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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 0-25170
ROYAL SILVER MINES, INC.
(Exact name of Registrant as specified in its charter)
Utah 87-0306609
(State of Incorporation) (I.R.S. Employer I.D.#)
Address of principal offices: 1010 Ironwood Drive, Suite 105
Coeur, d'Alene, Idaho 83814
Registrant's Telephone No.: (208) 664-0482
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value, $0.01
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
YES [ x ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K: [ x ]
As of December 29, 1999 the aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average
of the bid and ask price ($0.11) on such date was $1,491,827.
As of December 29, 1999, the Registrant had outstanding 21,362,065
shares of common stock ($0.01 par value). An index of the documents
incorporated herein by reference and/or annexed as exhibits to the
signed originals of this report appears beginning on page 80.
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TABLE OF CONTENTS
ITEM NUMBER PAGE
AND CAPTION NUMBER
PART I
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 26
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 32
ITEM 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . 33
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . 33
ITEM 6. Selected Financial Data. . . . . . . . . . . . . . . . . 34
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation . . . . . . . . . . . . . . . . . . . . . . . 35
ITEM 8. Financial Statements and Supplementary Data . . . . . . 38
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . 73
PART III
ITEM 10. Directors and Executive Officers of the
Company . . . . . . . . . . . . . . . . . . . . . . . . 73
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . .
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 76
ITEM 13. Certain Relationships and Related Transaction . . . . . 78
PART IV
ITEM 14. Exhibits, Financial Statement Schedules,
and Reports of Form 8-K . . . . . . . . . . . . . . . . 80
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PART I
ITEM 1. BUSINESS
GENERAL
Royal Silver Mines, Inc. (the "Company"), formerly known as
Consolidated Royal Mines, Inc., and also, Royal Minerals, Inc., is a
U.S. mineral resource company incorporated under the laws of the State
of Utah. The Company is engaged in the business of acquiring and
exploring mineral properties containing silver, gold, copper, and other
mineralization. Prior to September 30, 1995, the Company acquired all
of the outstanding securities of Celebration Mining Company
("Celebration"), a development stage company, pursuant to a share
exchange agreement and plan of reorganization ("Reorganization").
Prior to the Reorganization, Celebration was a non-public, closely
held Washington corporation. It was formed in February 1994 to
identify and acquire mineral properties for subsequent exploration and
development, if warranted, through equity financing and joint venture
arrangements. The Reorganization was accounted for as a purchase by
Celebration of the Company. Celebration was treated as the acquiring
company for financial reporting purposes because its shareholders
constituted greater than 50% of the combined shareholder group at the
time of reorganization. In conformity with generally accepted
accounting principles and the Company's accounting policy, Celebration
is recognized as the predecessor entity. Consequently, Celebration's
assets and liabilities were not adjusted in the accompanying financial
statements. On the other hand, for purposes of reporting statutory and
corporate authority, the Company is deemed to be the acquiring
corporation, and Celebration is now a wholly-owned subsidiary of the
Company. Prior to the Reorganization, the Company had been a
majority-owned subsidiary of Centurion Mines Corporation ("Centurion").
Currently, Centurion owns no Common Stock of the Company.
The Company operates its business as an exploration stage company,
meaning that it intends to receive income from property sales, joint
ventures, or other business arrangements with larger companies, rather
than developing and placing its properties into production on its own.
The Company currently has no revenues. At September 30, 1999, the
Company's accumulated deficit was $10,457,146. Regarding its losses
from operations, the Company cannot assure that it will be able to
carry out its plans as budgeted without additional operating capital.
At September 30, 1999, the Company had a cash balance of $28,147 and
negative working capital of $93,456 as compared to a cash balance of
$3,147 and positive working capital of $303,600 at September 30, 1998.
The Company will need additional capital resources to continue
operations and has reduced monthly expenditures to approximately $2,000
per month. The industry took a tremendous and very significant
downturn in 1997 and 1998 primarily a result of the fall-out from the
Bre-X scandal which resulted in substantial losses for investors and
has placed a deep chill upon the ability of exploration companies to
raise capital. Secondly, the impact of a steadily declining gold price
through 1997 placed added downward pressure on prices of mining shares
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in general. Further, as the Asian crises unfolded in 1998, prices for
copper, lead, zinc and silver plunged to multi-year lows. As a whole,
the entire industry suffered an unprecedented decline. Throughout 1999
there was no noticeable improvement in the climate for exploration
companies.
Given this unprecedented decline in both metal prices and the
entire exploration sector, the directors of the Company have been
forced to adopt a major austerity program. The Company closed its
office in Spokane and laid off all of its remaining employees as of
August 1998. The two principal officers of the Company have continued
to work without cash compensation, and the office has been relocated to
Coeur d'Alene, Idaho, where the Company is sub-letting space from one
of its officers for $200 a month.
At September 30, 1999, the Board of Directors of the Company made
the decision to write off the value of the Company's interest in the
Crescent Mine lease, which was being carried on the Company's books at
$1,294,867.
A number of factors were considered by the Directors in arriving
at this decision. First, the lingering depressed price of silver
continues to render the property difficult or impossible to finance,
given the depressed nature of the exploration sector. Second, the
recent developments in the West Chance area of the Sunshine Mine next
to the Crescent have not been encouraging, making it less likely that
any offers would ever materialize from Sunshine. Finally, the on-going
litigation initiated by the Company to determine the validity of its
lease, and to possibly seek damages from the lessor is not likely to be
resolved quickly, making it unlikely that the Company would be prepared
to fulfill its work commitment. See "Litigation."
As such, in accordance with GAAP rules, the Company has written
down the value of the lease to zero at September 30, 1999.
The Company intends to continue to operate at a very low
expenditure level until such time as recovery in the exploration sector
becomes evident. The Company will continue to eschew any long term
debt in order to protect the long term viability of the Company's
assets.
During the 1999 fiscal year, the Company negotiated a contingency
license agreement with Integrated Environmental Technologies of
Richland, Washington to acquire exclusive worldwide rights to IET's
patented plasma smelter technology for applications to mining and
mineral processing.
The agreement calls for a successful technical demonstration via
a one ton test prior to any license rights being earned or any
compensation being given to IET. During the 1999 fiscal year, IET
completed a very small scale bench test which indicated the possibility
that its technology may work for the application in question.
The Company is currently discussing a possible joint venture to
fund the one ton demonstration, but no definitive agreement has been
reached.
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During the twelve months ended September 30, 1999, the Company
placed 2,870,000 shares of its common stock for $158,200 in cash.
However, in the current depressed market, it is believed that future
placements will be much more difficult, if not impossible to complete.
As discussed in greater detail below in the section entitled
"Strategy and Business Plan" a substantial portion of the Company's
assets consist of investments in mineral properties for which
additional exploration is required to determine if they contain
mineralization that is economically recoverable. The realization of
these investments is contingent to a large extent upon the success of
the Company's property transactions as a whole, the existence of
economically recoverable metals and other mineralized material, the
ability of the Company to obtain financing or make other arrangements
for development, and upon future profitable production. The likelihood
and extent to which these contingencies may be material is uncertain,
and the Company cannot assure that the outcome of these uncertain
events will not have a material impact and result in adverse
consequences to the Company. If the Company does not receive suitable
financing or funds from its present or future business arrangements to
develop these properties, and continues to suffer losses from
operations, the Company may have to cease operations entirely.
HISTORY
The Company was incorporated in Utah on April 6, 1969, as Royal
Resources, Inc. for the purpose of acquiring and developing mineral
properties. The Company changed its name to Royal Minerals, Inc., on
January 6, 1983, and became a public company in July 1984. The Company
complied with the Securities and Exchange Commission reporting
requirements until August 1986, at which time the Company filed Form 15
with the Commission and suspended further reporting requirements. On
January 31, 1992, Centurion owned 82.3% of the Company's common stock.
See "Centurion's Acquisition and Control of the Company." Also on
January 31, 1992, the Company shareholders authorized a 5-for-1 reverse
stock split, and on March 4, 1994, authorized a 4-for-1 reverse stock
split of the common stock of the Company. On March 17, 1994, the
Company changed its name to Consolidated Royal Mines, Inc. On November
22, 1994, the Company filed a registration statement on Form 10 and
renewed its reporting requirements, effective January 23, 1995. During
the fourth quarter of Fiscal 1995, the Company revised its business
plan to concentrate on the acquisition of silver properties. That
change in focus prompted Consolidated Royal Mines, Inc. and Celebration
Mining Company to implement the Reorganization, which closed on August
8, 1995, and to change the Company's name to Royal Silver Mines, Inc.,
effective September 18, 1995.
STRATEGY AND BUSINESS PLAN
The Company believes that control of land and mineral rights is
the key ingredient for financial success in the exploration and
development phases of the mining business. Previously, the Company had
concentrated its main exploration efforts in Idaho's Coeur d'Alene
Mining District and to a much lesser extent in the Lakeview Mining
District, and Utah's Ashbrook Mining District where the Company owns a
25% interest in the Vipont Mine property. During fiscal 1998, the
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Company shifted its strategy and toward the acquisition of properties
and exploration in Chile, Mexico, and Argentina. The Company does not
currently have sufficient capital to carry out its strategy and
continue this business plan.
The Company's plan of operation for fiscal 2000 is to conserve its
resources and protect its assets consistent with the lowest possible
level of expenditure.
The Board of Directors will continue to evaluate opportunities for
the Company, and will seek to pursue opportunities to enhance
shareholder value, however, any such opportunities must be viewed in
the context of the Company's very limited liquidity, as well as the
stated goal of protecting the Company's balance sheet.
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.
On the 30th day of January, 1997, the Company sold to Britannia
Holdings Limited ("Britannia"), Channel Islands, 200,000 Units, at
$0.75 per Unit or a total of $150,000. The Registrant also granted
Britannia an option to purchase an additional 335,000 Units on February
14, 1997 and an additional 800,000 Units on March 3, 1997. Each Unit
consists of one share of Common Stock and one warrant to purchase one
additional share of Common Stock at $1.25 per share. The Units were
issued in reliance upon the transaction exemption afforded by
Regulation S, as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, as amended. Britannia Holdings
Limited exercised all of these warrants.
On the 14th day of February, 1997, the Registrant sold to
Britannia, 335,000 Units, at $0.75 per Unit or a total of $251,250. The
Registrant previously granted Britannia an option to purchase an
additional 800,000 Units on March 3, 1997. The option exercise date of
March 3, 1997 was extended by mutual agreement of the parties to March
24, 1997 and the option was increased to 1,200,000 units. On March 24,
1997, Britannia Holdings exercised its option and purchased 1,600,000
units at $0.75 per unit, for a total of $1,200,000. Each Unit consists
of one share of Common Stock and one warrant to purchase one additional
share of Common Stock at $1.25 per share. The warrants will expire two
years from the date of closing of each transaction. The Units were
issued in reliance upon the transaction exemption afforded by
Regulation S, as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, as amended. As of the 19th day of
December, 1997, Britannia Holdings Limited had not exercised any
warrants.
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On the 26th day of February, 1997, the Company sold to Louk
Jongen, ("Jongen"), Holland, 100,000 Units, at $0.75 per Unit or a
total of $75,000. Each Unit consists of one share of Common Stock and
one warrant to purchase one additional share of Common Stock at $1.25
per share. The warrants will expire two years from the date of
closing. The Units were issued in reliance upon the transaction
exemption afforded by Regulation S, as promulgated by the Securities
and Exchange Commission, under the Securities Act of 1933, as amended.
As of the 6th day of March, 1997, Jongen had not exercised any
warrants.
On the 5th day of March, 1997, the Company sold to NCL Investments
Limited ("NCL"), London, England, 136,000 Units, at $0.75 per Unit or
a total of $102,000. Each Unit consists of one share of Common Stock
and one warrant to purchase one additional share of Common Stock at
$1.25 per share. The warrants will expire two years from the date of
closing. The Units were issued in reliance upon the transaction
exemption afforded by Regulation S, as promulgated by the Securities
and Exchange Commission, under the Securities Act of 1933, as amended.
As of the 6th day of March, 1997, NCL had not exercised any warrants.
In November 1997, the Company sold 10,000 "restricted" shares to
a non-affiliate for $0.75 per share for a total of $7,500, pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
In April 1998, the Company sold 913,333 "restricted" shares to a
director, a major shareholder and a non-affiliated investor at $0.15
per share for a total of $136,999, pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
In June 1998, the Company sold 3,000,000 "restricted" shares to
Pines International for $0.25 per share, payable as $50,000 cash down
and a note for $700,000. Subsequent to the fiscal year end, the Company
and Pines International negotiated a settlement agreement whereby Pines
International returned 2,000,000 shares to the Company and the note was
canceled, pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
In May 1999, the Company sold 1,000,000 share of "restricted"
common stock to a non-affiliate investor for $50,000. In June 1999,
the Company sold 300,000 common shares to a non-affiliate for $21,000
in cash.
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.
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RISK FACTORS.
The following risk factors with respect to the Company and its
operations may affect its strategy and business plan:
1. Going Concern. The Company's auditors have raised the issue
that the Company may not be able to continue as a going concern as a
result of net losses; a significant accumulated deficit; and, a
significant change in the Company's liquidity.
2. 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.
