.
In the quarter ended March 31, 1998, the Company finalized the sale of
certain patented mining properties to Centurion Mines Corporation
(subsequently renamed Grand Central Silver Mines, Inc.) for 500,000
shares of Centurion's common stock then valued at $1,500,000. This
transaction resulted in a gain of $406,250.
During the quarter ended March 31, 1998, the Company sold a 35% working
interest in a joint venture (with Metalline Mining Co.) engaged in
exploration and development of the Sierra Mojada District, Coahuila,
Mexico. In connection with this transaction, the Company acquired
735,000 shares of common stock (in Grand Central Silver Mines, Inc.)
which was valued at $1,424,062 and also acquired a promissory note of
$350,000 from Grand Central which is uncollateralized, bears interest
at 8%, and matures in 1999. A total gain of $1,604,062 was realized on
this transaction. See Note 17.
The Company currently owns 1,235,000 shares of Grand Central Silver
Mines, Inc. common stock, which is approximately 17% of the total
outstanding shares at June 30, 1998. The Company expects to account
for this recent investment under the equity method.
19
<PAGE> 30
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 5 INVESTMENTS (Continued)
SynFuels Technology, Inc.
On June 26, 1998, the Company traded six patented mining claims
acquired in Shoshone County Idaho in 1995 for 50,000 shares of SynFuels
Technology, Inc. which was then trading at $8.00 per share. The
Company's cost of $312,500 is the recorded value of this investment at
June 30, 1998.
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 lived of the assets as
follows:
Description Useful Life
Deferred debt issuance costs 1 year
Organization costs 5 years
NOTE 7 - COMMON STOCK
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.003 to $.625 per share, which is the fair market value of the shares
on the date of issuance.
During the year ended September 30, 1995, the Company issued 12,750
shares of common stock to directors and employees for services
rendered, valued at prices ranging from $2.00 to $2.50 per share, which
is the fair market value of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000
shares of common stock in exchange for mineral properties (See Note 3)
and sold 176,000 shares of common stock for $264,000 cash.
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).
20
<PAGE> 31
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 7 COMMON STOCK (Continued)
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 share
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 was
the fair market value of the share 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.
In the year ended September 30, 1997, the Company issued 306,378 shares
of its common stock for services received. The shares were valued at
their fair market value at the dates of issuance which ranged from
$0.75 to $1.25 per share.
During the nine months ended June 30, 1998, the Company issued 179,500
shares of common stock for services received. The shares were valued
at their fair market value at the date of issuance which ranged from
$0.34 to $0.91 per share. Also during the same six months, the Company
sold 4,923,333 shares of its common stock for $344,500 in cash and
$700,000 in stock subscriptions receivable.
21
<PAGE> 32
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
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, 1998, 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 $0.93 per
share and expire on August 31, 2001. As of June 30, 1998, none of
these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999.
On March 22, 1996, the Board of Directors approved the issuance of
warrants to purchase 625,000 shares of common stock of the Company to
an investor in partial completion of a private placement of stock.
These warrants are exercisable until September 30, 1998, at a price of
$1.50 per share, which is 67% of the closing price on March 22, 1996.
On April 10, 1996, following the close of the second quarter of fiscal
1996, the Board of Directors authorized the issuance of 420,666
warrants to unaffiliated investors as part of the private placement of
stock. These warrants are exercisable until April 12, 1998 at prices
ranging from $2.50 to $2.625 per share. As of March 31, 1998, 320,666
warrants have been issued (but not exercised) for a total amount of
$46,568.
In the quarter ending March 31, 1997, the Company sold 2,491,000
"units" to unaffiliated investors as part of a private placement of
stock. Each unit consisted of a share of the Company's common stock
and one warrant enabling the investor to purchase one additional share
of common stock for a purchase price of $1.25 per share during the next
two years. At June 30, 1998, none of the warrants had been exercised.
22
<PAGE> 33
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 9 - COMPANY STOCK OPTION AND AWARD PLAN
The Company has a stock-based compensation plan whereby the Company's
board of directors may grant common stock to its employees and
directors. At June 30, 1998, no options have been granted under the
plan. Of the total of 1,064,650 common stock shares authorized for
issuance under the plan, 110,500 shares valued at $1.00 per share were
issued to employees and directors during the twelve months ended
September 30, 1997.
NOTE 10 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at June 30,
1998 and September 30, 1997:
June 30, September 30,
1998 1997
Applicable to:
Common stock $ 11,601,204 $ 10,497,324
Stock warrants 46,568 46,568
------------ ------------
$ 11,647,772 $ 10,543,892
------------ ------------
NOTE 11 - NOTES PAYABLE
In February 1995, Celebration raised $555,000 through the issuance of
promissory notes. During the second quarter ended March 31, 1996,
$470,000 of the total amount plus accrued interest of $29,265 was
converted into 332,800 shares of the Company's common stock, leaving an
amount owing of $85,000. This amount was paid off in the quarter
ending March 31, 1997. The note holders also received 277,500 shares
of Celebration's common stock. A 10% commission was charged by a
selling dealer 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.