3. Exploration Stage Company. Mineral exploration, particularly
for gold and silver, is highly speculative in nature, frequently is
nonproductive, and involves many risks, often greater than those
involved in the actual mining of mineralization. Such risks can be
considerable and may add unexpected expenditures or delays to the
Company's plans. There can be no assurance that the Company's mineral
exploration activities will be successful or profitable. Once
mineralization is discovered, it may take a number of years from the
initial phase of drilling until production is possible, during which
time the economic feasibility of production may change. A related
factor is that exploration stage companies use the evaluation work of
professional geologists, geophysicists, and engineers for estimates in
determining whether to acquire an interest in property or to commence
exploration or development work. These estimates generally rely on
scientific estimates and economic assumptions, and in some instances
may not be correct, and could result in the expenditure of substantial
amounts of money on a property before it can be determined whether or
not the property contains economically recoverable mineralization. The
economic viability of a property cannot be determined until extensive
exploration and development has been conducted and a comprehensive
feasibility study performed. The Company currently does not have any
such feasibility studies, and has not yet prepared feasibility studies
on any of its properties. Moreover, the market prices of any minerals
produced are subject to fluctuation, which may negatively affect the
economic viability of properties on which expenditures have been made.
The Company is not able to determine at present whether or not, or the
extent to which, such risks may adversely affect the Company's strategy
and business plans.
4. 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
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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.
5. 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 1999 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.
6. 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
attracting 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.
7. 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."
8. Working Capital; Accumulated Deficit; Auditor's Report.
Although it commenced operations more than two years ago, the Company
remains in the development stage. At September 30, 1999, the Company
had negative working capital of $93,456 and an accumulated deficit of
$10,457,146, with deficits and losses expected to continue for the
foreseeable future. The Company's operations are subject to numerous
risks associated with the mining industry.
9. 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.
<PAGE> 10
10. 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.
11. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
Cumulative voting in the election of Directors is not provided for.
Accordingly, the holders of a majority of the shares of Common Stock,
present in person or by proxy, will be able to elect all of the
Company's Board of Directors. See "Description of the Securities."
12. Potential Future Sales Pursuant to Rule 144. At December 15,
1999, there were issued and outstanding approximately 21,362,065 shares
of Common Stock of which 8,887,003 shares were "Restricted Securities"
as that term is defined in Rule 144 promulgated under the Securities
Act of 1933, as amended. In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one (1) year
holding period, may sell within any three month period, an amount which
does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume during the four
calendar weeks prior to such sale. Rule 144 also permits the sale of
shares, under certain circumstances, without any quantity limitation,
by persons who are not affiliates of the Company and who have
beneficially owned the shares for a minimum period of two (2) years.
Hence, the possible sale of these restricted shares may, in the future
dilute an investors percentage of free-trading shares and may have a
depressive effect on the price of the Company's securities and such
sales, if substantial, might also adversely effect the Company's
ability to raise additional equity capital.
13. 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.
14. Impact of Year 2000 Issue. The Company has reviewed its
internal computer systems and products and their capability of
recognizing the year 2000 and years thereafter. The Company expects
that any costs relating to enuring such systems to be a year 2000
compliant will not be material to the financial condition or results of
operations of the Company.
<PAGE> 11
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 and a contingent
licensing agreement with Integrated Environmental Technologies of
Richmond, Washington. See "Item 1. Business - General."
SEASONABILITY.
The Company's business is generally not seasonal in nature except
to the extent that weather conditions at certain times of the year may
affect the Company's access to its properties.
GOVERNMENT REGULATION AND ENVIRONMENTAL CONCERNS.
The Company is committed to complying and, to its knowledge, is in
compliance with all governmental and environmental regulations. The
Company's activities in the United States are subject to extensive
federal, state and local laws and regulations controlling not only the
mining of and exploration for mineral properties, but also the possible
effects of such activities upon the environment. Permits from a
variety of regulatory authorities are required for many aspects of mine
operation and reclamation. The Company cannot predict the extent to
which future legislation and regulation could cause additional expense,
capital expenditures, restrictions and delays in the development of the
Company's U.S. properties, including those with respect to unpatented
mining claims.
The Company's activities are not only subject to extensive
federal, state, and local regulations controlling the mining of and
exploration for mineral properties, but also the possible effects of
such activities upon the environment. Future legislation and
regulations could cause additional expense, capital expenditures,
restrictions and delays in the development of the Company's properties,
the extent of which cannot be predicted. Also, as discussed above,
permits from a variety of regulatory authorities are required for many
aspects of mine operation and reclamation. In the context of
environmental permitting, including the approval of reclamation plans,
the Company must comply 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.
<PAGE> 12
If the Company becomes more active on its U.S. properties, it is
reasonable to expect that compliance with environmental regulations
will increase costs to the Company. Such compliance may include
feasibility studies on the surface impact of the Company's proposed
operations; costs associated with minimizing surface impact; water
treatment and protection; reclamation activities, including
rehabilitation of various sites; on-going efforts at alleviating the
mining impact on wildlife; and permits or bonds as may be required to
ensure the Company's compliance with applicable regulations. It is
possible that the costs and delays associated with such compliance
could become so prohibitive that the Company may decide to not proceed
with the exploration, development, or mining operations on any of its
mineral properties.
OFFSHORE REGULATION.
The Company is aware of comparable environmental regulation in
offshore countries where it was operating. The Company was committed
to full compliance with these regulations and engaged legal counsel in
Mexico, Chile and Argentina who assisted the Company to assure
compliance.
OFFICES
The Company's executive office is located at 1010 Ironwood Drive,
Suite 105, Coeur d'Alene, Idaho 83814. The Company sub-leases its
office from one of its officers for $200.00 per month.
EMPLOYEES
The Company has no employees. The Company, therefore, arranges
for its work through contracts with various consultants. The Company
may contract with additional consultants from time to time, as required
by its operations. Consultants are treated as independent contractors.
CENTURION'S ACQUISITION AND CONTROL OF THE COMPANY
In October 1991, Centurion entered into negotiations with the
officers and directors of the Company for the acquisition and control
of the Company. In November 1991, Centurion's Board of Directors
approved this acquisition. Subsequently, Centurion entered into
subscription and investment agreements with several of the Company's
principal shareholders, whereby Centurion exchanged 174,743
"restricted" shares of Centurion stock and $1,600 cash for shares of
Company common stock constituting 37.2% ownership of the Company's
outstanding shares. On January 10, 1992, the Company's Board of
Directors authorized the exchange of 100,000 post-split shares of the
Company's common stock for approximately 4,196 acres of unpatented
mining claims and state and private mineral leases from Centurion. On
January 31, 1992, at the Company's Annual Shareholders Meeting, the
shareholders authorized the purchase of approximately 17,000 acres of
mining properties from Centurion for 1,250,000 post-split shares of
Company common stock. This acquisition of shares gave Centurion an
82.3% controlling interest in the Company. The Company does not
believe that Centurion's successor company owns any shares as of
September 30, 1999.
<PAGE> 13
THE COMPANY'S OWNERSHIP INTEREST IN GRAND CENTRAL SILVER MINES
On November 25, 1997, Centurion issued 5,000,000 (500,000
post-split) shares of Common Stock to the Company in exchange for
certain patented and unpatented mining claims located in the state of
Idaho. In March 1998,the Company sold its 35% interest in the Sierra
Mojada project to Grand Central Silver Mines (formerly Centurion) in
exchange for 735,000 shares of stock and a $350,000 promissory note
(see Mexican properties). As a result of the foregoing transactions,
the Company owned 11.89% of the outstanding Common Stock of Grand
Central Silver Mines, Inc., as of September 30, 1998. In the second
quarter of 1999, the Company exchanged these shares with Pines
International (a non-affiliate) for shares in Summit Silver.
SUBSIDIARIES
The Company currently has four subsidiaries: Celebration Mining
Company, of which the Company currently is the sole shareholder, was
incorporated in the State of Washington in February 1994; Minera Plata
Real, Mexico, which was incorporated in March 1997 and of which the
Company is the principal shareholder; Minera Plata Real, Argentina,
which was incorporated in March 1997 and of which the Company is the
principal shareholder; and, Minera Plata Real, Chile, which was
incorporated in June 1997 and of which the Company is the principal
shareholder.
REORGANIZATION WITH CELEBRATION.
In May and June 1995, Management began negotiations with
management of Celebration regarding a merger or other reorganization
plan of the two companies. On June 28, 1995, the boards of directors
of both companies approved a reorganization and the companies signed an
agreement based on a share exchange. The Company would acquire 100% of
Celebration's interest in the Vipont Mine Joint Venture, the Crescent
Mine Lease, the Australia Joint Venture, and the option rights to
acquire up to 50% of the mineral rights on the Prospect Mine Property
in Madison County, Montana.
The Celebration shareholders approved the Reorganization and share
exchange agreement at an August 8, 1995 shareholder meeting. In
exchange for 100% of the issued and outstanding Celebration shares, the
Company agreed to issue to the Celebration shareholders 4,143,750
shares of Company common stock that together would represent ownership
of 63% of Company shareholdings outstanding immediately following the
Reorganization. Also, the Company agreed to honor all of the stock
rights held by various Celebration shareholders and which were subject
to certain conditions and events.
Some of those stock rights had been granted contingent upon the
repayment of notes, and others had been granted as options under
consultant agreements. In total, those stock rights permitted the
purchase or receipt of approximately 1,755,000 additional shares of
Company common stock. If all of the shares underlying various stock
rights were added to the initial group of 4,143,750 shares exchanged in
<PAGE> 14
the Reorganization, that would result in a total issuance from the
share exchange of approximately 5,898,750 shares, or 71% ownership by
the Celebration shareholders. However, to date, none of the
overhanging stock rights have been or are expected to be exercised.
In December 1995, stock rights to receive approximately 190,795
shares were extinguished when the Company converted debt of $570,919 in
principal, plus interest, by issuing common stock. The noteholders of
that debt amount received approximately 406,050 shares in full
satisfaction of the debt.
ACQUISITION AND DISPOSITION OF MINERAL PROPERTIES.
On January 10 and January 31, 1992, the Company obtained from
Centurion a total of 23,300 acres of unpatented mining claims, and
state and private mineral leases in exchange for the equivalent of
1,350,000 post-split shares of Company common stock.
UNPATENTED MINING CLAIMS/STATE LEASES.
In fiscal 1997, the Company allowed to lapse certain Utah state
mineral leases and did not pay the annual maintenance fee on certain
unpatented claims located in the Oquirrh Mountains in Utah due to an
evaluation by the Company that the mineral potential of such property
was low and did not warrant continuing to hold the ground. The Company
continues to held unpatented claims in Idaho.
GLOSSARY OF CERTAIN MINING TERMS.
ACID MINE DRAINAGE Acidic run-off water from mine waste dumps
and mill tailings ponds containing sulfide
minerals. Also refers to ground water pumped
to surface from mines.
ADIT An opening driven horizontally into the side
of a mountain or hill for providing access to
a mineral deposit.
ALTERATION Any physical or chemical change in a rock or
mineral subsequent to its formation. Milder
and more localized than metamorphism.
ANTICLINE An arch or fold in layers of rock shaped like
the crest of a wave.
ASSAY A chemical test performed on a sample of ores
or minerals to determine the amount of
valuable metals contained.
BACKFILL Waste material used to fill the void created
by mining an orebody.
BALL MILL A steel cylinder filled with steel balls into
which crushed ore is fed. The ball mill is
rotated, causing the balls to cascade and
grind the ore.
<PAGE> 15
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.
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.
<PAGE> 16
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 stoping in which ore is removed
in slices, or lifts, and then the excavation
is filled with rock or other waste material
(backfill), before the subsequent slice is
extracted.
CYANIDATION A method of extracting exposed gold or silver
grains from crushed or ground ore by
dissolving it in a weak cyanide solution.
May be carried out in tanks inside a mill or
in heaps of ore out of doors.
DECLINE An underground passageway connecting one or
more levels in a mine, providing adequate
traction for heavy, self-propelled equipment.
Such underground openings are often driven in
an upward or downward spiral, much the same
as a spiral staircase.
DEVELOPMENT Work carried out for the purpose of opening
up a mineral deposit and making the actual
ore extraction possible.
DEVELOPMENT
DRILLING Drilling to establish accurate estimates of
mineral reserves.
DIAMOND DRILL A rotary type of rock drill that cuts a core
of rock that is recovered in long cylindrical
sections, two centimeters or more in
diameter.
DILUTION (mining) Rock that is, by necessity, removed along
with the ore in the mining process,
subsequently lowering the grade of the ore.
DIP The angle at which a vein, structure or rock
bed is inclined from the horizontal as
measured at right angles to the strike.
DISSEMINATED ORE Ore carrying small particles of valuable
minerals spread more or less uniformly
through the hose rock.
<PAGE> 17
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.
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.
<PAGE> 18
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.
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.
HYDRO METALLURGY 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.
<PAGE> 19
LAGGING Planks or small timbers placed between steel
ribs along the roof of a stope or drift to
prevent rocks from falling, rather than to
support the main weight of the overlying
rocks.
LENS Generally used to describe a body of ore that
is thick in the middle and tapers towards the
ends.
LEVEL The horizontal openings on a working horizon
in a mine; it is customary to work mines from
a shaft, establishing levels at regular
intervals, generally about 50 meters or more
apart.
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.
<PAGE> 20
NATIVE METAL A metal occurring in nature in pure form,
uncombined with other elements.
NET PROFIT
INTEREST A portion of the profit remaining after all
charges, including taxes and bookkeeping
charges (such as depreciation) have been
deducted.
NET SMELTER RETURN A share of the net revenues generated from
the sale of metal produced by a mine.
OPEN PIT A mine that is entirely on surface. Also
referred to as open-cut or open-cast mine.
ORE Material that can be mined and processed at a
positive cash flow.
ORE PASS Vertical or inclined passage for the downward
transfer of ore connecting a level with the
hoisting shaft or a lower level.
OREBODY A natural concentration of valuable material
that can be extracted and sold at a profit.
ORE RESERVES The calculated tonnage and grade of
mineralization which can be extracted
profitably; classified as possible, probable
and proven according to the level of
confidence that can be placed in the data.
ORESHOOT The portion, or length, of a vein or other
structure, that carries sufficient valuable
mineral to be extracted profitably.
OXIDATION A chemical reaction caused by exposure to
oxygen that results in a change in the
chemical composition of a mineral.
PARTICIPATING
INTEREST A company's interest in a mine, which
entitles it to a certain percentage of
profits in return for putting up an equal
percentage of the capital cost of the
project.
PATENT The ultimate stage of holding a mineral claim
in the United States, after which no more
assessment work is necessary because all
mineral rights have been earned.
<PAGE> 21
PATENTED MINING
CLAIM A parcel of land originally located on
federal lands as an unpatented mining claim
under the General Mining Law, the title of
which has been conveyed from the federal
government to a private party pursuant to the
patenting requirements of the General Mining
Law.
PILLAR A block of solid ore or other rock left in
place to structurally support the shaft,
walls or roof of a mine.
PORPHYRY Any igneous rock in which relatively large
crystals, called phenocrysts, are set in a
fine- grained groundness.
PRECAMBRIAN SHIELD The oldest, most stable regions of the
Earth's crust, the largest of which is the
Canadian Shield.
PROSPECT A mining property, the value of which has not
been determined by exploration.
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.
<PAGE> 22
PROBABLE RESERVES Resources for which tonnage and grade and/or
quality are computed primarily from
information similar to that used for proven
reserves, but the sites for inspection,
sampling and measurement are farther apart or
are otherwise less adequately spaced. The
degree of assurance, although lower than that
for proven reserves, is high enough to assume
continuity between points of observation.
PROVEN RESERVES Resources for which tonnage is computed from
dimensions revealed in outcrops, trenches,
workings or drill holes and for which the
grade and/or quality is computed from the
results of detailed sampling. The sites for
inspection, sampling and measurement are
spaced so closely and the geologic character
is so well defined that size, shape, depth
and mineral content of reserves are well
established. The computed tonnage and grade
are judged to be accurate, within limits
which are stated, and no such limit is judged
to be different from the computed tonnage or
grade by more than 20%.
RAISE A vertical or inclined underground working
that has been excavated from the bottom
upward.
RAKE The trend of an orebody along the direction
of its strike.
RECLAMATION The restoration of a site after mining or
exploration activity is completed.
RECOVERY The percentage of valuable metal in the ore
that is recovered by metallurgical treatment.
REPLACEMENT ORE Ore formed by a process during which certain
minerals have passed into solution and have
been carried away, while valuable minerals
from the solution have been deposited in the
place of those removed.
RESERVES That part of a mineral deposit which could be
economically and legally extracted or
produced at the time of the reserve
determination. Reserves are customarily
stated in terms of "Ore" when dealing with
metalliferous minerals.
RESOURCE The calculated amount of material in a
mineral deposit, based on limited drill
information.
<PAGE> 23
RIB SAMPLES Ore taken from rib pillars in a mine to
determine metal content.
ROCKBOLTING The act of supporting openings in rock with
steel bolts anchored in holes drilled
especially for this purpose.
ROCKBURST A violent release of energy resulting in the
sudden failure of walls or pillars in a mine,
caused by the weight or pressure of the
surrounding rocks.
ROCK MECHANICS The study of the mechanical properties of
rocks, which includes stress conditions
around mine openings and the ability of rocks
and underground structures to withstand these
stresses.
ROOM-AND-PILLAR
MINING A method of mining flat-lying ore deposits in
which the mined-out area, or rooms, are
separated by pillars of approximately the
same size.
ROTARY DRILL A machine that drills holes by rotating a
rigid, tubular string of drill rods to which
is attached a bit. Commonly used for
drilling large-diameter blast holes 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.
<PAGE> 24
SHEAR OR SHEARING The deformation of rocks by lateral movement
along numerous parallel planes, generally
resulting from pressure and producing such
metamorphic structures as cleavage and
schistosity.
SHRINKAGE STOPING A stoping method which uses part of the
broken ore as a working platform and as
support for the walls of the stope.
SIDERITE Iron carbonate, which when pure, contains
48.2% iron; must be roasted to drive off
carbon dioxide before it can be used in a
blast furnace. (Roasted product is called
sinter.)
SKARN Name for the metamorphic rocks surrounding an
igneous intrusive where it comes in contact
with a limestone or dolomite formation.
SOLVENT EXTRACTION-
ELECTRO WINNING
(SX/EW) A metallurgical technique, so far applied
only to copper ores, in which metal is
dissolved from the rock by organic solvents
and recovered from solution by electrolysis.
SPHALERITE A zinc sulfide mineral; the most common ore
mineral of zinc.
STEP-OUT DRILLING Holes drilled to intersect a mineralized
horizon or structure along strike or down
dip.
STOCKPILE Broken ore heaped on the surface, pending
treatment or shipment.
STOPE An underground excavation from which ore has
been extracted either above or below mine
level.
STRATIGRAPHY Strictly, the description of bedded rock
sequences; used loosely, the sequence of
bedded rocks in a particular area.
STRIKE The direction, or bearing from true north, of
a vein or rock formation measured on a
horizontal surface.
STRINGER A narrow vein or irregular filament of a
mineral or minerals traversing a rock mass.
STRIPPING RATIO The ratio of tons removed as waste relative
to the number of tons of ore removed from an
open pit mine.
<PAGE> 25
SUBLEVEL A level or working horizon in a mine between
main working levels.
SULFIDE A compound of sulfur and some other element.
TAILINGS Material rejected from a mill after more of
the recoverable valuable minerals have been
extracted.
TAILINGS POND A low-lying depression used to confine
tailings, the prime function of which is to
allow enough time for heavy metals to settle
out or for cyanide to be destroyed before
water is discharged into the local watershed.
TREND The direction, in the horizontal plane, or a
linear geological feature (for example, an
ore zone), measured from true north.
TROY OUNCE Unit of weight measurement used for all
precious metals. The familiar 16-ounce
avoirdupois pound equals 14.583 Troy Ounces.
UNPATENTED
MINING CLAIM A parcel of property located on federal lands
pursuant to the General Mining Law and the
requirements of the state in which the
unpatented claim is located, the paramount
title of which remains with the federal
government. The holder of a valid,
unpatented lode mining claim is granted
certain rights including the right to explore
and mine such claim under the General Mining
Law.
VEIN A mineralized zone having a more or less
regular development in length, width and
depth which clearly separates it from
neighboring rock.
VOLCANO GENIC 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.
<PAGE> 26
WINZE An internal shaft.
ZONE OF OXIDATION The portion of an orebody that has been
oxidized, usually in the upper portion of the
ore zone.
ITEM 2. MINERAL PROPERTIES
CHILEAN PROPERTIES
Mocha Copper Porphyry
The prospect was submitted in early 1997 to the Company through
one of the directors of the Company and a field exam was made by
personnel working in Argentina at the time. The decision to begin to
acquire and unitize the Mocha District was based on a number of
factors. More than 50% of a known large porphyry system at Mocha is
covered by Tertiary gravels and ignimbrites (post-mineral cover). The
best grade primary and oxide copper, noted from surface sampling and
drilling, is on the west side of the prospect just before going under
the post-mineral cover. On average, the cover is believed to be less
than 200 meters in thickness. A large north-south trending
aero-magnetic low anomaly west of Mocha has never been tested by
exploratory drilling. These anomalies are often indicative of major
copper porphyry systems.
Since 1995, several junior and major mining companies have held
positions and attempted unsuccessfully to make a deal on the claim
group held by the Escala family of Santiago, Chile. In April 1997, the
Oregon and Chilean Exploration Mining Company, staked 95 "pedimentos"
or exploration claims totaling 28,300 hectares and surrounding the
known Mocha District claims of the Escala Family and Conoco Minerals,
and including the large aeromagnetic low 5-7 kilometers west of Mocha.
The Company was successful at consolidating the District.
Agreements were signed on June 23, 1997 and July 31, 1997 between
Company and the Escala and Oregon LTDA properties.
The Company during the 1998 fiscal year expended substantial
effort and financial resources pursing its option on the Mocha Porphyry
Copper project in Northern Chile. In November 1997, the Company
commenced negotiations with the Teck Corporation of Canada, a mining
company, and in February 1998, a joint venture agreement ("Joint
Venture") was signed.
Under the terms of the Joint Venture, Teck would have an initial
due diligence period (to July 1998) during which they would complete an
initial geophysical survey and a minimum of 3,000 feet of reverse
circulation drilling. Once this due diligence period was complete,
Teck could proceed to cover 100% of all expenses through to production
to earn a 60% interest in the project.
<PAGE> 27
In March 1998, Teck's staff completed a geophysical survey and
proceeded, based upon some positive indications, to commence an initial
drilling program. Six holes were completed by April 1, 1998 and all
six holes encountered copper mineralization throughout the holes.
However, the ore grades averaged 0.4% Cu, which was less then hoped
for. Meanwhile, as the date approached for Teck to make their
decision, the world copper price plunged further to a new ten year low.
In mid-July, Teck notified the Company that it would not exercise its
option to proceed.
Upon receiving Teck's decision, the Board of Directors decided to
return the properties to the underlying owners and depart from Chile.
MEXICAN PROPERTIES
Nayarit Property.
In November and December 1997, the Company constructed an eight
hole drilling program at its leased Nayarit property located near Ruiz,
Nayarit, Mexico. The drilling program was designed to delineate
further reserves down-dip on the Frazadas zinc/silver vein, a prolific
mineral structure which had been successfully mined by previous
operators.
Three of the eight holes intersected mineralized zones of
sufficient width and grade to be economically mined. Two of the eight
holes failed to reach the projection of the Frazadas vein, and three
holes intersected either low grade zones or voids which possibly
represent areas previously mined by earlier operators.
Due to lower zinc prices and the inability to raise further
capital to continue the drilling program, the Company opted to return
the property to the underlying owners.
Sierra Mojada Project
In March 1998, the Company acquired a 35% participating interest
in a large copper-silver-lead-zinc project in Coahuila, Mexico from
Dakota Mining. The interest was purchased for $100,000 in cash,
200,000 shares of Common Stock and 200,000 shares of Metalline Mining
Common Stock owned by the Company.
In light of the ongoing financing requirements as a minority
participant, in March 1998, the Company elected to sell its interest to
Grand Central Silver Mines for 735,000 Grand Central common shares and
a promissory note for $350,000 due February 15, 1999. The transaction
was reported in the Form 10-Q filing for the period ending June 30,
1998.
ARGENTINA PROPERTIES
The Company held various options on a dozen different mineral
concessions in the La Rioja Province, Argentine. Due to the difficult
financing climate for exploration projects which prevailed throughout
the 1998 fiscal year, the Directors elected to return the properties to
the owners and withdraw from Argentina.
<PAGE> 28
UNITED STATES PROPERTIES
Crescent Mine
In February 1995, Celebration Mining Company entered into an
agreement to acquire a mineral lease on the Crescent Mine. The
Crescent Mine is an underground mine, located in the Coeur d'Alene
Mining District of Shoshone County, Idaho, about five miles east of
Kellogg, Idaho.
Operations of the Crescent Mine began prior to 1917 and, according
to records available to the Company, approximately 25 million ounces of
silver have been produced from the Crescent Mine. The mine is not
currently in operation and is flooded to approximately the 1200 foot
level. The most current ore reserve report that the Company has been
able to obtain was prepared in 1985 by Norman A. Radford, a registered
professional geologist. That report, based on an assumption that
silver prices would remain below ten dollars ($10) per ounce,
indicated that the Crescent Mine contained 141,000 tons of probable
reserves averaging 31 ounces of silver per ton of mineralized material.
At current prices of under six dollars ($6.00), the Company cannot
assure that any of the mineralization could be mined at a profit.
Host rocks in the Crescent Mine, in common with the rest of the
District, are members of the Precambrian Belt Super Group. Within the
Crescent Mine area, three formations are present, in descending order:
Wallace, St. Regis, and Revett. The most favorable rocks in the
Crescent Mine are the Lower St. Regis and Upper Revett quartzites.
These rocks occur in the Crescent Mine from the 1,200-foot level
downward.
The Coeur d'Alene "Silver Belt" ore structures are frequently
narrow, fragmented, and sinuous, and have exhibited great vertical
continuity. For this reason, they have been discovered and mined at
levels deeper than is generally the case in other mining districts.
The ore at the Crescent Mine occurs in thin veins steeply dipping to
the south. These veins may vary in thickness from several inches to
several feet. The Alhambra and the Syndicate Faults are major reverse
faults and both are present in the Crescent Mine.
The Crescent Mine property consists of 12 patented mining claims,
nine unpatented claims, and two Idaho state leases located immediately
adjacent to and west of the world-famous Sunshine Mine owned by
Sunshine Mining Company (SSC-NYSE). The Sunshine Mine has produced
nearly 400 million ounces of silver since its inception, making it the
most productive primary silver mine in North America. The major
structural and stratigraphic features which have produced the major ore
deposits in the Sunshine Mine are also present in the Crescent Mine.
The Crescent is developed to a vertical depth of 5,100 feet by two
vertical shafts. The majority of past production from the Crescent
Mine occurred in the Revett formation over 1,200 feet of dip between
the 3,100 level and the 4,300 level. In the mid-1980's, the No. 2
shaft was deepened to the 5,100 level, which opened an additional 800
feet of favorable Revett quartzites for development of the downward
extensions of the East Footwall and Hook veins, which have been the
most productive veins in the Crescent Mine.