23
<PAGE> 34
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 12 - RELATED PARTY TRANSACTIONS
After receiving advances from a related party for payment of operating
expenses, the Company approved the issuance of 200,000 shares of common
stock in payment of $300,000 of the then outstanding balance (See Note
7). The balance outstanding was $0 at September 30, 1997 and June 30,
1998. See Note 14 regarding Centurion.
NOTE 13 - FUTURE LEASE OBLIGATIONS
The Company is obligated under its lease arrangements to make lease
payments subsequent to September 30, 1997 as follows:
Year Ended
September 30, Amount
1998 $ 10,402
1999 262
2000 and thereafter -
----------
Total $ 10,664
----------
NOTE 14 - OPTIONS INVOLVING MINING PROPERTIES
Option with Placer Mining
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a silver-
lead-zinc mine in Shoshone County, Idaho. After issuing 100,000 shares
valued at $1.50 per share and spending a nonrefundable $50,000 on this
option, the Company elected to renegotiate this option agreement and
entered into a second option agreement with Placer on September 18,
1996 for the nonassignable option of acquiring a 100% interest in The
Bunker Hill Mine. In the second agreement, the Company paid $100,000
in September 1996 for the nonassignable option of acquiring a 100%
interest in the Bunker Hill Mine. In order to exercise this option,
the Company must issue 500,000 shares of its common stock to Placer by
May 10, 1997 and pay Placer either $7,000,000 by that date or
$4,000,000 by that date and $3,500,000 by May 10, 1998. Under the
terms of this agreement, the Company will pay Placer a 2 % 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.
24
<PAGE> 35
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 14 - OPTIONS INVOLVING MINING PROPERTIES (Continued)
Option With Placer Mining (Continued)
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.
Option with Oregon and Chilean Exploration Mining Company, LTDA
In June 1997, the Company executed an agreement with Oregon and Chilean
Exploration Mining Company, LTDA (hereinafter "OCEM") whereby the
Company acquired an option from OCEM to purchase a 100% interest in 95
exploration claims totaling 28,300 hectares surrounding the known Mocha
District claims of the Escala family. The option agreement calls for
stipulated, sequential cash option payments over an eight-year time
frame. At June 30, 1998, the Company had expended $50,000 of the total
$3,356,000 option purchase cost and $30,000 in work commitments.
In July 1998, the Company elected to drop its option and recorded a
loss of $80,000 on this option transaction in the quarter ending June
30, 1998.
Option With Escala Family
In July 1997, the Company executed an agreement with the Escala family
of Santiago, Chile whereby the Company acquired an option from the
Escalas to purchase a 100% interest (less a 2% net smelter return
royalty) in a mining property in the Mocha District in northern Chile.
The option agreement calls for stipulated, sequential cash option
payments over a five-year time frame. At June 30, 1998, the Company
had expended $276,000 of the total $5,000,000 option purchase price and
$47,530 in work commitments.
In July 1998, the Company elected to drop its option and recorded a
loss of $323,530 on this option transaction in the quarter ending June
30, 1998.
Option in LaRioja Province, Argentina
In January of 1997, the Company acquired an option to purchase twelve
separate mine claims in La Rioja Province, Argentina. Under the terms
of the option agreement, the Company can purchase the properties on or
before March 1, 2000 by the payment of $4,500,000 in cash or $5,500,000
of the Company's shares of common stock in addition to annual
expenditures for work commitments on the optioned property. The
original owners are to retain a 1.95% net smelter return royalty on
future production.
25
<PAGE> 36
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 14 - OPTIONS INVOLVING MINING PROPERTIES (Continued)
Option in LaRioja Province, Argentina (Continued)
At December 31, 1997, the Company had expended $114,341 in work
commitments on the optioned property. During the quarter ended March
31, 1998, the Company dropped the option, returned the optioned
property to its owners, and recorded a loss of $114,341 on this option
transaction.
Option for Joint Venture
On June 19, 1998, the Company executed an option agreement with
Eastfield Resources (USA) Inc. and Prism Resources Inc. Under the
terms of the three month agreement expiring September 30, 1998,
Eastfield and Prism granted an option to the Company to enter into a
joint venture arrangement with these two firms for the exploration and
development of certain mining properties within the Three Hills project
in the Tonopah mining district of Nevada. The option agreement calls
for payment of $10,000 by the Company upon executing the option
agreement and drilling at selected sites by the Company within the
option period. At the end of the option period, the Company can
exercise its option to acquire a 50% interest in the joint venture by
paying an additional $10,000 to the two aforementioned firms and
spending $1,500,000 in work commitments over the subsequent three-year
period.