<PAGE> 29
The Company's plans to re-establish significant silver production
from the Crescent Mine will be dependent upon silver prices.
Management estimates that a price of at least $6.00 per ounce would
need to be sustained for a period of six months to justify the capital
investment necessary to de-water the lower workings of the mine and to
rehabilitate the stopes. At December 9, 1997, the Comex Spot price for
silver was $5.36.
During the 1996 fiscal year, the Company's field activities at the
Crescent Mine were limited to are unsuccessful attempt to re-open the
#3 level portal. The portal was filled with unconsolidated glacial
till and it was determined that a much more expensive program will be
required given the bad ground. Due to the low silver price, no attempt
to dewater the lower mine was contemplated during the 1997 fiscal year.
Any further developments on the Crescent Mine for fiscal 2000 will
depend upon the price of silver, as well as the Company's available
capital and the outcome of the current litigation discussed below.
In June 1998, the Company sought to clarify a long standing
possible cloud on its Crescent Mine lease resulting from the lessor's
acquisition of the property at a Bankruptcy Court proceeding in 1991.
Through its counsel in June 1998, the Company filed a lawsuit in
Federal Court in Boise, Idaho against the lessor Fawsett
International, Shoshone County and the U. S. Environmental Protection
Agency as defendants. The Company is seeking a declaratory judgment
from the Court as to the validity of its lease. Although depositions
and discovery has proceeded, no trial date has been set.
Counsel has told the Company that its case is strong and
management believes the Company will prevail in this matter.
At September 30, 1999, the Board of Directors of the Company made
the decision to write off the value of the Company's interest in the
Crescent Mine lease, which was being carried on the Company's books at
$1,294,867.
A number of factors were considered by the Directors in arriving
at this decision. First, the lingering depressed price of silver
continues to render the property difficult or impossible to finance,
given the depressed nature of the exploration sector. Second, the
recent developments in the West Chance area of the Sunshine Mine next
to the Crescent have not been encouraging, making it less likely that
any offers would ever materialize from Sunshine. Finally, the on-going
litigation initiated by the Company to determine the validity of its
lease, and to possibly seek damages from the lessor is not likely to be
resolved quickly, making it unlikely that the Company would be prepared
to fulfill its work commitment. See "Litigation."
As such, in accordance with GAAP rules, the Company has written
down the value of the lease to zero at September 30, 1999.
Conjecture and Liberal King Mines
In July 1998, the Company sold its interest in the Conjecture and
Liberal King Mines to a third party in exchange for 60,000 shares of
Synfuels Technology stock valued at $480,000.
<PAGE> 30
Vipont Mine
The Vipont Mine, which is owned by Celebration Mining Company, is
located in the Ashbrook Mining District, a remote area in the extreme
northwestern corner of Box Elder County, Utah, approximately ten miles
east of the Nevada state line and one mile south of the Idaho state
line near the headwaters of the Little Birch Creek. It is accessible
by asphalt, gravel, and dirt roads. The mine property consists of 53
patented (deeded) mining claims covering nearly 1,000 acres with a 25%
undivided interest owned by Celebration Mining Company (a wholly-owned
subsidiary of the Company.)
The Vipont Mine was at one time one of the foremost silver-
producing mines in the State of Utah. Its greatest period of activity
was from 1919 through mid-1923 after the passage of the Pittman Silver
Purchase Act ("Pittman Act") which authorized the purchase of
200,000,000 ounces of silver. The Mine closed in August 1923 with the
expiration of the Pittman Act after producing nearly 1,000,000 ounces
of silver per year. Some leasing was done in the 1930's and the Mine
was closed in 1942 when Congress passed War Order L-208 closing all
gold and silver mines. From 1977 through 1987, United Silver Mines
began further development and leached the old mill tailings.
The mineralization in the Mine occurs predominantly as the mineral
argentite in the Vipont limestone. Two other units, the Phelan
limestone, and the Sentinel limestone have produced high-grade ore.
Neither the Phelan nor the Sentinel have been seriously explored for
additional ore.
The mineralization in the Vipont limestone occurs as a continuous
tabular "manto" mineralized body in the crests of folds (crenulations)
superimposed upon a shallowly dipping (22 degrees) syncline. The
continuity of the mineral down-dip has been shown by past mining
operations and by a line of drill holes below the old workings. It is
thought by geologists that the mineralization will continue to down-dip
toward an igneous intrusive 4,600 feet southwest of the old mine.
There are two distinct mineralized deposits on the Vipont
Property: the oxide deposit and the sulfide deposit. The
characteristics of each are unique and require different approaches to
development and exploration. According to a 1994 report by Dr. Armond
H. Beers, the oxide deposit contains 1,100,000 tons of mineralized
material grading 6.9 ounces per ton in silver and with a small gold
credit. The Company has not independently re-verified those findings
and cannot and does not make any assurance as to their accuracy or
compliance with regulatory standards.
The sulfide deposit is currently defined in the Beers Report as
478,000 tons of mineralized material at an estimated average grade of
13.52 ounces per ton in silver. Geologic interpretation of the
manto-type replacement deposit, however, may establish upon further
exploration that this mineralized resource may be larger. The
Company's management and professional staff believe that the sulfide
deposits will represent the long-term future of the Vipont Mine.
<PAGE> 31
During the 1996 fiscal year, the Company elected not to proceed
further with the Vipont joint venture, but as a result of the Company's
successful effort at removing all liens on the property at a Box Elder
County Sheriff's sale, the Company's wholly-owned subsidiary now owns
a 25% undivided interest in the property. The company has no plans to
proceed further with the Vipont until such time as silver prices
improve significantly.
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 the second fiscal quarter of 1999, the Box Elder County, First
Judicial Court dismissed all of Mr. Miler's claims on a summary judgment
motion and left standing only the Company's counterclaims. In June
1999, Mr. Miller et al. filed an appeal to the Utah Supreme Court,
which has stayed all further action on the Company's counterclaims.
Coeur d'Alene Syndicate Property.
In November 1997, the Company sold these 24 patented claims to
Centurion Mines Corporation for 5,000,000 shares of Centurion Common
Stock. Subsequently, in January 1998, Centurion underwent a 1-for-10
reverse split and changed its name to Grand Central Silver Mines, Inc.
Shoshone County Claims
The Company continues to hold nine unpatented mining claims in
Shoshone County, Idaho which lie immediately adjacent to the holdings
of Sterling Mining Company just south of the Galena Mine, which is
owned and operated by Silver Valley Resources.
Utah Properties and Royalty Interests.
The Company is not currently involved in active exploration with
respect to any of the property holdings or royalty interests within the
Utah Gold Belt. During Fiscal 1997, the Company engaged an independent
geologist to evaluate the mineral potential of the Company's holdings.
Based upon his recommendations, the company dropped some property and
has retained only claims and leases which are subject to a royalty from
Kennecott Copper.
<PAGE> 32
ITEM 3. LEGAL PROCEEDINGS
The Officers and Directors of the Company certify that to the best
of their knowledge, neither the Company nor any of its Officers and
Directors are parties to any legal proceeding or litigation. Further,
the Officers and Directors know of no threatened or contemplated legal
proceedings or litigation with the exception of the following:
(1) The Company was 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 sought damages and attorneys' fees in the
lawsuit, which alleged 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.
On September 2, 1999 the plaintiffs and defendants settled the action
on the following terms:
1. To pay $60,000 in cash on the date of closing, which is
scheduled for no later than October 4, 1999.
2. To cancel a note of $50,000 which is owed by Norman Rounds to
Crosby Enterprises.
3. To pay to plaintiffs on September 7, 1999, the number of
shares of Metalline stock, based upon Schwab closing price as
of September 2, 1999, which equals $80,000. This payment
shall be made by delivering the shares to Idaho Stock
Transfer to hold these shares in escrow to be released to
plaintiffs and to Mr. Rounds, as Mr. Rounds designates, in
the amount of 5,000 shares every thirty days, beginning with
the first 5,000 shares to be delivered September 7, 1999. Mr.
Rounds and/or plaintiffs will be limited in their ability to
sell the shares of stock as follows:
(a) Plaintiffs and Mr. Rounds shall be able to sell no more
than 5000 shares of stock total per month so long as the
stock is trading at less than $4.50 per share.
(b) Whenever the stock closes at over $4.50 per share Schwab
NAV closing price for five consecutive trading days, the
transfer agent will be authorized to release to
plaintiff all remaining shares.
On October 8, 1999, the trial court issued an order dismissing the
case.
(2) 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
<PAGE> 33
countersuit will prevail. In the second fiscal quarter of 1999, the
Box Elder County, First Judicial Court dismissed all of Mr. Miller's
claims on a summary judgment motion, and left standing only the
Company's counterclaims. In June 1999, Mr. Miller et al. filed an
appeal to the Utah Supreme Court, which stayed all further actions on
our counterclaims.
(3) 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.
None of the Officers and Directors have been convicted of a felony
or none have been convicted of any criminal offense, felony and
misdemeanor relating to securities or performance in corporate office.
To the best of the knowledge of the Officers and Directors, no
investigations of felonies, misfeasance in office or securities
investigations are either pending or threatened at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has been no vote of security holders during the annual
period ended September 30, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common shares are 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, 1999. These bid prices are over-the-counter
market quotations based on inter-dealer bid prices, without markup,
markdown, or commission and may not necessarily represent actual
transactions:
<TABLE>
<CAPTION>
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
<PAGE> 34
June 30, 1997 1.15 0.63
September 30, 1997 0.97 0.69
December 31, 1997 0.62 0.56
March 31, 1998 0.45 0.42
June 30, 1998 0.20 0.18
September 30, 1998 0.10 0.09
December 31, 1998 0.09 0.035
March 31, 1999 0.1875 0.0625
June 30, 1999 0.20 0.10
September 30, 1999 0.12 0.09
</TABLE>
On December 15, 1999, the average of the high bid and low ask
quotation for the Company's common shares as quoted on the Bulletin
Board was $0.11.
The approximate number of holders of common stock of record on
December 15, 1999, was approximately 366.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included in the following table have
been derived from and should be read in conjunction with and are
qualified by the Company's financial statements and notes set forth
elsewhere in this report. Historical financial data for certain
periods may be derived from financial statements not included herein.
<TABLE>
09/30/99 09/30/98 09/30/97 09/30/96 09/30/95
(Audited) (Audited) (Audited) (Audited) (Audited)
<S> <C> <C> <C> <C> <C>
Statement of Operations and
Accumulated Deficit Data:
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Operating
Expenses $ 355,528 $ 1,063,715 $ 1,558,823 $ 1,835,548 $ 962,735
Net loss $(2,991,050) $(2,637,568) $(1,770,771) $(2,045,082) $ (962,735)
Net Loss
per share $ (0.15) $ (0.16) $ (0.14) $ (0.22) $ (0.15)
Balance Sheet Data:
Work Capital
(Deficit) $ (93,456) $ 303,600 $ 671,355 $ 686,573 $ (665,274)
Total Assets $ 1,296,126 $ 3,982,592 $ 5,891,527 $ 5,605,357 $ 4,056,698
Long-term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Stockholders'
Equity $ 1,174,523 $ 3,913,777 $ 5,850,186 $ 5,485,490 $ 3,235,376
</TABLE>
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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 September 30, 1999, the Company accumulated
a deficit of $10,457,146.
At September 30, 1999, $950,794 of the Company's total assets of
$1,296,126 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. Because of its recurring losses from
operations, the Company cannot assure that it will be able to fully
carry out its plans as budgeted without additional operating capital.
At September 30, 1999, the Company had negative working capital of
$93,456. This amount represents severe deterioration from the positive
working capital of $303,600 at September 30, 1998 and of $671,355 at
September 30, 1997. In the year ending September 30, 1999, the
Company's working capital has decreased by $397,056 primarily because
of decreased cash received by the Company from its sales of common
stock. During the same twelve-month period, the Company's cash
increased from $3,147 to $28,147 while the Company's notes receivable
<PAGE> 36
and investments both decreased very substantially. Due to the
foregoing conditions, the Company's independent certified public
accountants included a paragraph in the Company's financial statements
relative to a going concern uncertainty.
In fiscal year 1999, the Company's current liabilities increased
by $52,788 primarily due to a build up of accrued advances from
related parties and accounts payable from the September 30, 1998 level.
The Company's current liabilities of $121,603 at September 30, 1999
represent an unfavorable increase from the Company's current
liabilities of $68,815 at September 30, 1998. 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 year 2000. During the last three years,
management met with experienced financial and investment firms
throughout Europe and North America and negotiated arrangements for
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 fiscal 1998, the Company
raised $299,499 in cash and $700,000 in notes, primarily through the
private placement of shares. In fiscal 1999, consistent with the
depressed market for metals prices, the Company raised only $158,200
from sales of its common stock. The Company is continuing with the
previously described negotiations and various alternatives to raise
capital.
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 private placement funds.
Financing for the Company's exploration and development of mineral
properties is expected to come primarily from the contributions of its
joint venture participants and from the funds generated from such joint
ventures and other lease or royalty arrangements.
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities which provide its
personnel, office space, and equipment needs. The Company currently is
seeking alternate sources of working capital sufficient to increase the
funding of additional general and administrative expenses that may
become necessary as the Company's business plan develops, and to
continue meeting its ongoing payment obligations for its leases to
governmental entities.
<PAGE> 37
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999,
RESPECTIVELY.
General and administrative expenses decreased from $616,600 during
fiscal 1998 to $286,046 during fiscal 1999. This decrease is
principally due to decreased salaries and a decrease in the cost of
fundraising associated with the Company's private placements of its
stock. Also, during the twelve months of fiscal 1998, the Company
incurred officers/directors compensation of $117,652 while such
compensation expenses were reduced to $41,500 in the twelve months of
fiscal 1999. As a principal result of the Company's cost reduction
efforts in fundraising and compensation, total expenses of $1,063,715
for fiscal 1998 decreased to $355,258 (total expenses) in fiscal 1999.
In fiscal 1998, the Company sold some patented mining properties
for common stock and also sold a working interest in a minerals
exploration joint venture in exchange for stock and a promissory note.
These two transactions resulted in gains of $1,860,312 in fiscal 1998.
There were no comparable transactions in 1999.
In the last quarter of fiscal 1998, the Company elected to
withdraw from most of its foreign mineral concessions and accordingly
recorded losses of $592,065 by writing off its exploration properties
in Chile, Argentina and Mexico. In the same quarter, the Company
elected to sell its Conjecture Mine in Washington State and incurred
a loss of $830,700 on this disposition.
Also in the fourth quarter of fiscal 1998, the value of the
Company's common stock investment in Grand Central Silver Mines, Inc.
dropped significantly and the Company posted a loss of $1,997,812 on
the decreased value of its mineral property investments.
In the second and third quarters of fiscal 1999, the Company
entered in a settlement arrangement with Grand Central Silver Mines,
Inc. wherein the effect of the transaction was to create an aggregate
loss of $1,057,581 from the related asset disposition. In the fourth
quarter of fiscal 1999, the Company elected to abandon its interest in
the Crescent Mine Idaho lease. The net effect of this abandonment was
to record a loss of $1,294,867.
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 in the near future 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONTENTS
Independent Auditor's Report . . . . . . F-1
Balance Sheets . . . . . . . . F-2
Statements of Operations . . . . . . F-4
Statements of Stockholders' Equity . . . . F-5
Statements of Cash Flows . . . . . . F-12
Notes to the Financial Statements . . .. . . F-14
<PAGE> 38
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Royal Silver Mines,
Inc. (a development stage company) as of September 30, 1999 and 1998,
and the related statements of operations, stockholders' equity, and
cash flows for the years then ended, and from inception on February 17,
1994 through September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
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, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended and
from inception on February 17, 1994 through September 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 20
to the financial statements, the Company's significant operating losses
raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
December 27, 1999
F-1
<PAGE> 39
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 28,147 $ 3,147
Note receivable - 350,000
Interest receivable - 17,106
Prepaid expenses - 2,162
----------- -----------
TOTAL CURRENT ASSETS 28,147 372,415
----------- -----------
MINERAL PROPERTIES 950,794 2,229,411
----------- -----------
PROPERTY AND EQUIPMENT
Mining equipment 196,389 83,889
Furniture and equipment 12,761 12,761
Less accumulated depreciation (45,127) (19,868)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 164,023 76,782
----------- -----------
OTHER ASSETS
Investments 153,162 1,298,750
Organization costs, net - 5,234
----------- -----------
TOTAL OTHER ASSETS 153,162 1,303,984
----------- -----------
TOTAL ASSETS $ 1,296,126 $ 3,982,592
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 40
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 77,603 $ 65,815
Advances from related parties 44,000 -
Accrued expenses - 3,000
------------ ------------
TOTAL CURRENT LIABILITIES 121,603 68,815
------------ ------------
LONG TERM DEBT - -
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
20,299,565 and 19,003,565
shares issued and outstanding,
respectively 202,995 190,035
Additional paid-in capital 11,428,674 11,889,838
Stock subscriptions receivable - (700,000)
Deficit accumulated during
development stage (10,457,146) (7,466,096)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,174,523 3,913,777
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,296,126 $ 3,982,592
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 41
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ - $ -
------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property expense 3,736 276,476
Depreciation and amortization 30,493 52,987
Officers' and directors' compensation 41,500 117,652
General and administrative 279,529 616,600
------------ ------------
Total expenses 355,258 1,063,715
------------ ------------
OPERATING LOSS (355,258) (1,063,715)
------------ ------------
OTHER INCOME (EXPENSES)
Interest income 24 27,582
Interest expense - -
Gain on property interest sold - 1,875,281
Loss on disposition and
impairment of assets (2,635,816) (3,476,716)
------------ ------------
Total other income (expense) (2,635,792) (1,573,853)
------------ ------------
NET LOSS $ (2,991,050) $ (2,637,568)
============ ============
NET LOSS PER COMMON SHARE $ (0.15) $ (0.16)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 19,615,730 16,348,120
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements
F-4a
<PAGE> 42
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
Period From
Year 02/17/94
Ended (Inception)
September 30, Through
1997 09/30/99
------------ -------------
<S> <C> <C>
REVENUES $ - $ -
------------ -------------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property expense 31,378 559,442
Depreciation and amortization 44,625 226,174
Officers' and directors' compensation 403,660 1,394,760
General and administrative 1,079,160 3,677,294
------------ -------------
Total expenses 1,558,823 5,857,670
------------ -------------
OPERATING LOSS (1,558,823) (5,857,670)
------------ -------------
OTHER INCOME (EXPENSES)
Interest income 31,025 58,631
Interest expense (2,257) (74,348)
Gain on property interest sold - 1,875,281
Loss on disposition and
impairment of assets (240,656) (6,459,040)
------------ -------------
Total other income (expense) (211,888) (4,599,476)
------------ -------------
NET LOSS $ (1,770,711) $ (10,457,146)
============ =============
NET LOSS PER COMMON SHARE $ (0.14) $ (0.87)
============ =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 12,305,987 11,974,795
============ =============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4b
<PAGE> 43
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance
February 17, 1994 - $ - $ - $ - $ -
Issuance in May 1994
of shares at $.002 per
share to officers and
directors in exchange
for assignment of
mining property option 2,250,000 22,500 (18,500) - 4,000
Issuance in July 1994
of shares for cash at
$.402 in private
placement, net of
costs 1,050,000 10,500 411,116 - 421,616
Issuance in August 1994
of shares to a director
in exchange for services
valued at $.417
per share 150,000 1,500 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - - - (211,796) (211,796)
--------- -------- ----------- ---------- ---------
Balance
November 30, 1994 3,450,000 34,500 453,616 (211,796) 276,320
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>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE> 44
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit 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 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
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>
The accompanying notes are an integral part of these financial
statements.
F-6
<PAGE> 45
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit 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 shares
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>
The accompany notes are an integral part of these financial
statements.
F-7
<PAGE> 46
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit 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 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
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 - - 5,500 - 5,500
Net loss for the
year ended September
30, 1997 - - - (1,770,711) (1,770,711)
---------- --------- ----------- ------------ -----------
Balance September
30, 1997 13,482,232 $ 134,822 $10,543,892 $ (4,828,528) $ 5,850,186
---------- --------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-8
<PAGE> 47
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
Number Paid-in
of Shares Amount Capital
<S> <C> <C> <C>
Balance forward 13,482,232 $ 134,822 $ 10,543,892
Issuance of shares for
cash at $0.75 per share 10,000 100 7,400
Issuance of shares to
directors, consultants and
employees for services at
prices varying from $0.34
per share to $0.91 per share 398,000 3,980 202,680
Issuance of shares for mining
property at $0.75 per share 200,000 2,000 148,000
Issuance of shares for cash
at $0.15 per share 1,913,333 19,133 267,866
Issuance of shares in
exchange for cash and note
at $0.25 per share 3,000,000 30,000 720,000
Net loss for year ended
September 30, 1998 - - -
---------- --------- ------------
Balance
September 30, 1998 19,003,565 $ 190,035 $ 11,889,838
---------- --------- ------------
The accompanying notes are an integral part of these financials
statements.
F-9a
<PAGE> 48
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Total
Subscription Accumulated Stockholders'
Receivable Deficit Equity
<S> <C> <C> <C>
Balance forward $ - $ (4,828,528) $ 5,850,186
Issuance of shares for
cash at $0.75 per share - - 7,500
Issuance of shares to
directors, consultants
and employees for services
at prices varying from
$0.34 per share to $0.91
per share - - 206,660
Issuance of shares for
mining property at $0.75
per share - - 150,000
Issuance of shares for cash
at $0.15 per share - - 286,999
Issuance of shares in
exchange for cash and note
at $0.25 per share (700,000) - 50,000
Net loss for year ended
September 30, 1998 - (2,637,568) (2,637,568)
---------- ------------ ------------
Balance
September 30, 1998 $ (700,000) $ (7,466,096) $ 3,913,777
---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financials
statements.
F-9b
<PAGE> 49
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
Number Paid-in
of Shares Amount Capital
<S> <C> <C> <C>
Balance forward 19,003,565 $ 190,035 $ 11,889,838
Issuance of shares to
officers, directors and
consultants for services
at prices varying from
$0.04 per share to $0.06
per share 1,876,000 18,760 89,469
Issuance of shares for
cash, investment and
receivable 1,070,000 10,700 66,500
Shares returned to
treasury for cancellation
of receivable (2,000,000) (20,000) (680,000)
Stock issuance costs - - (133)
Issuance of shares for
cash at prices varying
from $0.04 per share
to $0.07 per share 1,800,000 18,000 63,000
Payment of stock
subscription - - -
---------- ---------- ------------
Balance Forward 21,749,565 $ 217,495 $ 11,428,674
---------- ---------- ------------
The accompanying notes are an integral part of these financial
statements.
F-10a
<PAGE> 50
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
Total
Subscription Accumulated Stockholders'
Receivable Deficit Equity
<S> <C> <C> <C>
Balance forward $ (700,000) $ (7,466,096) $ 3,913,777
Issuance of shares
to officers, directors
and consultants for
services at prices
varying from $0.04
per share to $0.06
per share - - 108,229
Issuance of shares
for cash, investment
and receivable (50,000) - 27,200
Shares returned to
treasury for cancellation
of receivable 700,000 - -
Stock issuance costs - - (133)
Issuance of shares for
cash at prices varying
from $0.04 per share
to $0.07 per share - - 81,000
Payment of stock
subscription - - 50,000
---------- ------------ -----------
Balance Forward $ - $ (7,466,096) $ 4,180,073
---------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-10b
<PAGE> 51
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
Number Paid-in
of Shares Amount Capital
<S> <C> <C> <C>
Balance forward 21,749,565 $ 217,495 $ 11,428,674
Shares returned to
treasury for cancellation
of receivable and
exchange of
investments (1,450,000) (14,500) -
Net loss for year
ended September
30, 1999 - - -
---------- --------- ------------
Balance,
September 30, 1999 20,299,565 $ 202,995 $ 11,428,674
========== ========= ============
The accompanying notes are an integral part of these financial
statements
F-11a
<PAGE> 52
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
Total
Subscription Accumulated Stockholders'
Receivable Deficit Equity
<S> <C> <C> <C>
Balance forward $ - $ (7,466,096) $ 4,180,073
Shares returned to
treasury for cancellation
of receivable and
exchange of investments - - (14,500)
Net loss for year ended
September 30, 1999 - (2,991,050) (2,991,050)
---- ------------- -----------
Balance, September
30, 1999 $ - $ (10,457,146) $ 1,174,523
==== ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-11b
<PAGE> 53
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,991,050) $ (2,637,568)
Adjustments to reconcile net loss to
net cash used by operating activities:
Loss on sale of equipment - 12,585
Depreciation and amortization 30,493 45,649
Issuance of common stock for services 108,229 206,658
Write-off of option costs - 517,871
Write off of joint venture costs - 10,000
Write-off of mineral properties 1,323,617 1,097,737
Loss on devaluation of investments 1,123,247 1,997,813
Changes in assets and liabilities:
Note receivable 350,000 (250,000)
Interest receivable 17,106 (9,523)
Prepaid expenses 2,162 5,831
Other assets - -
Mineral properties - (4,674)
Accounts payable 11,788 45,460
Accrued expenses 41,000 (18,798)
Payable to related parties - -
------------ ------------
Net cash provided (used)
by operating activities 16,592 1,019,041
------------ ------------
Cash flows from investing activities:
Purchase of investments (119,088) (2,934,062)
Purchase and development of
mineral properties (45,000) (185,690)
Purchase of fixed assets (112,500) (4,154)
Sale of mineral properties - 1,093,750
Sale of investments 141,429 70,000
Sale of fixed assets - 5,185
------------ ------------
Net cash used in investing activities (135,159) (1,954,971)
------------ ------------
Cash flows from financing activities:
Stock issuance and offering costs (14,633) -
Proceeds received on long-term debt - -
Payments made on notes payable - -
Issuance of common stock for cash 158,200 344,500
Issuance of common stock for accrued interest - -
Issuance of common stock for extension
of notes payable maturation - -
Payment for return of stock issued for
mining property interest - -
Payment of joint venture costs - -
Issuance of warrants or warrants
extensions for cash - -
------------ ------------
Net cash provided by financing activities 143,567 344,500
------------ ------------
Net increase (decrease) in cash $ 25,000 $ (591,430)
------------ ------------
F-12a
<PAGE> 54
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (Continued)
From
02/17/94
For the Year (Inception)
Ended Through
09/30/97 09/30/99
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,770,711) $ (10,457,146)
Adjustments to reconcile net loss to net
cash used by operating activities:
Loss on sale of equipment - 12,585
Depreciation and amortization 44,625 221,383
Issuance of common stock for services 312,907 1,376,946
Write-off of option costs - 517,871
Write off of joint venture costs - 160,000
Write-off of mineral properties - 2,421,354
Loss on devaluation of investments - 3,121,060
Changes in assets and liabilities:
Note receivable - -
Interest receivable (7,250) -
Prepaid expenses (19,040) (28,438)
Other assets (6,000) (9,801)
Mineral properties - (4,674)
Accounts payable (4,780) 77,603
Accrued expenses (13,457) 43,188
Payable to related parties (289) 300,000
------------ -------------
Net cash provided (used)
by operating activities (1,463,995) (2,248,069)
------------ -------------
Cash flows from investing activities:
Purchase of investments (70,000) (3,123,150)
Purchase and development of
mineral properties (151,164) (1,986,690)
Purchase of fixed assets (193,230) (325,687)
Sale of mineral properties - 1,093,750
Sale of investments - 211,429
Sale of fixed assets 500 5,685
------------ -------------
Net cash used in investing activities (413,894) (4,124,663)
------------ -------------
Cash flows from financing activities:
Stock issuance and offering costs (30,000) (189,468)
Proceeds received on long-term debt - 675,000
Payments made on notes payable (60,000) (174,206)
Issuance of common stock for cash 1,868,250 6,030,764
Issuance of common stock for accrued interest - 38,158
Issuance of common stock for extension of
notes payable maturation - 59,063
Payment for return of stock issued for
mining property interest - (35,000)
Payment of joint venture costs - (50,000)
Issuance of warrants or warrants
extensions for cash 5,500 46,568
------------- -------------
Net cash provided by financing activities 1,783,750 6,400,879
------------- -------------
Net increase (decrease) in cash $ (94,139) $ 28,147
------------- ------------
</TABLE>
F-12b
<PAGE> 55
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
From
02/17/94
For the Years Ended (Inception)
September 30, Through
1999 1998 1997 Sept. 30, 1999
<S> <C> <C> <C> <C>
Net increase (decrease) in
cash (balance forward) $ 25,000 $ (591,430) $ (94,139) $ 28,147
Cash, beginning of period 3,147 594,577 688,716 -
--------- --------- --------- -----------
Cash, end of period $ 28,147 $ 3,147 $ 594,577 $ 28,147
========= ========= ========= ===========
Supplemental cash flow disclosure:
Income taxes $ - $ - $ - $ 350
Interest $ - $ - $ 2,257 $ 25,655
Non-cash financing activities:
Common stock issued for
services rendered $ 108,229 $ 206,660 $ 312,907 $ 1,376,947
Common stock issued for
mineral properties $ - $ 150,000 $ 60,000 $ 3,190,626
Common stock issued for
exchange for debt $ - $ - $ - $ 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
Common stock issued
in exchange for
investments $ 7,200 $ - $ - $ 7,200
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-13
<PAGE> 56
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 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 controlled 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 $950,794 cost of mineral properties included in the accompanying
balance sheet as of September 30, 1999 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-14
<PAGE> 57
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Company is 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
This summary of significant accounting policies of Royal Silver Mines,
Inc. is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting.