NOTE 15 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an option
from Centurion to purchase up to 800,000 shares of its common stock
held by Centurion for the exercise price of $1.75 per share during the
two-year period ending September 30, 1998. The Cost of this two-year
stock purchase option was $50,000 which was paid by the Company and
charged to stockholders' equity (accumulated deficit).
Effective April 15, 1997, the aforementioned stock option agreement was
renegotiated (at no cost to the Company) and amended to extend the
exercise period until September 30, 1999 and to revise the exercise
price to $1.50 per share during this same period.
At June 30, 1998, no shares were acquired from Centurion under this
option agreement. See Note 17.
26
<PAGE> 37
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 16 - LETTER OF INTENT WITH TECK EXPLORATION LTD.
On October 27, 1997, the Company signed a letter of intent with Teck
Corporation (dba Teck Exploration, Ltd.) of Vancouver, B.C. to jointly
explore and develop the Mocha porphyry copper prospect in region I of
northern Chile. The agreement contemplates an initial drilling program
funded by Teck.
The agreement also contemplates that Teck will receive the option to
purchase 1,200,000 "units" from Royal at a price of $0.75 per unit.
Each unit will consist of : (a) one share of Royal's common stock; (b)
one A warrant exercisable at a price of $1.50 within twelve months; and
(c) one B warrant exercisable within two years at market price less
allowable discounts. The agreement further provides that 85% of the
proceeds from the units will be used to explore the aforementioned
Mocha property and that Teck may earn a 60% interest in the property.
In July 1998, the Company and Teck mutually agreed to terminate their
option agreement. See Note 14 for related disclosures on Chilean
options.
NOTE 17 - PROSPECTIVE COMBINATION (MERGER) WITH CENTURION MINES
CORPORATION
On November 24, 1997, Royal and Centurion Mines Corporation,
headquartered in Salt Lake City, announced plans to combine the two
companies. Centurion (subsequently renamed Grand Central Silver Mines,
Inc.) is a significant owner of gold, silver, and copper mining
properties in Utah.
As a first stage in the combination of the companies, Centurion
purchased certain Coeur d'Alene silver properties plus other patented
mining properties owned by Royal in exchange for Centurion shares then
valued at $1,500,000. See Note 5.
As a result of differences in determining fair valuations, the
directors of the two companies have decided to postpone merger plans
for the foreseeable future; however, the two companies continue to
share two common directors and a common officer.
27
<PAGE> 38
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998
NOTE 18 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit filed by some of its
shareholders for alleged violations of securities laws. The suit asks
for actual damages. The Company believes the suit is completely
without merit and intends to vigorously defend its position.
The Company is also a defendant in a lawsuit alleging that the Company
failed to transfer common stock in exchange for a mining property
interest. The suit asks for actual and punitive damages. The Company
believes the suit is completely without merit and has filed a
countersuit alleging fraudulent misrepresentation. The Company is
seeking both full title to the aforementioned mineral property and
punitive damages, and believes its countersuit will prevail.
In July 1998, the Company filed an action in federal court in Boise,
Idaho for declaratory judgment regarding the validity of its Crescent
Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. Management believes that there is a good likelihood of
prevailing in this matter.
NOTE 19 - WORKING INTEREST IN JOINT VENTURE WITH METALLINE MINING CO.
On January 15, 1998, the Company acquired a 35% working interest in a
joint venture with Metalline Mining Co. for exploration and development
of the Sierra Mojada District, Coahuila, Mexico. The project was
formerly a joint venture between Metalline and Dakota Mining Corp.
Royal acquired the interest from Dakota in exchange for $100,000 cash,
200,000 shares of Metalline common stock which Royal carried on its
books as an investment (See Note 5), and 200,000 shares of Royal Silver
common stock. Dakota retained a net smelter return royalty on future
production from the project.
On February 19, 1998, the Company sold the 35% working interest for
exploration and development of the Sierra Mojada District, Coahuila,
Mexico to Grand Central Silver Mines (GSLM) in exchange for a note
receivable of $350,000, payable within one year and bearing interest of
8% per annum, and 735,000 shares of GSLM valued at $1,424,062. (See
Note 3). A total gain of $1,604,062 was recognized on this
transaction.
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at June 30, 1998 (Unaudited)
and the Consolidated Statement of Income for the three and nine months ended
June 30, 1998 (Unaudited) and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 45,851
<SECURITIES> 0
<RECEIVABLES> 472,507
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 526,375
<PP&E> 196,651
<DEPRECIATION> 39,808
<TOTAL-ASSETS> 7,112,162
<CURRENT-LIABILITIES> 61,651
<BONDS> 0
0
0
<COMMON> 185,851
<OTHER-SE> 6,864,660
<TOTAL-LIABILITY-AND-EQUITY> 7,112,162
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 765,460
<OTHER-EXPENSES> 519,933
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 745,415
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 745,415
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