Development Stage
The company is in the development stage and has not commenced the sale
of any products.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
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 weighting them by the amount of time they were
outstanding. 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.
F-15
<PAGE> 58
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
Provision For Taxes
At September 30, 1999, the Company had net operating loss carryforwards
of approximately $10,100,000 that may be offset against future taxable
income through 2014. No tax benefit has been reported in the financial
statements as the Company believes there is a significant 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." In
complying with this standard, the Company reviews its long-lived assets
quarterly to determine if any events or changes in circumstances have
transpired which indicate that the carrying value of its assets may not
be recoverable. Because of write-downs and write-offs taken throughout
fiscal 1998 and fiscal 1999, the Company does not believe any further
adjustments are needed to the carrying value of its assets at September
30, 1999.
Financial Accounting Standards
The Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.
F-16
<PAGE> 59
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation
The financial statements include those of Royal Silver Mines, Inc. and
Celebration Mining Company. All significant 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.
Change in Accounting Policies
During the year ended September 30, 1999, the Company changed its
method of accounting for organization costs to conform to the
requirements of Statement on Position 98-5, which requires start-up and
organization costs to be expensed as incurred. The effect of the
change was to increase net loss for the year ended September 30, 1999
by $3,502 ($0.0002 per share). The change has no effect on prior
years.
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
September 30, 1998, no further funds towards the joint venture have
been expended by Celebration, which owns an undivided 25% interest in
the property.
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. In the fourth
quarter of 1998, the Company disposed of additional Idaho properties.
(See Note 4).
<PAGE> 60
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 3 - MINERAL PROPERTIES (Continued)
Other Domestic Properties
In February 1999 in connection with the settlement agreement with Grand
Central (described in Note 18), the Company received a number of
patented mining claims in Utah and a number of unpatented mining claims
in Idaho. In aggregate, these mining claims were recorded at $45,000.
* * *
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 Company's
mineral properties are valued at the lower of cost or net realizable
value.
NOTE 4 - MINERAL PROPERTY DISPOSITIONS
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, the
Company has incurred acquisition costs of $1,294,867. During the
fourth quarter of 1999, the Company's board of directors evaluated its
mineral holdings and elected to write off its interest in this property
and, accordingly, recorded a loss on abandonment equivalent to its cost
of acquisition. (See Note 15 on litigation regarding this lease.)
Chilean Properties
During 1997, the Company acquired options on a minerals concession and
adjacent property in northern Chile. During the third quarter of
fiscal 1998, following a decision by Teck Exploration Ltd. not to
pursue its joint venture option, the Company elected to drop its
options on the Chilean properties and recorded a loss of $403,530 on
its Chilean investments.
Argentina Properties
On February 10, 1997 the Company negotiated an option to buy 12
different potential mine sites in Argentina. During the second quarter
of fiscal 1998, the Company elected to drop the option, returned the
properties to their owner, and recorded a loss of $114,341.
F-18
<PAGE> 61
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 4 - MINERAL PROPERTY DISPOSITIONS (Continued)
Mexican Properties
On January 20, 1997, the Company executed an agreement to acquire four
mining properties in Nayarit, Mexico with stipulated annual payment to
be applied against a purchase price of $5,000,000. In the fourth
quarter of fiscal 1998, the Company elected to forfeit its interest in
the aforementioned Mexican properties and, resultantly, recorded a loss
of $74,194.
On February 19, 1998, the Company sold a working interest in a Mexican
joint venture which resulted in a gain of $1,454,062.
Conjecture Mine and Liberal King Mine (in U.S.)
In 1995, the Company issued 280,000 shares of its common stock to
acquire the Conjecture Mine, a silver-bearing property in the state of
Idaho. During the fourth quarter of fiscal 1998, the Company traded
the Conjecture Mine property for 10,000 shares of common stock in
SynFuels Technology, Inc., (subsequently renamed Rigid Airship) valued
at $8.00 per share. This transaction resulted in a recorded loss on
disposition of $830,700.
On June 26, 1998, the Company traded six patented mining claims (known
as the Liberal King Mine) located in Shoshone County, Idaho for 50,000
shares of SynFuels Technology, Inc. valued at $8.00 per share. No gain
or loss was recognized on this transaction.
NOTE 5 - 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 6 - INVESTMENTS
Investments, consisting of equity securities of private and small
public companies, are stated at lower of cost or net realizable value.
During 1999, certain investments were written down to their estimated
realizable value. The amount of the loss, $281,498, has been charged
to operations in 1999.
F-19
<PAGE> 62
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 6 - INVESTMENTS (Continued)
At September 30, 1999 and 1998, the market values of investments were
as follows:
September 30, September 30,
1999 1998
Grand Central Silver Mines, Inc. $ 0 $ 926,250
Summit Silver Mines, Inc. 101,127 60,000
Rigid Airship USA, Inc. 31,002 312,500
Ashington Mining Company 7,200 0
Tintic Coalition Mines 5,000 0
American Health Providers Corp. 6,795 0
Minimally Invasive Surgery 2,038 0
--------- -----------
$ 153,162 $ 1,298,750
========= ===========
Other information regarding the Company's investments follows:
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 $1,454,062 was realized on
this transaction. The promissory note was satisfied in February 1999
through a settlement agreement with Grand Central (See Notes 17 and
18).
At September 30, 1998, the Company owned 1,235,000 shares of Grand
Central Silver Mines, Inc. common stock, which was then approximately
12% of the total outstanding shares. In the second and third quarters
of fiscal 1999, the Company disposed of all of its holdings in Grand
Central in connection with a settlement agreement.
F-20
<PAGE> 63
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
Rigid Airship USA, 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 acquired an additional 10,000 shares of SynFuels Technology,
Inc. common stock in September 1998 in exchange for another mining
property. (See Note 3). SynFuel Technology, Inc. changed its name to
Rigid Airship in November 1998. As of September 30, 1999, the stock
had a market value of $31,002.
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
$.002 to $.625 per share, which is the fair market value of the share
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. The Company also issued 277,500 shares in connection with the
issuance of notes payable. (See Note 1 and Note 9).
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 share to directors and employees for services rendered
valued at $1.50 per share, which is the fair market value of the share
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. The stock
issued was valued at $1.50 per share, which is the fair market value of
the shares at the date of issuance.
F-21
<PAGE> 64
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 7 - COMMON STOCK (Continued)
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 was
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.
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 year ended September 30, 1998, the Company issued 398,000
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 twelve months, the
Company sold 4,923,333 shares of its common stock for $344,500 in cash
and $700,000 in stock subscriptions receivable.
In May 1998, the Company sold 3,000,000 shares of its common stock at
$0.25 per share in exchange for $50,000 in cash and a short-term note
in the amount of $700,000. Because of a subsequent decrease in the
market value of the Company's stock, the Company and shareholder
renegotiated the transaction. In November 1998, the aforementioned
shareholder returned 2,000,000 shares of stock to the Company for
cancellation and in return the company rescinded the $700,000 note,
which was recorded as stock subscriptions receivable at September 30,
1998. The net effect of the renegotiated stock transaction was a sale
of common stock at $0.05 per share for cash only.
In November 1998, the Company sold 220,000 shares of its common stock
at $0.06 per share to Ashington Mining for a short-term note in the
amount of $5,000 and 100,000 shares of Ashington Mining stock valued at
$7,200 (Note 6). An additional 1,500,000 shares of common stock were
sold in January 1999 at $0.04 per share.
During the year ended September 30, 1999, the Company issued 1,876,000
shares of common stock for services received. The shares were valued
at their fair market value at the date of issuance, which ranged from
$0.04 to $0.07.
F-22
<PAGE> 65
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 7 - COMMON STOCK (Continued)
As part of a settlement agreement with Grand Central Silver Mines, Inc.
and other parties, Royal received 1,450,000 shares of Royal Silver
Mines, Inc. stock, which was returned to treasury and cancelled.
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS
In January 1992, the shareholders of Royal approved a 1992 Stock Option
and Stock Award Plan under which up to ten percent of the issued and
outstanding shares of the Company's common stock could be awarded based
on merit of work performed. As of September 30, 1999, 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. Of these stock options
255,000 exercisable at $1.50 per share will 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, 1999, 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 September 30, 1999 none of these
warrants have been exercised.
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 were exercisable until September 30, 1998, at which time
they expired unused.
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 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, with the balance of 100,000 warrants expiring unused.
F-23
<PAGE> 66
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
In the quarter ending March 31, 1997, the Company sold 2,491,000
"units" to unaffiliated investors as part of a private placement of
stock. Each unit consisted of a share of the Company's common stock and
one warrant enabling the investor to purchase one additional share of
common stock for a purchase price of $1.25 per share during the next
two years. At September 30, 1999, none of the warrants had been
exercised.
NOTE 9 - COMPANY STOCK OPTION AND AWARD PLAN
The Company has a stock-based compensation plan whereby the Company's
board of directors may grant common stock to its employees and
directors. At September 30, 1999, 1,455,000 options have been granted
under the plan although none have been exercised or forfeited in the
two years ending September 30, 1999. The old existing options are
attributed to the merger of Celebration mining Company with Royal in
August 1995.
Of the total of 2,500,000 common stock shares authorized for issuance
under the plan, 179,000 shares at values ranging from $0.34 to $0.91
per share were issued to employees and directors during the twelve
months ended September 30, 1998 and 1,259,000 shares at values ranging
from $0.04 to $0.07 per share were issued to employees and directors
during the twelve months ended September 30, 1999.
Following is a summary of the stock options during 1998 and 1999.
Weighted
Number Average
of Exercise
Shares Price
Outstanding at 10/1/97 1,455,000 $ 1.03
Granted
Exercised - -
Forfeited - -
--------- ------
Outstanding at 9/30/98 1,455,000 $ 1.03
========= ======
Options exercisable at 9/30/98 1,455,000 $ 1.03
========= ======
Weighted average fair value of
options granted during 1998 $ -
=========
F-24
<PAGE> 67
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 9 - COMPANY STOCK OPTION AND AWARD PLAN (Continued)
Weighted
Number Average
of Exercise
Shares Price
Outstanding at 10/1/98 1,455,000 $ 1.03
Granted
Exercised - -
Forfeited - -
--------- ------
Outstanding at 9/30/99 1,455,000 $ 1.03
========= ======
Options exercisable at 9/30/99 1,455,000 $ 1.03
========= ======
Weighted average fair value of
options granted during 1999 $ -
=========
NOTE 10 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid in capital at September
30, 1999, and September 30, 1998:
September 30, September 30,
1999 1998
Applicable to:
Common Stock $ 11,382,106 $ 11,843,270
Stock Warrants 46,568 46,568
------------ ------------
$ 11,428,674 $ 11,889,838
============ ============
NOTE 11 - OPTIONS INVOLVING MINERAL PROPERTIES
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. At the end of the option
period, the Company dropped its option to acquire a 50% interest in the
joint venture and recorded a loss of $10,000 on its option deposit.
F-25
<PAGE> 68
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 11 - OPTIONS INVOLVING MINERAL 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 the
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 year 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.
NOTE 12 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an option
from Centurion to purchase up to 800,000 shares of its common stock
held by Centurion for the exercise price of $1.75 per share during the
two-year period ending September 30, 1998. The cost of this two-year
stock purchase option was $50,000 which was paid by the Company and
charged to stockholders' equity (accumulated deficit).
Effective April 15, 1997, the aforementioned stock option agreement was
renegotiated (at no cost to the Company) and amended to extend the
exercise period until September 30, 1999 and to revise the exercise
price to $1.50 per share during this same period.
At September 30, 1999, no shares were acquired from Centurion under
this option agreement which lapsed. (See Note 14).
F-26
<PAGE> 69
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 13 - LETTER OF INTENT WITH TECK EXPLORATION LTD.
In October 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 contemplated an initial drilling program
funded by Teck. In July 1998, the Company and Teck mutually agreed to
terminate their option agreement. (See Note 4 for related disclosures
on Chilean options.)
NOTE 14 - 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, Idaho silver properties plus other
patented mining properties owned by Royal in exchange for Centurion
shares then valued at $1,500,000. (See Note 6).
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. The two companies shared one common
director and a common officer until February 1999, at which time mutual
differences changed this arrangement. (See Note 18).
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit alleging that the Company
failed to transfer common stock in exchange for a mining property
interest. In June 1999, Box Elder County Superior Court rejected the
plaintiff's lawsuit and let stand the Company's countersuit alleging
fraudulent misrepresentation. Although the plaintiff has filed an
appeal (regarding the originally filed lawsuit) with the Utah Supreme
Court, the Company believes that the appeal is completely without merit
and will not be sustained. In its countersuit, the Company is seeking
both full title to the aforementioned mineral property and punitive
damages. The Company believes its countersuit will prevail.
F-27
<PAGE> 70
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 15 - COMMITMENTS AND CONTINGENCIES
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. Although the Company has recently decided to write down
its interest in the Crescent Mine mineral lease, the Company has
elected to pursue this lawsuit, which is in the discovery phase.
The Company sublets office space on a month to month basis from one of
its officers in Coeur d'Alene Idaho for $200 per month. Total rent paid
for this office space in 1999 was $1800.
NOTE 16 - 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, and 200,000 shares of Royal Silver common
stock. Dakota retained a net smelter return royalty on future
production from the project. (See Note 6).
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 4). A total gain of $1,454,062 was recognized on this
transaction.
NOTE 17 - NOTES RECEIVABLE
At September 30, 1998, the Company's note receivable consisted of a
$350,000 receivable from Grand Central Silver Mines, Inc. This note,
which bears interest at 8% and is uncollateralized, was exchanged for
equipment and mining claims in February 1999. (See Note 18).
F-28
<PAGE> 71
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 18 SETTLEMENT AGREEMENTS
In February 1999, the Company entered into a settlement arrangement
wherein Grand Central Silver Mines, Inc. (hereinafter "Grand")
transferred equipment, mining claims, and securities (including 450,000
shares of Royal Silver Mines, Inc. stock) to Royal in full settlement
of the $350,000 promissory note (and accrued interest) owed by Grand to
Royal. In connection with the same transaction, the Company
transferred to an individual 154,375 shares of Grand common stock
(previously held by Royal) and in turn received from this same
individual 1,000,000 shares of Royal Silver Mines, Inc. common stock
and 333,333 shares of Summit Silver, Inc. common stock. While this
settlement agreement involved mutual releases of liability for all
parties affected, the net effect of the settlement was the Company's
recording a loss of $247,112 from assets disposed in the second quarter
and $810,469 in the third quarter as this transaction was finalized.
(See Note 6, Note 14, and Note 17).
The Company was a defendant in a lawsuit filed by some of its
shareholders for alleged financial improprieties. Although the
directors of the Company vigorously disputed the plaintiffs' claims, the
directors elected to settle this matter out of court in September 1999
after receiving advice from counsel that the costs of defending the
litigation would exceed the costs of settling out of court. In the
resulting settlement, the Company agreed to pay the plaintiffs $60,000
in cash and two Company officers agreed to transfer personally owned
investments to the plaintiffs. Accordingly, in turn, the Company
indemnified the aforementioned corporate officers by transferring to
them stock in Summit Silver Mines, Inc. and a mineral property interest
in the Imperial Mine. The transaction resulted in a charge to
operations of $103,950.
NOTE 19 LICENSING AGREEMENT
In January 1999, the Company entered into a technology licensing
agreement with Integrated Environmental Technologies, LLC (IET), a New
York limited liability company, to acquire, develop and exploit mineral
deposits using IET technology. IET technology involves high
temperature systems that utilize plasma technology for processing
materials and includes trade secrets, inventions, (whether patented or
unpatented), information, data and experience. Upon completion of
agreed upon conditions, the Company will be granted a worldwide
exclusive license to practice IET technologies necessary for the
extraction and recovery of copper from enargite ores and gold and
silver from arsenic rich ores or residual process streams from milling
and smelting operations not to include certain properties in and around
the Yuma, Arizona region. At September 30, 1999, the Company was in
the process of renegotiating the terms and conditions of the licensing
agreement.
F-29
<PAGE> 72
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 20 - GOING CONCERN
As shown in the accompanying financial statement, the Company has no
revenues, has incurred a net loss of $2,991,050 for the year ending
September 30, 1999 and an accumulated deficit of $10,457,146 since
inception. These factors indicate that the Company may be unable to
continue in existence. The financial statements do not include any
adjustments related to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
The Company's management has strong beliefs that significant and
imminent private placements will generate sufficient cash for the
Company to operate for the next few years. The Company also believes
that the occasional sale of its equity investments will provide cash as
needed for operations.
NOTE 21 RELATED PARTIES
At September 30, 1999, the Company was indebted to two of its officers
for the sum of $44,000. These funds were advanced to the Company in
September 1999 for payment of operating expenses. The advances are
unsecured, non-interest bearing, and are expected to be repaid in the
next few months.
Other related party transactions are disclosed in Notes 15 and 18.
NOTE 22 YEAR 2000 ISSUES
Like other companies, Royal Silver Mines, Inc. could be adversely
affected if the computer systems the Company, its suppliers or
customers use do not properly process and calculate date-related
information and data from the period surrounding and including January
1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices
such as production equipment and elevators, etc. At this time, because
of the complexities involved in the issue, management cannot provide
assurance that the Year 2000 issue will not have an impact on the
Company's operations. Any costs associated with Year 2000 compliance
are expensed when incurred.
F-30
<PAGE> 73
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
A. Changes or disagreements with Principal Accountant. There have
been no disagreements with the Company's independent public
accountants.
B. Change in Principal Accountant. As of November 8, 1996 there has
been no change in the Company's principal accountants.
C. Designation of New Accountant. The Company designated the
accounting firm of Williams and Webster, P.S. to serve as
principal independent accountant for the Company effective
November 8, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and position of
each Officer and Director of the Company:
Name Age Position
Howard M. Crosby 47 President, Treasurer and a member of the
Board of Directors
John Ryan 36 Vice President, Secretary and a member
of the Board of Directors
Ronald Kitching 67 Member of the Board of Directors
Kevin Stulp 42 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:
<PAGE> 74
Howard M. Crosby - President, Treasurer and a member of the Board of
Directors.
Since February 1994, Mr. Crosby is the President and a member of
the Board of Directors and since January 1998, Mr. Crosby has been the
Treasurer of Company. 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 1993, Mr. Crosby entered into a business consulting
relationship with Centurion Mines Corporation, and has served as
president and director of Mammoth Mining Company and Gold Chain Mining
Company, both Centurion subsidiaries. In July 1992, Mr. Crosby filed
a Chapter 13 petition for bankruptcy. The reorganization plan was
approved in October 1992. Mr. Crosby received a B.A. degree from the
University of Idaho in 1974.
John Ryan - Vice President, Secretary and a member of the Board of
Directors.
Mr. Ryan has been a member of the Board of Directors since April
1997, has been Vice President of Corporate Development since September
1996 and has been Secretary since October 1998. Mr. Ryan is a
professional mining engineer. Since June 1996, Mr. Ryan has been a
Vice President and member of the Board of Directors of Metalline Mining
Company. From September 1993 to August 1994, Mr. Ryan was a registered
representative with Shearson Lehman Brothers, Inc. From August 1994 to
April 1995, Mr. Ryan has served as a consultant in mine engineering
services, and will continue in these activities during his tenure, as
well as, engage in other matters in accordance with the direction and
assignment of the Board of Directors. From April 1995 to April 1996,
Mr. Ryan was a registered representative with Pennaluna Securities
Corp., a SEC/NASD registered broker/dealer. In addition to his
professional degree in Mining Engineering, which he received from the
University of Idaho, Mr. Ryan also holds a juris doctorate (J.D.) law
degree from Boston College School of Law School.
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
<PAGE> 75
Compaq Computer Corporation, Houston, Texas. From September 1992 to
June 1994, Mr. Stulp was Director of Manufacturing for Compaq Computer
Corporation. From September 1986 to September 1992, Mr. Stulp was PCA
Operations Manager for Compaq Computer Corporation. From December 1983
to September 1986, Mr. Stulp held various positions with Compaq
Computer Corporation, including industrial engineer, new products
planner and manufacturing manager. From July 1980 to December 1983,
Mr. Stulp was a financial planner with Texas Instruments, Houston,
Texas. Mr. Stulp holds the degree of Masters in Business
Administration and the degree of Bachelor of Science Mechanical
Engineering, both from the University of Michigan, and the degree of
Bachelor of Science from Calvin College, Grand Rapids, Michigan.
Indemnification.
The Company's Bylaws provide that the Company's directors and
officers will be indemnified to the fullest extent permitted by the
Utah Corporation Code, however, such indemnification shall not apply to
acts of intentional misconduct; a knowing violation of law; or, any
transaction where an officer or director personally received a benefit
in money, property, or services to which to the director was not
legally entitled.
The Company has been advised that in the opinion of the Securities
and Exchange Commission indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is, therefore,
unenforceable.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange Act of 1934 requires
certain defined persons to file reports of and changes in beneficial
ownership of a registered security with the Securities and Exchange
Commission and the National Association of Securities Dealers in
accordance with the rules and regulations promulgated by the Commission
to implement the provisions of Section 16. Under the regulatory
procedure, officers, directors, and persons who own more than ten
percent of a registered class of a company's equity securities are also
required to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of Forms 3, 4, and 5
furnished to the Company for transactions occurring between October 1,
1998 and September 30, 1999, or with respect to transactions which
occurred between October 1, 1998 and September 30, 1999, all reports
which were required to be filed under Section 16(a) of the Exchange Act
were in fact so filed.
<PAGE> 76
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation.
The following table sets forth the compensation paid by the
Company during each of the last three fiscal years to its Chief
Executive Officer, and to the other four most highly compensated
officers and executive officers, but only if the total annual salary
and bonus of any such executive officer exceeded $100,000 for Fiscal
1999 (the "Named Executive Officers"). This information includes the
dollar value of base salaries, bonus awards and number of stock options
granted, and certain other compensation, if any.
Summary Compensation Table.
Annual Compensation
-------------------
Principal
Name Position Year Salary ($)
- -------------- --------- ---- ----------
Howard Crosby President 1999 $ 45,000 [2]
1998 $ 78,000 [1]
1997 $ 78,000
1996 $ 78,000
1995 $ 48,000
John Ryan Vice President 1999 $ 42,000 [2][3]
Named Executive Officers
None n/a n/a
[1] Crosby received four months salary in cash, $19,500, and the
balance in Common Stock.
[2] All compensation paid during 1999 was taken in shares of the
Company, or shares in two dormant subsidiary corporations, Summit
Silver and Tintic Corporation, or equipment.
[3] Prior to 1999, Mr. Ryan did not receive compensation as an
officer.
Other than the Company's Stock Option and Award Plan, there are no
retirement, pension, or profit sharing plans for the benefit of the
Company's officers and directors.
Option/SAR Grants.
No individual grants of stock options, whether or not in tandem
with stock appreciation rights ("SARs"), and freestanding SARs were
made during Fiscal 1999 to the CEO or any Executive Officer.
No stock options were exercised by the CEO or any executive
officers in Fiscal 1999.
<PAGE> 77
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 1999, no 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.
Compensation Committee Interlocks and Insider Participation.
There are no compensation committee interlocks. With respect to
insider participation, Howard Crosby, John Ryan, Ronald Kitching and
Kevin Stulp, participated in deliberations of the Company's Board of
Directors during Fiscal 1999, concerning executive officer
compensation.
Board of Directors Report on Executive Compensation.
The following is a summary of the Board of Directors Report:
It is the Board's responsibility to review and set compensation
levels of the executive officers of the Company, evaluate the
performance of management and consider management appointments and
related matters. All decisions are decisions of the full Board. The
Board considers the performance of the Company and how compensation
paid by the Company compares to compensation generally in the mining
industry and among similar companies. In establishing executive
compensation, the Board bases its decisions, in part, on achievement
and performance regarding broad-based objectives and targets relating
to the continued acquisition of favorable silver properties and the
progress of exploration and development of such properties, as well as
the Company's financial performance.
For Fiscal 1999, the Company's executive compensation policy
consisted of two elements: base salary and stock awards. The policy
factors which determine the setting of these compensation elements are
largely aimed at attracting and retaining executives considered
essential to the Company's long-term success. The granting of stock is
designed as an incentive for executives to keep management's interests
in close alignment with the interests of shareholders. The Company's
executive compensation policy seeks to engender committed leadership to
favorably posture the Company for continued growth, stability and
strength of shareholder equity.
<PAGE> 78
The Company paid salaries to its officers for the fiscal year-
ended September 30, 1999, as follows:
Name of Officer Position Salary
Howard Crosby President $45,000 yearly
John Ryan Vice President of 42,000 yearly
Corporate Development
These amounts were approved by the Board in recognition of the
work and efforts prior to the end of fiscal 1999.
With respect to stock awards during fiscal 1999, the Board of
Directors did not change the amount of shares, 2,500 per quarter, which
each directors is entitled to receive as partial compensation for
service to the Company.
The Board believes that executive compensation during fiscal 1999
substantially reflects the Company's compensation policy and the Board
anticipates paying a like sum during the fiscal year ending September
30, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 15, 1999, the
outstanding Common Stock of the Company owned of record or beneficially
by each person who owned of record, or was known by the Company to own
beneficially, more than 5% of the Company's Common Stock, and the name
and shareholdings of each Officer and Director and all Officers and
Directors as a group. At December 29, 1999, the number of shares of
common stock of the Company issued and outstanding was 21,362,065.
<TABLE>
<CAPTION>
Percentage
Shares of Common
Name Owned Stock Owned
<S> <C> <C>
Howard Crosby [1] 2,135,000 9.99%
105 North First
Suite 232
Sandpoint, ID 83864
John Ryan [2] 1,585,000 7.42%
200 Riverwood Court
Post Falls, ID 83854
Ronald Kitching 157,500 0.74%
P. O. Box 9809
Frenchville, QD 4701
Australia
Kevin Stulp 494,000 2.31%
5639 Doliver
Houston, TX 77056
ALL OFFICERS AND
DIRECTORS AS A GROUP 4,371,500 20.46%
(Four Individuals)
<PAGE> 79
Britannia Holdings
Ltd. [3] 3,485,000 16.31%
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
</TABLE>
All shares are held beneficially and of record and each record
shareholder has sole voting and investment power.
[1] The Board approved the release of a previously authorized grant of
200,000 restricted shares to Crosby Enterprises, Inc. for its work
in putting together for the Company no fewer than five major
business proposals, culminating in the reorganization with
Celebration. Mr. Crosby holds indirect beneficial ownership of
those restricted shares as a director, executive officer and
majority shareholder of Crosby Enterprises, a private,
closely-held Washington corporation. Mr. Crosby holds all
remaining shares in his name, 15,000 shares of which he received
in Fiscal 1995 as partial compensation for his service as a
director and executive officer. Does not include Warrants to
purchase 850,000 shares of Common Stock.
[2] Does not include Warrants to purchase 200,000 shares of Common
Stock.
[3] Does not include Warrants to purchase 2,135,000 shares of Common
Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships and Transactions pertaining to the Company and
Celebration.
Certain of the directors and/or officers of the Company also serve
as directors and/or officers of other companies involved in natural
resource exploration and development and, consequently, there exists
the possibility for such directors and officers to be in a position of
conflict. Any decision made by such directors and officers involving
the Company, as the case may be, will be made in accordance with their
duties and obligation to deal fairly and in good faith with the Company
and such other companies. In addition, such directors and officers are
required to declare and refrain from voting on any matter in which such
directors and officers may have a conflict of interest. In this
respect, Howard Crosby, who was the President of Celebration and of the
Company at the time of the Reorganization, refrained from voting on
any matter related to the Reorganization or any other matter pertaining
to both companies.
<PAGE> 80
The Company has engaged in transactions with its officers,
directors and principal shareholders, including the issuance of the
initial shares of the Company. Such transactions may be considered as
not having occurred at arm's length. The Company may be engaged in
transactions with management and others involving conflicts of
interest, including conflicts on salaries and other payments to such
parties, as well as business opportunities which may arise. In this
regard, the directors of the Company are involved in other companies
and may have conflicts of interest in allocating time between the
Company and other entities to which they are affiliated.
Relationships and Transactions Pertaining to the Company.
From time to time, at the Company's request, Centurion may, at its
discretion, provide funds to the Company or pay certain expenses
directly. The Company is current in its payments to Centurion and
management intends to continue the immediate repayment to Centurion as
expenses are incurred.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
The Company has not filed any reports on Form during the annual
period ended September 30, 1999.
INDEX TO EXHIBITS
The following documents are incorporated herein by reference to
the Company's Registration Statement on Form 10, as filed with the
Securities and Exchange Commission:
Number Document
- ----------------------------------------------------------------------
3.1 Articles of Incorporation.
3.2 Articles of Amendment.
3.3 Amendment to Articles of Incorporation Limiting Director
Liability.
3.4 Bylaws.
10.1 Sale of Mining Properties By Centurion Mines Corporation to
Royal Minerals, Inc. - June 1992 through September 1993.
10.2 Deed with Reservation of Mineral Royalty - January 1992 to
Kennecott.
10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to
Kennecott.
10.4 July 1992 Kennecott Option to Purchase 6,320 acres.
<PAGE> 81
10.5 Deed and Assignment with Reservation of Mineral Royalty -
August 1992 (16,880 acres) to Kennecott.
10.6 Deed and Assignment with Reservation of Mineral Royalty -
December 1992 (6,320 acres) to Kennecott.
The following documents are incorporated herein by reference from
the Registrant's Current Report on Form 8-K, dated August 8, 1995, as
filed with the Securities and Exchange Commission:
2.01 Agreement and Plan of Reorganization.
3.05 Articles of Share Exchange (Utah).
3.06 Articles of Share Exchange (Washington).
4.01 Subscription and Investment Agreement.
4.02 Stock Purchase Option Certificate.
19.01 Material Furnished to Celebration Securityholders.
20.01 Letter from Royal to Share Exchange Securityholders.
The following documents are incorporated herein by reference from
the Registrant's Form S-8 Registration Statement filed with the
Commission on July 17, 1995.
4.1 1995 Stock Option and Stock Award Plan with Amendment No. 1
to the Plan.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on February 10, 1997:
10.7 Vipoint Joint Venture Agreement.
10.8 Option to Joint Venture with Placer Mining Corporation, dated
April 19, 1996.
10.9 Amendment to Option to Joint Venture with Placer Mining
Corporation dated the 22nd day of July, 1996.
10.10 Exploration Agreement and Purchase/Joint Venture Option.
10.11 Purchase Agreement with Imperial Energy Corp.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on September 12, 1997:
10.12 Unilateral option to Purchase Mining Concessions from
Sociedad de Exploarciones Y Explotaciones Mineras Oregon
Limitada.
10.13 Modification of Unilateral Purchase Option Contract of Mining
Concessions.
<PAGE> 82
10.14 Unilateral option to Purchase Mining Concessions from
Compania Minera San Enrique S.C.M. Y Otra.
28.1 Warrant Agreement.
28.2 Selling Agent Agreement.
The following are filed herewith:
27 Financial Data Schedule
99.1 Settlement Agreement with Rounds et al.
99.2 Order dismissing Rounds litigation.
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>
<PAGE> 83
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to
be signed on its behalf by the undersigned, hereunto duly authorized,
in Spokane, Washington, on this 29th day of December, 1999.
ROYAL SILVER MINES, INC.
BY: /s/ Howard M. Crosby
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 amendments to this registration statement, and to file
the same, therewith, with the Securities and Exchange Commission, and
to make any and all state securities law or blue sky filings, granting
unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite or necessary to be
done in about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying the confirming all that
said attorney-in-fact and agent, or any substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Howard M. Crosby 12/28/99
Howard M. Crosby President, Treasurer and
a member of the Board of
Directors
/s/ John Ryan 12/28/99
John Ryan Vice President, Secretary
and a member of the Board
of Directors
______________________ ________
Ronald Kitching Member of the Board
of Directors
/s/ Kevin Stulp 12/28/99
Kevin Stulp Member of the Board
of Directors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1999 Audited and
the Consolidated Statement of Income for the year ended September 30, 1999
Audited and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 28,147
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,147
<PP&E> 209,150
<DEPRECIATION> 45,127
<TOTAL-ASSETS> 1,296,126
<CURRENT-LIABILITIES> 121,603
<BONDS> 0
0
0
<COMMON> 202,995
<OTHER-SE> 971,528
<TOTAL-LIABILITY-AND-EQUITY> 1,296,126
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 355,258
<OTHER-EXPENSES> 2,635,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,991,050)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,991,050)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,991,050)
<EPS-BASIC> (0.15)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 84
EXHIBIT 99.1
Case No. 98-WY-1 22-CB: SETTLEMENT AGREEMENT
date: September 2, 1999
All defendants sign the following agreement. Norman Rounds signs
on behalf of all plaintiffs, and Mr. Rounds represents that he has
complete authority from all plaintiffs to settle all claims on behalf
of plaintiffs.
In exchange for a dismissal and complete releases from plaintiffs
and Norman Rounds, defendants agree as follows:
1. To pay $60,000 in cash on the date of closing, which is
scheduled for no later than October 4, 1999.
2. To cancel a note of $50,000 which is owed by Norman Rounds to
Crosby Enterprises.
3. To pay to plaintiffs on September 7, 1999, the number of shares
of Metalline stock, based upon Schwab closing price as of September 2,
1999, which equals $80,000. This payment shall be made by delivering
the shares to Idaho Stock Transfer to hold these shares in escrow to be
released to plaintiffs and to Mr. Rounds, as Mr. Rounds designates, in
the amount of 5,000 shares every thirty days, beginning with the first
5,000 shares to be delivered September 7, 1999. Mr. Rounds and/or
plaintiffs will be limited in their ability to sell the shares of stock
as follows:
(a) Plaintiffs and Mr. Rounds shall be able to sell no more
than 5000 shares of stock total per month so long as the stock is
trading at less than $4.50 per share.
(b) Whenever the stock closes at over $4.50 per share Schwab
NAV closing price for five consecutive trading days, the transfer
agent will be authorized to release to plaintiff all remaining
shares.
This Agreement contains all essential terms of the agreement which
has been reached between the undersigned parties. All of the
undersigned parties agree that these terms constitute the total
agreement, and agree to be bound by these terms.
/s/ illegible /s/ John P. Ryan
Norman P. Rounds, Individually and /s/ Merlin Bingham
for all Plaintiffs Personally and for
Metalline Mining Co.
/s/ illegible /s/ Robert E. Jorgensen
/s/ Howard Crosby
Personally and for
Crosby Enterprises
as President of Royal Silver
<PAGE> 85
EXHIBIT 99.2
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Clarence A. Brimmer
CIVIL ACTION NO. 98-WY-122-CB
JOAN G. ROUNDS, individually, JOAN G. ROUNDS, as custodian for Justin
Rounds; JOAN G. ROUNDS, as custodian for Kelly Rounds; JOAN G. ROUNDS,
as trustee for John N. Gromer; JGR VENTURES, a Colorado partnership; NORMAN
P. ROUNDS, for his individual retirement account; STANFORD
SQUARE, L.L.L.P.; OVERSIGHT MANAGEMENT COMPANY; CHRISTINE M.
FENIMORE; MICHAEL FLEMING; R. DAVID PRESETON; and PATRICIA BROOKS,
Plaintiffs.
v.
ROYAL SILVER MINES, INC., METALLINE MINING COMPANY, CROSBY
ENTERPRISES, INC., HOWARD CROSBY, ROBERT E. JORGENSEN, JOHN
RYAN, MERLIN BINGHAM and DANIEL GORSKI,
Defendants.
- ---------------------------------------------------------------------------
ORDER OF DISMISSAL
- ---------------------------------------------------------------------------
THIS MATTER coming before the Court upon the Stipulation for Dismissal
with Prejudice on the settlement between the parties hereof, and the Court
being fully advised in the premises;
IT IS ORDERED, ADJUDGED AND DECREED that the above-entitled matter be
and hereby is dismissed with prejudice, each part to bear her, his or its
own costs and attorneys' fees.
DATED AT Denver, Colorado this 7th day of October, 1999.
BY THE COURT
/s/ Clarence A. Brimmer
Clarence A. Brimmer
U.S. District Judge
<PAGE> 86
Civil Action NO, 98-WY-122-CB
Order of Dismissal
October 7, 1999
Page 3
CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing Order of Dismissal
signed by U.S. District judge Clarence A. Brimmer on October 7, 1999 was
served on October 8, 1999, by:
(X) delivery to
Judge Clarence A. Brimmer
Magistrate Judge 0. Edward Schlatter
AND
(X) depositing the same in the United States Mail, postage prepaid,
addressed to:
Brice A. Tondre, Esq.
TONDRE & SCHUMACHER, PC
1900 Wazee Street #305
Denver, CO 80202
Jeffrey L. Supinger, Esq,
WITHERSPOON, KELLEY, DAVENPORT & TOOLE
1100 US Bank Bldg.
422 W. Riverside
Spokane, WA 99201
William J. Schroder, Esq.
PAINE, HAMBLEN, COFFIN, BROOKE & MILLER LLP
717 Sprague, #1200
Spokane, WA 99201-3501
JAMES R. MANSPEAKER, CLERK
/s/ LaDonna Bush
By: Deputy Clerk
All
